UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-3651
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Touchstone Strategic Trust
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(Exact name of registrant as specified in charter)
303 Broadway, Suite 1100, Cincinnati, Ohio 45202
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(Address of principal executive offices) (Zip code)
Jill T. McGruder, 303 Broadway, Suite 1100, Cincinnati, Ohio 45202
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(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 878-4066
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Date of fiscal year end: 3/31/10
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Date of reporting period: 3/31/10
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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.
March 31, 2010
Annual Report
TOUCHSTONE STRATEGIC TRUST
Touchstone Diversified Small Cap Growth Fund
Touchstone Growth Opportunities Fund
Touchstone Large Cap Core Equity Fund
Touchstone Large Cap Growth Fund
Touchstone Mid Cap Growth Fund
[LOGO] Touchstone Investments(R)
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Table of Contents
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Page
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Letter from the President 3
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Management's Discussion of Fund Performance (Unaudited) 4-20
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Tabular Presentation of Portfolios of Investments (Unaudited) 21
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Statements of Assets and Liabilities 22-25
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Statements of Operations 26-27
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Statements of Changes in Net Assets 28-30
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Financial Highlights 31-39
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Notes to Financial Statements 40-52
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Portfolios of Investments:
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Diversified Small Cap Growth Fund 53-54
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Growth Opportunities Fund 55-56
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Large Cap Core Equity Fund 57-58
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Large Cap Growth Fund 59
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Mid Cap Growth Fund 60-61
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Report of Independent Registered Public Accounting Firm 62
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Other Items (Unaudited) 63-71
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Management of the Trust (Unaudited) 72-74
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Privacy Protection Policy 75
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2
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Letter from the President
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Dear Fellow Shareholder,
We are pleased to provide you with the Touchstone Strategic Trust Annual Report.
Inside you will find key financial information and manager commentaries for the
twelve months ended March 31, 2010.
For most investors, the past 12 months have been an extraordinary period. One
year ago we were in the midst of the most serious financial crisis since the
1930s. Just when it seemed no bottom was in sight, stock markets turned near the
end of the first quarter of 2009 and rallied uninterrupted over the remainder of
the year. By year end, U.S. and international equity markets made impressive
strides from their March lows.
During these developments, many investors were worried that markets had moved
too far, too fast, as is what appeared to be the case through mid-February this
year, when equity markets declined amid concerns about monetary policy
tightening in China and the U.S., and fears that budgetary problems in Greece
could spread. And, although evidence of economic recovery is fairly conclusive
and the U.S. stock market recently posted an 18-month high, many investors are
still wary. The market advance was characterized as being of "low quality" as
investors shunned high quality, large capitalization stocks with financial
strength, seeking smaller capitalization, high-beta stocks. In addition,
although many believed that market leadership was poised to shift to growth
stocks, value indexes outperformed growth indexes across all capitalizations.
The top performing sector was Consumer Discretionary. The bottom performing
sector was Telecommunication Services.
Some observers contend that structural headwinds in housing and consumer finance
stand in the way of a full-fledged economic expansion and believe that continued
massive policy stimulus will be required to keep the U.S. and global economy
afloat. However, we believe we are seeing mounting evidence that global recovery
is becoming firmly rooted and the risk of a "double-dip" recession has
diminished considerably. Equity fund managers are increasingly investing in
companies that do business internationally.
It is important to focus on the long-term composition of your investment
portfolio. When we examine where financial markets may be headed in the years to
come, we continue to believe that diversification is essential to balancing risk
and return. We recommend that you continue to work with your financial
professional and focus on a sound asset allocation strategy, investing in a
broad mix of stock, bond, and money market mutual funds to help keep your
financial strategy on course.
We greatly appreciate your continued support. Thank you for including Touchstone
as part of your investment plan.
Sincerely,
Jill T. McGruder
President
Touchstone Strategic Trust
3
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Management's Discussion of Fund Performance (Unaudited)
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TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
SUB-ADVISED BY FORT WASHINGTON INVESTMENT ADVISORS, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Diversified Small Cap Growth Fund was 44.98%
for the year ended March 31, 2010. The total return of the Russell 2000(R)
Growth Index was 60.32% for the same period.
After one of the most severe credit crisis-induced stock market declines (from
October 2007 to March of 2009) since the 1930s, the market finally bottomed as
massive, unprecedented intervention by the Federal Reserve combined with
attractive valuations gave investors enough confidence to slowly begin
reallocating cash toward equities. Deep expense reductions in corporate America
began to translate into stronger earnings as the second quarter of 2009
unfolded. In addition, as credit began to thaw and the stock market began to
rise, highly indebted companies were able to once again gain access to funding
both from equity and fixed income markets. Economic statistics reported by the
government that would have been considered abysmal in prior years, were becoming
"less negative" and also helped fuel stock prices. With only a few modest
corrections along the way, stocks were able to achieve returns that were truly
impressive.
PORTFOLIO REVIEW
For the one year period, stocks that performed best were those of more
speculative companies. These companies were deeply cyclical, had very poor
fundamentals, low or negative returns on capital, high debt levels, low market
caps, and stock prices that had plunged to historical valuation extremes. Our
philosophy and process is focused on high quality companies with strong business
models, defined as those with strong balance sheets, good cash flow and high
returns on capital, combined with improving secular or cyclical fundamental
trends. Therefore, our style typically underperforms during these more
speculative periods such as 2009.
The most extreme period of speculative outperformance was March to July 2009 but
was evident for most of the last three quarters of the year. In the first
quarter of 2010, this headwind was still present but appeared to be gradually
subsiding. The Fund's performance slightly exceeded its benchmark in the first
quarter of 2010 and our belief is that over time, our style will slowly re-gain
favor.
The Financials sector was the only sector to meaningfully impact relative
performance positively due to strong returns from the Fund's positions in debt
collection companies and pawnbrokers. The Health Care, Industrials, Consumer
Discretionary, and Consumer Staples sectors all underperformed due to poor stock
selection in some instances as well as the speculative headwind previously
mentioned.
Individual stocks that added to performance included Portfolio Recovery
Associates Inc., Cash America International Inc. and Ezcorp Inc. (Financials
sector), Spectranetics Corp. and Acorda Therapeutics Inc. (Health Care sector),
and Skyworks Solutions Inc. and Vistaprint N.V. (Information Technology sector).
Individual stocks that detracted from performance were CardioNet Inc., Genomic
Health Inc., TranS1 Inc., and Myriad Genetics Inc. (Health Care sector), and
Granite Construction Inc., Towers Watson & Co. and Powell Industries Inc.
(Industrials sector).
CURRENT STRATEGY AND OUTLOOK
As of the end of March 2010, the Fund's largest overweight is in the Consumer
Discretionary sector. The Fund is positioned in companies that have strong
organic top line growth driven by domestic geographic expansion, international
growth and/or recurring revenue. We also like companies that can offer a strong
value proposition to the still cash-strapped consumer. In the Health Care
sector, where the Fund is slightly overweight, the Fund is positioned in
orphan-drug producers and device manufacturers with new product
4
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Management's Discussion of Fund Performance (Continued)
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introductions. The Fund's overweight in the Energy sector is predicated on the
belief that energy demand will continue to improve as the global economy
rebounds and that global oil production growth will be challenged. The Fund is
modestly overweight in the Financials sector, driven largely by holdings in
pawnbrokers and debt collection companies, which should benefit from the
continued contraction in consumer credit, higher gold prices and increasing
supply of charged off credit card debt. The Fund is slightly overweight in the
Information Technology sector where we believe the need for increased data
capacity in both internet and wireless applications will benefit many of the
Fund's holdings and valuation levels still look attractive and balance sheets
are strong. The Fund is underweight in the Industrials sector. We have been
concerned about the impact of slow global growth on the companies in this
sector. However, some industries, such as commercial aerospace and
transportation/trucking are rebounding nicely or in other cases, bid/order
activity appears to indicate improvement is on the horizon. Consequently, the
Fund has positions that should benefit from these trends. The Fund's largest
underweight is in the Consumer Staples sector due to our belief that the
Consumer Discretionary sector stocks have better growth prospects in both the
near and long term.
As the economy has improved and earnings have rebounded, stocks have followed
suit. Valuations are obviously less attractive than a year ago but fundamentals
as measured by earnings growth have strengthened. We believe there are still
challenges that face the economy given still high consumer and government debt
levels and elevated unemployment. It will thus be important to see how the
markets and the economy react to reduced fiscal and monetary stimulus.
5
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Management's Discussion of Fund Performance (Continued)
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COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE DIVERSIFIED
SMALL CAP GROWTH FUND - CLASS A* AND THE RUSSELL 2000(R) GROWTH INDEX
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DIVERSIFIED SMALL CAP GROWTH
AVERAGE ANNUAL TOTAL RETURNS**
1 Year Since Inception*
Class A 36.69% (1.62%)
Class C* 43.71% (0.71%)
Class Y 45.40% (0.24%)
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[LINE CHART]
TST Diversified Small Cap - Growth A Russell 2000(R) Growth Index
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DATE BALANCE DATE BALANCE
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9/6/2006 9,425 9/6/2006 10,000
9/30/2006 9,510 9/30/2006 9,962
12/31/2006 10,368 12/31/2006 10,836
3/31/2007 10,971 3/31/2007 11,104
6/30/2007 12,008 6/30/2007 11,847
9/30/2007 12,309 9/30/2007 11,850
12/31/2007 12,113 12/31/2007 11,601
3/31/2008 10,173 3/31/2008 10,112
6/30/2008 10,536 6/30/2008 10,564
9/30/2008 9,664 9/30/2008 9,826
12/31/2008 6,944 12/31/2008 7,129
3/31/2009 6,508 3/31/2009 6,434
6/30/2009 7,619 6/30/2009 7,939
9/30/2009 8,626 9/30/2009 9,205
12/31/2009 8,803 12/31/2009 9,586
3/31/2010 9,435 3/31/2010 10,316
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class C shares and Class Y shares based on
the differences in loads and fees paid by shareholders in the different
classes. The initial public offering of Class A shares and Class Y shares
commenced on September 6, 2006. The initial public offering of Class C
shares commenced on August 1, 2007. The returns for Class C shares include
performance of the Fund that was achieved prior to the creation of Class C
shares (August 1, 2007), which is the same as the performance for Class A
shares through August 1, 2007. The returns have been restated for sales
charges and for fees applicable to Class C shares.
** The average annual total returns shown above are adjusted for maximum
applicable sales charges.
The performance of the above Fund does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
6
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Management's Discussion of Fund Performance (Continued)
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TOUCHSTONE GROWTH OPPORTUNITIES FUND
SUB-ADVISED BY WESTFIELD CAPITAL MANAGEMENT LP
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Growth Opportunities Fund was 44.90% for the
twelve month period ending March 31, 2010. The total return of the Russell
3000(R) Growth Index was 50.51% for the same period.
The fear that gripped financial markets for much of 2008 and early 2009
dissipated early in the period as investors became more comfortable holding
riskier assets. The market advance that started from a deeply oversold condition
in the first quarter of 2009 seemed to be propelled by evidence that economic
conditions had become "less bad." At first, the market advance was characterized
as being of "low quality" as money losing companies and micro-cap stocks
dramatically outperformed. This was followed by further improvement in financial
market mechanics with a return to more normal IPO activity, a dramatic pickup in
announced Mergers & Acquisitions volume, and a continued narrowing of corporate
debt spreads. Despite an unemployment rate that remained stubbornly high, trends
in initial jobless claims and temporary employment suggested that the employment
picture was improving. Similarly, a pickup in retail sales and online
transactions during the holiday season confirmed an improvement in consumer
confidence. Persistent worldwide monetary easing prompted some hand-wringing
about inflationary pressures undermining financial asset pricing. However, slack
in both labor markets and industrial capacity has kept the detrimental impact of
inflation at bay. Late in the period, Chinese authorities took the first steps
to reverse economic stimulus programs by tightening lending standards and called
into question the sustainability of the perceived engine of global economic
growth. The European Union struggled with yawning budget deficits and investors
worried that the debt crisis in Greece would spill over into Portugal and Spain.
In the U.S., proposals for the regulation of financial markets and the signing
of a landmark Healthcare Bill introduced fears of excessive government control
of virtually everything. In the end, domestic equities were bid up as concerns
about these events gave way to enthusiasm for the better-than-expected quarterly
corporate profit growth and the improving functionality of financial markets.
PORTFOLIO REVIEW
Strong results within the Energy and Consumer Staples sectors were offset by
relative weakness in the Financials, Materials, and Information Technology
sectors.
Crude oil rose over 60% and exited the first quarter of 2010 at over $80/barrel.
This strength, in part a reaction to mounting evidence of a global economic
recovery, propelled the shares of Energy stocks. Positive stock selection within
the Energy sector added to relative returns. Suncor Energy Inc., an integrated
energy company focused on developing Canada's oil sands, added to performance.
The company remains leveraged to the price of crude oil and the recent merger
with Petro-Canada materially lowered the effective price of the commodity at
which the company can internally fund growth initiatives. Weatherford
International Ltd., an oil services company, also added to relative results; the
position size was trimmed after the stock doubled off of the recession lows. We
remain optimistic about the company's prospects and applaud the recent
acquisition of a Russian oil services company that is accretive to earnings and
gives Weatherford an instant presence and infrastructure in this important
growth market. Within exploration and production, Quicksilver Resources Inc.
reported production growth of 23% and announced a strategic alliance with Eni
for the acquisition, development, and exploitation of so-called unconventional
natural gas resources in an area near the company's properties in the Fort Worth
Basin. The transaction strengthens the company's balance sheet and provides a
forum for the mutual technical exchange between the two companies.
7
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Management's Discussion of Fund Performance (Continued)
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Investor rotation out of traditionally defensive areas put pressure on Consumer
Staples sector stocks, which were among the Index's laggards in the period. The
Fund underweight, therefore, helped relative returns as the sector
underperformed. The Fund remained underweight the sector but the composition of
Fund holdings changed somewhat over the course of the year in order to extend
the reach of the Fund into faster growing emerging economies. Colgate-Palmolive
Co., for example, was purchased in May. Colgate generates 80% of revenues
outside the United States and has a unique exposure to many emerging markets,
especially Latin America, with dominant market share in oral care and personal
care. Similarly, PepsiCo Inc. was added to the Fund and contributed positively
to overall results. We like the company's diverse business mix and its
significant international exposure. We believe they will likely benefit from
stronger growth in emerging markets and declining advertising, freight and
commodity costs at a time when volumes are re-accelerating given easy
comparisons and ongoing product innovation.
Late in the period, President Obama proposed new limits on the size and
activities of the nation's banks. The notion of increased regulation of
profitable activities like proprietary trading for those institutions that take
federally insured deposits has introduced some concerns about interrupting the
healing of the Financials sector at the heart of the recent market meltdown.
Improving credit conditions and healthy capital markets activity, however,
helped the Financials sector shed the regulatory concerns to be the best
performing area of the market.
Our new Financials analyst did a complete industry review for the Investment
Committee, and we have initiated a series of changes and repositioning. CME
Group Inc. was sold from the Fund after we became concerned about the potential
threat of a broker funded consortium to their futures clearing monopoly.
Additionally, a position initiated early in the period in title insurer Fidelity
National Financial Inc. weighed heavily on aggregate results. The stock has
since been sold but was originally purchased based on our belief that government
efforts to lower mortgage rates would spur refinancings, and ultimately, home
purchases and the loan modification programs would require re-appraisals and
re-titling of residential properties. The improvement in their business was
driven predominantly by government-led intervention in the mortgage markets, and
a recovery in purchase mortgages has yet to materialize as the dominant driver
of the title insurance business.
The Materials sector was a source of negative relative performance. Yamana Gold
Inc. reported an earnings shortfall in the most recent quarter because the
company had a mismatch between the production and sale of 2.2 million pounds of
copper. Timing differences such as these are not unusual for a mining company.
They also reported a net reduction in proven and probable gold reserves. While
this is a disappointing development, it is a function of the unique drilling
dynamics resulting from the financial crisis of late 2008/early 2009. Drilling
efforts for reserve calculation were conducted late in calendar year 2009 and
impacted the ability of auditors to certify the results. These two developments
rattled investor confidence and current valuation would suggest that the market
doesn't believe that the company can grow production over the next few years. We
see significant production growth from a variety of sources including core
properties and three new mines coming on over the next two years in South
America.
Information Technology sector stocks had a negative impact on relative returns.
While the majority of Information Technology stocks had a positive impact on
results, a few positions restrained aggregate performance. Apple Inc. was a
large weight in the Index and not owning the stock over the entire period
impacted relative results. BMC Software Inc., which provides systems management
and automation solutions for large enterprises, also negatively impacted
performance. Despite delivering solid results and topping analyst expectations
on nearly all metrics, the stock failed to keep pace with greater than 50%
returns by the sector. The Fund continues to own the stock given our expectation
for acceleration in bookings trends as a byproduct of their partnership with
Cisco Systems Inc. for systems management in the data center server market. A
mainframe renewal cycle, expected to commence in mid-2010, could lead to
additional upside to earnings, and the company has begun to see revenues from
the Cisco partnership. In addition, we believe BMC Software's solid balance
sheet should allow the company to expand their share buyback program. Cognizant
Technology Solutions Corp., Microsoft Corp., and Hewlett-Packard Co. all
contributed to performance.
8
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Management's Discussion of Fund Performance (Continued)
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In late March, President Obama signed into law an overhaul of the U.S.
healthcare system that had been the source of political debate for many months.
Market participants seemed to anticipate this resolution and to cheer the
development of directional clarity. Health Care sector stocks were among the
best performing in the Index in the second half of the year and the Fund
overweight modestly added to results during that time frame. Underperformance
earlier in the year, however, contributed to a negative impact on relative
returns over the entire period. Masimo Corp., a manufacturer of non-invasive
monitoring products, underperformed despite registering product revenue growth
of 25%. A cautious outlook provided by management and slower than anticipated
new product ramp-up is partially responsible for the underperformance. We remain
compelled by the high-teens product revenue growth and materially higher growth
in core earnings that we project over the next several years. Immucor Inc., a
manufacturer of automated blood testing systems, received a subpoena in late
April from the Department of Justice regarding its activities in the blood
reagents industry. Pricing has indeed been exceptionally strong for Immucor and
chief competitor Johnson & Johnson. While this inquiry created a psychological
overhang on the stock, for years this industry has suffered from price declines
which forced many companies in the industry out of business. In our opinion, on
an inflation adjusted basis, pricing is actually not far off from where it was
ten years ago. We think fundamentals remain very strong. The company has been
beating numbers, has good visibility based on recent capital placements and the
associated deferred revenue, and is in the midst of a new product cycle.
Consumer Discretionary stocks continued to pace the market advance as macro
economic data, including retail sales and consumer confidence, suggested an
improving outlook for the consumer. While the sector had some of the best
performing stocks in the Fund during the period -- including Starbucks Corp. and
Netflix Inc. -- an underweight of the sector led to negative relative returns.
Education stocks, whose businesses tend to be counter-cyclical, lagged
industry-wide as investors surmised that shorter degree programs would suffer if
the economy stabilized and employment trends improved. Despite beating all
performance metrics including enrollment, revenue, pricing and earnings growth,
Apollo Group Inc. was sold from the Fund as headline events began to dominate
the price behavior of the stocks. In another example of investor psychology
overwhelming fundamentals, the Fund position in DeVry Inc. negatively impacted
returns and was sold despite the fact that their business is dominated by
bachelor's and more advanced degrees and as such is much less cyclical than
those with shorter duration programs.
Stocks in the Industrials sector had a slightly negative impact on results.
Aggressive cost cutting during the economic downturn has left the average
industrial company in a position to register impressive margin gains and
earnings growth with very modest revenue improvement. As industrial production
is now expanding on a year-over-year basis, we think the prospect for real
top-line growth makes the Industrials sector that much more interesting.
Although the Fund remains slightly underweight Industrials relative to the
Index, exposure to the sector increased over the course of the year. BE
Aerospace Inc. continued to augment performance after Airbus caught many in the
aerospace market flat footed with a modest increase to their production rates.
Most industry players had positioned inventories for production cuts and a
restocking initiative could materially impact 2010 earnings forecasts. We
believe that we are in the early innings of a fundamental recovery in commercial
aerospace and that estimates and earnings growth will be subject to upward
revisions. Benefiting from the same dynamics, manufacturer of aerospace products
Goodrich Corp. was added to the Fund early in the most recent quarter and
boosted relative returns. While inventory destocking impacted the company's
revenues in the fourth calendar quarter, recent improvement in passenger and
freight traffic trends and positive news on production rates at Boeing further
support our expectation for accelerating demand in the second half of 2010.
Another stock worth noting is Waddell & Reed Financial Inc. (Financials), which
was a contributor to performance. Goldcorp Inc. (Materials sector) and Biogen
Idec Inc. (Health Care sector) both detracted from performance.
9
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Management's Discussion of Fund Performance (Continued)
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CURRENT STRATEGY AND OUTLOOK
We remain constructive on the outlook for U.S. equities. The relative
attractiveness of our strategy has improved as the brakes have been tapped in
many emerging economies and budget deficits plague many developed foreign
nations. U.S. corporate financial health has been further restored as cash on
corporate balance sheets hits all-time highs and tightening credit spreads have
allowed for prudent refinancing activity. While the consumer is unlikely to be a
major driver of this cyclical recovery, the decline in initial jobless claims
may presage an eventual decline in the stubbornly high rate of unemployment.
