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 811-8416
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Touchstone Variable Series Trust
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(Exact name of registrant as specified in charter)
303 Broadway, Cincinnati, Ohio 45202
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(Address of principal executive offices) (Zip code)
Jill T. McGruder, 303 Broadway, Cincinnati, Ohio 45202
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(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 878-4066
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31/08
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Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report
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DECEMBER 31, 2008
Annual Report
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TOUCHSTONE VARIABLE SERIES TRUST
Touchstone Baron Small Cap Growth Fund
Touchstone Core Bond Fund
Touchstone High Yield Fund
Touchstone Large Cap Core Equity Fund
Touchstone Mid Cap Growth Fund
Touchstone Money Market Fund
Touchstone Third Avenue Value Fund
Touchstone Aggressive ETF Fund
Touchstone Conservative ETF Fund
Touchstone Enhanced ETF Fund
Touchstone Moderate ETF Fund
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[LOGO] TOUCHSTONE(R)
INVESTMENTS
3
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TOUCHSTONE VARIABLE SERIES TRUST
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LETTER FROM THE PRESIDENT
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Dear Shareholder:
We are pleased to provide you with the Touchstone Variable Series Trust Annual
Report. Inside you will find key financial information, as well as manager
commentaries for the year ended December 31, 2008.
During the year, macroeconomic events dominated the headlines and stocks moved
uniformly lower. There were very few places to hide for investors as every
economic sector came under severe selling pressure.
The National Bureau of Economic Research reported that the U.S. entered a
recession in December 2007 and the Conference Board Consumer Confidence Index
fell to an all-time low of 38 in December. With the S&P 500 breaching the 2002
bear market low to levels not seen since 1997 and nearly 50 percent of the U.S.
equity market capitalization on the sidelines in cash, the harsh economic
realities may indeed be more than reflected in current stock prices. In
addition, elevated average correlation of U.S. stocks made for an environment in
which investors were not meaningfully rewarded for fundamental analysis that
differentiated between winning and losing companies.
As we enter 2009, further deterioration in the domestic economy is likely.
Corporate response to the challenging circumstances will negatively impact
capital budgeting plans and employment trends. Earnings growth, however, still
exists and valuations for U.S. equities appear compelling even on conservative
estimates of forward earnings. In addition, we feel the market environment of
2008 has created opportunities to invest in growth companies at historically low
valuations.
Money market funds continue to be appealing for those investors needing a safe
harbor or parking place during volatile markets. With the Fed committing to keep
short-term interest rates low and purchasing long-term fixed income securities,
we anticipate an improvement in overall credit conditions and a stabilization of
the economy in 2009.
We continue to believe that diversification is key to balancing risk and return.
As always, we recommend that you work with your financial professional to
utilize a sound asset allocation strategy that invests in a combination of
stock, bond and money market mutual funds to help keep your financial strategy
on course. We also suggest maintaining a long-term approach to gain the full
potential benefits of investing.
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 Variable Series Trust
4
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TOUCHSTONE VARIABLE SERIES TRUST
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TABULAR PRESENTATION OF SCHEDULES OF INVESTMENTS
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(UNAUDITED) December 31, 2008
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.
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TOUCHSTONE BARON SMALL CAP GROWTH FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
Consumer Discretionary 39.6
Financials 16.0
Health Care 13.5
Industrials 9.6
Energy 8.5
Consumer Staples 6.0
Utilities 3.1
Telecommunication Services 1.4
Investment Funds 25.0
Other Assets/Liabilities (Net) (22.7)
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TOTAL 100.0
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TOUCHSTONE HIGH YIELD FUND
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CREDIT QUALITY (% OF TOTAL INVESTMENTS)
BBB/Baa 5.4
B/B 31.2
B 51.1
CCC 9.3
Other 3.0
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TOTAL 100.0
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TOUCHSTONE MID CAP GROWTH FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 20.9
Health Care 18.4
Industrials 14.8
Financials 14.1
Consumer Discretionary 12.5
Energy 8.3
Materials 4.8
Utilities 3.1
Investment Funds 24.0
Other Assets/Liabilities (Net) (20.9)
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TOTAL 100.0
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TOUCHSTONE THIRD AVENUE VALUE FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
Financials 34.1
Energy 18.3
Information Technology 15.7
Materials 10.7
Consumer Discretionary 8.2
Health Care 4.2
Industrials 4.1
Utilities 0.1
Investment Funds 28.5
Other Assets/Liabilities (Net) (23.9)
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TOTAL 100.0
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TOUCHSTONE CORE BOND FUND
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CREDIT QUALITY (% OF TOTAL INVESTMENTS)
U.S. Agency 29.4
AAA/Aaa 25.7
AA/Aa 2.6
A/A 12.9
BBB/Baa 22.9
BB/Ba 0.6
B/B 4.2
Other 1.7
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TOTAL 100.0
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TOUCHSTONE LARGE CAP CORE EQUITY FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
InformationTechnology 20.1
Industrials 13.7
Health Care 13.1
Energy 12.5
Consumer Staples 12.3
Financials 10.0
Consumer Discretionary 7.8
Telecommunication Services 3.2
Utilities 3.2
Materials 1.6
Miscellaneous 0.9
Investment Funds 25.3
Other Assets/Liabilities (Net) (23.7)
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TOTAL 100.0
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TOUCHSTONE MONEY MARKET FUND
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CREDIT QUALITY (% OF TOTAL INVESTMENTS)
A-1/P-1F-1 98.4
FW1(NR) 1.6
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Total 100.0
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PORTFOLIO ALLOCATION (% OF NET ASSETS)
Variable Rate Demand Notes 59.3
Corporate Notes/Commercial Paper 20.2
Bank CD/TD 11.0
Taxable Municipal Bonds 5.8
U.S. Government Agencies 3.2
Other Assets/Liabilities (Net) 0.5
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TOTAL 100.0
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5
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TOUCHSTONE VARIABLE SERIES TRUST
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TOUCHSTONE AGGRESSIVE ETF FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
Exchange Traded Funds 99.1
Investment Funds 24.2
Other Assets/Liabilities (Net) (23.3)
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TOTAL 100.0
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TOUCHSTONE CONSERVATIVE ETF FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
Exchange Traded Funds 98.9
Investment Fund 15.3
Other Assets/Liabilities (Net) (14.2)
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TOTAL 100.0
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TOUCHSTONE ENHANCED ETF FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
Exchange Traded Funds 99.1
Investment Funds 29.0
Other Assets/Liabilities (Net) (28.1)
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TOTAL 100.0
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TOUCHSTONE MODERATE ETF FUND
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SECTOR ALLOCATION (% OF NET ASSETS)
Exchange Traded Funds 99.0
Investment Funds 26.4
Other Assets/Liabilities (Net) (25.4)
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TOTAL 100.0
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6
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TOUCHSTONE BARON SMALL CAP GROWTH FUND
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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(Unaudited)
Touchstone Baron Small Cap Growth Fund
SUB-ADVISED BY BAMCO, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Baron Small Cap Growth Fund was -33.64% for
the year ended December 31, 2008. The total return of the Russell 2000(R) Growth
Index was -38.54% for the same period. On May 1, 2008, the Fund changed its
comparative index from the Russell 2000(R) Index to the Russell 2000(R) Growth
Index because the Russell 2000(R) Growth Index more accurately reflects the
Fund's portfolio composition.
During the year, the Fund maintained its investment focus on what are believed
to be well-managed growth businesses that have large opportunities and
significant barriers to competition.
PORTFOLIO REVIEW
Unfortunately, 2008 was a difficult year for all sectors. Consumer Discretionary
had the largest negative contribution, led by Wynn Resorts. Wynn saw headwinds
at both its properties in Las Vegas and Macau, which weighed on the stock price
in the fourth quarter. In Las Vegas, the recession has both lowered visitation
and the dollar amount spent by those who come. Wynn Las Vegas will be hurt by
these trends and we expect 2009 profits to be significantly below 2008 and 2007.
Despite this outlook, we visited Encore, Wynn's newest Las Vegas property, and
were impressed with the product. We believe it will perform well relative to
other properties on the strip even in this difficult environment. That being
said, its return on investment will initially be lower than we had expected
because of the weak economy. Long term, we still believe Wynn has the best
positioned properties on the strip. When the economy improves, we believe the
profits these properties will earn will grow significantly faster than the other
properties on the strip. In Macau, we expect Wynn to be hurt by a slower VIP
market in 2009. Similar to the USA, China is also going through a severe
recession. Wynn's VIP customers have felt the pressures of the economic downturn
and are both gambling less and taking longer to pay back their gambling debts.
We do believe, however, that Wynn is well positioned and will outperform the
rest of the Macau market when the Chinese economy gets better.
The Financial Sector had the second largest negative impact mainly due to
investments in CB Richard Ellis and Cohen & Steers. The sector had a very
difficult period as a result of the struggling economy. The falling stock market
coupled with heavy investor redemptions led to lower assets under management and
a significant reduction in revenue for asset management companies like Cohen &
Steers. CB Richard Ellis performed poorly in 2008 (along with all commercial
real estate stocks) as the combination of a slowdown in leasing and investment
sales activity, rising cap rates, and credit market concerns weighed on the
shares. Though we believe that the commercial real estate market will continue
to face headwinds in 2009, we believe that most of these concerns are discounted
in the stock at this stage.
The Energy sector also had a negative impact as the deteriorating world economy
led to a drop in oil prices in 2008. Sector holdings, which are generally
capital-intensive businesses, were hurt by tightening in the credit market,
which resulted in sharp cuts to drilling budgets and major capital projects.
Some Energy holdings like FMC Technologies and Encore Acquisition are in
excellent financial condition; however, their customers are scaling back
spending plans for 2009 due to low commodity prices and the credit crunch.
7
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TOUCHSTONE BARON SMALL CAP GROWTH FUND
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The top five securities contributing positively to returns during the year were
DeVry, Strayer Education, Mohawk Industries, Panera Bread and Arch Capital. FMC
Technologies, Wynn Resorts, J. Crew Group, CB Richard Ellis and Cohen & Steers
detracted the most from portfolio returns.
CURRENT STRATEGY
We believe the companies the Fund owns will continue to grow at healthy and
sustainable rates, and we expect that their share prices will continue to
reflect their attractive prospects.
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Average Annual Total Return
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One Year Five Years Ten Years
Ended Ended Ended
12/31/08 12/31/08 12/31/08
(33.64%) 2.11% 2.96%
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Cumulative Total Return
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Ten Years
Ended
12/31/08
33.86%
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[The following table was represented as a line chart in the printed material.]
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GROWTH OF A $10,000 INVESTMENT
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Touchstone Baron Russell 2000 Growth
Small Cap Growth Fund (Major Index) Russell 2000(R)
Date Balance Balance Balance
---- ------- ------- -------
12/31/98 10,000 10,000 10,000
12/31/99 9,743 14,309 12,126
12/31/00 9,865 11,099 11,760
12/31/01 10,516 10,075 12,053
12/31/02 9,038 7,026 9,584
12/31/03 12,060 10,437 14,113
12/31/04 15,415 11,930 16,700
12/31/05 16,600 12,426 17,460
12/31/06 19,632 14,084 20,667
12/31/07 20,173 15,077 20,342
12/31/08 13,387 9,266 13,469
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on December 14, 1992.
8
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TOUCHSTONE BARON SMALL CAP GROWTH FUND
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SCHEDULE OF INVESTMENTS
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December 31, 2008
Shares Value
COMMON STOCKS -- 97.7%
CONSUMER DISCRETIONARY -- 39.6%
13,750 Cheesecake Factory, Inc. (The)* $ 138,875
10,000 Choice Hotels International, Inc. 300,600
18,500 DeVry, Inc. 1,062,085
30,000 Dick's Sporting Goods, Inc.* 423,300
11,250 J. Crew Group, Inc.*+ 137,250
9,992 Lamar Advertising Co. - Class A* 125,500
24,000 LKQ Corp.* 279,840
5,000 Mohawk Industries, Inc.* 214,850
5,500 Morningstar, Inc.* 195,250
5,000 Panera Bread Co.*+ 261,200
10,000 Peet's Coffee & Tea, Inc.* 232,500
8,000 Penn National Gaming, Inc.* 171,040
20,000 Penske Automotive Group, Inc.+ 153,600
6,000 Polo Ralph Lauren Corp. - Class A 272,460
14,000 Sonic Corp.* 170,380
3,500 Strayer Education, Inc. 750,435
7,500 Under Armour, Inc. - Class A*+ 178,800
10,000 Vail Resorts, Inc.*+ 266,000
7,100 Wynn Resorts, Ltd.*+ 300,046
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5,634,011
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CONSUMER STAPLES -- 6.0%
7,000 Church & Dwight Co., Inc.+ 392,840
8,000 Ralcorp Holdings* 467,200
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860,040
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ENERGY -- 8.5%
15,000 Encore Acquisition Co.* 382,800
13,000 FMC Technologies, Inc.*+ 309,790
5,000 SEACOR Holdings, Inc.* 333,250
14,000 Southern Union Co. 182,560
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1,208,400
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FINANCIALS -- 16.0%
1,500 Alexander's, Inc. 382,350
12,000 Arch Capital Group, Ltd.* 841,200
22,000 CB Richard Ellis Group, Inc.* 95,040
15,000 Cohen & Steers, Inc.+ 164,850
2,752 Digital Realty Trust 90,403
9,000 Eaton Vance Corp. 189,090
3,064 FCStone Group, Inc.* 13,574
5,000 Glacier Bancorp, Inc. 95,100
20,000 Jefferies Group, Inc. 281,200
5,000 SVB Financial Group*+ 131,150
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2,283,957
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HEALTH CARE -- 13.5%
16,000 AMERIGROUP Corp.* 472,320
5,000 Charles River Laboratories
International, Inc.* 131,000
3,000 Chemed Corp. 119,310
12,700 Community Health Systems, Inc.* 185,166
11,000 Edwards Lifesciences Corp.*+ 604,450
497 HLTH Corp.* 5,199
11,000 PSS World Medical, Inc.*+ 207,020
9,825 VCA Antech, Inc.* 195,321
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1,919,786
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INDUSTRIALS -- 9.6%
5,500 AECOM Technology Corp.* 169,015
6,896 American Railcar Industries, Inc. 72,615
15,000 Copart, Inc.*+ 407,850
6,500 CoStar Group, Inc.* 214,110
15,750 Genesee & Wyoming, Inc.* 480,374
864 Lindsay Corp. 27,467
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1,371,431
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TELECOMMUNICATION SERVICES -- 1.4%
12,500 SBA Communications Corp.*+ 204,000
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UTILITIES -- 3.1%
10,000 ITC Holdings Corp. 436,800
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TOTAL COMMON STOCKS $ 13,918,425
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INVESTMENT FUNDS -- 25.0%
3,208,901 Invesco AIM Liquid Assets Portfolio ** 3,208,901
348,169 Touchstone Institutional
Money Market Fund ^ 348,169
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TOTAL INVESTMENT FUNDS $ 3,557,070
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TOTAL INVESTMENT SECURITIES -- 122.7%
(COST $15,050,475) $ 17,475,495
LIABILITIES IN EXCESS OF OTHER ASSETS -- (22.7%) (3,232,324)
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NET ASSETS -- 100.0% $ 14,243,171
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* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $3,223,964.
** Represents collateral for securities loaned.
The accompanying notes are an integral part of the financial statements.
9
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TOUCHSTONE CORE BOND FUND
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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(Unaudited)
Touchstone Core Bond Fund
SUB-ADVISED BY FORT WASHINGTON INVESTMENT ADVISORS, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Core Bond Fund was -3.26% for the year ended
December 31, 2008. The total return of the Barclays Capital Aggregate Bond Index
was 5.24% for the same period.
The market has recently experienced one of the most tumultuous times in history.
A number of large financial institutions have been bailed out by the U.S.
Government and Lehman Brothers filed the largest bankruptcy in U.S. history.
This crisis has required the U.S. Government to react swiftly with a number of
programs to support the financial system. Congress passed the $700 billion
Troubled Asset Relief Program (TARP) and is expected to enact an additional
stimulus plan in excess of $800 billion. The Federal Reserve cut the Fed Funds
rate essentially to zero and embarked on a series of unconventional policies to
stabilize the economy and restore the flow of credit. The Fed has more than
doubled the size of their balance sheet and recently committed to purchase up to
$600 billion in Mortgage- and Agency-backed debt securities.
PORTFOLIO REVIEW
Despite the Fed's commitment to purchase large quantities of MBS and Agency
debt, the sectors could not keep pace with Treasuries. Performance in these
sectors improved dramatically once the Fed signaled their intention to purchase
these assets. The Fund was overweight this MBS sector, which was a slight
negative for performance for the year. Security selection in the MBS sector was
also a source of negative performance versus the benchmark as the Fund's
holdings in non-Agency MBS declined relative to Agency MBS.
With the realization that economic growth was sharply declining and credit
conditions tightening further, extreme risk aversion prevailed. Investment grade
and high yield corporate bonds significantly underperformed Treasuries in 2008.
Risk premiums rose beyond historical levels in the first half of 2008, and
accelerated higher in the fourth quarter following the bankruptcy filing of
Lehman Brothers. The Fund was slightly overweight investment grade corporate
bonds and had an allocation to high yield, providing negative performance for
the quarter.
CURRENT STRATEGY AND OUTLOOK
With the Fed committing to keep short-term interest rates low for "some time"
and purchasing long-term fixed income securities, we anticipate the following:
o Interest rates should remain low over the next quarter or two.
o Treasury yields will rise later in the year as the economy stabilizes and
the massive amount of Treasury supply puts upward pressure on interest
rates.
o The Fed will eventually be successful in improving overall credit
conditions and stabilizing the economy.
10
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TOUCHSTONE CORE BOND FUND
- -------------------------
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Management's Discussion of Fund Performance continued
The Fund remains overweight in corporate bonds as the risk premiums offer
significant yield advantage to Treasuries. We believe that High Yield bonds are
attractive from a long-term perspective, even though we will see an increase in
defaults in 2009. We have structured our high quality MBS towards a more neutral
position, as market conditions permit, because of our belief that recent MBS
tightening and price appreciation has reached its potential. We also think that
Treasuries and other Government bond sectors are relatively unattractive.
We believe that recent actions by the Fed and Treasury should help alleviate
market fears and perhaps stabilize home prices. This should have an overall
positive effect on the economy and provide trading opportunities within the
Fund.
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Average Annual Total Return
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One Year Five Years Since
Ended Ended Inception
12/31/08 12/31/08 1/1/99
(3.26%) 2.20% 3.77%
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Cumulative Total Return
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Since Inception
1/1/99
44.80%
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[The following table was represented as a line chart in the printed material.]
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GROWTH OF A $10,000 INVESTMENT
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Barclays Capital Aggregate Bond
Touchstone Core Bond Fund Index (Major Index)
Date Balance Balance
---- ------- -------
01/01/99 10,000 10,000
12/31/99 9,872 9,872
12/31/00 10,780 11,020
12/31/01 11,626 11,950
12/31/02 12,548 13,176
12/31/03 12,986 13,716
12/31/04 13,416 14,311
12/31/05 13,642 14,659
12/31/06 14,194 15,294
12/31/07 14,968 16,360
12/31/08 14,480 17,218
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on January 1, 1999.
11
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TOUCHSTONE CORE BOND FUND
-------------------------
SCHEDULE OF INVESTMENTS
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December 31, 2008
Principal Interest Maturity
Amount Rate Date Value
CORPORATE BONDS -- 35.8%
AEROSPACE & DEFENSE -- 1.1%
$ 180,000 BAE Systems
Holdings, Inc., 144A 6.40 12/15/11 $ 183,556
180,000 Lockheed
Martin Corp. 6.15 9/1/36 195,161
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378,717
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BANKING -- 0.8%
250,000 Key Bank NA 5.50 9/17/12 233,059
100,000 Wachovia
Capital Trust III 5.80 3/15/42 59,000
- ------------------------------------------------------------------------------------------
292,059
- ------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 1.0%
255,000 CRH America, Inc. 5.30 10/15/13 179,455
175,000 Mohawk
Industries, Inc. 5.75 1/15/11 160,601
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340,056
- ------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 4.1%
175,000 Baltimore Gas
& Electric 6.35 10/1/36 144,022
215,000 Centerpoint
Energy, Inc. 5.95 2/1/17 176,319
155,000 Detroit Edison Co. 5.60 6/15/18 148,421
145,000 Duke Capital 8.00 10/1/19 150,473
160,000 Enel Finance
International, 144A 6.25 9/15/17 135,113
145,000 FPL Group
Capital, Inc. 6.35 10/1/66 72,500
210,000 Midamerican
Energy Holdings 6.13 4/1/36 195,267
180,000 NiSource
Finance Corp. 6.15 3/1/13 138,697
145,000 Pacific Gas
& Electric 5.80 3/1/37 150,395
175,000 Southern
Power Co. 4.88 7/15/15 155,782
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1,466,989
- ------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 6.9%
235,000 American Express
Credit Corp. 5.88 5/2/13 225,594
260,000 American
General Finance 4.88 7/15/12 109,867
180,000 American Water
Capital Corp. 6.59 10/15/37 137,415
190,000 Caterpillar
Financial Services 5.45 4/15/18 177,894
170,000 Citigroup, Inc. 5.50 4/11/13 165,526
295,000 Countrywide
Home Loan 4.13 9/15/09 291,543
290,000 General Electric
Capital Corp. 5.63 5/1/18 292,102
235,000 John Deere
Capital Corp. 5.35 4/3/18 220,175
135,000 JPMorgan
Chase & Co. 6.40 5/15/38 159,700
285,000 KFW 4.00 10/15/13 299,564
225,000 Morgan Stanley 5.63 1/9/12 213,369
220,000 XSTRATA
Finance
Canada, 144A 5.50 11/16/11 171,898
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2,464,647
- ------------------------------------------------------------------------------------------
FOOD -- 2.0%
225,000 Kraft Foods, Inc. 6.00 2/11/13 228,651
180,000 McDonald's Corp. 6.30 10/15/37 197,614
275,000 PepsiCo, Inc. 5.00 6/1/18 285,045
- ------------------------------------------------------------------------------------------
711,310
- ------------------------------------------------------------------------------------------
HEALTH CARE -- 0.5%
150,000 Astrazeneca PLC 6.45 9/15/37 170,502
- ------------------------------------------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING -- 3.0%
212,000 British Sky
Broadcasting 6.88 2/23/09 212,972
195,000 Comcast Corp. 6.40 5/15/38 194,544
280,000 Time Warner
Cable, Inc. 6.20 7/1/13 264,851
225,000 Time Warner, Inc. 6.88 5/1/12 216,157
225,000 Viacom, Inc. 6.25 4/30/16 186,501
- ------------------------------------------------------------------------------------------
1,075,025
- ------------------------------------------------------------------------------------------
METALS & MINING -- 1.4%
220,000 Arcelormittal 5.38 6/1/13 165,912
165,000 Nucor Corp. 5.00 6/1/13 163,389
225,000 Rio Tinto
Finance USA, Ltd. 6.50 7/15/18 164,963
- ------------------------------------------------------------------------------------------
494,264
- ------------------------------------------------------------------------------------------
MISCELLANEOUS -- 4.9%
1,970,000 Dow Jones CDX
HY 10-T, 144A 8.88 6/29/13 1,773,000
- ------------------------------------------------------------------------------------------
OIL & GAS -- 1.9%
120,000 Encana Corp. 6.50 8/15/34 96,281
140,000 Plains All American
Pipeline 6.65 1/15/37 96,330
110,000 R.R. Donnelley &
Sons Co. 5.63 1/15/12 97,828
250,000 Williams
Cos., Inc., 144A 6.38 10/1/10 233,057
150,000 XTO Energy, Inc. 5.50 6/15/18 135,792
- ------------------------------------------------------------------------------------------
659,288
- ------------------------------------------------------------------------------------------
RAILROAD TRANSPORTATION -- 1.3%
245,000 Canadian Pacific
Railroad Co. 5.75 5/15/13 226,738
230,000 Norfolk
Southern Corp. 5.75 4/1/18 223,801
- ------------------------------------------------------------------------------------------
450,539
- ------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 1.0%
155,000 Avalonbay
Communities 5.75 9/15/16 103,515
200,000 Brandywine
Operating
Partnership 5.40 11/1/14 123,872
175,000 WEA Finance, 144A 5.70 10/1/16 116,893
- ------------------------------------------------------------------------------------------
344,280
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
12
- -----
- -------------------------
TOUCHSTONE CORE BOND FUND
- -------------------------
- --------------------------------------------------------------------------------
Schedule of Investments continued
Principal Interest Maturity
Amount Rate Date Value
CORPORATE BONDS -- 35.8% - CONTINUED
RETAIL -- 1.4%
$ 140,000 Federated
Retail Holding 5.35 3/15/12 $ 103,988
170,000 Kroger Co. 6.80 4/1/11 175,527
195,000 Wal-Mart
Stores, Inc. 6.20 4/15/38 223,169
- ------------------------------------------------------------------------------------------
502,684
- ------------------------------------------------------------------------------------------
SOVEREIGN BONDS -- 1.5%
285,000 Ontario Province 4.95 11/28/16 309,186
210,000 Quebec Province 4.63 5/14/18 215,364
- ------------------------------------------------------------------------------------------
524,550
- ------------------------------------------------------------------------------------------
TECHNOLOGY -- 0.6%
175,000 IBM Corp. 7.63 10/15/18 209,859
- ------------------------------------------------------------------------------------------
TELEPHONE SYSTEMS -- 2.4%
105,000 AT&T, Inc. 5.50 2/1/18 106,116
175,000 AT&T, Inc. 6.80 5/15/36 197,872
175,000 Deutsche
Telekom Finance 5.38 3/23/11 173,113
180,000 Rogers
Wireless, Inc. 7.50 3/15/15 178,223
175,000 Verizon
Communications 6.25 4/1/37 181,214
- ------------------------------------------------------------------------------------------
836,538
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS $ 12,694,307
- ------------------------------------------------------------------------------------------
AGENCY MORTGAGE-BACKED SECURITIES -- 35.3%
415,742 FHLMC 5.50 5/1/33 426,608
307,383 FHLMC 5.00 8/1/33 314,888
371,494 FHLMC 6.00 9/1/35 382,944
589,309 FHLMC 6.00 12/1/36 607,658
1,850,000 FNMA 3.88 7/12/13 1,963,213
205,778 FNMA 4.50 6/1/18 211,658
40,160 FNMA 8.00 5/1/30 42,656
31,350 FNMA 7.50 1/1/31 33,190
24,610 FNMA 6.50 6/1/31 25,594
182,163 FNMA 6.50 6/1/32 190,810
34,302 FNMA 6.50 9/1/32 35,792
202,334 FNMA 6.50 9/1/32 211,123
111,818 FNMA 6.50 12/1/32 116,675
305,523 FNMA 4.50 8/1/33 310,592
570,296 FNMA 5.50 8/1/33 586,003
370,717 FNMA 5.50 10/1/33 380,928
126,429 FNMA 5.00 4/1/34 129,339
542,826 FNMA 5.00 4/1/34 555,317
480,508 FNMA 6.00 10/1/35 487,673
550,773 FNMA 5.50 4/1/36 563,538
669,165 FNMA 6.00 7/1/36 689,582
723,430 FNMA 5.50 7/1/37 742,337
269,683 FNMA 6.50 8/1/37 280,413
618,991 FNMA 5.00 5/1/38 632,655
735,463 FNMA 5.50 7/1/38 754,685
736,295 FNMA 6.00 8/1/38 758,760
965,000 FNMA 4.50 1/25/39 977,968
31,877 GNMA 4.63 9/20/24 31,341
50,744 GNMA 4.00 10/17/29 50,073
4,380 GNMA 8.00 7/15/30 4,607
- ------------------------------------------------------------------------------------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES $ 12,498,620
- ------------------------------------------------------------------------------------------
MORTGAGE RELATED SECURITIES -- 21.5%
575,000 Bear Stearns
Commercial
Mortgage, Series
2005-PWR9,
Class A4A 4.87 9/11/42 488,381
550,000 Bear Stearns
Commercial
Mortgage, Series
2007-PW16,
Class A4 5.71 6/11/40 428,247
365,000 California State
Teachers' Retirement
System, Series 2002-C6,
Class C3, 144A 4.67 11/20/14 365,172
135,000 Commercial
Mortgage Pass-
Through Certificate,
Series 2005-C6,
Class A5A 5.12 6/10/44 110,559
660,168 Countrywide
Securities, Series
2007-S1, Class A5 6.02 11/25/36 232,595
921,227 Credit Suisse First
Boston Mortgage
Securities Corp.,
Series 2005-5,
Class 6A2 5.00 7/25/35 828,595
597,851 Credit Suisse
First Boston
Mortgage
Securities Corp.,
Series 2005-9,
Class 2A1 5.50 10/25/35 403,549
250,000 CW Capital Cobalt,
Series 2006-C1,
Class A4 5.22 8/15/48 190,746
420,096 Deutsche Bank
Alternative Loan
Trust, Series
2003-2XS, Class A6 4.97 9/25/33 413,601
700,000 Deutsche Bank
Alternative Loan
Trust, Series 2005-3,
Class 4A4 5.25 6/25/35 461,849
679,899 First Horizon
Mortgage Pass-
Through Trust,
Series 2004-3,
Class 2A1 4.50 6/25/19 660,776
600,000 GE Capital
Commercial
Mortgage Corp.,
Series 2002-2A,
Class A3 5.35 8/11/36 544,863
The accompanying notes are an integral part of the financial statements.
