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 811-21113
----------------------
Touchstone Institutional Funds Trust
----------------------------------------------------------------
(Exact name of registrant as specified in charter)
303 Broadway, Suite 1100
Cincinnati, OH 45202
----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jill McGruder
Touchstone Advisors, Inc.
303 Broadway, Suite 1100
Cincinnati, OH 45202
----------------------------------------------------------------
(Name and address of agent for service)
registrant's telephone number, including area code: (513) 878-4066
---------------
Date of fiscal year end: 12/31
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Date of reporting period: 12/31/07
--------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
Annual Report DECEMBER 31, 2007
- --------------------------------------------------------------------------------
TOUCHSTONE INSTITUTIONAL FUNDS TRUST
Touchstone JSAM Institutional Large Cap Value Fund
Touchstone JSAM Institutional Value Fund
Touchstone Sands Capital Institutional Growth Fund
[LOGO] TOUCHSTONE(R)
INVESTMENTS
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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) 4-11
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Tabular Presentation of Portfolios of Investments (Unaudited) 12
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Statements of Assets and Liabilities 13
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Statements of Operations 14
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Statements of Changes in Net Assets 15
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Financial Highlights 16-18
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Notes to Financial Statements 19-24
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Portfolios of Investments:
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JSAM Institutional Large Cap Value Fund 25
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JSAM Institutional Value Fund 26
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Sands Capital Institutional Growth Fund 27
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Report of Independent Registered Public Accounting Firm 28
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Other Items (Unaudited) 29-34
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Management of the Trust (Unaudited) 35-38
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2
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Letter from the President
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide you with the Touchstone Institutional Funds Trust
Annual Report. Inside you will find key financial information, as well as
manager commentaries for the year ended December 31, 2007.
During the year, investors contended with concerns related to the weakening
housing market, subprime mortgage problems that roiled financial services
companies worldwide, higher oil prices, the weakening dollar, and the potential
for slower economic growth. Overall market returns were impacted by these
circumstances.
In the late summer of 2007, investors were hopeful that the worst of the
credit-related problems from the housing and subprime-mortgage markets was over
and that the Federal Reserve would be aggressive in its effort to keep the
economy from sagging into a recession. The Fed cut short-term interest rates
three times from September through December by a total of 100 basis points.
These Fed actions were intended to inject liquidity and confidence into the
financial markets, but their effects have yet to be seen.
During the year, the U.S. equity markets were extremely volatile. Most growth
indexes outperformed value indexes by over 10% after seven years of
underperformance. Large cap stocks outperformed small cap stocks, as the market
shifted from risk-seeking behavior to a more conservative posture due to the
subprime situation. The top performing sector was Energy, the bottom performing
sector was Financial Services.
Touchstone is committed to providing investors access to proven institutional
money managers who act in a sub-advisory capacity. Our sub-advisors are
successful investment management firms with demonstrated proficiency in their
declared area of expertise. We hope that you will find the enclosed commentaries
helpful.
We greatly appreciate your continued support. Thank you for including Touchstone
as part of your investment plan.
Sincerely,
/s/ Jill T. McGruder
Jill T. McGruder
President
Touchstone Institutional Funds Trust
3
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance
- --------------------------------------------------------------------------------
TOUCHSTONE JSAM INSTITUTIONAL LARGE CAP VALUE FUND
SUB-ADVISED BY JS ASSET MANAGEMENT
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone JSAM Institutional Large Cap Value Fund was
- -26.37% for the year ended December 31, 2007. The total return of the Russell
1000(R) Value Index was -0.17% for the same period.
The Fund focuses on large-cap undervalued companies that have catalysts to
improve their valuations over the long-term. Stocks are evaluated based on their
potential price appreciation expected over the next 18-24 months. JSAM is
patient and will maintain or increase a position as long as the business
fundamentals and the catalyst are in place.
Deep value investors had a difficult 2007. Most deep value investors, including
JSAM, were underweight the Energy and Materials & Processing sectors and
overweight Financial Services. The Russell 1000(R) Value Index, Energy and
Materials & Processing sectors returned a combined 52% while the Financial
Services sector declined 21%. According to Empirical Research, the lowest
quartile of valuations underperformed the highest by over 18% in 2007. We have
witnessed these environments before. However, these periods eventually ended and
normalcy returned, often faster than investors realized. We believe these
extremes lead to opportunities for investors and are optimistic that the Fund is
positioned properly going forward.
PORTFOLIO REVIEW
The Fund was hurt primarily because of stock selection in the Financial Services
sector. The Fund's slight overweight allocation in the Financial Services, the
worst performing sector in the Russell 1000(R) Value Index, detracted from
performance. The Fund's overweight allocation in the Technology sector and its
underweight in the Materials & Processing and Utilities sectors also detracted
from performance.
Countrywide Financial, Washington Mutual, Freddie Mac, Fannie Mae and Citigroup
accounted for over 50% of the decline. BearingPoint, Alcatel-Lucent, Pulte Homes
and AbitibiBowater also detracted from Fund performance. Contributors to
performance were Reliant Energy, Peabody Energy and Mirant Corp.
We believe 4th quarter GDP will likely slow to less than 1% growth. While U.S.
economic weakness has been widely discussed, both the European and Japanese
economies are also slowing. We take the controversial view that Emerging Markets
will not be immune to the global slowdown. We continue to forecast the U.S. is
either already in or will likely soon enter a consumer-led recession. U.S.
employment is clearly slowing and commodity prices have eased some. Copper,
historically a good forecaster of the global economy, is down sharply. Corporate
profits were up just 1.9% in the 3rd quarter, per government data, and we think
the next 12 months will likely be down. The bond markets are pricing a high
likelihood of a recession. The Fed cuts have not worked yet, due to widening
LIBOR and TED spreads. The TED spread (Eurodollar yield - Treasury yield) is
2.3%, the highest in 20 years. Thus, borrowing costs for the average corporate
borrower have increased. We believe the Fed will eventually be successful in
calming fears and these spreads will normalize. If the Fed funds rate drops, as
we expect, the 10-year Treasury yield could be near 3.5% and the mortgage bond
yield could be low enough to drive refinancings.
Although the American consumer has historically been a positive economic force,
we believe there is evidence this economic stalwart is beginning to crack.
Retail sales in December were flat year over year, after inflation. U.S.
consumers will not be able to continually borrow against their homes and as a
result, retail will be very weak going forward. We are eagerly watching for an
entry point into the retail sector.
4
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
While a recovery is impossible to time (and we do not), Fund holdings,
particularly Financials and Housing stocks, already reflect a deep recession.
While we want to make sure Fund holdings survive the downturn, we are beginning
to look for recovery. What is most painful is that we foresaw the credit
problems (see previous quarterly commentaries) but we failed to anticipate the
extent of the downturn and failed to recognize the vulnerability of some of the
Fund's companies. In fact, the Fund's Financial Services sector weight was
slightly less than that of the Russell 1000(R) Value Index going into the
downturn. We avoided pure subprime originators, brokers and bond guarantee
insurers and owned mortgage and bank stocks. When we first bought
mortgage-related stocks, our primary catalyst was that improving spreads (both
from a normal yield curve and less competition) would improve earnings even with
a tougher credit environment. We also thought our credit assumptions were
relatively conservative. In hindsight, we had too much confidence that the
current housing recession would not get worse. As part of our fundamental
analysis, which is conducted on every company in which we invest, we build an
earnings model and stress test it based on a wide range of assumptions. As a
risk measure, we model worst case assumptions. The data for these assumptions
comes from historical trends as well as individual company/competitor analysis.
Our fundamental analysis focuses on what we believe is important and filters out
the irrelevant noise that inevitably surrounds deep value stocks. This analysis
was unsuccessful during the year.
During the second half of the year, as our assumptions changed, we reacted. In
mid-October, we sold what we perceived to be the most risky portion of the Fund,
the mortgage insurance companies. In total, they represented a very small part
of the Fund. In late November, operating with new information, we became
concerned about Countrywide's home equity loan exposure, particularly in
California, thus we swapped Countrywide Financial Corp for Fannie Mae and
Freddie Mac. We remain confident in the Fund's two largest holdings - Fannie Mae
and Freddie Mac, as they are committed to their traditional, conventional
mortgages and have minimal subprime and Alt-A exposure. In all, we believe these
companies will survive the current environment and will have much stronger
earnings as soon as the current fear dissipates.
As some of the Fund's weaker holdings have been sold, we believe the remaining
companies will weather the current storm, benefit from improved spreads and
increase market share. Mortgage stocks, as a group, are selling near or below
book value and at less than 5 times normal EPS. Also, as a secondary catalyst,
we believe there will be a mortgage refinancing wave if conventional 30-year
mortgage yields drop below 6%. Combined, we believe mortgage-related companies
have huge potential upside. We also believe that financial and housing stocks
will recover, or they will hold as the other stocks fall to reflect recession.
CURRENT STRATEGY AND OUTLOOK
We continue to conduct our research, attempting to buy stocks that are
significantly undervalued based on normal earnings. As new data presents itself,
we will make decisions, always trying to concentrate the Fund on what we think
has the most upside potential while avoiding those names that are too weak. Over
time, we think this will serve investors well, but it requires a strong stomach
and a long-term perspective.
5
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000
INVESTMENT IN THE JSAM INSTITUTIONAL LARGE CAP VALUE FUND
AND THE RUSSELL 1000(R) VALUE INDEX
[LINE CHART]
- ---------------------------------------
JSAM INSTITUTIONAL LARGE CAP VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------
1 Year Since Inception
(26.37%) (5.09%)
- ---------------------------------------
Date JSAM Institutional Large Cap Value Fund Russell 1000(R) Value Index
---- --------------------------------------- ---------------------------
6/20/05 10,000 10,000
6/30/05 9,720 9,806
9/30/05 9,724 10,187
12/31/05 10,143 10,316
3/31/06 10,549 10,928
6/30/06 10,351 10,993
9/30/06 10,816 11,677
12/31/06 11,899 12,611
3/31/07 11,882 12,767
6/30/07 12,791 13,397
9/30/07 10,944 13,365
12/31/07 8,761 12,590
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The initial public offering commenced on June 20, 2005.
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.