Indeed, retail sales have posted a modest recovery and consumer confidence has
stabilized. Secular Bear markets are not typically followed by secular Bull
markets but rather periods of consolidation. We are mindful of this fact in
light of the dramatic rally over the past twelve months and intend to employ our
investment process discipline, carefully looking for relative fundamental
winners at reasonable valuations.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
GROWTH OPPORTUNITIES FUND - CLASS A* AND THE RUSSELL 3000(R) GROWTH INDEX
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GROWTH OPPORTUNITIES FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 Year 5 Years 10 Years Since Inception*
Class A 36.56% 1.89% (4.87%) 6.83%
Class C* 43.84% 2.64% (4.93%) 6.55%
Class I 45.49% - - 38.72%
Class Y 45.32% - - 38.49%
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[LINE CHART]
Growth Opportunities Fund - Class A Russell 3000(R) Growth Index
----------------------------------- ----------------------------
DATE BALANCE DATE BALANCE
---- -------- ---- -------
03/31/00 9,425 03/31/00 10,000
06/30/00 9,361 06/30/00 9,697
09/30/00 9,855 09/30/00 9,185
12/31/00 7,861 12/31/00 7,231
03/31/01 5,804 03/31/01 5,749
06/30/01 6,409 06/30/01 6,274
09/30/01 4,697 09/30/01 5,018
12/31/01 5,624 12/31/01 5,812
03/31/02 5,284 03/31/02 5,664
06/30/02 4,025 06/30/02 4,618
09/30/02 3,395 09/30/02 3,903
12/31/02 3,613 12/31/02 4,183
03/31/03 3,691 03/31/03 4,130
06/30/03 4,389 06/30/03 4,747
09/30/03 4,552 09/30/03 4,954
12/31/03 5,049 12/31/03 5,478
03/31/04 5,249 03/31/04 5,541
06/30/04 5,191 06/30/04 5,640
09/30/04 4,834 09/30/04 5,342
12/31/04 5,479 12/31/04 5,858
03/31/05 5,208 03/31/05 5,604
06/30/05 5,435 06/30/05 5,747
09/30/05 5,801 09/30/05 5,989
12/31/05 5,976 12/31/05 6,161
03/31/06 6,269 03/31/06 6,411
06/30/06 5,738 06/30/06 6,141
09/30/06 5,601 09/30/06 6,352
12/31/06 5,982 12/31/06 6,743
03/31/07 6,032 03/31/07 6,830
06/30/07 6,741 06/30/07 7,298
09/30/07 6,947 09/30/07 7,579
12/31/07 7,008 12/31/07 7,512
03/31/08 6,302 03/31/08 6,731
06/30/08 6,860 06/30/08 6,833
09/30/08 5,599 09/30/08 6,018
12/31/08 4,253 12/31/08 4,625
03/31/09 4,189 03/31/09 4,415
06/30/09 4,624 06/30/09 5,157
09/30/09 5,397 09/30/09 5,886
12/31/09 5,763 12/31/09 6,336
03/31/10 6,068 03/31/10 6,644
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class C shares, Class I shares and Class Y
shares based on the differences in loads and fees paid by shareholders in
the different classes. The initial public offering of Class A shares
commenced on September 29, 1995, the initial public offering of Class C
shares commenced on August 2, 1999 and the initial public offering of
Class I shares and Class Y shares commenced on February 2, 2009,
respectively. The returns for Class C shares include performance of the
Fund that was achieved prior to the creation of Class C shares (August 2,
1999), which is the same as the performance for Class A shares through
August 2, 1999. The returns have been restated for sales charge and for
fees applicable to Class C shares.
** The average annual total returns shown above are adjusted for maximum
applicable sales charges.
The performance of the above Fund does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
10
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Management's Discussion of Fund Performance (Continued)
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TOUCHSTONE LARGE CAP CORE EQUITY FUND
SUB-ADVISED BY TODD VEREDUS ASSET MANAGEMENT LLC
PERFORMANCE AND MARKET REVIEW
The total return of the Touchstone Large Cap Core Equity Fund was 45.78% for the
twelve months ended March 31, 2010. The total return of the Russell 1000(R)
Index was 51.60% for the same period.
The market surge over the past year has been tremendous, despite the negative
sentiment that many investors continue to exhibit towards stocks and concerns
about any number of macro issues (economic growth, employment, government
spending, sovereign debt crisis, etc.). Investors sought smaller capitalization
and lower quality stocks that had been lagging into the market bottom last year
as they wanted more exposure to upside risk during the market recovery. The
Large Cap Core Equity Fund underperformed despite its high quality, large cap
bias. Some market related concerns exist, but we believe the market will
continue to advance, because the economic expansion is on solid footing and
corporate earnings should improve. Most concerns are longer term in nature.
Stocks advanced for the year led by economically sensitive names in the
Industrials, Financials and Consumer Discretionary sectors. The dollar and
commodities started weak but recovered with the stock market. Earnings and
revenue came in better than expected, bolstering arguments that this economic
recovery has legs. Earnings estimates continued to rise through the year.
The market favored high beta companies with attractive valuations. The market
has shifted between looking for earnings visibility or valuation at different
points during the recovery and has settled on valuation recently. We take this
as a sign the recovery is maturing and investors have fewer questions about the
health of the economy. As the lower quality companies are getting more fairly
valued, we believe investors will rotate back to higher quality companies
sometime soon since they are not paying up for the privilege.
PORTFOLIO REVIEW
The Fund's underperformance was primarily because the market recovery started
with higher beta, lower quality stocks taking the lead. As the economic recovery
has been maturing, the market has gone through periods where investors are
comfortable the recovery will continue, like this most recent quarter. In those
periods, valuation will be an important determinant of which sectors and stocks
perform best. There have also been periods like the fourth quarter of 2009, when
companies with the most visibility in fundamentals will take the lead. As
recovery continues, we expect valuation measures to help performance.
The best performing sectors for the Index on an absolute basis during the year
were the Industrials, Consumer Discretionary and Financials. The Fund's best
performing sectors on an absolute basis included Financials, Industrials and
Information Technology. The Fund had higher than market weights in the
Industrials and Consumer Discretionary sectors. We continue to believe the
economic recovery should drive good fundamentals for those groups, and the
stocks are reflecting that. The Fund is below the market weight in the
Financials sector. We have been concerned that more problem loans would surface,
and did not expect the rebound the stocks have experienced.
The worst performing sectors for the Index on an absolute basis have been
Telecommunication Services, Utilities, and Energy. The Fund is currently
underweight versus the Index in all of these groups. The Fund's worst performing
sectors on an absolute basis included Telecommunication Services, Energy, and
Materials. The Telecommunication Services and Utilities sector stocks are good
spots to be when investors are concerned about the economy. Investors tend to
sell them as economic recoveries mature. We believe that is the case currently,
and intend to be light on these groups. We recently underweighted the Energy
sector whose stocks do not seem to be following oil and gas prices higher, which
is puzzling.
11
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Management's Discussion of Fund Performance (Continued)
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A significant point to note about the Fund is that it continues to have a
heavier exposure to Information Technology stocks than the benchmark. We think
the current upgrade cycle from the introduction of Windows 7 should drive a
major upgrade cycle for PC users and businesses. Historically, as companies
invest in capital spending, they spend on technology and tools. The Fund is
overweight the industries that serve those needs.
Many of the Fund's best performing stocks came from a mixture of recovery from
depressed lows in the Financials sector, to stronger product flow or better
earnings visibility. We continue to like economically sensitive names and intend
to maintain our overweighting in those sectors. Contributors to performance
included American Express Co. and AFLAC Inc. (Financials sector), United
Technologies Corp. (Industrials sector), Microsoft Corp. (Information Technology
sector), Phillip Morris International Inc. (Consumer Staples sector), McKesson
Corp. (Health Care sector), and ENSCO PLC (Energy sector).
Detractors from performance were generally a result of company specific
disappointments. The laggards were Cardinal Health Inc. (Health Care sector),
Western Digital Corp. (Information Technology sector), Home Depot Inc. (Consumer
Discretionary sector), State Street Corp. (Financials sector), and Chesapeake
Energy Corp. (Energy sector).
CURRENT STRATEGY AND OUTLOOK
The market continues to climb a wall of worry. We think that will continue,
though we would not rule out occasional pullbacks later on this year as
investors worry about elections, taxes and international debt problems. As long
as the economy is not flirting with moving back into recession and companies
report good earnings, we think the market will continue to have a solid floor
underneath it. Any weakness should be used to position the Fund into names that
benefit from economic growth. We will start to think about reducing that stake
after the Fed begins tightening, a development we do not expect until late this
year.
Economic recoveries usually last years. We continue to think this recovery has
several more years to go. Stock market gains have been impressive, but are still
at the low end of historical comparisons with other recoveries. We believe the
market recovery is maturing and will come to favor our high quality style with
an intrinsic value bias.
12
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Management's Discussion of Fund Performance (Continued)
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COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
LARGE CAP CORE EQUITY FUND - CLASS A* AND THE RUSSELL 1000(R) INDEX
- ----------------------------------------------------
LARGE CAP CORE EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 Year 5 Years Since Inception*
Class A 37.32% 0.39% (0.10%)
Class C 44.71% 0.85% (0.18%)
- ----------------------------------------------------
[LINE CHART]
Large Cap Core Equity Fund - Class A Russell 1000(R) Index
------------------------------------ ---------------------
DATE BALANCE DATE BALANCE
---- -------- ---- -------
05/16/00 9,425 05/16/00 10,000
05/31/00 9,341 05/31/00 9,793
06/30/00 9,273 06/30/00 10,043
07/31/00 9,171 07/31/00 9,876
08/31/00 9,571 08/31/00 10,607
09/30/00 9,318 09/30/00 10,115
10/31/00 9,588 10/31/00 9,993
11/30/00 9,188 11/30/00 9,080
12/31/00 9,263 12/31/00 9,190
01/31/01 9,263 01/31/01 9,492
02/28/01 8,936 02/28/01 8,607
03/31/01 8,313 03/31/01 8,035
6/30/2001 8,475 6/30/2001 8,542
9/30/2001 7,414 9/30/2001 7,241
12/31/2001 8,434 12/31/2001 8,046
3/31/2002 8,634 3/31/2002 8,105
6/30/2002 7,522 6/30/2002 7,014
9/30/2002 6,003 9/30/2002 5,828
12/31/2002 6,607 12/31/2002 6,304
3/31/2003 6,373 3/31/2003 6,118
6/30/2003 7,571 6/30/2003 7,081
9/30/2003 7,707 9/30/2003 7,294
12/31/2003 8,646 12/31/2003 8,188
3/31/2004 8,693 3/31/2004 8,344
6/30/2004 8,904 6/30/2004 8,460
9/30/2004 8,493 9/30/2004 8,307
12/31/2004 9,368 12/31/2004 9,121
3/31/2005 9,155 3/31/2005 8,947
6/30/2005 9,175 6/30/2005 9,131
9/30/2005 9,435 9/30/2005 9,491
12/31/2005 9,675 12/31/2005 9,692
3/31/2006 10,138 3/31/2006 10,128
6/30/2006 10,004 6/30/2006 9,959
9/30/2006 10,616 9/30/2006 10,463
12/31/2006 11,331 12/31/2006 11,191
3/31/2007 11,135 3/31/2007 11,326
6/30/2007 11,841 6/30/2007 11,994
9/30/2007 12,173 9/30/2007 12,232
12/31/2007 11,850 12/31/2007 11,837
3/31/2008 10,573 3/31/2008 10,715
6/30/2008 10,492 6/30/2008 10,512
9/30/2008 9,890 9/30/2008 9,529
12/31/2008 7,611 12/31/2008 7,387
3/31/2009 6,796 3/31/2009 6,615
6/30/2009 7,883 6/30/2009 7,707
9/30/2009 8,913 9/30/2009 8,945
12/31/2009 9,428 12/31/2009 9,488
3/31/2010 9,908 3/31/2010 10,029
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class C shares based on the differences in
loads and fees paid by shareholders in the different classes. The initial
public offering of Class A shares commenced on May 1, 2000 and the initial
public offering of Class C shares commenced on May 16, 2000.
** The average annual total returns shown above are adjusted for maximum
applicable sales charges.
The performance of the above Fund does not reflect the deduction of taxes that a
sharesholder would pay on Fund distributions or the redemption of Fund shares.
13
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Management's Discussion of Fund Performance (Continued)
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TOUCHSTONE LARGE CAP GROWTH FUND
SUB-ADVISED BY NAVELLIER & ASSOCIATES, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Large Cap Growth Fund was 41.15% for the year
ended March 31, 2010. The total return of the Russell 1000(R) Growth Index was
49.75% for the same period.
Although the Fund trailed its benchmark, the Russell 1000(R) Growth Index over
the same period, it can be argued that the reason has much to do with a
qualitative anomaly in the current market cycle. Investors shunned high quality,
large capitalization stocks with financial strength and sought smaller
capitalization and lower quality stocks with high betas, which resulted in a
significant performance advantage over higher quality stocks for much of the
reporting period. Therefore, since a hallmark of the Fund stock selection
methodology is a consistent focus on identifying and buying stocks with
exceptionally strong underlying fundamentals, the low quality market
irregularity hindered relative Fund performance.
PORTFOLIO REVIEW
A major development with respect to the Fund during the year was the expansion
of the large capitalization universe size available to the Fund. This expansion
changed the minimum capitalization size from $10 billion to $5 billion. After
careful consideration and understanding that the median market capitalization
for the Russell 1000(R) Growth Index was just under $5 billion at the end of the
quarter, this decision and subsequent move expanded the number of companies
available for inclusion in the Fund. Consequently, it also improved the
opportunity set of those stocks that may hold the potential for excess market
gains.
Contributing to relative performance for the year were the Materials and Health
Care sectors. Detractors to performance were the Consumer Discretionary,
Financials and Industrials sectors. In addition, the Telecommunication Services
sector did not perform as expected.
Stocks that contributed to performance for the same period were Baidu Inc. and
Infosys Technologies Ltd. (Information Technology), Express Scripts Inc. (Health
Care), Amazon.com Inc. (Consumer Discretionary), and Companhia Siderurgica
Nacional (Materials). Detractors to performance were CF Industries Holdings Inc.
(Materials), Gilead Sciences Inc. (Health Care), Western Digital Corp.
(Information Technology), Northern Trust Corp. (Financials), and Apollo Group
Inc. (Consumer Discretionary).
CURRENT STRATEGY AND OUTLOOK
We believe that the Fund should benefit as more positive economic news is
revealed. For example, the Commerce Department announced that factory orders
increased by 0.6 percent in February 2010, which represents the tenth increase
in the past eleven months. The previously released January 2010, factory order
numbers were revised upward to 2.5 percent from the prior announcement of a 1.7
percent increase. Factory orders are considered by many analysts to be a good
barometer of business spending.
Looking more broadly, despite many economic anxieties, there is a legitimate
economic recovery underway. As evidence of just how strong the underlying
earnings environment is for stocks, it is anticipated that operating earnings
for the S&P 500 are expected to post double-digit growth comparisons for the
second, third, and fourth quarters of 2010, respectively. However, while the
growth comparisons will be impressive, it is also anticipated that the rate of
growth could decelerate toward the end of the year. In such an earnings
environment, the stock market will likely become increasingly selective as fewer
stocks will join the performance leadership in the overall stock market. The
combination of an expanded universe of available stocks, impressively strong
underlying fundamentals of stocks within the Fund, and an improving
macroeconomic landscape is setting the stage for the Fund to deliver potentially
strong returns going forward.
14
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Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
LARGE CAP GROWTH FUND - CLASS A* AND THE RUSSELL 1000(R) GROWTH INDEX
- --------------------------------------------------------------
LARGE CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 Year 5 Years 10 Years Since Inception*
Class A 33.02% (0.23%) (3.63%) 5.66%
Class B 36.15% 0.14% - 4.00%
Class C* 40.14% 0.35% (3.71%) 5.45%
Class Y* 41.53% 1.19% (2.94%) 6.28%
- --------------------------------------------------------------
[LINE CHART]
Large Cap Growth Fund - Class A Russell 1000(R) Growth Index
------------------------------- ----------------------------
DATE BALANCE DATE BALANCE
---- -------- ---- -------
03/31/00 9,425 03/31/00 10,000
06/30/00 9,001 06/30/00 9,730
09/30/00 9,872 09/30/00 9,207
12/31/00 7,216 12/31/00 7,242
03/31/01 5,197 03/31/01 5,728
06/30/01 5,473 06/30/01 6,210
09/30/01 4,643 09/30/01 5,005
12/31/01 5,523 12/31/01 5,763
03/31/02 5,337 03/31/02 5,614
06/30/02 4,885 06/30/02 4,565
09/30/02 4,221 09/30/02 3,878
12/31/02 4,048 12/31/02 4,156
03/31/03 4,144 03/31/03 4,111
06/30/03 4,702 06/30/03 4,700
09/30/03 4,908 09/30/03 4,884
12/31/03 5,489 12/31/03 5,392
03/31/04 5,748 03/31/04 5,435
06/30/04 5,987 06/30/04 5,540
09/30/04 5,775 09/30/04 5,250
12/31/04 6,429 12/31/04 5,732
03/31/05 6,588 03/31/05 5,497
06/30/05 6,628 06/30/05 5,633
09/30/05 7,083 09/30/05 5,858
12/31/05 7,482 12/31/05 6,033
03/31/06 7,724 03/31/06 6,219
06/30/06 7,140 06/30/06 5,977
09/30/06 6,897 09/30/06 6,212
12/31/06 7,190 12/31/06 6,581
03/31/07 7,326 03/31/07 6,659
06/30/07 7,940 06/30/07 7,116
09/30/07 8,930 09/30/07 7,416
12/31/07 9,089 12/31/07 7,358
03/31/08 8,119 03/31/08 6,609
06/30/08 8,557 06/30/08 6,692
09/30/08 6,970 09/30/08 5,867
12/31/08 5,304 12/31/08 4,530
03/31/09 4,895 03/31/09 4,343
06/30/09 5,480 06/30/09 5,052
09/30/09 6,300 09/30/09 5,758
12/31/09 6,676 12/31/09 6,215
03/31/10 6,910 03/31/10 6,504
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class B, Class C and Class Y shares based on
the differences in loads and fees paid by shareholders in the different
classes. The initial public offering of Class A shares commenced on
December 19, 1997 and the initial public offering of Class B and Class C
shares commenced on October 4, 2003. The initial public offering of Class
Y commenced on November 10, 2004. The returns for Class C and Class Y
shares include performance of the Fund that was achieved prior to the
creation of Class C and Class Y shares (October 4, 2003 and November 10,
2004, respectively), which is the same performance for Class A shares
through October 4, 2003 and November 10, 2004, respectively. The returns
have been restated for sales charges and for fees applicable to Class C
and Class Y shares.
** The average annual total returns shown above are adjusted for maximum
applicable sales charges.
The performance of the above Fund does not reflect the deduction of taxes that a
sharesholder would pay on Fund distributions or the redemption of Fund shares.
15
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Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
TOUCHSTONE MID CAP GROWTH FUND
SUB-ADVISED BY TCW INVESTMENT MANAGEMENT COMPANY LLC
WESTFIELD CAPITAL MANAGEMENT LP
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Mid Cap Growth Fund was 55.83% for the twelve
month period ended March 31, 2010. The total return of the Russell Midcap(R)
Growth Index was 63.00% for the same period.
The fear that gripped financial markets for much of 2008 and early 2009
dissipated early in the period as investors became more comfortable holding
riskier assets. The market advance that started from a deeply oversold condition
in the first quarter of 2009 seemed to be propelled by evidence that economic
conditions had become "less bad." At first, the market advance was characterized
as being of "low quality" as money losing companies and micro-cap stocks
dramatically outperformed. This was followed by further improvement in financial
market mechanics with a return to more normal IPO activity, a dramatic pickup in
announced Mergers & Acquisition volume, and a continued narrowing of corporate
debt spreads. Despite an unemployment rate that remained stubbornly high, trends
in initial jobless claims and temporary employment suggested that the employment
picture was improving. Similarly, a pickup in retail sales and online
transactions during the holiday season confirmed an improvement in consumer
confidence. Persistent worldwide monetary easing prompted some hand-wringing
about inflationary pressures undermining financial asset pricing. However, slack
in both labor markets and industrial capacity has kept the detrimental impact of
inflation at bay. Late in the period, Chinese authorities took the first steps
to reverse economic stimulus programs by tightening lending standards and called
into question the sustainability of the perceived engine of global economic
growth. The European Union struggled with yawning budget deficits and investors
worried that the debt crisis in Greece would spill over into Portugal and Spain.
In the U.S., proposals for the regulation of financial markets and the signing
of a landmark Healthcare Bill introduced fears of excessive government control
of virtually everything. In the end, domestic equities were bid up as concerns
about these events gave way to enthusiasm for the better-than-expected quarterly
corporate profit growth and the improving functionality of financial markets.
TCW INVESTMENT MANAGEMENT COMPANY LLC
PORTFOLIO REVIEW
Our portion of the Mid Cap Growth Fund rallied significantly during the past
year, but did not outperform the benchmark. The hallmark of our investing style
is to purchase high quality companies undergoing some period of near-term
earnings trauma. This process has performed well over market cycles and worked
particularly well on a relative basis when the market soured in early 2009.
While a number of the portfolio's early cyclical stocks rose significantly off
the March 2009 lows, the portfolio's tilt towards higher quality companies
prevented the portfolio's full participation in the rally.
The Industrials and Materials sectors were the largest contributors to relative
performance while the Financials and Utilities sectors were the largest
detractors. The upward performance of low-quality stocks (i.e. companies with
large amounts of debt) clearly detracted from relative performance over the past
twelve months. The strong move in REITs also hampered relative performance, as
the portfolio was not exposed to this industry within the Financials sector
which more than doubled off of the March 2009 lows. We remain concerned by REIT
valuations that are at multi-year highs despite the potential for falling rent
rolls and higher interest costs. While a number of stocks propelled the
portfolio higher in 2009, this solid performance was masked by outsized returns
in low quality Financials sector stocks.
