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 811-3174
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Touchstone Tax-Free Trust
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(Exact name of registrant as specified in charter)
303 Broadway, Cincinnati, Ohio 45202
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(Address of principal executive offices) (Zip code)
Jill T. McGruder, 303 Broadway, 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: 6/30/06
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Date of reporting period: 6/30/06
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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.
Touchstone Florida Tax-Free Money Market Fund Touchstone Ohio Insured Tax-Free
Fund Touchstone Ohio Tax-Free Money Market Fund Touchstone Tax-Free Money Market
Fund Touchstone Florida Tax-Free Money Market Fund Touchstone Ohio Insured
Tax-Free Fund Touchstone Ohio Tax-Free Money Market Fund Touchstone Tax-Free
Money Market Fund Touchstone Florida Tax-Free Money Market Fund Touchstone Ohio
Insured Tax-Free Fund Touchstone Ohio Tax-Free Money Market Fund Touchstone
Tax-Free Money Market Fund Touchstone Florida Tax-Free Money Market Fund
Touchstone Ohio Insured Tax-Free Fund Touchstone Ohio Tax-Free Money Market Fund
June 30, 2006
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[LOGO TOUCHSTONE INVESTMENTS]
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ANNUAL REPORT
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Touchstone Florida Tax-Free Money Market Fund
Touchstone Ohio Insured Tax-Free Fund
Touchstone Ohio Tax-Free Money Market Fund
Touchstone Tax-Free Money Market 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 (Unaudited) 4-5
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Tabular Presentation of Portfolio of Investments (Unaudited) 6
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Statements of Assets and Liabilities 7-9
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Statements of Operations 10-11
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Statements of Changes in Net Assets 12-14
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Financial Highlights 15-21
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Notes to Financial Statements 22-29
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Portfolios of Investments:
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Florida Tax-Free Money Market Fund 30-31
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Ohio Insured Tax-Free Fund 32-33
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Ohio Tax-Free Money Market Fund 34-36
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Tax-Free Money Market Fund 37-39
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Notes to Portfolios of Investments 40
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Report of Independent Registered Public Accounting Firm 41
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Portfolio Composition (Unaudited) 42
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Other Items (Unaudited) 43-44
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Management of the Trust (Unaudited) 45-47
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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 Tax-Free Trust Annual Report.
Inside you will find key financial information for the twelve months ended June
30, 2006.
Financial market volatility has spiked recently following an extended period of
calm. After surging to a five year high in early May, the U.S. stock market
reversed course and subsequently plummeted by 6%-8% over a four week stretch,
while international and emerging equity markets declined even more.
The catalyst behind these moves has been a shift in investor expectations about
U.S. monetary policy. Higher oil prices coupled with a Federal Reserve that
remained focused on raising interest rates to help eradicate inflationary
pressures caused U.S. Treasury rates to rise. As a result of Fed action, the
Federal Funds rate rose eight times during the 12-month period and seventeen
times since June 2004 to 5.25%; each increase was made in 0.25% increments.
The market followed the Fed and pushed rates higher across the yield curve,
especially in short-term maturities, while longer issues reflect the possibility
of slower growth in the future. A new theme also emerged, as investors became
more risk averse and shifted dollars into higher quality holdings. At the same
time, long-term Treasury bond yields edged higher and are now in the vicinity of
5.3%.
Despite rising interest rates, the outlook for the economy is positive as the
GDP remains in a moderate range with no clear indication of deceleration and
corporate earnings have thus far surpassed analysts' expectations. The main
focus moving forward is how the Federal Reserve will react; this could be a key
determinant of stock prices and interest rates. We do believe, however, that the
municipal sector continues to offer attractive investment opportunities for
tax-conscious investors. At the end of the period, high-quality long-term
municipal bond yields were close to 90% of yields of U.S. Treasury bonds. For
tax conscious investors, tax-free bond funds and tax-free money market funds may
help provide liquidity and stability to your investment portfolio.
As always, we suggest maintaining a long-term approach to gain the full
potential benefits of investing. Mutual funds and money market funds can provide
the diversification that can help keep your financial plan on course.
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 your investment needs 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 Tax-Free Trust
3
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
================================================================================
MARKET OVERVIEW
The U.S. economy continued to perform quite well for the one-year period ended
June 30, 2006. With the exception of the fourth quarter of 2005, which was
negatively impacted by Hurricanes Katrina and Rita, the economy grew by over
3.5% and job growth averaged over 150,000 new jobs per month. On the negative
side, the price of oil and other commodities showed sharp increases and along
with higher wages contributed to a gradual rise in the rate of inflation. In
response to economic strength and rising inflationary pressures the Federal
Reserve continued tightening monetary policy. Over the course of the fiscal year
the Federal Reserve raised the federal funds target rate from 3.25% to 5.25%.
Yields in the Treasury market rose accordingly with short maturities increasing
in yield by a greater amount than longer-term maturities.
Aided by a sharp reduction in the amount of new issue supply in the second half
of the fiscal year, the municipal bond market outperformed most other fixed
income sectors for the 12-month period ended June 30, 2006. However, at the
beginning of the year, municipals bonds were trading at extremely attractive
levels. Low interest rates induced municipalities to refinance or issue new debt
resulting in a record amount of new issue volume. The abundance of bonds
impacted valuations and municipal bonds traded very "cheap" on a relative value
basis as high quality 30-year municipal bonds traded at yields that exceeded
30-year Treasury Bonds. As we moved into 2006, interest rates increased more
dramatically, making refinancing opportunities less attractive and new issue
volume slowed. Strong investor demand coupled with reduced supply caused
municipal bonds to trade much better, helping the sector to outperform most
other taxable bonds. By the end of the fiscal year, yields on 30-year municipal
bonds traded at levels equal to 90% of comparable Treasury Bonds, an improvement
of about 60 basis points. Overall, this dramatic change in valuation left the
municipal market much less attractive on a relative value basis compared to
other fixed income sectors. For investors in higher tax brackets, investing in
municipal bonds continues to be attractive, as compared to investing in taxable
bonds.
Looking ahead, economic growth appears to be moderating. However, the Federal
Reserve is concerned with mounting inflation pressures and is likely to raise
interest rates perhaps one or two additional times to ensure that inflation
remains tame. This may put pressure on longer maturity bond yields in the near
term however as the market gains confidence that the Fed will slow the economy
and keep inflation low, yields are likely to decline.
TOUCHSTONE OHIO INSURED TAX-FREE FUND
The total return of the Touchstone Ohio Insured Tax Free Fund was -0.25% for the
twelve months ended June 30, 2006. The total return of the Lehman Brothers
Municipal Bond Index was 0.89% for the same period.
We maintained a consistent strategy of buying high quality, insured Ohio
municipal bonds in the 20-year maturity range. We believe that this strategy
provides the Fund with an attractive combination of tax-free yield and total
return. Over the past year, this strategy did not perform as well, as
lower-quality bonds benefited from tightening credit spreads and bonds in the
longest maturity range (30-years) performed the best. In addition, during the
lower interest rate environment that occurred in the first half of the year, the
Fund had a number of bonds that were prerefunded. This is the process whereby a
municipality refinances its debt and effectively shortens the maturity of its
bonds. This further reduced the effective duration of the Fund and negatively
impacted performance as shorter-term maturities under performed compared to long
maturities.
4
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
================================================================================
We believe that the Fed may raise interest rates at least one additional time
this year. However, we do not expect a dramatic rise in longer-term yields and
expect that the curve will begin to steepen with longer-term rates declining
over the next year. We will maintain our strategy of buying high quality,
insured Ohio municipal bonds in the 20-year maturity range.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE OHIO INSURED TAX-FREE FUND - CLASS A* AND
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
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OHIO INSURED TAX-FREE FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 Year 5 Years 10 Years
Class A (4.96)% 3.14% 4.31%
Class C (1.00)% 3.38% 4.06%
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OHIO INSURED LEHMAN BROTHERS
TAX-FREE FUND- MUNICIPAL
DATE CLASS A BOND INDEX
---------------------------------------------------
06/30/96 9,525 10,000
09/30/96 9,751 10,229
12/31/96 9,990 10,490
03/31/97 9,908 10,465
06/30/97 10,226 10,825
09/30/97 10,474 11,152
12/31/97 10,710 11,454
03/31/98 10,805 11,586
06/30/98 10,946 11,763
09/30/98 11,282 12,123
12/31/98 11,307 12,196
03/31/99 11,358 12,304
06/30/99 11,144 12,087
09/30/99 11,043 12,039
12/31/99 10,956 11,946
03/31/00 11,313 12,295
06/30/00 11,437 12,480
09/30/00 11,657 12,782
12/31/01 12,227 13,341
03/31/01 12,419 13,637
06/30/01 12,452 13,726
09/30/01 12,708 14,112
12/31/01 12,604 14,026
03/31/02 12,678 14,158
06/30/02 13,093 14,676
09/30/02 13,797 15,373
12/31/02 13,746 15,373
03/31/03 13,870 15,557
06/30/03 14,196 15,959
09/30/03 14,160 15,971
12/31/03 14,385 16,190
03/31/04 14,611 16,470
06/30/04 14,201 16,080
09/30/04 14,766 16,705
12/31/04 14,937 16,914
03/31/05 14,834 16,909
06/30/05 15,290 17,405
09/30/05 15,222 17,382
12/31/05 15,311 17,509
03/31/06 15,288 17,553
06/30/06 15,254 17,558
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 shares based on the difference in loads and fees
paid by shareholders in the different classes. Fund inception was April 1, 1985,
and the initial public offering of Class C shares commenced on November 1, 1993.
** Returns shown above are adjusted for maximum applicable sales charge.
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
TABULAR PRESENTATION OF PORTFOLIOS OF INVESTMENTS
(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.
AS OF JUNE 30, 2006
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TOUCHSTONE FLORIDA TAX-FREE
MONEY MARKET FUND
CREDIT QUALITY (% OF TOTAL INVESTMENTS)
A-1 / P-1 / AAA 92.8
FW1* 7.2
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TOTAL 100.0
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PORTFOLIO ALLOCATION (% OF TOTAL INVESTMENTS)
Variable Rate Demand Notes 81.7
General Obligations 7.9
Fixed Rate Revenue 5.7
Adjustable Rate Put Bonds 4.7
------
TOTAL 100.0
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TOUCHSTONE OHIO TAX-FREE
MONEY MARKET FUND
CREDIT QUALITY (% OF TOTAL INVESTMENTS)
A-1 / P-1 / AAA 78.8
FW1* 21.2
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TOTAL 100.0
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PORTFOLIO ALLOCATION (% OF TOTAL INVESTMENTS)
Variable Rate Demand Notes 75.1
General Obligations 15.1
Fixed Rate Revenue 6.8
Adjustable Rate Put Bonds 3.0
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TOTAL 100.0
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TOUCHSTONE OHIO
INSURED TAX-FREE FUND
CREDIT QUALITY (% OF TOTAL INVESTMENTS)
AAA / Aaa 93.5
AA / Aa 6.5
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TOTAL 100.0
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PORTFOLIO ALLOCATION (% OF TOTAL INVESTMENTS)
General Obligations 52.9
Prerefunded / Escrowed to Maturity 13.8
Hospital / Healthcare 12.9
Education 7.2
Miscellaneous 4.3
Water and Sewer 4.3
Housing 2.0
Transportation 1.8
Utilities 0.8
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TOTAL 100.0
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TOUCHSTONE TAX-FREE
MONEY MARKET FUND
CREDIT QUALITY (% OF TOTAL INVESTMENTS)
A-1 / P-1 / AAA 87.6
FW1* 12.4
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TOTAL 100.0
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PORTFOLIO ALLOCATION (% OF TOTAL INVESTMENTS)
Variable Rate Demand Notes 75.5
Fixed Rate Revenue 8.7
Adjustable Rate Put Bonds 8.3
General Obligations 7.5
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TOTAL 100.0
------
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* Equivalent to Standard & Poor's and Moody's highest short-term ratings of
A-1 and P-1, respectively, based upon independent research conducted by
Fort Washington Investment Advisors, Inc.
6
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006
================================================================================
FLORIDA OHIO
TAX-FREE INSURED
MONEY MARKET TAX-FREE
FUND FUND
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ASSETS
Investment securities:
At amortized cost ............................ $ 27,314,250 $ 68,832,006
----------------------------
At market value .............................. $ 27,314,250 $ 70,680,457
Cash ............................................ 25,984 112,894
Interest receivable ............................. 167,286 424,612
Receivable for capital shares sold .............. -- 4,454
Other assets .................................... 1,542 8,557
----------------------------
TOTAL ASSETS .................................... 27,509,062 71,230,974
----------------------------
LIABILITIES
Dividends payable ............................... 61,589 84,175
Payable to Advisor .............................. 6,364 26,869
Payable to other affiliates ..................... 4,210 10,077
Payable to Trustees ............................. 6,981 7,981
Payable for capital shares redeemed ............. -- 83,853
Other accrued expenses and liabilities .......... 6,109 24,397
----------------------------
TOTAL LIABILITIES ............................... 85,253 237,352
----------------------------
NET ASSETS ...................................... $ 27,423,809 $ 70,993,622
----------------------------
NET ASSETS CONSIST OF:
Paid-in capital ................................. $ 27,429,537 $ 68,767,513
Accumulated net realized gains (losses) from
security transactions ......................... (5,728) 377,658
Net unrealized appreciation on investments ...... -- 1,848,451
NET ASSETS ...................................... $ 27,423,809 $ 70,993,622
============================
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares ......... $ 27,423,809 $ 64,265,789
============================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no
par value) .................................... 27,429,525 5,613,995
============================
Net asset value and redemption price per share .. $ 1.00 $ 11.45
============================
Maximum offering price per share ................ $ -- $ 12.02
============================
PRICING OF CLASS C SHARES
Net assets applicable to Class C shares ......... $ -- $ 6,727,833
============================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no
par value) .................................... -- 587,185
============================
Net asset value, offering price and redemption
price per share* .............................. $ -- $ 11.46
============================
* Redemption price per share varies by length of time shares are held.