6
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
TOUCHSTONE JSAM INSTITUTIONAL VALUE FUND
SUB-ADVISED BY JS ASSET MANAGEMENT
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone JSAM Institutional Value Fund was -27.81% for
the year ended December 31, 2007. The total return of the Russell Midcap(R)
Value Index was -1.43% for the same period.
JS Asset Management (JSAM) focuses on undervalued companies that have catalysts
to improve their valuations over the long-term. Stocks are evaluated based on
their potential price appreciation expected over the next 18-24 months. JSAM is
patient and will maintain or increase a position as long as the business
fundamentals and the catalyst are in place.
Deep value investors had a difficult 2007. Most deep value investors, including
JSAM, were underweight the Energy and Materials & Processing sectors and
overweight Financial Services. The Russell Midcap(R) Value Index, Energy and
Materials & Processing sectors returned a combined 76% while the Financial
Services sector declined 18%. According to Empirical Research, the lowest
quartile of valuations underperformed the highest by over 18% in 2007. We have
witnessed these environments before. These periods eventually ended and normalcy
returned, often faster than investors realized. However, we believe these
extremes lead to opportunities for investors and are optimistic that the Fund is
positioned properly going forward.
PORTFOLIO REVIEW
The Fund was hurt primarily because of stock selection in the Financial Services
sector. The Fund's overweight allocation in Financial Services, the worst
performing sector in the Russell Midcap(R) Value Index, detracted from
performance. The Fund's overweight allocation in the Producer Durables sector
and its underweight in the Materials & Processing and Utilities sectors
detracted slightly from performance.
Stock selection in the Financial Services sector was the biggest detractor of
performance. American Home Mortgage Investment Corp., Countrywide Financial,
Freddie Mac, Fannie Mae and W Holding Co. accounted for over 50% of the decline.
BearingPoint, AbitibiBowater, Pulte Homes and Alcatel-Lucent also detracted from
Fund performance. Contributors to performance were Reliant Energy, Arch Coal
Inc. and Oriental Financial Group.
We believe 4th quarter GDP will likely slow to less than 1% growth. While U.S.
economic weakness has been widely discussed, both the European and Japanese
economies are also slowing. We take the controversial view that Emerging Markets
will not be immune to the global slowdown. We continue to forecast the U.S. is
either already in or will likely soon enter a consumer-led recession. U.S.
employment is clearly slowing and commodity prices have eased some. Copper,
historically a good forecaster of the global economy, is down sharply. Corporate
profits were up just 1.9% in the 3rd quarter, per government data, and we think
the next 12 months will likely be down. The bond markets are pricing a high
likelihood of a recession. The Fed cuts have not worked yet, due to widening
LIBOR and TED spreads. The TED spread (Eurodollar yield - Treasury yield) is
2.3%, the highest in 20 years. Thus, borrowing costs for the average corporate
borrower have increased. We believe the Fed will eventually be successful in
calming fears and these spreads will normalize. If the Fed funds rate drops, as
we expect, the 10-year Treasury yield could be near 3.5% and the mortgage bond
yield could be low enough to drive refinancings.
Although the American consumer has historically been a positive economic force,
we believe there is evidence this economic stalwart is beginning to crack.
Retail sales in December were flat year over year, after inflation. U.S.
consumers will not be able to continually borrow against their homes and as a
result, retail will be very weak going forward. We are eagerly watching for an
entry point into the retail sector.
7
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
While a recovery is impossible to time (and we do not), Fund holdings,
particularly Financials and Housing stocks, already reflect a deep recession.
While we want to make sure Fund holdings survive the downturn, we are beginning
to look for recovery. What is most painful is that we foresaw the credit
problems (see previous quarterly commentaries) but we failed to anticipate the
extent of the downturn and failed to recognize the vulnerability of some of the
Fund's companies. In fact, the Fund's Financial Services sector weight was
slightly less than that of the Russell Midcap(R) Value Index going into the
downturn. We avoided pure subprime originators, brokers and bond guarantee
insurers and owned mortgage and bank stocks. When we first bought
mortgage-related stocks, our primary catalyst was that improving spreads (both
from a normal yield curve and less competition) would improve earnings even with
a tougher credit environment. We also thought our credit assumptions were
relatively conservative. In hindsight, we had too much confidence that the
current housing recession would not get worse. As part of our fundamental
analysis, which is conducted on every company in which we invest, we build an
earnings model and stress test it based on a wide range of assumptions. As a
risk measure, we model worst case assumptions. The data for these assumptions
comes from historical trends as well as individual company/competitor analysis.
Our fundamental analysis focuses on what we believe is important and filters out
the irrelevant noise that inevitably surrounds deep value stocks. This analysis
was unsuccessful during the year.
During the second half of the year, as our assumptions changed, we reacted. In
mid-October, we sold what we perceived to be the most risky portion of the Fund,
the mortgage insurance companies. In total, they represented a very small part
of the Fund. In late November, operating with new information, we became
concerned about Countrywide's home equity loan exposure, particularly in
California, thus we swapped Countrywide Financial Corp for Fannie Mae and
Freddie Mac. We remain confident in the Fund's two largest holdings - Fannie Mae
and Freddie Mac, as they are committed to their traditional, conventional
mortgages and have minimal subprime and Alt-A exposure. In all, we believe these
companies will survive the current environment and will have much stronger
earnings as soon as the current fear dissipates.
As some of the Fund's weaker holdings have been sold, we believe the remaining
companies will weather the current storm, benefit from improved spreads and
increase market share. Mortgage stocks, as a group, are selling near or below
book value and at less than 5 times normal EPS. Also, as a secondary catalyst,
we believe there will be a mortgage refinancing wave if conventional 30-year
mortgage yields drop below 6%. Combined, we believe mortgage-related companies
have huge potential upside. We also believe that financial and housing stocks
will recover, or they will hold as the other stocks fall to reflect recession.
CURRENT STRATEGY AND OUTLOOK
We continue to conduct our research, attempting to buy stocks that are
significantly undervalued based on normal earnings. As new data presents itself,
we will make decisions, always trying to concentrate the Fund on what we think
has the most upside potential while avoiding those names that are too weak. Over
time, we think this will serve investors well, but it requires a strong stomach
and a long-term perspective.
8
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE JSAM INSTITUTIONAL VALUE FUND AND THE RUSSELL MIDCAP(R) VALUE INDEX
[LINE CHART]
- ---------------------------------------
JSAM INSTITUTIONAL VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------
1 Year Since Inception
(27.81%) (5.58%)
- ---------------------------------------
Date JSAM Institutional Value Fund Russell Midcap(R) Value Index
---- ----------------------------- -----------------------------
6/17/05 10,000 10,000
6/30/05 9,650 9,987
9/30/05 9,968 10,522
12/31/05 10,469 10,663
3/31/06 11,051 11,475
6/30/06 10,175 11,411
9/30/06 10,442 11,814
12/31/06 11,971 12,818
3/31/07 12,353 13,441
6/30/07 13,031 13,932
9/30/07 10,343 13,437
12/31/07 8,642 12,635
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The initial public offering commenced on June 17, 2005.
The performance of the above Fund does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
9
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
TOUCHSTONE SANDS CAPITAL INSTITUTIONAL GROWTH FUND
SUB-ADVISED BY SANDS CAPITAL MANAGEMENT
PERFORMANCE AND MARKET REVIEW
The total return of the Touchstone Sands Capital Institutional Growth Fund was
18.74% for the year ended December 31, 2007. The total return of the Russell
1000(R) Growth Index was 11.82% for the same period.
Sands Capital Management focuses on quality large capitalization growth
companies. It seeks to identify leading companies with dramatic capital
appreciation potential. It emphasizes six key investment criteria which include
sustainable above-average earnings growth, leadership position in a promising
business space, significant competitive advantages/unique business franchise,
clear mission and value-added focus, financial strength and rational valuation
relative to the market and business prospects. It buys to invest for the
long-term.
PORTFOLIO REVIEW
The Fund's outperformance versus the Russell 1000(R) Growth Index during 2007
was primarily attributable to the positive effects of security selection. The
securities having the greatest positive impact on absolute and relative
performance for the year were Apple, Google, Intuitive Surgical,
IntercontinentalExchange and Schlumberger. Detractors from absolute and relative
performance include Starbucks, Moody's, Lowes, Broadcom and Genentech. An
overweight relative to the benchmark in the Financial Services, Health Care,
Utilities, Consumer Discretionary and an underweight in the Consumer Staples and
Technology sectors detracted from absolute performance. An underweight
allocation relative to the benchmark in Autos & Transportation and overweight
allocations in the Energy sector contributed to absolute performance.
During the year, eBay, Patterson Companies, QUALCOMM and Zimmer Holdings were
sold from the Fund as they no longer met the Fund's investment criteria.
Notwithstanding our expectation of long-term ownership, the Fund continues to
evolve through the introduction of promising ideas where we find sustainable
growth. New additions in 2007 include:
o Salesforce.com, the leading provider of Software-as-a-Service, focusing
primarily on the Customer Relationship Management (CRM) segment of the
enterprise software market
o Expeditors International of Washington EXPD, a third party logistics
provider, focused on international freight forwarding and customs
brokerage
o Cerner Corp., the leading global provider of healthcare information
technology
o National Oilwell Varco a leading energy equipment and services company
o FMC Technologies, the leading global provider of highly-engineered subsea
equipment used in the production and processing of oil and natural gas
from offshore wells
o EMC Corp., the leading provider of enterprise storage solutions
o Las Vegas Sands, a leading developer, owner and operator of casinos,
convention centers and integrated resorts and properties around the world
o Amazon.com, the dominant internet retailer with a clear focus on being the
most customer-centric company where consumers can find and discover almost
anything they want to buy online.
10
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
CURRENT STRATEGY AND OUTLOOK
Sands Capital Management continues to successfully implement its bottom-up,
company-focused investment process. This process leads us to companies that
benefit from powerful trends--trends that frequently lay the groundwork for a
growth tailwind and attractive industry dynamics. Examples include:
o the trend toward minimally invasive surgery, which is represented by our
ownership in Intuitive Surgical, the leader in robotic surgery for radical
prostatectomies;
o the shift in futures and options trading mechanisms from open outcry pits
to electronic exchanges, which is represented by our ownership in CME
Group and IntercontinentalExchange; and
o the proliferation of handheld devices worldwide, which is represented by
our ownership in Broadcom, America Movil, and Apple.