16
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Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
Stocks that contributed to performance included Joy Global Inc. (Industrials
sector), a leading manufacturer of mining equipment, which moved higher due to
the swift rebound in the Chinese economy and commodity prices. Stocks tied to
the aerospace cycle, such as Cytec Industries Inc. (Materials sector), Hexcel
Corp. and Rockwell Collins Inc. (both from the Industrials sector), rebounded as
investors gained confidence in the upcoming delivery cycle of Boeings's new 787
airplane. Industrials sector stock Wabco Holdings Inc., a manufacturer of truck
parts, as well as Consumer Discretionary sector retail stocks Macy's Inc. and
Abercrombie & Fitch Co. also bounced solidly. Information Technology stocks such
as Agilent Technologies Inc. and QLogic Corp. also contributed to performance.
Stocks that detracted from performance were Burger King Holdings Inc. (Consumer
Discretionary sector), which is in the process of fixing its marketing message
and introducing new products. This turnaround has taken a little longer than
expected, but seems to be gaining traction. People's United Financial Inc.
(Financials sector) is a solid, overcapitalized, New England bank that provided
good ballast to the portfolio during the market downturn, but lagged the
recovery. Other detractors from performance included Synovus Financial Corp.,
Comerica Inc., and SunTrust Banks Inc., all from the Financials sector.
CURRENT STRATEGY AND OUTLOOK
During the past two years, correct macroeconomic calls mostly trumped individual
stock-picking as stocks traded one-way in both 2008 (mostly down) and in 2009
(mostly up). However, we believe the stock market is shifting towards one that
should benefit stock-picking as the economy swings from its early cyclical
recovery stage to a more mature growth phase. In the near-term, markets will
probably benefit from solid corporate profitability and improving employment
statistics. The large amounts of cash still on the sidelines despite the
market's strong move off the March 2009 lows suggest that a fair amount of
healthy skepticism in the stock market's viability lingers.
Our greatest long-term worry centers on budget deficits both in the U.S. and
abroad and governmental actions to fix the ever widening holes between revenues
and spending. We are also wary of impending tax hikes and the specter of higher
interest rates. Also, although economic factors generally point to economic
expansion, the recovery absent governmental stimulus and Chinese demand is still
anemic.
The movement in the stock market over the past year has unfolded classically.
Once the market stopped going down, early cycle, low-quality stocks
outperformed. Indeed fifth quintile quality stocks (i.e. the junkiest) were the
only sector to outperform the S&P 500 in 2009. This contrasts with historical
returns in which low-quality stocks significantly underperformed. As the market
begins to refocus on earnings quality, cash flow, balance sheet strength, and
the macro questions that linger, we believe the prospects and valuations of
individual stocks will merit greater attention. As fundamentally-driven stock
pickers, we believe the portfolio is well positioned to benefit from these
trends.
WESTFIELD CAPITAL MANAGEMENT LP
PORTFOLIO REVIEW
In our portion of the Fund, solid results within the Telecommunications
Services, Energy, and Industrials sectors were offset by relative weakness
within the Materials, Consumer Discretionary and Financials sectors.
As might be expected in the midst of a cyclical economic recovery, the stable
growth associated with the Telecommunication Services sector was of little
interest to investors during the period. Stock selection, however, helped to
contribute to relative results. NII Holdings Inc. rallied sharply on the news
that Mexican media conglomerate Televisa had taken a 30% stake in the company's
Nextel Mexico subsidiary. We still regard the crown jewel of this Latin American
wireless service provider to be Nextel Brasil, and as such, see further upside
from these levels.
In the Information Technology sector, Cognizant Technology Solutions Corp. was a
contributor to performance and Verigy Ltd. was a detractor from performance. In
the Health Care sector, Mettler-Toledo International Inc. and Shire PLC were
both contributors to performance.
17
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Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
We have long maintained that the real issue in energy markets is the limited
development of large reserves and declining worldwide production growth of crude
oil. We believe that limited excess OPEC capacity creates upside risk to
commodity prices. This view was rewarded in the period and stocks within the
Energy sector added to relative returns. Weatherford International Inc., an oil
services company, is a prime beneficiary of the need to further identify and
develop crude reserves and was among the best performing energy positions in the
portfolio. The position size was managed with multiple trims as the stock
doubled off of the recession lows. We remain optimistic about the company's
prospects and applaud the acquisition of a Russian oil services company that is
accretive to earnings and gives Weatherford an instant presence and
infrastructure in this important growth market. We continued to be optimistic
about the prospects for coal stocks. Dozens of new mine permits have been pulled
by the EPA, and supply growth will be constrained as a consequence. Adding to
returns was Massey Energy Co. who announced that for the first time they would
ship coal to China. The company has significant exposure to metallurgical coal
and should benefit from greater recognition of supply constraints, demand growth
from China, and a cyclical demand recovery in Europe and North America. Consol
Energy Inc. also added to returns. The company's coal assets are among the best
in North America as they produce high-BTU coal close to their end markets. The
stock came under pressure late in the period after the company announced the
acquisition of natural gas assets from Dominion Resources that tripled their
acreage in the Marcellus shale. While many investors questioned such an
acquisition at a time of weakness in natural gas markets, the market reaction to
the news provided an opportunity to add to the position as they are buying good
long-term assets at attractive prices, in our opinion.
Industrials sector stocks added to relative performance. Aggressive cost cutting
during the economic downturn has left the average industrial company in a
position to register impressive margin gains and earnings growth with very
modest revenue improvement, in our opinion. Early in the period, we attempted to
identify management teams within the sector that had reduced costs in order to
be profitable at operating rates that were well below effective capacity.
Railroad operator CSX Corp. was one such company and reported better than
anticipated results on great cost controls, operating improvements and strong
pricing. The stock was sold after trading through our internal price objective.
Similarly, Cummins Inc., a manufacturer of engines and power generation systems,
modestly beat estimates with great cost controls. Their conservative management
team had no plans for U.S. or European recovery until late 2010. Business in
overseas markets like India and Brazil has indeed improved and, over the course
of the period, the stock began to reflect a lot of optimism for a return to peak
earnings. As industrial production is now expanding on a year-over-year basis,
the prospect for real top-line growth makes the Industrials sector that much
more interesting. Corrections Corporation of America also outperformed and added
to results. The company is a leader in the private prison industry and gave our
portion of the portfolio exposure to an annual supply deficit for prison beds.
Mid-year concerns about state budget deficits pressuring inmate per diem rates
tested our conviction in the stock. We maintained our commitment to the position
at that time given the company's track record of managing profits per inmate in
prior budget cycles. Corrections Corp. then reported third quarter results that
reflected modest revenue and earnings growth and expanding margins. The stock
has since been sold.
Stocks in the Materials sector had the most negative impact on the portfolio's
relative performance. Lack of exposure to highly cyclical sectors like
diversified metals & mining, aluminum, commodity chemicals and steel had a
negative impact on results. Stock selection also played a part in the
performance shortfall. Yamana Gold Inc. reported an earnings shortfall in early
March 2010 because the company had a mismatch between production and sale of 2.2
million pounds of copper. Timing differences such as these are not unusual for a
mining company. They also reported a net reduction in proven and probable gold
reserves. While this is a disappointing development, it is a function of the
unique drilling dynamics resulting from the financial crisis of late 2008/early
2009. Drilling efforts for reserve calculation were conducted late in calendar
year 2009 and impacted the ability of auditors to certify the reserve
calculations. These two developments rattled investor confidence, and current
valuation would suggest that the market does not believe that the company can
grow production over the next few years. We see significant production growth
from a variety of sources including core properties and three new mines coming
on over the next two years in South America. As the economic recovery matures,
we expect that the more orderly earnings growth found in areas like metal &
glass containers and specialty chemicals will attract investor interest.
Owens-Illinois Inc., a manufacturer of glass containers, was purchased in the
third calendar quarter. It is our view that inventory destocking is largely
complete in the U.S. and we continue to like their exposure to international
consumer growth where per capita consumption of basic consumer staples like
bottled beverages is in early innings. Also, the company is in the midst of
rationalizing plants, which entails consolidating volumes in more state of the
art, energy efficient plants which should ultimately lead to higher margins and
returns.
18
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Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
Consumer Discretionary sector stocks had an impact on relative results. Despite
ongoing concerns about the health of the U.S. consumer, the Consumer
Discretionary sector was among the best performing sectors in the Index. We have
been cautious on the prospects for the U.S. consumer believing that higher rates
of personal savings and unemployment combined with the wealth destruction in the
housing and financial markets would limit consumer participation in the economic
recovery. This caution had a negative impact on the portfolio's results.
Consumer Discretionary stocks paced the market advance as certain macro economic
data, like retail sales and consumer confidence, suggested our concerns were
misplaced. Some of the best performing stocks in the portfolio were within the
sector including big moves in Discovery Communications Inc., Urban Outfitters
Inc., Starbucks Corp., and TJX Cos. The portfolio simply had too much exposure
to more defensive business at a time of increased investor appetite for consumer
cyclicals. Education stocks, for example, whose businesses tend to be counter
cyclical, declined industry-wide as investors surmised that shorter degree
programs would suffer if the economy stabilized and employment trends improved.
In an example of investor psychology overwhelming fundamentals, the portfolio
position in DeVry Inc. negatively impacted returns despite the fact that their
business is dominated by bachelor's and more advanced degrees and as such is
much less cyclical than those with shorter duration programs. Similarly, the
relatively predictable growth at Advance Auto Parts Inc. became less compelling
to investors given the prospects for economic recovery. Other detractors from
this sector included Apollo Group Inc. and GameStop Corp.
Late in the period, President Obama proposed new limits on the size and
activities of the nation's banks. The notion of increased regulation of
profitable activities like proprietary trading for those institutions that take
federally insured deposits has introduced some concerns about interrupting the
healing of the Financials sector at the heart of the recent market meltdown.
Improving credit conditions and healthy capital markets activity, however,
helped the sector shed the regulatory concerns to be a top performing area of
the market. Stock selection issues negatively impacted portfolio relative
returns.
Our new Financials analyst did a complete industry review for the Investment
Committee, and we have initiated a series of changes and portfolio
repositioning. A position initiated early in the period in title insurer
Fidelity National Financial Inc. weighed heavily on aggregate results. The stock
has since been sold but was originally purchased based on our belief that
government efforts to lower mortgage rates would spur refinancings and
ultimately, home purchases and the loan modification programs would require
re-appraisals and re-titling of residential properties. The improvement in their
business was driven predominantly by government-led intervention in the mortgage
markets, and a recovery in purchase mortgages has yet to materialize as the
dominant driver of the title insurance business. In late September, a portfolio
position was initiated in Lazard Ltd., an international financial advisory firm
best known for their work in mergers and acquisitions. Shortly after the
purchase, CEO Bruce Wasserstein unexpectedly passed away. In a business that
depends on the so-called rainmakers, investors worried not only about a
leadership void, but also about the company's ability to complete deals. That
stock has also been sold.
Other stocks worth noting were in the Information Technology sector; Cognizant
Technology Solutions Corp. was a contributor to performance and Verigy Ltd. was
a detractor from performance. In the Health Care sector, Mettler-Toledo
International Inc. and Shire PLC were both contributors to performance. In the
Industrials sector, MSC Industrial Direct Co. was a contributor to performance.
19
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance (Continued)
- --------------------------------------------------------------------------------
CURRENT STRATEGY AND OUTLOOK
We remain constructive on the outlook for U.S. equities. The relative
attractiveness of our market has improved as the brakes have been tapped in many
emerging economies and budget deficits plague many developed foreign nations.
U.S. corporate financial health has been further restored as cash on corporate
balance sheets hits all-time highs and tightening credit spreads have allowed
for prudent refinancing activity. While the consumer is unlikely to be a major
driver of this cyclical recovery, the decline in initial jobless claims may
presage an eventual decline in the stubbornly high rate of unemployment. Indeed,
retail sales have posted a modest recovery and consumer confidence has
stabilized. Secular Bear markets are not typically followed by secular Bull
markets but rather periods of consolidation. We are mindful of this fact in
light of the dramatic rally over the past 12 months and intend to employ our
investment process discipline, carefully looking for relative fundamental
winners at reasonable valuations.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MID CAP
GROWTH FUND - CLASS A* AND THE RUSSELL MID CAP(R) GROWTH INDEX
- --------------------------------------------------------------
MID CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 Year 5 Years 10 Years Since Inception*
Class A 46.87% 3.69% 5.09% 11.41%
Class B 50.64% 3.99% - 5.19%
Class C 54.69% 4.15% 4.94% 10.97%
Class Y 56.40% - - 44.92%
- --------------------------------------------------------------
[LINE CHART]
Mid Cap Growth Fund - Class A Russell Mid Cap(R) Growth Index
----------------------------- -------------------------------
DATE BALANCE DATE BALANCE
---- -------- ---- -------
03/31/00 9,425 03/31/00 10,000
06/30/00 9,642 06/30/00 9,259
09/30/00 10,311 09/30/00 9,492
12/31/00 10,064 12/31/00 7,285
03/31/01 8,958 03/31/01 5,458
06/30/01 10,305 06/30/01 6,341
09/30/01 8,762 09/30/01 4,578
12/31/01 10,774 12/31/01 5,817
03/31/02 10,994 03/31/02 5,714
06/30/02 9,642 06/30/02 4,671
09/30/02 7,614 09/30/02 3,868
12/31/02 8,240 12/31/02 4,223
03/31/03 7,927 03/31/03 4,222
06/30/03 9,536 06/30/03 5,014
09/30/03 10,443 09/30/03 5,373
12/31/03 11,813 12/31/03 6,026
03/31/04 12,401 03/31/04 6,317
06/30/04 12,566 06/30/04 6,384
09/30/04 11,596 09/30/04 6,107
12/31/04 13,062 12/31/04 6,959
03/31/05 12,912 03/31/05 6,843
06/30/05 13,154 06/30/05 7,077
09/30/05 14,010 09/30/05 7,541
12/31/05 14,467 12/31/05 7,800
03/31/06 15,780 03/31/06 8,394
06/30/06 15,327 06/30/06 8,000
09/30/06 15,577 09/30/06 8,071
12/31/06 16,529 12/31/06 8,632
03/31/07 17,175 03/31/07 8,974
06/30/07 18,638 06/30/07 9,579
09/30/07 18,689 09/30/07 9,785
12/31/07 18,526 12/31/07 9,619
03/31/08 16,913 03/31/08 8,565
06/30/08 18,200 06/30/08 8,964
09/30/08 15,275 09/30/08 7,373
12/31/08 11,226 12/31/08 5,355
03/31/09 10,542 03/31/09 5,176
06/30/09 12,405 06/30/09 6,245
09/30/09 14,798 09/30/09 7,343
12/31/09 15,457 12/31/09 7,834
03/31/10 16,426 03/31/10 8,435
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class B shares, Class C shares and Class Y
shares based on the differences in loads and fees paid by shareholders in
the different classes. The initial public offering of Class A shares
commenced on October 3, 1994, the initial public offering of Class B
shares, Class C shares and Class Y shares commenced on May 1, 2001,
January 1, 1999 and February 2, 2009, respectively. The Class C
performance information is calculated using the historical performance of
the Fund's predecessor, which was another mutual fund that began
operations on October 3, 1994.
** The average annual total returns shown above are adjusted for maximum
applicable sales charges.
The performance of the above Fund does not reflect the deduction of taxes that a
sharesholder would pay on Fund distributions or the redemption of Fund shares.
20
- --------------------------------------------------------------------------------
Tabular Presentation of Portfolios of Investments (Unaudited)
March 31, 2010
- --------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND
- ----------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 27.0
Health Care 25.0
Consumer Discretionary 19.7
Industrials 11.8
Financials 6.1
Energy 4.5
Materials 1.8
Telecommunication Services 1.0
Consumer Staples 0.8
Investment Funds 26.3
Other Assets/Liabilities (Net) (24.0)
-----
TOTAL 100.0
-----
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND
- ----------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 35.4
Health Care 17.3
Consumer Staples 10.6
Materials 10.2
Industrials 9.1
Energy 8.0
Consumer Discretionary 6.0
Financials 2.7
Investment Funds 11.0
Other Assets/Liabilities (Net) (10.3)
-----
TOTAL 100.0
-----
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND
- ----------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 22.5
Consumer Discretionary 13.4
Financials 13.2
Industrials 11.8
Health Care 11.2
Consumer Staples 8.8
Energy 8.7
Materials 3.9
Utilities 2.5
Telecommunication Services 1.9
Investment Funds 10.1
Other Assets/Liabilities (Net) (8.0)
-----
TOTAL 100.0
-----
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
LARGE CAP GROWTH FUND
- ----------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 36.8
Materials 17.2
Health Care 16.1
Consumer Discretionary 11.1
Energy 11.1
Consumer Staples 4.1
Industrials 2.7
Investment Funds 19.3
Other Assets/Liabilities (Net) (18.4)
-----
TOTAL 100.0
-----
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
MID CAP GROWTH FUND
- ----------------------------------------------------------------------
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 17.9
Industrials 15.6
Consumer Discretionary 14.2
Health Care 14.2
Financials 12.9
Energy 9.8
Materials 6.6
Consumer Staples 4.1
Utilities 2.4
Telecommunication Services 1.1
Investment Funds 17.9
Other Assets/Liabilities (Net) (16.7)
-----
TOTAL 100.0
-----
- ----------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
March 31, 2010
- --------------------------------------------------------------------------------
DIVERSIFIED LARGE
SMALL CAP GROWTH CAP CORE LARGE CAP
GROWTH OPPORTUNITIES EQUITY GROWTH
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost $ 38,871,841 $ 65,383,456 $ 52,268,780 $ 802,034,479
====================================================================================================================================
Affiliated securities, at market value $ 552,905 $ 3,037,764 $ 1,091,219 $ 10,189,005
Non-affiliated securities, at market value 44,262,440 67,865,569 56,573,202 989,710,982
- ------------------------------------------------------------------------------------------------------------------------------------
At market value - including $8,687,410, $3,894,998, $4,173,716,
and $148,743,899 of securities loaned for the Diversified Small
Cap Growth Fund, Growth Opportunities Fund, Large Cap Core
Equity Fund, and Large Cap Growth Fund, respectively. $ 44,815,345 $ 70,903,333 $ 57,664,421 $ 999,899,987
Dividends and interest receivable 6,201 33,535 107,733 329,188
Receivable for capital shares sold 270,462 6,696 14,870 407,989
Receivable for securities sold 483,520 -- -- --
Receivable for securities lending income 3,563 233 564 2,705
Other assets 26,904 53,146 20,181 139,541
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 45,605,995 70,996,943 57,807,769 1,000,779,410
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 8,965,999 4,012,405 4,280,809 152,673,001
Payable for capital shares redeemed 17,162 68,154 25,280 2,261,970
Payable for securities purchased 376,600 2,465,912 -- --
Payable to Advisor 38,283 43,255 28,948 577,086
Payable to other affiliates 8,035 10,326 9,239 155,536
Payable to Trustees 4,206 4,206 4,206 4,206
Other accrued expenses and liabilities 55,905 94,934 58,104 720,149
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,466,190 6,699,192 4,406,586 156,391,948
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 36,139,805 $ 64,297,751 $ 53,401,183 $ 844,387,462
====================================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 53,353,523 $ 103,951,732 $ 60,594,975 $ 987,180,069
Accumulated net investment income (loss) 1 -- 522,174 (1)
Accumulated net realized losses from security transactions (23,157,223) (45,173,858) (13,111,607) (340,658,114)
Net unrealized appreciation on investments 5,943,504 5,519,877 5,395,641 197,865,508
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 36,139,805 $ 64,297,751 $ 53,401,183 $ 844,387,462
- ------------------------------------------------------------------------------------------------------------------------------------
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares $ 12,707,594 $ 32,181,821 $ 51,377,381 $ 334,464,974
====================================================================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 1,398,646 1,541,640 5,905,555 16,126,059
====================================================================================================================================
Net asset value and redemption price per share $ 9.09 $ 20.88 $ 8.70 $ 20.74
====================================================================================================================================
Maximum offering price per share $ 9.64 $ 22.15 $ 9.23 $ 22.01
====================================================================================================================================
PRICING OF CLASS B SHARES
Net assets attributable to Class B shares $ -- $ -- $ -- $ 14,896,605
====================================================================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) -- -- -- 747,573
====================================================================================================================================
Net asset value, offering price and redemption price per share* $ -- $ -- $ -- $ 19.93
====================================================================================================================================
22
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (Continued)
- --------------------------------------------------------------------------------
DIVERSIFIED LARGE
SMALL CAP GROWTH CAP CORE LARGE CAP
GROWTH OPPORTUNITIES EQUITY GROWTH
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares $ 2,576,318 $ 8,085,481 $ 2,023,802 $ 142,178,987
====================================================================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 289,017 414,940 234,986 7,120,536
====================================================================================================================================
Net asset value, offering price and redemption price per share* $ 8.91 $ 19.49 $ 8.61 $ 19.97
====================================================================================================================================
PRICING OF CLASS Y SHARES
Net assets attributable to Class Y shares $ 20,855,893 $ 2,223,299 $ -- $ 352,846,896
====================================================================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 2,277,339 106,166 -- 16,892,638
====================================================================================================================================
Net asset value, offering price and redemption price per share $ 9.16 $ 20.94 $ -- $ 20.89
====================================================================================================================================
PRICING OF INSTITUTIONAL CLASS SHARES
Net assets attributable to Institutional Class shares $ -- $ 21,807,150 $ -- $ --
====================================================================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) -- 1,039,469 -- --
====================================================================================================================================
Net asset value, offering price and redemption price per share $ -- $ 20.98 $ -- $ --
====================================================================================================================================
* Redemption price per share varies by length of time shares are held.
See accompanying notes to financial statements.