See accompanying notes to financial statements.
7
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006
================================================================================
OHIO
TAX-FREE TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
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ASSETS
Investment securities:
At amortized cost ............................. $274,468,437 $ 49,840,821
---------------------------
At market value ............................... $274,468,437 $ 49,840,821
Cash ............................................. 147,895 85,550
Interest receivable .............................. 2,200,647 278,371
Other assets ..................................... 7,422 5,351
---------------------------
TOTAL ASSETS ..................................... 276,824,401 50,210,093
---------------------------
LIABILITIES
Dividends payable ................................ 475,760 1,211
Payable to Advisor ............................... 85,450 22,013
Payable to other affiliates ...................... 21,607 8,282
Payable to Trustees .............................. 6,980 8,165
Payable for securities purchased ................. 1,002,400 1,210,969
Other accrued expenses and liabilities ........... 43,385 22,949
---------------------------
TOTAL LIABILITIES ................................ 1,635,582 1,273,589
---------------------------
NET ASSETS ....................................... $275,188,819 $ 48,936,504
---------------------------
NET ASSETS CONSIST OF:
Paid-in capital .................................. $275,171,281 $ 48,936,504
Undistributed net realized gains from security
transactions ................................... 17,538 --
---------------------------
NET ASSETS ....................................... $275,188,819 $ 48,936,504
===========================
PRICING OF RETAIL SHARES
Net assets applicable to Retail shares ........... $ 92,082,087 $ --
===========================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no
par value) ..................................... 92,065,961 --
===========================
Net asset value, offering price and redemption
price per share ................................ $ 1.00 $ --
===========================
PRICING OF INSTITUTIONAL SHARES
Net assets applicable to Institutional shares .... $183,106,732 $ --
===========================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no
par value) ..................................... 183,092,259 --
===========================
Net asset value, offering price and redemption
price per share ................................ $ 1.00 $--
===========================
8
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
JUNE 30, 2006
================================================================================
OHIO
TAX-FREE TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
- --------------------------------------------------------------------------------
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares .......... $ -- $ 16,278,960
===========================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no
par value) ..................................... -- 16,289,121
===========================
Net asset value, offering price and redemption
price per share ................................ $ -- $ 1.00
===========================
PRICING OF CLASS S SHARES
Net assets applicable to Class S shares .......... $ -- $ 32,657,544
===========================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no
par value) ..................................... -- 32,657,534
===========================
Net asset value, offering price and redemption
price per share ................................ $ -- $ 1.00
===========================
See accompanying notes to financial statements.
9
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2006
================================================================================
FLORIDA OHIO
TAX-FREE INSURED
MONEY MARKET TAX-FREE
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income .................................. $ 820,030 $ 3,580,134
--------------------------
EXPENSES
Investment advisory fees ......................... 137,688 387,419
Distribution expenses, Class A ................... 68,830 173,909
Distribution expenses, Class C ................... -- 79,200
Accounting services fees ......................... 24,000 37,500
Administration fees .............................. 15,143 42,615
Transfer agent fees, Class A ..................... 12,000 35,812
Transfer agent fees, Class C ..................... -- 12,000
Professional fees ................................ 18,301 18,564
Trustees' fees and expenses ...................... 15,963 16,850
Pricing expenses ................................. 5,191 13,764
Reports to shareholders .......................... 6,194 12,369
Postage and supplies ............................. 2,103 15,144
Custodian fees ................................... 6,057 10,376
Registration fees, Class A ....................... 472 10,114
Registration fees, Class C ....................... -- 7,710
Compliance fees and expenses ..................... 90 394
Other expenses ................................... 482 16,157
--------------------------
TOTAL EXPENSES ................................... 312,514 889,897
Fees waived by the Advisor ....................... (106,023) (249,688)
--------------------------
NET EXPENSES ..................................... 206,491 640,209
--------------------------
NET INVESTMENT INCOME ............................ 613,539 2,939,925
--------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gains from security transactions .... -- 463,336
Net change in unrealized appreciation/depreciation
on investments ................................. -- (3,729,537)
--------------------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS -- (3,266,201)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS ..................................... $ 613,539 $ (326,276)
==========================
See accompanying notes to financial statements.
10
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2006
================================================================================
OHIO
TAX-FREE TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income ................................ $ 8,062,481 $ 1,443,562
---------------------------
EXPENSES
Investment advisory fees ....................... 1,223,310 225,810
Distribution expenses, Retail class ............ 247,344 --
Distribution expenses, Class A ................. -- 46,056
Distribution expenses, Class S ................. -- 160,439
Administration fees ............................ 135,763 24,808
Transfer agent fees, Retail class .............. 37,814 --
Transfer agent fees, Institutional class ....... 12,000 --
Transfer agent fees, Class A ................... -- 18,218
Transfer agent fees, Class S ................... -- 12,000
Accounting services fees ....................... 49,500 33,000
Custodian fees ................................. 49,826 6,326
Postage and supplies ........................... 23,029 8,978
Professional fees .............................. 32,597 18,112
Trustees' fees and expenses .................... 16,121 17,239
Registration fees, Retail class ................ 12,791 --
Registration fees, Class A ..................... -- 13,252
Registration fees, Class S ..................... -- 4,008
Pricing expenses ............................... 19,650 5,701
Reports to shareholders ........................ 14,571 11,694
Compliance fees and expenses ................... 792 55
Other expenses ................................. 2,867 1,025
---------------------------
TOTAL EXPENSES ................................. 1,877,975 606,721
Fees waived by the Advisor ..................... (288,652) (135,335)
---------------------------
NET EXPENSES ................................... 1,589,323 471,386
---------------------------
NET INVESTMENT INCOME .......................... 6,473,158 972,176
---------------------------
REALIZED GAINS FROM SECURITY TRANSACTIONS ...... 17,538 --
---------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ..... $ 6,490,696 $ 972,176
===========================
See accompanying notes to financial statements.
11
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
FLORIDA OHIO
TAX-FREE INSURED
MONEY MARKET TAX-FREE
FUND FUND
=========================================================================================================
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2006 2005 2006 2005
=========================================================================================================
FROM OPERATIONS
Net investment income .................... $ 613,539 $ 311,679 $ 2,939,925 $ 3,164,821
Net realized gains (losses) from
security transactions .................. -- (198) 463,336 1,085,053
Net change in unrealized appreciation/
depreciation on investments ............ -- -- (3,729,537) 2,101,484
------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS ............................. 613,539 311,481 (326,276) 6,351,358
------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income, Class A ...... (613,539) (311,679) (2,693,310) (2,882,015)
From net investment income, Class C ...... -- -- (246,822) (282,806)
From net realized gains, Class A ......... -- -- (958,818) (91,343)
From net realized gains, Class C ......... -- -- (109,298) (11,065)
------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS .......... (613,539) (311,679) (4,008,248) (3,267,229)
------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ................ 63,790,639 73,748,617 2,782,827 3,985,430
Reinvested distributions ................. 126,808 77,889 2,459,039 1,947,062
Payments for shares redeemed ............. (64,638,128) (75,067,308) (11,695,657) (11,910,903)
------------------------------------------------------------
NET DECREASE IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ........ (720,681) (1,240,802) (6,453,791) (5,978,411)
------------------------------------------------------------
CLASS C
Proceeds from shares sold ................ -- -- 409,035 840,020
Reinvested distributions ................. -- -- 220,900 197,828
Payments for shares redeemed ............. -- -- (2,851,844) (1,838,409)
------------------------------------------------------------
NET DECREASE IN NET ASSETS
FROM CLASS C SHARE TRANSACTIONS ....... -- -- (2,221,909) (800,561)
------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS ............. (720,681) (1,241,000) (13,010,224) (3,694,843)
NET ASSETS
Beginning of year ........................ 28,144,490 29,385,490 84,003,846 87,698,689
------------------------------------------------------------
End of year .............................. $ 27,423,809 $ 28,144,490 $ 70,993,622 $ 84,003,846
------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- $ -- $ --
============================================================
See accompanying notes to financial statements.
12
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
OHIO
TAX-FREE TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
============================================================================================================
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2006 2005 2006 2005
============================================================================================================
FROM OPERATIONS
Net investment income ................... $ 6,473,158 $ 4,123,174 $ 972,176 $ 370,171
Net realized gains from security
transactions .......................... 17,538 -- -- --
----------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ....................... 6,490,696 4,123,174 972,176 370,171
----------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income, Retail ...... (2,237,111) (1,338,999) -- --
From net investment income, Institutional (4,236,047) (2,784,175) -- --
From net investment income, Class A ..... -- -- (410,299) (235,848)
From net investment income, Class S ..... -- -- (561,877) (135,566)
From net realized gains, Retail ......... -- (6,125) -- --
From net realized gains, Institutional .. -- (10,168) -- --
----------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS ........ (6,473,158) (4,139,467) (972,176) (371,414)
----------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
RETAIL
Proceeds from shares sold ............... 149,098,338 220,903,508 -- --
Reinvested distributions ................ 2,247,099 1,340,804 -- --
Payments for shares redeemed ............ (158,396,605) (288,256,448) -- --
----------------------------------------------------------------
NET DECREASE IN NET ASSETS
FROM RETAIL SHARE TRANSACTIONS ....... (7,051,168) (66,012,136) -- --
----------------------------------------------------------------
INSTITUTIONAL
Proceeds from shares sold ............... 326,790,025 475,611,129 -- --
Reinvested distributions ................ 119,761 95,331 -- --
Payments for shares redeemed ............ (336,160,764) (458,088,479) -- --
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM INSTITUTIONAL SHARE TRANSACTIONS . (9,250,978) 17,617,981 -- --
----------------------------------------------------------------
CLASS A
Proceeds from shares sold ............... -- -- 16,325,115 37,464,246
Reinvested distributions ................ -- -- 405,444 231,099
Payments for shares redeemed ............ -- -- (19,701,796) (38,706,765)
----------------------------------------------------------------
NET DECREASE IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ....... -- -- (2,971,237) (1,011,420)
----------------------------------------------------------------
13
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
================================================================================
OHIO
TAX-FREE TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
============================================================================================================
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2006 2005 2006 2005
============================================================================================================
CLASS S
Proceeds from shares sold ................ $ -- $ -- $ 122,612,554 $ 68,265,746
Reinvested distributions ................. -- -- 566,872 135,566
Payments for shares redeemed ............. -- -- (103,596,488) (71,707,542)
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS S SHARE TRANSACTIONS ........ -- -- 19,582,938 (3,306,230)
----------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. (16,284,608) (48,410,448) 16,611,701 (4,318,893)
NET ASSETS
Beginning of year ........................ 291,473,427 339,883,875 32,324,803 36,643,696
----------------------------------------------------------------
End of year .............................. $ 275,188,819 $ 291,473,427 $ 48,936,504 $ 32,324,803
================================================================
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- $ -- $ --
================================================================
See accompanying notes to financial statements.
14
FLORIDA TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------
2006 2005 2004 2003 2002
=============================================================================================================================
Net asset value at beginning of year .... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................ 0.023 0.011 0.004 0.008 0.017
Net realized gains (losses)
on investments ..................... -- (0.000)(A) (0.000)(A) 0.000(A) (0.000)(A)
---------------------------------------------------------------------------------
Total from investment operations ........ 0.023 0.011 0.004 0.008 0.017
---------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income .................. (0.023) (0.011) (0.004) (0.008) (0.017)
Distributions from
net realized gains ................. -- -- (0.000)(A) -- --
---------------------------------------------------------------------------------
Total distributions ..................... (0.023) (0.011) (0.004) (0.008) (0.017)
---------------------------------------------------------------------------------
Net asset value at end of year .......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
=================================================================================
Total return ............................ 2.28% 1.09% 0.36% 0.76% 1.66%
=================================================================================
Net assets at end of year (000's) ....... $ 27,424 $ 28,144 $ 29,385 $ 29,657 $ 18,128
=================================================================================
Ratio of net expenses to
average net assets ................... 0.75% 0.75% 0.75% 0.69% 0.65%
Ratio of net investment income to
average net assets ................... 2.23% 1.08% 0.35% 0.77% 1.64%
(A) Amount rounds to less than $0.001.
See accompanying notes to financial statements.