These favorable trends increase the likelihood that our portfolio companies will
continue to achieve above-average earnings growth over the long-term--the key to
common stock price appreciation.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
SANDS CAPITAL INSTITUTIONAL GROWTH FUND AND THE RUSSELL 1000(R) GROWTH INDEX
[LINE CHART]
- ---------------------------------------
SANDS CAPITAL INSTITUTIONAL GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------
1 Year Since Inception
(27.81%) (5.58%)
- ---------------------------------------
date Sands Capital Institutional Growth Fund Russell 1000(R) Growth Index
---- --------------------------------------- ----------------------------
1/21/05 10,000 10,000
3/31/05 9,760 9,938
6/30/05 10,490 10,183
9/30/05 11,050 10,591
12/31/05 11,790 10,907
3/31/06 11,600 11,244
6/30/06 10,690 10,806
9/30/06 10,790 11,231
12/31/06 11,100 11,896
3/31/07 11,390 12,038
6/30/07 11,869 12,863
9/30/07 12,979 13,405
12/31/07 13,180 13,302
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The initial public offering commenced on January 21, 2005.
The performance of the above Fund does not reflect the deduction of taxes that
a shareholder would pay on Fund distributions or the redemption of Fund shares.
11
- --------------------------------------------------------------------------------
Tabular Presentation of Portfolios of Investments (Unaudited)
December 31, 2007
- --------------------------------------------------------------------------------
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.
================================================================================
JSAM INSTITUTIONAL LARGE CAP VALUE FUND
- --------------------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Financial Services 30.1
Producer Durables 20.5
Technology 12.0
Energy 10.5
Utilities 6.7
Health Care 3.5
Other 1.9
Materials and Processing 1.7
Consumer Staples 1.2
Autos and Transportation 0.5
Investment Fund 11.6
Other Assets/Liabilities (Net) (0.2)
-----
TOTAL 100.0
-----
================================================================================
================================================================================
SANDS CAPITAL INSTITUTIONAL GROWTH FUND
- --------------------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Health Care 25.1
Consumer Discretionary 23.7
Technology 16.6
Energy 12.6
Financial Services 11.8
Utilities 4.6
Consumer Staples 2.2
Autos and Transportation 1.9
Investment Fund 2.4
Other Assets/Liabilities (Net) (0.9)
-----
TOTAL 100.0
-----
================================================================================
================================================================================
JSAM INSTITUTIONAL VALUE FUND
- --------------------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Financial Services 36.9
Producer Durables 21.0
Energy 7.6
Technology 7.3
Consumer Discretionary 5.5
Materials and Processing 4.5
Autos and Transportation 2.1
Consumer Staples 1.5
Health Care 1.3
Investment Fund 11.2
Other Assets/Liabilities (Net) 1.1
-----
TOTAL 100.0
-----
================================================================================
12
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 2007
- --------------------------------------------------------------------------------
JSAM
INSTITUTIONAL JSAM SANDS CAPITAL
LARGE CAP INSTITUTIONAL INSTITUTIONAL
VALUE VALUE GROWTH
FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost $ 19,964,467 $ 33,118,043 $1,182,249,679
===================================================================================================================
At market value $ 15,950,930 $ 24,336,045 $1,387,460,667
Dividends and interest receivable 11,860 34,694 375,569
Receivable for capital shares sold 55,336 -- 1,800,530
Receivable for securities sold -- 408,077 12,651,249
Other assets -- -- 6,650
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 16,018,126 24,778,816 1,402,294,665
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 5,386 190 --
Payable for capital shares redeemed 87,158 -- 1,148,245
Payable for securities purchased -- 155,981 24,728,622
Payable to Advisor 9,443 17,194 923,958
Other accrued expenses and liabilities 3,702 758 --
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 105,689 174,123 26,800,825
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 15,912,437 $ 24,604,693 $1,375,493,840
===================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 21,974,918 $ 41,349,871 $1,149,203,581
Accumulated net investment loss -- (17) --
Accumulated net realized gains (losses) on investments (2,048,944) (7,963,163) 21,079,271
Net unrealized appreciation (depreciation) on investments (4,013,537) (8,781,998) 205,210,988
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 15,912,437 $ 24,604,693 $1,375,493,840
===================================================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 2,300,785 3,294,554 104,397,296
===================================================================================================================
Net asset value, offering price and redemption price per share $ 6.92 $ 7.47 $ 13.18
===================================================================================================================
See accompanying notes to financial statements.
13
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended December 31, 2007
- --------------------------------------------------------------------------------
JSAM
INSTITUTIONAL JSAM SANDS CAPITAL
LARGE CAP INSTITUTIONAL INSTITUTIONAL
VALUE VALUE GROWTH
FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (A) $ 434,176 $ 688,780 $ 6,493,553
=====================================================================================================================
EXPENSES
Unified management fee 152,472 198,551 10,412,595
Registration fees 12,513 6,065 64,260
Miscellaneous expenses 2,588 2,369 184,333
- ---------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 167,573 206,985 10,661,188
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 266,603 481,795 (4,167,635)
- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions (341,595) (7,881,253) 63,629,430
Net change in unrealized appreciation/ depreciation on investments (5,590,818) (9,005,472) 163,397,854
- ---------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS (5,932,413) (16,886,725) 227,027,284
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (5,665,810) $ (16,404,930) $ 222,859,649
=====================================================================================================================
(A) Net of foreign tax withholding of: $ 7,429 $ 9,027 $ 48,744
See accompanying notes to financial statements.
14
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
JSAM
INSTITUTIONAL JSAM SANDS CAPITAL
LARGE CAP INSTITUTIONAL INSTITUTIONAL
VALUE VALUE GROWTH
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income
(loss) $ 266,603 $ 217,154 $ 481,795 $ 20,048 $ (4,167,635) $ (4,449,143)
Net realized gains
(losses) from
security
transactions (341,595) 1,410,865 (7,881,253) 1,023,448 63,629,430 (41,457,857)
Net change in
unrealized
appreciation/
depreciation
on investments (5,590,818) 1,400,277 (9,005,472) 97,632 163,397,854 (2,489,784)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN
NET ASSETS FROM
OPERATIONS (5,665,810) 3,028,296 (16,404,930) 1,141,128 222,859,649 (48,396,784)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income (266,877) (217,086) (481,793) (20,116) -- --
From net realized
gains (2,017,287) (1,204,832) (275,244) (939,440) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET
ASSETS FROM
DISTRIBUTIONS TO
SHAREHOLDERS (2,284,164) (1,421,918) (757,037) (959,556) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold 5,735,919 6,337,199 43,367,825 3,183,262 420,293,245 912,543,690
Reinvested
distributions 2,181,378 1,337,168 509,170 954,889 -- --
Payments for shares
redeemed (5,901,020) (2,107,716) (12,312,776) (1,831,273) (502,110,289) (245,198,366)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS FROM SHARE
TRANSACTIONS 2,016,277 5,566,651 31,564,219 2,306,878 (81,817,044) 667,345,324
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS (5,933,697) 7,173,029 14,402,252 2,488,450 141,042,605 618,948,540
NET ASSETS
Beginning of year 21,846,134 14,673,105 10,202,441 7,713,991 1,234,451,235
615,502,695
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $ 15,912,437 $ 21,846,134 $ 24,604,693 $ 10,202,441 $ 1,375,493,840 $ 1,234,451,235
====================================================================================================================================
ACCUMULATED NET
INVESTMENT LOSS $ -- $ 176 $ (17) $ -- $ -- $ --
====================================================================================================================================
See accompanying notes to financial statements.
15
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
JSAM INSTITUTIONAL LARGE CAP VALUE FUND
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
DECEMBER 31, ENDED
------------------------- DECEMBER 31,
2007 2006 2005(A)
- ----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 10.95 $ 9.97 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.13 0.12 0.05
Net realized and unrealized gains (losses) on investments (3.00) 1.59 0.09
- ----------------------------------------------------------------------------------------------------------
Total from investment operations (2.87) 1.71 0.14
Less distributions:
Dividends from net investment income (0.13) (0.12) (0.05)
Distributions from net realized gains (1.03) (0.61) (0.12)
- ----------------------------------------------------------------------------------------------------------
Total distributions (1.16) (0.73) (0.17)
- ----------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 6.92 $ 10.95 $ 9.97
==========================================================================================================
Total return (26.37%) 17.32% 1.43%(B)
==========================================================================================================
Net assets at end of period (000's) $ 15,912 $ 21,846 $ 14,673
==========================================================================================================
Ratio of net expenses to average net assets 0.77% 0.75% 0.71%(C)
Ratio of net investment income to average net assets 1.22% 1.18% 1.24%(C)
Portfolio turnover rate 72% 82% 45%(B)
(A) Represents the period from commencement of operations (June 20, 2005)
through December 31, 2005.
(B) Not annualized.
(C) Annualized.
See accompanying notes to financial statements.
16
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
JSAM INSTITUTIONAL VALUE FUND
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
DECEMBER 31, ENDED
------------------------- DECEMBER 31,
2007 2006 2005(A)
- ----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 10.65 $ 10.33 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.17 0.02 0.02
Net realized and unrealized gains (losses) on investments (3.10) 1.45 0.45
- ----------------------------------------------------------------------------------------------------------
Total from investment operations (2.93) 1.47 0.47
Less distributions:
Dividends from net investment income (0.17) (0.02) (0.02)
Distributions from net realized gains (0.08) (1.13) (0.12)
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.25) (1.15) (0.14)
- ----------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 7.47 $ 10.65 $ 10.33
==========================================================================================================
Total return (27.81%) 14.35% 4.69%(B)
==========================================================================================================
Net assets at end of period (000's) $ 24,605 $ 10,202 $ 7,714
==========================================================================================================
Ratio of net expenses to average net assets 0.83% 0.90% 0.83%(C)
Ratio of net investment income to average net assets 1.94% 0.24% 0.34%(C)
Portfolio turnover rate 128% 88% 43%(B)
(A) Represents the period from commencement of operations (June 17, 2005)
through December 31, 2005.