23
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (Continued)
- --------------------------------------------------------------------------------
MID CAP
GROWTH
FUND
- --------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost $ 865,834,825
================================================================================
Affiliated securities, at market value $ 167,739
Non-affiliated securities, at market value 1,004,059,275
- --------------------------------------------------------------------------------
At market value - including $149,586,867
of securities loaned. $ 1,004,227,014
Dividends and interest receivable 813,936
Receivable for capital shares sold 1,128,127
Receivable for securities sold 22,227,152
Receivable for securities lending income 3,058
Other assets 87,213
- --------------------------------------------------------------------------------
TOTAL ASSETS 1,028,486,500
- --------------------------------------------------------------------------------
LIABILITIES
Overdraft payable 1,696,118
Payable upon return of securities loaned 153,877,425
Payable for capital shares redeemed 3,466,427
Payable for securities purchased 6,470,762
Payable to Advisor 593,538
Payable to other affiliates 332,245
Payable to Trustees 4,206
Other accrued expenses and liabilities 1,165,703
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 167,606,424
- --------------------------------------------------------------------------------
NET ASSETS $ 860,880,076
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 861,000,713
Accumulated net investment income 596
Accumulated net realized losses from security transactions (138,513,422)
Net unrealized appreciation on investments 138,392,189
- --------------------------------------------------------------------------------
NET ASSETS $ 860,880,076
- --------------------------------------------------------------------------------
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares $ 583,542,834
================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 28,910,441
================================================================================
Net asset value and redemption price per share $ 20.18
================================================================================
Maximum offering price per share $ 21.41
================================================================================
PRICING OF CLASS B SHARES
Net assets attributable to Class B shares $ 32,762,322
================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 1,929,330
================================================================================
Net asset value, offering price and redemption price per share* $ 16.98
================================================================================
24
MID CAP
GROWTH
FUND
- --------------------------------------------------------------------------------
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares $ 218,412,995
================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 12,849,080
================================================================================
Net asset value, offering price and redemption price per share* $ 17.00
================================================================================
PRICING OF CLASS Y SHARES
Net assets attributable to Class Y shares $ 26,161,925
================================================================================
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 1,290,619
================================================================================
Net asset value, offering price and redemption price per share $ 20.27
================================================================================
* Redemption price per share varies by length of time shares are held.
See accompanying notes to financial statements.
25
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended March 31, 2010
- --------------------------------------------------------------------------------
DIVERSIFIED LARGE
SMALL CAP GROWTH CAP CORE LARGE CAP
GROWTH OPPORTUNITIES EQUITY GROWTH
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from affiliated securities $ 4,477 $ 6,132 $ 6,894 $ 110,675
Dividends from non-affiliated securities (A) 84,439 375,422 1,122,127 7,471,238
Interest income 22 22 -- 318
Income from securities loaned 24,687 12,152 12,524 374,126
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 113,625 393,728 1,141,545 7,956,357
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fees 289,583 321,163 341,730 5,987,078
Distribution expenses, Class A 27,029 60,324 126,445 975,560
Distribution expenses, Class B -- -- -- 153,545
Distribution expenses, Class C 25,065 73,645 19,957 1,476,991
Administration fees 55,159 77,390 105,149 1,682,037
Transfer Agent fees, Class A 38,270 66,320 35,353 484,998
Transfer Agent fees, Class B -- -- -- 36,676
Transfer Agent fees, Class C 10,528 19,367 6,802 233,302
Transfer Agent fees, Class Y 3,632 103 -- 178,460
Transfer Agent fees, Institutional Class -- 54 -- --
Postage and supplies 28,303 37,270 25,016 305,117
Reports to shareholders 13,752 18,140 7,551 239,593
Registration fees, Class A 9,778 12,051 7,370 30,755
Registration fees, Class B -- -- -- 8,410
Registration fees, Class C 7,253 6,247 4,756 15,518
Registration fees, Class Y 12,748 14,054 -- 21,284
Registration fees, Institutional Class -- 16,698 -- --
Professional fees 17,586 18,616 21,246 62,126
Custodian fees 4,398 6,705 5,821 30,567
Trustees' fees and expenses 8,881 8,881 8,881 8,881
Compliance fees and expenses 2,150 2,672 2,257 5,975
Other expenses 9,379 1,182 2,642 29,804
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 563,494 760,882 720,976 11,966,677
Fees waived by the Administrator (55,159) (77,390) (101,610) (983,834)
Fees waived and/or expenses reimbursed by the Advisor (138,954) (175,648) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 369,381 507,844 619,366 10,982,843
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (255,756) (114,116) 522,179 (3,026,486)
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions (1,130,136) 2,752,394 (3,667,576) 28,192,534
Net change in unrealized appreciation/depreciation on investments 11,606,065 10,376,020 22,935,800 259,377,852
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 10,475,929 13,128,414 19,268,224 287,570,386
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 10,220,173 $ 13,014,298 $ 19,790,403 $ 284,543,900
====================================================================================================================================
(A)Net of foreign tax withholding of: $ -- $ 738 $ 9,296 $ 178,840
See accompanying notes to financial statements.
26
- --------------------------------------------------------------------------------
Statements of Operations (Continued)
- --------------------------------------------------------------------------------
MID CAP
GROWTH
FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from affiliated securities $ 146,465
Dividends from non-affiliated securities (A) 9,945,493
Interest income 521
Income from securities loaned 337,699
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 10,430,178
- --------------------------------------------------------------------------------
EXPENSES
Investment advisory fees 6,166,823
Distribution expenses, Class A 1,318,061
Distribution expenses, Class B 334,476
Distribution expenses, Class C 1,996,997
Transfer Agent fees, Class A 730,953
Transfer Agent fees, Class B 80,029
Transfer Agent fees, Class C 369,528
Transfer Agent fees, Class Y 199
Administration fees 1,541,720
Postage and supplies 542,196
Reports to shareholders 237,960
Professional fees 66,197
Custodian fees 39,585
Registration fees, Class A 20,237
Registration fees, Class B 6,578
Registration fees, Class C 11,473
Registration fees, Class Y 15,168
Trustees' fees and expenses 9,058
Compliance fees and expenses 6,192
Other expenses 22,276
- --------------------------------------------------------------------------------
TOTAL EXPENSES 13,515,706
Fees waived by the Administrator (240,910)
- --------------------------------------------------------------------------------
NET EXPENSES 13,274,796
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (2,844,618)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions 27,987,013
Net change in unrealized appreciation/depreciation on investments 296,748,610
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 324,735,623
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 321,891,005
================================================================================
(A) Net of foreign tax withholding of: $ 3,383
See accompanying notes to financial statements.
27
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
DIVERSIFIED GROWTH
SMALL CAP OPPORTUNITIES
GROWTH FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2010 2009 2010 2009 (A)(B)
- ------------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss $ (255,756) $ (63,651) $ (114,116) $ (323,856)
Net realized gains (losses) from security transactions (1,130,136) (9,624,130) 2,752,394 (6,773,831)
Net change in unrealized appreciation/depreciation on investments 11,606,065 (1,538,607) 10,376,020 (7,150,096)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 10,220,173 (11,226,388) 13,014,298 (14,247,783)
- ------------------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold 3,255,184 2,325,565 13,402,011 10,983,044
Payments for shares redeemed (3,533,945) (10,439,076) (7,570,719) (9,002,735)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS A SHARE TRANSACTIONS (278,761) (8,113,511) 5,831,292 1,980,309
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B
Proceeds from shares sold -- -- -- 179,046
Payments for shares redeemed -- -- -- (1,769,228)
- ------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CLASS B SHARE TRANSACTIONS -- -- -- (1,590,182)
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C
Proceeds from shares sold 67,262 454,913 852,852 1,562,451
Payments for shares redeemed (657,371) (1,205,593) (1,632,604) (2,906,983)
- ------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CLASS C SHARE TRANSACTIONS (590,109) (750,680) (779,752) (1,344,532)
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS Y
Proceeds from shares sold 9,339,912 2,368,883 2,269,092 2,500
Payments for shares redeemed (2,680,336) (3,840,927) (156,133) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS Y SHARE TRANSACTIONS 6,659,576 (1,472,044) 2,112,959 2,500
- ------------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
Proceeds from shares sold -- -- 20,899,516 2,500
Payments for shares redeemed -- -- (1,021,376) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INSTITUTIONAL CLASS SHARE TRANSACTIONS -- -- 19,878,140 2,500
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 16,010,879 (21,562,623) 40,056,937 (15,197,188)
NET ASSETS
Beginning of period 20,128,926 41,691,549 24,240,814 39,438,002
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $ 36,139,805 $ 20,128,926 $ 64,297,751 $ 24,240,814
====================================================================================================================================
ACCUMULATED NET INVESTMENT INCOME $ 1 $ -- $ -- $ --
====================================================================================================================================
(A) Class B represents the period from April 1, 2008 through February 1, 2009.
(B) Class Y and Institutional Class represent the period from commencement of
operations (February 2, 2009) through March 31, 2009.
See accompanying notes to financial statements.
28
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (Continued)
- --------------------------------------------------------------------------------
LARGE CAP CORE LARGE CAP
EQUITY FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2010 2009 2010 2009
- ------------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ 522,179 $ 899,578 $ (3,026,486) $ 3,314,652
Net realized gains (losses) from security transactions (3,667,576) (9,214,214) 28,192,534 (341,832,277)
Net change in unrealized appreciation/depreciation on
investments 22,935,800 (18,011,816) 259,377,852 (210,014,994)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 19,790,403 (26,326,452) 284,543,900 (548,532,619)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income, Class A (263,434) (826,694) (695,550) (384,725)
From net investment income, Class C -- (23,762) -- --
From net investment income, Class Y -- -- (1,490,529) (743,849)
From net realized gains, Class A -- (4,234,966) -- --
From net realized gains, Class C -- (191,660) -- --
Tax return of capital, Class A -- -- (280,368) --
Tax return of capital, Class Y -- -- (220,290) --
- ------------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (263,434) (5,277,082) (2,686,737) (1,128,574)
- ------------------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold 2,924,182 11,416,914 54,719,163 275,238,115
Reinvested distributions 259,282 4,958,772 798,447 249,999
Payments for shares redeemed (15,673,641) (25,433,557) (276,344,671) (255,367,571)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS A SHARE
TRANSACTIONS (12,490,177) (9,057,871) (220,827,061) 20,120,543
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B
Proceeds from shares sold -- -- 14,099 2,200,560
Payments for shares redeemed -- -- (4,424,854) (6,221,431)
- ------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CLASS B SHARE TRANSACTIONS -- -- (4,410,755) (4,020,871)
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C
Proceeds from shares sold 232,027 2,075,124 11,544,805 58,876,139
Reinvested distributions -- 148,421 -- --
Payments for shares redeemed (798,878) (2,154,892) (56,669,909) (53,064,767)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS C SHARE
TRANSACTIONS (566,851) 68,653 (45,125,104) 5,811,372
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS Y
Proceeds from shares sold -- -- 131,293,090 339,657,227
Reinvested distributions -- -- 1,653,838 715,680
Payments for shares redeemed -- -- (77,058,051) (53,196,540)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CLASS Y SHARE TRANSACTIONS -- -- 55,888,877 287,176,367
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 6,469,941 (40,592,752) 67,383,120 (240,573,782)
NET ASSETS
Beginning of year 46,931,242 87,523,994 777,004,342 1,017,578,124
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $ 53,401,183 $ 46,931,242 $ 844,387,462 $ 777,004,342
====================================================================================================================================
ACCUMULATED NET INVESTMENT INCOME (LOSS) $ 522,174 $ 263,429 $ (1) $ 2,186,078
====================================================================================================================================
See accompanying notes to financial statements.
29
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (Continued)
- --------------------------------------------------------------------------------
MID CAP
GROWTH FUND
- ---------------------------------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
MARCH 31, MARCH 31,
2010 2009(A)
- ---------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ (2,844,618) $ (2,859,559)
Net realized gains (losses) from security transactions 27,987,013 (154,319,675)
Net change in unrealized appreciation/depreciation on investments 296,748,610 (231,737,939)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 321,891,005 (388,917,173)
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains, Class A -- (7,418,546)
From net realized gains, Class B -- (709,563)
From net realized gains, Class C -- (3,686,097)
- ---------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS -- (11,814,206)
- ---------------------------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold 164,390,215 198,229,454
Reinvested distributions -- 6,477,072
Payments for shares redeemed (200,190,917) (194,004,433)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS A SHARE TRANSACTIONS (35,800,702) 10,702,093
- ---------------------------------------------------------------------------------------------------------
CLASS B
Proceeds from shares sold 197,220 2,085,030
Reinvested distributions -- 554,988
Payments for shares redeemed (11,269,321) (12,750,178)
- ---------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CLASS B SHARE TRANSACTIONS (11,072,101) (10,110,160)
- ---------------------------------------------------------------------------------------------------------
CLASS C
Proceeds from shares sold 15,963,017 29,438,796
Reinvested distributions -- 2,383,946
Payments for shares redeemed (39,571,605) (59,914,155)
- ---------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CLASS C SHARE TRANSACTIONS (23,608,588) (28,091,413)
- ---------------------------------------------------------------------------------------------------------
CLASS Y
Proceeds from shares sold 34,029,321 2,500
Payments for shares redeemed (10,620,896) --
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CLASS Y SHARE TRANSACTIONS 23,408,425 2,500
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 274,818,039 (428,228,359)
NET ASSETS
Beginning of period 586,062,037 1,014,290,396
- ---------------------------------------------------------------------------------------------------------
End of period $ 860,880,076 $ 586,062,037
=========================================================================================================
ACCUMULATED NET INVESTMENT INCOME $ 596 $ --
=========================================================================================================
(A) Class Y represents the period from commencement of operations (February 2,
2009) through March 31, 2009.
See accompanying notes to financial statements.
30
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND -- CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
MARCH 31, ENDED
-------------------------------------------------- MARCH 31,
2010 2009 2008 2007 (A)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 6.27 $ 9.80 $ 11.64 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.08) (0.02) 0.50 (0.07)
Net realized and unrealized gains (losses) on investments 2.90 (3.51) (1.15) 1.71
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.82 (3.53) (0.65) 1.64
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (1.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 9.09 $ 6.27 $ 9.80 $ 11.64
====================================================================================================================================
Total return (B) 44.98% (36.02%) (7.28%) 16.40%(C)
====================================================================================================================================
Net assets at end of year (000's) $ 12,708 $ 9,054 $ 22,955 $ 5,846
====================================================================================================================================
Ratio of net expenses to average net assets 1.40% 1.40% 1.40% 1.40%(D)
Ratio of net investment income (loss) to average net
assets (0.99%) (0.22%) 0.33% (1.15%)(D)
Portfolio turnover rate 76% 113% 99% 86%(D)
(A) Represents the period from commencement of operations (September 6, 2006)
through March 31, 2007.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
DIVERSIFIED SMALL CAP GROWTH FUND -- CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
MARCH 31, ENDED
------------------------- MARCH 31,
2010 2009 2008 (A)
- ---------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 6.20 $ 9.75 $ 12.44
- ---------------------------------------------------------------------------------------------------------
Income (losss) from investment operations:
Net investment loss (0.15) (0.08) (0.22)
Net realized and unrealized gains (losses) on investments 2.86 (3.47) (1.28)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 2.71 (3.55) (1.50)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (1.19)
- ---------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 8.91 $ 6.20 $ 9.75
=========================================================================================================
Total return (B) 43.71% (36.41%) (13.66%)(C)
=========================================================================================================
Net assets at end of year (000's) $ 2,576 $ 2,267 $ 4,228
=========================================================================================================
Ratio of net expenses to average net assets 2.15% 2.15% 0.84%(D)
Ratio of net investment loss to average net assets (1.74%) (0.98%) (17.70%)(D)
Portfolio turnover rate 76% 113% 99%
(A) Represents the period from commencement of operations (August 1, 2007)
through March 31, 2008.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
31
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND -- CLASS Y
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
MARCH 31, ENDED
-------------------------------------------------- MARCH 31,
2010 2009 2008 2007 (A)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 6.30 $ 9.84 $ 11.66 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.05) 0.00(B) 0.04 (0.05)
Net realized and unrealized gains (losses) on investments 2.91 (3.54) (0.67) 1.71
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.86 (3.54) (0.63) 1.66
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (1.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 9.16 $ 6.30 $ 9.84 $ 11.66
====================================================================================================================================
Total return 45.40% (35.98%) (7.09%) 16.60%(C)
====================================================================================================================================
Net assets at end of period (000's) $ 20,856 $ 8,808 $ 14,509 $ 6,128
====================================================================================================================================
Ratio of net expenses to average net assets 1.15% 1.15% 1.15% 1.15%(D)
Ratio of net investment income (loss) to average net assets (0.74%) 0.02% (0.52%) (0.90%)(D)
Portfolio turnover rate 76% 113% 99% 86%(D)
(A) Represents the period from commencement of operations (September 6, 2006)
through March 31, 2007.
(B) Amount rounds to less than $0.01 per share.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
32
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND -- CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 14.41 $ 21.68 $ 20.75 $ 21.57 $ 17.92
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.03) (0.15) (0.24) (0.35) (0.21)
Net realized and unrealized gains (losses) on investments 6.50 (7.12) 1.17 (0.47) 3.86
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.47 (7.27) 0.93 (0.82) 3.65
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 20.88 $ 14.41 $ 21.68 $ 20.75 $ 21.57
====================================================================================================================================
Total return (A) 44.90% (33.53%) 4.48% (3.80%) 20.37%
====================================================================================================================================
Net assets at end of year (000's) $ 32,182 $ 17,973 $ 26,349 $ 35,723 $ 98,004
====================================================================================================================================
Ratio of net expenses to average net assets 1.24% 1.51% 1.55% 1.79% 1.64%
Ratio of net investment loss to average net assets (0.22%) (0.70%) (0.89%) (1.12%) (1.09%)
Portfolio turnover rate 100% 60% 82% 161% 80%
(A) Total returns shown exclude the effect of applicable sales loads.
GROWTH OPPORTUNITIES FUND -- CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 13.55 $ 20.42 $ 19.63 $ 20.60 $ 17.11
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.17) (0.29) (0.35) (0.54) (0.40)
Net realized and unrealized gains (losses) on investments 6.11 (6.58) 1.14 (0.43) 3.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.94 (6.87) 0.79 (0.97) 3.49
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 19.49 $ 13.55 $ 20.42 $ 19.63 $ 20.60
====================================================================================================================================
Total return (A) 43.84% (33.64%) 4.02% (4.71%) 20.40%
====================================================================================================================================
Net assets at end of year (000's) $ 8,085 $ 6,262 $ 11,115 $ 11,957 $ 22,412
====================================================================================================================================
Ratio of net expenses to average net assets 1.99% 2.27% 2.30% 2.71% 2.57%
Ratio of net investment loss to average net assets (0.96%) (1.46%) (1.60%) (2.00%) (2.01%)
Portfolio turnover rate 100% 60% 82% 161% 80%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
33
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND -- CLASS Y
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2010 2009 (A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period $ 14.41 $ 14.37
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.00)(B) (0.00)(B)
Net realized and unrealized gains on investments 6.53 0.04
- --------------------------------------------------------------------------------
Total from investment operations 6.53 0.04
- --------------------------------------------------------------------------------
Net asset value at end of period $ 20.94 $ 14.41
================================================================================
Total return 45.32% 0.28%(C)
================================================================================
Net assets at end of period (000's) $ 2,223 $ 3
================================================================================
Ratio of net expenses to average net assets 0.98% 0.97%(D)
Ratio of net investment income (loss) to average
net assets (0.04%) 0.21%(D)
Portfolio turnover rate 100% 60%
(A) Represents the period from commencement of operations (February 2, 2009)
through March 31, 2009.
(B) Amount rounds to less than $0.01.
(C) Not annualized.
(D) Annualized.
GROWTH OPPORTUNITIES FUND -- INSTITUTIONAL CLASS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2010 2009 (A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period $ 14.42 $ 14.37
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.01 (0.00)(B)
Net realized and unrealized gains on investments 6.55 0.05
- --------------------------------------------------------------------------------
Total from investment operations 6.56 0.05
================================================================================
Net asset value at end of period $ 20.98 $ 14.42
================================================================================
Total return 45.49% 0.35%(C)
================================================================================
Net assets at end of period (000's) $ 21,807 $ 3
================================================================================
Ratio of net expenses to average net assets 0.84% 0.82%(D)
Ratio of net investment income to average net
assets 0.15% 0.36%(D)
Portfolio turnover rate 100% 60%
(A) Represents the period from commencement of operations (February 2, 2009)
through March 31, 2009.
(B) Amount rounds to less than $0.01.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
34
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND -- CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 6.00 $ 10.36 $ 11.36 $ 10.49 $ 9.48
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.10 0.12 0.10 0.11 0.06
Net realized and unrealized gains (losses) on investments 2.64 (3.77) (0.62) 0.91 0.96
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.74 (3.65) (0.52) 1.02 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04) (0.11) (0.10) (0.15) (0.01)
Distributions from net realized gains -- (0.60) (0.38) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.71) (0.48) (0.15) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 8.70 $ 6.00 $ 10.36 $ 11.36 $ 10.49
====================================================================================================================================
Total return (A) 45.78% (35.73%) (5.03%) 9.83% 10.74%
====================================================================================================================================
Net assets at end of year (000's) $ 51,377 $ 45,073 $ 84,611 $ 95,175 $ 25,693
====================================================================================================================================
Ratio of net expenses to average net assets 1.15% 1.15% 1.15% 1.15% 1.00%
Ratio of net investment income to average net assets 1.02% 1.38% 0.89% 0.97% 1.03%
Portfolio turnover rate 24% 51% 52% 54% 6%
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP CORE EQUITY FUND -- CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 5.95 $ 10.29 $ 11.29 $ 10.39 $ 9.46
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.01 0.04 0.01 (0.02) 0.03
Net realized and unrealized gains (losses) on investments 2.65 (3.72) (0.61) 0.96 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.66 (3.68) (0.60) 0.94 0.94
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (0.06) (0.02) (0.04) (0.01)
Distributions from net realized gains -- (0.60) (0.38) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.66) (0.40) (0.04) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 8.61 $ 5.95 $ 10.29 $ 11.29 $ 10.39
====================================================================================================================================
Total return (A) 44.71% (36.23%) (5.72%) 9.09% 9.91%
====================================================================================================================================
Net assets at end of year (000's) $ 2,024 $ 1,858 $ 2,913 $ 4,231 $ 1,399
====================================================================================================================================
Ratio of net expenses to average net assets 1.90% 1.90% 1.90% 1.90% 1.75%
Ratio of net investment income (loss) to average net assets 0.26% 0.70% 0.13% (0.26%) 0.26%
Portfolio turnover rate 24% 51% 52% 54% 6%
(A) Total returns shown exclude the effect of applicable sales loads. See
accompanying notes to financial statements.