15
OHIO INSURED TAX-FREE FUND - CLASS A
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
2006 2005 2004 2003 2002
=====================================================================================================================
Net asset value at beginning of year .... $ 12.10 $ 11.68 $ 12.36 $ 11.94 $ 11.89
-------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................ 0.46 0.45 0.48 0.49 0.53
Net realized and unrealized gains
(losses) on investments ............ (0.49) 0.43 (0.50) 0.49 0.07
-------------------------------------------------------------------------
Total from investment operations ........ (0.03) 0.88 (0.02) 0.98 0.60
-------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income .................. (0.46) (0.45) (0.48) (0.49) (0.53)
Distributions from
net realized gains ................. (0.16) (0.01) (0.21) (0.07) (0.02)
-------------------------------------------------------------------------
Total distributions .................... (0.62) (0.46) (0.69) (0.56) (0.55)
-------------------------------------------------------------------------
Capital contributions ................... -- -- 0.03 -- --
-------------------------------------------------------------------------
Net asset value at end of year .......... $ 11.45 $ 12.10 $ 11.68 $ 12.36 $ 11.94
=========================================================================
Total return (A) ........................ (0.25%) 7.66% 0.04%(B) 8.43% 5.15%
=========================================================================
Net assets at end of year (000's) ....... $ 64,266 $ 74,604 $ 77,837 $ 59,683 $ 54,348
=========================================================================
Ratio of net expenses to
average net assets ................... 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to
average net assets .................. 3.87% 3.74% 3.94% 4.03% 4.47%
Portfolio turnover rate ................. 24% 30% 36% 24% 28%
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Total return would have been (0.21%) without a capital contribution made
by the Advisor.
See accompanying notes to financial statements.
16
OHIO INSURED TAX-FREE FUND - CLASS C
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
==================================================================================================================
Net asset value at beginning of year .... $ 12.11 $ 11.69 $ 12.41 $ 11.96 $ 11.89
----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................ 0.37 0.36 0.39 0.40 0.44
Net realized and unrealized gains
(losses) on investments ............ (0.49) 0.43 (0.51) 0.52 0.09
----------------------------------------------------------------------
Total from investment operations ........ (0.12) 0.79 (0.12) 0.92 0.53
----------------------------------------------------------------------
Less distributions:
Dividends from net
investment income .................. (0.37) (0.36) (0.39) (0.40) (0.44)
Distributions from
net realized gains ................. (0.16) (0.01) (0.21) (0.07) (0.02)
----------------------------------------------------------------------
Total distributions ..................... (0.53) (0.37) (0.60) (0.47) (0.46)
----------------------------------------------------------------------
Net asset value at end of year .......... $ 11.46 $ 12.11 $ 11.69 $ 12.41 $ 11.96
======================================================================
Total return (A) ........................ (1.00%) 6.86% (1.03%) 7.89% 4.54%
======================================================================
Net assets at end of year (000's) ....... $ 6,728 $ 9,400 $ 9,862 $ 7,388 $ 4,910
======================================================================
Ratio of net expenses to
average net assets ................... 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income to
average net assets ................... 3.12% 2.99% 3.19% 3.27% 3.72%
Portfolio turnover rate ................. 24% 30% 36% 24% 28%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
17
OHIO TAX-FREE MONEY MARKET FUND - RETAIL
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------
2006 2005 2004 2003 2002
=============================================================================================================================
Net asset value at beginning of year .... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................ 0.023 0.011 0.004 0.008 0.015
Net realized gains (losses)
on investments ..................... -- -- 0.000(A) 0.000(A) (0.000)(A)
----------------------------------------------------------------------------------
Total from investment operations ........ 0.023 0.011 0.004 0.008 0.015
----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income .................. (0.023) (0.011) (0.004) (0.008) (0.015)
Distributions from net
realized gains ..................... -- (0.000)(A) (0.000)(A) -- --
----------------------------------------------------------------------------------
Total distributions ..................... (0.023) (0.011) (0.004) (0.008) (0.015)
----------------------------------------------------------------------------------
Net asset value at end of year .......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==================================================================================
Total return ............................ 2.31% 1.13% 0.35% 0.78% 1.47%
==================================================================================
Net assets at end of year (000's) ....... $ 92,082 $ 99,127 $ 165,145 $ 155,810 $ 211,083
==================================================================================
Ratio of net expenses to
average net assets ................... 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to
average net assets ................... 2.26% 1.05% 0.35% 0.79% 1.46%
(A) Amount rounds to less than $0.001.
See accompanying notes to financial statements.
18
OHIO TAX-FREE MONEY MARKET FUND - INSTITUTIONAL
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------
2006 2005 2004 2003 2002
=============================================================================================================================
Net asset value at beginning of year .... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................ 0.025 0.014 0.006 0.010 0.017
Net realized gains (losses)
on investments ..................... -- -- 0.000(A) 0.000(A) (0.000)(A)
----------------------------------------------------------------------------------
Total from investment operations ........ 0.025 0.014 0.006 0.010 0.017
----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income .................. (0.025) (0.014) (0.006) (0.010) (0.017)
Distributions from
net realized gains ................. -- (0.000)(A) (0.000)(A) -- --
----------------------------------------------------------------------------------
Total distributions ..................... (0.025) (0.014) (0.006) (0.010) (0.017)
----------------------------------------------------------------------------------
Net asset value at end of year .......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==================================================================================
Total return ............................ 2.57% 1.39% 0.60% 1.03% 1.72%
==================================================================================
Net assets at end of year (000's) ....... $ 183,107 $ 192,346 $ 174,739 $ 266,120 $ 210,679
==================================================================================
Ratio of net expenses to
average net assets ................... 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of net investment income to
average net assets ................... 2.50% 1.41% 0.59% 1.02% 1.69%
(A) Amount rounds to less than $0.001.
See accompanying notes to financial statements.
19
TAX-FREE MONEY MARKET FUND - CLASS A
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
2006 2005 2004 2003 2002
=================================================================================================================
Net asset value at beginning of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------------------
Income from investment operations:
Net investment income ........... 0.023 0.011 0.005 0.008 0.017
Net realized gains
on investments ................ -- -- 0.000(A) 0.000(A) 0.000(A)
---------------------------------------------------------------------------
Total from investment operations ... 0.023 0.011 0.005 0.008 0.017
---------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income ............. (0.023) (0.011) (0.005) (0.008) (0.017)
Distributions from
net realized gains ............ -- -- (0.000)(A) -- --
---------------------------------------------------------------------------
Total distributions ................ (0.023) (0.011) (0.005) (0.008) (0.017)
---------------------------------------------------------------------------
Net asset value at end of year ..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
===========================================================================
Total return ....................... 2.28% 1.14% 0.50% 0.99% 1.73%
===========================================================================
Net assets at end of year (000's) .. $ 16,279 $ 19,250 $ 20,263 $ 21,375 $ 23,532
===========================================================================
Ratio of net expenses to
average net assets .............. 0.89% 0.89% 0.89% 0.89% 0.89%
Ratio of net investment income to
average net assets .............. 2.23% 1.13% 0.48% 0.79% 1.71%
(A) Amount rounds to less than $0.001.
See accompanying notes to financial statements.
20
TAX-FREE MONEY MARKET FUND - CLASS S
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED JUNE 30, ENDED
-------------------------------------------- JUNE 30,
2006 2005 2004 2003(A)
===========================================================================================================
Net asset value at beginning of period .... $ 1.000 $ 1.000 $ 1.000 $ 1.000
--------------------------------------------------------------
Income from investment operations:
Net investment income .................. 0.020 0.009 0.002 0.001
Net realized gains on investments ...... -- -- 0.000(B) 0.000(B)
--------------------------------------------------------------
Total from investment operations .......... 0.020 0.009 0.002 0.001
--------------------------------------------------------------
Less distributions:
Dividends from net investment income ... (0.020) (0.009) (0.002) (0.001)
Distributions from net realized gains .. -- -- (0.000)(B) --
--------------------------------------------------------------
Total distributions ....................... (0.020) (0.009) (0.002) (0.001)
--------------------------------------------------------------
Net asset value at end of period .......... $ 1.000 $ 1.000 $ 1.000 $ 1.000
==============================================================
Total return .............................. 2.01% 0.87% 0.25% 0.32%(C)
==============================================================
Net assets at end of period (000's) ....... $ 32,658 $ 13,075 $ 16,381 $ 18,692
==============================================================
Ratio of net expenses to average net assets 1.15% 1.15% 1.15% 1.15%(C)
Ratio of net investment income
to average net assets .................. 2.10% 0.86% 0.22% 0.31%(C)
(A) Represents the period from commencement of operations (February 3, 2003)
through June 30, 2003.
(B) Amount rounds to less than $0.001.
(C) Annualized.
See accompanying notes to financial statements.
21
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006
================================================================================
1. ORGANIZATION
The Florida Tax-Free Money Market Fund, the Ohio Insured Tax-Free Fund, the Ohio
Tax-Free Money Market Fund, and the Tax-Free Money Market Fund (individually, a
Fund, and collectively, the Funds) are each a separate series of Touchstone
Tax-Free Trust (the Trust). The Trust is registered under the Investment Company
Act of 1940 (the 1940 Act) as an open-end management investment company. The
Trust was established as a Massachusetts business trust under a Declaration of
Trust dated April 13, 1981. The Declaration of Trust, as amended, permits the
Trustees to issue an unlimited number of shares of each Fund.
The Florida Tax-Free Money Market Fund seeks the highest level of interest
income exempt from federal income tax, consistent with liquidity and stability
of principal. The Fund invests primarily in high-quality, short-term Florida
municipal obligations issued by the State of Florida, its agencies and
municipalities, that pay interest that is exempt from both federal income tax
and the Florida intangible personal property tax.
The Ohio Insured Tax-Free Fund seeks the highest level of interest income exempt
from federal income tax and Ohio personal income tax, consistent with the
protection of capital. The Fund invests primarily (at least 80% of assets) in
high quality, long-term Ohio municipal obligations, including general obligation
bonds, revenue bonds and industrial development bonds that are protected by
insurance guaranteeing the payment of principal and interest in the event of
default.
The Ohio Tax-Free Money Market Fund seeks the highest level of current income
exempt from federal income tax and Ohio personal income tax, consistent with
liquidity and stability of principal. The Fund invests primarily in high
quality, short-term Ohio municipal obligations issued by the State of Ohio, its
agencies and municipalities, that pay interest that is exempt from both federal
income tax and Ohio personal income tax.
The Tax-Free Money Market Fund seeks the highest level of interest income exempt
from federal income tax, consistent with the protection of capital. The Fund
invests primarily in high-quality, short-term municipal obligations that pay
interest that is exempt from federal income tax.
The Ohio Insured Tax-Free Fund offers two classes of shares: Class A shares
(sold subject to a maximum front-end sales load of 4.75% and a distribution fee
of up to 0.25% of average daily net assets that are attributable to Class A
shares), and Class C shares (sold subject to a maximum contingent deferred sales
load of 1.00% for a one-year period and a distribution fee of up to 1.00% of
average daily net assets that are attributable to Class C shares). Each Class A
and Class C share of the Fund represents identical interests in the Fund's
investment portfolio and has the same rights, except that (i) Class C shares
bear the expenses of higher distribution fees, which will cause Class C shares
to have a higher expense ratio and to pay lower dividends than Class A shares;
(ii) certain other class specific expenses will be borne solely by the class to
which such expenses are attributable; and (iii) each class has exclusive voting
rights with respect to matters relating to its own distribution arrangements.
The Ohio Tax-Free Money Market Fund offers two classes of shares: Retail shares
(sold subject to a distribution fee of up to 0.25% of average daily net assets
of Retail shares) and Institutional shares (sold without a distribution fee).
Each Retail and Institutional share of the Fund represents identical interests
in the Fund's investment portfolio and has the same rights, except that (i)
Retail shares bear the expenses of distribution fees, which will cause Retail
shares to have a higher expense ratio and to pay lower dividends than
Institutional shares; (ii) certain other class specific expenses will be borne
solely by the class to which such expenses are attributable; (iii) each class
has exclusive voting rights with respect to matters affecting only that class;
and (iv) Retail shares are subject to a lower minimum initial investment
requirement and offer certain shareholder services not available to
Institutional shares such as checkwriting and automatic investment and
systematic withdrawal plans.
22
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
The Tax-Free Money Market Fund offers two classes of shares: Class A shares
(sold subject to a distribution fee of up to 0.25% of average daily net assets
of Class A shares) and Class S shares (sold subject to a distribution fee of up
to 1.00% of average daily net assets of Class S shares). The current maximum
distribution fee for Class S shares is limited to 0.60% of average daily net
assets of Class S shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Trust's significant accounting policies:
SECURITY VALUATION -- Florida Tax-Free Money Market Fund, Ohio Tax-Free Money
Market Fund and Tax-Free Money Market Fund securities are valued on an amortized
cost basis, which approximates market. This involves initially valuing a
security at its original cost and thereafter assuming a constant amortization to
maturity of any discount or premium. This method of valuation is expected to
enable these Funds to maintain a constant net asset value per share. Ohio
Insured Tax-Free Fund securities are valued at market using an independent
pricing service which generally utilizes a computerized grid matrix of
tax-exempt securities and evaluations by its staff to determine what it believes
is the fair value of the securities. On limited occasions, if the valuation
provided by the pricing service ignores certain market conditions affecting the
value of a security or the pricing service cannot provide a valuation, the fair
value of the security will be determined in good faith consistent with
procedures approved by the Board of Trustees.
SHARE VALUATION -- The net asset value per share of the Florida Tax-Free Money
Market Fund is calculated daily by dividing the total value of the Fund's
assets, less liabilities, by its number of shares outstanding. The net asset
value per share of each class of shares of the Ohio Insured Tax-Free Fund, the
Ohio Tax-Free Money Market Fund, and the Tax-Free Money Market Fund is
calculated daily by dividing the total value of each Fund's assets attributable
to that class, less liabilities attributable to that class, by the number of
shares outstanding attributable to that class.
The offering price per share of the Florida Tax-Free Money Market Fund, the Ohio
Tax-Free Money Market Fund and the Tax-Free Money Market Fund is equal to the
net asset value per share. The maximum offering price of Class A shares of the
Ohio Insured Tax-Free Fund is equal to the net asset value per share plus a
sales load equal to 4.99% of the net asset value (or 4.75% of the offering
price). The offering price of Class C shares of the Ohio Insured Tax-Free Fund
is equal to the net asset value per share.