(B) Not annualized.
(C) Annualized.
See accompanying notes to financial statements.
17
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
SANDS CAPITAL INSTITUTIONAL GROWTH FUND
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
DECEMBER 31, ENDED
------------------------- DECEMBER 31,
2007 2006 2005(A)
- ----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.10 $ 11.79 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.04) (0.04) (0.02)
Net realized and unrealized gains (losses) on investments 2.12 (0.65) 1.81
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 2.08 (0.69) 1.79
- ----------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 13.18 $ 11.10 $ 11.79
==========================================================================================================
Total return 18.74% (5.85%) 17.90%(B)
==========================================================================================================
Net assets at end of period (000's) $1,375,494 $1,234,451 $ 615,503
==========================================================================================================
Ratio of net expenses to average net assets 0.80% 0.80% 0.79%(C)
Ratio of net investment loss to average net assets (0.31%) (0.44%) (0.45%)(C)
Portfolio turnover rate 36% 28% 16%(B)
(A) Represents the period from commencement of operations (January 21, 2005)
through December 31, 2005.
(B) Not annualized.
(C) Annualized.
See accompanying notes to financial statements.
18
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 2007
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Touchstone Institutional Funds Trust (the Trust), formerly Constellation
Institutional Portfolios, a Delaware Business Trust, is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company with three active funds, all of which are non-diversified. The financial
statements included herein are those of the Touchstone JSAM Institutional Large
Cap Value Fund (formerly CIP JSAM Large Cap Value Portfolio), Touchstone JSAM
Institutional Value Fund (formerly CIP JSAM Value Portfolio) and Touchstone
Sands Capital Institutional Growth Fund (formerly CIP Sands Capital
Institutional Growth Portfolio), each a "Fund" and collectively the "Funds". The
Funds commenced operations on June 20, 2005, June 17, 2005 and January 21, 2005,
respectively. On January 30, 2008, the Touchstone Mazama Institutional Growth
Fund will be added to the Trust. The Fund's investment objective will be to seek
long term capital appreciation and will achieve its objective by investing
primarily in common stocks of companies with market capitalizations found within
the Russell Midcap Growth Index. The Fund will rely on its sub-advisor, Mazama
Capital Management to manage the Fund's investments and make daily portfolio
decisions.
The Funds are registered to offer one class of shares. The assets of each Fund
are segregated, and a shareholder's interest is limited to the Fund in which
shares are held. The Funds' prospectus provides a description of each Fund's
investment objectives, policies, and strategies along with information on the
class of shares currently being offered.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Funds:
SECURITY VALUATION - The Funds' portfolio securities are valued as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). Portfolio securities traded on stock exchanges are valued
at the last sale price and portfolio securities quoted by NASDAQ are valued at
the NASDAQ Official Closing Price (NOCP). Securities not traded on a particular
day, or for which the last sale price is not readily available, are valued at
their last broker-quoted bid prices as obtained from one or more of the major
market makers for such securities by an independent pricing service. Securities
for which market quotations or the NOCP are not readily available are valued
based on fair value as determined by or under the direction of the Board of
Trustees. Money market instruments and other debt securities with a remaining
maturity of less than 60 days are valued at amortized cost, which approximates
market. Shares of open-end mutual funds in which the Funds invest are valued at
their respective net asset values as reported by the underlying funds.
In September 2006, the FASB issued Statement on Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements." This standard establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. SFAS
157 applies to fair value measurements already required or permitted by existing
standards. SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal
years. The changes to current generally accepted accounting principles (GAAP)
from the application of this Statement relate to the definition of fair value,
the methods used to measure fair value, and the expanded disclosures about fair
value measurements. As of December 31, 2007, the Funds do not believe the
adoption of SFAS No. 157 will impact the amounts reported in the financial
statements, however, additional disclosures may be required about the inputs
used to develop the measurements and the effect of certain of the measurements
reported on the statement of changes in nets assets for a fiscal period.
19
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
SHARE VALUATION - The net asset value per share is calculated each business day.
It is computed by dividing the assets of the Fund, less its liabilities, by the
number of outstanding shares of the Fund.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date. Costs used in determining
realized gains and losses on the sales of investment securities are those of the
specific securities sold.
DIVIDENDS AND DISTRIBUTIONS - The Funds pay distributions of net income
quarterly. Any net realized capital gains on sales of securities are distributed
to shareholders at least annually.
ESTIMATES - The preparation of financial statements in conformity with U.S. GAAP
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 reported period. Actual results could differ from
those estimates.
EXPENSES - The Funds pay a unified management fee to Touchstone Advisors, Inc.
(the Advisor) for providing or procuring advisory, administration and other
services. The Advisor is responsible for compensating any third party engaged to
provide services under its supervision and is also responsible for payment of
the fees of the independent Trustees, custodian, independent auditor, legal
counsel (excluding costs in connection with certain litigation or administrative
actions), and the transfer and dividend disbursing agent. The Funds will pay all
state registration fees and charges incurred related to printing and mailing to
existing shareholders prospectuses, statement of additional information, proxy
solicitation material, shareholder reports and EDGAR filings.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments and U.S. Government
securities) were as follows for the year ended December 31, 2007:
JSAM JSAM SANDS CAPITAL
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
LARGE CAP VALUE VALUE GROWTH
FUND FUND FUND
- --------------------------------------------------------------------------------
Cost of Purchases $ 14,004,984 $ 58,605,930 $ 474,630,332
Proceeds from Sales $ 14,078,352 $ 28,819,264 $ 569,858,190
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
4. TRANSACTIONS WITH AFFILIATES
Certain officers and Trustees of the Trust are also officers of the Advisor,
Touchstone Securities, Inc. (the Distributor) or the Sub-Administrator (JPMorgan
Chase Bank, N.A., "JPMorgan" and formerly Integrated Investment Services, Inc.).
Such officers are paid no fees by the Trust for serving as officers and Trustees
of the Trust.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Funds and the Investment Manager are permitted to operate in a
"Manager-of-Managers" structure.
As of December 31, 2007, 77% of the JSAM Institutional Large Cap Value Fund was
owned by the Western and Southern Life Insurance Company (Western-Southern), the
parent company of the Advisor and Distributor.
5. MANAGEMENT AGREEMENT
The Trust and the Advisor are parties to a management agreement under which the
Advisor receives a fee, calculated daily and paid monthly, of 0.70%, 0.80% and
0.78% per annum of the average daily net assets of the JSAM Institutional Large
Cap Value Fund, JSAM Institutional Value Fund and Sands Capital Institutional
Growth Fund, respectively. Under the management agreement, Touchstone
continuously reviews, supervises and administers the Funds' investment programs,
subject to the supervision of and policies established by the Board of Trustees.
Under the management agreement, Touchstone also provides administrative services
to the Trust and pays all operating expenses on the Trust's behalf, excluding
BlueSky state registration fees and charges incurred related to printing and
mailing to existing shareholders prospectuses, statement of additional
information, proxy solicitation material, shareholder reports and EDGAR filings.
JS Asset Management, LLC ("JSAM"), a SEC registered adviser, serves as the
sub-adviser to the JSAM Institutional Large Cap Value Fund and JSAM
Institutional Value Fund and makes investment decisions for the Funds and also
ensures compliance with the Funds' investment policies and guidelines.
Sands Capital Management, LLC, a SEC registered adviser, serves as the
sub-adviser to the Sands Capital Institutional Growth Fund and makes investment
decisions for the Fund and also ensures compliance with the Fund's investment
policies and guidelines.
The Advisor, (not the Funds) pays the Sub-Advisors a fee for their services.
6. OTHER SERVICE PROVIDERS
Prior to September 17, 2007, PFPC Inc. ("PFPC") served as the transfer agent and
dividend-disbursing agent for the Trust under a transfer agency agreement with
the Trust. PFPC also served as the sub-administrator and fund accounting agent
to the Trust. PFPC Trust Co. continues to provide custodial services to the
Trust.
Effective September 17, 2007, JPMorgan serves as the sub-administrator to the
Trust under a sub-administration agreement with Touchstone.
The Advisor, not the Funds, compensates PFPC, PFPC Trust Co. and JPMorgan for
their services.
21
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
7. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
JSAM
INSTITUTIONAL JSAM SANDS CAPITAL
LARGE CAP INSTITUTIONAL INSTITUTIONAL
VALUE VALUE GROWTH
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
Shares sold 633,028 596,776 3,805,280 299,148 34,610,503 81,734,037
Shares reinvested 308,470 124,285 64,513 90,607 -- --
Shares redeemed (635,908) (198,237) (1,533,278) (178,523) (41,425,271) (22,725,835)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding 305,590 522,824 2,336,515 211,232 (6,814,768) 59,008,202
Shares outstanding, beginning of year 1,995,195 1,472,371 958,039 746,807 111,212,064 52,203,862
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding, end of year 2,300,785 1,995,195 3,294,554 958,039 104,397,296 111,212,064
====================================================================================================================================
8. FEDERAL INCOME TAXES
FEDERAL INCOME TAX - It is each Fund's policy to continue to comply with the
special provisions of the Internal Revenue Code applicable to regulated
investment companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare and pay as
dividends in each calendar year at least 98% of its net realized capital gains
(earned during the twelve months ending October 31) plus undistributed amounts
from prior years.
The tax character of distributions paid for the years ended December 31, 2007
and 2006 was as follows:
JSAM
INSTITUTIONAL JSAM SANDS CAPITAL
LARGE CAP INSTITUTIONAL INSTITUTIONAL
VALUE VALUE GROWTH
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
2007 2006 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
From ordinary income $ 1,448,818 $ 1,255,961 $ 731,010 $ 861,982 $ -- $ --
From long-term capital gains 835,346 165,957 26,027 97,574 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,284,164 $ 1,421,918 $ 757,037 $ 959,556 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
The following information is computed on a tax basis for each item as of
December 31, 2007:
JSAM
INSTITUTIONAL JSAM SANDS CAPITAL
LARGE CAP INSTITUTIONAL INSTITUTIONAL
VALUE VALUE GROWTH
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Tax cost of portfolio investments $ 20,187,389 $ 33,183,474 $ 1,186,469,322
====================================================================================================================================
Gross unrealized appreciation 1,180,407 716,791 318,337,545
Gross unrealized depreciation (5,416,866) (9,564,220) (117,346,200)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) (4,236,459) (8,847,429)
200,991,345
Post-October losses (1,826,022) (4,021,846) --
Capital loss carryforward -- (3,875,886) --
Undistributed ordinary income -- 173 --
Undistributed long-term capital gains -- -- 25,298,914
Other temporary differences -- (190) --
====================================================================================================================================
Accumulated earnings (deficit) $ (6,062,481) $ (16,745,178) $ 226,290,259
====================================================================================================================================
The difference between the tax cost of portfolio investments and the financial
statement cost is primarily due to wash sales.