35
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND -- CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 14.73 $ 24.45 $ 22.06 $ 23.26 $ 19.84
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.02) 0.09 0.02 (0.04) (0.02)
Net realized and unrealized gains (losses)
on investments 6.08 (9.80) 2.37 (1.16) 3.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.06 (9.71) 2.39 (1.20) 3.42
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04) (0.01) -- -- --
Tax return of capital (0.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.05) (0.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 20.74 $ 14.73 $ 24.45 $ 22.06 $ 23.26
====================================================================================================================================
Total return (A) 41.15% (39.71%) 10.83% (5.16%) 17.24%
====================================================================================================================================
Net assets at end of year (000's) $ 334,465 $ 418,808 $ 719,488 $ 656,582 $ 838,120
====================================================================================================================================
Ratio of net expenses to average net assets 1.25% 1.25% 1.25% 1.16% 1.17%
Ratio of net investment income (loss) to average net
assets (0.29%) 0.41% 0.06% (0.16%) (0.13%)
Portfolio turnover 83% 126% 72% 115% 104%
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP GROWTH FUND -- CLASS B
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 14.22 $ 23.68 $ 21.46 $ 22.83 $ 19.60
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.44) (0.08) (0.15) (0.21) (0.15)
Net realized and unrealized gains (losses) on
investments 6.15 (9.38) 2.37 (1.16) 3.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.71 (9.46) 2.22 (1.37) 3.23
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 19.93 $ 14.22 $ 23.68 $ 21.46 $ 22.83
====================================================================================================================================
Total return (A) 40.15% (39.95%) 10.34% (6.00%) 16.48%
====================================================================================================================================
Net assets at end of year (000's) $ 14,897 $ 14,186 $ 29,829 $ 26,669 $ 27,781
====================================================================================================================================
Ratio of net expenses to average net assets 2.00% 2.00% 2.00% 2.02% 2.08%
Ratio of net investment loss to average net assets (1.05%) (0.35%) (0.65%) (0.98%) (1.02%)
Portfolio turnover rate 83% 126% 72% 115% 104%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
36
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND -- CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 14.25 $ 23.74 $ 21.52 $ 22.88 $ 19.62
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.22) (0.07) (0.14) (0.20) (0.11)
Net realized and unrealized gains (losses) on
investments 5.94 (9.42) 2.36 (1.16) 3.37
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.72 (9.49) 2.22 (1.36) 3.26
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 19.97 $ 14.25 $ 23.74 $ 21.52 $ 22.88
====================================================================================================================================
Total return (A) 40.14% (39.97%) 10.32% (5.94%) 16.62%
====================================================================================================================================
Net assets at end of year (000's) $ 142,179 $ 137,641 $ 236,582 $ 190,261 $ 188,810
====================================================================================================================================
Ratio of net expenses to average net assets 2.00% 2.00% 2.00% 1.95% 1.98%
Ratio of net investment loss to average net assets (1.05%) (0.33%) (0.66%) (0.92%) (0.93%)
Portfolio turnover rate 83% 126% 72% 115% 104%
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP GROWTH FUND -- CLASS Y
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 14.84 $ 24.64 $ 22.19 $ 23.33 $ 19.86
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.01) 0.10 0.05 0.06 0.03
Net realized and unrealized gains (losses) on
investments 6.17 (9.85) 2.40 (1.20) 3.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.16 (9.75) 2.45 (1.14) 3.47
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.10) (0.05) -- -- --
Tax return of capital (0.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.11) (0.05) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 20.89 $ 14.84 $ 24.64 $ 22.19 $ 23.33
====================================================================================================================================
Total return 41.53% (39.58%) 11.04% (4.89%) 17.47%
====================================================================================================================================
Net assets at end of year (000's) $ 352,847 $ 206,369 $ 31,679 $ 40,044 $ 66,655
====================================================================================================================================
Ratio of net expenses to average net assets 0.99% 0.97% 1.00% 0.90% 0.93%
Ratio of net investment income (loss) to average net
assets (0.06%) 0.95% 0.21% 0.13% 0.12%
Portfolio turnover 83% 126% 72% 115% 104%
See accompanying notes to financial statements.
37
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
MID CAP GROWTH FUND -- CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 12.95 $ 21.16 $ 24.17 $ 24.02 $ 21.42
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.03) (0.01) (0.12) (0.14) (0.12)
Net realized and unrealized gains (losses) on
investments 7.26 (7.96) 0.01 2.20 4.70
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 7.23 (7.97) (0.11) 2.06 4.58
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.24) (2.90) (1.91) (1.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 20.18 $ 12.95 $ 21.16 $ 24.17 $ 24.02
====================================================================================================================================
Total return (A) 55.83% (37.67%) (1.53%) 8.84% 22.21%
====================================================================================================================================
Net assets at end of year (000's) $ 583,543 $ 397,756 $ 649,891 $ 713,666 $ 639,501
====================================================================================================================================
Ratio of net expenses to average net assets 1.50% 1.50% 1.47% 1.50% 1.50%
Ratio of net investment loss to average net assets (0.15%) (0.07%) (0.53%) (0.66%) (0.57%)
Portfolio turnover 62% 71% 64% 58% 69%
(A) Total returns shown exclude the effect of applicable sales loads.
MID CAP GROWTH FUND -- CLASS B
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 10.98 $ 18.13 $ 21.25 $ 21.49 $ 19.50
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.16) (0.15) (0.28) (0.30) (0.26)
Net realized and unrealized gains (losses) on
investments 6.16 (6.76) 0.06 1.97 4.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.00 (6.91) (0.22) 1.67 3.97
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.24) (2.90) (1.91) (1.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 16.98 $ 10.98 $ 18.13 $ 21.25 $ 21.49
====================================================================================================================================
Total return (A) 54.64% (38.12%) (2.29%) 8.04% 21.24%
====================================================================================================================================
Net assets at end of year (000's) $ 32,762 $ 29,521 $ 61,977 $ 74,935 $ 79,552
====================================================================================================================================
Ratio of net expenses to average net assets 2.25% 2.25% 2.25% 2.25% 2.25%
Ratio of net investment loss to average net assets (0.90%) (0.85%) (1.31%) (1.42%) (1.32%)
Portfolio turnover rate 62% 71% 64% 58% 69%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
38
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
MID CAP GROWTH FUND -- CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2010 2009 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 10.99 $ 18.15 $ 21.27 $ 21.51 $ 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.14) (0.14) (0.27) (0.28) (0.25)
Net realized and unrealized gains (losses) on
investments 6.15 (6.78) 0.05 1.95 4.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.01 (6.92) (0.22) 1.67 3.98
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.24) (2.90) (1.91) (1.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 17.00 $ 10.99 $ 18.15 $ 21.27 $ 21.51
====================================================================================================================================
Total return (A) 54.69% (38.14%) (2.28%) 8.04% 21.28%
====================================================================================================================================
Net assets at end of year (000's) $ 218,413 $ 158,782 $ 302,422 $ 345,997 $ 327,867
====================================================================================================================================
Ratio of net expenses to average net assets 2.25% 2.25% 2.24% 2.25% 2.25%
Ratio of net investment loss to average net assets (0.90%) (0.84%) (1.30%) (1.41%) (1.32%)
Portfolio turnover 62% 71% 64% 58% 69%
(A) Total returns shown exclude the effect of applicable sales loads.
MID CAP GROWTH FUND -- CLASS Y
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2010 2009(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period $ 12.96 $ 13.20
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.01 0.02
Net realized and unrealized gains (losses) on
investments 7.30 (0.26)
- --------------------------------------------------------------------------------
Total from investment operations 7.31 (0.24)
- --------------------------------------------------------------------------------
Net asset value at end of period $ 20.27 $ 12.96
================================================================================
Total return 56.40% (1.82%)(B)
================================================================================
Net assets at end of period (000's) $ 26,162 $ 3
================================================================================
Ratio of net expenses to average net assets 1.25% 1.25%(C)
Ratio of net investment income to average net assets 0.14% 1.11%(C)
Portfolio turnover 62% 71%
(A) Represents the period from commencement of operations (February 2, 2009)
through March 31, 2009.
(B) Not annualized.
(C) Annualized.
See accompanying notes to financial statements.
39
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2010
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Diversified Small Cap Growth Fund, Growth Opportunities Fund, Large Cap Core
Equity Fund, Large Cap Growth Fund, and Mid Cap Growth Fund (individually, a
Fund, and collectively, the Funds) are each a series of Touchstone Strategic
Trust (the Trust). The Trust is registered under the Investment Company Act of
1940, as amended (the Act), as an open-end management investment company. The
Trust was established as a Massachusetts business trust under a Declaration of
Trust dated November 18, 1982. The Declaration of Trust, as amended, permits the
Trustees to issue an unlimited number of shares of each Fund.
The Funds are registered to offer certain of the following Classes of shares:
Class A shares, Class B shares, Class C shares, Class Y shares, and
Institutional Class 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 as outlined below:
CLASS A(1) CLASS B(2) CLASS C(3) CLASS Y(4) INSTITUTIONAL CLASS(5)
- ----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund X X X
Growth Opportunities Fund X X X X
Large Cap Core Equity Fund X X
Large Cap Growth Fund X X X X
Mid Cap Growth Fund X X X X
(1) Currently sold subject to a maximum front-end sales load of 5.75% and a
maximum distribution fee of up to 0.25% of average daily net assets
(2) Sold subject to a maximum contingent deferred sales load of 5.00% for a
one-year period and incrementally reduced over time and a maximum
distribution fee of up to 1.00% of average daily net assets; closed to new
investors effective February 1, 2009
(3) Sold subject to a 1.00% contingent deferred sales load for a one-year
period and a maximum distribution fee of up to 1.00% of average daily net
assets
(4) Sold without a distribution fee or sales charge, but offered only through
selected dealers
(5) Sold without a distribution fee or sales charge, and subject to a higher
minimum initial investment
Each Class A, Class B, Class C, Class Y, and Institutional Class share of a Fund
represents identical interests in the investment portfolio of such Fund and has
the same rights, except that (i) Class B and Class C shares bear the expenses of
higher distribution fees, which is expected to cause Class B and Class C shares
to have a higher expense ratio and to pay lower dividends than Class A, Class Y,
and Institutional Class shares; (ii) certain other Class specific expenses will
be borne solely by the Class to which such expenses are attributable; and (iii)
each Class has exclusive voting rights with respect to matters relating to its
own distribution arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
SECURITY VALUATION -- The Funds' portfolio securities are valued as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). Portfolio securities traded on stock exchanges are valued
at the last sale price and portfolio securities quoted by NASDAQ are valued at
the NASDAQ Official Closing Price (NOCP). Securities not traded on a particular
day, or for which the last sale price is not readily available, are valued at
their last broker-quoted bid prices as obtained from one or more of the major
market makers for such securities by an independent pricing service. Securities
for which market quotations or the NOCP are not readily available are valued
based on fair value as determined by or under the direction of the Board of
Trustees. Money market instruments and other debt securities with a remaining
maturity of less than 60 days are valued at amortized cost, which approximates
market value. Shares of open-end mutual funds in which the Funds invest are
valued at their respective net asset values as reported by the underlying funds.
40
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
The Funds have adopted FASB ASC 820 "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. Fair Value Measurements applies to fair value
measurements already required or permitted by existing standards. The changes to
current generally accepted accounting principles (GAAP) from the application of
this Statement relate to the definition of fair value, the methods used to
measure fair value, and the expanded disclosures about fair value measurements.
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.
The aggregate value by input level, as of March 31, 2010, for each Fund's
investments, is included in each Fund's Portfolio of Investments, which also
includes a breakdown of the Fund's investments by geographic/industry
concentration. The Funds did not hold any level 2 or 3 categorized securities
during the year ended or at March 31, 2010.
NEW ACCOUNTING PRONOUNCEMENTS -- In January 2010, the Financial Accounting
Standards Board ("FASB") issued new guidance as an amendment to fair value
measurements and disclosures. The new guidance adds new requirements for
disclosure about transfers into and out of level 1 and level 2 fair value
measurements and separate disclosures about purchases, sales, issuances, and
settlements relating to level 3 measurements. The guidance also clarifies
existing fair value disclosures about the level of disaggregation and about
inputs and valuation techniques in level 2 and level 3 fair value measurements.
The amendment is effective for interim and annual reporting periods beginning
after December 15, 2009, except for Level 3 reconciliation disclosures which are
effective for interim and annual periods beginning after December 15, 2010. The
Funds do not expect the implications of this guidance to have a material impact
on its financial statements.
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 cash
collateral with the Funds' custodian in an amount at least equal to the market
value of the loaned securities. The cash collateral is reinvested by the Funds'
custodian into an approved investment vehicles.
41
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
As of March 31, 2010, the following Funds loaned common stocks and received
collateral as follows:
MARKET VALUE VALUE OF
OF COMMON COLLATERAL
STOCKS LOANED RECEIVED
- ---------------------------------------------------------------
Diversified Small Cap Growth Fund $ 8,687,410 $ 8,965,999
Growth Opportunities Fund $ 3,894,998 $ 4,012,405
Large Cap Core Equity Fund $ 4,173,716 $ 4,280,809
Large Cap Growth Fund $148,743,899 $152,673,001
Mid Cap Growth Fund $149,586,867 $153,877,425
All collateral received as cash and securities is received, held, and
administered by the Funds' custodian for the benefit of the Funds in the
applicable custody account or other account established for the purpose of
holding collateral.
Funds participating in securities lending receive compensation in the form of
fees, or retain a portion of interest or dividends on the investment of any cash
received as collateral. The Funds also continue to receive interest or dividends
on the securities loaned. The loans are secured by collateral valued at least
equal, at all times, to the fair value of the securities loaned plus accrued
interest. Unrealized gain or loss on the fair value of the securities loaned
that may occur during the term of the loan are recognized by the Funds. The
Funds have the right under the lending agreement to recover the securities from
the borrower on demand.
SHARE VALUATION -- The net asset value per share of each Class of shares of each
Fund is calculated daily by dividing the total value of a Fund's assets
attributable to that Class, less liabilities attributable to that Class, by the
number of outstanding shares of that Class.
The maximum offering price per share of Class A shares of the Funds is equal to
the net asset value per share plus a sales load equal to 6.10% of the net asset
value (or 5.75% of the offering price). The maximum offering price per share of
Class B, Class C, Class Y, and Institutional Class shares of the Funds is equal
to the net asset value per share.
Class B shares of the Funds are subject to a contingent deferred sales load of
5.00% in the event of a shareholder redemption within a one-year period of
purchase. The contingent deferred sales load will be incrementally reduced over
time. After the 6th year, there is no contingent deferred sales load. Class C
shares of the Funds are subject to a contingent deferred sales load of 1.00% in
the event of shareholder redemption with a one-year period of purchase.
INVESTMENT INCOME -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are accreted or amortized into income using the effective yield method.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid to shareholders annually for each Fund. With
respect to each Fund, net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Income dividends and capital gain
distributions are determined in accordance with income tax regulations.
ALLOCATIONS -- Investment income earned, realized capital gains and losses, and
unrealized appreciation and depreciation for the Funds are allocated daily to
each Class of shares based upon its proportionate share of total net assets of
the Fund. Class specific expenses are charged directly to the Class incurring
the expense. Common expenses, which are not attributable to a specific Class,
are allocated daily to each Class of shares based upon its proportionate share
of total net assets of the Fund. Expenses not directly billed to a Fund are
allocated proportionally among all Funds daily in relation to net assets of each
Fund or another reasonable measure.
42
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
ESTIMATES -- The preparation of financial statements in conformity with U.S.
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.
3. FEDERAL TAX INFORMATION
It is each Fund's policy to continue to comply with the special provisions of
the Internal Revenue Code applicable to regulated investment companies. As
provided therein, in any fiscal year in which a Fund so qualifies and
distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare and pay as
dividends in each calendar year at least 98% of its net investment income
(earned during the calendar year) and 98% of its net realized capital gains
(earned during the twelve months ending October 31) plus undistributed amounts
from prior years.
The tax character of distributions paid for the years ended March 31, 2010 and
2009 was as follows:
DIVERSIFIED GROWTH LARGE CAP
SMALL CAP GROWTH OPPORTUNITIES CORE EQUITY
FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2010 2009 2010 2009 2010 2009
- ----------------------------------------------------------------------------------------------------------------------
From ordinary income $ -- $ -- $ -- $ -- $ 263,434 $ 850,456
From long-term capital gains -- -- -- -- -- 4,426,626
- ----------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ -- $ 263,434 $ 5,277,082
- ----------------------------------------------------------------------------------------------------------------------
LARGE CAP MID CAP
GROWTH GROWTH
FUND FUND
- --------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2010 2009 2010 2009
- --------------------------------------------------------------------------------
From ordinary income $ 2,186,079 $ 1,128,574 $ -- $ --
From long-term capital gains -- -- -- 11,814,206
From tax return of capital 500,658 -- -- --
- --------------------------------------------------------------------------------
$ 2,686,737 $ 1,128,574 $ -- $11,814,206
- --------------------------------------------------------------------------------
43
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
The following information is computed on a tax basis for each item as of March
31, 2010:
DIVERSIFIED GROWTH LARGE CAP
SMALL CAP GROWTH OPPORTUNITIES CORE EQUITY
FUND FUND FUND
- --------------------------------------------------------------------------------
Tax cost of portfolio of
investments $ 40,587,652 $ 65,696,671 $ 55,133,120
================================================================================
Gross unrealized appreciation 5,201,095 6,283,822 3,905,705
Gross unrealized depreciation (973,402) (1,077,160) (1,374,404)
- --------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) 4,227,693 5,206,662 2,531,301
Undistributed ordinary income 1 -- 522,174
Capital loss carryforward (20,995,910) (44,860,643) (10,096,769)
Post October losses (445,502) -- (150,498)
- --------------------------------------------------------------------------------
Accumulated deficit $(17,213,718) $(39,653,981) $ (7,193,792)
================================================================================
LARGE CAP MID CAP
GROWTH GROWTH
FUND FUND
- --------------------------------------------------------------------------------
Tax cost of portfolio of investments $ 804,613,220 $ 872,795,379
================================================================================
Gross unrealized appreciation 201,801,062 151,825,869
Gross unrealized depreciation (6,514,295) (20,394,234)
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 195,286,767 131,431,635
Undistributed ordinary income (1) --
Capital loss carryforward (338,079,373) (131,553,464)
Post October losses -- --
- --------------------------------------------------------------------------------
Accumulated deficit $(142,792,607) $ (121,829)
================================================================================
The difference between the tax cost of portfolio investments and the financial
statement cost is primarily due to wash sales.
As of March 31, 2010, the Funds had the following capital loss carryforwards for
federal income tax purposes.
EXPIRES
FUND AMOUNT MARCH 31,
- --------------------------------------------------------------------------------
Diversified Small Cap Growth Fund $ 11,436,443 2014
3,627,106 2017
5,932,361 2018
-----------------
$ 20,995,910
-----------------
Growth Opportunities Fund $ 21,887,780 2011
17,098,132 2012
1,976,702 2013
3,131,509 2017
766,520 2018
-----------------
$ 44,860,643
-----------------
Large Cap Core Equity Fund $ 1,053,666 2017
9,043,103 2018
-----------------
$ 10,096,769
-----------------
44
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
EXPIRES
FUND AMOUNT MARCH 31,
- --------------------------------------------------------------------------------
Large Cap Growth Fund $ 26,177,120 2015
41,526,594 2017
270,375,659 2018
-----------------
$ 338,079,373
-----------------
Mid Cap Growth Fund $ 55,424,720 2017
76,128,744 2018
-----------------
$ 131,553,464
-----------------
The capital loss carryforwards and Post-October losses may be utilized in future
years to offset net realized capital gains, if any, prior to distributing such
gains to shareholders.
Certain reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements have been made to the components
of capital. These reclassifications have no impact on the net assets or net
asset value per share of the Funds and are designed to present the Fund's
capital accounts on a tax basis. The following reclassification of net
investment loss have been made to the following Funds for the year ended March
31, 2010:
ACCUMULATED ACCUMULATED
PAID-IN NET INVESTMENT NET REALIZED
CAPITAL INCOME GAINS
- --------------------------------------------------------------------------------
Diversified Small Cap Growth Fund $ (255,757) $ 255,757 $ --
Growth Opportunities Fund $ (114,116) $ 114,116 $ --
Large Cap Core Equity Fund $ -- $ -- $ --
Large Cap Growth Fund $(3,026,486) $ 3,026,486 $ --
Mid Cap Growth Fund $(2,845,214) $ 2,845,214 $ --
The Funds have analyzed their tax positions taken on Federal income tax returns
for all open tax years (tax years ended March 31, 2007 through 2010) and have
concluded that no provision for income tax is required in their financial
statements.