The redemption price per share of each Fund, including each class of shares with
respect to the Florida Tax-Free Money Market Fund, the Ohio Insured Tax-Free
Fund, the Ohio Tax-Free Money Market Fund, and the Tax-Free Money Market Fund is
equal to the net asset value per share. However, Class C shares of the Ohio
Insured Tax-Free Fund are subject to a contingent deferred sales load of 1.00%
(if redeemed within a one-year period from the date of purchase) of the original
purchase price.
INVESTMENT INCOME -- Interest income is accrued as earned and includes, where
applicable, the pro rata amortization of premium or accretion of discount.
DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income are
distributed daily and paid on the last business day of each month. 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 distributions and capital gain distributions are determined in
accordance with income tax regulations.
23
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
SECURITY TRANSACTIONS -- Security transactions are accounted for on the trade
date. Gains and losses on securities sold are determined on a specific
identification basis.
WHEN-ISSUED SECURITIES -- The Funds may purchase securities with delivery or
payments to occur at a later date. At the time the Funds enter into a commitment
to purchase a security, the transaction is recorded and the value of the
security is reflected in the net asset value. The value of the security may vary
with market fluctuations. No interest accrues to the Fund until payment takes
place. At the time the Fund enters into this type of transaction, it is required
to segregate cash or other liquid assets equal to the value of the securities
purchased.
ALLOCATIONS -- Investment income earned by a Fund is allocated daily to each
class of shares based on the percentage of the net asset value of settled shares
of such class to the total of the net asset value of settled shares of all
classes. Realized capital gains and losses and unrealized appreciation and
depreciation are allocated daily to each class of shares based upon the
proportionate share of total net assets of the Fund. Class specific expenses are
charged directly to the class incurring the expense. Common expenses that 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 daily to each Fund based on the
proportional share of each Fund's net assets in relation to total net assets of
all Funds in the Trust or another reasonable measure.
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 available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its net income, the Fund will be relieved of
federal income tax on the income distributed. Accordingly, no provision for
income taxes has been made.
In addition, each Fund intends to satisfy conditions, which enable it to
designate the interest income generated by its investment in municipal
securities, which is exempt from federal income tax when received by the Fund,
as exempt-interest dividends upon distribution to shareholders.
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 ended October 31) plus undistributed amounts
from prior years.
The tax character of distributions paid for the years ended June 30, 2006 and
2005 was as follows:
- --------------------------------------------------------------------------------
FLORIDA TAX-FREE OHIO INSURED
MONEY MARKET FUND TAX-FREE FUND
- --------------------------------------------------------------------------------
2006 2005 2006 2005
From tax exempt income ..... $ 613,539 $ 287,797 $2,940,132 $3,156,299
From long-term capital gains -- -- 1,068,116 102,408
-------------------------------------------------
$ 613,539 $ 287,797 $4,008,248 $3,258,707
=================================================
- --------------------------------------------------------------------------------
24
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
OHIO TAX-FREE TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND
- --------------------------------------------------------------------------------
2006 2005 2006 2005
From tax exempt income ..... $6,473,158 $3,904,577 $ 972,176 $ 371,005
From long-term capital gains -- 16,293 -- --
-------------------------------------------------
$6,473,158 $3,920,870 $ 972,176 $ 371,005
=================================================
- --------------------------------------------------------------------------------
The following information is computed on a tax basis for each item as of June
30, 2006:
- --------------------------------------------------------------------------------
FLORIDA
TAX-FREE OHIO-INSURED
MONEY MARKET TAX-FREE
FUND FUND
- --------------------------------------------------------------------------------
Cost of portfolio investments .............. $ 27,314,250 $ 68,832,006
------------------------------
Gross unrealized appreciation .............. $ -- $ 2,292,089
Gross unrealized depreciation .............. -- (443,638)
------------------------------
Net unrealized appreciation ................ -- 1,848,451
Capital loss carryforward .................. (5,728) --
Undistributed tax exempt income ............ 61,589 54,834
Undistributed long-term gains .............. -- 377,658
Other temporary differences ................ (61,589) (54,834)
------------------------------
Accumulated earnings (deficit) ........ $ (5,728) $ 2,226,109
==============================
- --------------------------------------------------------------------------------
OHIO
TAX-FREE TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
- --------------------------------------------------------------------------------
Cost of portfolio investments .......... $ 274,468,437 $ 49,840,821
---------------------------------
Undistributed tax exempt income ........ 475,760 1,211
Undistributed ordinary income .......... 16,017 --
Undistributed long-term gains .......... 1,521 --
Other temporary differences ............ (475,760) (1,211)
---------------------------------
Accumulated earnings .............. $ 17,538 $ --
=================================
- --------------------------------------------------------------------------------
The capital loss carryforward as of June 30, 2006 in the table above expires as
follows:
- --------------------------------------------------------------------------------
AMOUNT EXPIRATION DATE
- --------------------------------------------------------------------------------
Florida Tax-Free Money Market Fund................. $ 108 June 30, 2010
$ 5,422 June 30, 2013
$ 198 June 30, 2014
- --------------------------------------------------------------------------------
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.
Reclassifcation of capital accounts - Reclassifications result primarily from
the difference in the tax treatment of paydown securities. These
reclassifications have no impact on the net assets or net asset value per share
of the Funds and are designed to present the Funds' capital accounts on a tax
basis. For the year ended June 30, 2006, the Ohio Insured Tax-Free Fund
reclassified $207 of net investment loss to accumulated net realized gains on
the Statement of Assets and Liabilities.
25
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Management believes that the
adoption of FIN 48 will have no impact on the financial statements of the Funds.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments and government
securities) were as follows for the year ended June 30, 2006:
- --------------------------------------------------------------------------------
OHIO INSURED
TAX-FREE FUND
- --------------------------------------------------------------------------------
Purchases of investment securities................................ $ 18,066,412
Proceeds from sales and maturities of investment securities....... $ 27,756,064
- --------------------------------------------------------------------------------
4. TRANSACTIONS WITH AFFILIATES
The President and certain other 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 Investment Services, Inc., formerly 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.
MANAGEMENT AGREEMENT
Each Fund's investments are managed by the Advisor under the terms of a
Management Agreement. Under the Management Agreement, each Fund pays the Advisor
a fee, computed and accrued daily and paid monthly, at an annual rate of 0.50%
of its respective average daily net assets up to $100 million, 0.45% of such net
assets from $100 million to $200 million, 0.40% of such net assets from $200
million to $300 million and 0.375% of such net assets in excess of $300 million.
Fort Washington Investment Advisors, Inc. (Sub-Advisor) has been retained by the
Advisor to manage the investments of the Funds. The Advisor (not the Funds) pays
the Sub-Advisor a fee for these services.
EXPENSE LIMITATION AGREEMENT
The Trust and the Advisor have entered into an Expense Limitation Agreement to
contractually limit operating expenses. The maximum operating expense limit in
any year with respect to a Fund is based on a percentage of the average daily
net assets of the Fund: Florida Tax-Free Money Market Fund - 0.75%; Ohio Insured
Tax-Free Fund - 0.75% for Class A shares and 1.50% for Class C shares; Ohio
Tax-Free Money Market Fund - 0.75% for Retail shares and 0.50% for Institutional
shares; Tax-Free Money Market Fund - 0.89% for Class A shares and 1.15% for
Class S shares. The fee waivers and expense limitations will remain in effect
until at least June 30, 2007.
26
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
Pursuant to this expense limitation agreement, during the year ended June 30,
2006, the Advisor waived investment advisory fees and/or reimbursed other
operating expenses of the Funds as follows:
OTHER
INVESTMENT OPERATING
ADVISORY EXPENSES
FEES WAIVED REIMBURSED
------------ ------------
Florida Tax-Free Money Market Fund $ 37,193 $ 68,830
Ohio Insured Tax-Free Fund $ -- $ 249,688
Ohio Tax-Free Money Market Fund $ 41,308 $ 247,344
Tax-Free Money Market Fund $ -- $ 135,335
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 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 based on each Fund's net assets.
TRANSFER AGENT AGREEMENT
The Trust has entered into a Transfer Agency Agreement with Integrated. Under
the terms of the agreement, Integrated maintains the records for 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 per Fund, based on average net assets, of each
Fund subject to an additional monthly fee for each additional class of shares.
In addition, each Fund pays 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
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Underwriter, the Underwriter
earned $9,524 from underwriting and broker commissions on the sale of Class A
shares of the Ohio Insured Tax-Free Fund during the year ended June 30, 2006. In
addition, the Underwriter collected $274 of contingent deferred sales loads on
the redemption of Class C shares of the Ohio Insured Tax-Free Fund.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of the
Florida Tax-Free Money Market Fund and Class A shares or Retail shares of all
other Funds 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.
27
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of the Ohio Insured Tax-Free 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 C Plan is 1.00% of average daily net assets attributable to Class C
shares.
The Trust also has a Plan of Distribution (Class S Plan) under which Class S
shares of the Tax-Free Money Market 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 S Plan is 1.00% of average daily net assets attributable to such
shares. The current distribution expense fee for Class S shares is limited to
0.60% of average daily net assets attributable to such 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. For these
services, Integrated receives a quarterly fee from each Fund.
5. CAPITAL SHARE TRANSACTIONS
Capital share transactions for the Florida Tax-Free Money Market Fund, the Ohio
Tax-Free Money Market Fund and the Tax-Free Money Market Fund are identical to
the dollar value of those transactions as shown in the Statements of Changes in
Net Assets. Proceeds and payments on capital shares as shown in the Statements
of Changes in Net Assets for the Ohio Insured Tax-Free Fund are the result of
the following capital share transactions:
- --------------------------------------------------------------------------------
OHIO INSURED
TAX-FREE FUND
- --------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
2006 2005
- --------------------------------------------------------------------------------
CLASS A
Shares sold .................................... 237,282 331,997
Shares reinvested .............................. 209,846 162,199
Shares redeemed ................................ (997,466) (992,583)
-------------------------
Net decrease in shares outstanding ............. (550,338) (498,387)
Shares outstanding, beginning of year .......... 6,164,333 6,662,720
-------------------------
Shares outstanding, end of year ................ 5,613,995 6,164,333
-------------------------
CLASS C
Shares sold .................................... 35,097 69,734
Shares reinvested .............................. 18,821 16,466
Shares redeemed ................................ (242,714) (153,563)
-------------------------
Net decrease in shares outstanding ............. (188,796) (67,363)
Shares outstanding, beginning of year .......... 775,981 843,344
-------------------------
Shares outstanding, end of year ................ 587,185 775,981
-------------------------
- --------------------------------------------------------------------------------
28
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
6. 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.