As of December 31, 2007, the Funds had the following capital loss carryforwards
for federal income tax purposes.
EXPIRES
FUND AMOUNT DECEMBER 31,
- --------------------------------------------------------------------------------
JSAM Institutional Value Fund $ 3,875,886 2015
The capital loss carryforwards may be utilized in future years to offset net
realized capital gain, if any, prior to distributing such gains to shareholders.
During the year ended December 31, 2007, the Funds utilized capital loss
carryforwards as follows:
AMOUNT
- --------------------------------------------------------------------------------
Sands Capital Institutional Growth Fund $ 38,746,046
23
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
Certain reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements have been made to the components
of net assets. 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. The following reclassifications of net
investment income (loss) have been made to the following Funds for the year
ended December 31, 2007:
UNDISTRIBUTED ACCUMULATED
PAID-IN NET INVESTMENT NET REALIZED
CAPITAL INCOME (LOSS) LOSSES
- --------------------------------------------------------------------------------------------------
JSAM Institutional Large Cap Value Fund $ (6) $ 98 $ (92)
JSAM Institutional Value Fund 19 (19) --
Sands Capital Institutional Growth Fund (4,167,635) 4,167,635 --
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 a more-likely-than-not threshold would be recorded
as a tax benefit 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. The Funds have analyzed their tax positions
taken on Federal income tax returns for all open tax years (tax years ended
December 31, 2004 through 2007) for purposes of implementing FIN 48 and have
concluded that no provision for income tax is required in their financial
statements.
9. 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.
10. CONCENTRATIONS/RISKS
Each Fund may invest a high percentage of its assets in specific sectors of the
market in order to achieve a potentially greater investment return. As a result,
the Funds may be more susceptible to economic, political, and regulatory
developments in a particular sector of the market, positive or negative, and may
experience increased volatility on the Funds' net asset value and magnified
effect on the total return.
11. SPECIAL SHAREHOLDERS' MEETING
A special meeting of shareholders of the Trust was held February 5, 2007 in
order to elect John F. Barrett, Richard L. Brenan, H.Jerome Lerner, and John P.
Zanotti to the Trust's Board of Trustees. The proposed Trustees were approved as
follows:
SHARES FOR SHARES WITHHELD
- --------------------------------------------------------------------------------
John F. Barrett 86,039,860 301,561
Richard L. Brenan 86,043,357 298,064
H. Jerome Lerner 85,921,521 419,900
John P. Zanotti 86,044,380 297,041
24
- --------------------------------------------------------------------------------
Portfolio of Investments
JSAM Institutional Large Cap Value Fund - December 31, 2007
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 88.6% SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 30.1%
Citigroup, Inc. 21,750 $ 640,320
Fannie Mae 29,450 1,177,411
Freddie Mac 31,550 1,074,909
Genworth Financial, Inc. - Class A 33,960 864,282
Wachovia Corp. 11,700 444,951
Washington Mutual, Inc. 42,700 581,147
- --------------------------------------------------------------------------------
4,783,020
- --------------------------------------------------------------------------------
PRODUCER DURABLES -- 20.5%
Alcatel-Lucent - ADR 104,100 762,011
Centex Corp. 10,300 260,178
D.R. Horton, Inc. 52,000 684,840
Navistar International* 9,100 493,220
Nortel Networks Corp.* 11,610 175,195
Pulte Homes, Inc. 60,300 635,562
Tyco International, Ltd. 6,150 243,848
- --------------------------------------------------------------------------------
3,254,854
- --------------------------------------------------------------------------------
TECHNOLOGY -- 12.0%
AU Optronics Corp. 28,873 554,362
BearingPoint, Inc.* 147,800 418,274
Dell, Inc.* 20,000 490,200
Motorola, Inc. 28,300 453,932
- --------------------------------------------------------------------------------
1,916,768
- --------------------------------------------------------------------------------
ENERGY -- 10.5%
Peabody Energy Corp. 13,900 856,796
Reliant Energy, Inc.* 31,100 816,064
- --------------------------------------------------------------------------------
1,672,860
- --------------------------------------------------------------------------------
UTILITIES -- 6.7%
Mirant Corp.* 11,400 444,372
Sprint Nextel Corp. 47,800 627,614
- --------------------------------------------------------------------------------
1,071,986
- --------------------------------------------------------------------------------
HEALTH CARE -- 3.5%
Omnicare, Inc. 6,700 152,827
Sanofi-Aventis 9,000 409,770
- --------------------------------------------------------------------------------
562,597
- --------------------------------------------------------------------------------
OTHER -- 1.9%
iShares Russell 1000 Value Index 3,700 297,295
- --------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 1.7%
Abitibibowater, Inc. 13,443 277,060
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 1.2%
Safeway, Inc. 3,100 106,051
Tyson Foods, Inc. - Class A 5,400 82,782
- --------------------------------------------------------------------------------
188,833
- --------------------------------------------------------------------------------
AUTOS AND TRANSPORTATION -- 0.5%
Ford Motor Co.* 11,300 76,049
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 14,101,322
- --------------------------------------------------------------------------------
INVESTMENT FUND -- 11.6%
PNC Bank Money
Market Fund, 3.51% ^ 1,849,608 $ 1,849,608
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.2%
(Cost $19,964,467) $ 15,950,930
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.2%) (38,493)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 15,912,437
================================================================================
* Non-income producing security.
^ The rate shown is the 7-day effective yield as of December 31, 2007.
ADR American Depository Receipt.
See accompanying notes to financial statements.
25
- --------------------------------------------------------------------------------
Portfolio of Investments
JSAM Institutional Value Fund - December 31, 2007
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 87.7% SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 36.9%
American Equity Investment
Life Holding Co. 105,800 $ 877,082
Annaly Capital Management, Inc. 21,200 385,416
BFC Financial Corp. - Class A* 134,900 203,699
CIT Group, Inc. 17,100 410,913
Citigroup, Inc. 36,900 1,086,336
Conseco, Inc.* 23,900 300,184
Fannie Mae 43,500 1,739,129
Freddie Mac 50,400 1,717,128
Genworth Financial, Inc. - Class A 41,286 1,050,729
New York Community Bancorp, Inc. 33,400 587,172
Oriental Financial Group, Inc. 54,600 732,186
- --------------------------------------------------------------------------------
9,089,974
- --------------------------------------------------------------------------------
PRODUCER DURABLES -- 21.0%
Alcatel-Lucent - ADR 131,100 959,652
Cavalier Homes, Inc.* 152,000 296,400
Champion Enterprises, Inc.* 5,500 51,810
D.R. Horton, Inc. 80,400 1,058,868
MasTec, Inc.* 8,600 87,462
Meritage Homes Corp.* 35,800 521,606
Navistar International Corp.* 13,600 737,120
Pulte Homes, Inc. 111,300 1,173,102
Ryland Group, Inc. 10,000 275,500
- --------------------------------------------------------------------------------
5,161,520
- --------------------------------------------------------------------------------
ENERGY -- 7.6%
Arch Coal, Inc. 18,500 831,205
Reliant Energy, Inc.* 39,400 1,033,856
- --------------------------------------------------------------------------------
1,865,061
- --------------------------------------------------------------------------------
TECHNOLOGY -- 7.3%
Alliance Semiconductor Corp. 39,100 62,560
AU Optronics Corp. - ADR 37,358 717,274
BearingPoint, Inc.* 276,700 783,061
Qimonda AG - ADR* 32,100 229,515
- --------------------------------------------------------------------------------
1,792,410
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 5.5%
Hudson Highland Group, Inc.* 64,700 544,127
Libbey, Inc. 47,000 744,480
Office Depot, Inc.* 5,000 69,550
- --------------------------------------------------------------------------------
1,358,157
- --------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 4.5%
Abitibibowater, Inc. 53,285 1,098,204
- --------------------------------------------------------------------------------
AUTOS AND TRANSPORTATION -- 2.1%
ArvinMeritor, Inc. 11,500 134,895
Cooper Tire & Rubber Co. 13,700 227,146
Fleetwood Enterprises, Inc.* 27,600 165,048
- --------------------------------------------------------------------------------
527,089
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 1.5%
Pilgrim's Pride Corp. - Class B 12,600 364,770
- --------------------------------------------------------------------------------
HEALTH CARE -- 1.3%
Omnicare, Inc. 14,500 330,745
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 21,587,930
- --------------------------------------------------------------------------------
INVESTMENT FUND -- 11.2%
PNC Bank Money
Market Fund, 3.51% ^ 2,748,115 $ 2,748,115
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 98.9%
(Cost $33,118,043) $ 24,336,045
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.1% 268,648
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 24,604,693
================================================================================
* Non-income producing security.
^ The rate shown is the 7-day effective yield as of December 31, 2007.
ADR American Depository Receipt.
See accompanying notes to financial statements.