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments and U.S. Government
securities) were as follows for the year ended March 31, 2010:
DIVERSIFIED
SMALL CAP GROWTH LARGE CAP
GROWTH OPPORTUNITIES CORE EQUITY
FUND FUND FUND
- --------------------------------------------------------------------------------
Purchases of investment securities $25,583,269 $65,419,029 $12,453,318
- --------------------------------------------------------------------------------
Proceeds from sales and maturities $20,422,343 $38,332,168 $25,690,892
- --------------------------------------------------------------------------------
LARGE CAP MID CAP
GROWTH GROWTH
FUND FUND
- --------------------------------------------------------------------------------
Purchases of investment securities $679,506,055 $464,072,496
- --------------------------------------------------------------------------------
Proceeds from sales and maturities $892,437,307 $497,865,546
- --------------------------------------------------------------------------------
45
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
5. 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 Underwriter are each wholly owned indirect subsidiaries
of The Western and Southern Life Insurance Company (Western-Southern).
MANAGEMENT AGREEMENTS
The Advisor provides general investment supervisory services for the Funds,
under the terms of an Advisory Agreement. Under the Advisory Agreement, the
Funds pay the Advisor a fee, which is computed and accrued daily and paid
monthly, at an annual rate based on average daily net assets as follows:
Diversified Small Cap Growth Fund 1.05%
- ----------------------------------------------------------------------------------------------
Growth Opportunities Fund 0.83% on the first $500 million
0.80% on the next $500 million
0.75% of such assets in excess of $1 billion
- ----------------------------------------------------------------------------------------------
Large Cap Core Equity Fund 0.65% on the first $100 million
0.60% on the next $100 million
0.55% on the next $100 million
0.50% of such assets in excess of $300 million
- ----------------------------------------------------------------------------------------------
Large Cap Growth Fund 0.75% on the first $200 million
0.70% on the next $800 million
0.65% of such assets in excess of $1 billion
- ----------------------------------------------------------------------------------------------
Mid Cap Growth Fund 0.80%
- ----------------------------------------------------------------------------------------------
The Advisor has retained various Sub-Advisors to manage the investments of the
Funds under the terms of a Sub-Advisory Agreement. The Advisor (not the Funds)
pays the Sub-Advisors a fee for these services.
Fort Washington Investment Advisors, Inc., an affiliate of the Advisor, has been
retained by the Advisor to manage the investments of the Diversified Small Cap
Growth Fund.
Westfield Capital Management Company, LP has been retained by the Advisor to
manage the investments of the Growth Opportunities Fund and a portion of the
investments of the Mid Cap Growth Fund.
Todd/Veredus Asset Management, LLC has been retained by the Advisor to manage
the investments of the Large Cap Core Equity Fund.
Navellier & Associates, Inc. has been retained by the Advisor to manage the
investments of the Large Cap Growth Fund.
TCW Investment Management Company has been retained by the Advisor to manage a
portion of the investments of the Mid Cap Growth Fund.
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, supervising the preparation of tax returns,
coordinating the preparation of reports to shareholders and reports to, and
filings with, the Securities and Exchange Commission and state securities
authorities, preparing 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 the aggregate average daily net assets of the Trust, Touchstone
Funds Group Trust, Touchstone Investment Trust (excluding Institutional Money
Market Fund), and Touchstone Tax-Free Trust up to and including $6 billion;
0.16% of the next $4 billion of aggregate average daily net assets; and 0.12% of
the aggregate average daily net assets of all such assets in excess of $10
billion. The fee is allocated among the Funds on the basis of relative daily net
assets.
46
- --------------------------------------------------------------------------------
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.
EXPENSE LIMITATION AGREEMENT
The Trust and the Advisor have entered into an Expense Limitation Agreement to
contractually limit operating expenses of the Funds. The maximum operating
expense limit in any year with respect to the Funds is based on a percentage of
the average daily net assets of the Funds. The Advisor has agreed to waive
advisory fees and reimburse expenses in order to maintain expense limitations
for the Funds as follows through July 31, 2010:
CLASS A CLASS B CLASS C CLASS Y INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund 1.40% -- 2.15% 1.15% --
Growth Opportunities Fund 1.24% -- 1.99% 0.99% 0.84%
Large Cap Core Equity Fund 1.15% -- 1.90% -- --
Large Cap Growth Fund 1.25% 2.00% 2.00% 0.99% --
Mid Cap Growth Fund 1.50% 2.25% 2.25% 1.25% --
For the year ended March 31, 2010, the Advisor waived investment advisory fees,
administration fees, and/or reimbursed expenses as follows:
INVESTMENT OTHER OPERATING
ADVISORY ADMINISTRATION EXPENSES
FEES WAIVED FEES WAIVED REIMBURSED
- ----------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund $ 86,860 $ 55,159 $ 52,094
Growth Opportunities Fund $ 41,679 $ 77,390 $ 133,969
Large Cap Core Equity Fund $ -- $ 101,610 $ --
Large Cap Growth Fund $ -- $ 983,834 $ --
Mid Cap Growth Fund $ -- $ 240,910 $ --
TRANSFER AGENT AGREEMENT
Under the terms of the 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 monthly fee per shareholder account from each Fund. In
addition, each Fund pays JPMorgan out-of-pocket expenses including, but not
limited to, postage and supplies.
For the year ended March 31, 2010, the following Funds reimbursed the Advisor
for amounts paid to third parties that provide sub-transfer agency and other
administrative services to the Funds. These amounts are included in transfer
agent fees on the Statements of Operations:
AMOUNT
- --------------------------------------------------------------------------------
Diversified Small Cap Growth Fund $ 7,730
Growth Opportunities Fund $ 6,458
Large Cap Core Equity Fund $ 2,594
Large Cap Growth Fund $ 468,319
Mid Cap Growth Fund $ 327,500
47
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
UNDERWRITING AGREEMENT
The Underwriter is the Funds' principal underwriter and, as such, acts as the
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and Underwriter, the Underwriter earned
the following from underwriting and broker commissions on the sale of shares of
the following Funds for the year ended March 31, 2010:
AMOUNT
- --------------------------------------------------------------------------------
Diversified Small Cap Growth Fund $ 2,518
Growth Opportunities Fund $ 8,706
Large Cap Core Equity Fund $ 2,107
Large Cap Growth Fund $ 21,147
Mid Cap Growth Fund $ 46,696
In addition, the Underwriter collected the following contingent deferred sales
charges on the redemption of Class B and Class C shares of the following Funds
during the year ended March 31, 2010:
AMOUNT
- --------------------------------------------------------------------------------
Diversified Small Cap Growth Fund $ 221
Growth Opportunities Fund $ 108
Large Cap Core Equity Fund $ 205
Large Cap Growth Fund $ 53,812
Mid Cap Growth Fund $ 30,714
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which Class A shares
of each Fund may directly incur or reimburse the Advisor or the Underwriter for
expenses related to the distribution and promotion of shares. The annual
limitation for payment of such expenses under the Class A Plan is 0.25% of
average daily net assets attributable to such shares.
The Trust also has a Plan of Distribution (Class B and Class C Plan) under which
Class B and Class C shares of each Fund may directly incur or reimburse the
Advisor or the Underwriter for expenses related to the distribution and
promotion of shares. The annual limitation for payment of such expenses under
the Class B and Class C Plan is 1.00% of average daily net assets attributable
to Class B and Class C shares.
COMPLIANCE SERVICES AGREEMENT
Under the terms of the Compliance Services Agreement between the Trust and
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 may invest in the Touchstone Institutional Money Market Fund, subject
to compliance with the several conditions set forth in an order received by the
Trust from the Securities and Exchange Commission. To the extent that the other
Touchstone Funds are invested in the Touchstone Institutional Money Market Fund,
the Advisor and Administrator will be paid additional fees from the Touchstone
Institutional Money Market Fund that will not be waived or reimbursed.
48
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
A summary of each Fund's investment in the Touchstone Institutional Money Market
Fund, for the year ended March 31, 2010, is noted below:
SHARE ACTIVITY
----------------------------------------------------
BALANCE BALANCE VALUE
03/31/09 PURCHASES SALES 03/31/10 DIVIDENDS 03/31/10
- ---------------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund 641,572 14,218,991 14,307,658 552,905 $ 4,477 $ 552,905
- ---------------------------------------------------------------------------------------------------------------------
Growth Opportunities Fund 433,965 44,070,610 41,466,811 3,037,764 $ 6,132 $ 3,037,764
- ---------------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund 597,038 19,206,593 18,712,412 1,091,219 $ 6,894 $ 1,091,219
- ---------------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund 14,569,372 457,452,812 461,833,179 10,189,005 $ 110,675 $10,189,005
- ---------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund 32,053,889 274,416,095 306,302,245 167,739 $ 146,465 $ 167,739
- ---------------------------------------------------------------------------------------------------------------------
As of March 31, 2010, 52% of the Large Cap Core Equity Fund was owned by
Western-Southern and subsidiaries.
6. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
DIVERSIFIED SMALL CAP GROWTH
GROWTH FUND OPPORTUNITIES FUND
- -------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2010 2009 2010 2009(A)(B)
- -------------------------------------------------------------------------------------------------------
CLASS A
Shares sold 401,883 284,069 698,951 597,146
Shares redeemed (447,487) (1,183,072) (404,810) (564,842)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (45,604) (899,003) 294,141 32,304
Shares outstanding, beginning of period 1,444,250 2,343,253 1,247,499 1,215,195
- -------------------------------------------------------------------------------------------------------
Shares outstanding, end of period 1,398,646 1,444,250 1,541,640 1,247,499
=======================================================================================================
CLASS B
Shares sold -- -- -- 12,106
Shares redeemed -- -- -- (109,949)
- -------------------------------------------------------------------------------------------------------
Net decrease in shares outstanding -- -- -- (97,843)
Shares outstanding, beginning of period -- -- -- 97,843
- -------------------------------------------------------------------------------------------------------
Shares outstanding, end of period -- -- -- --
=======================================================================================================
CLASS C
Shares sold 8,851 75,215 49,028 95,132
Shares redeemed (85,721) (142,717) (96,167) (177,424)
- -------------------------------------------------------------------------------------------------------
Net decrease in shares outstanding (76,870) (67,502) (47,139) (82,292)
Shares outstanding, beginning of period 365,887 433,389 462,079 544,371
- -------------------------------------------------------------------------------------------------------
Shares outstanding, end of period 289,017 365,887 414,940 462,079
=======================================================================================================
CLASS Y
Shares sold 1,219,487 381,513 113,986 174
Shares redeemed (339,541) (459,173) (7,994) --
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 879,946 (77,660) 105,992 174
Shares outstanding, beginning of period 1,397,393 1,475,053 174 --
- -------------------------------------------------------------------------------------------------------
Shares outstanding, end of period 2,277,339 1,397,393 106,166 174
=======================================================================================================
49
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH
GROWTH FUND OPPORTUNITIES FUND
- -------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2010 2009 2010 2009(A)(B)
- -------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
Shares sold -- -- 1,104,600 174
Shares redeemed -- -- (65,305) --
- -------------------------------------------------------------------------------------------------------
Net increase in shares outstanding -- -- 1,039,295 174
Shares outstanding, beginning of period -- -- 174 --
- -------------------------------------------------------------------------------------------------------
Shares outstanding, end of period -- -- 1,039,469 174
=======================================================================================================
(A) Class B represents the period from April 1, 2008 through February 1, 2009.
(B) Class Y and Institutional Class represent the period from commencement of
operations (February 2, 2009) through March 31, 2009.
LARGE CAP LARGE CAP
CORE EQUITY FUND GROWTH FUND
- ---------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2010 2009 2010 2009
- ---------------------------------------------------------------------------------------------------------
CLASS A
Shares sold 382,755 1,320,503 3,067,281 12,745,671
Shares reinvested 31,314 752,009 39,843 15,664
Shares redeemed (2,026,290) (2,719,015) (15,414,647) (13,751,512)
- ---------------------------------------------------------------------------------------------------------
Net decrease in shares outstanding (1,612,221) (646,503) (12,307,523) (990,177)
Shares outstanding, beginning of year 7,517,776 8,164,279 28,433,582 29,423,759
- ---------------------------------------------------------------------------------------------------------
Shares outstanding, end of year 5,905,555 7,517,776 16,126,059 28,433,582
=========================================================================================================
CLASS B
Shares sold -- -- 787 100,102
Shares redeemed -- -- (250,663) (362,105)
- ---------------------------------------------------------------------------------------------------------
Net decrease in shares outstanding -- -- (249,876) (262,003)
Shares outstanding, beginning of year -- -- 997,449 1,259,452
- ---------------------------------------------------------------------------------------------------------
Shares outstanding, end of year -- -- 747,573 997,449
=========================================================================================================
CLASS C
Shares sold 29,779 294,725 667,999 2,714,036
Share reinvested -- 22,799 -- --
Shares redeemed (107,144) (288,175) (3,205,389) (3,021,193)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (77,365) 29,349 (2,537,390) (307,157)
Shares outstanding, beginning of year 312,351 283,002 9,657,926 9,965,083
- ---------------------------------------------------------------------------------------------------------
Shares outstanding, end of year 234,986 312,351 7,120,536 9,657,926
=========================================================================================================
CLASS Y
Shares sold -- -- 6,986,425 15,826,281
Shares reinvested -- -- 81,995 44,535
Shares redeemed -- -- (4,083,242) (3,249,013)
- ---------------------------------------------------------------------------------------------------------
Net increase in shares outstanding -- -- 2,985,178 12,621,803
Shares outstanding, beginning of year -- -- 13,907,460 1,285,657
- ---------------------------------------------------------------------------------------------------------
Shares outstanding, end of year -- -- 16,892,638 13,907,460
=========================================================================================================
50
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
MID CAP
GROWTH FUND
- --------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
MARCH 31, MARCH 31,
2010 2009(A)
- --------------------------------------------------------------------------------
CLASS A
Shares sold 9,450,111 11,219,498
Shares reinvested -- 494,434
Shares redeemed (11,246,950) (11,715,127)
- --------------------------------------------------------------------------------
Net decrease in shares outstanding (1,796,839) (1,195)
Shares outstanding, beginning of period 30,707,280 30,708,475
- --------------------------------------------------------------------------------
Shares outstanding, end of period 28,910,441 30,707,280
================================================================================
CLASS B
Shares sold 11,658 130,202
Shares reinvested -- 49,864
Shares redeemed (770,301) (910,093)
- --------------------------------------------------------------------------------
Net decrease in shares outstanding (758,643) (730,027)
Shares outstanding, beginning of period 2,687,973 3,418,000
- --------------------------------------------------------------------------------
Shares outstanding, end of period 1,929,330 2,687,973
================================================================================
CLASS C
Shares sold 1,099,323 1,903,113
Share reinvested -- 213,999
Shares redeemed (2,694,366) (4,331,573)
- --------------------------------------------------------------------------------
Net decrease in shares outstanding (1,595,043) (2,214,461)
Shares outstanding, beginning of period 14,444,123 16,658,584
- --------------------------------------------------------------------------------
Shares outstanding, end of period 12,849,080 14,444,123
================================================================================
CLASS Y
Shares sold 1,818,788 189
Shares redeemed (528,358) --
- --------------------------------------------------------------------------------
Net increase in shares outstanding 1,290,430 189
Shares outstanding, beginning of period 189 --
- --------------------------------------------------------------------------------
Shares outstanding, end of period 1,290,619 189
================================================================================
(A) Class Y represents the period from commencement of operations (February 2,
2009) through March 31, 2009.
7. CUSTODY OFFSET ARRANGEMENT
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 March 31,
2010, there were no fees reduced by the Custodian. Effective June 1, 2009, the
Custody Fee Offset Program was terminated.
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 made against the
Funds that have not yet occurred. However, based on experience, the Funds expect
the risk of loss to be remote.
51
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS
Subsequent events occurring after the date of this report have been evaluated
for potential impact to this report through the date the financial statements
were issued. There were no subsequent events to report that would have a
material impact on the Funds' financial statements.
52
- --------------------------------------------------------------------------------
Portfolio of Investments
Diversified Small Cap Growth Fund - March 31, 2010
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.7% SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 27.0%
Ariba, Inc.* + 26,440 $ 339,754
Atheros Communications, Inc.* 15,121 585,334
Avnet, Inc.* 10,866 325,980
Blue Coat Systems, Inc.* 5,865 182,050
CACI International, Inc. - Class A* 7,095 346,591
comScore, Inc.* 17,139 286,050
DivX, Inc.* 17,405 124,620
Euronet Worldwide, Inc.* 21,224 391,158
F5 Networks, Inc.* 3,093 190,250
Finisar Corp.* + 13,783 216,531
j2 Global Communications, Inc.* + 15,701 367,403
Mantech International Corp. - Class A* 7,125 347,914
Mellanox Technologies Ltd.* 8,755 206,355
MICROS Systems, Inc.* 6,538 214,970
Microsemi Corp.* + 28,722 498,040
Multi-Fineline Electronix, Inc.* 9,865 254,122
Netscout Systems, Inc.* 24,679 365,002
Nuance Communications, Inc.* 16,152 268,769
Oplink Communications, Inc.* 13,019 241,372
Parametric Technology Corp.* 15,325 276,616
Polycom, Inc.* 8,245 252,132
Progress Software Corp.* + 13,360 419,905
Riverbed Technology, Inc.* 14,086 400,042
Skyworks Solutions, Inc.* + 43,687 681,517
Sybase, Inc.* + 5,755 268,298
Taleo Corp.- Class A* 12,911 334,524
Tessera Technologies, Inc.* 10,013 203,064
Virtusa Corp.* 21,031 216,830
VistaPrint NV* 8,230 471,168
Web.com Group, Inc.* 35,021 190,865
Wright Express Corp.* 9,244 278,429
- --------------------------------------------------------------------------------
9,745,655
- --------------------------------------------------------------------------------
HEALTH CARE -- 25.0%
Acorda Therapeutics, Inc.* 21,755 744,021
Alexion Pharmaceuticals, Inc.* 12,238 665,380
Auxilium Pharmaceuticals, Inc.* + 21,220 661,215
BioMarin Pharmaceutical, Inc.* + 28,041 655,318
CryoLife, Inc.* 33,705 218,071
eResearchTechnology, Inc.* 35,961 248,491
Genomic Health, Inc.* + 27,698 487,208
HMS Holdings Corp.* + 8,820 449,732
Inspire Pharmaceuticals, Inc.* 66,210 413,150
Insulet Corp.* + 13,935 210,279
NuVasive, Inc.* + 9,980 451,096
Onyx Pharmaceuticals, Inc.* 7,785 235,730
RTI Biologics, Inc.* 95,005 411,372
Salix Pharmaceuticals Ltd.* 12,735 474,379
Somaxon Pharmaceuticals, Inc.* 18,999 164,341
SonoSite, Inc.* + 14,125 453,554
Spectranetics Corp. (The)* 70,145 484,702
TranS1, Inc.* 36,493 118,602
United Therapeutics Corp.* 9,385 519,272
Vanda Pharmaceuticals, Inc.* + 31,460 363,048
Wright Medical Group, Inc.* 34,650 615,731
- --------------------------------------------------------------------------------
9,044,692
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 19.7%
99 Cents Only Stores* 31,526 513,874
American Public Education, Inc.* 3,827 178,338
Big Lots, Inc.* 15,908 579,369
BJ's Restaurants, Inc.* + 11,175 260,378
Capella Education Co.* 7,812 725,266
Chico's FAS, Inc. 12,130 174,915
Chipotle Mexican Grill, Inc. - Class A* + 1,715 193,229
Coinstar, Inc.* + 18,406 598,195
Deckers Outdoor Corp.* 3,836 529,368
Fuel Systems Solutions, Inc.* + 4,920 157,243
LKQ Corp.* 21,115 428,635
Morningstar, Inc.* 6,780 326,050
Netflix, Inc.* + 8,923 657,982
Panera Bread Co. - Class A* 3,305 252,799
PetMed Express, Inc. + 19,358 429,167
Steiner Leisure Ltd.* 5,719 253,466
Tractor Supply Co. + 7,001 406,408
Tupperware Brands Corp. 8,980 433,016
- --------------------------------------------------------------------------------
7,097,698
- --------------------------------------------------------------------------------
INDUSTRIALS -- 11.8%
AAR Corp.* 10,515 260,982
Ameron International Corp. 2,136 134,333
Ducommun, Inc. 11,254 236,447
EnPro Industries, Inc.* 10,404 302,548
GrafTech International Ltd.* + 15,435 210,997
Granite Construction, Inc. + 3,930 118,765
Harbin Electric, Inc.* + 15,570 336,156
Kforce, Inc.* 21,126 321,327
LaBarge, Inc.* 14,498 160,203
Ladish Co., Inc.* 8,740 176,198
MYR Group, Inc.* + 13,340 217,575
Powell Industries, Inc.* 2,350 76,446
SFN Group, Inc.* 34,445 275,904
Sykes Enterprises, Inc.* 19,605 447,778
Towers Watson & Co. - Class A 6,966 330,885
Wabtec Corp. 3,968 167,132
Woodward Governor Co. 14,982 479,124
- --------------------------------------------------------------------------------
4,252,800
- --------------------------------------------------------------------------------
FINANCIALS -- 6.1%
Cash America International, Inc. 8,240 325,315
Encore Capital Group, Inc.* 14,798 243,427
EZCORP, Inc. - Class A* 29,690 611,614
First Cash Financial Services, Inc.* 16,960 365,827
Portfolio Recovery Associates, Inc.* + 9,570 525,106
SWS Group, Inc. 11,936 137,622
- --------------------------------------------------------------------------------
2,208,911
- --------------------------------------------------------------------------------
53
- --------------------------------------------------------------------------------
Diversified Small Cap Growth Fund (Continued)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.7% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
ENERGY -- 4.5%
Alpha Natural Resources, Inc.* 3,680 $ 183,595
Arena Resources, Inc.* 3,185 106,379
Atwood Oceanics, Inc.* 5,062 175,297
Lufkin Industries, Inc. 3,600 284,940
Natural Gas Services Group, Inc.* 11,776 186,885
T-3 Energy Services, Inc.* 10,790 265,002
World Fuel Services Corp. + 15,985 425,841
- --------------------------------------------------------------------------------
1,627,939
- --------------------------------------------------------------------------------
MATERIALS -- 1.8%
Balchem Corp. 8,167 201,316
Koppers Holdings, Inc. 6,390 180,965
LSB Industries, Inc.* 3,494 53,248
Worthington Industries, Inc. 13,240 228,920
- --------------------------------------------------------------------------------
664,449
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 1.0%
Syniverse Holdings, Inc.* 18,410 358,443
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 0.8%
BJ's Wholesale Club, Inc.* 2,536 93,806
Flowers Foods, Inc. 3,920 96,981
Lancaster Colony Corp. 1,782 105,067
- --------------------------------------------------------------------------------
295,854
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 35,296,441
- --------------------------------------------------------------------------------
INVESTMENT FUNDS -- 26.3%
Invesco AIM Liquid Assets Portfolio** 8,965,999 8,965,999
Touchstone Institutional
Money Market Fund^ 552,905 552,905
- --------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 9,518,904
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 124.0%
(Cost $38,871,841) $ 44,815,345
LIABILITIES IN EXCESS OF OTHER ASSETS -- (24.0%) (8,675,540)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 36,139,805
================================================================================
+ All or a portion of the security is on loan. The total value of the
securities on loan as of March 31, 2010, was $8,687,410.