13
-----
-------------------------
TOUCHSTONE CORE BOND FUND
-------------------------
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
MORTGAGE RELATED SECURITIES -- 21.5% - CONTINUED
$ 352,519 GE Capital
Commercial
Mortgage Corp.,
Series 2004-C1,
Class A2 3.92 11/10/38 $ 330,281
342,751 IMPAC Secured
Assets Corp.,
Series 2003-2,
Class A1 5.50 8/25/33 299,907
700,000 Morgan Stanley
Mortgage Loan Trust,
Series 2007-3XS,
Class 2A4S 5.96 1/25/47 314,251
284,368 Residential Asset
Securitization Trust,
Series 2005-A6CB,
Class A8 5.50 6/25/35 149,293
347,283 Residential Asset
Securitization Trust,
Series 2006-A1,
Class 1A3 6.00 4/25/36 270,611
213,470 Residential Funding
Mortgage Securities I,
Series 2006-S2,
Class A2 5.75 2/25/36 153,875
393,671 Structured Asset
Securities Corp.,
Series 2005-17,
Class 5A1 5.50 10/25/35 273,602
310,712 Washington Mutual
Alternative Loan Trust,
Series 2005-9,
Class 2A4 5.50 11/25/35 247,542
602,570 Wells Fargo Mortgage
Backed Securities,
Series 2004-B,
Class A1 4.93 2/25/34 447,521
- ------------------------------------------------------------------------------------------
TOTAL MORTGAGE RELATED SECURITIES $ 7,615,816
- ------------------------------------------------------------------------------------------
Shares Value
PREFERRED STOCK -- 0.4%
FINANCIAL SERVICES -- 0.4%
7,900 Citigroup VIII+ $ 135,327
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 9.2%
44,000 Invesco AIM Liquid Assets Portfolio * 44,000
3,226,594 Touchstone Institutional
Money Market Fund ^ 3,226,594
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 3,270,594
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 102.2%
(COST $39,104,165) $ 36,214,664
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.2%) (779,248)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 35,435,416
- ------------------------------------------------------------------------------------------
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $42,825.
* Represents collateral for securities loaned.
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
144A - This is a restricted security that was sold in a transaction exempt from
Rule 144A of the Securities Act of 1933. This security may be sold in a
transaction exempt from registration, normally to qualified institutional
buyers. At December 31, 2008, these securities were valued at $2,978,689
or 8.41% of net assets.
The accompanying notes are an integral part of the financial statements.
14
- -----
- --------------------------
TOUCHSTONE HIGH YIELD FUND
- --------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
(Unaudited)
Touchstone High Yield Fund
SUB-ADVISED BY FORT WASHINGTON INVESTMENT ADVISORS, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone High Yield Fund was -24.18% for the year
ended December 31, 2008. The total return of the Merrill Lynch High Yield Master
Index was -26.21% for the same period.
High Yield spreads displayed a great deal of volatility, ending the year at
+1806 after reaching an all-time wide of +2178 basis points. The causes of the
volatility included continued concerns surrounding the economy and access to
capital countered by a successful exchange of GMAC bonds and a significant rally
in U.S. Treasuries. Lower quality, high yield securities (CCC-rated) again led
the way down, while higher quality securities (BB-rated) performed best in both
the fourth quarter and calendar year 2008, with the Publishing and Broadcasting
industries being among the poorest performers. The Automotive/Auto Parts
industry was the best performing industries as a result of the aforementioned
successful GMAC exchange.
PORTFOLIO REVIEW
The Fund outperformed during calendar year 2008 as a result of the Fund's higher
quality bias. Additionally, both security selection and industry selection
contributed materially to performance. Relative performance was attractive
versus both the broad market as well as benchmarks that exclude CCC-rated
securities. For 2008, the Fund's positive relative performance emanated from a
broad array of sectors and securities.
o Its overweight exposure to Health Care and Utilities, along with its
underweight exposures to the Publishing and Gaming industries had a
positive effect on performance. Gaming continues to suffer from a recent
overbuild and a reduction in leisure spending attributable to the
weakening economy.
o The Fund had significant contributions to performance at the security
level in the Broadcasting, Cable, Paper and Metals/Mining industries.
These were offset by negative performance from holdings in the Automotive
and Homebuilding, Chemical and Energy industries. Additionally, the Fund's
automotive positions proved to be too defensive and lagged the year-end
rally.
o As is often the case during periods of volatility, the avoidance of
credits with specific issues can assist relative performance. The Fund's
underweight positions with respect to large benchmark issuers contributed
to relative performance, adding value at both the industry level and the
security level.
CURRENT STRATEGY AND OUTLOOK
With this economic outlook, we expect default rates to increase materially. As
such, volatility will likely remain in the High Yield market in the near term
and we would expect lower quality securities to continue to perform poorly
relative to the broad market. However, longer term, the market appears to be
discounting a default rate that exceeds most projections suggesting that
valuations in High Yield may be appropriate. For those that can handle near term
volatility, High Yield may have longer-term attraction.
15
-----
--------------------------
TOUCHSTONE HIGH YIELD FUND
--------------------------
- --------------------------------------------------------------------------------
We remain comfortable with the Fund's composition and continue to believe it is
properly constructed and well positioned for the current environment.
Additionally, when an eventual recovery ensues, we expect to provide appropriate
risk adjusted returns. The strength of the High Yield strategy has historically
been fundamental credit analysis with particular emphasis on avoiding problem
credits. We believe this will continue to add value as negative credit events
may have a material impact on returns in this lower return environment. We
believe the Fund is constructed to exhibit less volatility than the broad market
while seeking to deliver attractive risk adjusted returns. The Fund is designed
for performance over a full market cycle with focus on protecting principal in
down markets, a style that we believe will outperform over the long term.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Five Years Since
Ended Ended Inception
12/31/08 12/31/08 5/1/99
(24.18%) (1.19%) 1.65%
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Since Inception
5/1/99
17.19%
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Merrill Lynch High Yield Master
Touchstone High Yield Fund (Major Index)
Date Balance Balance
---- ------- -------
05/01/99 10,000 10,000
12/31/99 9,189 9,931
12/31/00 9,127 9,554
12/31/01 9,759 10,147
12/31/02 10,034 10,031
12/31/03 12,441 12,762
12/31/04 13,630 14,136
12/31/05 14,075 14,536
12/31/06 15,187 16,228
12/31/07 15,457 16,580
12/31/08 11,720 12,234
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on May 1, 1999.
16
- -----
- --------------------------
TOUCHSTONE HIGH YIELD FUND
- --------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Principal Interest Maturity
Amount Rate Date Value
CORPORATE BONDS -- 67.4%
AEROSPACE & DEFENSE -- 0.6%
$ 100,000 B/E Aerospace, Inc. 8.50 7/1/18 $ 90,000
120,000 Moog, Inc., 144A 7.25 6/15/18 96,000
- ------------------------------------------------------------------------------------------
186,000
- ------------------------------------------------------------------------------------------
AUTOMOTIVE -- 5.4%
198,000 American Axle &
Manufacturing
Holdings, Inc. 7.88 3/1/17 61,380
503,000 Asbury Automotive
Group 8.00 3/15/14 238,925
12,000 Asbury Automotive
Group 7.63 3/15/17 5,580
75,000 Autonation, Inc.+ 7.00 4/15/14 54,750
200,000 Ford Motor
Credit Co. 7.88 6/15/10 160,036
300,000 Ford Motor
Credit Co. 7.00 10/1/13 207,278
227,000 General Motors 8.38 7/15/33 39,725
162,000 General Motors
Acceptance
Corp., 144A 6.88 9/15/11 132,720
265,000 General Motors
Acceptance
Corp., 144A 6.63 5/15/12 206,244
500,000 Tenneco
Automotive, Inc. 10.25 7/15/13 310,000
346,000 United Auto
Group, Inc. 7.75 12/15/16 160,890
- ------------------------------------------------------------------------------------------
1,577,528
- ------------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 3.6%
610,000 Gibraltar
Industries, Inc. 8.00 12/1/15 341,600
120,000 Texas
Industries, Inc. 7.25 7/15/13 92,700
500,000 Texas
Industries, Inc., 144A 7.25 7/15/13 386,250
405,000 U.S. Concrete 8.38 4/1/14 218,700
- ------------------------------------------------------------------------------------------
1,039,250
- ------------------------------------------------------------------------------------------
CHEMICALS -- 0.3%
291,000 Nell Af Sarl, 144A 8.38 8/15/15 7,275
150,000 Polyone Corp. 8.88 5/1/12 77,250
- ------------------------------------------------------------------------------------------
84,525
- ------------------------------------------------------------------------------------------
COAL -- 0.3%
82,000 Peabody
Energy Corp. 7.38 11/1/16 77,080
- ------------------------------------------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING -- 3.0%
349,000 First Data Corp. 9.88 9/24/15 211,145
309,000 SunGard Data
Systems, Inc. 9.13 8/15/13 267,285
152,000 SunGard Data
Systems, Inc. 4.88 1/15/14 104,880
419,000 SunGard Data
Systems, Inc. 10.25 8/15/15 276,540
- ------------------------------------------------------------------------------------------
859,850
- ------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 2.0%
272,000 Jarden Corp. 7.50 5/1/17 185,640
535,000 Visant Holding Corp. 8.75 12/1/13 395,900
- ------------------------------------------------------------------------------------------
581,540
- ------------------------------------------------------------------------------------------
ENERGY -- 4.9%
49,000 Chesapeake
Energy Corp. 6.50 8/15/17 37,485
311,000 Connacher
Oil & Gas, 144A 10.25 12/15/15 124,400
187,000 Forest Oil Corp. 7.25 6/15/19 136,510
178,000 Helix Energy
Solutions, 144A 9.50 1/15/16 94,340
529,000 Hilcorp
Energy, 144A 7.75 11/1/15 372,945
44,000 Hilcorp
Energy, 144A 9.00 6/1/16 31,460
350,000 Holly Energy
Partners LP 6.25 3/1/15 234,500
682,000 United Refining Co. 10.50 8/15/12 395,560
- ------------------------------------------------------------------------------------------
1,427,200
- ------------------------------------------------------------------------------------------
ENVIRONMENTAL -- 0.5%
150,000 Browning-Ferris
Industries, Inc. 9.25 5/1/21 148,235
- ------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.2%
248,000 Nuveen
Investments,
Inc., 144A 10.50 11/15/15 54,870
- ------------------------------------------------------------------------------------------
GAMING -- 0.0%
250,000 Station Casinos 6.50 2/1/14 14,375
- ------------------------------------------------------------------------------------------
HEALTH CARE -- 2.7%
346,000 Advanced
Medical Optics 7.50 5/1/17 176,460
250,000 Axcan Intermediate
Holdings 9.25 3/1/15 210,000
316,000 Invacare Corp. 9.75 2/15/15 279,660
208,000 Universal
Hospital
Services FRN 5.94 6/1/15 126,880
- ------------------------------------------------------------------------------------------
793,000
- ------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS -- 2.0%
260,000 HCA, Inc. 5.75 3/15/14 157,300
238,000 HCA, Inc. 9.63 11/15/16 185,640
45,000 Iasis Healthcare 8.75 6/15/14 34,875
253,000 Res-Care, Inc. 7.75 10/15/13 206,195
- ------------------------------------------------------------------------------------------
584,010
- ------------------------------------------------------------------------------------------
HOMEFURNISHINGS -- 0.3%
129,000 Sealy Mattress Co. 8.25 6/15/14 76,110
- ------------------------------------------------------------------------------------------
HOUSING -- 2.0%
315,000 Beazer
Homes USA 6.88 7/15/15 107,100
460,000 K Hovnanian
Enterprises 6.25 1/15/15 119,600
400,000 M/I Homes, Inc. 6.88 4/1/12 210,000
250,000 Meritage
Homes Corp. 6.25 3/15/15 132,500
- ------------------------------------------------------------------------------------------
569,200
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
17
-----
--------------------------
TOUCHSTONE HIGH YIELD FUND
--------------------------
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
CORPORATE BONDS -- 67.4% - CONTINUED
INDUSTRIALS -- 1.2%
$ 12,000 General
Cable Corp. 7.13 4/1/17 $ 7,920
492,000 Mueller Water
Products 7.38 6/1/17 334,560
- ------------------------------------------------------------------------------------------
342,480
- ------------------------------------------------------------------------------------------
MANUFACTURING -- 0.6%
200,000 Trinity
Industries, Inc. 6.50 3/15/14 167,500
- ------------------------------------------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING -- 7.6%
205,000 Clear Channel
Communications 4.25 5/15/09 180,400
447,000 CSC Holdings, Inc. 8.13 7/15/09 444,764
147,000 Dex Media West 9.88 8/15/13 34,913
122,000 Dex Media, Inc. 8.00 11/15/13 22,570
324,000 DIRECTV Holdings 7.63 5/15/16 314,280
191,000 Fisher
Communications, Inc. 8.63 9/15/14 147,070
172,000 Lamar Media Corp.+ 7.25 1/1/13 137,170
139,000 Lamar Media Corp. 6.63 8/15/15 100,428
152,000 Quebecor Media
(Senior Notes) 7.75 3/15/16 102,600
35,000 Quebecor Media
(Senior Unsecured
Notes) 7.75 3/15/16 23,625
60,000 R.H. Donnelley
Corp. 8.88 10/15/17 9,000
263,000 Valassis
Communications 8.25 3/1/15 68,380
361,000 Videotron Ltee 6.88 1/15/14 319,485
148,000 Videotron,
Ltd., 144A 9.13 4/15/18 137,640
48,000 Virgin Media
Finance PLC 8.75 4/15/14 36,000
240,000 Warner Music
Group Corp. 7.38 4/15/14 140,400
- ------------------------------------------------------------------------------------------
2,218,725
- ------------------------------------------------------------------------------------------
METALS -- 3.5%
500,000 ArcelorMittal
USA, Inc. 6.50 4/15/14 355,512
200,000 Newmont Mining 8.63 5/15/11 197,075
317,000 Novelis, Inc. 7.25 2/15/15 183,860
35,000 Ryerson, Inc., 144A 12.00 11/1/15 21,613
101,000 Steel Dynamics, Inc. 7.38 11/1/12 73,730
147,000 Steel Dynamics, Inc. 6.75 4/1/15 101,430
270,000 Tube City IMS Corp. 9.75 2/1/15 94,500
- ------------------------------------------------------------------------------------------
1,027,720
- ------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 1.3%
468,000 Simon Property
Group LP 5.75 5/1/12 374,115
- ------------------------------------------------------------------------------------------
RETAIL -- 1.0%
432,000 Ace Hardware
Corp., 144A 9.13 6/1/16 285,120
- ------------------------------------------------------------------------------------------
SEMICONDUCTORS -- 1.1%
191,000 NXP BV/ NXP
Funding LLC 7.88 10/15/14 74,490
224,000 NXP BV/ NXP
Funding LLC 9.50 10/15/15 42,560
483,000 Sensata Technologies 8.00 5/1/14 217,350
- ------------------------------------------------------------------------------------------
334,400
- ------------------------------------------------------------------------------------------
SERVICES -- 1.7%
287,000 Ashtead
Capital, Inc., 144A 9.00 8/15/16 147,805
153,000 Expedia, Inc., 144A 8.50 7/1/16 113,985
348,000 United Rentals
NA, Inc.+ 7.75 11/15/13 226,200
- ------------------------------------------------------------------------------------------
487,990
- ------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 8.3%
430,000 Centennial
Communications
Corp. 10.13 6/15/13 434,300
409,000 Cincinnati Bell, Inc. 8.38 1/15/14 314,930
940,000 Cricket
Communications 9.38 11/1/14 846,000
190,000 Cricket
Communications,
144A 10.00 7/15/15 173,850
369,000 GCI, Inc. 7.25 2/15/14 287,820
139,000 Nextel
Communications 6.88 10/31/13 59,075
139,000 Sprint Capital Corp. 8.75 3/15/32 93,825
238,000 Windstream Corp. 8.63 8/1/16 210,630
- ------------------------------------------------------------------------------------------
2,420,430
- ------------------------------------------------------------------------------------------
UTILITIES -- 13.3%
520,000 AES Corp. 8.00 10/15/17 426,400
164,000 Atlas Pipeline
Partners, 144A 8.75 6/15/18 107,420
127,000 Copano Energy LLC 8.13 3/1/16 92,075
405,000 Dynegy Holdings, Inc. 7.75 6/1/19 279,450
18,000 Edison Mission
Energy 7.00 5/15/17 15,660
200,000 Enterprise Products 8.38 8/1/66 110,000
161,000 Glencore
Funding LLC, 144A 6.00 4/15/14 65,172
200,000 Inergy LP 8.25 3/1/16 156,000
350,000 Intergen NV, 144A 9.00 6/30/17 287,000
42,000 MarkWest
Energy Partners 8.75 4/15/18 26,040
750,000 NiSource
Finance Corp. 7.88 11/15/10 686,318
500,000 NRG Energy 7.25 2/1/14 467,500
215,000 PNM Resources, Inc. 9.25 5/15/15 170,925
320,000 Regency Energy
Partners 8.38 12/15/13 219,200
51,000 Reliant Energy, Inc. 7.63 6/15/14 42,330
492,000 Sabine Pass Lng LP 7.25 11/30/13 359,160
259,000 Targa Resources
Partners, 144A 8.25 7/1/16 160,580
367,000 Teppco Partners LP 7.00 6/1/67 196,599
- ------------------------------------------------------------------------------------------
3,867,829
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS $ 19,599,082
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
18
- -----
- --------------------------
TOUCHSTONE HIGH YIELD FUND
- --------------------------
- --------------------------------------------------------------------------------
Schedule of Investments continued
Principal Interest Maturity
Amount Rate Date Value
MORTGAGE RELATED SECURITIES -- 1.3%
$ 500,000 Wachovia Bank
Commercial
Mortgage Trust,
Series 2007-C31,
Class A2 5.42 4/15/47 $ 387,856
- ------------------------------------------------------------------------------------------
Shares Value
PREFERRED STOCK -- 0.1%
FINANCIAL SERVICES -- 0.1%
90 Preferred Blocker, Inc., 144A $ 22,500
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 37.9%
432,209 Invesco AIM Liquid Assets Portfolio * $ 432,209
10,599,230 Touchstone Institutional
Money Market Fund ^ 10,599,230
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 11,031,439
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 106.7%
(COST $39,564,571) $ 31,040,877
LIABILITIES IN EXCESS OF OTHER ASSETS -- (6.7%) (1,959,646)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 29,081,231
- ------------------------------------------------------------------------------------------
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $412,819.
* Represents collateral for securities loaned.
FRN - Floating Rate Note
144A - This is a restricted security that was sold in a transaction exempt from
Rule 144A of the Securities Act of 1933. This security may be sold in a
transaction exempt from registration, normally to qualified institutional
buyers. At December 31, 2008, these securities were valued at $3,029,189
or 10.42% of net assets.
The accompanying notes are an integral part of the financial statements.
19
-----
-------------------------------------
TOUCHSTONE LARGE CAP CORE EQUITY FUND
-------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
(Unaudited)
Touchstone Large Cap Core Equity Fund
SUB-ADVISED BY TODD INVESTMENT ADVISORS, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Large Cap Core Equity Fund was -35.20% for
the year ended December 31, 2008. The total return of the Russell 1000(R) Index
was -37.60% and the total return of the Dow Jones Industrial Average was -31.93%
for the same period.
We saw many rare economic events during one year. Equity markets declined more
than any other time since the 1930s, banks and brokers failed, hedge funds
collapsed and the economy entered into what seems to be the worst recession
since World War II. Most strategists did not expect the massive selling that
occurred. Investors fled to investments that offered less risk, which favored
the Fund's style of large cap, high quality investing. Against this backdrop,
the Federal Reserve, Treasury, and Congress have been working overtime to remedy
the crisis. Even though banks are unwilling to lend, the Fed has been forcing
money into the financial system. Despite these efforts, the economy is likely to
remain under pressure for most of the coming year.
The commercial paper market effectively shut down for some borrowers. Banks who
relied on commercial paper reigned in credit so businesses, homeowners and auto
buyers were unable to obtain financing. Shipments from foreign ports were in the
same situation, so goods were not shipped and demand for energy, copper, iron,
steel, aluminum and other commodities plummeted. As financing dried up, economic
activity began to stall. While economic growth is not expected to pick up
anytime soon, yields on government bonds are at historic lows. Eventually, this
should spur more of an appetite for riskier assets like corporate bonds and
stocks. We sense that the stock market is trying to put a bottom in place;
however, the bottoming process could take a couple of quarters and it may drift
sideways while awaiting a recovery.
PORTFOLIO REVIEW
The stocks that held up best in 2008 were high quality companies with
dependable, predictable earnings, as is traditionally the case when economic
growth is in question. Utilities and Consumer Staples were the best performing
sectors with Materials coming in third, indicating that investors might be
optimistic that these companies will have a recovery at some point. The worst
performing sectors were Energy, Health Care and Financials. Again, you might
expect this given the banking crisis and economic distress. Stocks contributing
to relative performance were Wells Fargo & Co., and McDonalds Corp., while
American Express Co., Lincoln National Corp., Marathon Oil Corp., and Wellpoint
Inc., detracted from performance.
The Fund remains positioned in high quality companies, a factor that helped
performance in 2008. The Fund was overweight Industrials and Technology names,
and underweight Financials and Health Care. The Financials underweight
contributed to performance, but the other sector decisions resulted in modest
underperformance.
CURRENT STRATEGY AND OUTLOOK
We do not expect a strong economic resurgence in the first quarter of 2009, but
the pace of the decline should moderate. As we move through the year, government
spending should pick up and is likely to be a significant support for the
economy.
20
- -----
- -------------------------------------
TOUCHSTONE LARGE CAP CORE EQUITY FUND
- -------------------------------------
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance continued
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Five Years Since
Ended Ended Inception
12/31/08 12/31/08 5/1/99
(35.20%) (2.53%) (2.05%)
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Since Inception
5/1/99
(18.19%)
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Touchstone Large Cap Core Equity Fund Russell 1000(R) Index
Date Balance Balance
---- ------- -------
05/01/99 10,000 10,000
12/31/99 10,599 11,146
12/31/00 10,286 10,278
12/31/01 9,109 8,998
12/31/02 7,044 7,050
12/31/03 9,298 9,157
12/31/04 9,770 10,201
12/31/05 9,471 10,841
12/31/06 11,987 12,517
12/31/07 12,625 13,239
12/31/07 8,181 8,261
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on May 1, 1999.
21
-----
-------------------------------------
TOUCHSTONE LARGE CAP CORE EQUITY FUND
-------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Shares Value
COMMON STOCKS -- 98.4%
CONSUMER DISCRETIONARY -- 7.8%
45,723 Best Buy Co., Inc.+ $ 1,285,274
33,837 Honda Motor Co., Ltd. - ADR 722,082
10,085 McDonald's Corp. 627,186
34,616 Target Corp.+ 1,195,290
- ------------------------------------------------------------------------------------------
3,829,832
- ------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 12.3%
46,317 Altria Group 697,534
27,490 CVS Caremark Corp. 790,063
18,852 Kimberly-Clark Corp.+ 994,254
37,009 Kraft Foods, Inc. - Class A 993,692
17,530 PepsiCo, Inc. 960,118
37,347 Philip Morris International, Inc. 1,624,968
- ------------------------------------------------------------------------------------------
6,060,629
- ------------------------------------------------------------------------------------------
ENERGY -- 12.5%
23,156 Chevron Corp. 1,712,849
28,141 ConocoPhillips+ 1,457,704
18,624 ENSCO International, Inc.+ 528,735
51,964 Marathon Oil Corp. 1,421,735
29,411 XTO Energy, Inc. 1,037,326
- ------------------------------------------------------------------------------------------
6,158,349
- ------------------------------------------------------------------------------------------
FINANCIALS -- 10.0%
28,765 AFLAC, Inc.+ 1,318,588
22,492 Allstate Corp. 736,838
38,806 American Express Co. 719,851
19,601 JPMorgan Chase & Co. 618,020
51,800 Wells Fargo & Co.+ 1,527,063
- ------------------------------------------------------------------------------------------
4,920,360
- ------------------------------------------------------------------------------------------
HEALTH CARE -- 13.1%
25,039 Cardinal Health, Inc.+ 863,094
18,298 Johnson & Johnson 1,094,769
18,327 Laboratory Corp. of
America Holdings*+ 1,180,442
18,408 McKesson Corp. 712,942
29,415 Novartis AG - ADR 1,463,691
27,536 Wellpoint, Inc.* 1,160,092
- ------------------------------------------------------------------------------------------
6,475,030
- ------------------------------------------------------------------------------------------
INDUSTRIALS -- 13.7%
14,299 Danaher Corp.+ 809,466
24,940 Emerson Electric Co. 913,053
42,699 General Electric Co. 691,724
16,392 Honeywell International 538,149
29,935 Illinois Tool Works, Inc.+ 1,049,222
20,064 Union Pacific Corp. 959,059
33,161 United Technologies Corp. 1,777,431
- ------------------------------------------------------------------------------------------
6,738,104
- ------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 20.1%
26,773 Amphenol Corp. 642,017
130,319 Applied Materials, Inc. 1,320,131
73,861 Cisco Systems, Inc.* 1,203,934
29,397 Hewlett-Packard Co.+ 1,066,817
70,846 Intel Corp.+ 1,038,602
71,920 Microsoft Corp. 1,398,125
63,939 Oracle Corp.* 1,133,638
46,285 QUALCOMM, Inc. 1,658,391
29,087 Western Union Co. 417,108
- ------------------------------------------------------------------------------------------
9,878,763
- ------------------------------------------------------------------------------------------
MATERIALS -- 1.6%
13,499 Praxair, Inc. 801,301
- ------------------------------------------------------------------------------------------
MISCELLANEOUS -- 0.9%
9,794 Transocean, Inc.*+ 462,767
- ------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 3.2%
55,433 AT&T, Inc. 1,579,841
- ------------------------------------------------------------------------------------------
UTILITIES -- 3.2%
44,339 Dominion Resources, Inc. 1,589,109
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 48,494,085
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 25.3%
11,718,584 Invesco AIM Liquid Assets Portfolio ** 11,718,584
731,719 Touchstone Institutional
Money Market Fund ^ 731,719
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 12,450,303
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 123.7%
(COST $79,099,062) $ 60,944,388
LIABILITIES IN EXCESS OF OTHER ASSETS -- (23.7%) (11,679,799)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 49,264,589
- ------------------------------------------------------------------------------------------
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $11,546,965.
** Represents collateral for securities loaned.
ADR - American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
22
- -----
- ------------------------------
TOUCHSTONE MID CAP GROWTH FUND
- ------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
(Unaudited)
Touchstone Mid Cap Growth Fund
SUB-ADVISED BY TCW INVESTMENT MANAGEMENT COMPANY LLC
WESTFIELD CAPITAL MANAGEMENT COMPANY LLC
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Mid Cap Growth Fund was -39.70% for the year
ended December 31, 2008. The total return of the Russell Midcap(R) Growth Index
was -44.32% for the same period.