26
- --------------------------------------------------------------------------------
Portfolio of Investments
Sands Capital Institutional Growth Fund - December 31, 2007
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 98.5% SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH CARE -- 25.1%
Abraxis BioScience, Inc.* 114,275 $ 7,858,692
Allergan, Inc. 962,700 61,843,848
APP Pharmaceuticals, Inc.* 457,100 4,694,417
Cerner Corp.* 325,700 18,369,480
Genentech, Inc.* 668,100 44,809,467
Genzyme Corp.* 834,000 62,082,960
Intuitive Surgical, Inc.* 161,800 52,504,100
Stryker Corp. 444,000 33,175,680
Teva Pharmaceutical Industries, Ltd. 610,000 28,352,800
Varian Medical Systems, Inc.* 643,200 33,549,312
- --------------------------------------------------------------------------------
347,240,756
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 23.7%
Amazon.com, Inc.* 238,289 22,075,093
Google, Inc. - Class A* 197,100 136,290,708
Iron Mountain, Inc.* 516,600 19,124,532
Las Vegas Sands Corp.* 396,300 40,838,715
Lowe's Cos., Inc. 1,455,400 32,921,148
Starbucks Corp.* 2,593,400 53,086,898
Yahoo!, Inc.* 904,605 21,041,112
- --------------------------------------------------------------------------------
325,378,206
- --------------------------------------------------------------------------------
TECHNOLOGY -- 16.6%
Apple, Inc.* 393,200 77,885,056
Broadcom Corp. - Class A* 1,906,700 49,841,138
EMC Corp.* 3,163,900 58,627,067
Salesforce.com, Inc.* 658,700 41,293,903
- --------------------------------------------------------------------------------
227,647,164
- --------------------------------------------------------------------------------
ENERGY -- 12.6%
FMC Technologies, Inc.* 321,600 18,234,720
National Oilwell Varco, Inc.* 1,092,340 80,243,296
Schlumberger Ltd. 760,400 74,800,548
- --------------------------------------------------------------------------------
173,278,564
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 11.8%
CME Group, Inc. 91,300 62,631,800
InterContinental Exchange, Inc.* 339,200 65,296,000
Moody's Corp. 956,400 34,143,480
- --------------------------------------------------------------------------------
162,071,280
UTILITIES -- 4.6%
America Movil S.A. - ADR 1,021,800 62,728,302
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 2.2%
Walgreen Co. 783,200 29,824,256
- --------------------------------------------------------------------------------
AUTOS AND TRANSPORTATION -- 1.9%
Expeditors International
of Washington, Inc. 583,000 26,048,440
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 1,354,216,968
- --------------------------------------------------------------------------------
INVESTMENT FUND -- 2.4%
BlackRock Institutional
Money Market Trust, 4.78% ^ 33,243,699 $ 33,243,699
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.9%
(Cost $1,182,249,679) $ 1,387,460,667
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.9%) (11,966,827)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 1,375,493,840
================================================================================
* Non-income producing security.
^ The rate shown is the 7-day effective yield as of December 31, 2007.
ADR American Depository Receipt.
See accompanying notes to financial statements.
27
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
Touchstone Institutional Funds Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Touchstone Institutional Funds Trust,
(comprised of the Touchstone JSAM Institutional Large Cap Value Fund, Touchstone
JSAM Institutional Value Fund, and Touchstone Sands Capital Institutional Growth
Fund, the "Funds") (formerly Constellation Institutional Portfolios comprised of
the former CIP JSAM Institutional Large Cap Value Fund, CIP JSAM Institutional
Value Fund, and CIP Sands Capital Institutional Growth Fund,), as of December
31, 2007, and the related statements of operations for the year then ended, and
the statements of changes in net assets and financial highlights for each of the
two years in the period then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended December 31,
2005 were audited by other auditors, whose report dated February 22, 2006,
expressed an unqualified opinion on those financial statements and highlights.
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 December 31, 2007, by correspondence with
the custodian and brokers, or by other appropriate auditing procedures where
replies from brokers were not received. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios comprising Touchstone Institutional Funds Trust at
December 31, 2007, the results of their operations for the year then ended, and
the changes in their net assets and financial highlights for each of the two
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 22, 2008
28
- --------------------------------------------------------------------------------
Other Items (Unaudited)
- --------------------------------------------------------------------------------
DIVIDEND RECEIVED DEDUCTION
For corporate shareholders, the following ordinary dividends paid during the
year ended December 31, 2007 qualify for the corporate dividends received
deduction:
JSAM Institutional Large Cap Value Fund 26%
JSAM Institutional Value Fund 69%
PROXY VOTING DISCLOSURE
The Sub-Advisors are responsible for exercising the voting rights associated
with the securities purchased and held by the Funds. A description of the
policies and procedures that the Sub-Advisors use in fulfilling this
responsibility and information regarding how those proxies were voted during the
twelve month period ended June 30 are available without charge upon request by
calling toll free 1.800.543.0407. These items are also available on the
Securities and Exchange Commission's (the Commission) website at
http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The Trust files a complete listing of portfolio holdings for each Fund as of the
end of the first and third quarters of each fiscal year on Form N-Q. The
complete listing (i) is available on the Commission's website; (ii) may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC;
and (iii) will be made available to shareholders upon request by calling
1.800.543.0407. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Funds, you incur two types of costs: (1) transaction
costs, including reinvested dividends or other distributions; and (2) ongoing
costs, including investment advisory fees; distribution (12b-1) fees; and other
Fund expenses. This example is intended to help you understand your ongoing
costs (in dollars) of investing in the Funds and to compare these costs with the
ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (July 1, 2007 through December 31, 2007).
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 December 31, 2007" to estimate the expenses you paid on your
account during this period.
29
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Funds' actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Funds' actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
EXPENSES
NET EXPENSE BEGINNING ENDING PAID DURING
RATIO ACCOUNT ACCOUNT THE SIX MONTHS
ANNUALIZED VALUE VALUE ENDED
DECEMBER 31, JULY 1, DECEMBER 31, DECEMBER 31,
2007 2007 2007 2007*
- -----------------------------------------------------------------------------------------------------------
JSAM INSTITUTIONAL LARGE CAP VALUE FUND
Actual 0.80% $ 1,000.00 $ 684.90 $ 3.38
Hypothetical 0.80% $ 1,000.00 $ 1,021.20 $ 4.05
JSAM INSTITUTIONAL VALUE FUND
Actual 0.83% $ 1,000.00 $ 663.10 $ 3.47
Hypothetical 0.83% $ 1,000.00 $ 1,021.03 $ 4.22
SANDS CAPITAL INSTITUTIONAL GROWTH FUND
Actual 0.78% $ 1,000.00 $ 1,110.40 $ 4.17
Hypothetical 0.78% $ 1,000.00 $ 1,021.25 $ 3.99
* 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).
ADVISORY AGREEMENT APPROVAL DISCLOSURE
At a meeting held on November 15, 2007, the Board of Trustees (the "Board" or
"Trustees") of the Touchstone Institutional Funds Trust (the "Trust"), and by a
separate vote, the Independent Trustees of the Trust, approved the continuance
of the Management Agreement between the Trust and the Advisor with respect to
each Fund of the Trust and of the Sub-Advisory Agreement with respect to each
Fund between the Advisor and the respective Sub-Advisor.
In determining whether to approve the continuation of the Management Agreement
and the Sub-Advisory Agreements, the Advisor furnished information necessary for
a majority of the Independent Trustees to make the determination that the
continuance of the Management Agreement and of the respective Sub-Advisory
Agreement was in the best interests of each of the Funds and its respective
shareholders. The information provided to the Board included: (1) industry data
comparing advisory fees and expense ratios of comparable investment companies;
(2) comparative performance information; (3) the Advisor and its affiliates'
revenues and costs of providing services to the Funds; and (4) information about
the Advisor's and Sub-Advisor's personnel. Prior to voting, the Independent
Trustees reviewed the proposed continuance of the Management Agreement and the
Sub-Advisory Agreements with management and with experienced independent legal
counsel and received materials from such counsel discussing the legal standards
for their consideration of the proposed continuation of the Management Agreement
and the Sub-Advisory Agreement with respect to each Fund. The Independent
Trustees also reviewed the proposed continuation of the Management Agreement and
the Sub-Advisory Agreement with respect to each of the Funds in private sessions
with independent legal counsel at which no representatives of management were
present.
30
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
In approving the Funds' Management Agreement, the Board considered various
factors, among them: (1) the nature, extent and quality of services provided to
the Funds, including the personnel providing services; (2) the Advisor's
compensation and profitability; (3) a comparison of fees and performance with
other advisers; (4) economies of scale; and (5) the terms of the Management
Agreement. The Board's analysis of these factors is set forth below. The
Independent Trustees were advised by independent legal counsel throughout the
process.
Nature, Extent and Quality of Advisor Services. The Board considered the level
and depth of knowledge of the Advisor, including the professional experience and
qualifications of senior personnel. The Board discussed the Advisor's
effectiveness in monitoring the performance of each Sub-Advisor and the
Advisor's timeliness in responding to performance issues. In evaluating the
quality of services provided by the Advisor, the Board took into account its
familiarity with the Advisor's senior management through Board meetings,
discussions and reports during the preceding year. The Board also took into
account the Advisor's compliance policies and procedures. The quality of
administrative and other services, including the Advisor's role in coordinating
the activities of the Funds' other service providers, was also considered. The
Board also considered the Advisor's relationship with its affiliates and the
resources available to them, as well as any potential conflicts of interest. The
Trustees concluded that they were satisfied with the nature, extent and quality
of services provided to each Fund by the Advisor under the Management Agreement.
Advisor's Compensation and Profitability. The Board took into consideration the
financial condition and profitability of the Advisor and its affiliates and the
direct and indirect benefits derived by the Advisor and its affiliates from the
Advisor's relationship with the Funds. The information considered by the Board
included operating profit margin information for the Advisor's business as a
whole. The Board noted that the Advisor pays the Sub-Advisors' sub-advisory fees
out of the advisory fees the Advisor receives from the Funds. The Board reviewed
the profitability of the Advisor's relationship with the Funds both before and
after tax expenses and whether the Advisor has the financial wherewithal to
continue to provide a high level of services to the Funds, noting the ongoing
commitment of the Advisor's parent company with respect to providing support and
resources as needed. The Board also considered that the Funds' distributor, an
affiliate of the Advisor, receives Rule 12b-1 distribution fees from the Funds
and receives a portion of the sales charges on sales or redemptions of certain
classes of shares. The Board also noted that the Advisor derives benefits to its
reputation and other benefits from its association with the Funds.
The Board recognized that the Advisor should be entitled to earn a reasonable
level of profits in exchange for the level of services it provides to each Fund
and the entrepreneurial risk that it assumes as Advisor. Based upon their
review, the Trustees concluded that the Advisor's level of profitability, if
any, from its relationship with each Fund was reasonable and not excessive.