* Non-income producing security.
** Represents collateral for securities loaned.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 5.
OTHER INFORMATION:
The inputs or methodology used for valuing securities may not be an indication
of the risk associated with investing in those securities. For more information
on valuation inputs, and their aggregation into the levels used in the table
below, please refer to the security valuation section in the accompanying notes
to financial statements.
VALUATION INPUTS AT REPORTING DATE
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
- ----------------------------------------------------------------------------
Common Stocks $ 35,296,441 $ -- $ -- $ 35,296,441
Investment Funds 9,518,904 -- -- 9,518,904
============================================================================
$ 44,815,345
See accompanying notes to financial statements.
54
- --------------------------------------------------------------------------------
Portfolio of Investments
Growth Opportunities Fund - March 31, 2010
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.3% SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 35.4%
Accenture PLC - Class A 15,650 $ 656,518
Alliance Data Systems Corp.* + 15,600 998,244
Apple, Inc.* 6,080 1,428,374
BMC Software, Inc.* 28,000 1,064,000
Cisco Systems, Inc.* 49,600 1,291,088
Corning, Inc. 69,050 1,395,500
EMC Corp.* 70,100 1,264,604
Google, Inc. - Class A* 2,150 1,219,071
Hewlett-Packard Co. + 30,200 1,605,130
Intel Corp. 56,100 1,248,786
International Business Machines Corp. 13,140 1,685,205
LSI Corp.* + 156,400 957,168
McAfee, Inc.* 22,700 910,951
Microsoft Corp. 67,400 1,972,798
NICE Systems Ltd. - ADR* 31,250 992,188
Nuance Communications, Inc.* 84,100 1,399,424
Oracle Corp. 59,300 1,523,417
QUALCOMM, Inc. 27,550 1,156,825
- --------------------------------------------------------------------------------
22,769,291
- --------------------------------------------------------------------------------
HEALTH CARE -- 17.3%
Adolor Corp.* 180,100 324,180
Celgene Corp.* 34,925 2,163,953
Dionex Corp.* 12,950 968,401
Elan Corp. PLC - ADR* 131,600 997,528
Life Technologies Corp.* 24,800 1,296,296
Santarus, Inc.* 99,200 533,696
Shire PLC - ADR + 25,900 1,708,364
United Therapeutics Corp.* 17,300 957,209
Vertex Pharmaceuticals, Inc.* 29,100 1,189,317
Warner Chilcott PLC - Class A* 39,350 1,005,392
- --------------------------------------------------------------------------------
11,144,336
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 10.6%
CVS Caremark Corp. 45,300 1,656,168
PepsiCo, Inc. 28,600 1,892,176
Procter & Gamble Co./The 18,900 1,195,803
Ralcorp Holdings, Inc.* 16,150 1,094,647
Wal-Mart Stores, Inc. 17,800 989,680
- --------------------------------------------------------------------------------
6,828,474
- --------------------------------------------------------------------------------
MATERIALS -- 10.2%
Air Products & Chemicals, Inc. 13,150 972,443
Celanese Corp. 43,700 1,391,845
Goldcorp, Inc. 26,950 1,003,079
Mosaic Co./The 19,450 1,181,976
Owens-Illinois, Inc.* 36,700 1,304,318
Yamana Gold, Inc. + 70,100 690,485
- --------------------------------------------------------------------------------
6,544,146
- --------------------------------------------------------------------------------
INDUSTRIALS -- 9.1%
AMETEK, Inc. 29,150 1,208,559
BE Aerospace, Inc.* 43,100 1,312,395
Dover Corp. 29,100 1,360,425
Goodrich Corp. 15,100 1,064,852
IDEX Corp. + 27,500 910,250
- --------------------------------------------------------------------------------
5,856,481
- --------------------------------------------------------------------------------
ENERGY -- 8.0%
CONSOL Energy, Inc. 28,000 1,194,480
ENSCO International, Inc. - ADR 29,150 1,305,337
National-Oilwell Varco, Inc. 36,650 1,487,257
Weatherford International Ltd.* 73,400 1,164,124
- --------------------------------------------------------------------------------
5,151,198
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 6.0%
Bed Bath & Beyond, Inc.* 22,700 993,352
Netflix, Inc.* + 9,700 715,278
Target Corp. 20,450 1,075,670
Urban Outfitters, Inc.* 28,000 1,064,840
- --------------------------------------------------------------------------------
3,849,140
- --------------------------------------------------------------------------------
FINANCIALS -- 2.7%
Waddell & Reed Financial, Inc. - Class A 47,450 1,710,098
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 63,853,164
- --------------------------------------------------------------------------------
INVESTMENT FUNDS -- 11.0%
Invesco AIM Liquid Assets Portfolio** 4,012,405 4,012,405
Touchstone Institutional
Money Market Fund^ 3,037,764 3,037,764
- --------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 7,050,169
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 110.3%
(Cost $65,383,456) $ 70,903,333
LIABILITIES IN EXCESS OF OTHER ASSETS -- (10.3%) (6,605,582)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 64,297,751
================================================================================
+ All or a portion of the security is on loan. The total value of the
securities on loan as of March 31, 2010, was $3,894,998.
* Non-income producing security.
** Represents collateral for securities loaned.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 5.
ADR - American Depositary Receipt
PLC - Public Liability Company
55
OTHER INFORMATION:
The inputs or methodology used for valuing securities may not be an indication
of the risk associated with investing in those securities. For more information
on valuation inputs, and their aggregation into the levels used in the table
below, please refer to the security valuation section in the accompanying notes
to financial statements.
VALUATION INPUTS AT REPORTING DATE
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
- --------------------------------------------------------------------------------
Common Stocks $63,853,164 $ -- $ -- $63,853,164
Investment Funds 7,050,169 -- -- 7,050,169
================================================================================
$70,903,333
See accompanying notes to financial statements.
56
- --------------------------------------------------------------------------------
Portfolio of Investments
Large Cap Core Equity Fund - March 31, 2010
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.9% SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 22.5%
Cisco Systems, Inc.* 60,048 $ 1,563,049
Fiserv, Inc.* 10,270 521,305
Hewlett-Packard Co. + 25,583 1,359,736
Intel Corp. 55,259 1,230,065
International Business Machines Corp. 8,130 1,042,673
Microsoft Corp. 59,951 1,754,766
Oracle Corp. 58,155 1,494,002
QUALCOMM, Inc. 27,539 1,156,363
Tyco Electronics Ltd. 39,435 1,083,674
Western Digital Corp.* 21,190 826,198
- --------------------------------------------------------------------------------
12,031,831
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 13.4%
Best Buy Co., Inc. 25,639 1,090,683
Dollar Tree, Inc.* 14,130 836,779
Home Depot, Inc. + 16,420 531,187
Honda Motor Co. Ltd. - ADR 24,070 849,430
McDonald's Corp. 13,470 898,718
Ross Stores, Inc. 29,110 1,556,512
Target Corp. 26,136 1,374,754
- --------------------------------------------------------------------------------
7,138,063
- --------------------------------------------------------------------------------
FINANCIALS -- 13.2%
Aflac, Inc. 33,898 1,840,323
Allstate Corp./The 24,036 776,603
American Express Co. 26,078 1,075,978
Goldman Sachs Group, Inc./The 7,445 1,270,340
Morgan Stanley 36,629 1,072,863
State Street Corp. 22,590 1,019,713
- --------------------------------------------------------------------------------
7,055,820
- --------------------------------------------------------------------------------
INDUSTRIALS -- 11.8%
Danaher Corp. 10,215 816,281
Emerson Electric Co. 17,612 886,588
Honeywell International, Inc. 12,006 543,512
Illinois Tool Works, Inc. 21,959 1,039,978
Union Pacific Corp. 16,948 1,242,288
United Technologies Corp. 24,327 1,790,710
- --------------------------------------------------------------------------------
6,319,357
- --------------------------------------------------------------------------------
HEALTH CARE -- 11.2%
Johnson & Johnson 13,507 880,657
Laboratory Corp. of America Holdings* 16,003 1,211,587
McKesson Corp. 16,911 1,111,391
Novartis AG - ADR + 22,882 1,237,916
Teva Pharmaceutical Industries Ltd. - ADR 13,650 861,042
WellPoint, Inc.* 10,297 662,921
- --------------------------------------------------------------------------------
5,965,514
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 8.8%
Altria Group, Inc. 34,665 711,326
CVS Caremark Corp. 21,091 771,087
Kimberly-Clark Corp. 8,441 530,770
PepsiCo, Inc. 15,260 1,009,602
Philip Morris International, Inc. 31,828 1,660,148
- --------------------------------------------------------------------------------
4,682,933
- --------------------------------------------------------------------------------
ENERGY -- 8.7%
Chesapeake Energy Corp. 34,830 823,381
Chevron Corp. 16,151 1,224,730
ENSCO International, Inc. - ADR 21,422 959,277
Marathon Oil Corp. 26,107 826,026
Transocean Ltd.* 9,718 839,441
- --------------------------------------------------------------------------------
4,672,855
- --------------------------------------------------------------------------------
MATERIALS -- 3.9%
BHP Billiton Ltd. - ADR + 11,210 900,387
Praxair, Inc. 14,102 1,170,466
- --------------------------------------------------------------------------------
2,070,853
- --------------------------------------------------------------------------------
UTILITIES -- 2.5%
Dominion Resources, Inc. + 32,594 1,339,939
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 1.9%
AT&T, Inc. 39,289 1,015,228
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 52,292,393
- --------------------------------------------------------------------------------
INVESTMENT FUNDS -- 10.1%
Invesco AIM Liquid Assets Portfolio** 4,280,809 4,280,809
Touchstone Institutional
Money Market Fund^ 1,091,219 1,091,219
- --------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 5,372,028
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 108.0%
(Cost $52,268,780) $ 57,664,421
LIABILITIES IN EXCESS OF OTHER ASSETS -- (8.0%) (4,263,238)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 53,401,183
================================================================================
* Non-income producing security.
+ All or a portion of the security is on loan. The total value of the
securities on loan as of March 31, 2010, was $4,173,716.
** Represents collateral for securities loaned.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 5.
ADR - American Depositary Receipt
57
- --------------------------------------------------------------------------------
Large Cap Core Equity Fund (Continued)
- --------------------------------------------------------------------------------
OTHER INFORMATION:
The inputs or methodology used for valuing securities may not be an indication
of the risk associated with investing in those securities. For more information
on valuation inputs, and their aggregation into the levels used in the table
below, please refer to the security valuation section in the accompanying notes
to financial statements.
VALUATION INPUTS AT REPORTING DATE
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
- --------------------------------------------------------------------------------
Common Stocks $52,292,393 $ -- $ -- $52,292,393
Investment Funds 5,372,028 -- -- 5,372,028
================================================================================
$57,664,421
See accompanying notes to financial statements.
58
- --------------------------------------------------------------------------------
Portfolio of Investments
Large Cap Growth Fund - March 31, 2010
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.1% SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 36.8%
Apple, Inc.* 70,320 $ 16,520,278
Baidu, Inc. - ADR* + 47,710 28,482,870
Broadcom Corp. - Class A 776,300 25,757,634
Citrix Systems, Inc.* + 354,990 16,851,375
Cognizant Technology Solutions
Corp. - Class A* + 425,970 21,715,951
Cree, Inc.* + 246,700 17,323,274
Google, Inc. - Class A* 48,000 27,216,480
Infosys Technologies Ltd. - ADR + 361,750 21,288,987
International Business Machines Corp. 188,140 24,128,955
Marvell Technology Group Ltd.* 1,007,383 20,530,465
NetApp, Inc.* 622,650 20,273,484
Oracle Corp. 832,730 21,392,834
Salesforce.com, Inc.* 237,000 17,644,650
Taiwan Semiconductor
Manufacturing Co. Ltd. - ADR 882,939 9,262,030
Western Digital Corp.* 570,705 22,251,788
- --------------------------------------------------------------------------------
310,641,055
- --------------------------------------------------------------------------------
MATERIALS -- 17.2%
BHP Billiton Ltd. - ADR + 262,710 21,100,867
CF Industries Holdings, Inc. 160,000 14,588,800
Companhia Siderurgica
Nacional SA - ADR + 558,300 22,292,919
Goldcorp, Inc. + 311,000 11,575,420
Lubrizol Corp. + 206,849 18,972,190
Newmont Mining Corp. 245,600 12,508,408
Southern Copper Corp. + 665,500 21,076,385
Teck Resources Ltd. - Class B* + 532,230 23,183,939
- --------------------------------------------------------------------------------
145,298,928
- --------------------------------------------------------------------------------
HEALTH CARE -- 16.1%
Alcon, Inc. 105,336 17,018,084
Cerner Corp.* + 198,400 16,875,904
Express Scripts, Inc.* 228,560 23,258,266
McKesson Corp. 320,005 21,030,728
Medco Health Solutions, Inc.* 395,175 25,512,498
Merck & Co., Inc. 390,985 14,603,290
Teva Pharmaceutical Industries Ltd. - ADR 281,800 17,775,944
- --------------------------------------------------------------------------------
136,074,714
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 11.1%
Amazon.com, Inc.* 177,750 24,126,008
AutoZone, Inc.* + 94,870 16,421,048
DIRECTV Group, Inc. - Class A* 559,395 18,913,145
Kohl's Corp.* + 307,683 16,854,875
TJX Cos., Inc. 409,000 17,390,680
- --------------------------------------------------------------------------------
93,705,756
- --------------------------------------------------------------------------------
ENERGY -- 11.1%
Anadarko Petroleum Corp. 336,180 24,483,990
Occidental Petroleum Corp. 298,345 25,222,086
Southwestern Energy Co.* 596,925 24,306,786
Talisman Energy, Inc. 1,164,197 19,861,201
- --------------------------------------------------------------------------------
93,874,063
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.1%
Colgate-Palmolive Co. 191,335 16,313,222
Walgreen Co. 489,900 18,170,391
- --------------------------------------------------------------------------------
34,483,613
- --------------------------------------------------------------------------------
INDUSTRIALS -- 2.7%
Precision Castparts Corp. 181,200 22,959,852
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 837,037,981
- --------------------------------------------------------------------------------
INVESTMENT FUNDS -- 19.3%
Invesco AIM Liquid Assets Portfolio** 152,673,001 152,673,001
Touchstone Institutional
Money Market Fund^ 10,189,005 10,189,005
- --------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 162,862,006
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 118.4%
(Cost $802,034,479) $ 999,899,987
LIABILITIES IN EXCESS OF OTHER ASSETS -- (18.4%) (155,512,525)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 844,387,462
================================================================================
* Non-income producing security.
+ All or a portion of the security is on loan. The total value of the
securities on loan as of March 31, 2010, was $148,743,899.
** Represents collateral for securities loaned.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 5.
ADR - American Depositary Receipt
OTHER INFORMATION:
The inputs or methodology used for valuing securities may not be an indication
of the risk associated with investing in those securities. For more information
on valuation inputs, and their aggregation into the levels used in the table
below, please refer to the security valuation section in the accompanying notes
to financial statements.
VALUATION INPUTS AT REPORTING DATE
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
- --------------------------------------------------------------------------------
Common Stocks $837,037,981 $ -- $ -- $837,037,981
Investment Funds 162,862,006 -- -- 162,862,006
================================================================================
$999,899,987
See accompanying notes to financial statements.
59
- --------------------------------------------------------------------------------
Portfolio of Investments
Mid Cap Growth Fund - March 31, 2010
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 98.8% SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 17.9%
Agilent Technologies, Inc.* 184,600 $ 6,348,394
Avago Technologies Ltd.* 309,325 6,359,722
Avnet, Inc.* 163,500 4,905,000
BMC Software, Inc.* 240,600 9,142,800
Broadcom Corp. - Class A 187,400 6,217,932
Brocade Communications
Systems, Inc.* + 1,180,800 6,742,368
Ciena Corp.* + 320,115 4,878,553
Gartner, Inc.* 410,200 9,122,848
Global Payments, Inc. + 139,450 6,351,947
Lam Research Corp.* + 164,100 6,124,212
LSI Corp.* 1,914,029 11,713,857
Maxim Integrated Products, Inc. 305,245 5,918,701
McAfee, Inc.* 229,768 9,220,590
NICE Systems Ltd. - ADR* 371,800 11,804,650
ON Semiconductor Corp.* + 1,593,450 12,747,600
QLogic Corp.* 257,900 5,235,370
Quest Software, Inc.* 514,100 9,145,839
Red Hat, Inc.* 268,000 7,844,360
Verigy Ltd.* + 336,551 3,762,640
Xilinx, Inc. 415,650 10,599,075
- --------------------------------------------------------------------------------
154,186,458
- --------------------------------------------------------------------------------
INDUSTRIALS -- 15.6%
AMETEK, Inc. 218,750 9,069,375
Cooper Industries PLC 158,600 7,603,284
Delta Air Lines, Inc.* 646,000 9,425,140
Dover Corp. + 364,090 17,021,207
Hexcel Corp.* + 559,995 8,086,328
IDEX Corp. + 303,500 10,045,850
Jacobs Engineering Group, Inc.* 95,802 4,329,292
Joy Global, Inc. 113,430 6,420,138
Kennametal, Inc. + 170,500 4,794,460
MSC Industrial Direct Co. - Class A + 213,250 10,803,245
Precision Castparts Corp. 89,680 11,363,353
Rockwell Collins, Inc. + 117,245 7,338,365
Roper Industries, Inc. + 180,500 10,440,120
Snap-On, Inc. 90,680 3,930,071
SPX Corp. + 104,275 6,915,518
WABCO Holdings, Inc.* 237,730 7,112,882
- --------------------------------------------------------------------------------
134,698,628
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 14.2%
Abercrombie & Fitch Co. - Class A 160,000 7,302,400
American Eagle Outfitters, Inc. 298,700 5,531,924
Bed Bath & Beyond, Inc.* 297,565 13,021,444
Burger King Holdings, Inc. 296,800 6,309,968
Coach, Inc. 295,221 11,667,134
DeVry, Inc. 84,800 5,528,960
Discovery Communications, Inc. - Class A* + 273,450 9,239,876
Foot Locker, Inc. 415,800 6,253,632
Fortune Brands, Inc. 76,100 3,691,611
Lear Corp.* 98,400 7,808,040
Lennar Corp. - Class A + 194,300 3,343,903
Macy's, Inc. 284,274 6,188,645
Marriott International, Inc. - Class A + 243,713 7,681,834
Starbucks Corp.* 339,100 8,229,957
TJX Cos., Inc. 169,500 7,207,140
Toll Brothers, Inc.* 157,900 3,284,320
Urban Outfitters, Inc.* 265,200 10,085,556
- --------------------------------------------------------------------------------
122,376,344
- --------------------------------------------------------------------------------
HEALTH CARE -- 14.2%
Beckman Coulter, Inc. + 48,800 3,064,640
Celgene Corp.* 180,432 11,179,567
Covance, Inc.* + 113,600 6,973,904
DaVita, Inc.* 142,250 9,018,650
Elan Corp. PLC - ADR* 1,077,300 8,165,934
Life Technologies Corp.* 210,550 11,005,448
Mettler-Toledo International, Inc.* 101,150 11,045,580
Shire PLC - ADR + 185,950 12,265,262
Thermo Fisher Scientific, Inc.* 117,195 6,028,511
United Therapeutics Corp.* 98,400 5,444,472
Varian Medical Systems, Inc.* + 270,741 14,980,100
Vertex Pharmaceuticals, Inc.* 328,100 13,409,447
Warner Chilcott PLC - Class A* 374,550 9,569,752
- --------------------------------------------------------------------------------
122,151,267
- --------------------------------------------------------------------------------
FINANCIALS -- 12.9%
Ameriprise Financial, Inc. 210,550 9,550,548
Annaly Capital Management, Inc. REIT + 514,100 8,832,238
Arch Capital Group Ltd.* + 86,600 6,603,250
Assurant, Inc. 170,980 5,878,292
Comerica, Inc. 34,700 1,319,988
Discover Financial Services 360,900 5,377,410
Federated Investors, Inc. - Class B + 198,100 5,225,878
First Horizon National Corp.* + 272,187 3,824,232
Hudson City Bancorp, Inc. + 287,275 4,067,814
Invesco, Ltd. 337,920 7,403,827
KeyCorp + 862,500 6,684,375
Knight Capital Group, Inc. - Class A* + 411,525 6,275,756
New York Community Bancorp, Inc. + 307,173 5,080,642
Northern Trust Corp. 97,600 5,393,376
PartnerRe Ltd. + 59,300 4,727,396
People's United Financial, Inc. 307,469 4,808,815
Primerica, Inc.* 37,155 557,325
Synovus Financial Corp. + 1,046,650 3,443,479
TCF Financial Corp. + 431,200 6,873,328
Willis Group Holdings PLC + 208,689 6,529,879
Wilmington Trust Corp. + 152,795 2,531,813
- --------------------------------------------------------------------------------
110,989,661
- --------------------------------------------------------------------------------
ENERGY -- 9.8%
Cameron International Corp.* 154,200 6,609,012
CONSOL Energy, Inc. 294,100 12,546,306
Denbury Resources, Inc.* 623,250 10,514,227
Massey Energy Co. 328,150 17,158,964
Murphy Oil Corp. 92,020 5,170,604
National-Oilwell Varco, Inc. 301,980 12,254,348
60
- --------------------------------------------------------------------------------
Mid Cap Growth Fund (Continued)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 98.8% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
ENERGY -- 9.8% (CONTINUED)
PetroHawk Energy Corp.* + 251,000 $ 5,090,280
Weatherford International Ltd.* + 941,200 14,927,432
- --------------------------------------------------------------------------------
84,271,173
- --------------------------------------------------------------------------------
MATERIALS -- 6.6%
Commercial Metals Co. 323,945 4,878,612
Crown Holdings, Inc.* 352,700 9,508,792
Cytec Industries, Inc. + 108,325 5,063,111
Ecolab, Inc. 153,100 6,728,745
International Flavors & Fragrances, Inc. 148,635 7,085,430
Owens-Illinois, Inc.* 308,950 10,980,083
Pactiv Corp.* 212,800 5,358,304
Yamana Gold, Inc. + 749,200 7,379,620
- --------------------------------------------------------------------------------
56,982,697
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.1%
Bunge Ltd. + 155,900 9,608,117
H.J. Heinz Co. + 136,500 6,225,765
J.M. Smucker Co./The 89,750 5,408,335
Molson Coors Brewing Co. - Class B 113,500 4,773,810
Ralcorp Holdings, Inc.* 131,250 8,896,125
- --------------------------------------------------------------------------------
34,912,152
- --------------------------------------------------------------------------------
UTILITIES -- 2.4%
Consolidated Edison, Inc. + 137,170 6,109,552
Hawaiian Electric Industies, Inc. + 211,839 4,755,785
PG&E Corp. + 76,000 3,223,920
Wisconsin Energy Corp. 129,795 6,413,171
- --------------------------------------------------------------------------------
20,502,428
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 1.1%
NII Holdings, Inc.* 218,700 9,111,042
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $ 850,181,850
- --------------------------------------------------------------------------------
INVESTMENT FUNDS -- 17.9%
Invesco AIM Liquid Assets Portfolio** 153,877,425 153,877,425
Touchstone Institutional
Money Market Fund^ 167,739 167,739
- --------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS $ 154,045,164
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 116.7%
(Cost $865,834,825) $1,004,227,014
LIABILITIES IN EXCESS OF OTHER ASSETS -- (16.7%) (143,346,938)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 860,880,076
================================================================================
* Non-income producing security.