Macroeconomic events dominated the headlines in the latter half of 2008 as the
fallout from the subprime-related credit crisis intensified and stocks moved
uniformly lower. There were very few places to hide for investors, as stocks in
every economic sector came under severe selling pressure. Even traditionally
defensive groups like Health Care and Utilities posted double digit price
declines. The U.S. government's original plan of purchasing troubled assets
morphed into directly investing in financial institutions. The Federal Reserve
Bank decided to bypass banks and began to lend directly to corporations for the
first time since the Great Depression. While Treasury Secretary Henry Paulson
was chastised by Congress for revising his stabilization strategy, he staunchly
defended the need to react to evolving circumstances and in November he
introduced plans to focus his department's efforts more specifically on the
nation's struggling consumers.
Wall Street buckled under mounting financial pressure as many of the large
investment banking firms scrapped their original structures and became bank
holding companies. Financial Services stocks generally underperformed. At the
same time, investor concern about slowing global growth pressured commodities
like oil, which retreated from the early July high of over $145 per barrel to
under $40 by year end. Many industries with solid earnings growth and cash flow
were punished as investors abandoned stocks with any exposure to the so-called
global growth trade. Energy and Utilities were the worst performing sectors in
the benchmark in the period. The National Bureau of Economic Research determined
that the U.S. entered a recession in December of 2007 and the Conference Board
Consumer Confidence Index fell to an all-time low of 38 in December. With the
S&P 500 breaching the 2002 bear market lows to levels not seen since 1997 and
nearly 50 percent of the U.S. equity market capitalization on the sidelines in
cash, the harsh economic realities may indeed be more than reflected in current
stock prices. Elevated average correlation of U.S. stocks made for an
environment in which investors were not meaningfully rewarded for fundamental
analysis that differentiated between winning and losing companies.
TCW INVESTMENT MANAGEMENT COMPANY LLC
PORTFOLIO REVIEW
Our portion of the Fund successfully navigated a difficult year. Although we are
never satisfied with negative absolute performance, we are pleased that the
positioning of the portfolio drove relative outperformance, especially during
such a rocky macro-environment. Although we are primarily long-term,
fundamentally-driven, bottom-up stock pickers, we kept a keen eye on these macro
developments during the past year in order to successfully pilot through the
markets.
The Fund benefitted from security selection and being properly positioned in
Financials and Consumer Discretionary. Security selection in Financials was
driven by People's United Financial and Knight Capital Group, while Burger King
Holdings and Toll Brothers bolstered results in Consumer Discretionary.
Semiconductor stock Broadcom, in the Information Technology sector, also
contributed positively to returns. Performance during the year was hampered by
security selection in Consumer Staples. In Industrials, aerospace company Hexcel
and machinery stock SPX Corporation were particularly hard hit.
23
-----
------------------------------
TOUCHSTONE MID CAP GROWTH FUND
------------------------------
- --------------------------------------------------------------------------------
Cyclical stocks generally detracted from performance as investors grappled with
the length and duration of the current recession. Wabco, a high-quality
manufacturer of truck stability and breaking systems, fell on weak demand, but
we believe it will be a strong beneficiary when truck orders rebound. Tyson
Foods, the world's largest chicken, beef and pork producer, also declined, and
we sold the shares, as the risk-reward become increasingly unfavorable due to a
slowdown in the U.S. foodservice industry, a weak export market, and stubbornly
high feed costs. Information Technology also negatively impacted performance as
order rates slowed. We significantly lowered our weighting in technology stocks
in the past year, believing that earnings estimates were too high.
CURRENT STRATEGY AND OUTLOOK
Time will tell whether November 20, 2008 marks the bottom in the bear market,
but some measures of economic activity are starting to thaw and we wait to see
the full effect of the unprecedented policy actions and monetary stimulus that
have unfolded in the past year. Clearly, fourth quarter earnings were terrible,
and we don't expect company outlooks to be rosy. That being said, the market is
starting to discount an economic rebound in the second half of 2009. We are of
two beliefs: on the one hand, it is possible that President Obama's mantra of
change coupled with new fiscal stimulus programs improve consumer and business
confidence, which loosens the economy. Still, it seems unlikely that the banking
crisis is fully solved, and we are wary of the deepness of the recession,
continued softness in housing, rising unemployment, and the migration of the
credit cycle to commercial loans and real estate. As a result, we continue to
hold a number of high-quality financial institutions, buttressed by some early
cycle industrials. In any event, we continue to buy stocks trading at a discount
to intrinsic value, believing that over time the market will reward our
patience. This focus has served us well over time.
WESTFIELD CAPITAL MANAGEMENT COMPANY LLC
PORTFOLIO REVIEW
Our portfolio holdings and overweight position in the Health Care sector added
to relative performance for the year. Celgene, an integrated biopharmaceutical
company, was the single largest individual contributor to returns on both an
absolute and relative basis. The company posted strong quarterly earnings
results, closed the acquisition of Pharmion, and began launching their flagship
drug Revlimid around the world in 2008. Vertex, a biotechnology company,
reported in-line earnings in late October and has a potentially promising late
stage therapy for the treatment of Hepatitis C (data shows it cures patients
after 4 weeks of therapy). The company may have the ability to file with the FDA
in early 2010 with what could be the first in class product to reach the market.
They also have a late stage program in Cystic Fibrosis that targets the
underlying defect. With sufficient cash to fund development, the stock does not
fully reflect the opportunity in Hepatitis C in our opinion. Shire LTD, a
specialty biopharmaceutical company, reported third quarter earnings in-line
with estimates on 29 percent revenue growth and new products representing 39
percent of product sales. Controversy remains, however, as investors debate the
potential for aggressive Adderall XR generic erosion in April 2009. We remain
confident that new product sales growth will offset any erosion of Adderall XR.
Barr Pharmaceuticals plans to introduce an authorized generic version of
Adderall XR in 2009 and then Impax Laboratories in early 2010 and Shire will
receive a royalty from both companies. Elan Corp. was the largest single
detractor within the Health Care sector, as well as the portfolio. The stock
traded lower after investors reacted negatively to the company's presentation of
their Phase II Alzheimer's data on July 30. We felt the data was positive on a
number of levels and expect investors will be encouraged by data from the more
comprehensive Phase III trial currently being enrolled. The company also
reported two new cases of progressive multifocal leukoencephalopathy (PML) in
two Tysabri patients the day after the Alzheimer's data was reported. This was a
recognized risk, and we believe that Tysabri script trends and hospital usage
should remain strong.
24
- -----
- ------------------------------
TOUCHSTONE MID CAP GROWTH FUND
- ------------------------------
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance continued
Information Technology contributed positively to performance during the year as
well due to stock selection. SAIC Inc, a government IT services company,
reported double digit organic revenue growth in their most recent quarter. After
being under some selling pressure early in the fourth quarter with most U.S.
stocks, the allure of the relative predictability of their revenue and earnings
brought investors back to the stock. NICE-Systems, a provider of solutions that
capture and analyze multimedia and transactional data, was a relative
outperformer in the portfolio since its purchase in June 2008. The company has
good visibility with a strong backlog of business, attractive growth
opportunities in video surveillance, and is in a solid position to benefit from
international call centers adopting quality monitoring solutions. Quest
Software, one of the best performing stocks in the group for the year,
materially outperformed other software stocks and contributed significantly to
performance in the Information Technology sector. We believe Quest has an
attractive product portfolio and a management team committed to improving
margins.
Negatively impacting results was the Energy sector. Crude oil prices declined by
over 50 percent and shares of most Energy stocks were not far behind. It is our
continued belief that non-OPEC supply growth remains a major problem. In fact,
the International Energy Agency noted in mid-November that as current fields
fade with age, decline rates will accelerate and more investment will be needed
to make up the shortfall. Nonetheless, portfolio investments with exposure to
the pursuit of oil and natural gas were punished in 2008. National Oilwell
Varco, for example, traded lower as Wall Street estimates of forward earnings
were revised lower as consumables orders are likely to slow given the impact of
lower commodity prices on production activity. Meanwhile, the company has nearly
nine quarters of visibility in backlog. Ninety percent of that backlog is
international and 85 percent is offshore. This backlog is associated with large,
long lead time projects that are less likely to be affected by the current
collapse of commodity prices. Nabors Industries, a land drilling contractor,
reported third quarter earnings results in late October that were slightly ahead
of expectation. The stock has been under selling pressure along with the rest of
the Energy sector, but we believe core business results are healthy and ahead of
expectations.
Portfolio holdings within Financials changed over the course of the year. Both
Nymex Holdings and Intercontinental Exchange were sold given deteriorating
fundamentals and escalating rhetoric about speculator's involvement in commodity
price movements and potential for increased regulation of commodity exchanges.
The portfolio also increased its representation of regional banks after a long
period of time with no banking exposure. It has been our contention that the
challenges within the financial sector would ultimately reveal interesting
investment opportunities. SVB Financial Group was purchased early in the third
quarter for their unique franchise and their dominance of venture capital and
venture capital-backed company financing business. We continue to like the
longer term growth outlook and solid capital levels. The bank's exposure to the
current real estate downturn remains limited as commercial real estate loans and
mortgages account for only 7 percent of the company's total loans outstanding.
Fifth Third Bancorp, a regional bank headquartered in Ohio, was unable to avoid
the severe downturn experienced by most companies in the Financials landscape.
The company has been addressing its credit issues, but is still facing an
extremely challenging fundamental environment for the banking industry and will
likely see restrained near-term earnings growth due higher credit costs and
growth in non-performing loans.
25
-----
------------------------------
TOUCHSTONE MID CAP GROWTH FUND
------------------------------
- --------------------------------------------------------------------------------
CURRENT STRATEGY AND OUTLOOK
Further deterioration in the domestic economy is likely as we enter 2009. We
believe the corporate response to the challenging circumstances will negatively
impact capital budgeting plans and employment trends. Earnings growth, however,
still exists and valuations for U.S. equities appear compelling even on
conservative estimates of forward earnings. Peculiarities of this cyclical
downturn impact our views of the ultimate cyclical recovery. One cannot assume
that the consumer will stabilize and all traditional early cyclical stocks will
promptly recover. We do expect that headlines will become less negative and the
risk appetite of the currently paralyzed investment community will increase. We
think stocks of high quality companies with access to capital, strategic
advantages and competent management teams will thrive in this environment. We
feel the carnage of 2008 has created opportunities to invest in terrific growth
companies at historic low valuations.
26
- -----
- ------------------------------
TOUCHSTONE MID CAP GROWTH FUND
- ------------------------------
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance continued
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Five Years Ten Years
Ended Ended Ended
12/31/08 12/31/08 12/31/08
(39.70%) 0.70% 8.18%
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Ten Years
Ended
12/31/08
119.47%
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Touchstone Mid Cap Russell Mid Cap(R)
Growth Fund Growth (Major Index)
Date Balance Balance
---- ------- -------
12/31/98 10,000 10,000
12/31/99 14,675 15,129
12/31/00 19,022 13,351
12/31/01 18,523 10,661
12/31/02 14,391 7,739
12/31/03 21,192 11,044
12/31/04 23,748 12,754
12/31/05 27,379 14,297
12/31/06 31,809 15,821
12/31/07 36,398 17,629
12/31/08 21,948 9,816
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on November 21, 1994.
27
-----
------------------------------
TOUCHSTONE MID CAP GROWTH FUND
------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Shares Value
COMMON STOCKS -- 96.9%
CONSUMER DISCRETIONARY -- 12.5%
7,500 Advance Auto Parts, Inc. $ 252,375
13,100 American Eagle Outfitters, Inc. 122,616
3,100 Apollo Group, Inc. - Class A*+ 237,522
3,950 Bed Bath & Beyond, Inc.*+ 100,409
7,250 Burger King Holdings, Inc. 173,130
7,750 DeVry, Inc. 444,927
6,465 Gap, Inc. (The) 86,566
7,795 Lennar Corp. - Class A 67,583
19,500 Limited Brands, Inc. 195,780
13,185 Macy's, Inc. 136,465
19,500 Newell Rubbermaid, Inc. 190,710
3,575 Snap-On, Inc. 140,784
9,775 TJX Cos., Inc. (The) 201,072
4,700 Toll Brothers, Inc.* 100,721
8,265 WABCO Holdings, Inc. 130,504
- ------------------------------------------------------------------------------------------
2,581,164
- ------------------------------------------------------------------------------------------
ENERGY -- 8.3%
5,050 Cameron International Corp.* 103,525
11,050 CONSOL Energy, Inc. 315,808
10,200 Denbury Resources, Inc.* 111,384
6,400 Massey Energy Co. 88,256
3,376 Murphy Oil Corp. 149,726
11,450 Nabors Industries, Ltd.*+ 137,057
9,432 National Oilwell Varco, Inc.* 230,517
4,700 Peabody Energy Corp.+ 106,925
5,950 Range Resources Corp.+ 204,621
6,650 Smith International, Inc. 152,219
10,685 Weatherford International, Ltd.* 115,612
- ------------------------------------------------------------------------------------------
1,715,650
- ------------------------------------------------------------------------------------------
FINANCIALS -- 14.1%
24,200 Annaly Capital Management, Inc. 384,053
3,946 Arch Capital Group, Ltd.* 276,615
4,895 Assurant, Inc. 146,850
6,875 Federated Investors, Inc. - Class B 116,600
26,685 Fifth Third Bancorp+ 220,418
12,254 First Horizon National Corp. 129,521
9,285 Hudson City Bancorp, Inc. 148,189
11,930 Invesco, Ltd. 172,269
13,400 Knight Capital Group, Inc.* 216,410
4,875 Moody's Corp. 97,939
14,881 New York Community Bancorp, Inc. 177,977
1,925 PartnerRe, Ltd. 137,195
8,956 People's United Financial, Inc. 159,685
6,400 SVB Financial Group*+ 167,872
17,080 Synovus Financial Corp.+ 141,764
9,335 Willis Group Holdings, Ltd. 232,255
- ------------------------------------------------------------------------------------------
2,925,612
- ------------------------------------------------------------------------------------------
HEALTH CARE -- 18.4%
2,585 Beckman Coulter, Inc. 113,585
6,800 Celgene* 375,904
5,350 Cerner Corp.*+ 205,708
4,500 Covance, Inc.*+ 207,135
8,150 DaVita, Inc.* 403,996
6,650 DENTSPLY International, Inc.+ 187,796
2,230 Edwards Lifesciences Corp.* 122,539
33,050 Elan Corp. PLC - ADR*+ 198,300
9,700 Life Technologies Corp.*+ 226,107
17,000 Qiagen NV* 298,520
11,200 Shire Pharmaceuticals
Group PLC - ADR 501,535
4,080 Teleflex, Inc. 204,408
5,310 Thermo Fisher Scientific, Inc.* 180,912
4,810 Varian* 161,183
13,950 Vertex Pharmaceuticals, Inc.*+ 423,800
- ------------------------------------------------------------------------------------------
3,811,428
- ------------------------------------------------------------------------------------------
INDUSTRIALS -- 14.8%
1,700 Actuant Corp. - Class A 32,334
2,365 Alliant Techsystems*+ 202,822
8,200 AMETEK, Inc. 247,722
16,300 Corrections Corporation of America* 266,668
5,270 Dover 173,488
19,550 Hexcel Corp.* 144,475
11,200 IDEX Corp.+ 270,480
6,800 ITT Industries, Inc. 312,732
2,600 Jacobs Engineering Group, Inc.*+ 125,060
5,090 Joy Global, Inc. 116,510
8,500 Kirby Corp.*+ 232,560
11,200 MSC Industrial Direct Co. - Class A 412,495
5,075 Rockwell Collins, Inc. 198,382
3,430 SPX Corp. 139,087
13,850 Textron, Inc. 192,100
- ------------------------------------------------------------------------------------------
3,066,915
- ------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 20.9%
4,550 Agilent Technologies, Inc.* 71,117
5,950 Alliance Data Systems Corp.* 276,854
7,400 Altera Corp.+ 123,654
7,290 Analog Devices, Inc. 138,656
11,350 Autodesk, Inc.*+ 223,028
5,750 Avnet, Inc.* 104,708
12,450 BMC Software, Inc.* 335,029
17,450 Broadcom Corp. - Class A* 296,127
49,200 Brocade Communications Systems, Inc.* 137,760
16,050 Cognizant Technology Solutions Corp.*+ 289,863
14,080 Maxim Integrated Products, Inc. 160,794
6,400 Mettler-Toledo International, Inc.* 431,359
23,450 NetApp, Inc.*+ 327,596
17,000 Nice Systems, Ltd. - ADR* 381,989
32,300 PMC-Sierra, Inc.*+ 156,978
20,100 Quest Software, Inc.* 253,059
15,750 SAIC, Inc.* 306,809
10,001 Verigy, Ltd.* 96,210
11,500 VistaPrint, Ltd.*+ 214,015
- ------------------------------------------------------------------------------------------
4,325,605
- ------------------------------------------------------------------------------------------
MATERIALS -- 4.8%
16,875 Commercial Metals Co. 200,306
14,650 Crown Holdings, Inc.* 281,281
6,155 Cytec Industries, Inc. 130,609
5,710 International Flavors & Fragrances, Inc. 169,701
8,825 Pactiv Corp.* 219,566
- ------------------------------------------------------------------------------------------
1,001,463
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
28
- -----
- ------------------------------
TOUCHSTONE MID CAP GROWTH FUND
- ------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments continued
Shares Value
COMMON STOCKS -- 96.9% - CONTINUED
UTILITIES -- 3.1%
3,770 Consolidated Edison, Inc. $ 146,766
7,050 Equitable Resources, Inc. 236,528
4,065 Hawaiian Electric Industries, Inc. 89,999
4,045 Wisconsin Energy Corp.+ 169,809
- ------------------------------------------------------------------------------------------
643,102
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 20,070,939
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 24.0%
4,267,946 Invesco AIM Liquid Assets Portfolio ** 4,267,946
702,185 Touchstone Institutional
Money Market Fund ^ 702,185
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 4,970,131
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 120.9%
(COST $32,836,638) $ 25,041,070
LIABILITIES IN EXCESS OF OTHER ASSETS -- (20.9%) (4,327,641)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 20,713,429
- ------------------------------------------------------------------------------------------
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $4,207,878.
** Represents collateral for securities loaned.
ADR - American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
29
-----
----------------------------
TOUCHSTONE MONEY MARKET FUND
----------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Principal Interest Maturity
Amount Rate Date Value
COMMERCIAL PAPER -- 2.2%
$ 1,439,000 BNP Paribas
Finance, Inc. .01 1/2/09 $ 1,439,000
1,733,000 Charlotte NC COP
Nascar Hall of Fame
(LOC: KBC
Bank N.V.) 3.40 3/4/09 1,733,000
- ------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER $ 3,172,000
- ------------------------------------------------------------------------------------------
CORPORATE BONDS -- 18.0%
500,000 Bank of New
York Mellon 3.63 1/15/09 500,128
608,000 Credit Suisse
USA, Inc. 3.88 1/15/09 607,911
319,000 JPMorgan
Chase & Co. 6.25 1/15/09 319,191
2,253,000 Morgan Stanley 3.88 1/15/09** 2,252,962
2,000,000 American Express
Centurion FRN .94 1/18/09 1,990,559
186,000 HSBC Finance Corp. 5.88 2/1/09 186,248
500,000 Republic New York
Corp. (HSBC) 9.70 2/1/09 501,722
295,000 Bank of America
Corp. 5.88 2/15/09 295,649
1,020,000 JPMorgan
Chase & Co. 6.00 2/15/09 1,022,882
1,570,000 Bank of America
Corp. 3.38 2/17/09 1,570,316
800,000 Mississippi Power
Co. FRN 2.37 3/9/09 798,410
1,000,000 Centura Bank (RBC) 6.50 3/15/09 1,004,118
2,200,000 Wachovia Bank
NA FRN 1.54 3/23/09 2,190,453
200,000 Mellon Funding
Corp. 3.25 4/1/09 200,536
580,000 Deutsche Bank
Financial 7.50 4/25/09 585,426
500,000 Royal Bank
of Canada 3.88 5/4/09 501,437
1,750,000 Credit Suisse
USA, Inc. 4.70 6/1/09 1,759,289
250,000 Caterpillar Finanical
Services Corp. 4.50 6/15/09 251,613
500,000 General Electric
Capital Corp. 3.25 6/15/09 499,061
1,000,000 American Express 4.75 6/17/09 1,002,522
279,000 Wells Fargo
Financial 6.85 7/15/09 284,205
3,500,000 Wal-Mart
Stores, Inc. 6.88 8/10/09 3,580,857
1,000,000 Georgia Power Co. 4.10 8/15/09 999,000
1,000,000 National
Rural Utilities 5.75 8/28/09 1,004,005
1,000,000 Caterpillar, Inc. 7.25 9/15/09 1,017,032
500,000 Gillette Co. 3.80 9/15/09 505,866
250,000 Procter &
Gamble Co. 6.88 9/15/09 258,386
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS $ 25,689,784
- ------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS -- 5.8%
500,000 South Coast CA
Loc Ed Agy-A2 4.75 1/7/09 500,020
1,470,000 New Bedford MA
LTGO BANS
Series B 3.25 2/13/09 1,470,442
2,200,000 Franklin Co OH
Spl Oblig (Stadium
Fac Proj) UTGO 4.25 3/13/09 2,200,623
400,000 South Lebanon
Vlg OH BANS
Series C (LOC:
LaSalle National
Bank) 4.00 4/29/09 400,000
1,000,000 Avon OH
LTGO BANS 4.25 5/14/09 1,000,901
1,000,000 Maine UTGO
BANS 3.45 6/17/09 1,000,219
950,000 Butler Co OH
UTGO BANS 4.00 8/6/09 950,000
800,000 Groton CT UTGO 5.13 10/8/09 802,209
- ------------------------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS $ 8,324,414
- ------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- 59.3%
3,155,000 486 Lesser Street
(LOC: Comerica
Bank) 2.25 1/1/09 3,155,000
810,000 Agra Enterprises
LLC (LOC: US
Bank NA) 3.50 1/1/09 810,000
100,000 Albany NY Indl Dev
Agy Civic Fac Rev
(CHF Holland Proj-B)
(LOC: TD
Banknorth NA) 3.00 1/1/09 100,000
240,000 Albany NY Indl
Dev Agy Civic Fac
Rev (CHF Holland
Ser B) (LOC: TD
Banknorth NA) 3.50 1/1/09 240,000
140,000 Albany NY Indl
Dev Agy Civic Fac
Rev RB (Albany
College-B) (LOC: TD
Banknorth NA) 3.50 1/1/09 140,000
350,000 Berks Co PA IDA
Student Hsg Rev
(CHF Kutztown - B)
(LOC: Citibank NA) 3.00 1/1/09 350,000
590,000 Butler Co OH Cap
Fdg Rev (CCAO
Low Cost) (LOC:
US Bank NA) 3.50 1/1/09 590,000
2,000,000 CA St Enterprise
Dev Auth IDR
(Tri-Tool Inc - B)
(LOC: Comerica
Bank) 4.50 1/1/09 2,000,000
The accompanying notes are an integral part of the financial statements.
30
- -----
- ----------------------------
TOUCHSTONE MONEY MARKET FUND
- ----------------------------
- --------------------------------------------------------------------------------
Schedule of Investments continued
Principal Interest Maturity
Amount Rate Date Value
VARIABLE RATE DEMAND NOTES* -- 59.3% - CONTINUED
$ 290,000 CA Statewide CDA
MFH (Sunrise
Fresno) (LOC:
FNMA) 1.30 1/1/09 $ 290,000
765,000 Corp Finance
Managers (LOC:
Wells Fargo Bank) 1.64 1/1/09 765,000
4,200,000 Cubba Capital II
LLC (LOC: Charter
One Bank NA) 3.50 1/1/09 4,200,000
322,000 Fitch Denney
Funeral Home, Inc.
(LOC: FHLB) 4.15 1/1/09 322,000
175,000 FL HFC MFH
(Avalon Reserve)
(LOC: FNMA) 3.50 1/1/09 175,000
4,000,000 FL MFH Mtg Rev
(Northbridge)
(LOC: KeyBank NA) 3.35 1/1/09 4,000,000
3,275,000 Goson Project
(LOC: FHLB) 3.42 1/1/09 3,275,000
625,000 IL Fin Auth
(Community Action
Ser B) RB (LOC:
Harris NA) 4.25 1/1/09 625,000
140,000 IL Fin Auth
(Sunshine Thru
Golf) (LOC:
LaSalle Bank) 1.25 1/1/09 140,000
705,000 JL Capital One
LLC (LOC: Wells
Fargo Bank) 1.74 1/1/09 705,000
625,000 Lake Oswego
OR Redev Agy Tax
Increment Rev Ser B
(LOC: Wells
Fargo Bank) 1.64 1/1/09 625,000
2,000,000 Lavonia O Frick
Family Trust (LOC:
FHLB) .98 1/1/09 2,000,000
5,274,650 Legacy Park LLC
(LOC: Fifth Third
Bank) 5.00 1/1/09 5,274,650
4,000,000 Lexington Financial
Services (LOC:
LaSalle Bank) 2.25 1/1/09 4,000,000
3,680,000 Mequon WI IDR
(Gateway Plastics)
(LOC: Bank One) 3.80 1/1/09 3,680,000
2,000,000 Miami-Dade Co
FL IDA IDR
(Dolphin Stadium
PJ) (LOC: Societe
Generale) 3.35 1/1/09 2,000,000
1,935,000 Miarko, Inc. (LOC:
PNC Bank NA) 3.90 1/1/09 1,935,000
990,000 Mill St Village LLC
(LOC: FHLB) 4.15 1/1/09 990,000
1,620,000 Mountain Agency,
Inc. (LOC: US
Bank NA) 3.90 1/1/09 1,620,000
1,515,000 Phoenix Realty
MFH Rev (Brightons
Mark) (LOC:
Northern Trust Co.) 3.68 1/1/09 1,515,000
3,175,000 Rise, Inc. (LOC:
Wells Fargo Bank) 1.74 1/1/09 3,175,000
545,000 Sacramento Co
CA Hsg Auth
MFH Rev (Deer
Pk Apts) (LOC:
FNMA) 1.30 1/1/09 545,000
1,055,000 SGM Funding
Corp. I (LOC:
US Bank NA) 3.50 1/1/09 1,055,000
2,730,000 Sherwood Baptist
Church (LOC:
Bank of America) 1.25 1/1/09 2,730,000
600,000 Simi Valley CA
MFH Rev (Parker
Ranch) (LOC:
FNMA) 1.30 1/1/09 600,000
2,080,000 Springfield MO
Redev Auth Rev
(Univ Plaza
Hotel) (LOC:
Bank of America) .67 1/1/09 2,080,000
135,000 Suffolk Co NY
IDA (Hampton
Day School)
(LOC: JPMorgan
Chase Bank) .82 1/1/09 135,000
383,000 Vista Funding
Ser 01-B (LOC:
US Bank NA) 3.50 1/1/09 383,000
2,470,000 WA St Hsg Fin
Commn MFH Rev
(Auburn Meadows)
Ser B (LOC: Wells
Fargo Bank NA) 1.10 1/1/09 2,470,000
850,000 WA St Hsg Fin
Commn MFH Rev
(Woodland
Retirement)
(LOC: Wells Fargo
Bank NA) 1.10 1/1/09 850,000
295,000 WA St Hsg Fin
Commn Nonprofit
Rev (Rockwood Proj)
(LOC: Wells Fargo
Bank NA) 1.10 1/1/09 295,000
The accompanying notes are an integral part of the financial statements.
31
-----
----------------------------
TOUCHSTONE MONEY MARKET FUND
----------------------------
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
VARIABLE RATE DEMAND NOTES* -- 59.3% - CONTINUED
$ 1,549,000 Wai Enterprises
LLC Ser 2004
(LOC: FHLB) 3.50 1/1/09 $ 1,549,000
245,000 Watervliet NY Hsg
Auth (Beltrone
SR-B) (LOC:
Citizens Bank) 3.00 1/1/09 245,000
125,000 Westmoreland Co
PA IDA (Greensburg
Thermal) Ser B
(LOC: PNC
Bank NA) 1.57 1/1/09 125,000
330,000 Wilmington Iron
& Metal Co.