29
FLORIDA TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 2006
================================================================================
PRINCIPAL FIXED RATE REVENUE & COUPON MATURITY MARKET
AMOUNT GENERAL OBLIGATION BONDS -- 13.5% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 600,000 FL St Div Brd Fin Dept General Svcs Rev
(Preservation 2000) 5.750 07/01/06 $ 600,000
400,000 AMP OH Elect Rev BANS (Woodville Vlg) 3.250 07/20/06 400,041
500,000 AMP OH Elect Rev BANS (Carey Vlg) 3.400 08/03/06 500,111
500,000 Orange Co FL SD LTGO 4.500 09/15/06 500,747
650,000 Palm Beach Co FL SD Rev 4.000 09/28/06 650,304
250,000 Wilmington OH LTGO BANS (Lowes Rd Construction) 3.750 09/29/06 250,393
500,000 Willard OH LTGO BANS 4.250 01/24/07 501,515
300,000 Mentor On The Lake OH LTGO BANS 4.250 06/26/07 301,139
------------
TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS $ 3,704,250
------------
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING & VARIABLE RATE DEMAND NOTES -- 81.5% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 300,000 Alachua Co FL Hlth Facs (Shands Teaching Hosp) 4.020 07/01/06 $ 300,000
1,200,000 Broward Co FL Hlth Facs Rev (John Knox Village) 4.100 07/01/06 1,200,000
900,000 Collier Co FL Health Fac Auth Hosp Rev (Cleveland
Clinic) 4.000 07/01/06 900,000
500,000 FL St Brd Ed Muni Secs Tr Rcpts Ser SGA 102 4.020 07/01/06 500,000
695,000 Jacksonville FL Hlth Fac Auth Rev 3.960 07/01/06 695,000
900,000 Jacksonville FL Hlth Facs Hosp Rev (Baptist Med Ctr) 3.960 07/01/06 900,000
400,000 Jacksonville FL Elect Auth Rev Ser B 4.030 07/01/06 400,000
200,000 Manatee Co FL PCR (Florida Pwr & Light Co) 3.990 07/01/06 200,000
750,000 Pinellas Co FL Health Facs Auth Rev 4.040 07/01/06 750,000
880,000 Putnam Co FL Dev Auth PCR (FL Pwr & Light Co) 3.990 07/01/06 880,000
855,000 Sarasota Co FL Pub Hosp (Sarasota Mem Hosp) 4.050 07/01/06 855,000
500,000 Univ Athletic Assn Inc (FL Athletic Prog Rev) 4.050 07/01/06 500,000
250,000 Broward Co FL HFA MFH Rev (Jacaranda Village Apts) 3.980 07/05/06 250,000
575,000 Dade Co FL IDA IDR (Dolphins Stadium) Ser A 3.940 07/05/06 575,000
780,000 Dade Co FL IDA IDR (Dolphins Stadium) Ser D 3.940 07/05/06 780,000
100,000 Lee Co FL HFA MFH Rev (Forestwood Apts) 3.980 07/05/06 100,000
605,000 Marion Co FL HFA (Paddock Apts) 3.970 07/05/06 605,000
1,000,000 Orange Co FL HFA Rev (Sundown Assoc) 4.010 07/05/06 1,000,000
400,000 Palm Beach Co FL Rev (Norton Gallery) 4.000 07/05/06 400,000
510,000 Pinellas Co FL Edl Facs Auth Rev (Shorecrest Prep) 3.980 07/05/06 510,000
450,000 Broward Co FL HFA MFH Rev (Southern Pointe) 3.970 07/06/06 450,000
675,000 Duval Co FL HFA MFH Rev (Glades Apts) 3.970 07/06/06 675,000
950,000 Duval Co FL HFA MFH Rev (Sunbeam Road Apts) 3.980 07/06/06 950,000
800,000 FL Gulf Coast Univ Fin Corp Rev 4.010 07/06/06 800,000
700,000 FL HFC Rev (Charleston) 3.970 07/06/06 700,000
35,000 Gulf Breeze FL Loc Govt Loan Prog B 3.980 07/06/06 35,000
350,000 Gulf Breeze FL Muni Bond Fund Ser A 3.980 07/06/06 350,000
300,000 Highlands Co FL HFA Rev (Adventist Hlth Sys) 4.000 07/06/06 300,000
250,000 Hillsborough Co FL Rev (Carrollwood Day) 3.970 07/06/06 250,000
400,000 Marion Co FL IDA Rev (Chambrel) 3.970 07/06/06 400,000
1,050,000 Miami-Dade Co FL Wtr & Swr Rev 3.970 07/06/06 1,050,000
100,000 Palm Beach Co FL Edl Facs Auth Rev (Atlantic College) 4.050 07/06/06 100,000
900,000 Palm Beach Co FL Rev (Henry Morrison Flagler) 3.990 07/06/06 900,000
900,000 Palm Beach Co FL Rev (Morse Oblig Group) 3.990 07/06/06 900,000
30
FLORIDA TAX-FREE MONEY MARKET FUND
(CONTINUED)
================================================================================
PRINCIPAL FLOATING & VARIABLE RATE DEMAND COUPON MATURITY MARKET
AMOUNT NOTES -- 81.5% (CONTINUED) RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 775,000 Pasco Co FL School Board COP 3.970 07/06/06 $ 775,000
300,000 Seminole Co FL IDA (FL Living Nursing Ctr) 4.170 07/06/06 300,000
1,000,000 Seminole Co FL IDA Rev (Master Academy) 3.990 07/06/06 1,000,000
100,000 Univ of North FL Rev (Parking Sys) 4.010 07/06/06 100,000
------------
TOTAL FLOATING & VARIABLE RATE DEMAND NOTES $ 22,335,000
------------
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS -- 4.6% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 400,000 Corpus Christi TX IDC EDR (Texas Air Invt) 3.450 08/01/06 $ 400,000
875,000 Putnam Co FL Dev Auth PCR (Seminole Elec Coop) 3.580 12/15/06 875,000
------------
TOTAL ADJUSTABLE RATE PUT BONDS $ 1,275,000
------------
TOTAL INVESTMENT SECURITIES -- 99.6%
(Amortized Cost $27,314,250) $ 27,314,250
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.4% 109,559
------------
NET ASSETS -- 100.0% $ 27,423,809
============
See accompanying notes to portfolios of investments and notes to financial
statements.
31
OHIO INSURED TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 2006
================================================================================
PRINCIPAL FIXED RATE REVENUE & COUPON MATURITY MARKET
AMOUNT GENERAL OBLIGATION BONDS -- 95.8% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 149,812 Columbus OH Special Assessment GO 5.050 04/15/08 $ 152,648
1,000,000 Hamilton OH CSD GO Prerefunded @ 101 5.500 12/01/09 1,059,250
1,000,000 Hamilton OH CSD GO Prerefunded @ 101 5.625 12/01/09 1,063,220
1,000,000 Kings OH LSD GO Prerefunded @ 101 5.650 12/01/09 1,064,010
1,000,000 Univ of Cincinnati OH General Rcpts Rev Prerefunded
@ 101 5.750 12/01/09 1,067,180
1,035,000 Reading OH Rev (St Mary's Ed Institute) 5.550 02/01/10 1,083,303
620,000 Cuyahoga Co OH Mtg Rev (West Tech Apts) 5.100 09/20/10 634,905
500,000 Akron OH GO Prerefunded @ 101 5.800 11/01/10 540,825
275,000 Akron OH GO Prerefunded @ 101 6.000 11/01/10 299,533
415,000 Dublin OH Var Purp Impt Ser A Prerefunded @ 100 6.000 12/01/10 449,051
1,000,000 Greene Co OH Swr Sys Rev Prerefunded @ 101 5.625 12/01/10 1,075,820
1,000,000 Hilliard OH CSD GO Prerefunded @ 101 5.750 12/01/10 1,080,840
1,000,000 Hilliard OH CSD GO Prerefunded @ 101 5.750 12/01/10 1,080,840
525,000 Kings OH LSD GO Prerefunded @ 101 6.050 12/01/10 573,547
500,000 Lake OH LSD GO (Stark Co) Prerefunded @ 100 5.750 12/01/10 536,215
1,500,000 Nordonia Hills OH CSD GO Prerefunded @ 101 5.375 12/01/10 1,598,655
1,000,000 Summit Co OH GO Prerefunded @ 101 6.000 12/01/10 1,088,340
1,075,000 Franklin Co OH Hosp Impt (Childrens Hosp)
Prerefunded @ 101 5.500 05/01/11 1,153,099
145,000 Cuyahoga Co OH Hosp Rev (Univ Hosp)
Escrowed to Maturity 9.000 06/01/11 163,760
1,000,000 Lorain Co OH Hosp Rev (Catholic Health) 5.625 10/01/11 1,066,470
1,000,000 Hamilton Co OH Swr Sys Rev 5.500 12/01/11 1,074,060
1,000,000 Pickerington OH LSD UTGO Prerefunded @ 100 5.250 12/01/11 1,061,830
155,000 New Albany Plain LSD Prerefunded @ 100 5.000 06/01/12 163,117
1,050,000 Harrison OH Wst Wtr Sys Rev 5.250 11/01/13 1,106,375
660,000 West Chester Twp OH GO 5.500 12/01/14 709,586
400,000 Warren OH Wtr Wrks Rev 5.500 11/01/15 432,680
1,000,000 Buckeye Valley OH LSD GO 6.850 12/01/15 1,133,410
640,000 Columbus-Polaris Hsg Corp Rev Prerefunded @ 100 7.400 01/01/16 738,694
945,000 Chillicothe OH CSD GO 5.000 12/01/16 992,779
1,260,000 Cleveland OH Arpt Sys Rev 5.125 01/01/17 1,287,342
1,000,000 Lorain Co OH Hosp Rev (Catholic Health Partners) 5.500 09/01/19 1,058,030
1,000,000 Lucas Co OH Hosp Rev (Promedica Health Grp) 5.625 11/15/19 1,055,400
1,085,000 West Clermont OH LSD GO 5.000 12/01/19 1,121,022
210,000 Butler Co OH GO 5.250 12/01/20 221,537
850,000 West Chester Twp OH GO 5.000 12/01/20 875,985
1,210,000 Cincinnati OH Tech College Rev 5.250 10/01/21 1,276,381
1,645,000 Cleveland OH Muni SD GO 5.000 12/01/21 1,689,431
1,000,000 Monroe OH LSD Sch Impt GO 5.000 12/01/21 1,028,180
1,185,000 Akron OH Impt GO 5.000 12/01/22 1,220,479
1,035,000 Elyria OH GO 5.000 12/01/22 1,071,101
765,000 Fairfield Co OH GO 5.000 12/01/22 786,581
1,000,000 Mansfield OH CSD 5.000 12/01/22 1,034,880
1,200,000 Ross Twp OH LSD GO 5.000 12/01/22 1,235,928
250,000 OH St Higher Ed Fac (Xavier Univ) 5.000 05/01/23 256,678
1,000,000 Akron OH Var Purp GO 5.000 12/01/23 1,025,330
450,000 Columbus OH TIF Rev (Polaris) 4.750 12/01/23 452,939
32
OHIO INSURED TAX-FREE FUND
(CONTINUED)
================================================================================
PRINCIPAL FIXED RATE REVENUE & GENERAL COUPON MATURITY MARKET
AMOUNT OBLIGATION BONDS -- 95.8% (CONTINUED) RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 865,000 Fairfield Co OH GO 5.000 12/01/23 $ 893,242
425,000 Hamilton OH CSD GO 5.000 12/01/23 438,876
1,480,000 Lakewood OH CSD GO 5.250 12/01/23 1,566,965
1,000,000 OH St Higher Ed Fac Rev (Univ Dayton) 5.000 12/01/23 1,026,920
405,000 OH Univ General Rcpts Ser B 5.000 12/01/23 419,633
1,000,000 Toledo OH CSD GO 5.000 12/01/23 1,028,670
1,085,000 Wyoming OH CSD GO 5.000 12/01/23 1,122,031
1,000,000 Hamilton Co OH Hosp Rev (Childrens Hosp Med Ctr) 5.000 05/15/24 1,023,470
400,000 Springboro OH Swr Sys Rev 5.000 06/01/24 411,308
1,000,000 Cleveland OH Muni SD GO 5.250 12/01/24 1,048,780
825,000 Parma OH GO 4.750 12/01/24 833,077
1,040,000 Franklin Co OH Hosp Rev (Childrens Hosp) 5.000 05/01/25 1,064,554
810,000 Big Walnut OH LSD GO 5.000 12/01/25 833,514
1,750,000 Eaton OH CSD GO 5.000 12/01/25 1,795,728
2,000,000 Franklin Co OH Conv Ctr Rev 5.000 12/01/25 2,062,059
1,885,000 Kings OH LSD UTGO 5.000 12/01/25 1,942,360
350,000 Lakota OH LSD GO 4.750 12/01/25 352,632
845,000 New Albany Plain LSD GO 5.000 12/01/25 863,184
1,000,000 Oak Hills OH LSD GO 5.000 12/01/25 1,028,720
1,000,000 Univ Cinti OH General Rcpts 4.750 06/01/26 1,002,320
1,090,000 Fairborn OH CSD GO 5.000 12/01/26 1,124,368
2,750,000 Little Miami OH LSD GO 5.000 12/01/26 2,837,834
1,185,000 Delaware OH GO 5.000 12/01/28 1,218,903
900,000 Licking Heights OH LSD GO 6.400 12/01/28 1,100,043
------------
TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS $ 67,980,457
------------
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING & VARIABLE RATE DEMAND NOTES -- 3.8% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,600,000 Hamilton Co OH Hosp Fac Rev Adj (Health Alliance)
Ser F 3.950 07/05/06 $ 1,600,000
500,000 Puerto Rico Commonwealth Govt Dev Bk Rev 3.870 07/05/06 500,000
600,000 Puerto Rico Elec Pwr Auth Tr Rcpts Ser
SGA 43 3.960 07/05/06 600,000
------------
TOTAL FLOATING & VARIABLE RATE DEMAND NOTES $ 2,700,000
------------
TOTAL INVESTMENT SECURITIES -- 99.6%
(Amortized Cost $68,832,006) $ 70,680,457
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.4% 313,165
------------
NET ASSETS -- 100.0% $ 70,993,622
============
See accompanying notes to portfolios of investments and notes to financial
statements.