Expenses and Performance. The Board compared the respective advisory fees and
total expense ratios for each of the Funds with various comparative data,
including the median and average advisory fees and total expense ratios of each
Fund's respective peer group. The Board also considered the Funds' respective
performance results during the six-months, twelve-months, and twenty-four months
ended September 30, 2007 and noted that the Board reviews on a quarterly basis
detailed information about each Fund's performance results, portfolio
composition and investment strategies.
The Board also considered the effect of each Fund's growth and size on its
performance and expenses. The Board noted that the sub-advisory fees under the
Sub-Advisory Agreement with respect to each Fund were paid by the Advisor out of
the advisory fees it receives from the Fund and the impact of such sub-advisory
fees on the profitability of the Advisor. In reviewing the respective expense
ratios and performance of each of the Funds, the Board also took into account
the nature, extent and quality of the services provided by the Advisor and its
affiliates.
31
The Board considered, among other data, the specific factors and related
conclusions set forth below with respect to each Fund:
JSAM Institutional Large Cap Value Fund. The Fund's advisory fee and total
expense ratio were above the median and below the median, respectively, of its
peer group. The Fund's performance for the six-months, twelve-months, and
twenty-four months ended September 30, 2007 was in the 4th quartile of its peer
group. The Board took into account management's discussion of the Fund's
performance. Based upon their review, the Trustees concluded that the Fund's
overall performance was being addressed and that the advisory fee was reasonable
in light of the high quality of services received by the Fund from the Advisor
and the other factors considered.
JSAM Institutional Value Fund. The Fund's advisory fee and total expense ratio
were above and below the median, respectively, of its peer group. The Fund's
performance for the six-months, twelve-months, and twenty-four months ended
September 30, 2007 was in the 4th quartile of its peer group. The Board took
into account management's discussion regarding the Fund's performance. Based
upon their review, the Trustees concluded that the Fund's performance was being
addressed and that the advisory fee was reasonable in light of the high quality
of services received by the Fund from the Advisor and the other factors
considered.
Sands Capital Institutional Growth Fund. The Fund's advisory fee and total
expense ratio were above the median and below the median, respectively, of its
peer group. The Fund's performance for the six-months and twelve-months ended
September 30, 2007 was in the 2nd quartile of its peer group. Based upon their
review, the Trustees concluded that the Fund's performance was satisfactory and
that the advisory fee was reasonable in light of the high quality of services
received by the Fund from the Advisor and the other factors considered.
Economies of Scale. The Board considered the effect of each Fund's current size
and potential growth on its performance and fees. The Board took into account
management's discussion of the Funds' advisory fee structure. The Board
considered the effective advisory fees under the Management Agreement as a
percentage of assets at different asset levels and possible economies of scale
that might be realized if the assets of each Fund increase. The Board noted that
if a Fund's assets increase over time, the Fund might realize other economies of
scale if assets increase proportionally more than certain other expenses.
Conclusion. In considering the renewal of the Funds' Management Agreement, the
Board, including the Independent Trustees, did not identify any single factor as
controlling, and each Trustee attributed different weights to the various
factors. The Trustees evaluated all information available to them on a
Fund-by-Fund basis, and their determinations were made separately with respect
to each Fund. The Board reached the following conclusions regarding the Funds'
Management Agreement with the Advisor, among others: (a) the Advisor had
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Management Agreement; (b) the Advisor maintains
an appropriate compliance program; (c) the performance of each Fund is
reasonable or satisfactory in relation to the performance of funds with similar
investment objectives and to relevant indices; and (d) each Fund's advisory fee
is reasonable in relation to those of similar funds and to the services to be
provided by the Advisor. Based on their conclusions, the Trustees determined
with respect to each Fund that continuation of the Management Agreement was in
the interests of the Fund and its shareholders.
32
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
In approving the Funds' Sub-Advisory Agreements, the Board considered various
factors with respect to each Fund and its respective Sub-Advisory Agreement,
among them: (1) the nature, extent and quality of services provided to the Fund,
including the personnel providing services; (2) the Sub-Advisor's compensation;
(3) a comparison of the sub-advisory fee and performance with other advisors;
and (4) the terms of the Sub-Advisory Agreement. The Board's analysis of these
factors is set forth below. The Independent Trustees were advised by independent
legal counsel throughout the process.
Nature, Extent and Quality of Services Provided; Investment Personnel. The Board
considered information provided by the Advisor regarding the services provided
by the Sub-Advisor, including information presented periodically throughout the
previous year. The Board noted that, on a periodic basis, the Board meets with
portfolio managers of the Sub-Advisor to discuss their performance and
investment processes and strategies. The Board considers each Sub-Advisor's
level of knowledge and investment style. The Board reviewed the experience and
credentials of the investment personnel who are responsible for managing the
investment of portfolio securities with respect to the Funds. The Board also
noted each Sub-Advisor's brokerage practices. The Board also considered each
Sub-Advisor's regulatory and compliance history. The Board noted that the
Advisor's compliance monitoring processes includes quarterly reviews of
compliance reports and annual compliance reviews of the Sub-Advisors and that
compliance issues, if any, are reported to the Board.
Sub-Advisor's Compensation. The Board also took into consideration the financial
condition of each Sub-Advisor and any indirect benefits derived by the
Sub-Advisor and its affiliates from the Sub-Advisor's relationship with the
Funds. In considering the profitability to each Sub-Advisor of its relationship
with the Funds, the Board noted that the sub-advisory fees under the
Sub-Advisory Agreements were paid by the Advisor out of the advisory fees that
it receives under the Management Agreement. As a consequence, the profitability
to each Sub-Advisor of its relationship with a Fund was not a substantial factor
in the Board's deliberations. For similar reasons, the Board did not consider
the potential economies of scale in each Sub-Advisor's management of the Funds
to be a substantial factor in its consideration, although the Board noted that
the sub-advisory fee schedule for the JSAM Institutional Large Cap Fund and the
JSAM Institutional Value Fund contained breakpoints that would reduce the
sub-advisory fee rate on assets above specified levels if the Funds' assets
increased.
Sub-Advisory Fees and Fund Performance. The Board considered that each Fund pays
an advisory fee to the Advisor and that the Advisor pays the sub-advisory fee to
the Sub-Advisor. The Board considered the amount retained by the Advisor and the
sub-advisory fee paid to the Sub-Advisor with respect to the various services
provided by the Advisor and the Sub-Advisor. The Board compared the sub-advisory
fee for each Fund with various comparative data, including the median and
average sub-advisory fees of each Fund's peer group, and found that each Fund's
sub-advisory fee was reasonable and appropriate under the facts and
circumstances.
JSAM Institutional Large Cap Fund. The Fund's sub-advisory fee was below the
median of its peer group. Based upon their review, the Trustees concluded that
the sub-advisory fee was reasonable in light of the quality of services received
by the Fund from the Sub-Advisor and the other factors considered.
JSAM Institutional Value Fund. The Fund's sub-advisory fee was above the median
of its peer group. Based upon their review, the Trustees concluded that the
sub-advisory fee was reasonable in light of the quality of services received by
the Fund from the Sub-Advisor and the other factors considered.
Sands Capital Institutional Growth Fund. The Fund's sub-advisory fee was above
the median of its peer group. The Board took into account management's
discussion of the Fund's sub-advisory fee. Based upon their review, the Trustees
concluded that the sub-advisory fee was reasonable in light of the quality of
services received by the Fund from the Sub-Advisor and the other factors
considered.
33
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
As noted above, the Board considered each Fund's performance during the
six-months, twelve-months, and twenty-four months ended September 30, 2007 as
compared to each Fund's peer group and noted that the Board reviews on a
quarterly basis detailed information about each Fund's performance results,
portfolio composition and investment strategies. The Board also noted the
Advisor's expertise and resources in monitoring the performance, investment
style and risk adjusted performance of each Sub-Advisor. The Board also was
mindful of the Advisor's focus on each Sub-Advisor's performance and the
Advisor's ways of addressing underperformance.
Conclusion. In considering the renewal of the Sub-Advisory Agreement with
respect to each Fund, the Board, including the Independent Trustees, did not
identify any single factor as controlling, and each Trustee attributed different
weights to the various factors. The Board reached the following conclusions
regarding the Sub-Advisory Agreement with respect to each Fund, among others:
(a) the Sub-Advisor was qualified to manage each Fund's assets in accordance
with the Fund's investment objectives and policies; (b) the Sub-Advisor
maintains an appropriate compliance program; (c) the performance of each Fund
was satisfactory or reasonable in relation to the performance of funds with
similar investment objectives and to relevant indices; (d) each Fund's advisory
fees are reasonable in relation to those of similar funds and to the services to
be provided by the Advisor and the Sub-Advisor; and (e) the Sub-Advisor's
investment strategies are appropriate for pursuing the investment objectives of
each Fund. Based on its conclusions, the Board determined that approval of the
Sub-Advisory Agreement with respect to each Fund was in the best interests of
the respective Fund and its shareholders.
34
- --------------------------------------------------------------------------------
Management of the Trust (Unaudited)
- --------------------------------------------------------------------------------
Listed below is basic information regarding the Trustees and principal officers
of the Trust. The Trust's Statement of Additional Information includes
additional information about the Trustees and is available, without charge, upon
request by calling 1.800.543.0407.