(LOC: JPMorgan
Chase Bank) 3.50 1/1/09 330,000
490,000 Diaz-Upton LLC
(LOC: State
Street Bank) 2.05 1/2/09 490,000
3,925,000 Capital Markets
Access (LOC:
Suntrust Bank) 1.50 1/3/09 3,925,000
1,646,000 AK Indl Dev &
Expt Auth
(LOC: Wells
Fargo Bank) 3.90 1/7/09 1,646,000
250,000 Chattanooga TN
Hlth Edl & Hsg
Fac Bd MFH
(Windridge-B)
(LOC: FNMA) 3.50 1/7/09 250,000
500,000 Goson Project
Ser 1997
(LOC: FHLB) 3.42 1/7/09 500,000
1,160,000 Greenville SC
Mem Aud
(Bi-Lo Ctr) (LOC:
Bank of America) 2.75 1/7/09 1,160,000
460,000 Lee Co GA Dev
Auth Rev (B & B Dealership) (LOC:
Suntrust Bank) 1.55 1/7/09 460,000
1,500,000 NJ Economic Dev
Auth Rev (Cascade
Corp.-Ser C)
(LOC: Bank of
America NA) 3.00 1/7/09 1,500,000
700,000 NY St Hsg Fin
Agy Rev
(LOC: FHLMC) 1.75 1/7/09 700,000
2,215,000 Palm Beach Co
FL Arpt Rev (Galaxy
Aviation PJ-B) 4.25 1/7/09 2,215,000
3,000,000 Raleigh NC COP
(LOC: Wachovia
Bank NA) 2.00 1/7/09 3,000,000
3,370,000 Robert C Fox
(Fox Racing Shox)
Ser 03 (LOC:
Comerica Bank) 2.00 1/7/09 3,370,000
40,000 St Johns Co FL HFA
(Ponce Harbor Apts)
(LOC: FNMA) 3.50 1/7/09 40,000
2,000,000 St Pauls Episcopal
Church of Indianapolis
IN (LOC: JPMorgan
Chase Bank) 1.44 1/7/09 2,000,000
1,305,000 Tennis for Charity,
Inc. OH Rev (LOC: JPMorgan Chase
Bank) 2.30 1/7/09 1,305,000
50,000 Volusia Co FL HFA
MFH (Sunrise Pointe)
(LOC: Bank
of America) 2.75 1/7/09 50,000
- ------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE DEMAND NOTES* $ 84,699,650
- ------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.2%
2,608,837 Overseas Private
Investment
Corp. FRN .65 1/7/09 2,608,837
2,000,000 Overseas Private
Investment
Corp. FRN .65 1/7/09 2,000,000
- ------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS $ 4,608,837
- ------------------------------------------------------------------------------------------
CERTIFICATE OF DEPOSITS/TIME DEPOSITS -- 11.0%
1,000,000 Credit Suisse
New York FRN .14 1/1/09 992,386
3,300,000 Bank of
Montreal-Chicago
FRN 4.46 1/22/09 3,300,000
2,000,000 PNC Bank
NA FRN .45 1/27/09 1,997,986
3,750,000 Royal Bank
of Canada - NY 5.29 2/2/09 3,752,097
2,255,000 Bank of New York 5.05 3/3/09 2,260,825
3,485,000 Suntrust Bank 4.42 6/15/09 3,489,914
- ------------------------------------------------------------------------------------------
TOTAL CERTIFICATE OF
DEPOSITS/TIME DEPOSITS $ 15,793,208
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 99.5%
(COST $142,287,893) $ 142,287,893
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.5% 778,275
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 143,066,168
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
32
- -----
- ----------------------------
TOUCHSTONE MONEY MARKET FUND
- ----------------------------
- --------------------------------------------------------------------------------
Schedule of Investments continued
Capital Support Agreement - See Footnote 10 in notes to financial statements.
ISSUER EXPIRATION DATE VALUE ($)
- ------------------------- ---------------- ---------
Touchstone Advisors, Inc. January 31, 2009 $ 0
* Maturity date represents the next reset date.
** Security is covered by a Capital Support Agreement with Touchstone
Advisors, Inc. as discussed more fully in the notes to financial
statements.
BANS - Bond Anticipation Notes
CDA -Communities Development Authority
COP - Certificate of Participation
FHLB - Federal Home Loan Bank
FHLMC-Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
HFA - Housing Finance Authority
HFC - Housing Finance Corporation
IDA - Industrial Development Authority
IDR - Industrial Development Revenue
LOC - Line of Credit
LTGO - Limited Tax General Obligation
MFH - Multi-Family Housing
RB - Revenue Bond
UTGO - Unlimited Tax General Obligation
The accompanying notes are an integral part of the financial statements.
33
-----
----------------------------------
TOUCHSTONE THIRD AVENUE VALUE FUND
----------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
(Unaudited)
Touchstone Third Avenue Value Fund
SUB-ADVISED BY THIRD AVENUE MANAGEMENT LLC
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Third Avenue Value Fund was -38.50% for the
year ended December 31, 2008. The total return of the Russell 3000(R) Value
Index was -36.25% for the same period.
Third Avenue adheres to a disciplined value approach to investing. It performs a
thorough, bottom-up analysis to identify companies that are believed to be "safe
and cheap" based on their financial strength, quality management teams, readily
available financial information and disclosure, and prices below their private
market values. Third Avenue also looks for companies with strong balance sheets,
believed to be an indicator of a company's long term staying power and its
ability to outperform in rough times.
PORTFOLIO REVIEW
December concluded a very challenging year for equity markets with virtually all
benchmarks ending the 12-month period in deep negative territory. A worsening
global credit crisis led to extreme investor pessimism, which in turn resulted
in persistent market volatility. While the situation may seem bleak from a
top-down perspective, an analysis that incorporates a longer-term, bottom-up
approach of individual companies indicates that this is an opportunity of a
lifetime for patient deep value investors such as Third Avenue.
As we have written in the past, the macro environment has little influence on
the process by which we select investments. The events occurring in the global
financial markets over the past year have further emphasized the importance of
investing in companies with sound balance sheets, which do not need continuous
access to the capital markets. We have been identifying companies with strong
financials, which we believe have excellent prospects for increasing net asset
value. We are taking advantage of the current environment and positioning the
Fund for the long run by acquiring shares of companies that meet our stringent
financial and valuation criteria and are now selling at unprecedented valuation
levels.
Key detractors to performance included some of the Fund's real estate-related
holdings. Shares of Forest City Enterprises and Brookfield Asset Management, the
Fund's top detractors during the year, declined amid the ongoing downturn in
real estate. Forest City, in particular, was also impacted by concerns regarding
upcoming property re-financing. Also among the top detractors were some of the
Fund's energy holdings, which weakened on the heels of falling oil and natural
gas prices. Despite these near-term challenges, we believe the fundamentals and
long-term business outlooks for all of these holdings remain solid.
On the positive side, there has been a huge flight to quality into
well-capitalized regional banks, such as NewAlliance Bancshares. Given its
low-cost, diversified capital base as a depository institution, the company was
the Fund's top stock specific contributor.
CURRENT STRATEGY AND OUTLOOK
Third Avenue has a long term horizon and a value-oriented investment approach of
identifying well-managed businesses that we understand, are trading at discounts
to readily ascertainable net asset values. This disciplined approach has
historically delivered excellent returns with limited downside over the long
term, despite short term fluctuations that have prevailed in turbulent markets.
34
- -----
- ----------------------------------
TOUCHSTONE THIRD AVENUE VALUE FUND
- ----------------------------------
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance continued
We are very excited by the opportunities that the continuing market volatility
creates for patient investors to invest in solid companies at severely
discounted prices. We believe our disciplined, value-oriented approach, with its
focus on balance sheet strength, will reward investors in the long run.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Five Years Ten Years
Ended Ended Ended
12/31/08 12/31/08 12/31/08
(38.50%) 0.69% 3.02%
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Ten Years
Ended
12/31/08
34.71%
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Russell 3000(R) Value
Touchstone Third Avenue Value Fund (Major Index)
Date Balance Balance
---- ------- -------
12/31/98 10,000 10,000
12/31/99 8,786 10,665
12/31/00 9,767 11,522
12/31/01 11,254 11,024
12/31/02 9,286 9,350
12/31/03 13,018 12,262
12/31/04 16,393 14,339
12/31/05 19,247 15,321
12/31/06 22,302 18,744
12/31/07 21,902 18,555
12/31/08 13,470 11,829
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on December 14, 1992.
35
-----
----------------------------------
TOUCHSTONE THIRD AVENUE VALUE FUND
----------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Shares Value
COMMON STOCKS -- 72.1%
CONSUMER DISCRETIONARY -- 4.1%
7,650 JAKKS Pacific, Inc.* $ 157,820
61,700 Journal Communications, Inc. 151,165
18,210 MDC Holdings, Inc. 551,763
32,000 Russ Berrie and Company, Inc.* 95,040
24,700 Skyline Corp. 493,753
89,361 Superior Industries International, Inc.+ 940,077
- ------------------------------------------------------------------------------------------
2,389,618
- ------------------------------------------------------------------------------------------
ENERGY -- 13.9%
58,655 Bristow Group, Inc.*+ 1,571,367
174,093 Bronco Drilling Company, Inc.* 1,124,641
67,648 Cimarex Energy Company 1,811,613
253,859 Pioneer Drilling Company* 1,413,995
23,800 St. Mary Land & Exploration Company 483,378
35,000 Tidewater, Inc. 1,409,450
8,200 Whiting Petroleum Corp.* 274,372
- ------------------------------------------------------------------------------------------
8,088,816
- ------------------------------------------------------------------------------------------
FINANCIALS -- 25.5%
15,000 Ambac Financial Group, Inc.+ 19,500
11,000 Arch Capital Group Ltd.* 771,100
79,258 Bank of New York Mellon Corp. 2,245,378
131,737 Brookfield Asset
Management, Inc. - Class A+ 2,011,624
38,697 Brookline Bancorp, Inc. 412,123
9,500 Capital Southwest Corp. 1,027,520
53,800 CIT Group, Inc.+ 244,252
91,500 Forest City Enterprises, Inc. - Class A 613,050
48,523 Investment Technology Group, Inc.* 1,102,443
40,250 Legg Mason, Inc. 881,878
118,529 MBIA, Inc.* 482,413
66,970 NewAlliance Bancshares, Inc.+ 881,995
32,150 Origen Financial, Inc. 18,969
46,800 Phoenix Companies, Inc. (The) 153,036
15,420 ProLogis+ 214,184
24,100 St. Joe Company (The)*+ 586,112
63,525 Tokio Marine Holdings, Inc. - ADR 1,846,037
45,125 Westwood Holdings Group, Inc.+ 1,282,001
- ------------------------------------------------------------------------------------------
14,793,615
- ------------------------------------------------------------------------------------------
HEALTH CARE -- 3.3%
60,800 Cross Country Healthcare, Inc.* 534,432
78,000 Pfizer, Inc. 1,381,380
- ------------------------------------------------------------------------------------------
1,915,812
- ------------------------------------------------------------------------------------------
INDUSTRIALS -- 1.3%
51,300 Alamo Group, Inc. 766,935
- ------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 15.7%
7,850 Alliance Data Systems Corp.*+ 365,261
30,000 Applied Materials, Inc. 303,900
169,000 AVX Corp.+ 1,341,859
24,600 Bel Fuse, Inc. - Class B 521,520
76,000 Electro Scientific Industries, Inc.* 516,040
62,600 Electronics For Imaging, Inc.* 598,456
14,000 Fair Isaac Corp.+ 236,040
75,000 Intel Corp.+ 1,099,500
30,600 Lexmark International, Inc. - Class A* 823,140
28,707 Sybase, Inc.*+ 711,072
387,808 Sycamore Networks, Inc.* 1,043,204
30,700 Synopsys, Inc.*+ 568,564
243,000 Tellabs, Inc.* 1,001,160
- ------------------------------------------------------------------------------------------
9,129,716
- ------------------------------------------------------------------------------------------
MATERIALS -- 8.2%
74,474 Louisiana-Pacific Corp. 116,179
118,187 P.H. Glatfelter Company 1,099,139
36,300 POSCO - ADR+ 2,731,576
50,780 Westlake Chemical Corp.+ 827,206
- ------------------------------------------------------------------------------------------
4,774,100
- ------------------------------------------------------------------------------------------
UTILITIES -- 0.1%
5,269 Brookfield Infrastructure
Partners, LP 59,013
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 41,917,625
- ------------------------------------------------------------------------------------------
FOREIGN STOCKS -- 23.3%
CONSUMER DISCRETIONARY -- 4.1%
110,000 Toyota Industries Corp. 2,367,558
- ------------------------------------------------------------------------------------------
ENERGY -- 4.4%
49,400 EnCana Corp. 2,296,112
20,000 Nabors Industries, Ltd.* 239,400
- ------------------------------------------------------------------------------------------
2,535,512
- ------------------------------------------------------------------------------------------
FINANCIALS -- 8.6%
433,000 Henderson Land
Development Co., Ltd. 1,619,453
172,500 Investor AB - Class A*+ 2,566,701
50,000 Mitsui Fudosan Co., Ltd. 832,923
- ------------------------------------------------------------------------------------------
5,019,077
- ------------------------------------------------------------------------------------------
HEALTH CARE -- 0.9%
23,000 Daiichi Sankyo Company, Ltd. 543,463
- ------------------------------------------------------------------------------------------
INDUSTRIALS -- 2.8%
320,000 Hutchison Whampoa, Ltd. 1,615,388
- ------------------------------------------------------------------------------------------
MATERIALS -- 2.5%
58,700 Lanxess 1,150,324
100,000 TimberWest Forest Corp. 286,756
- ------------------------------------------------------------------------------------------
1,437,080
- ------------------------------------------------------------------------------------------
TOTAL FOREIGN STOCKS $ 13,518,078
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 28.5%
13,819,850 Invesco AIM Liquid Assets Portfolio ** 13,819,850
2,726,733 Touchstone Institutional
Money Market Fund^ 2,726,733
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 16,546,583
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 123.9%
(COST $88,452,230) $ 71,982,286
LIABILITIES IN EXCESS OF OTHER ASSETS -- (23.9%) (13,873,541)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 58,108,745
- ------------------------------------------------------------------------------------------
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $13,895,120.
** Represents collateral for securities loaned.
ADR - American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
36
- -----
- --------------------
TOUCHSTONE ETF FUNDS
- --------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
(Unaudited)
TOUCHSTONE ETF FUNDS
SUB-ADVISED BY TODD INVESTMENT ADVISORS, INC.
TOUCHSTONE AGGRESSIVE ETF FUND
TOUCHSTONE CONSERVATIVE ETF FUND
TOUCHSTONE ENHANCED ETF FUND
TOUCHSTONE MODERATE ETF FUND
Four Exchanged Traded Funds (ETF) of Funds are available for investors seeking
"lifestyle" products for their annuity holdings. Strategic options include the
Conservative, Moderate and Aggressive ETF Funds. These funds use asset
allocations of up to nine ETFs that should not change dramatically over time,
with higher bond weights for the more conservative funds, and lower bond weights
for the more aggressive funds. The fourth option, the Enhanced ETF Fund, uses a
tactical asset allocation in an effort to generate better returns.
PERFORMANCE AND MARKET OVERVIEW
The Touchstone Conservative ETF Fund's total return was -9.49% for the year
ended December 31, 2008. The total return of the Barclays Capital Aggregate Bond
Index was 5.24% for the same period. The Touchstone Moderate ETF Fund's total
return was -20.34%, the Touchstone Aggressive ETF Fund -29.12%, and the
Touchstone Enhanced ETF Fund -31.40% for the year ended December 31, 2008. The
total return of the S&P 1500 Composite Index was -36.71% for the same period.
The specific blended benchmark returns were -10.84% for the Conservative ETF
Fund, -21.39% for the Moderate ETF Fund, -29.28% for the Aggressive ETF Fund,
and -33.05% for the Enhanced ETF Fund.
The Conservative, Moderate and Aggressive ETF Funds outperformed their blended
benchmarks during the year because their strategic allocations included
international stocks, which performed better than domestic stocks. The tactical
Enhanced ETF Fund outperformed its blended benchmark as well, and we believe it
is well positioned to continue its good long-term track record.
PORTFOLIO REVIEW
We saw many rare economic events during one year. Equity markets declined more
than any other time since the 1930s, banks and brokers failed, hedge funds
collapsed and the economy entered into what seems to be the worst recession
since World War II. Most strategists did not expect the massive selling that
occurred. Investors fled to investments that offered less risk, which favored
the Fund's style of large cap, high quality investing. Against this backdrop,
the Federal Reserve, Treasury, and Congress have been working overtime to remedy
the crisis. Even though banks are unwilling to lend, the Fed has been forcing
money into the financial system. Despite these efforts, the economy is likely to
remain under pressure for most of the coming year.
The commercial paper market effectively shut down for some borrowers. Banks who
relied on commercial paper reigned in credit so businesses, homeowners and auto
buyers were unable to obtain financing. Shipments from foreign ports were in the
same situation, so goods were not shipped and demand for energy, copper, iron,
steel, aluminum and other commodities plummeted. As financing dried up, economic
activity began to stall. While economic growth is not expected to pick up
anytime soon, yields on government bonds are at historic lows. Eventually, this
should spur more of an appetite for riskier assets like corporate bonds and
stocks. We sense that the stock market is trying to put a bottom in place;
however, the bottoming process could take a couple of quarters and it may drift
sideways while awaiting a recovery.
37
-----
--------------------
TOUCHSTONE ETF FUNDS
--------------------
- --------------------------------------------------------------------------------
CURRENT STRATEGY AND OUTLOOK
Allocations for the strategically-oriented Conservative, Moderate and Aggressive
ETF Funds holdings were adjusted as of May 1, 2008 and are adjusted annually
based on longer-term market signals. In addition, their bond weights are
pre-determined. The Conservative ETF Fund targets 65 percent bonds, while the
Moderate and Aggressive target 40 percent and 20 percent, respectively. Within
the remaining stock portion, approximately 20 percent is allocated to
international stocks through the ETF that tracks the MSCI EAFE index. The
remaining stock allocations are formed by analyzing long-term risk/return
patterns to determine the relative attractiveness and risk associated with each
potential investment. Consequently, the strategically-oriented Funds favored mid
cap, and to a lesser extent small cap stocks, as compared with the S&P 1500
Index. The Funds also tended to modestly favor value over growth. We believe
this allocation strategy positions the Funds for a favorable trade-off of risk
and return over the long term.
The tactically-oriented Enhanced ETF Fund holdings were adjusted on November 1,
2008 and are adjusted semi-annually based on shorter-term market signals in an
attempt to provide higher return with a minimal increase in risk. Because of
shifts in market preferences during 2008, the Fund's allocations were adjusted
to favor bonds, small-cap growth, and large-cap growth stocks. The updated
allocations moved the Fund to an underweight position in mid-cap growth and
international stocks, and an overweight position in small-cap growth and
small-cap value stocks.
38
- -----
- ------------------------------
TOUCHSTONE AGGRESSIVE ETF FUND
- ------------------------------
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance continued
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Since
Ended Inception
12/31/08 7/16/04
(29.12%) (0.88%)
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Since
Inception
7/16/04
(3.88%)
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Blend: 80% S&P 1500 - 20%
Touchstone Aggressive S&P 1500 Barclays Capital Aggregate
ETF Fund (Major Index) Bond Index (Minor Index)
Date Balance Balance Balance
---- ------- ------- -------
7/16/2004 10,000 10,000 10,000
9/30/2004 10,100 10,168 10,184
12/31/2004 10,862 11,147 10,988
3/31/2005 10,661 10,925 10,802
6/30/2005 10,853 11,113 11,016
9/30/2005 11,184 11,534 11,335
12/31/2005 11,365 11,781 11,542
3/31/2006 11,858 12,353 11,976
6/30/2006 11,707 12,142 11,811
9/30/2006 12,180 12,728 12,356
12/31/2006 12,901 13,593 13,059
3/31/2007 13,105 13,750 13,219
6/30/2007 13,707 14,605 13,863
9/30/2007 13,911 14,848 14,126
12/31/2007 13,562 14,346 13,829
3/31/2008 12,644 13,009 12,857
6/30/2008 12,324 12,753 12,628
9/30/2008 11,394 11,694 11,778
12/31/2008 9,612 9,080 9,779
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on July 16, 2004.
39
-----
--------------------------------
TOUCHSTONE CONSERVATIVE ETF FUND
--------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Since
Ended Inception
12/31/08 7/16/04
(9.49%) 2.68%
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Since
Inception
7/16/04
12.54%
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Touchstone Barclays Capital Blend: 35% S&P 1500 - 65%
Conservative Aggregate Bond Barclays Capital Aggregate
ETF Fund Index (Major Index) Bond Index (Minor Index)
Date Balance Balance Balance
---- ------- ------- -------
7/16/2004 10,000 10,000 10,000
9/30/2004 10,121 10,248 10,220
12/31/2004 10,523 10,345 10,628
3/31/2005 10,412 10,296 10,521
6/30/2005 10,655 10,606 10,790
9/30/2005 10,756 10,534 10,885
12/31/2005 10,871 10,597 11,009
3/31/2006 11,044 10,528 11,150
6/30/2006 10,942 10,520 11,077
9/30/2006 11,358 10,920 11,539
12/31/2006 11,757 11,056 11,906
3/31/2007 11,920 11,222 12,070
6/30/2007 12,166 11,163 12,292
9/30/2007 12,431 11,480 12,591
12/31/2007 12,433 11,825 12,688
3/31/2008 12,203 12,081 12,453
6/30/2008 12,026 11,958 12,284
9/30/2008 11,609 11,900 11,888
12/31/2008 11,253 12,445 11,312
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on July 16, 2004.
40
- -----
- ----------------------------
TOUCHSTONE ENHANCED ETF FUND
- ----------------------------
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance continued
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Since
Ended Inception
12/31/08 7/16/04
(31.40%) (0.23%)
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Since
Inception
7/16/04
(1.04%)
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Blend: 90% S&P 1500 - 10%
Touchstone Enhanced S&P 1500 Barclays Capital Aggregate
ETF Fund (Major Index) Bond Index (Minor Index)
Date Balance Balance Balance
---- ------- ------- -------
7/16/2004 10,000 10,000 10,000
9/30/2004 10,159 10,168 10,176
12/31/2004 11,334 11,147 11,068
3/31/2005 11,063 10,925 10,864
6/30/2005 11,324 11,113 11,065
9/30/2005 11,826 11,534 11,434
12/31/2005 12,018 11,781 11,661
3/31/2006 13,052 12,353 12,164
6/30/2006 12,681 12,142 11,976
9/30/2006 12,851 12,728 12,541
12/31/2006 13,867 13,593 13,324
3/31/2007 14,140 13,750 13,483
6/30/2007 14,889 14,606 14,231
9/30/2007 14,959 14,850 14,485
12/31/2007 14,426 14,346 14,088
3/31/2008 13,178 13,009 12,937
6/30/2008 13,334 12,753 12,694
9/30/2008 11,962 11,694 11,740
12/31/2008 9,895 9,080 9,432
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on July 16, 2004.
41
-----
----------------------------
TOUCHSTONE MODERATE ETF FUND
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Since
Ended Inception
12/31/08 7/16/04
(20.34%) 0.87%
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Since
Inception
7/16/04
3.94%
- --------------------------------------------------------------------------------
[The following table was represented as a line chart in the printed material.]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Blend: 60% S&P 1500 - 40%
Touchstone Moderate S&P 1500 Barclays Capital Aggregate
ETF Fund (Major Index) Bond Index (Minor Index)
Date Balance Balance Balance
---- ------- ------- -------
7/16/2004 10,000 10,000 10,000
9/30/2004 10,120 10,168 10,200
12/31/2004 10,751 11,147 10,828
3/31/2005 10,589 10,925 10,678
6/30/2005 10,821 11,113 10,917
9/30/2005 11,032 11,534 11,135
12/31/2005 11,173 11,781 11,305
3/31/2006 11,515 12,353 11,605
6/30/2006 11,384 12,142 11,482
9/30/2006 11,837 12,728 11,990
12/31/2006 12,399 13,593 12,538
3/31/2007 12,581 13,750 12,700
6/30/2007 12,998 14,606 13,148
9/30/2007 13,232 14,850 13,429
12/31/2007 13,048 14,348 13,318
3/31/2008 12,468 13,011 12,689
6/30/2008 12,189 12,754 12,487
9/30/2008 11,496 11,696 11,841
12/31/2008 10,394 9,080 10,470
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce figures for all periods.
The Fund commenced operations on July 16, 2004.
42
- -----
- ------------------------------
TOUCHSTONE AGGRESSIVE ETF FUND
- ------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Shares Value
EXCHANGE TRADED FUNDS -- 99.1%
36,200 iShares Barclays Aggregate
Bond Fund $ 3,760,455
38,850 iShares MSCI EAFE Index Fund+ 1,743,200
10,620 iShares S&P 500 Index Fund+ 960,473
47,120 iShares S&P 500/BARRA
Growth Index Fund 2,117,102
70,850 iShares S&P 500/BARRA
Value Index Fund+ 3,201,002
6,290 iShares S&P MidCap 400/
BARRA Growth Index Fund 348,781
9,360 iShares S&P MidCap 400/
BARRA Value Index Fund 470,995
2,840 iShares S&P SmallCap 600/
BARRA Growth Index Fund 126,522
8,130 iShares S&P SmallCap 600/
BARRA Value Index Fund+ 397,964
- ------------------------------------------------------------------------------------------
TOTAL EXCHANGE TRADED FUNDS $ 13,126,494
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 24.2%
2,998,070 Invesco AIM Liquid Assets Portfolio * 2,998,070
203,258 Touchstone Institutional
Money Market Fund^ 203,258
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 3,201,328
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 123.3%
(COST $21,339,842) $ 16,327,822
LIABILITIES IN EXCESS OF OTHER ASSETS -- (23.3%) (3,085,597)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 13,242,225
- ------------------------------------------------------------------------------------------
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $2,960,403.
* Represents collateral for securities loaned.
The accompanying notes are an integral part of the financial statements.
43
-----
--------------------------------
TOUCHSTONE CONSERVATIVE ETF FUND
--------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Shares Value
EXCHANGE TRADED FUNDS -- 98.9%
30,970 iShares Barclays 1-3 Year
Treasury Bond Fund $ 2,621,858
122,110 iShares Barclays
Aggregate Bond Fund 12,684,787
21,200 iShares MSCI EAFE Index Fund+ 951,244
6,570 iShares S&P 500 Index Fund+ 594,191
23,560 iShares S&P 500/BARRA
Growth Index Fund 1,058,551
34,740 iShares S&P 500/BARRA
Value Index Fund+ 1,569,553
5,070 iShares S&P MidCap 400/
BARRA Growth Index Fund 281,132
5,720 iShares S&P MidCap 400/
BARRA Value Index Fund 287,830
2,720 iShares S&P SmallCap 600/
BARRA Growth Index Fund 121,176
2,720 iShares S&P SmallCap 600/
BARRA Value Index Fund+ 133,144
- ------------------------------------------------------------------------------------------
TOTAL EXCHANGE TRADED FUNDS $ 20,303,466
- ------------------------------------------------------------------------------------------
INVESTMENT FUND -- 15.3%
3,145,007 Invesco AIM Liquid Assets Portfolio * $ 3,145,007
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 114.2%
(COST $25,354,501) $ 23,448,473
LIABILITIES IN EXCESS OF OTHER ASSETS -- (14.2%) (2,917,343)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 20,531,130
- ------------------------------------------------------------------------------------------
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $3,099,268.
* Represents collateral for securities loaned.
The accompanying notes are an integral part of the financial statements.
44
- -----
- ----------------------------
TOUCHSTONE ENHANCED ETF FUND
- ----------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Shares Value
EXCHANGE TRADED FUNDS -- 99.1%
53,030 iShares Barclays Aggregate
Bond Fund+ $ 5,508,756
15,340 iShares MSCI EAFE Index Fund+ 688,306
107,200 iShares S&P 500/BARRA
Growth Index Fund 4,816,496
13,830 iShares S&P 500/BARRA
Value Index Fund 624,839
11,530 iShares S&P MidCap 400/
BARRA Growth Index Fund 639,339
12,780 iShares S&P MidCap 400/
BARRA Value Index Fund 643,090
103,780 iShares S&P SmallCap 600/
BARRA Growth Index Fund 4,623,399
95,560 iShares S&P SmallCap 600/
BARRA Value Index Fund+ 4,677,662
- ------------------------------------------------------------------------------------------
TOTAL EXCHANGE TRADED FUNDS $ 22,221,887
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 29.0%
6,137,227 Invesco AIM Liquid Assets Portfolio * 6,137,227
362,583 Touchstone Institutional
Money Market Fund^ 362,583
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 6,499,810
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 128.1%
(COST $33,595,032) $ 28,721,697
Liabilities in Excess of Other Assets -- (28.1%) (6,308,933)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 22,412,764
- ------------------------------------------------------------------------------------------
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $6,139,654.