33
OHIO TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 2006
================================================================================
PRINCIPAL FIXED RATE REVENUE & COUPON MATURITY MARKET
AMOUNT GENERAL OBLIGATION BONDS -- 21.9% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 2,350,000 AMP OH Elect Rev BANS (Montpelier) 3.000 07/06/06 $ 2,350,000
750,000 Glenwillow Vlg OH LTGO BANS 3.400 08/10/06 750,161
3,250,000 Hillsboro OH CSD Sch Impt UTGO BANS 4.000 08/16/06 3,253,015
5,840,000 AMP OH Elect Rev BANS (Bryan) 3.500 08/18/06 5,842,638
3,373,000 Jackson Co OH Var Purp LTGO BANS 4.000 09/07/06 3,377,004
2,000,000 Canal Winchester OH LTGO BANS 4.650 10/13/06 2,004,469
4,350,000 Obetz OH Var Purp UTGO BANS 5.900 10/13/06 4,381,187
2,750,000 Harrison Twp OH Fire Dept LTGO BANS 3.400 10/19/06 2,751,210
4,280,000 Springboro OH Real Estate Acq Rev 4.000 11/02/06 4,287,093
3,500,000 Cuyahoga Heights OH UTGO BANS 4.000 11/15/06 3,506,404
6,197,000 Deerfield Twp OH Var Purp LTGO BANS 4.000 11/30/06 6,208,320
1,780,000 AMP OH Elect Rev BANS (Brewster) 4.000 01/11/07 1,783,682
2,000,000 OH Univ General Rcpts BANS 4.500 01/18/07 2,012,671
2,020,000 Willard OH LTGO BANS 4.250 01/24/07 2,026,119
2,500,000 Canal Winchester OH LTGO BANS 4.550 05/10/07 2,512,399
4,225,000 Middletown OH CSD UTGO BANS 4.300 06/07/07 4,240,177
4,950,000 Anderson Twp OH LTGO BANS 4.750 06/14/07 4,995,515
1,450,000 Solon OH UTGO BANS 4.500 06/28/07 1,458,989
1,425,000 AMP OH Elect Rev BANS (Newton Falls) 4.250 06/29/07 1,427,984
1,000,000 Columbiana OH Elect Sys Impt Rev BANS 4.300 07/11/07 1,002,400
------------
TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS $ 60,171,437
------------
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL FLOATING & COUPON MATURITY MARKET
AMOUNT VARIABLE RATE DEMAND NOTES -- 74.8% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 2,315,000 Cuyahoga Co OH IDR (S&R Playhouse Rlty) 3.350 07/01/06 $ 2,315,000
1,450,000 Montgomery Co OH (Miami Valley Hosp) 4.030 07/01/06 1,450,000
6,900,000 OH St Air Quality Rev PCR (OH Edison) 3.950 07/01/06 6,900,000
2,585,000 OH St Wtr Dev Auth Rev (FirstEnergy) Ser A 4.040 07/01/06 2,585,000
1,500,000 Cleveland OH Waterworks Rev Ser B 3.980 07/04/06 1,500,000
830,000 Centerville OH Hlthcare (Bethany Luth Vlg) 4.010 07/05/06 830,000
3,000,000 Cleveland OH Arpt Sys Rev Tr Rcpts SGA 126 4.010 07/05/06 3,000,000
1,630,000 Cuyahoga Co OH Ed Fac (Utd Cerebral Palsy Assn) 4.040 07/05/06 1,630,000
620,000 Erie Co OH IDR (Toft Dairy Inc) 4.040 07/05/06 620,000
5,300,000 Franklin Co OH Hosp Rev (OH Hlth Corp) 3.960 07/05/06 5,300,000
270,000 Greene Co OH Hlth Facs (Greene Oaks) 4.040 07/05/06 270,000
665,000 Hamilton Co OH Hlth Facs (St Aloysius Orphanage) 4.040 07/05/06 665,000
2,090,000 Hamilton Co OH Hosp Facs Rev (Gamble) 3.970 07/05/06 2,090,000
1,400,000 Hamilton Co OH Hosp Facs Rev (Health Alliance) Ser B 3.950 07/05/06 1,400,000
785,000 Hamilton Co OH Hosp Facs Rev (Health Alliance) Ser F 3.950 07/05/06 785,000
3,900,000 Lake Co OH Hosp Facs Rev (Lake Hosp) 4.050 07/05/06 3,900,000
1,610,000 Lorain Co OH IDR (EMH Regl Med Ctr) 4.040 07/05/06 1,610,000
4,000,000 Middletown OH Dev Rev (Bishop HS) 4.040 07/05/06 4,000,000
2,000,000 Montgomery Co OH EDR (Dayton Art Inst) 4.040 07/05/06 2,000,000
425,000 OH St Wtr Dev Auth Rev (Purewater) 3.980 07/05/06 425,000
2,050,000 OH Wtr Dev Auth Rev (Timken Company) 4.000 07/05/06 2,050,000
2,000,000 Ohio St Air Qual Dev Auth Rev (FirstEnergy) Ser B 3.980 07/05/06 2,000,000
250,000 Orrville OH Hosp Facs Rev (Orrville Hosp Fdtn) 4.090 07/05/06 250,000
34
OHIO TAX-FREE MONEY MARKET FUND
(CONTINUED)
================================================================================
PRINCIPAL FLOATING & VARIABLE RATE COUPON MATURITY MARKET
AMOUNT DEMAND NOTES -- 74.8% (CONTINUED) RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 200,000 Puerto Rico Commonwealth Govt Dev Bk Rev 3.870 07/05/06 $ 200,000
200,000 Puerto Rico Elec Pwr Auth Tr Rcpts Ser SGA 43 3.960 07/05/06 200,000
3,400,000 ABN AMRO MuniTOPS Ctfs Tr 2001-03 (Westerville OH
CSD) 4.010 07/06/06 3,400,000
3,000,000 ABN AMRO MuniTOPS Ctfs Tr 2006-37 4.010 07/06/06 3,000,000
5,000,000 ABN AMRO MuniTOPS Ctfs Tr 2006-4 4.010 07/06/06 5,000,000
2,440,000 Akron Bath Copley OH Hosp (Summa Hlth) B 3.990 07/06/06 2,440,000
700,000 Ashtabula Co OH Hosp (Ashtabula Co Med Ctr) 3.990 07/06/06 700,000
3,900,000 Athens Co OH Port Auth (Hsg OH Univ) 4.020 07/06/06 3,900,000
795,000 Butler Co OH Hlthcare Facs Rev (Lifesphere) 3.980 07/06/06 795,000
1,300,000 Butler Co OH Hosp Facs (Berkeley Sq Ret) 4.030 07/06/06 1,300,000
3,015,000 Butler Co OH Hosp Facs Rev (Middletown Regl Hosp) 3.990 07/06/06 3,015,000
2,605,000 Cambridge OH Hosp Facs Rev (SE OH Regl Med) 4.040 07/06/06 2,605,000
2,000,000 Carroll Co OH Hlthcare Facs (St Johns Villa) 4.040 07/06/06 2,000,000
100,000 Cochocton Co OH Hosp (Echoing Hills Vlg) 4.200 07/06/06 100,000
1,300,000 Columbus OH Regl Arpt Auth Rev 3.990 07/06/06 1,300,000
1,440,000 Cuyahoga Co OH Civic Facs (West Side Ecumenical) 4.040 07/06/06 1,440,000
1,470,000 Cuyahoga Co OH Hlth Facs Rev (Franciscan Cmntys) 3.980 07/06/06 1,470,000
5,160,000 Cuyahoga Co OH Cont Care Facs Rev 3.970 07/06/06 5,160,000
3,045,000 Delaware Co OH Hlth Facs (Sarah Moore Home) 4.120 07/06/06 3,045,000
1,990,000 Franklin Co OH EDR (Dominican Sisters) 4.040 07/06/06 1,990,000
1,400,000 Franklin Co OH Hlth Facs (Heinzerling Fndtn) 4.100 07/06/06 1,400,000
710,000 Franklin Co OH Hlth Facs (Lifeline Organ Procurement) 4.040 07/06/06 710,000
4,385,000 Franklin Co OH Hlth Facs (Presbyterian) 3.990 07/06/06 4,385,000
2,000,000 Franklin Co OH Hosp Rev (Childrens Hosp) 3.970 07/06/06 2,000,000
875,000 Franklin Co OH IDR (OH Girl Scout Council) 4.250 07/06/06 875,000
650,000 Geauga Co OH Hlth Care Facs Rev (Heather Hill Inc) 3.970 07/06/06 650,000
300,000 Hamilton Co OH EDR (Contemporary Arts Ctr) 4.010 07/06/06 300,000
4,185,000 Hamilton Co OH Hlth Care Facs Rev (Episcopal) 3.970 07/06/06 4,185,000
1,250,000 Hamilton Co OH Hosp (Beechwood Home) 4.030 07/06/06 1,250,000
2,000,000 Hamilton Co OH Hosp (Childrens Hosp Med Ctr) Ser 1997 3.970 07/06/06 2,000,000
2,030,000 Hamilton Co OH Hosp (Childrens Hosp Med Ctr) Ser 2000 3.970 07/06/06 2,030,000
1,080,000 Hamilton Co OH Hosp (Drake Ctr Inc) 3.970 07/06/06 1,080,000
6,315,000 Hamilton Co OH Sales Tax Fltr Ctfs Ser 356 4.010 07/06/06 6,315,000
2,944,000 Hamilton OH MFH Afford Hsg (Knollwood Vlg) A 3.990 07/06/06 2,944,000
2,553,000 Hancock Co OH MFH (Crystal Glen Apts) A 3.990 07/06/06 2,553,000
4,000,000 Henry Co OH Rev (Co Hosp) 4.040 07/06/06 4,000,000
2,000,000 Jackson OH Hosp Facs Rev (Holzer Cons Hlth Sys) 4.020 07/06/06 2,000,000
3,330,000 Lima OH Hosp Facs (Lima Mem Hosp) 4.040 07/06/06 3,330,000
400,000 Lucas Co OH Hlth Facs (Lutheran Homes) 4.010 07/06/06 400,000
50,000 Lucas Co OH Hosp Rev (Sunshine Childrens Home) 4.140 07/06/06 50,000
5,000,000 Mahoning Co OH Hosp Facs Rev (Forum Health Oblig) 3.990 07/06/06 5,000,000
695,000 Mahoning Co OH Hsg Rev (Youngstown St Univ) 3.980 07/06/06 695,000
445,000 Mahoning Co OH IDR (OH Heart Inst) 4.250 07/06/06 445,000
300,000 Marion Co OH Hosp Pooled Lease Rev 3.990 07/06/06 300,000
1,095,000 Mason OH TIF Rev (Central Parke of Mason) 4.080 07/06/06 1,095,000
1,700,000 Middleburg Hgts OH Hosp Rev (SW Gen Hlth) 3.980 07/06/06 1,700,000
1,080,000 Montgomery Co OH Hlth Facs (Cmnty Blood Ctr) 4.200 07/06/06 1,080,000
1,900,000 Montgomery Co OH Rev (St Vincent de Paul) 4.000 07/06/06 1,900,000
7,575,000 OH St Higher Ed Fac (Case Western) 3.940 07/06/06 7,575,000
900,000 OH St Higher Ed Fac Pooled Fin Rev (1997) 4.050 07/06/06 900,000
35
OHIO TAX-FREE MONEY MARKET FUND
(CONTINUED)
================================================================================
PRINCIPAL FLOATING & VARIABLE RATE COUPON MATURITY MARKET
AMOUNT DEMAND NOTES -- 74.8% (CONTINUED) RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 2,800,000 OH St Higher Ed Fac Pooled Fin Rev (1998) 4.050 07/06/06 $ 2,800,000
400,000 OH St Higher Ed Fac Pooled Fin Rev (1999) 4.050 07/06/06 400,000
3,000,000 OH St Higher Ed Fac Pooled Fin Rev (2006) 3.990 07/06/06 3,000,000
200,000 OH St Higher Ed Rev (Malone College) 4.040 07/06/06 200,000
3,610,000 OH St Tpk Rev Fltr Ctfs Ser 71 4.010 07/06/06 3,610,000
3,000,000 OH Univ Gen Rcpts Rev 3.990 07/06/06 3,000,000
3,695,000 Port Gtr Cincinnati Dev Auth Rev (Cincinnati Zoo) 4.070 07/06/06 3,695,000
750,000 Port Gtr Cincinnati Dev Auth Rev (Cincinnati Zoo) 4.150 07/06/06 750,000
3,450,000 Puerto Rico Childrens Tr Fund Putter Ser 149 4.010 07/06/06 3,450,000
2,800,000 Puerto Rico Cmnwlth Hwy & Trans Auth Rev Ser 969 3.970 07/06/06 2,800,000
4,135,000 Sharonville OH IDR (Duke Rlty LP) 4.060 07/06/06 4,135,000
2,400,000 Summit Co OH Civic Facs Rev (YMCA) 4.040 07/06/06 2,400,000
1,350,000 Summit Co OH Hlth Facs (Evant Inc) 4.090 07/06/06 1,350,000
3,995,000 Univ of Akron Gen Rcpts Fltr Ctfs Ser 165 4.010 07/06/06 3,995,000
1,300,000 Univ of Akron Gen Rcpts Ser 2004 3.970 07/06/06 1,300,000
505,000 Warren Co OH Hlthcare Facs Rev (Otterbien) 3.900 07/06/06 505,000
1,600,000 Warren Co OH IDR (Liquid Container) 3.990 07/06/06 1,600,000
1,305,000 Westlake OH EDR (Oaks Dev Co) 4.090 07/06/06 1,305,000
4,720,000 Woodlawn OH EDR (Goodwill Inds) 4.030 07/06/06 4,720,000
1,570,000 Miami Co OH Hosp Facs (Upper Vly Med Ctr) 3.990 07/07/06 1,570,000
5,700,000 Hamilton Co OH IDR (ADP) 3.750 07/15/06 5,700,000
------------
TOTAL FLOATING & VARIABLE RATE DEMAND NOTES $206,067,000
------------
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS -- 3.0% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,040,000 Cuyahoga Co OH IDR (Halle Office Bldg) 3.850 10/01/06 $ 3,040,000
860,000 Clermont Co OH EDR (John Q Hammons/Clermont Hills) 4.000 11/01/06 860,000
1,675,000 McDonald Tax Exempt Mtge Trust 3.500 11/15/06 1,675,000
2,155,000 Richland Co OH IDR (Mansfield Sq Ltd) 3.950 11/15/06 2,155,000
500,000 Gallia Co OH IDR (Jackson Pike Assoc) 3.850 12/15/06 500,000
------------
TOTAL ADJUSTABLE RATE PUT BONDS $ 8,230,000
------------
TOTAL INVESTMENT SECURITIES -- 99.7%
(Amortized Cost $274,468,437) $274,468,437
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.3% 720,382
------------
NET ASSETS -- 100.0% $275,188,819
============
See accompanying notes to portfolios of investments
and notes to financial statements.