INTERESTED TRUSTEES(1):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF FUNDS
OVERSEEN
TERM OF IN THE
NAME POSITION(S) OFFICE(2) AND TOUCHSTONE OTHER
ADDRESS HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee and Until Senior Vice President of The Western 53 Director of
Touchstone Advisors, Inc President retirement at and Southern Life Insurance Company; LaRosa's (a
303 Broadway age 75 or until President and a director of IFS restaurant chain).
Cincinnati, OH she resigns or Financial Services, Inc. (a holding
Year of Birth: 1955 is removed company); Director of Capital Analysts
Trustee since Incorporated (an investment advisor
1999 and broker-dealer), Integrated
Investment Services, Inc. until April
2007 (the Trust's former
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); 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.;
Senior Vice President and a director
of W&S Brokerage Services, Inc. (a
broker-dealer); Director, President
and Chief Executive Officer of
Integrity Life Insurance Company and
National Integrity Life Insurance
Company; President of Touchstone
Tax-Free Trust, Touchstone Investment
Trust, Touchstone Variable Series
Trust, Touchstone Strategic Trust,
Touchstone Funds Group Trust and
Touchstone Institutional Funds Trust;
President of Touchstone Advisors,
Inc., and Touchstone Securities, Inc.
until 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Barrett Trustee Trustee Chairman of the Board, President and 53 Director of
The Western and Until Chief Executive Officer of The Western The Andersons (an
Southern Life retirement at and Southern Life Insurance Company, Agribusiness
Insurance Company age 75 or until Western- Southern Life Assurance and retailing
400 Broadway she resigns or Company and Western & Southern company);
Cincinnati, OH is removed Financial Group, Inc.; Director and Convergys
Year of Birth: 1949 Trustee since Chairman of Columbus Life Insurance Corporation
1999 Company; Fort Washington Investment (a provider of
Advisors, Inc., Integrity Life business support
Insurance Company and National systems and
Integrity Life Insurance Company; customer care
Director of Eagle Realty Group, Inc., operations)
Eagle Realty Investments, Inc. and and Fifth Third
Integrated Investment Services, Inc. Bancorp.
(until April 2007); Director, Chairman
and CEO of WestAd, Inc.; President and
Trustee of Western & Southern
Financial Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
35
- --------------------------------------------------------------------------------
Management of the Trust (Continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF FUNDS
OVERSEEN
TERM OF IN THE
NAME POSITION(S) OFFICE(2) AND TOUCHSTONE OTHER
ADDRESS HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until President and Chief Executive Officer 53 Director of the
303 Broadway retirement at of Cox Financial Corp. (a financial Federal Reserve
Cincinnati, OH age 75 or until services company). Bank of Cleveland
Year of Birth: 1947 he resigns or is and Duke Energy
removed (a utility
Trustee since company); Chairman
1994 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 Principal of HJL Enterprises (a 53 None
303 Broadway retirement at privately held investment company).
Cincinnati, OH age 75 or until
Year of Birth: 1938 he resigns or is
removed
Trustee since
1999
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Siekmann Trustee Until Executive for Duro Bag Manufacturing 53 Trustee of Jewish
303 Broadway retirement at Co. (a bag manufacturer); President of Hospital, Greater
Cincinnati, OH age 75 or until Shor Foundation for Epilepsy Research Cincinnati Arts &
Year of Birth: 1938 he resigns or is (a charitable foundation); Trustee of Education Center
removed Riverfront Funds (mutual funds) from and Cincinnati
Trustee since 1999 - 2004. Arts Association
2005
- ------------------------------------------------------------------------------------------------------------------------------------
36
- --------------------------------------------------------------------------------
Management of the Trust (Continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF FUNDS
OVERSEEN
TERM OF IN THE
NAME POSITION(S) OFFICE(2) AND TOUCHSTONE OTHER
ADDRESS HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until Retired Partner of KPMG LLP (a 53 Trustee of
303 Broadway retirement at certified public accounting firm). Tri-Health
Cincinnati, OH age 75 or until Vice President of St. Xavier High Physician
Year of Birth: 1934 he resigns or is School. Enterprise
removed Corporation.
Trustee since
1994
- ------------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until CEO, Chairman and Director of Avaton, 53 None
303 Broadway retirement at Inc. (a wireless entertainment
Cincinnati, OH age 75 or until company). President of Cincinnati
Year of Birth: 1948 he resigns or is Biomedical (a life science and
removed economic development company) from
Trustee since July 2003 until 2005. CEO, Chairman
2002 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 3 series of the Trust, 5 series of
Touchstone Investment Trust, 8 series of Touchstone Strategic Trust, 4
series of Touchstone Tax-Free Trust, 15 variable annuity series of
Touchstone Variable Series Trust, and 18 series of Touchstone Funds Group
Trust.
(4) Each Trustee is also a Trustee of Touchstone Strategic Trust, Touchstone
Tax-Free Trust, Touchstone Variable Series Trust, Touchstone Investment
Trust, and Touchstone Funds Group Trust.
37
- --------------------------------------------------------------------------------
Management of the Trust (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL OFFICERS(1):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF FUNDS
OVERSEEN
TERM OF IN THE
NAME POSITION(S) OFFICE AND TOUCHSTONE OTHER
ADDRESS HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(2) HELD
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder President and Until See biography above. 53 See biography
Touchstone Trustee resignation, above.
Advisors, Inc. removal or
303 Broadway disqualification
Cincinnati, OH President since
Year of Birth: 1955 2004; President
from 2000-2002
- ------------------------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice Until Senior Vice President-Compliance of 53 None
Touchstone Advisors, Inc. President resignation, IFS Financial Services, Inc., Director
303 Broadway and Chief removal or of Compliance of W&S Brokerage
Cincinnati, OH Compliance disqualification Services, Inc.; Chief Compliance
Year of Birth: 1956 Officer Vice President Officer of Puglisi & Co. from 2001
since 2003 until 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Grifo Vice Until President of Touchstone Securities, 53 None
Touchstone Securities, Inc. President resignation, Inc. and Touchstone Advisors, Inc.;
303 Broadway removal or Managing Director, Deutsche Asset
Cincinnati, OH disqualification Management until 2001.
Year of Birth: 1951 Vice President
since 2004
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Dent Vice Until Senior Vice President of Touchstone 53 None
Touchstone Advisors, Inc. President resignation, Advisors, Inc.; Marketing Director of
303 Broadway removal or Promontory Interfinancial Network from
Cincinnati, OH disqualification 2002-2003; Senior Vice President of
Year of Birth: 1963 Vice President McDonald Investments from 1998 - 2001.
since 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller Until Senior Vice President, Chief Financial 53 None
Touchstone Advisors, Inc. and Treasurer resignation, Officer and Treasurer of Integrated
303 Broadway removal or Investment Services, Inc. (until April
Cincinnati, OH disqualification 2007), IFS Fund Distributors, Inc. and
Year of Birth: 1962 Controller since W&S Brokerage Services, Inc.; Chief
2000 Treasurer Financial Officer of IFS Financial
since 2003 Services, Inc., Touchstone Advisors,
Inc. and Touchstone Securities, Inc.
and Assistant Treasurer of Fort
Washington Investment Advisors
- ------------------------------------------------------------------------------------------------------------------------------------
Jay S. Fitton Secretary Until Assistant Vice President and Senior 53 None
JPMorgan resignation, Counsel of JPMorgan; Director and
303 Broadway removal or Senior Counsel of Integrated
Cincinnati, OH disqualification Investment Services, Inc. and IFS Fund
Year of Birth: 1970 Secretary since Distributors, Inc. until April 2007.
2006
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Each officer also holds the same office with Touchstone Tax-Free Trust,
Touchstone Strategic Trust, Touchstone Variable Series Trust, Touchstone
Investment Trust, and Touchstone Funds Group Trust.
(2) The Touchstone Fund Complex consists of 3 series of the Trust, 5 series of
Touchstone Investment Trust, 8 series of Touchstone Strategic Trust, 4
series of Touchstone Tax-Free Trust, 15 series of Touchstone Variable
Series Trust, and 18 series of Touchstone Funds Group Trust.
38
TOUCHSTONE INVESTMENTS
Distributor
Touchstone Securities, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203
800.638.8194
www.touchstoneinvestments.com
Investment Advisor
Touchstone Advisors, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203
Transfer Agent
JPMorgan Chase Bank, N.A.
P.O. Box 5354 Cincinnati, Ohio 45201-5354
Shareholder Service
800.543.0407
* A Member of Western & Southern Financial Group(R)
- --------------------------------------------------------------------------------
[LOGO] TOUCHSTONE(R)
INVESTMENTS
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
ITEM 2. CODE OF ETHICS.
At the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to its principal executive officer and principal
financial officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that the registrant has at
least one audit committee financial expert serving on its audit committee. Mr.
Robert Stautberg is the registrant's audit committee financial expert and is an
independent trustee within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act").
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees. Audit fees totaled approximately $38,400 for the December 31,
2007 fiscal year and $63,000 for the December 31, 2006 fiscal year, including
fees associated with the annual audit and filings of the registrant's Form N-1A
and Form N-SAR.
(b) Audit-Related Fees. Audit-related fees totaled $116,000 for the December 31,
2007 fiscal year and $0 for the December 31, 2006 fiscal year for SAS 70
internal control reviews of the Trust's fund accountant and transfer agent.
(c) Tax Fees. Tax fees totaled $12,450 for the December 31, 2007 fiscal year
and $6,000 for the December 31, 2006 fiscal year and consisted of fees for tax
compliance services and tax consultation services.
(d) All Other Fees. There were no other fees for the December 31, 2007 or
December 31, 2006 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-advisors) and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services to the
registrant were $157,450 for the December 31, 2007 fiscal year and $89,800 for
the December 31, 2006 fiscal year.
(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.
No material changes have been made to the procedures by which shareholders may
recommend nominees to its Board of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the 1940 Act) the registrant's
principal executive officer and principal financial officer have concluded that
the registrant's disclosure controls and procedures are effective as of a date
within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the registrant's second fiscal half-year that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
(a)(1) The Code of Ethics for Senior Financial Officers was filed with
registrant's N-CSR for the December 31, 2006 fiscal year and is hereby
incorporated by reference.
(a)(2) Certifications required by Item 12(a)(2) of Form N-CSR are filed
herewith.
(b) Certification required by Item 11(b) of Form N-CSR is filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Touchstone Institutional Funds Trust
By (Signature and Title) /s/ Jill McGruder
--------------------------------------------------------
Jill McGruder, President
(principal executive officer)
Date March 3, 2008
----------------------------------------------------------------------------
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 McGruder
--------------------------------------------------------
Jill McGruder, President
(principal executive officer)
Date March 3, 2008
----------------------------------------------------------------------------
By (Signature and Title) /s/ Terrie Wiedenheft
--------------------------------------------------------
Terrie Wiedenheft, Controller and Treasurer
(principal financial officer)
Date March 3, 2008
----------------------------------------------------------------------------