* Represents collateral for securities loaned.
The accompanying notes are an integral part of the financial statements.
45
-----
----------------------------
TOUCHSTONE MODERATE ETF FUND
----------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
December 31, 2008
Shares Value
EXCHANGE TRADED FUNDS -- 99.0%
252,010 iShares Barclays Aggregate
Bond Fund+ $ 26,178,800
96,690 iShares MSCI EAFE Index Fund+ 4,338,480
26,720 iShares S&P 500 Index Fund 2,416,557
122,180 iShares S&P 500/BARRA
Growth Index Fund 5,489,547
178,490 iShares S&P 500/BARRA
Value Index Fund+ 8,064,178
14,120 iShares S&P MidCap 400/
BARRA Growth Index Fund 782,954
23,570 iShares S&P MidCap 400/
BARRA Value Index Fund 1,186,042
9,600 iShares S&P SmallCap 600/
BARRA Growth Index Fund 427,680
18,380 iShares S&P SmallCap 600/
BARRA Value Index Fund+ 899,701
- ------------------------------------------------------------------------------------------
TOTAL EXCHANGE TRADED FUNDS $ 49,783,939
- ------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 26.4%
12,712,591 Invesco AIM Liquid Assets Portfolio * 12,712,591
561,626 Touchstone Institutional
Money Market Fund^ 561,626
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 13,274,217
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 125.4%
(COST $75,678,535) $ 63,058,156
LIABILITIES IN EXCESS OF OTHER ASSETS -- (25.4%) (12,757,067)
- ------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 50,301,089
- ------------------------------------------------------------------------------------------
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 3.
+ All or a portion of the security is on loan. The total value of securities
on loan, as of December 31, 2008, was $12,482,977.
* Represents collateral for securities loaned.
The accompanying notes are an integral part of the financial statements.
46
- -----
- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 2008
TOUCHSTONE TOUCHSTONE
BARON SMALL TOUCHSTONE TOUCHSTONE LARGE CAP
CAP GROWTH CORE BOND HIGH YIELD CORE EQUITY
FUND FUND FUND FUND
ASSETS:
Investments, at cost $ 15,050,475 $ 39,104,165 $ 39,564,571 $ 79,099,062
- -----------------------------------------------------------------------------------------------------------------------------------
Affiliated securities, at market value $ 348,169 $ 3,226,594 $ 10,599,230 $ 731,719
Non-affiliated securities, at market value 17,127,326 32,988,070 20,441,647 60,212,669
- -----------------------------------------------------------------------------------------------------------------------------------
Investments, at value - including $3,223,964, $42,825, $412,819, $ 17,475,495 $ 36,214,664 $ 31,040,877 $ 60,944,388
and $11,546,965 of securities loaned for the Baron Small
Cap Growth Fund, Core Bond Fund, High Yield Fund,
and Large Cap Core Equity Fund, respectively.
Cash -- -- 99,370 --
Receivable for:
Dividends 7,146 7,620 10,180 127,103
Interest -- 305,109 541,885 --
Fund shares sold 3,069 -- 275,292 --
Investments sold 2,179 -- -- --
Securities lending income 7,065 434 879 7,960
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 17,494,954 36,527,827 31,968,483 61,079,451
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Return of collateral for securities on loan 3,208,901 44,000 432,209 11,718,584
Fund shares redeemed 578 12,704 2,969 8,145
Investments purchased -- 975,932 2,402,838 --
Payable to Investment Advisor 7,179 16,374 8,830 26,187
Payable to other affiliates 5,399 7,643 5,512 7,418
Payable to Trustees 4,231 4,231 4,231 4,083
Other accrued expenses 25,495 31,527 30,663 50,445
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,251,783 1,092,411 2,887,252 11,814,862
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 14,243,171 $ 35,435,416 $ 29,081,231 $ 49,264,589
- -----------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 1,413,205 3,734,892 5,271,926 7,362,076
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per share $ 10.08 $ 9.49 $ 5.52 $ 6.69
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 13,431,462 $ 37,559,296 $ 38,155,140 $ 80,399,035
Accumulated net investment income (loss) 244 1,889,191 2,027,665 761,831
Accumulated net realized losses on investments (1,613,555) (1,123,570) (2,577,880) (13,741,603)
Net unrealized appreciation (depreciation) on investments 2,425,020 (2,889,501) (8,523,694) (18,154,674)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 14,243,171 $ 35,435,416 $ 29,081,231 $ 49,264,589
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
47
-----
--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
TOUCHSTONE TOUCHSTONE TOUCHSTONE
MID CAP MONEY THIRD AVENUE
GROWTH MARKET VALUE
FUND FUND FUND
ASSETS:
Investments, at cost $ 32,836,638 $ 142,287,893 $ 88,452,230
- --------------------------------------------------------------------------------------------------------------------
Affiliated securities, at market value $ 702,185 $ -- $ 2,726,733
Non-affiliated securities, at market value 24,338,885 142,287,893 69,255,553
- --------------------------------------------------------------------------------------------------------------------
Investments, at value - including $4,207,878 and $13,895,120 $ 25,041,070 $ 142,287,893 $ 71,982,286
of securities loaned for the Mid Cap Growth Fund
and Third Avenue Value Fund, respectively.
Cash -- 9,022 --
Receivable for:
Dividends 28,895 -- 49,751
Interest -- 952,753 --
Securities lending income 2,765 -- 13,702
- --------------------------------------------------------------------------------------------------------------------
Total assets 25,072,730 143,249,668 72,045,739
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Return of collateral for securities on loan 4,267,946 -- 13,819,850
Fund shares redeemed 16,683 -- 35,883
Investments purchased 30,660 -- --
Payable to Investment Advisor 11,358 23,935 24,386
Payable to other affiliates 5,402 32,445 5,951
Payable to Trustees 4,207 4,257 4,206
Other accrued expenses 23,045 122,863 46,718
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 4,359,301 183,500 13,936,994
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 20,713,429 $ 143,066,168 $ 58,108,745
- --------------------------------------------------------------------------------------------------------------------
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares $ 20,713,429 $ 52,789,696 $ 58,108,745
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 2,605,082 52,774,642 4,495,472
Net asset value, offering price and redemption price per share $ 7.95 $ 1.00 $ 12.93
PRICING OF CLASS SC SHARES
Net assets attributable to Class SC shares $ -- $ 90,276,472 $ --
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) -- 90,281,969 --
Net asset value, offering price and redemption price per share $ -- $ 1.00 $ --
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 32,185,071 $ 143,310,913 $ 74,346,805
Accumulated net investment income 22,151 -- 977,362
Accumulated net realized losses on investments
and foreign currency transactions (3,698,225) (244,745) (745,478)
Net unrealized depreciation on investments
and foreign currency transactions (7,795,568) -- (16,469,944)
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 20,713,429 $ 143,066,168 $ 58,108,745
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
48
- -----
- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities continued
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
AGGRESSIVE CONSERVATIVE ENHANCED MODERATE
ETF ETF ETF ETF
FUND FUND FUND FUND
ASSETS:
Investments, at cost $ 21,339,842 $ 25,354,501 $ 33,595,032 $ 75,678,535
- -----------------------------------------------------------------------------------------------------------------------------------
Affiliated securities, at market value $ 203,258 $ -- $ 362,583 $ 561,626
Non-affiliated securities, at market value 16,124,564 23,448,473 28,359,114 62,496,530
- -----------------------------------------------------------------------------------------------------------------------------------
Investments, at value - including $2,960,403, $3,099,268, $6,139,654 $ 16,327,822 $ 23,448,473 $ 28,721,697 $ 63,058,156
and $12,482,977 of securities loaned for the Aggressive
ETF Fund, Conservative ETF Fund, Enhanced ETF Fund and
Moderate ETF Fund, respectively.
Receivable for:
Dividends 13,801 58,822 20,272 95,762
Investments sold -- 773,014 74,586 107,139
Securities lending income 2,248 3,419 2,653 8,254
Tax reclaim receivable -- -- -- 3,106
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 16,343,871 24,283,728 28,819,208 63,272,417
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Bank overdraft -- 569,810 -- --
Return of collateral for securities on loan 2,998,070 3,145,007 6,137,227 12,712,591
Fund shares redeemed 1,361 4,728 16,556 24,095
Investments purchased 72,402 -- 216,261 168,576
Payable to Investment Advisor 1,182 3,986 4,853 16,950
Payable to other affiliates 5,276 5,183 5,642 5,529
Payable to Trustees 4,231 4,208 4,231 3,872
Other accrued expenses 19,124 19,676 21,674 39,715
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,101,646 3,752,598 6,406,444 12,971,328
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 13,242,225 $ 20,531,130 $ 22,412,764 $ 50,301,089
- -----------------------------------------------------------------------------------------------------------------------------------
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares $ 7,360,888 $ 10,835,267 $ 19,556,773 $ 33,475,897
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 943,928 1,065,293 3,157,278 3,461,752
Net asset value, offering price and redemption price per share $ 7.80 $ 10.17 $ 6.19 $ 9.67
PRICING OF CLASS SC SHARES
Net assets attributable to Class SC shares $ 5,881,337 $ 9,695,863 $ 2,855,991 $ 16,825,192
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 757,388 956,810 462,286 1,746,999
Net asset value, offering price and redemption price per share $ 7.77 $ 10.13 $ 6.18 $ 9.63
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 17,888,086 $ 22,115,214 $ 34,521,983 $ 62,737,838
Accumulated net investment income 374,539 720,602 529,579 1,606,733
Accumulated net realized losses on investments (8,380) (398,658) (7,765,463) (1,423,103)
Net unrealized depreciation on investments (5,012,020) (1,906,028) (4,873,335) (12,620,379)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 13,242,225 $ 20,531,130 $ 22,412,764 $ 50,301,089
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
49
-----
--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 2008
TOUCHSTONE TOUCHSTONE
BARON SMALL TOUCHSTONE TOUCHSTONE LARGE CAP
CAP GROWTH CORE BOND HIGH YIELD CORE EQUITY
FUND FUND FUND FUND
INVESTMENT INCOME:
Dividends from affiliated securities $ 14,992 $ 95,803 $ 31,892 $ 14,670
Dividends from non-affiliated securities (a) 107,150 29,948 -- 1,251,547
Interest 4 2,143,208 2,256,439 29
Income from securities loaned 88,867 1,450 5,341 32,383
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income 211,013 2,270,409 2,293,672 1,298,629
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 213,940 217,450 126,590 348,998
Administration fees 40,751 79,073 50,636 107,384
Compliance fees and expenses 1,497 2,241 1,609 3,693
Custody fees 3,555 2,185 6,153 1,992
Professional fees 19,099 20,787 19,949 16,015
Shareholder servicing fees 48,901 30,291 32,576 57,049
Transfer Agent fees 30,000 30,000 30,000 31,400
Trustee fees 8,184 8,185 8,184 8,637
Other expenses 8,134 16,386 14,428 15,606
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 374,061 406,598 290,125 590,774
Fees waived by the Administrator (40,751) (11,752) (24,118) (53,976)
Expenses reimbursed by the Investment Advisor (17,721) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 315,589 394,846 266,007 536,798
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (104,576) 1,875,563 2,027,665 761,831
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS:
Net realized loss on investments (1,600,432) (328,508) (758,200) (6,812,912)
Net change in unrealized appreciation/
depreciation on investments (6,131,217) (2,926,808) (7,182,895) (19,314,678)
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (7,731,649) (3,255,316) (7,941,095) (26,127,590)
- -----------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (7,836,225) $ (1,379,753) $ (5,913,430) $(25,365,759)
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Net of foreign tax withholding of: $ -- $ -- $ -- $ 538
The accompanying notes are an integral part of the financial statements.
50
- -----
- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Statements of Operations continued
TOUCHSTONE TOUCHSTONE TOUCHSTONE
MID CAP MONEY THIRD AVENUE
GROWTH MARKET VALUE
FUND FUND FUND
INVESTMENT INCOME:
Dividends from affiliated securities $ 32,269 $ -- $ 291,972
Dividends from non-affiliated securities (a) 344,999 112,942 1,503,448
Interest 70 4,651,613 95
Income from securities loaned 45,041 -- 191,876
- -------------------------------------------------------------------------------------------------------------------
Total investment income 422,379 4,764,555 1,987,391
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 275,847 239,598 742,918
Administration fees 68,962 266,436 186,265
Compliance fees and expenses 2,529 4,134 4,231
Custody fees 8,086 5,671 18,481
Money Market Insurance -- 25,376 --
Professional fees 19,610 23,960 22,683
Shareholder servicing fees - Class I 49,713 100,320 204,890
Shareholder servicing fees - Class SC -- 201,015 --
Transfer Agent fees 30,000 30,000 30,000
Trustee fees 8,160 8,294 8,179
Other expenses 4,350 6,951 27,248
- -------------------------------------------------------------------------------------------------------------------
Total expenses 467,257 911,755 1,244,895
Fees waived by the Administrator (67,029) -- (186,265)
Expenses reimbursed by the Investment Advisor -- -- (72,777)
- -------------------------------------------------------------------------------------------------------------------
Net expenses 400,228 911,755 985,853
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 22,151 3,852,800 1,001,538
- -------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (3,005,563) -- 1,686,607
Foreign currency -- -- (101)
- -------------------------------------------------------------------------------------------------------------------
(3,005,563) -- 1,686,506
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/
depreciation on investments (12,379,160) -- (42,348,407)
- -------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (15,384,723) -- (40,661,901)
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(15,362,572) $ 3,852,800 $(39,660,363)
- -------------------------------------------------------------------------------------------------------------------
(a) Net of foreign tax withholding of: $ 307 $ -- $ 68,713
The accompanying notes are an integral part of the financial statements.
51
-----
--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
AGGRESSIVE CONSERVATIVE ENHANCED MODERATE
ETF ETF ETF ETF
FUND FUND FUND FUND
INVESTMENT INCOME:
Dividends from affiliated securities $ 5,807 $ 8,658 $ 8,726 $ 17,935
Dividends from non-affiliated securities 472,388 839,729 726,353 1,942,277
Interest -- 12 34 178
Income from securities loaned 20,392 39,873 26,085 71,185
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income 498,587 888,272 761,198 2,031,575
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 67,565 89,984 132,866 226,965
Administration fees 33,782 44,992 66,433 114,318
Compliance fees and expenses 1,342 1,820 1,952 3,785
Custody fees 2,765 3,956 3,753 2,989
Professional fees 19,378 18,534 19,689 19,912
Shareholder servicing fees - Class I 24,958 33,779 74,306 80,792
Shareholder servicing fees - Class SC 17,283 22,461 8,722 48,877
Transfer Agent fees 30,000 30,000 30,000 30,355
Trustees fees 8,182 8,157 8,187 8,675
Other expenses 4,788 4,035 6,365 8,077
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 210,043 257,718 352,273 544,745
Fees waived by the Administrator (33,782) (44,992) (66,433) (114,318)
Fees waived and/or expenses reimbursed by the Advisor (49,578) (44,056) (36,785) (2,202)
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 126,683 168,670 249,055 428,225
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 371,904 719,602 512,143 1,603,350
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments 43,577 (337,588) (7,715,153) (1,314,636)
Net change in unrealized appreciation/
depreciation on investments (6,036,298) (2,554,010) (4,525,410) (14,564,489)
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (5,992,721) (2,891,598) (12,240,563) (15,879,125)
- -----------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (5,620,817) $ (2,171,996) $(11,728,420) $(14,275,775)
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
52
- -----
- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
TOUCHSTONE TOUCHSTONE TOUCHSTONE
BARON SMALL CAP CORE BOND HIGH YIELD
GROWTH FUND FUND FUND
---------------------------- ---------------------------- ----------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008 2007 2008 2007
FROM OPERATIONS:
Net investment income (loss) $ (104,576) $ (203,934) $ 1,875,563 $ 1,778,339 $ 2,027,665 $ 2,349,654
Net realized gain (loss)
on investments (1,600,432) 3,647,541 (328,508) 63,397 (758,200) (124,535)
Net change in unrealized
appreciation/depreciation
on investments (6,131,217) (2,617,954) (2,926,808) 190,518 (7,182,895) (1,788,964)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations (7,836,225) 825,653 (1,379,753) 2,032,254 (5,913,430) 436,155
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income -- -- (1,783,848) (1,720,286) (2,349,654) (2,416,208)
Realized capital gains (3,402,506) (3,431,149) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3,402,506) (3,431,149) (1,783,848) (1,720,286) (2,349,654) (2,416,208)
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from shares sold 2,515,962 4,646,940 6,743,080 7,399,330 22,487,185 12,757,426
Reinvestment of dividends
and distributions 3,402,506 3,431,149 1,783,849 1,720,286 2,349,655 2,416,209
Cost of shares redeemed (6,652,418) (8,359,976) (9,575,212) (7,141,799) (15,411,019) (22,635,767)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from share transactions (733,950) (281,887) (1,048,283) 1,977,817 9,425,821 (7,462,132)
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets (11,972,681) (2,887,383) (4,211,884) 2,289,785 1,162,737 (9,442,185)
NET ASSETS:
Beginning of year 26,215,852 29,103,235 39,647,300 37,357,515 27,918,494 37,360,679
- --------------------------------------------------------------------------------------------------------------------------------
End of year $ 14,243,171 $ 26,215,852 $ 35,435,416 $ 39,647,300 $ 29,081,231 $ 27,918,494
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment
income (loss) $ 244 $ 244 $ 1,889,191 $ 1,796,882 $ 2,027,665 $ 2,349,654
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
53
-----
--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
TOUCHSTONE TOUCHSTONE
LARGE CAP MID CAP GROWTH
CORE EQUITY FUND FUND
------------------------------ ------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008 2007
FROM OPERATIONS:
Net investment income (loss) $ 761,831 $ 499,159 $ 22,151 $ (121,345)
Net realized gain (loss) on investments (6,812,912) 3,632,052 (3,005,563) 5,281,511
Net change in unrealized appreciation/
depreciation on investments (19,314,678) (2,848,575) (12,379,160) (120,860)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (25,365,759) 1,282,636 (15,362,572) 5,039,306
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (499,159) (551,626) -- --
Realized capital gains (3,349,815) (232,828) (5,702,417) (7,572,280)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3,848,974) (784,454) (5,702,417) (7,572,280)
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from shares sold 4,874,772 6,312,106 3,273,356 21,314,709
Reinvestment of dividends and distributions 3,848,972 784,455 5,702,417 7,572,281
Proceeds from shares issued in connection with merger (a) 63,380,471 -- -- --
Cost of shares redeemed (18,987,125) (8,517,892) (13,553,155) (15,214,075)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 53,117,090 (1,421,331) (4,577,382) 13,672,915
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 23,902,357 (923,149) (25,642,371) 11,139,941
NET ASSETS:
Beginning of year 25,362,232 26,285,381 46,355,800 35,215,859
- --------------------------------------------------------------------------------------------------------------------------------
End of year $ 49,264,589 $ 25,362,232 $ 20,713,429 $ 46,355,800
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment income $ 761,831 $ 499,159 $ 22,151 $ --
- --------------------------------------------------------------------------------------------------------------------------------
(a) See Footnote 9 in notes to financial statements.
The accompanying notes are an integral part of the financial statements.
54
- -----
- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets continued
TOUCHSTONE TOUCHSTONE
MONEY MARKET THIRD AVENUE
FUND VALUE FUND
------------------------------ ------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008 2007
FROM OPERATIONS:
Net investment income $ 3,852,800 $ 4,544,522 $ 1,001,538 $ 1,378,129
Net realized gain (loss) on:
Investments -- 67 1,686,607 11,130,362
Foreign currency -- -- (101) (8,409)
- --------------------------------------------------------------------------------------------------------------------------------
-- 67 1,686,506 11,121,953
- --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/
depreciation on investments -- -- (42,348,407) (15,271,653)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations 3,852,800 4,544,589 (39,660,363) (2,771,571)
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income, Class I (1,553,396) (2,126,551) (1,369,720) (906,245)
Net investment income, Class SC (2,299,404) (2,417,971) -- --
Realized capital gains, Class I -- -- (10,752,926) (7,786,035)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3,852,800) (4,544,522) (12,122,646) (8,692,280)
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
CLASS I
Proceeds from shares sold 66,890,577 45,878,438 8,202,184 38,871,642
Reinvestment of dividends and distributions 1,551,365 2,121,448 12,122,649 8,692,282
Cost of shares redeemed (60,640,101) (40,268,608) (31,150,402) (40,712,933)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Class I share
transactions 7,801,841 7,731,278 (10,825,569) 6,850,991
- --------------------------------------------------------------------------------------------------------------------------------
CLASS SC
Proceeds from shares sold 104,207,881 98,888,631 -- --
Reinvestment of dividends and distributions 2,298,410 2,414,052 -- --
Cost of shares redeemed (71,814,146) (84,829,289) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from Class SC share transactions 34,692,145 16,473,394 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 42,493,986 24,204,739 (62,608,578) (4,612,860)
NET ASSETS:
Beginning of year 100,572,182 76,367,443 120,717,323 125,330,183
- --------------------------------------------------------------------------------------------------------------------------------
End of year $ 143,066,168 $ 100,572,182 $ 58,108,745 $ 120,717,323
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment income $ -- $ -- $ 977,362 $ 1,369,720
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
55
-----
--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
TOUCHSTONE TOUCHSTONE
AGGRESSIVE ETF CONSERVATIVE ETF
FUND FUND
------------------------------ ------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008 2007
FROM OPERATIONS:
Net investment income $ 371,904 $ 407,801 $ 719,602 $ 664,261
Net realized gain (loss) on investments 43,577 1,365,439 (337,588) 486,631
Net change in unrealized appreciation/
depreciation on investments (6,036,298) (686,474) (2,554,010) 1,381
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (5,620,817) 1,086,766 (2,171,996) 1,152,273
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income, Class I (225,423) (215,081) (349,665) (271,560)
Net investment income, Class SC (180,865) (117,634) (313,975) (109,647)
Realized capital gains, Class I (762,241) (363,271) (267,859) (51,955)
Realized capital gains, Class SC (601,724) (197,256) (259,598) (20,565)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1,770,253) (893,242) (1,191,097) (453,727)
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
CLASS I
Proceeds from shares sold 354,389 1,442,152 2,197,753 4,319,698
Reinvestment of dividends and distributions 987,664 578,351 617,524 323,514
Cost of shares redeemed (2,333,846) (6,960,517) (6,283,909) (3,233,857)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Class I share transactions (991,793) (4,940,014) (3,468,632) 1,409,355
- --------------------------------------------------------------------------------------------------------------------------------
CLASS SC
Proceeds from shares sold 2,284,922 6,755,139 6,779,187 5,068,914
Reinvestment of dividends and distributions 782,589 314,890 573,572 130,212
Cost of shares redeemed (1,133,381) (1,531,595) (2,819,829) (1,651,124)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from Class SC share transactions 1,934,130 5,538,434 4,532,930 3,548,002
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (6,448,733) 791,944 (2,298,795) 5,655,903
NET ASSETS:
Beginning of year 19,690,958 18,899,014 22,829,925 17,174,022
- --------------------------------------------------------------------------------------------------------------------------------
End of year $ 13,242,225 $ 19,690,958 $ 20,531,130 $ 22,829,925
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment income $ 374,539 $ 408,923 $ 720,602 $ 664,640
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
56
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- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets continued
TOUCHSTONE TOUCHSTONE
ENHANCED ETF MODERATE ETF
FUND FUND
------------------------------ ------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008 2007
FROM OPERATIONS:
Net investment income $ 512,143 $ 543,567 $ 1,603,350 $ 1,054,008
Net realized gain (loss) on investments (7,715,153) 7,084,773 (1,314,636) 775,618
Net change in unrealized appreciation/
depreciation on investments (4,525,410) (5,643,064) (14,564,489) (145,033)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (11,728,420) 1,985,276 (14,275,775) 1,684,593
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income, Class I (468,633) (470,378) (699,181) (373,952)
Net investment income, Class SC (68,590) (43,258) (352,694) (230,018)
Realized capital gains, Class I (6,172,466) (670,035) (519,160) (195,172)
Realized capital gains, Class SC (879,250) (71,181) (260,072) (127,157)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (7,588,939) (1,254,852) (1,831,107) (926,299)
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
CLASS I
Proceeds from shares sold 449,740 1,897,018 4,085,751 4,144,729
Reinvestment of dividends and distributions 6,641,099 1,140,412 1,218,339 569,124
Proceeds from shares issued in connection with merger (a) -- -- 24,321,868 --
Cost of shares redeemed (9,994,273) (11,620,313) (14,183,288) (4,580,968)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Class I share transactions (2,903,434) (8,582,883) 15,442,670 132,885
- --------------------------------------------------------------------------------------------------------------------------------
CLASS SC
Proceeds from shares sold 1,095,900 3,372,343 7,318,605 18,312,961
Reinvestment of dividends and distributions 947,840 114,439 612,765 357,175
Cost of shares redeemed (1,046,439) (669,028) (5,202,633) (1,077,507)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from Class SC share transactions 997,301 2,817,754 2,728,737 17,592,629
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (21,223,492) (5,034,705) 2,064,525 18,483,808
NET ASSETS:
Beginning of year 43,636,256 48,670,961 48,236,564 29,752,756
- --------------------------------------------------------------------------------------------------------------------------------
End of year $ 22,412,764 $ 43,636,256 $ 50,301,089 $ 48,236,564
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment income $ 529,579 $ 554,659 $ 1,606,733 $ 1,055,258
- --------------------------------------------------------------------------------------------------------------------------------
(a) See Footnote 9 in notes to financial statements.
The accompanying notes are an integral part of the financial statements.
57
-----
--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding:
TOUCHSTONE BARON SMALL CAP GROWTH FUND
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 20.52 $ 22.86 $ 19.89 $ 18.47 $ 14.45
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.07) (0.16) (0.11) (0.21) (0.18)
Net realized and unrealized gain (loss)
on investments (7.11) 0.87 3.75 1.63 4.20
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (7.18) 0.71 3.64 1.42 4.02
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Realized capital gains (3.26) (3.05) (0.67) -- --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.08 $ 20.52 $ 22.86 $ 19.89 $ 18.47
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (33.64)% 2.76% 18.26% 7.69% 27.82%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 14,243 $ 26,216 $ 29,103 $ 27,443 $ 23,336
Ratios to average net assets:
Net expenses 1.55% 1.49% 1.51% 1.54% 1.65%
Net investment loss (0.51)% (0.71)% (0.51)% (1.15)% (1.24)%
Portfolio turnover 7% 19% 19% 14% 23%
- --------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE CORE BOND FUND
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 10.33 $ 10.24 $ 10.28 $ 10.11 $ 10.19
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.54 0.46 0.50 0.40 0.38
Net realized and unrealized gain (loss)
on investments (0.88) 0.10 (0.08) (0.23) (0.04)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.34) 0.56 0.42 0.17 0.34
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.50) (0.47) (0.46) -- (0.39)
In excess of net investment income -- -- -- -- (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.50) (0.47) (0.46) -- (0.42)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.49 $ 10.33 $ 10.24 $ 10.28 $ 10.11
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (3.26)% 5.45% 4.05% 1.68% 3.31%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 35,435 $ 39,647 $ 37,358 $ 39,049 $ 40,044
Ratios to average net assets:
Net expenses 1.00% 0.75% 0.75% 0.75% 0.75%
Net investment income 4.75% 4.67% 4.41% 3.76% 3.50%
Portfolio turnover 171% 283% 231% 149% 144%
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
58
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- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Financial Highlights continued
Selected data for a share outstanding.