36
TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 2006
================================================================================
PRINCIPAL FIXED RATE REVENUE & COUPON MATURITY MARKET
AMOUNT GENERAL OBLIGATION BONDS -- 16.6% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 100,000 Maricopa Co AZ Cmnty College Dist UTGO 5.000 07/01/06 $ 100,000
100,000 Phoenix AZ UTGO 5.300 07/01/06 100,000
100,000 Puerto Rico Mun Fin Auth Rev 6.000 07/01/06 100,000
400,000 AMP OH Elect Sys Rev BANS (Woodville Vlg) 3.250 07/20/06 400,041
550,000 AMP OH Elect Sys Rev BANS (Carey Vlg) 3.400 08/03/06 550,122
790,000 Rockwall TX ISD UTGO 4.000 08/15/06 789,961
275,000 IL Ed Facs Auth Rev (Lewis Univ) Prerefunded @ 102 6.100 10/01/06 282,034
500,000 Obetz OH Var Purp UTGO BANS 5.900 10/13/06 503,585
375,000 AMP OH Elect Sys Rev BANS (Yellow Springs) 4.000 11/02/06 375,498
100,000 West Shore PA SD UTGO Prerefunded @ 100 5.000 11/15/06 100,524
200,000 Chicago IL Brd Ed UTGO Prerefunded @ 102 6.000 12/01/06 205,793
250,000 Summit Co OH LTGO 5.300 12/01/06 251,551
1,000,000 Middlebury IN SBC Rev BANS 4.000 12/15/06 999,999
750,000 Noblesville IN Rev BANS 3.750 01/01/07 750,000
479,350 AMP OH Elect Sys Rev BANS (Milan Vlg) 4.000 01/11/07 480,216
1,000,000 Willard OH LTGO BANS 4.250 01/24/07 1,003,028
700,000 Mentor on the Lake OH LTGO BANS 4.250 06/26/07 702,659
420,000 Columbiana OH Elect Sys Impt Rev BANS 4.300 07/11/07 421,008
------------
TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS $ 8,116,019
------------
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL FLOATING & VARIABLE RATE COUPON MATURITY MARKET
AMOUNT DEMAND NOTES -- 76.7% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,500,000 Alachua Co FL Hlth Facs Auth Rev (Shands Teaching Hosp) 4.020 07/01/06 $ 1,500,000
1,035,000 Arvada CO Wtr Sys Rev 3.550 07/01/06 1,035,000
1,525,000 Broward Co FL Hlth Facs Rev (John Knox Vlg) 4.100 07/01/06 1,525,000
1,000,000 Carbon Co UT PCR (Pacificorp) 3.950 07/01/06 1,000,000
1,000,000 Chester Co PA IDA Rev (Archdiocese Philadelphia) 4.020 07/01/06 1,000,000
1,300,000 Forsyth MT PCR (Pacificorp) 4.050 07/01/06 1,300,000
740,000 Indianapolis IN MFH Rev (Nora Commons) 4.140 07/01/06 740,000
750,000 Jacksonville FL Elec Auth Rev 4.030 07/01/06 750,000
600,000 Jacksonville FL Hlth Facs Hosp Rev (Baptist Med Ctr) 3.960 07/01/06 600,000
500,000 Mo St Hlth & Ed Auth Rev (Cox Hlth Sys) 4.050 07/01/06 500,000
800,000 New York NY UTGO 4.010 07/01/06 800,000
800,000 OH St Air Quality Rev PCR (Ohio Edison) 3.950 07/01/06 800,000
1,355,000 Sarasota Co FL Pub Hosp (Sarasota Mem Hosp) 4.050 07/01/06 1,355,000
600,000 Tarrant Co TX Hlth Fac Rev (Cumberland Rest Inc) 4.050 07/01/06 600,000
400,000 Univ Athletic Assn Inc (FL Athletic Prog Rev) 4.050 07/01/06 400,000
500,000 Portland OR MFH Rev (South Pk Block) 3.970 07/04/06 500,000
200,000 Bloomington IL Normal Arpt Auth 4.200 07/05/06 200,000
350,000 E-470 Pub Highway Auth CO Rev (Vehicle Reg Fee) 4.000 07/05/06 350,000
555,000 IL Dev Fin Auth IDR (Revcor Inc) 4.130 07/05/06 555,000
1,400,000 Met Govt Nashville & Davidson Cnty TN IDR
(Spinnaker) 3.980 07/05/06 1,400,000
400,000 OH St Air Qlty Dev Auth Rev (Timken) 3.950 07/05/06 400,000
650,000 Orange Co FL HFA Rev (Sundown Assoc) 4.010 07/05/06 650,000
1,100,000 Scio Twp MI EDR (ADP Inc) 4.100 07/05/06 1,100,000
600,000 Ulster Co NY IDA IDR (Viking Industries Inc) Ser A 4.110 07/05/06 600,000
250,000 Akron Bath Copley OH Hosp (Visiting Nurse Svcs) 4.090 07/06/06 250,000
37
TAX-FREE MONEY MARKET FUND
(CONTINUED)
================================================================================
PRINCIPAL FLOATING & VARIABLE RATE COUPON MATURITY MARKET
AMOUNT DEMAND NOTES -- 76.7% (CONTINUED) RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 500,000 Ames Higher Ed Facs Corp TX Rev (St Gabriels) 4.020 07/06/06 $ $500,000
115,000 Boulder CO Dev Rev (Humane Society) 4.070 07/06/06 115,000
240,000 CA Infra EDB IDR (Metrotile Mfg) Ser A 4.200 07/06/06 240,000
100,000 CA Statewide Cmntys IDR (American Modular Sys) 4.050 07/06/06 100,000
100,000 Catawba Co NC Ind Fac (Lucky 7 Dev Grp) 4.130 07/06/06 100,000
585,000 CO HFA EDR (Casarosa & Denver Gasket Inc) 4.190 07/06/06 585,000
500,000 Duchesne SD UT Bldg Auth Rev 4.020 07/06/06 500,000
445,000 Eden Prairie MN MFH Rev (Lake Place Apts) 4.070 07/06/06 445,000
260,000 Eupora MS IDR (Plymouth Tube Co) 4.200 07/06/06 260,000
280,000 Fargo ND CDR Rev (Kelly Inns Fargo) 4.120 07/06/06 280,000
300,000 Hanford CA Swr Rev Ser A 4.050 07/06/06 300,000
200,000 IA Fin Auth Rev (Northcrest Inc) 4.070 07/06/06 200,000
390,000 IA Fin Auth Rev (Regis Schs) 4.020 07/06/06 390,000
200,000 IA Higher Ed Auth Rev (American Institute) 4.070 07/06/06 200,000
500,000 IN St Ed Facs Auth (Univ Evansville) 4.050 07/06/06 500,000
875,000 Indianapolis IN EDR (Pedcor Invts Waterfront-B) 4.300 07/06/06 875,000
225,000 Johnston Co NC IDA PCR (Inolex Chem Co) 4.170 07/06/06 225,000
1,000,000 LA HFA Rev (Walmsley Hsg) 4.020 07/06/06 1,000,000
280,000 Lake Co IL Cmnty SD #73 Putter Ser 329 4.040 07/06/06 280,000
410,000 Lancaster NE IDR (Garner Inds) Ser B 4.120 07/06/06 410,000
100,000 Lemoore CA COP (Muni Golf Course) 4.070 07/06/06 100,000
300,000 MA St Ind Fin Agy Rev (Lower Mills Assoc LP) 4.100 07/06/06 300,000
240,000 Maricopa Co AZ IDA Hsg Rev (San Angelin Apts) 4.270 07/06/06 240,000
95,000 Montgomery Co OH EDR (Benjamin & Marian) 4.040 07/06/06 95,000
885,000 Oakland CA Liq Fac Rev (Assoc Bay Area Govt) 4.050 07/06/06 885,000
1,370,000 Ottawa Co OH Hosp Fac Rev (Luther Home of Mercy) 4.090 07/06/06 1,370,000
1,330,000 Ottawa Co OH Hosp Facs Rev (Luther Home of Mercy)Ser 97 4.090 07/06/06 1,330,000
800,000 Plymouth MN IDR (Scoville Press Inc) 4.070 07/06/06 800,000
1,470,000 Rev Bd Ctfs Ser 04-13 (Centennial East Apts) 4.270 07/06/06 1,470,000
1,000,000 Rev Bd Ctfs Ser 06-4 (Wildwood Branch) 4.220 07/06/06 1,000,000
1,040,000 Salina KS Rev (Salina Cent Mall LP-Dillards) 4.200 07/06/06 1,040,000
200,000 SC Jobs EDR (Hammond) 3.970 07/06/06 200,000
640,000 St Charles Co MO IDA Rev (National Cart) Ser A 4.120 07/06/06 640,000
700,000 Storm Lake IA High Ed Facs Rev (Buena Vista) 4.120 07/06/06 700,000
------------
TOTAL FLOATING & VARIABLE RATE DEMAND NOTES $37,585,000
------------
38
TAX-FREE MONEY MARKET FUND
(CONTINUED)
================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS -- 8.5% RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,125,000 Corpus Cristi TX IDC EDR (Texas Air Invt) 3.450 08/01/06 $ 1,124,802
300,000 Summit Co OH IDR (SD Myers Inc) 4.000 08/15/06 300,000
380,000 Dayton KY IBR (Patriot Signage Inc) 3.750 09/01/06 380,000
315,000 Summit Co OH IDR (Struktol Co America) 4.100 09/01/06 315,000
95,000 Cuyahoga Co OH IDR (Halle Office Bldg) 3.850 10/01/06 95,000
700,000 McDonald Tax Exempt Mtge Trust 3.500 11/15/06 700,000
225,000 Newport KY IBR (Sumerel Tire) 3.900 12/01/06 225,000
1,000,000 Westmoreland Co PA IDA (White Cons Inds) 4.070 12/01/06 1,000,000
------------
TOTAL ADJUSTABLE RATE PUT BONDS $ 4,139,802
------------
TOTAL INVESTMENT SECURITIES -- 101.8%
(Amortized Cost $49,840,821) $ 49,840,821
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.8%) (904,317)
------------
NET ASSETS -- 100.0% $ 48,936,504
============
See accompanying notes to portfolios of investments
and notes to financial statements.
39
NOTES TO PORTFOLIOS OF INVESTMENTS
JUNE 30, 2006
================================================================================
Variable and adjustable rate put bonds earn interest at a coupon rate which
fluctuates at specified intervals, usually daily, monthly or semi-annually. The
rates shown in the Portfolios of Investments are the coupon rates in effect at
June 30, 2006.
Put bonds may be redeemed at the discretion of the holder on specified dates
prior to maturity. Mandatory put bonds are automatically redeemed at a specified
put date unless action is taken by the holder to prevent redemption.
Bonds denoted as prerefunded are anticipated to be redeemed prior to their
scheduled maturity. The dates indicated in the Portfolios of Investments are the
stipulated prerefunded dates.
PORTFOLIO ABBREVIATIONS:
BANS - Bond Anticipation Notes
CDR - Community Development Revenue
COP - Certificates of Participation
CSD - City School District
EDB - Economic Development Bank
EDR - Economic Development Revenue
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corporation/Committee
IBR - Industrial Building Revenue
IDA - Industrial Development Authority/Agency
IDC - Industrial Development Corporation
IDR - Industrial Development Revenue
ISD - Independent School District
LSD - Local School District
LTGO - Limited Tax General Obligation
MFH - Multi-Family Housing
PCR - Pollution Control Revenue
SBC - School Building Corporation
SD - School District
TIF - Tax Increment Financing
UT - Unlimited Tax
UTGO - Unlimited Tax General Obligation
40
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
================================================================================
To the Board of Trustees and Shareholders of
Touchstone Tax-Free Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Touchstone Tax-Free Trust (consisting of
Touchstone Florida Tax-Free Money Market Fund, Touchstone Ohio Insured Tax-Free
Fund, Touchstone Ohio Tax-Free Money Market Fund, and Touchstone Tax-Free Money
Market Fund) (the "Funds") as of June 30, 2006, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended. These financial statements are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements 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 Funds' 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
Funds' 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 June 30, 2006, by correspondence with the
custodian and brokers. 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 Tax-Free Trust at June 30,
2006, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended and their
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Cincinnati, Ohio
August 11, 2006
41
PORTFOLIO COMPOSITION
JUNE 30, 2006 (UNAUDITED)
================================================================================
As of June 30, 2006, the Ohio Insured Tax-Free Fund and the Ohio Tax-Free Money
Market Fund were invested exclusively in debt obligations issued by the State of
Ohio and its political subdivisions, agencies, authorities and instrumentalities
and by other issuers, the interest from which is exempt from Ohio personal
income tax. The Florida Tax-Free Money Market Fund was 91.4% invested in debt
obligations issued by the State of Florida and its political subdivisions,
agencies, authorities and instrumentalities and by other issuers, the value of
which is exempt from the Florida intangible personal property tax. As of June
30, 2006, 19.7% of the portfolio securities of the Tax-Free Money Market Fund
were concentrated in the State of Ohio, 1.2% in the State of Kentucky and 7.9%
in the State of Indiana.
The Florida Tax-Free Money Market Fund, the Ohio Insured Tax-Free Fund, and the
Ohio Tax-Free Money Market Fund are each non-diversified Funds under the 1940
Act. Thus, investments may be concentrated in fewer issuers than those of a
diversified fund. As of June 30, 2006, there were no concentrations of
investments (10% or greater) in any one issuer.
The Florida Tax-Free Money Market Fund, the Ohio Tax-Free Money Market Fund and
the Tax-Free Money Market Fund each invest in municipal securities maturing in
13 months or less and having a short-term rating in one of the top two ratings
categories by at least two nationally recognized statistical rating agencies (or
by one such agency if a security is rated by only that agency) or, if unrated,
are determined by the Advisor, under the supervision of the Board of Trustees,
to be of comparable quality.