TOUCHSTONE HIGH YIELD FUND
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 7.94 $ 8.54 $ 8.53 $ 8.26 $ 8.12
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.87 0.61 0.61 0.64
Net realized and unrealized gain (loss)
on investments (2.14) (0.72) 0.06 (0.34) 0.14
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.93) 0.15 0.67 0.27 0.78
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.49) (0.75) (0.66) -- (0.64)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 5.52 $ 7.94 $ 8.54 $ 8.53 $ 8.26
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (24.31%) 1.78% 7.90% 3.27% 9.55%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 29,081 $ 27,918 $ 37,361 $ 37,853 $ 42,328
Ratios to average net assets:
Net expenses 1.05% 0.80% 0.80% 0.80% 0.80%
Net investment income 8.01% 6.88% 6.84% 6.91% 7.30%
Portfolio turnover 52% 62% 46% 69% 55%
- --------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE LARGE CAP CORE EQUITY FUND
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 11.22 $ 10.99 $ 8.88 $ 9.16 $ 8.90
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.05) 0.24 0.28 0.20 0.19
Net realized and unrealized gain (loss)
on investments (3.92) 0.35 2.08 (0.48) 0.26
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.97) 0.59 2.36 (0.28) 0.45
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.07) (0.25) (0.25) -- (0.19)
Realized capital gains (0.49) (0.11) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.56) (0.36) (0.25) -- (0.19)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 6.69 $ 11.22 $ 10.99 $ 8.88 $ 9.16
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (35.20%) 5.32% 26.57% (3.06%) 5.08%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 49,265 $ 25,362 $ 26,285 $ 25,360 $ 29,699
Ratios to average net assets:
Net expenses 1.00% 0.75% 0.75% 0.75% 0.75%
Net investment income 1.42% 1.91% 2.31% 2.23% 2.15%
Portfolio turnover 81% 124% 53% 48% 60%
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
59
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--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
TOUCHSTONE MID CAP GROWTH FUND
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 18.55 $ 19.38 $ 17.63 $ 20.89 $ 19.64
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.02 (0.05) (0.09) (0.08) (0.15)
Net realized and unrealized gain (loss)
on investments (7.54) 2.85 2.95 3.28 2.48
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (7.52) 2.80 2.86 3.20 2.33
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Realized capital gains (3.08) (3.63) (1.11) (6.46) (1.08)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.95 $ 18.55 $ 19.38 $ 17.63 $ 20.89
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (39.70%) 14.43% 16.18% 15.29% 12.06%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 20,713 $ 46,356 $ 35,216 $ 33,511 $ 34,135
Ratios to average net assets:
Net expenses 1.16% 1.15% 1.15% 1.15% 1.15%
Net investment income (loss) 0.06% (0.29%) (0.49%) (0.50%) (0.65%)
Portfolio turnover 73% 83% 104% 70% 134%
- --------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE MONEY MARKET FUND - CLASS I
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.05 0.05 0.03 0.01
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.03) (0.05) (0.05) (0.03) (0.01)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.99% 5.17% 4.94% 3.16% 1.35%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 52,790 $ 44,988 $ 37,256 $ 42,614 $ 38,188
Ratios to average net assets:
Net expenses 0.65%(a) 0.28% 0.28% 0.28% 0.28%
Net investment income 2.94% 5.06% 4.82% 3.13% 1.28%
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
60
- -----
- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Financial Highlights continued
Selected data for a share outstanding.
TOUCHSTONE MONEY MARKET FUND - CLASS SC
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.05 0.05 0.03 0.01
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.03) (0.05) (0.05) (0.03) (0.01)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.93% 4.90% 4.66% 2.90% 1.08%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 90,276 $ 55,584 $ 39,111 $ 37,342 $ 25,727
Ratios to average net assets:
Net expenses 0.71%(b) 0.54% 0.54% 0.54% 0.54%
Net investment income 2.86% 4.80% 4.61% 2.89% 1.06%
- --------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE THIRD AVENUE VALUE FUND
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2008 2007 2006 2005 2004
NET ASSET VALUE, BEGINNING OF YEAR $ 26.70 $ 29.24 $ 26.89 $ 23.51 $ 18.71
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.23 0.30 0.22 0.11 0.05
Net realized and unrealized gain (loss)
on investments (10.68) (0.79) 4.05 3.98 4.80
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (10.45) (0.49) 4.27 4.09 4.85
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.31) (0.20) (0.11) 0.00(c) (0.05)
Realized capital gains (3.01) (1.85) (1.81) (0.71) --
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3.32) (2.05) (1.92) (0.71) (0.05)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 12.93 $ 26.70 $ 29.24 $ 26.89 $ 23.51
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (38.50%) (1.79%) 15.87% 17.41% 25.93%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (000s) $ 58,109 $ 120,717 $ 125,330 $ 117,142 $ 92,920
Ratios to average net assets:
Net expenses 1.06% 1.05% 1.05% 1.05% 1.05%
Net investment income 1.08% 1.03% 0.77% 0.48% 0.27%
Portfolio turnover 12% 18% 10% 17% 30%
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
61
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--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
TOUCHSTONE AGGRESSIVE ETF FUND - CLASS I
FOR THE
PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------- DECEMBER 31,
2008 2007 2006 2005 2004(D)
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.70 $ 12.65 $ 11.30 $ 10.80 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.26 0.40 0.24 0.13 0.06
Net realized and unrealized gain (loss)
on investments (4.00) 0.25 1.29 0.37 0.80
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.74) 0.65 1.53 0.50 0.86
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.25) (0.22) (0.12) -- (0.06)
Realized capital gains (0.91) (0.38) (0.06) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.16) (0.60) (0.18) -- (0.06)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.80 $ 12.70 $ 12.65 $ 11.30 $ 10.80
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (29.12%) 5.12% 13.52% 4.63% 8.62%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 7,361 $ 12,610 $ 17,171 $ 14,845 $ 3,999
Ratios to average net assets:
Net expenses 0.75% 0.50% 0.50% 0.50% 0.50%(f)
Net investment income 2.15% 1.86% 1.94% 1.80% 7.08%(f)
Portfolio turnover 20% 39% 33% 38% 0%(f)
- --------------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE AGGRESSIVE ETF FUND - CLASS SC
FOR THE
FOR THE YEAR ENDED PERIOD
DECEMBER 31, ENDED
--------------------------- DECEMBER 31,
2008 2007 2006(G)
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.65 $ 12.64 $ 11.69
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.23 0.21 0.09
Net realized and unrealized gain (loss) on investments (3.95) 0.40 1.04
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.72) 0.61 1.13
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.25) (0.22) (0.12)
Realized capital gains (0.91) (0.38) (0.06)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.16) (0.60) (0.18)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.77 $ 12.65 $ 12.64
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (29.08%) 4.79% 9.65%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 5,881 $ 7,081 $ 1,728
Ratios to average net assets:
Net expenses 0.75% 0.75% 0.75%(f)
Net investment income 2.28% 2.01% 3.45%(f)
Portfolio turnover 20% 39% 33%
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
62
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- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Financial Highlights continued
Selected data for a share outstanding.
TOUCHSTONE CONSERVATIVE ETF FUND - CLASS I
FOR THE
PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------- DECEMBER 31,
2008 2007 2006 2005 2004(D)
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.92 $ 11.50 $ 10.72 $ 10.38 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.53 0.35 0.22 0.16 0.14
Net realized and unrealized gain (loss)
on investments (1.67) 0.31 0.65 0.19 0.38
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.14) 0.66 0.87 0.35 0.52
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.34) (0.20) (0.08) -- (0.14)
Realized capital gains (0.27) (0.04) (0.01) (0.01) --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.61) (0.24) (0.09) (0.01) (0.14)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.17 $ 11.92 $ 11.50 $ 10.72 $ 10.38
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (9.49%) 5.76% 8.15% 3.32% 5.22%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 10,835 $ 16,197 $ 14,213 $ 8,098 $ 620
Ratios to average net assets:
Net expenses 0.75% 0.50% 0.50% 0.50% 0.50%(f)
Net investment income 3.10% 3.24% 3.19% 3.01% 2.54%(f)
Portfolio turnover 39% 23% 14% 19% 37%(f)
- --------------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE CONSERVATIVE ETF FUND - CLASS SC
FOR THE
FOR THE YEAR ENDED PERIOD
DECEMBER 31, ENDED
--------------------------- DECEMBER 31,
2008 2007 2006(G)
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.88 $ 11.49 $ 10.88
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.29 0.26 0.11
Net realized and unrealized gain (loss)
on investments (1.43) 0.37 0.59
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.14) 0.63 0.70
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.34) (0.20) (0.08)
Realized capital gains (0.27) (0.04) (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.61) (0.24) (0.09)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.13 $ 11.88 $ 11.49
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (9.52%) 5.47% 6.46%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 9,696 $ 6,633 $ 2,961
Ratios to average net assets:
Net expenses 0.75% 0.75% 0.75%(f)
Net investment income 3.35% 3.16% 3.87%(f)
Portfolio turnover 39% 23% 14%
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
63
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--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
TOUCHSTONE ENHANCED ETF FUND - CLASS I
FOR THE
PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------- DECEMBER 31,
2008 2007 2006 2005 2004(D)
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.88 $ 13.73 $ 11.98 $ 11.30 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.13 0.21 0.13 0.05 0.04
Net realized and unrealized gain (loss)
on investments (4.69) 0.35 1.71 0.63 1.30
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.56) 0.56 1.84 0.68 1.34
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.15) (0.17) (0.03) -- (0.04)
Realized capital gains (2.98) (0.24) (0.06) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3.13) (0.41) (0.09) -- (0.04)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 6.19 $ 13.88 $ 13.73 $ 11.98 $ 11.30
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (31.40%) 4.03% 15.38% 6.02% 13.36%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 19,557 $ 39,526 $ 47,264 $ 26,864 $ 904
Ratios to average net assets:
Net expenses 0.75% 0.50% 0.50% 0.50% 0.50%(f)
Net investment income 1.54% 1.13% 1.26% 1.09% 1.06%(f)
Portfolio turnover 78% 88% 62% 64% 0%(f)
- --------------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE ENHANCED ETF FUND - CLASS SC
FOR THE
FOR THE YEAR ENDED PERIOD
DECEMBER 31, ENDED
--------------------------- DECEMBER 31,
2008 2007 2006(G)
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.85 $ 13.72 $ 12.45
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.13 0.07 0.11
Net realized and unrealized gain (loss) on investments (4.67) 0.45 1.25
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.54) 0.52 1.36
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.15) (0.15) (0.03)
Realized capital gains (2.98) (0.24) (0.06)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3.13) (0.39) (0.09)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 6.18 $ 13.85 $ 13.72
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (31.32%) 3.74% 10.94%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 2,856 $ 4,110 $ 1,407
Ratios to average net assets:
Net expenses 0.75% 0.75% 0.75%(f)
Net investment income 1.61% 1.20% 3.29%(f)
Portfolio turnover 78% 88% 62%
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
64
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- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Financial Highlights continued
Selected data for a share outstanding.
TOUCHSTONE MODERATE ETF FUND - CLASS I
FOR THE
PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------- DECEMBER 31,
2008 2007 2006 2005 2004(D)
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.60 $ 12.21 $ 11.11 $ 10.69 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.17 0.33 0.22 0.14 0.06
Net realized and unrealized gain (loss)
on investments (2.74) 0.31 1.00 0.28 0.69
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.57) 0.64 1.22 0.42 0.75
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.21) (0.16) (0.10) -- (0.06)
Realized capital gains (0.15) (0.09) (0.02) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.36) (0.25) (0.12) -- (0.06)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.67 $ 12.60 $ 12.21 $ 11.11 $ 10.69
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (20.34%) 5.24% 10.97% 3.93% 7.51%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 33,476 $ 29,017 $ 27,991 $ 19,137 $ 2,288
Ratios to average net assets:
Net expenses 0.75% 0.50% 0.50% 0.50% 0.50%(f)
Net investment income 2.85% 2.59% 2.57% 2.48% 3.91%(f)
Portfolio turnover 29% 12% 15% 21% 0%(f)
- --------------------------------------------------------------------------------------------------------------------------------
TOUCHSTONE MODERATE ETF FUND - CLASS SC
FOR THE
FOR THE YEAR ENDED PERIOD
DECEMBER 31, ENDED
--------------------------- DECEMBER 31,
2008 2007 2006(G)
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.55 $ 12.18 $ 11.39
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.31 0.20 0.10
Net realized and unrealized gain (loss) on investments (2.87) 0.41 0.81
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.56) 0.61 0.91
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.21) (0.15) (0.10)
Realized capital gains (0.15) (0.09) (0.02)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.36) (0.24) (0.12)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.63 $ 12.55 $ 12.18
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (20.35%) 4.99% 7.98%(e)
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 16,825 $ 19,220 $ 1,762
Ratios to average net assets:
Net expenses 0.75% 0.75% 0.75%(f)
Net investment income 2.74% 2.92% 3.73%(f)
Portfolio turnover 29% 12% 15%
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights on page 65.
The accompanying notes are an integral part of the financial statements.
65
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--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Absent money market insurance, the ratio of net expenses to average net
assets would have been 0.63%.
(b) Absent money market insurance, the ratio of net expenses to average net
assets would have been 0.69%.
(c) Less than $0.01 per share.
(d) Represents the period from commencement of operations (July 16, 2004)
through December 31, 2004.
(e) Not annualized.
(f) Annualized.
(g) Represents the period from commencement of operations (July 31, 2006)
through December 31, 2006.
The accompanying notes are an integral part of the financial statements.
66
- -----
- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 2008
1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Touchstone Variable Series Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended (the Act), as an open-end management investment
company, and was organized as a Massachusetts business trust on February 7,
1994. The Trust consists of: Touchstone Baron Small Cap Growth Fund (formerly
Touchstone Baron Small Cap Fund), Touchstone Core Bond Fund, Touchstone High
Yield Fund, Touchstone Large Cap Core Equity Fund, Touchstone Mid Cap Growth
Fund, Touchstone Money Market Fund, Touchstone Third Avenue Value Fund,
Touchstone Aggressive ETF Fund, Touchstone Conservative ETF Fund, Touchstone
Enhanced ETF Fund, and Touchstone Moderate ETF Fund (individually a "Fund" and
collectively the "Funds").
The Declaration of Trust permits the Trust to issue an unlimited number of
shares of beneficial interest of each Fund. Shares of beneficial interest of
each Fund are available as a funding vehicle for the separate accounts of life
insurance companies issuing variable annuity and variable life insurance
policies. As of December 31, 2008, outstanding shares were issued to separate
accounts of Western-Southern Life Assurance Company, Integrity Life Insurance
Company, National Integrity Life Insurance Company, and Columbus Life Insurance
Company, which are all part of the Western & Southern Financial Group
(Western-Southern), and 100% of the outstanding shares of the Trust were
collectively owned by affiliates of Western-Southern and certain supplemental
executive retirement plans sponsored by Western-Southern and its affiliates.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles (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 reporting
period. Actual results could differ from those estimates.
The Funds are registered to offer different classes of shares: Class I shares
and Class SC shares. The Touchstone Money Market Fund, Touchstone Aggressive ETF
Fund, Touchstone Conservative ETF Fund, Touchstone Enhanced ETF Fund, and
Touchstone Moderate ETF Fund offer two classes of shares: Class I shares and
Class SC shares. All remaining Funds offer a single class of shares: Class I
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 classes of shares currently being offered.
SHARE VALUATION. The net asset value per share of the Baron Small Cap Growth
Fund, Core Bond Fund, High Yield Fund, Large Cap Core Equity Fund, Mid Cap
Growth Fund, and Third Avenue Value Fund is calculated daily by dividing the
total value of the Fund's assets, less liabilities, by its number of shares
outstanding. The net asset value per share of each class of shares of the Money
Market Fund, Aggressive ETF Fund, Conservative ETF Fund, Enhanced ETF Fund, and
Moderate ETF Fund is calculated daily by dividing the total value of each Fund's
assets attributable to that class, less liabilities attributable to that class,
by the number of shares outstanding attributable to that class.
INVESTMENT VALUATION. Securities for which market quotations are readily
available are valued at the last sale price on a national securities exchange,
or, in the absence of recorded sales, at the readily available closing bid price
on such exchanges, or at the quoted bid price in the over-the-counter market.
Securities which are quoted by NASDAQ are valued at the NASDAQ Official Closing
Price. If there are no sales on that day, the securities are valued at the mean
between the closing bid and asked prices as reported by NASDAQ. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Debt securities are valued by a pricing service that determines
valuations based upon market transactions for normal, institutional-size trading
units of similar securities. Securities or other assets for which market
quotations are not readily available are valued at fair value in good faith
under consistently applied procedures in accordance with procedures approved by
the Board of Trustees. Such procedures include the use of independent pricing
services, which use prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. Money market instruments and other debt
securities with a remaining maturity of less than 60 days are valued at
amortized cost, which approximates market. Under the amortized cost valuation
method, the discount or premium is amortized on a constant basis to the maturity
of the security.
67
-----
--------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
In September 2006, the Financial Accounting Standards Board (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 No. 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 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.
Various inputs are used in determining the value of the Funds investments. These
inputs are summarized in the three broad levels listed below:
o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit
risk, etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. For
example, money market securities are valued using amortized cost, in accordance
with rules under the Investment Company Act of 1940. Generally, amortized cost
approximates the current fair value of a security, but since the value is not
obtained from a quoted price in an active market, such securities are reflected
as Level 2.
68
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- --------------------------------
TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Notes to Financial Statements continued
The following is a summary of the inputs used to value the Funds' net assets as
of December 31, 2008:
Level 2 - Level 3 -
Level 1 - Other Significant Significant
Investments in Securities: Quoted Prices Observable Inputs Unobservable Inputs
- --------------------------------------------------------------------------------------------------
Touchstone Baron Small Cap Growth Fund $ 17,475,495 $ -- $ --
Touchstone Core Bond Fund 3,405,921 32,808,743 --
Touchstone High Yield Fund 11,053,939 19,986,938 --
Touchstone Large Cap Core Equity Fund 60,944,388 -- --
Touchstone Mid Cap Growth Fund 25,041,070 -- --
Touchstone Money Market Fund -- 142,287,893 --
Touchstone Third Avenue Value Fund 61,286,476 10,695,810 --
Touchstone Aggressive ETF Fund 16,327,822 -- --
Touchstone Conservative ETF Fund 23,448,473 -- --
Touchstone Enhanced ETF Fund 28,721,697 -- --
Touchstone Moderate ETF Fund 63,058,156 -- --
FOREIGN CURRENCY VALUE TRANSLATION. The accounting records of the Funds are
maintained in U.S. dollars. The market value of investment securities, other
assets and liabilities and forward currency contracts denominated in foreign
currencies are translated into U.S. dollars at the prevailing exchange rates at
the end of the period. Purchases and sales of securities, income receipts and
expense payments are translated at the exchange rate prevailing on the
respective dates of such transactions. Reported net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received.
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date except
that certain dividends from foreign securities are recorded as soon as the Trust
is informed of the ex-dividend date. Interest income, which includes the
amortization of premium and accretion of discount, if any, is recorded on an
accrual basis. Dividend and interest income is recorded net of foreign taxes
where recovery of such taxes is not assured.
PORTFOLIO SECURITIES LOANED. Each Fund may lend its portfolio securities.
Lending portfolio securities exposes a Fund to the risk that the borrower may
fail to return the loaned securities or may not be able to provide additional
collateral or that the Fund may experience delays in recovery of the loaned
securities or loss of rights in the collateral if the borrower fails
financially. To minimize these risks, the borrower must agree to maintain
collateral marked to market daily, in the form of cash and/or liquid securities,
with the Fund's custodian in an amount at least equal to the market value of the
loaned securities. As of December 31, 2008, the following Funds loaned
securities and received collateral as follows:
Fair Value of Value of
Fund Securities Loaned Collateral Received
- --------------------------------------------------------------------------------
Touchstone Baron Small Cap Growth Fund $ 3,223,964 $ 3,208,901
Touchstone Core Bond Fund $ 42,825 $ 44,000
Touchstone High Yield Fund $ 412,819 $ 432,209
Touchstone Large Cap Core Equity Fund $ 11,546,965 $ 11,718,584
Touchstone Mid Cap Growth Fund $ 4,207,878 $ 4,267,946
Touchstone Third Avenue Value Fund $ 13,895,120 $ 13,819,850
Touchstone Aggressive ETF Fund $ 2,960,403 $ 2,998,070
Touchstone Conservative ETF Fund $ 3,099,268 $ 3,145,007
Touchstone Enhanced ETF Fund $ 6,139,654 $ 6,137,227
Touchstone Moderate ETF Fund $ 12,482,977 $ 12,712,591
69
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TOUCHSTONE VARIABLE SERIES TRUST
--------------------------------
- --------------------------------------------------------------------------------
All collateral received as cash and securities is received, held and
administered by the Funds' custodian for the benefit of the Funds in the
applicable custody account or other account established for the purpose of
holding collateral. Pursuant to the Funds' securities lending agreement, and
according to normal operating procedures, the custodian segregated an additional
$15,063, $75,270 and $2,427 in collateral the following business day for
securities on loan in the Baron Small Cap Growth Fund, Third Avenue Value Fund,
and Enhanced ETF Fund, respectively.
The Funds receive compensation in the form of fees, or they retain a portion of
interest on the investment of any cash received as collateral. The Funds also
continue to receive interest or dividends on the securities loaned. The loans
are secured by collateral at least equal, at all times, to the fair value of the
securities loaned plus accrued interest. Gain or loss in the fair value of the
securities loaned that may occur during the term of the loan will be for the
account of the Fund. The Funds have the right under the securities lending
agreement to recover the securities from the borrower on demand.
DIVIDENDS AND DISTRIBUTIONS. Income dividends to shareholders for all Funds in
the Trust, except the Touchstone Money Market Fund, are declared and paid by
each Fund annually. The Touchstone Money Market Fund will declare dividends
daily and pay dividends monthly. Distributions to shareholders of net realized
capital gains, if any, are declared and paid annually. Income dividends and
capital gain distributions are determined in accordance with Federal income tax
regulations.
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 tax has been made.
FORWARD FOREIGN CURRENCY AND SPOT CONTRACTS. Certain Funds may enter into
forward foreign currency and spot contracts to protect securities and related
receivables and payables against fluctuations in foreign currency rates. A
forward foreign currency contract is an agreement to buy or sell currencies of
different countries on a specified future date at a specified rate.
Risks associated with such contracts include the movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. The market value of the contract will fluctuate with changes in
currency exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Board of Trustees and
the change in the market value is recorded by the Funds as unrealized
appreciation or depreciation of forward foreign currency contracts. For the year
ended December 31, 2008, there were no open forward foreign currency contracts.
SECURITIES TRANSACTIONS. Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
ALLOCATIONS. Investment income earned, realized capital gains and losses, and
unrealized appreciation and depreciation for the Funds are allocated daily to
each class of shares based upon its proportionate share of total net assets of
the Fund. Class specific expenses are charged directly to the class incurring
the expense. Common expenses, which are not attributable to a specific class,
are allocated daily to each class of shares based upon its proportionate share
of total net assets of the Fund. Expenses not directly billed to a Fund are
allocated proportionally among all Funds daily in relation to net assets of each
Fund or another reasonable measure.
70
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- --------------------------------------------------------------------------------
Notes to Financial Statements continued
2. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS
Some of the Funds may invest in the securities of foreign issuers. Investing in
securities issued by companies whose principal business activities are outside
the U.S. may involve significant risks not present in domestic investments. For
example, there is generally less publicly available information about foreign
companies, particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally not
bound by uniform accounting, auditing, financial reporting requirements and
standards of practice comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or financial instability or diplomatic and other
developments which could affect such investments. Foreign stock markets, while
growing in volume and sophistication, are generally not as developed as those in
the U.S., and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In general, there is less overall governmental
supervision and regulation of foreign securities markets, broker-dealers, and
issuers than in the U.S.
3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also officers of the Advisor (Touchstone
Advisors, Inc.), the Underwriter (Touchstone Securities, Inc.) and/or JPMorgan
Chase Bank, N.A. (JPMorgan) the Sub-Administrator and Transfer Agent to the
Funds. The Advisor and the Underwriter are each wholly-owned indirect
subsidiaries of Western-Southern.
ADVISORY AGREEMENT. The Advisor provides general investment supervisory services
for the Funds, under the terms of an Advisory Agreement. Under the Advisory
Agreement, the Funds pay the Advisor a fee, which is computed and accrued daily
and paid monthly, at an annual rate based on average daily net assets as
follows:
- ----------------------------------------------------------------------------------------
Touchstone Baron Small Cap Growth Fund 1.05%
- ----------------------------------------------------------------------------------------
Touchstone Core Bond Fund 0.55% on the first $100 million
0.50% of the next $100 million
0.45% of the next $100 million
0.40% of such assets in excess of $300 million.
- ----------------------------------------------------------------------------------------
Touchstone High Yield Fund 0.50% on the first $100 million
0.45% of the next $100 million
0.40% of the next $100 million
0.35% of such assets in excess of $300 million.
- ----------------------------------------------------------------------------------------
Touchstone Large Cap Core Equity Fund 0.65% on the first $100 million
0.60% of the next $100 million
0.55% of the next $100 million
0.50% of such assets in excess of $300 million.
- ----------------------------------------------------------------------------------------
71
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--------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Touchstone Mid Cap Growth Fund 0.80%
- ----------------------------------------------------------------------------------------
Touchstone Money Market Fund 0.18%
- ----------------------------------------------------------------------------------------
Touchstone Third Avenue Value Fund 0.80% on the first $100 million
0.75% of the next $100 million
0.70% of the next $100 million
0.65% of such assets in excess of $300 million.
- ----------------------------------------------------------------------------------------
Touchstone Aggressive ETF Fund 0.40% on the first $50 million
Touchstone Conservative ETF Fund 0.38% of the next $50 million
Touchstone Enhanced ETF Fund 0.36% of such assets in excess of $100 million.
Touchstone Moderate ETF Fund
- ----------------------------------------------------------------------------------------
Subject to review and approval by the Board of Trustees, the Advisor has entered
into certain sub-advisory agreements for the investment advisory services in
connection with the management of each of the Funds. The Advisor (not the Funds)
pays each sub-advisor a fee that is computed daily and paid monthly based on
average daily net assets, for services provided. For the year ended December 31,
2008, the following sub-advisory agreements were in place:
TOUCHSTONE BARON SMALL BAMCO, Inc.
CAP GROWTH FUND
TOUCHSTONE CORE BOND FUND Fort Washington Investment Advisors, Inc.
TOUCHSTONE HIGH YIELD FUND Fort Washington Investment Advisors, Inc.
TOUCHSTONE LARGE CAP Todd Investment Advisors, Inc.
CORE EQUITY FUND
TOUCHSTONE MID CAP TCW Investment Management
GROWTH FUND Company and Westfield Capital
Management Company LP
TOUCHSTONE MONEY MARKET FUND Fort Washington Investment
Advisors, Inc.
TOUCHSTONE THIRD AVENUE Third Avenue Management LLC
VALUE FUND
TOUCHSTONE AGGRESSIVE ETF FUND Todd Investment Advisors, Inc.
TOUCHSTONE CONSERVATIVE ETF FUND Todd Investment Advisors, Inc.
TOUCHSTONE ENHANCED ETF FUND Todd Investment Advisors, Inc.
TOUCHSTONE MODERATE ETF FUND Todd Investment Advisors, Inc.
Fort Washington Investment Advisors, Inc. and Todd Investment Advisors, Inc. are
affiliates of the Advisor and of Western-Southern.
ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT. The Advisor entered into an
Administration and Accounting Services Agreement with the Trust, whereby the
Advisor is responsible for supplying executive and regulatory compliance
services, supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to, and filings with, the
Securities and Exchange Commission and state securities authorities, materials
for meetings of the Board of Trustees, calculating the daily net asset value per
share and maintaining the financial books and records of each Fund. For its
services, the Advisor receives an annual fee of 0.20% of average daily net
assets of the Trust up to and including $1 billion; 0.16% of the next $1 billion
of average daily net assets; and 0.12% of all such assets in excess of $2
billion. The fee is allocated among the Funds on the basis of relative daily net
assets.
72
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- --------------------------------
- --------------------------------------------------------------------------------
Notes to Financial Statements continued
The Advisor has engaged JPMorgan as the Sub-Administrator to the Trust. JPMorgan
provides administrative and accounting services to the Trust and is compensated
directly by the Advisor, not the Trust.
TRANSFER AGENT AGREEMENT. The Trust entered into a Transfer Agent Agreement
between the Trust and JPMorgan. JPMorgan maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, JPMorgan receives a minimum annual fee
from each Fund. In addition, each Fund pays JPMorgan out-of-pocket expenses
including, but not limited to, postage and supplies.
UNDERWRITING AGREEMENT. The Underwriter acts as exclusive agent for the
distribution of the Funds' shares. The Underwriter receives no compensation
under this agreement.
PLAN OF DISTRIBUTION. The Trust has a Plan of Distribution (Class SC Plan) under
which shares of the Touchstone Money Market Fund Class SC, Touchstone Aggressive
ETF Fund Class SC, Touchstone Conservative ETF Fund Class SC, Touchstone
Enhanced ETF Fund Class SC, and Touchstone Moderate ETF Fund Class SC may
directly incur or reimburse the Advisor or the Underwriter for expenses related
to the distribution and promotion of shares. The annual limitation for payment
of such expenses under the Class SC Plan is 0.25% of Touchstone Variable Series
Trust average daily net assets attributable to such shares. Effective January 1,
2008, the Class SC Plan is no longer used by the Trust. Effective January 1,
2008, the Trust entered into a Shareholder Servicing Plan for all share classes
of the Trust which provides for a fee of 0.25% of average daily net assets
attributable to such shares.
COMPLIANCE SERVICES AGREEMENT. Under the terms of the Compliance Services
Agreement between the Trust and JPMorgan, JPMorgan provides certain compliance
services to the Trust and provides administrative support services to the Funds'
Compliance Program and Chief Compliance Officer. For these services, JPMorgan
receives a quarterly fee from each Fund.
AFFILIATED INVESTMENTS. Each Fund, except the Touchstone Money Market Fund, may
invest in the Touchstone Institutional Money Market Fund, subject to compliance
with the several conditions set forth in an exemptive order received by the
Trust from the Securities and Exchange Commission. To the extent that the other
Touchstone Funds are invested in the Touchstone Institutional Money Market Fund,
the Advisor and Administrator will be paid additional fees from the Touchstone
Institutional Money Market Fund that will not be waived or reimbursed.
73
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--------------------------------
- --------------------------------------------------------------------------------
A summary of each Fund's investment in the Touchstone Institutional Money Market
Fund, if any, for the year ended December 31, 2008, is noted below:
SHARE ACTIVITY
------------------------------------------------------
Balance Balance Value
12/31/07 Purchases Sales 12/31/08 Dividends 12/31/08
- ---------------------------------------------------------------------------------------------------------------------
Touchstone Baron Small Cap
Growth Fund 432,215 4,956,984 (5,041,030) 348,169 $ 14,992 $ 348,169
Touchstone Core Bond Fund 2,011,452 23,243,595 (22,028,453) 3,226,594 $ 95,803 $ 3,226,594
Touchstone High Yield Fund 515,123 24,984,803 (14,900,696) 10,599,230 $ 31,892 $10,599,230
Touchstone Large Cap
Core Equity Fund 163,570 15,518,741 (14,950,592) 731,719 $ 14,670 $ 731,719
Touchstone Mid Cap
Growth Fund 2,381,159 21,063,264 (22,742,238) 702,185 $ 32,269 $ 702,185
Touchstone Third Avenue
Value Fund 18,635,489 16,476,917 (32,385,673) 2,726,733 $ 291,972 $ 2,726,733
Touchstone Aggressive ETF Fund 229,608 4,457,144 (4,483,494) 203,258 $ 5,807 $ 203,258
Touchstone Conservative ETF Fund 200,236 10,685,366 (10,885,602) -- $ 8,658 $ --
Touchstone Enhanced ETF Fund 451,041 6,659,381 (6,747,839) 362,583 $ 8,726 $ 362,583
Touchstone Moderate ETF Fund 488,746 16,910,861 (16,837,981) 561,626 $ 17,935 $ 561,626
4. CAPITAL SHARE TRANSACTIONS
Capital share transactions for the Touchstone Money Market Fund are identical to
the dollar value of those transactions as shown in the Statements of Changes in
Net Assets. Proceeds and payments on capital shares as shown in the Statements
of Changes in Net Assets are the result of the following capital share
transactions for the periods shown.
Touchstone Baron Small Touchstone Core
Cap Growth Fund Bond Fund
For the For the For the For the
Year Year Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
Shares issued 144,391 194,375 655,150 707,297
Shares reinvested 366,649 162,923 187,971 166,533
Shares redeemed (375,523) (352,928) (947,755) (682,727)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 135,517 4,370 (104,634) 191,103
Shares outstanding, beginning of year 1,277,688 1,273,318 3,839,526 3,648,423
- ------------------------------------------------------------------------------------------------------
Shares outstanding, end of year 1,413,205 1,277,688 3,734,892 3,839,526
Touchstone High Touchstone Large Cap
Yield Fund Core Equity Fund
For the For the For the For the
Year Year Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
Shares issued 3,356,003 1,462,782 642,613 536,342
Shares reinvested 424,892 304,308 590,762 69,288
Shares issued in connection with merger (a) -- -- 6,038,510 --
Shares redeemed (2,023,863) (2,625,897) (2,170,202) (736,121)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 1,757,032 (858,807) 5,101,683 (130,491)
Shares outstanding, beginning of year 3,514,894 4,373,701 2,260,393 2,390,884
- ------------------------------------------------------------------------------------------------------
Shares outstanding, end of year 5,271,926 3,514,894 7,362,076 2,260,393
74
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TOUCHSTONE VARIABLE SERIES TRUST
- --------------------------------
- --------------------------------------------------------------------------------
Notes to Financial Statements continued
Touchstone Mid Cap Touchstone Third
Growth Fund Avenue Value Fund
For the For the For the For the
Year Year Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
Shares issued 207,161 992,600 367,946 1,259,899
Shares reinvested 753,292 407,550 963,424 318,103
Shares redeemed (853,679) (718,521) (1,357,368) (1,343,425)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 106,774 681,629 (25,998) 234,577
Shares outstanding, beginning of year 2,498,308 1,816,679 4,521,470 4,286,893
- ------------------------------------------------------------------------------------------------------
Shares outstanding, end of year 2,605,082 2,498,308 4,495,472 4,521,470
Touchstone Aggressive Touchstone Conservative
ETF Fund ETF Fund
Class I Class SC Class I Class SC
----------------------- ----------------------- ----------------------- -----------------------
For the For the For the For the For the For the For the For the
Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
2008 2007 2008 2007 2008 2007 2008 2007
Shares issued 35,365 111,596 199,515 512,321 201,601 366,342 597,997 427,498
Shares reinvested 128,022 44,708 101,831 24,438 60,772 27,055 56,672 10,926
Shares redeemed (212,623) (520,317) (103,740) (113,716) (555,712) (270,264) (256,174) (137,823)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding (49,236) (364,013) 197,606 423,043 (293,339) 123,133 398,495 300,601
Shares outstanding,
beginning of year 993,164 1,357,177 559,782 136,739 1,358,632 1,235,499 558,315 257,714
- ---------------------------------------------------------------------------------------------------------------------------------
Shares outstanding,
end of year 943,928 993,164 757,388 559,782 1,065,293 1,358,632 956,810 558,315
Touchstone Enhanced Touchstone Moderate
ETF Fund ETF Fund
Class I Class SC Class I Class SC
----------------------- ----------------------- ----------------------- -----------------------
For the For the For the For the For the For the For the For the
Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
2008 2007 2008 2007 2008 2007 2008 2007
Shares issued 43,884 132,876 94,222 232,628 381,842 326,819 619,211 1,441,658
Shares reinvested 1,114,844 80,909 159,370 8,132 127,126 44,844 64,203 28,255
Shares issued in connection
with merger (a) -- -- -- -- 1,962,139 -- -- --
Shares redeemed (849,521) (808,083) (88,097) (46,527) (1,311,429) (362,130) (467,390) (83,577)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding 309,207 (594,298) 165,495 194,233 1,159,678 9,533 216,024 1,386,336
Shares outstanding,
beginning of year 2,848,071 3,442,369 296,791 102,558 2,302,074 2,292,541 1,530,975 144,639
- ---------------------------------------------------------------------------------------------------------------------------------
Shares outstanding,
end of year 3,157,278 2,848,071 462,286 296,791 3,461,752 2,302,074 1,746,999 1,530,975
(a) See Footnote 9 in notes to financial statements.
75
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- --------------------------------------------------------------------------------
5. EXPENSE REDUCTIONS
The Advisor has contractually agreed to waive its fees or reimburse certain
other fees and expenses of each Fund, such that after such waivers and
reimbursements, the aggregate operating expenses of each Fund do not exceed that
Fund's expense cap (the Expense Cap). For this purpose, operating expenses are
exclusive of interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses.
Some Funds may participate in the Custody Fee Offset Program offered by the
Custodian when they execute security trades where the Custodian is the broker.
If a Fund chooses to participate in the Custody Fee Offset Program, a rebate
amount will be applied to and credited against the fees payable by the Fund to
the Custodian. For financial reporting purposes for the year ended December 31,
2008, there were no fees reduced by the Custodian.
Each Fund's Expense Cap, as calculated on an annual basis, and as a percentage
of average daily net assets of the Fund, is listed below. Also listed is the
Administration fees waived by the Administrator and the amount of other expenses
reimbursed by the Advisor for each Fund for the year ended December 31, 2008:
Touchstone Touchstone
Baron Small Touchstone Touchstone Large Cap
Cap Growth Core Bond High Yield Core Equity
Fund Fund Fund Fund
Expense cap 1.55% 1.00% 1.05% 1.00%
Administration fees waived $ 40,751 $ 11,752 $ 24,118 $ 53,976
Expenses reimbursed $ 17,721 $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------
Touchstone Touchstone Touchstone Touchstone
Mid Cap Money Market Money Market Third Avenue
Growth Fund - Fund - Value
Fund Class I Class SC Fund
Expense cap 1.17% 0.75% 0.75% 1.09%
Administration fees waived $ 67,029 $ -- $ -- $186,265
Expenses reimbursed $ -- $ -- $ -- $ 72,777
- -----------------------------------------------------------------------------------------------------------
Touchstone Touchstone Touchstone Touchstone
Aggressive Aggressive Conservative Conservative
ETF Fund - ETF Fund - ETF Fund - ETF Fund -
Class I Class SC Class I Class SC
Expense cap 0.75% 0.75% 0.75% 0.75%
Administration fees waived $ 19,958 $ 13,824 $ 27,000 $ 17,992
Advisory fees waived and/or expenses reimbursed $ 29,291 $ 20,287 $ 26,440 $ 17,616
- -----------------------------------------------------------------------------------------------------------
Touchstone Touchstone Touchstone Touchstone
Enhanced Enhanced Moderate Moderate
ETF Fund - ETF Fund - ETF Fund - ETF Fund -
Class I Class SC Class I Class SC
Expense cap 0.75% 0.75% 0.75% 0.75%
Administration fees waived $ 59,455 $ 6,978 $ 75,191 $ 39,127
Expenses reimbursed $ 32,921 $ 3,864 $ 1,448 $ 754
- -----------------------------------------------------------------------------------------------------------
76
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- --------------------------------------------------------------------------------
Notes to Financial Statements continued
6. PURCHASES AND SALES OF INVESTMENT SECURITIES
Investment transactions (excluding purchases and sales of U.S. government
obligations, U.S. government agency obligations and short-term investments) for
the year ended December 31, 2008 were as follows:
Touchstone
Baron Small Touchstone Touchstone
Cap Growth Core Bond High Yield
Fund Fund Fund
Cost of Purchases $ 1,432,204 $10,406,012 $11,849,989
Proceeds from Sales $ 5,592,335 $10,107,904 $12,119,052
- -------------------------------------------------------------------
Touchstone Touchstone Touchstone
Large Cap Mid Cap Third Avenue
Core Equity Growth Value
Fund Fund Fund
Cost of Purchases $92,977,208 $24,856,881 $10,367,260
Proceeds from Sales $43,646,032 $34,217,320 $16,776,141
- -------------------------------------------------------------------
Touchstone Touchstone Touchstone Touchstone
Aggressive Conservative Enhanced Moderate
ETF Fund ETF Fund ETF Fund ETF Fund
Cost of Purchases $ 3,434,088 $ 9,310,429 $26,065,239 $34,455,319
Proceeds from Sales $ 3,553,772 $ 8,623,830 $34,492,074 $16,246,595
- --------------------------------------------------------------------------------
7. FEDERAL TAX INFORMATION
The tax character of distributions paid for the periods ended December 31, 2008
and 2007 was as follows:
Touchstone Touchstone
Baron Small Touchstone Touchstone Large Cap
Cap Growth Core Bond High Yield Core Equity
Fund Fund Fund Fund
2008 2007 2008 2007 2008 2007 2008 2007
From ordinary income $ -- $ -- $ 1,783,848 $ 1,720,286 $ 2,349,654 $ 2,416,208 $ 1,038,605 $ 784,454
From long-term capital gains 3,402,506 3,431,149 -- -- -- -- 2,810,369 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,402,506 $ 3,431,149 $ 1,783,848 $ 1,720,286 $ 2,349,654 $ 2,416,208 $ 3,848,974 $ 784,454
- ------------------------------------------------------------------------------------------------------------------------------------
Touchstone Touchstone
Touchstone Money Third Avenue
Mid Cap Growth Market Value
Fund Fund Fund
2008 2007 2008 2007 2008 2007
From ordinary income $ 1,217,508 $ 1,535,260 $ 3,852,800 $ 4,544,522 $ 1,626,068 $ 948,228
From long-term capital gains 4,484,909 6,037,020 -- -- 10,496,578 7,744,052
- ----------------------------------------------------------------------------------------------------------
$ 5,702,417 $ 7,572,280 $ 3,852,800 $ 4,544,522 $12,122,646 $ 8,692,280
- ----------------------------------------------------------------------------------------------------------
Touchstone Touchstone Touchstone Touchstone
Aggressive Conservative Enhanced Moderate
ETF ETF ETF ETF
Fund Fund Fund Fund
2008 2007 2008 2007 2008 2007 2008 2007
From ordinary income $ 406,288 $ 384,842 $ 669,583 $ 402,455 $ 1,962,696 $ 894,954 $ 1,051,875 $ 689,766
From long-term capital gains 1,363,965 508,400 521,514 51,272 5,626,243 359,898 779,232 236,533
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,770,253 $ 893,242 $ 1,191,097 $ 453,727 $ 7,588,939 $ 1,254,852 $ 1,831,107 $ 926,299
- ------------------------------------------------------------------------------------------------------------------------------------
77
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--------------------------------
- --------------------------------------------------------------------------------
The following information is computed on a tax basis for each item as of
December 31, 2008:
Touchstone Touchstone
Baron Small Touchstone Touchstone Large Cap
Cap Growth Core Bond High Yield Core Equity
Fund Fund Fund Fund
Tax cost of portfolio investments $ 15,050,231 $ 39,104,165 $ 39,564,571 $ 81,786,012
- -----------------------------------------------------------------------------------------------------
Gross unrealized appreciation 4,275,848 660,651 192,543 --
Gross unrealized depreciation (1,850,584) (3,550,152) (8,716,237) (20,841,624)
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 2,425,264 (2,889,501) (8,523,694) (20,841,624)
Capital loss carryforward (893,256) (844,785) (2,566,228) (9,402,701)
Post October losses (720,299) (278,785) (11,652) (1,651,952)
Undistributed ordinary income -- 1,889,191 2,027,665 761,831
- -----------------------------------------------------------------------------------------------------
Accumulated earnings (deficit) $ 811,709 $ (2,123,880) $ (9,073,909) $(31,134,446)
- -----------------------------------------------------------------------------------------------------
Touchstone Touchstone
Touchstone Money Third Avenue
Mid Cap Growth Market Value
Fund Fund Fund
Tax cost of portfolio investments $ 33,487,926 $ 142,287,893 $ 88,452,230
- ---------------------------------------------------------------------------------------
Gross unrealized appreciation 211,802 -- 8,652,927
Gross unrealized depreciation (8,658,658) -- (25,122,871)
- ---------------------------------------------------------------------------------------
Net unrealized depreciation (8,446,856) -- (16,469,944)
Capital loss carryforward (1,915,049) (244,745) (2,078,724)
Post October losses (1,131,888) -- (2,047,094)
Undistributed ordinary income 22,151 -- 977,362
Undistributed long-term gains -- -- 3,380,340
- ---------------------------------------------------------------------------------------
Accumulated deficit $ (11,471,642) $ (244,745) $ (16,238,060)
- ---------------------------------------------------------------------------------------
Touchstone Touchstone Touchstone Touchstone
Aggressive Conservative Enhanced Moderate
ETF ETF ETF ETF
Fund Fund Fund Fund
Tax cost of portfolio investments $ 21,532,853 $ 25,967,544 $ 34,169,315 $ 76,250,907
- -----------------------------------------------------------------------------------------------------
Gross unrealized appreciation 63,241 269,599 -- 573,296
Gross unrealized depreciation (5,268,272) (2,788,670) (5,447,618) (13,766,047)
- -----------------------------------------------------------------------------------------------------
Net unrealized depreciation (5,205,031) (2,519,071) (5,447,618) (13,192,751)
Capital loss carryforward -- -- (3,002,781) (122,749)
Post October losses (40,964) (1,696) (4,170,968) (724,600)
Undistributed ordinary income 371,906 719,619 512,148 1,603,351
Undistributed long-term gains 228,228 217,064 -- --
- -----------------------------------------------------------------------------------------------------
Accumulated deficit $ (4,645,861) $ (1,584,084) $(12,109,219) $(12,436,749)
- -----------------------------------------------------------------------------------------------------
The difference between the tax cost of portfolio investments and the financial
statement cost is primarily due to wash sales.
78
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Notes to Financial Statements continued
During the year ended December 31, 2008, the Third Avenue Value Fund utilized
$377,436 of capital loss carryforwards.
During the year ended December 31, 2008, the Core Bond Fund and Money Market
Fund had $203,221 and $104,616 of capital loss carryforwards expire unutilized.
The capital loss carryforwards as of December 31, 2008 in the table above expire
as follows:
Amount Expiration Date
Baron Small Cap Growth Fund $ 893,256 December 31, 2016
----------
Core Bond Fund $ 22 December 31, 2011
59,279 December 31, 2012
74,295 December 31, 2013
629,628 December 31, 2014
81,561 December 31, 2016
----------
$ 844,785
----------
High Yield Fund $ 254,454 December 31, 2010
1,376,648 December 31, 2011
935,126 December 31, 2016
----------
$2,566,228
----------
Large Cap Core Equity Fund* $4,692,851 December 31, 2011
2,118,382 December 31, 2015
2,591,468 December 31, 2016
----------
$9,402,701
----------
Mid Cap Growth Fund $1,915,049 December 31, 2016
----------
Money Market Fund* $ 244,587 December 31, 2009
28 December 31, 2010
130 December 31, 2012
----------
$ 244,745
----------
Third Avenue Value Fund* $1,828,749 December 31, 2010
216,360 December 31, 2011
22,282 December 31, 2013
11,333 December 31, 2014
----------
$2,078,724
----------
Enhanced ETF Fund $3,002,781 December 31, 2016
----------
Moderate ETF Fund* $ 58,366 December 31, 2015
64,383 December 31, 2016
----------
$ 122,749
----------
The capital loss carryforwards may be utilized in future years to offset net
realized capital gains, if any, prior to distributing such gains to
shareholders.
* A portion of the capital losses may be limited under tax regulations.
79
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- --------------------------------------------------------------------------------
From November 1, 2008 to December 31, 2008, the following Funds incurred the
following net losses ("Post-October losses"). The Funds intend to elect to defer
these losses and treat them as arising on January 1, 2009:
Amount
Baron Small Cap Growth Fund $ 720,299
Core Bond Fund 278,785
High Yield Fund 11,652
Large Cap Core Equity 1,651,952
Mid Cap Growth Fund 1,131,888
Third Avenue Value Fund 2,047,094
Aggressive ETF?Fund 40,964
Conservative ETF Fund 1,696
Enhanced ETF Fund 4,170,968
Moderate ETF Fund 724,600
Reclassification of capital accounts - Reclassifications result primarily from
the difference in the tax treatment of paydown securities, expiration of capital
loss carryforwards and net investment losses. These reclassifications have no
impact on the net assets or net assets per share of the Funds and are designed
to present to the Funds capital accounts on a tax basis.
Undistributed
Net Investment Realized Paid-In
Income Gain/Loss Capital
Baron Small Cap Growth Fund $ 104,576 $ 1,604 $ (106,180)
Core Bond Fund 13,628 189,593 (203,221)
Large Cap Core Equity -- 35,014 (35,014)
Money Market Fund -- 104,616 (104,616)
Third Avenue Value Fund (24,176) 24,176 --
On July 13, 2006, the FASB released FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the evaluation of tax positions
taken or expected to be taken in the course of preparing the Funds' tax returns
to determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit 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, 2005 through 2008) for
purposes of implementing FIN 48 and have concluded that no provision for income
tax is required in their financial statements.
8. 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 against the Funds
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
80
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Notes to Financial Statements continued
9. FUND MERGERS
On April 25, 2008, a Special Meeting of Shareholders was held to approve or
disapprove an Agreement and Plan of Reorganization providing for the transfer of
all of assets and liabilities of the Eagle Capital Appreciation Fund, Growth &
Income Fund, and Value Plus Fund to the Large Cap Core Equity Fund in exchange
for shares of the Large Cap Core Equity Fund and the subsequent liquidation of
the Eagle Capital Appreciation Fund, Growth & Income Fund, and Value Plus Fund.
The merger was approved as follows:
Number of Votes
-------------------------------------------
For Against Abstain
Eagle Capital Appreciation Fund 1,166,230 42,543 78,134
Growth & Income Fund 1,292,858 11,777 68,580
Value Plus Fund 861,169 11,375 92,826
The following is a summary of shares outstanding, net assets, net asset value
per share, unrealized appreciation (depreciation) and realized gain (loss)
immediately before and after the reorganization:
After
Before Reorganization Reorganization
--------------------------------------------------------- --------------
Eagle
Capital Growth & Value Large Cap Large Cap
Appreciation Income Plus Core Equity Core Equity
Fund Fund Fund Fund Fund
Shares 2,110,008 2,735,664 1,061,313 2,065,150 8,133,929
Net Assets $ 29,383,669 $ 22,422,153 $ 11,892,474 $ 21,675,049 $ 85,373,345
Net Asset Value $ 13.93 $ 8.20 $ 11.21 $ 10.50 $ 10.50
Unrealized Appreciation
(Depreciation) $ 66,673 $ (20,156) $ 71,420 $ (938,416) $ (820,479)
Accumulated Net
Realized Gain (Loss) $ (4,195,354) $ (526,206) $ (2,124,687) $ 3,472,934 $ (3,373,313)
On April 25, 2008, a Special Meeting of Shareholders was held to approve or
disapprove an Agreement and Plan of Reorganization providing for the transfer of
all of assets and liabilities of the Balanced Fund to the Moderate ETF Fund in
exchange for shares of the Moderate ETF Fund and the subsequent liquidation of
the Balanced Fund. In conjunction with this merger, Class I shares of the
Touchstone Balanced Fund were exchanged for Class I shares of the Touchstone
Moderate ETF Fund.
The merger was approved as follows:
Number of Votes
------------------------------------------------
For Against Abstain
1,318,658 20,946 167,983
81
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- --------------------------------------------------------------------------------
The following is a summary of shares outstanding, net assets, net asset value
per share, unrealized appreciation and realized gain (loss) immediately before
and after the reorganization:
Before After
Reorganization Reorganization
-------------------------- -------------
Balanced Moderate ETF Moderate ETF
Fund Fund Fund
Shares:
Class I 1,898,502 2,204,182 4,176,175
Class SC -- 1,733,248 1,733,248
Net Assets:
Class I $ 24,444,917 $ 27,325,985 $ 51,770,902
Class SC $ -- $ 21,401,361 $ 21,401,361
Net Asset Value:
Class I $ 12.88 $ 12.40 $ 12.40
Class SC $ -- $ 12.35 $ 12.35
Unrealized Appreciation $ 61,448 $ 760,244 $ 821,692
Accumulated Net Realized Gain (Loss) $ (58,366) $ 848,386 $ 790,020
10. CAPITAL SUPPORT AGREEMENT
The Money Market Fund is a money market fund that seeks to maintain a stable net
asset value of $1.00 per share. The Fund uses the amortized cost method of
valuing portfolio securities pursuant to Rule 2a-7 under the Investment Company
Act of 1940.
In an effort to mitigate the negative effect that market conditions may have on
the price of certain notes ("Notes") in the Fund, Touchstone Advisors, Inc. and
the Trust, on behalf of the Fund, obtained no-action assurance under Section
17(a), 17(d) and 12(d)(3) of the 1940 Act from the Securities and Exchange
Commission to enter into a Capital Support Agreement for the Fund. The Advisor
and the Trust entered into a Capital Support Agreement for the Fund as of
September 26, 2008. The Capital Support Agreement for the Fund provides a
maximum contribution of $2 million and terminated on January 31, 2009.
Pursuant to the Capital Support Agreement, the Advisor is obligated to provide a
capital contribution to the Fund if losses are realized by the Fund as a result
of any of the following occurrences: (i) any sale of the Notes by the Fund for
cash in an amount, after deduction of any commissions or similar transaction
costs, less than the amortized cost value of the Note sold as of the date of
settlement; (ii) the receipt of final payment on the Notes in an amount less
than the amortized cost value of the Notes as of the date such payment is
received; (iii) the issuance of orders by a court having jurisdiction over the
matter discharging the issuer of the Notes from liability for the Notes and
providing for payments on those Notes in an amount less than the amortized cost
value of the Notes as of the date such payment is received; or (iv) the receipt
of any security or other instrument in exchange for, or as a replacement of, the
Notes as a result of an exchange offer, debt restructuring, reorganization or
similar transaction pursuant to which the Notes are exchanged for, or replaced
with, new securities of the issuer or a third party and such new securities are
or become "Eligible Securities," as defined in sub-paragraph (a)(10) of Rule
2a-7, and have a value that is less than the amortized cost of the Notes on the
date the Fund receives the new securities. The amount of any capital
contribution will be the amount necessary to maintain the Fund's market-based
NAV per share at $0.995.
The Advisor does not have its own credit rating, but the Advisor's commitment
under the Capital Support Agreement is guaranteed by one or more guaranties
provided by The Western and Southern Life Insurance Company, an Ohio-domiciled
life insurance company of which the Advisor is an indirect wholly-owned
subsidiary (the "Guarantor"). If the Advisor fails to make a capital
contribution to the Fund pursuant to the Capital Support Agreement, the
Guarantor will make the payments pursuant to the relevant guaranty. These
guaranties would be issued at the expense of the Advisor for the benefit of the
Fund.
82
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Notes to Financial Statements continued
During the term of the Capital Support Agreement, the Guarantor's obligations
are supported by a segregated account established by the Guarantor at a
qualified custodian under section 17(f) of the 1940 Act. The segregated account
has been established for the benefit of the Fund and consists of cash or cash
equivalent securities equal to the maximum contribution amount under the Capital
Support Agreement, as such amount may be reduced by any capital contributions
previously made by the Advisor or the Guarantor. The assets of the segregated
account is available to the supported Fund by means of a transfer initiated by
the Fund without the requirement of further action or consent by the Advisor or
the Guarantor. The Fund will make a withdrawal from the segregated account if
the Advisor fails to make a capital contribution when due under the Capital
Support Agreement.
The following table summarizes the Note and its amortized cost value, fair
value, and unrealized depreciation as of December 31, 2008:
PRINCIPAL AMORTIZED FAIR UNREALIZED
DESCRIPTION AMOUNT ($) COST ($) VALUE ($) DEPRECIATION ($)
- -------------------------------- ---------- --------- --------- ----------------
Money Market Fund
Morgan Stanley, 3.88%, 1/15/09 2,253,000 2,252,962 2,252,349 (613)
In addition, the fair value of the Agreement was $0 as of December 31, 2008.