As of June 30, 2006, 93.5% of the Ohio Insured Tax-Free Fund's long-term
portfolio securities were either (1) insured by an insurance policy obtained
from a recognized insurer which carries a rating of AAA by S&P or Aaa by
Moody's, (2) guaranteed as to the payment of interest and principal by an agency
or instrumentality of the U.S. Government or (3) secured as to the payment of
interest and principal by an escrow account consisting of obligations of the
U.S. Government. Four private insurers individually insure more than 10% of the
Ohio Insured Tax-Free Fund's portfolio securities and collectively insure 88.9%
of its portfolio securities.
The concentration of investments for each Fund as of June 30, 2006, classified
by revenue source, was as follows:
- --------------------------------------------------------------------------------
FLORIDA OHIO
TAX-FREE OHIO TAX-FREE TAX-FREE
MONEY INSURED MONEY MONEY
MARKET TAX-FREE MARKET MARKET
FUND FUND FUND FUND
- --------------------------------------------------------------------------------
General Obligations ............. 1.1% 52.9% 5.1% 4.7%
-----------------------------------------
Revenue Bonds:
Industrial Development/
Pollution Control .......... 9.4% -- 7.9% 21.9%
Hospital/Health Care ........ 23.4% 12.9% 30.2% 21.7%
Utilities/Water & Sewer ..... 4.0% 5.1% 8.3% 10.4%
Education ................... 24.1% 7.2% 14.8% 9.7%
Housing/Mortgage ............ 22.0% 2.0% 5.6% 8.2%
Economic Development ........ -- -- 12.2% 8.7%
Public Facilities ........... 8.9% -- 3.4% 1.8%
Transportation .............. 0.9% 1.8% 1.4% 0.7%
Special Tax ................. -- -- 5.6% --
Miscellaneous ............... 6.2% 18.1% 5.5% 12.2%
-----------------------------------------
Total Investments ............... 100.0% 100.0% 100.0% 100.0%
=========================================
- --------------------------------------------------------------------------------
42
OTHER ITEMS
JUNE 30, 2006 (UNAUDITED)
================================================================================
PROXY VOTING DISCLOSURE
The Sub-Advisor is 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-Advisor uses 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 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.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (January 1, 2006 through June 30, 2006).
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 June 30, 2006" to estimate the expenses you paid on your account
during this period.
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.
43
OTHER ITEMS
(CONTINUED)
================================================================================
EXPENSES PAID
NET EXPENSE BEGINNING ENDING DURING THE
RATIO ACCOUNT ACCOUNT SIX MONTHS
ANNUALIZED VALUE VALUE ENDED
JUNE 30, JANUARY 1, JUNE 30, JUNE 30,
2006 2006 2006 2006*
- ------------------------------------------------------------------------------------------------
Florida Tax-Free Money Market Fund
Actual ......................... 0.75% $ 1,000.00 $ 1,012.80 $ 3.74
Hypothetical ................... 0.75% $ 1,000.00 $ 1,021.08 $ 3.76
Ohio Insured Tax-Free Fund
Class A Actual ................. 0.75% $ 1,000.00 $ 996.10 $ 3.71
Class A Hypothetical ........... 0.75% $ 1,000.00 $ 1,021.08 $ 3.76
Class C Actual ................. 1.50% $ 1,000.00 $ 992.40 $ 7.41
Class C Hypothetical ........... 1.50% $ 1,000.00 $ 1,017.36 $ 7.50
Ohio Tax-Free Money Market Fund
Retail Class Actual ............ 0.75% $ 1,000.00 $ 1,013.00 $ 3.74
Retail Class Hypothetical ...... 0.75% $ 1,000.00 $ 1,021.08 $ 3.76
Institutional Class Actual ..... 0.50% $ 1,000.00 $ 1,014.30 $ 2.50
Institutional Class Hypothetical 0.50% $ 1,000.00 $ 1,022.32 $ 2.51
Tax-Free Money Market Fund ........ .
Class A Actual ................. 0.89% $ 1,000.00 $ 1,012.70 $ 4.44
Class A Hypothetical ........... 0.89% $ 1,000.00 $ 1,020.38 $ 4.46
Class S Actual ................. 1.15% $ 1,000.00 $ 1,011.40 $ 5.74
Class S Hypothetical ........... 1.15% $ 1,000.00 $ 1,019.09 $ 5.76
- ------------------------------------------------------------------------------------------------
* 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] (to reflect the one-half year
period).
44
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 FUNDS
NAME POSITION(S) TERM OF 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)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee and Until retirement at Senior Vice President of The 54 Director of
Touchstone Advisors, President age 75 or until she Western and Southern Life LaRosa's (a
Inc resigns or is Insurance Company. President restaurant chain).
303 Broadway removed and a director of IFS Financial
Cincinnati, OH Services, Inc. (a holding
Age: 51 Trustee since 1999 company). She is a director of
Capital Analysts Incorporated
(an investment advisor and
broker- dealer), Integrated
Investment 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 W&S
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,
Touchstone Strategic Trust,
Costellation Funds and
Constellation Institutional
Portfolios. She was President
of Touchstone Advisors, Inc.,
and Touchstone Securities, Inc.
until 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Barrett Trustee Until retirement at Chairman of the Board, 32 Director of The
The Western and age 75 or until he President and Chief Executive Andersons (an
Southern Life resigns or is Officer of The Western and agribusiness and
Insurance Company removed Southern Life Insurance retailing
400 Broadway Company, Western- Southern Life company);
Cincinnati, OH Trustee since 2002 Assurance Company and Western & Convergys
Age: 57 Southern Financial Group, Inc.; Corporation (a
Director and Chairman of provider of
Columbus Life Insurance business support
Company; Fort Washington systems and
Investment Advisors, Inc., customer care
Integrity Life Insurance operations) and
Company and National Integrity Fifth Third
Life Insurance Company; Bancorp.
Director of Eagle Realty Group,
Inc., Eagle Realty Investments,
Inc. and Integrated Investment
Services, Inc.; Director,
Chairman and CEO of WestAd,
Inc.; President and Trustee of
Western & Southern Financial
Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
45
MANAGEMENT OF THE TRUST
(CONTINUED)
================================================================================
INDEPENDENT
TRUSTEES(1):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF FUNDS
NAME POSITION(S) TERM OF OFFICE(2) OVERSEEN IN THE OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) TOUCHSTONE FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard L. Brenan Trustee Until retirement at Retired Managing Partner of 32 Director of Wing
303 Broadway age 75 or until he KPMG LLP (a certified public Eyecare Companies.
Cincinnati, OH resigns or is accounting firm); Director of
Age: 61 removed The National Underwriter
Company (a publisher of
Trustee since 2005 insurance and financial service
products) until 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until retirement at President and Chief Executive 54 Director of the
303 Broadway age 75 or until he Officer of Cox Financial Corp. Federal Reserve
Cincinnati, OH resigns or is (a financial services company). Bank of Cleveland
Age: 58 removed and Duke Energy (a
utility company);
Trustee since 1999 Chairman of 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 retirement at Principal of HJL Enterprises (a 32 None
303 Broadway age 75 or until he privately held investment
Cincinnati, OH resigns or is company).
Age: 67 removed
Trustee since 1981
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Siekmann Trustee Until retirement at Executive for Duro Bag 54 None
303 Broadway age 75 or until he Manufacturing Co. (a bag
Cincinnati, OH resigns or is manufacturer); President of
Age: 68 removed Shor Foundation for Epilepsy
Research (a charitable
Trustee since 2005 foundation); Trustee of
Riverfront Funds (mutual funds)
from 1999 - 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until retirement at Retired Partner of KPMG LLP (a 54 Trustee of
303 Broadway age 75 or until he certified public accounting Tri-Health
Cincinnati, OH resigns or is firm). Vice President of St. Physician
Age: 71 removed Xavier High School. Enterprise
Corporation.
Trustee since 1999
- ------------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until retirement at CEO, Chairman and Director of 32 Director of QMed (a
303 Broadway age 75 or until he Avaton, Inc. (a wireless health care
Cincinnati, OH resigns or is entertainment company). management
Age: 58 removed President of Cincinnati company).
Biomedical (a life science and
Trustee since 2002 economic development company).
CEO, Chairman and Director of
Astrum Digital Information (an
information monitoring company)
from 2000 until 2001; President
of Great American Life
Insurance Company from 1999
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 until he or she
sooner resigns or is removed.
(3) The Touchstone Fund Complex consists of 4 series of the Trust, 8 series of
Touchstone Strategic Trust, 5 series of Touchstone Investment Trust, 15
variable annuity series of Touchstone Variable Series Trust, 19 series of
Constellation Funds and 3 series of Constellation Institutional
Portfolios.
(4) Each Trustee is also a Trustee of Touchstone Strategic Trust, Touchstone
Investment Trust and Touchstone Variable Series Trust. Ms. McGruder and
Messrs. Cox, Siekmann and Stautberg are also Trustees of Constellation
Funds and Constellation Institutional Portfolios.
46
MANAGEMENT OF THE TRUST
(CONTINUED)
================================================================================
PRINCIPAL OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF FUNDS
NAME POSITION(S) TERM OF OFFICE(1) 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(2) HELD
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder President and Until resignation, See biography above. 54 See biography
Touchstone Advisors, Trustee removal or above.
Inc. disqualification
303 Broadway
Cincinnati, OH President since
Age: 51 2004; President from
2000-2002
- ------------------------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice President Until resignation, Senior Vice 54 None
Touchstone Advisors, and Chief removal or President-Compliance of IFS
Inc. Compliance disqualification Financial Services, Inc.,
303 Broadway Officer Director of Compliance of W&S
Cincinnati, OH Vice President since Brokerage Services, Inc.; Chief
Age: 49 2003 Compliance Officer of Puglisi &
Co. from 2001 until 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Grifo Vice President Until resignation, President of Touchstone 54 None
Touchstone removal or Securities, Inc. and Touchstone
Securities, Inc. disqualification Advisors, Inc.; Managing
303 Broadway Director, Deutsche Asset
Cincinnati, OH Vice President since Management until 2001.
Age: 55 2004
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Dent Vice President Until resignation, Senior Vice President of 54 None
Touchstone Advisors, removal or Touchstone Advisors, Inc.;
Inc. disqualification Marketing Director of
303 Broadway Promontory Interfinancial
Cincinnati, OH Vice President since Network from 2002-2003; Senior
Age: 42 2004 Vice President of McDonald
Investments from
1998 - 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller and Until resignation, Senior Vice President, Chief 54 None
Touchstone Treasurer removal or Financial Officer and Treasurer
Advisors, Inc. disqualification of Integrated Investment
303 Broadway Services, Inc., IFS Fund
Cincinnati, OH Controller since Distributors, Inc. and W&S
Age: 43 2000 Brokerage Services, Inc. She is
Chief Financial Officer of IFS
Treasurer since Financial Services, Inc.,
2003 Touchstone Advisors, Inc. and
Touchstone Securities, Inc. and
Assistant Treasurer of Fort
Washington Investment Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Jay S. Fitton Secretary Until resignation, Director and Senior Counsel of 54 None
Integrated Investment removal or Integrated Investment Services,
Services, Inc. disqualification Inc. and IFS Fund Distributors,
303 Broadway Inc.
Cincinnati, OH Secretary since 2006
Age: 36
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Each officer also holds the same office with Touchstone Investment Trust,
Touchstone Strategic Trust, Touchstone Variable Series Trust,
Constellation Funds and Constellation Institutional Portfolios.
(2) The Touchstone Fund Complex consists of 4 series of the Trust, 8 series of
Touchstone Strategic Trust, 5 series of Touchstone Investment Trust, 15
variable annuity series of Touchstone Variable Series Trust, 19 series of
Constellation Funds and 3 series of Constellation Institutional
Portfolios.
47
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 $57,900 for the June 30, 2006
fiscal year and approximately $55,000 for the June 30, 2005 fiscal year,
including fees associated with the annual audit and filings of Form N-1A and
N-SAR.
(b) Audit-Related Fees. Audit-Related fees totaled approximately $109,400 for
the June 30, 2006 fiscal year and approximately $113,200 for the June 30, 2005
fiscal year and consisted of SAS 70 internal control reviews of the registrant's
fund accountant and transfer agent.
(c) Tax Fees. Tax fees totaled approximately $10,800 for the June 30, 2006
fiscal year and $13,500 for the June 30, 2005 fiscal year and consisted of fees
for tax compliance services and tax consultation services.
(d) All Other Fees. There were no fees for all other services during the June
30, 2006 or June 30, 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 its sub-advisor) and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services to the
registrant were approximately $212,100 for the fiscal year ended June 30, 2006
and $218,900 for the fiscal year ended June 30, 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 quarter of the period covered by this report 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 with
registrant's June 30, 2004 N-CSR and is hereby incorporated by
reference.
(a)(2) Certifications required by Item 12(a)(2) of Form N-CSR are filed
herewith.
(b) Certifications required by Item 11(b)of Form N-CSR are 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 Tax-Free Trust
-------------------------
By (Signature and Title)
/s/ Jill T. McGruder
- --------------------
Jill T. McGruder
President
Date: September 7, 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: September 7, 2006
/s/ Terrie A. Wiedenheft
- ------------------------
Terrie A. Wiedenheft
Controller & Treasurer
Date: September 7, 2006