11. TREASURY DEPARTMENT TEMPORARY GUARANTEE PROGRAM
During a meeting held October 7, 2008 of the Board of Trustees, the Trustees
unanimously approved the Touchstone Money Market Fund's participation in the
Treasury Department Temporary Guarantee Program (Program), the initial term of
which extended through December 18, 2008, and the Fund applied for continued
participation in the Program through the Program's extension date of April 30,
2009 (Extension Period). In the event that a Fund's NAV should drop below $0.995
(the "Guarantee Event") and the Fund elects to liquidate, the Program provides
coverage to shareholders of the Fund for amounts held in that Fund as of the
close of business on September 19, 2008, subject to certain conditions and
limitations. Participation in the Program does not guarantee a $1.00 net asset
value upon redemption or liquidation of shares.
Any increase in the number of Fund shares held in an account after the close of
business on September 19, 2008 are not guaranteed. If the number of Fund shares
held in the account fluctuates during the period covered by the Program,
shareholders are covered for the lesser of the number of Fund shares held as of
the close of business on September 19, 2008, or the number of shares held in the
Fund on the date of the Guarantee Event.
The cost of the Program is $1.00 multiplied by the sum of all covered shares in
the Fund multiplied by 0.00015 (1.5 basis points) for the Extension Period. The
cost to participate in the Program is borne by the Fund without regard to any
expense limitation currently in effect, as these costs constitute "extraordinary
expenses not incurred in the ordinary course of the Fund's business," although
only shareholder balances as of September 19, 2008 are covered by the Program.
83
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Report of Independent Registered
- --------------------------------------------------------------------------------
Public Accounting Firm
To the Board of Trustees and Shareholders of
Touchstone Variable Series Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Touchstone Variable Series Trust, comprised of
the Baron Small Cap Growth Fund (formerly, the Baron Small Cap Fund), Core Bond
Fund, Mid Cap Growth Fund, High Yield Fund, Large Cap Core Equity Fund, Money
Market Fund, Third Avenue Value Fund, Aggressive ETF Fund, Conservative ETF
Fund, Enhanced ETF Fund, and Moderate ETF Fund (the "Funds"), as of December 31,
2008, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
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.
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, 2008, 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 Variable Series Trust at
December 31, 2008, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for each of the periods indicated therein, in
conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Cincinnati, Ohio
February 26, 2009
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Other Items (Unaudited)
- --------------------------------------------------------------------------------
December 31, 2008
DIVIDEND RECEIVED DEDUCTION
For corporate shareholders, the following ordinary distributions paid during the
current fiscal year ended December 31, 2008 qualifiy for the corporate dividends
received deduction:
Core Bond Fund 2%
Large Cap Core Equity Fund 100%
Mid Cap Growth Fund 100%
Third Avenue Value Fund 100%
Aggressive ETF?Fund 100%
Conservative ETF Fund 100%
Enhanced ETF Fund 100%
Moderate ETF Fund 100%
PROXY VOTING GUIDELINES
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 is available without charge upon request by
calling toll free 1.800.543.0407. These items are also available on the
Securities and Exchange Commission's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The Trust files a complete listing of portfolio holdings for each Fund as of the
end of the first and third quarters of each fiscal year on Form N-Q. The
complete listing (i) is available on the Commission's website; (ii) may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC;
and (iii) will be made available to shareholders upon request by calling
1.800.543.0407. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Funds, you incur two types of costs: (1) transaction
costs, including reinvested dividends or other distributions; and (2) ongoing
costs, including investment advisory fees; distribution (12b-1) fees; and other
Fund expenses. This example is intended to help you understand your ongoing
costs (in dollars) of investing in the Funds and to compare these costs with the
ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (July 1, 2008 through December 31, 2008).
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, 2008" to estimate the expenses you paid on your
account during this period.
85
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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 Ratio Beginning Ending Paid During the
Annualized Account Value Account Value Six Months Ended
December 31, July 1, December 31, December 31,
2008 2008 2008 2008*
TOUCHSTONE BARON SMALL CAP GROWTH FUND
Actual 1.54% $1,000.00 $ 729.70 $ 6.68
Hypothetical 1.54% $1,000.00 $1,017.41 $ 7.79
TOUCHSTONE CORE BOND FUND
Actual 1.00% $1,000.00 $ 978.70 $ 4.97
Hypothetical 1.00% $1,000.00 $1,020.11 $ 5.07
TOUCHSTONE HIGH YIELD FUND
Actual 1.05% $1,000.00 $ 761.00 $ 4.65
Hypothetical 1.05% $1,000.00 $1,019.85 $ 5.34
TOUCHSTONE LARGE CAP CORE EQUITY FUND
Actual 1.00% $1,000.00 $ 731.40 $ 4.36
Hypothetical 1.00% $1,000.00 $1,020.10 $ 5.09
TOUCHSTONE MID CAP GROWTH FUND
Actual 1.17% $1,000.00 $ 612.60 $ 4.72
Hypothetical 1.17% $1,000.00 $1,019.28 $ 5.92
TOUCHSTONE MONEY MARKET FUND
Class I Actual 0.66% $1,000.00 $1,014.00 $ 3.33
Class I Hypothetical 0.66% $1,000.00 $1,021.83 $ 3.35
Class SC Actual 0.72% $1,000.00 $1,013.70 $ 3.65
Class SC Hypothetical 0.72% $1,000.00 $1,021.52 $ 3.66
TOUCHSTONE THIRD AVENUE VALUE FUND
Actual 1.06% $1,000.00 $ 636.90 $ 4.37
Hypothetical 1.06% $1,000.00 $1,019.80 $ 5.39
TOUCHSTONE AGGRESSIVE ETF FUND
Class I Actual 0.75% $1,000.00 $ 780.00 $ 3.36
Class I Hypothetical 0.75% $1,000.00 $1,021.36 $ 3.82
Class SC Actual 0.75% $1,000.00 $ 780.10 $ 3.36
Class SC Hypothetical 0.75% $1,000.00 $1,021.36 $ 3.82
TOUCHSTONE CONSERVATIVE ETF FUND
Class I Actual 0.75% $1,000.00 $ 935.70 $ 3.65
Class I Hypothetical 0.75% $1,000.00 $1,021.37 $ 3.81
Class SC Actual 0.75% $1,000.00 $ 935.50 $ 3.65
Class SC Hypothetical 0.75% $1,000.00 $1,021.37 $ 3.81
86
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Other Items continued
TOUCHSTONE ENHANCED ETF FUND
Class I Actual 0.75% $1,000.00 $ 742.10 $ 3.30
Class I Hypothetical 0.75% $1,000.00 $1,021.35 $ 3.82
Class SC Actual 0.75% $1,000.00 $ 743.10 $ 3.30
Class SC Hypothetical 0.75% $1,000.00 $1,021.35 $ 3.82
TOUCHSTONE MODERATE ETF FUND
Class I Actual 0.75% $1,000.00 $ 852.70 $ 3.49
Class I Hypothetical 0.75% $1,000.00 $1,021.37 $ 3.81
Class SC Actual 0.75% $1,000.00 $ 852.20 $ 3.49
Class SC Hypothetical 0.75% $1,000.00 $1,021.37 $ 3.81
* Expenses are equal to the Fund's annualized expense ratio, multiplied by
the average account value over the period, multiplied by [number of days
in most recent fiscal half-year/365 [or 366]] (to reflect the one-half
year period).
ADVISORY AGREEMENT APPROVAL DISCLOSURE
At a meeting held on November 13, 2008, the Board of Trustees (the "Board" or
"Trustees") of the Touchstone Variable Series Trust (the "Trust"), and by a
separate vote, the Independent Trustees of the Trust, approved the continuance
of the Investment Advisory Agreement between the Trust and the Advisor with
respect to each Fund of the Trust and of the Sub-Advisory Agreement(s) with
respect to each Fund between the Advisor and the respective Sub-Advisor(s).
In determining whether to approve the continuation of the Investment Advisory
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 Investment Advisory Agreement and of the respective
Sub-Advisory Agreement(s) 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-Advisors' personnel. Prior to
voting, the Independent Trustees reviewed the proposed continuance of the
Investment Advisory 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 Investment Advisory Agreement and the Sub-Advisory
Agreement(s) with respect to each Fund. The Independent Trustees also reviewed
the proposed continuation of the Investment Advisory Agreement and the
Sub-Advisory Agreement(s) with respect to each of the Funds in private sessions
with independent legal counsel at which no representatives of management were
present.
In approving the Funds' Investment Advisory Agreement, the Board considered
various factors, among them: (1) the nature, extent and quality of services
provided to the Funds, including the personnel providing services; (2) the
Advisor's compensation and profitability; (3) a comparison of fees and
performance with other advisors; (4) economies of scale; and (5) the terms of
the Investment 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.
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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, including those
that were affiliates of the 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 Investment Advisory Agreement.
Advisor's Compensation and Profitability. The Board took into consideration the
financial condition and profitability of the Advisor and its affiliates
(including the Sub-Advisors to certain of the Funds) 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 waives advisory fees and/or reimbursed expenses for
certain Funds and also 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. 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 provided to each Fund
and the entrepreneurial risk that it assumes as Advisor. Based upon their
review, the Trustees concluded that the Advisor and its affiliates' 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, among other data, the
Funds' respective performance results during the six-month period, twelve-month
period and thirty-six month period ended September 30, 2008, as applicable, 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 further noted that the Advisor had waived
advisory fees and/or reimbursed expenses for certain Funds in order to reduce
those Funds' respective operating expenses to targeted levels. The Board noted
that the sub-advisory fees under the Sub-Advisory Agreement(s) 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.
88
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Other Items continued
The Board considered, among other data, the specific factors and related
conclusions set forth below with respect to each Fund:
Touchstone Baron Small Cap Growth Fund. The Fund's advisory fee and total
expense ratio (net of applicable expense waivers) were above the median of its
peer group. The Board noted that the Advisor was currently waiving a portion of
its advisory fee. The Board took into account the impact that the relatively
small size of the Fund has upon expenses. The Fund's performance for the
six-month period, twelve-month period and thirty-six month period ended
September 30, 2008 was in the 1st quartile of its peer group. The Board noted
the Fund's improved performance. 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.
Touchstone Core Bond Fund. The Fund's advisory fee and total expense ratio (net
of applicable expense waivers) were below the median and above the median,
respectively, of its peer group. The Board noted that the Advisor was currently
waiving a portion of its advisory fee. The Board took into account the impact
that the relatively small size of the Fund has upon expenses. The Fund's
performance for the six-month period and thirty-six month period ended September
30, 2008 was in the 2nd quartile of its peer group and in the 3rd quartile for
the twelve-month period ended September 30, 2008. Based upon their review, the
Trustees concluded that the Fund's performance over time 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.
Touchstone High Yield Fund. The Fund's advisory fee and total expense ratio (net
of applicable expense waivers) were below the median and above the median,
respectively, of its peer group. The Board noted that the Advisor was currently
waiving a portion of its advisory fee. The Board took into account the impact
that the relatively small size of the Fund has upon expenses. The Fund's
performance for the six-month period and thirty-six month period ended September
30, 2008 was in the 2nd quartile of its peer group and in the 1st quartile for
the twelve-month period ended September 30, 2008. 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.
Touchstone Large Cap Core Equity Fund. The Fund's advisory fee and total expense
ratio (net of applicable expense waivers) were below the median of its peer
group. The Board noted that the Advisor was currently waiving a portion of its
advisory fee. The Fund's performance for the six-month period, twelve-month
period and thirty-six month period ended September 30, 2008 was in the 1st
quartile of its peer group. The Board also noted that the Fund had implemented
changes to its investment strategy and investment process on March 28, 2008.
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.
89
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--------------------------------
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Touchstone Mid Cap Growth Fund. The Fund's advisory fee and total expense ratio
(net of applicable expense waivers) were below the median and above the median,
respectively, of its peer group. The Board noted that the Advisor was currently
waiving a portion of its advisory fee. The Board took into account the impact
that the relatively small size of the Fund has upon expenses. The Fund's
performance for the six-month period, twelve-month period and thirty-six month
period ended September 30, 2008 was in the 4th, 2nd and 1st quartiles,
respectively, of its peer group. The Board took into account management's
discussion of the Fund's recent performance. Based upon their review, the
Trustees concluded that the Fund's performance over time 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.
Touchstone Money Market Fund. The Fund's advisory fee and total expense ratio
(net of applicable expense reimbursements) were below the median of its peer
group. The Board noted that the Advisor was currently reimbursing a portion of
the Fund's expenses. The Fund's performance for the six-month period,
twelve-month period and thirty-six month period ended September 30, 2008 was in
the 1st 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.
Touchstone Third Avenue Value Fund. The Fund's advisory fee and total expense
ratio (net of applicable expense waivers) were below the median and above the
median, respectively, of its peer group. The Board noted that the Advisor was
currently waiving a portion of its advisory fee. The Fund's performance for the
six-month period ended September 30, 2008 was in the 1st quartile of its peer
group and in the 2nd quartile for the twelve-month period and thirty-six month
period ended September 30, 2008. The Board also noted that the Fund had
implemented a change to its investment strategy on May 21, 2008. 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.
Touchstone Aggressive ETF Fund. The Fund's advisory fee and total expense ratio
(net of applicable expense waivers) were below the median and above the median,
respectively, of its peer group. The Board noted that the Advisor was currently
waiving its entire advisory fee. The Board took into account the impact that the
relatively small size of the Fund has upon expenses. The Fund's performance for
the six-month period, twelve-month period and thirty-six month period ended
September 30, 2008 was in the 1st quartile of its peer group. The Board noted
the Fund's improved performance. 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.
Touchstone Conservative ETF Fund. The Fund's advisory fee and total expense
ratio (net of applicable expense waivers and reimbursements) were below the
median and above the median, respectively, of its peer group. The Board noted
that the Advisor was currently waiving its entire advisory fee and reimbursing a
portion of the Fund's expenses. The Board took into account the impact that the
relatively small size of the Fund has upon expenses. The Fund's performance for
the six-month period, twelve-month period and thirty-six month period ended
September 30, 2008 was in the 1st quartile of its peer group. The Board noted
the Fund's improved performance. 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.
90
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Other Items continued
Touchstone Enhanced ETF Fund. The Fund's advisory fee and total expense ratio
(net of applicable expense waivers) were below the median of its peer group. The
Board noted that the Advisor was currently reimbursing a portion of its advisory
fee. The Board took into account the impact that the relatively small size of
the Fund has upon expenses. The Fund's performance for the six-month period
ended September 30, 2008 was in the 4th quartile of its peer group and in the
1st quartile for the twelve-month period and thirty-six month period ended
September 30, 2008. The Board took into account management's discussion of the
Fund's recent performance. Based upon their review, the Trustees concluded that
the Fund's performance over time 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.
Touchstone Moderate ETF Fund. The Fund's advisory fee and total expense ratio
(net of applicable expense waivers) were below the median and above the median
of its peer group. The Board noted that the Advisor was currently waiving a
portion of its advisory fee. The Board took into account the impact that the
relatively small size of the Fund has upon expenses. The Fund's performance for
the six-month period and twelve-month period ended September 30, 2008 was in the
2nd quartile of its peer group and in the 3rd quartile for the thirty-six month
period ended September 30, 2008. 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 Investment Advisory 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 the advisory fee schedules for most of the Funds contains breakpoints
that would reduce the respective advisory fee rate on assets above specified
levels as the respective Fund's assets increased and considered the necessity of
adding breakpoints with respect to the Funds that did not currently have such
breakpoints in their advisory fee schedules. The Board determined that adding
breakpoints at specified levels to the advisory fee schedule of such Funds was
not appropriate at this time given each Fund's current size. The Board also
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. The Board also considered the fact that, under the Investment Advisory
Agreement, the advisory fee payable to the Advisor by a Fund was reduced by the
total sub-advisory fee(s) paid by the Advisor to the Fund's Sub-Advisor(s).
Conclusion. In considering the renewal of the Funds' Investment Advisory
Agreement, the Board, including the Independent Trustees, did not identify any
single factor as controlling, and each Trustee attributed different weights to
the various factors. The Trustees evaluated all information available to them on
a Fund-by-Fund basis, and their determinations were made separately with respect
to each Fund. The Board reached the following conclusions regarding the Funds'
Investment Advisory Agreement with the Advisor, among others: (a) the Advisor
had demonstrated that it possessed the capability and resources to perform the
duties required of it under the Investment Advisory Agreement; (b) the Advisor
maintains an appropriate compliance program; (c) the performance of each Fund is
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 Investment Advisory Agreement
was in the best interests of the Fund and its shareholders.
91
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--------------------------------
- --------------------------------------------------------------------------------
In approving the Funds' Sub-Advisory Agreements, the Board considered various
factors with respect to each Fund and its 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 each Sub-Advisor, including information presented periodically throughout the
previous year. The Board noted the affiliation of the Sub-Advisors to certain of
the Funds with the Advisor, noting any potential conflicts of interest. The
Board also noted that, on a periodic basis, the Board meets with portfolio
managers of the Sub-Advisors to discuss their respective performance and
investment processes and strategies. The Board considered each Sub-Advisor's
level of knowledge and investment style. The Board reviewed the experience and
credentials of the investment personnel who are responsible for managing the
investment of portfolio securities with respect to the Funds. The 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 visits to 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 each
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 the undertakings of the Advisor to maintain
expense limitations for the Funds and also 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 Investment Advisory Agreement and in addition,
with respect to the unaffiliated Sub-Advisors, are negotiated at arms-length. 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 respective Fund to be a substantial factor in
its consideration, although the Board noted that the sub-advisory fee schedules
for most of the Funds contained breakpoints that would reduce the sub-advisory
fee rate on assets above specified levels if the respective Fund's 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 respective Sub-Advisor(s). The Board considered the amount retained by the
Advisor and the sub-advisory fee paid to each Sub-Advisor with respect to the
various services provided by the Advisor and the Sub-Advisor. The Board also
noted that the Advisor negotiated the sub-advisory fee with each of the
unaffiliated Sub-Advisors at arms-length. The Board compared the sub-advisory
fee(s) for each Fund with various comparative data, if available, including the
median and average sub-advisory fees of each Fund's peer group, and found that
each Fund's sub-advisory expense was reasonable and appropriate under the facts
and circumstances.
92
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- --------------------------------------------------------------------------------
Other Items continued
Touchstone Baron Small Cap Growth Fund. The Fund's sub-advisory fee was above
the median of its peer group. Based upon their review, the Trustees concluded
that the sub-advisory fee was reasonable in light of the quality of services
received by the Fund from the Sub-Advisor and the other factors considered.
Touchstone Core Bond 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.
Touchstone High Yield 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.
Touchstone Large Cap Core Equity Fund. The Fund's sub-advisory fee was below the
median of its peer group. Based upon their review, the Trustees concluded that
the 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.
Touchstone Mid Cap Growth Fund. The Fund's sub-advisory fees were 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.
Touchstone Money Market 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.
Touchstone Third Avenue 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.
Touchstone Aggressive ETF 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.
Touchstone Conservative ETF 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.
Touchstone Enhanced ETF 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.
93
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--------------------------------
- --------------------------------------------------------------------------------
Touchstone Moderate ETF Fund. The Fund's sub-advisory fee was at 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.
As noted above, the Board considered each Fund's performance during the
six-month period, twelve-month period and thirty-six month period ended
September 30, 2008, as applicable, 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 noted the Advisor's expertise and resources in monitoring
the performance, investment style and risk adjusted performance of each
Sub-Advisor. The Board 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(s) with
respect to each Fund, the Board, including the Independent Trustees, did not
identify any single factor as controlling, and each Trustee attributed different
weights to the various factors. The Board reached the following conclusions
regarding each Sub-Advisory Agreement, among others: (a) the Sub-Advisor was
qualified to manage each Fund's assets in accordance with that Fund's investment
objectives and policies; (b) the Sub-Advisor maintains an appropriate compliance
program; (c) the performance of each Fund was satisfactory 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(s) with respect to each
Fund was in the best interests of the respective Fund and its shareholders.
94
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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 1.800.669.2796.
INTERESTED TRUSTEES:(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Funds
Name Position(s) Term of Office(2) Overseen in Other
Address Held with And Length of Principal Occupation(s) the Touchstone Directorships
Age Trust Time Served During Past 5 Years Fund Complex(3) Held(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee and Until retirement Senior Vice President of The Western and 41 Director of LaRosa's
Touchstone President at age 75 or Southern Life Insurance Company. (a restaurant chain).
Advisors, Inc until she President, CEO and a director of IFS
303 Broadway resigns or is Financial Services, Inc. (a holding
Cincinnati, OH removed company). She is a director of Capital
Year of Birth: 1955 Analysts Incorporated (an investment
Trustee since advisor and broker-dealer), IFS Fund
1999 Distributors, Inc. (a broker-dealer),
Touchstone Advisors, Inc. (the Trust's
investment advisor and administrator),
W&S Financial Group Distributors, Inc.
(an annuity distributor) and Touchstone
Securities, Inc. (the Trust's
distributor). She is also President and a
director of IFS Systems, Inc. She is
Senior Vice President and a director of
W&S Brokerage Services, Inc. (a
broker-dealer). She is President and
Chief Executive Officer of Integrity Life
Insurance Company and National Integrity
Life Insurance Company. She is President
of Touchstone Tax-Free Trust, Touchstone
Investment Trust, Touchstone Variable
Series Trust, Touchstone Strategic Trust,
Touchstone Funds Group Trust and
Touchstone Institutional Funds Trust. She
was President of Touchstone Advisors,
Inc., and Touchstone Securities, Inc.
until 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until retirement President and Chief Executive Officer of 41 Director of Duke Energy
105 East Fourth at age 75 or Cox Financial Corp. (a financial services (a utility company).
Street until he company).
Cincinnati, OH resigns or is
Year of Birth: 1947 removed
Trustee since
1994
- ------------------------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until retirement Principal of HJL Enterprises (a privately 41 None
c/o Touchstone at age 75 or held investment company).
Advisors, Inc. until he
303 Broadway resigns or is
Cincinnati, OH removed
Year of Birth: 1938 Trustee since
1999
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Siekmann Trustee Until retirement Executive for Duro Bag Manufacturing Co. 41 None
c/o Touchstone at age 75 or (a bag manufacturer); President of Shor
Advisors, Inc. until he Foundation for Epilepsy Research (a
303 Broadway resigns or is charitable foundation); Trustee of
Cincinnati, OH removed Riverfront Funds (mutual funds) from
Year of Birth: 1938 Trustee since 1999 - 2004.
2005
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until retirement Retired Partner of KPMG LLP (a certified 41 Trustee of Tri-Health
c/o Touchstone at age 75 or public accounting firm). He is Vice Physician Enterprise
Advisors, Inc. until he President of St. Xavier High School. Corporation.
303 Broadway resigns or is
Cincinnati, OH removed
Year of Birth: 1934 Trustee since
1994
- ------------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until retirement CEO, Chairman and Director of Avaton, 41 Director of QMed (a
c/o Touchstone at age 75 or Inc. (a wireless entertainment company). health care management
Advisors, Inc. until he President of Cincinnati Biomedical (a company).
303 Broadway resigns or is life science and economic development
Cincinnati, OH removed company).
Year of Birth: 1948 Trustee since
2002
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ms. McGruder, as a director of the Advisor and the Distributor, and an
officer of affiliates of the Advisor and the 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 11 series of the Trust, 11 series
of Touchstone Funds Group Trust, 4 series of Touchstone Institutional
Funds Trust, 4 series of Touchstone Investment Trust, 7 series of
Touchstone Strategic Trust and 4 series of Touchstone Tax-Free Trust.
(4) Each Trustee is also a Trustee of Touchstone Funds Group Trust, Touchstone
Institutional Funds Trust, Touchstone Investment Trust, Touchstone
Strategic Trust and Touchstone Tax-Free Trust.
95
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PRINCIPAL OFFICERS(1):
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Funds
Name Position(s) Term of Office Overseen in Other
Address Held with And Length of Principal Occupation(s) the Touchstone Directorships
Age Trust Time Served During Past 5 Years Fund Complex(2) Held
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder President Until See biography above. 41 See biography above.
Touchstone resignation,
Advisors, Inc. removal or
303 Broadway disqualification
Cincinnati, OH President since
Year of Birth: 2004; President
1955 from 2000-2002
- ------------------------------------------------------------------------------------------------------------------------------------
Gene L. Needles Vice Until President of Touchstone Advisors, Inc., 41 None
Touchstone President resignation, Touchstone Securities, Inc. and
Advisors, Inc. removal or Touchstone Investments. President of AIM
303 Broadway disqualification Distributors from 2004 - 2008. CEO of AIM
Cincinnati, OH Vice President Distributors from 2005 - 2008
Year of Birth: since 2008
1954
- ------------------------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice Until Senior Vice President-Compliance of IFS 41 None
Touchstone President resignation, Financial Services, Inc., Director of
Advisors, Inc. and Chief removal or Compliance of W&S Brokerage Services,
303 Broadway Compliance disqualification Inc.
Cincinnati, OH Officer Vice President
Year of Birth: since 2003
1956
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Dent Vice Until Senior Vice President of Touchstone 41 None
Touchstone President resignation, Advisors, Inc.; Marketing Director of
Advisors, Inc. removal or Promontory Interfinancial Network from
303 Broadway disqualification 2002-2003.
Cincinnati, OH Vice President
Year of Birth: since 2004
1963
- ------------------------------------------------------------------------------------------------------------------------------------
Gregory A. Harris Vice Until Vice President-Fund Administration of 41 None
Touchstone President resignation, Touchstone Investments; Managing
Advisors, Inc. removal or Director, Fund Project Services, Inc.
303 Broadway disqualification 1998 - 2007.
Cincinnati, OH Vice President
Year of Birth: since 2007
1968
- ------------------------------------------------------------------------------------------------------------------------------------
Terrie A. Controller Until Senior Vice President, Chief Financial 41 None
Wiedenheft and resignation, Officer and Treasurer of IFS Fund
Touchstone Treasurer removal or Distributors, Inc.; Senior Vice President
Advisors, Inc. disqualification and Chief Financial Officer of W & S
303 Broadway Controller Brokerage Services, Inc.; Chief Financial
Cincinnati, OH since 2000 Officer of IFS Financial Services, Inc.,
Year of Birth: Treasurer Touchstone Advisors, Inc. and Touchstone
1962 since 2003 Securities, Inc.; Senior Vice President
and Chief Financial Officer of Fort
Washington Investment Advisors, Inc.
Vice-President and Treasurer of IIS
Broadway Corp. She served as Senior Vice
President, Chief Financial Officer and
Treasurer of Integrated Investment
Services, Inc. up to April 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Jay S. Fitton Secretary Until Assistant Vice President and Senior 41 None
JPMorgan resignation, Counsel at JPMorgan Chase Bank, N.A.
303 Broadway removal or
Cincinnati, OH disqualification
Year of Birth: Secretary since
1970 2006 Assistant
Secretary from
2002-2006
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Each officer also holds the same office with Touchstone Funds Group Trust,
Touchstone Institutional Funds Trust, Touchstone Investment Trust,
Touchstone Strategic Trust and Touchstone Tax-Free Trust.
(2) The Touchstone Fund Complex consists of 11 series of the Trust, 11 series
of Touchstone Funds Group Trust, 4 series of Touchstone Institutional
Funds Trust, 4 series of Touchstone Investment Trust, 7 series of
Touchstone Strategic Trust and 4 series of Touchstone Tax-Free Trust.
[LOGO] TOUCHSTONE
INVESTMENTS
TSF-1006-TVST-AR-0812
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.
Don Siekmann 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 $153,100 ($8,000 related to
filings of Form N-14) for the December 31, 2008 fiscal year and $190,800 for the
December 31, 2007 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 $0 for the December 31, 2008
fiscal year and $116,000 for the December 31, 2007 fiscal year. The 2007 fees
are related to SAS 70 internal control reviews of the Trust's fund accountant
and transfer agent.
(c ) Tax Fees. Tax fees totaled $64,200 ($14,000 related to the dividend
deficiency in the Eagle Capital Appreciation Fund) for the December 31, 2008
fiscal year and $44,250 for the December 31, 2007 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, 2008 or
December 31, 2007 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 $93,200 for the December 31, 2008 fiscal year and $189,250 for
the December 31, 2007 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, 2004 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 Variable Series Trust
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By (Signature and Title)
/s/ Jill T. McGruder
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Jill T. McGruder
President
Date: March 2, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
/s/ Jill T. McGruder
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Jill T. McGruder
President
Date: March 2, 2009
/s/ Terrie A. Wiedenheft
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Terrie A. Wiedenheft
Controller & Treasurer
Date: March 2, 2009