+ All or a portion of the security is on loan. The total value of the
securities on loan as of March 31, 2010, was $149,586,867.
** Represents collateral for securities loaned.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See Note 5.
ADR - American Depositary Receipt
PLC - Public Liability Company
REIT - Real Estate Investment Trust
OTHER INFORMATION:
The inputs or methodology used for valuing securities may not be an indication
of the risk associated with investing in those securities. For more information
on valuation inputs, and their aggregation into the levels used in the table
below, please refer to the security valuation section in the accompanying notes
to financial statements.
VALUATION INPUTS AT REPORTING DATE
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
- --------------------------------------------------------------------------------
Common Stocks $850,181,850 $ -- $ -- $850,181,850
Investment Funds 154,045,164 -- -- 154,045,164
================================================================================
$1,004,227,014
See accompanying notes to financial statements.
61
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of Touchstone Strategic Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Touchstone Strategic Trust, comprised of the
Touchstone Diversified Small Cap Growth Fund, Touchstone Growth Opportunities
Fund, Touchstone Large Cap Core Equity Fund, Touchstone Large Cap Growth Fund,
and Touchstone Mid Cap Growth Fund (the "Funds"), as of March 31, 2010, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years 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 March 31, 2010, 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 Funds comprising the Touchstone Strategic Trust at March 31,
2010, the results of their operations for the year then ended, the changes in
their net assets for each of the two years then ended, and their financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
Cincinnati, Ohio
May 27, 2010
62
- --------------------------------------------------------------------------------
Other Items (Unaudited)
- --------------------------------------------------------------------------------
QUALIFIED DIVIDEND INCOME
Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act"), the
following percentages of ordinary dividends paid during the fiscal year ended
March 31, 2010 are designed as "qualified dividend income," as defined in the
Act, and are subject to reduced tax rates in 2009.
Large Cap Core Equity Fund 100%
Large Cap Growth Fund 100%
DIVIDENDS RECEIVED DEDUCTION
For corporate shareholders, the following ordinary dividends paid during the
year ended March 31, 2010 qualify for the corporate dividends received
deduction:
Large Cap Core Equity Fund 100%
Large Cap Growth Fund 100%
PROXY VOTING DISCLOSURE
The Sub-Advisors are responsible for exercising the voting rights associated
with the securities purchased and held by the Funds. A description of the
policies and procedures that the Sub-Advisors use in fulfilling this
responsibility and information regarding how those proxies were voted during the
twelve month period ended June 30 are available without charge upon request by
calling toll free 1.800.543.0407. These items are also available on the
Securities and Exchange Commission's (the Commission) Website at
http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The Trust files a complete listing of portfolio holdings for each Fund as of the
end of the first and third quarters of each fiscal year on Form N-Q. The
complete listing (i) is available on the Commission's Website; (ii) may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC;
and (iii) will be made available to shareholders upon request by calling
1.800.543.0407. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Funds, you incur two types of costs: (1) transaction
costs, including reinvested dividends or other distributions; and (2) ongoing
costs, including investment advisory fees; distribution (12b-1) fees; and other
Fund expenses. This example is intended to help you understand your ongoing
costs (in dollars) of investing in the Funds and to compare these costs with the
ongoing costs of investing in other mutual funds.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six
Months Ended March 31, 2010" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Funds' actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Funds' actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
63
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
SCHEDULE OF SHAREHOLDER EXPENSES (CONTINUED)
EXPENSES
NET EXPENSE BEGINNING ENDING PAID DURING
RATIO ACCOUNT ACCOUNT THE SIX MONTHS
ANNUALIZED VALUE VALUE ENDED
MARCH 31, OCTOBER 1, MARCH 31, MARCH 31,
2010 2009 2010 2010*
- --------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND
Class A Actual 1.40% $1,000.00 $1,093.90 $ 7.31
Class A Hypothetical 1.40% $1,000.00 $1,017.95 $ 7.04
Class C Actual 2.15% $1,000.00 $1,087.90 $ 11.19
Class C Hypothetical 2.15% $1,000.00 $1,014.21 $ 10.80
Class Y Actual 1.15% $1,000.00 $1,094.40 $ 6.00
Class Y Hypothetical 1.15% $1,000.00 $1,019.20 $ 5.79
GROWTH OPPORTUNITIES FUND
Class A Actual 1.24% $1,000.00 $1,124.40 $ 6.57
Class A Hypothetical 1.24% $1,000.00 $1,018.75 $ 6.24
Class C Actual 1.99% $1,000.00 $1,120.10 $ 10.52
Class C Hypothetical 1.99% $1,000.00 $1,015.01 $ 10.00
Class Y Actual 0.98% $1,000.00 $1,125.80 $ 5.19
Class Y Hypothetical 0.98% $1,000.00 $1,020.04 $ 4.94
Institutional Actual 0.84% $1,000.00 $1,126.70 $ 4.45
Institutional Hypothetical 0.84% $1,000.00 $1,020.74 $ 4.23
LARGE CAP CORE EQUITY FUND
Class A Actual 1.15% $1,000.00 $1,111.40 $ 6.05
Class A Hypothetical 1.15% $1,000.00 $1,019.20 $ 5.79
Class C Actual 1.90% $1,000.00 $1,106.70 $ 9.98
Class C Hypothetical 1.90% $1,000.00 $1,015.46 $ 9.55
LARGE CAP GROWTH FUND
Class A Actual 1.25% $1,000.00 $1,096.60 $ 6.53
Class A Hypothetical 1.25% $1,000.00 $1,018.70 $ 6.29
Class B Actual 2.00% $1,000.00 $1,092.70 $ 10.43
Class B Hypothetical 2.00% $1,000.00 $1,014.96 $ 10.05
Class C Actual 2.00% $1,000.00 $1,093.00 $ 10.44
Class C Hypothetical 2.00% $1,000.00 $1,014.96 $ 10.05
Class Y Actual 0.99% $1,000.00 $1,098.50 $ 5.18
Class Y Hypothetical 0.99% $1,000.00 $1,020.00 $ 4.99
64
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
SCHEDULE OF SHAREHOLDER EXPENSES (CONTINUED)
EXPENSES
NET EXPENSE BEGINNING ENDING PAID DURING
RATIO ACCOUNT ACCOUNT THE SIX MONTHS
ANNUALIZED VALUE VALUE ENDED
MARCH 31, OCTOBER 1, MARCH 31, MARCH 31,
2010 2009 2010 2010*
- --------------------------------------------------------------------------------
MID CAP GROWTH FUND
Class A Actual 1.50% $1,000.00 $1,110.00 $ 7.89
Class A Hypothetical 1.50% $1,000.00 $1,017.45 $ 7.54
Class B Actual 2.25% $1,000.00 $1,106.20 $ 11.81
Class B Hypothetical 2.25% $1,000.00 $1,013.71 $ 11.30
Class C Actual 2.25% $1,000.00 $1,106.10 $ 11.81
Class C Hypothetical 2.25% $1,000.00 $1,013.71 $ 11.30
Class Y Actual 1.25% $1,000.00 $1,111.90 $ 6.58
Class Y Hypothetical 1.25% $1,000.00 $1,018.70 $ 6.29
* 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 [or366]] (to reflect the one-half year
period).
65
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
ANNUAL RENEWAL OF INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
ADVISORY AGREEMENT APPROVAL DISCLOSURE
At a meeting held on November 19, 2009, the Board of Trustees (the "Board" or
"Trustees") of the Touchstone Strategic 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 applicable Sub-Advisory Agreement(s) with
respect to each Fund between the Advisor and the applicable Sub-Advisor(s),
except for the Sub-Advisory Agreement with respect to the Large Cap Core Equity
Fund, which was approved at a meeting held on April 21, 2009.
In determining whether to approve the continuation of the Investment Advisory
Agreement and of the Sub-Advisory Agreements, and with respect to the Large Cap
Core Equity Fund, whether to approve the Sub-Advisory Agreement, the Advisor
furnished information necessary for a majority of the Independent Trustees to
make the determination that the continuance and/or approval of the Investment
Advisory Agreement and the applicable Sub-Advisory Agreement(s) was in the best
interests of each Fund and its respective shareholders. The information provided
to the Board included: (1) industry data comparing advisory fees and expense
ratios of comparable investment companies; (2) comparative performance
information; (3) the Advisor's 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 and/or approval 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 and/or approval
of the Investment Advisory Agreement and the applicable Sub-Advisory
Agreement(s) with respect to each Fund. The Independent Trustees also reviewed
the proposed continuation and/or approval of the Investment Advisory Agreement
and the applicable 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 such services; (2) the
Advisor's compensation and profitability; (3) a comparison of fees and
performance with other advisers; (4) economies of scale; and (5) the terms of
the 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.
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.
66
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
Advisor's Compensation and Profitability. The Board took into consideration the
financial condition and profitability of the Advisor and its affiliates
(including the Sub-Advisor to one 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 waived advisory fees for each Fund. The Board also
noted that the Advisor pays the Sub-Advisors' sub-advisory fees out of the
advisory fees the Advisor receives from the Funds. The Board reviewed the
profitability of the Advisor's relationship with the Funds both before and after
tax expenses and whether the Advisor has the financial wherewithal to continue
to provide a high level of services to the Funds, noting the ongoing commitment
of the Advisor's parent company with respect to providing support and resources
as needed. The Board also considered that the Funds' distributor, an affiliate
of the Advisor, receives Rule 12b-1 distribution fees from the Funds and
receives a portion of the sales charge on sales or redemptions of certain
classes of shares. The Board also noted that the Advisor derives benefits to its
reputation and other benefits from its association with the Funds. The Board
also considered that affiliates of the Advisor may benefit from certain indirect
tax benefits, including those relating to dividend received deductions.
The Board recognized that the Advisor should be entitled to earn a reasonable
level of profits in exchange for the level of services it provides to each Fund
and the entrepreneurial risk that it assumes as Advisor. Based upon their
review, the Trustees concluded that the Advisor's and its affiliates' level of
profitability, if any, from their 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 periods ended September 30, 2009, 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 took into account current market conditions and their
effect on the Funds' performance.
The Board also considered the effect of each Fund's growth and size on its
performance and expenses. The Board noted that the Advisor had waived advisory
fees for each Fund in order to reduce the Fund's respective operating expenses
to targeted levels. The Board further noted that the sub-advisory fees under the
Sub-Advisory Agreement with respect to each Fund were paid by the Advisor out of
the advisory fees it receives from the Fund and the impact of such sub-advisory
fees on the profitability of the Advisor. In reviewing the respective expense
ratios and performance of each of the Funds, the Board also took into account
the nature, extent and quality of the services provided to the Funds by the
Advisor and its affiliates.
The Board also discussed with management certain factors as set forth in the
conditions to the Funds' exemptive order issued by the Securities and Exchange
Commission relating to investments by the non-money market Funds in the
Touchstone Institutional Money Market Fund. Based upon the nature and extent of
the services provided by the Advisor and the Sub-Advisors to each Fund and a
discussion by management with respect to the costs to the Advisor and
Sub-Advisors of the portion of the advisory fee and sub-advisory fee
attributable to the portion of the non-money market Funds' assets to be invested
in the Touchstone Institutional Money Market Fund, the Board concluded that the
advisory fee and the sub-advisory fee(s) of each non-money market Fund were
based on services that were in addition to, rather than duplicative of, services
provided under the Investment Advisory and Sub-Advisory Agreements with respect
to the portion of such Funds' assets to be invested in the Touchstone
Institutional Money Market Fund.
67
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
The Board considered, among other data, the specific factors and related
conclusions set forth below with respect to each Fund:
Touchstone Diversified Small Cap Growth 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
the Fund's 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, 2009 was in the 4th quartile of its
peer group, in the 3rd quartile of its peer group for the twelve-month period
ended September 30, 2009, and in the 2nd quartile of its peer group for the
thirty-six-month period ended September 30, 2009. The Board noted management's
explanation for the Fund's recent underperformance. Based upon their review, the
Trustees concluded that the Fund's performance was being addressed and also
found that the advisory fee was reasonable in light of the high quality of
services received by the Fund and the other factors considered.
Touchstone Growth Opportunities 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 the
Fund's 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, 2009 was in the 1st quartile of the Fund's
peer group, in the 3rd quartile of the Fund's peer group for the twelve-month
period ended September 30, 2009, and in the 2nd quartile of the Fund's peer
group for the thirty-six-month period ended September 30, 2009. Based upon their
review, the Trustees concluded that the Fund's performance was satisfactory and
also found that the advisory fee was reasonable in light of the high quality of
services received by the Fund and the other factors considered.
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 the
Fund's advisory fee. The Fund's performance for the six-month and
thirty-six-month periods ended September 30, 2009 was in the 3rd quartile of the
Fund's peer group, and in the 4th quartile for the twelve-month period ended
September 30, 2009. The Board noted management's explanation for the Fund's
underperformance. The Board 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 being addressed
and that the Fund's advisory fee was reasonable in light of the high quality of
services received by the Fund and the other factors considered.
Touchstone Large Cap Growth Fund. The Fund's advisory fee and total expense
ratio (net of applicable expense waivers) were below and at the median of its
peer group, respectively. The Board noted that the Advisor was currently waiving
a portion of the Fund's advisory fee. The Fund's performance for the six-month
and thirty-six-month periods ended September 30, 2009 were in the 2nd quartile
of the Fund's peer group and in the 4th quartile of the Fund's peer group for
the twelve-month period ended September 30, 2009. Based upon their review, the
Trustees concluded that the Fund's performance was satisfactory and that the
Fund's advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
Touchstone Mid 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 took into account management's discussion of the Fund's expenses and noted
that the Advisor was currently waiving a portion of the Fund's advisory fee. The
Fund's performance for the six-month period ended September 30, 2009 was in the
1st quartile of the Fund's peer group, in the 3rd quartile of the Fund's peer
group for the twelve-month period ended September 30, 2009 and in the 2nd
quartile of the Fund's peer group for the thirty-six month period ended
September 30, 2009. 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 and the other factors
considered.
68
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
Economies of Scale. The Board considered the effect of each Fund's current size
and potential growth on its performance and expenses. 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 schedule for each of Touchstone Growth Opportunities Fund,
Touchstone Large Cap Core Equity Fund and Touchstone Large Cap Growth Fund
contain breakpoints that would reduce the applicable advisory fee rate on assets
above specified levels as the applicable 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 noted
that the current advisory fee for the Touchstone Large Cap Growth Fund currently
reflected such economies of scale. The Board determined that adding breakpoints
at specified levels to the advisory fee schedule of each Fund that currently did
not have such breakpoints was not appropriate at this time. The Board also noted
that if a Fund's assets increase over time, the Fund might also 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 may have 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 reasonable relative to the performance of funds with similar
investment objectives and to relevant indices or, as discussed above, is being
addressed; and (d) each Fund's advisory fee is reasonable relative 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.
In approving the Funds' respective Sub-Advisory Agreements, the Board considered
various factors with respect to each Fund and the applicable Sub-Advisory
Agreement(s), among them: (1) the nature, extent and quality of services
provided to the Fund, including the personnel providing such services; (2) the
Sub-Advisor's compensation; (3) a comparison of the sub-advisory fee and
performance with other advisers; and (4) the terms of the Sub-Advisory
Agreement. The Board's analysis of these factors is set forth below. The
Independent Trustees were advised by independent legal counsel throughout the
process.
Nature, Extent and Quality of Services Provided; Investment Personnel. The Board
considered information provided by the Advisor regarding the services provided
by each Sub-Advisor, including information presented periodically throughout the
previous year. The Board noted the affiliation of the Sub-Advisor to one 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 applicable 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.
69
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
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 arm's-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 applicable Fund to be a substantial factor in
its consideration, although the Board noted that the sub-advisory fee schedule
for each of Touchstone Growth Opportunities Fund, Touchstone Large Cap Core
Equity Fund and Touchstone Large Cap Growth Fund contained breakpoints that
would reduce the sub-advisory fee rate on assets above specified levels if the
applicable 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(s)
to the applicable Sub-Advisor(s). The Board also considered the sub-advisory
fees paid by the Advisor to fees charged by the Sub-Advisors to manage
comparable institutional separate accounts. 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 arm's-length. The Board compared the
sub-advisory fee(s) for each Fund with various comparative data, including the
median and average sub-advisory fees of each Fund's peer group, and considered
the following information:
Touchstone Diversified Small Cap Growth Fund. The Fund's sub-advisory fee was at
the median of its peer group. Based upon their review, the Trustees concluded
that the Fund's sub-advisory fee was reasonable in light of the high quality of
services received by the Fund and the other factors considered.
Touchstone Growth Opportunities Fund. The Fund's sub-advisory fee was above the
median of its peer group. Based upon their review, the Trustees concluded that
the sub-advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
Touchstone Large Cap Core Equity Fund. The Fund's sub-advisory fee was at the
median of its peer group. Based upon their review, the Trustees concluded that
the Fund's sub-advisory fee was reasonable in light of the high quality of
services received by the Fund and the other factors considered.
Touchstone Large Cap Growth Fund. The Fund's sub-advisory fee was above the
median of its peer group. Based upon their review, the Trustees concluded that
the sub-advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
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 fees were reasonable in light of the high quality of services
received by the Fund and the other factors considered.
As noted above, the Board considered each Fund's performance during the
six-month period, twelve-month period and thirty-six month periods ended
September 30, 2009, 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.
70
- --------------------------------------------------------------------------------
Other Items (Continued)
- --------------------------------------------------------------------------------
Conclusion. In considering the renewal of the applicable 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
may have 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 the Fund's investment objectives and policies; (b) the Sub-Advisor
maintains an appropriate compliance program; (c) the performance of each Fund is
satisfactory relative to the performance of funds with similar investment
objectives and to relevant indices or, as discussed above, is being addressed;
(d) each Fund's advisory fees are reasonable relative 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.
71
- --------------------------------------------------------------------------------
Management of the Trust (Unaudited)
- --------------------------------------------------------------------------------
Listed below is basic information regarding the Trustees and principal officers
of the Trust. The Trust's Statement of Additional Information includes
additional information about the Trustees and is available, without charge, upon
request by calling 1.800.543.0407.
INTERESTED TRUSTEES(1):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF FUNDS
OVERSEEN
TERM OF IN THE
NAME POSITION(S) OFFICE(2) AND TOUCHSTONE OTHER
ADDRESS HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee and Until retirement President and CEO of IFS Financial 45 Director of LaRosa's
Touchstone Advisors, President at age 75 or until Services, Inc. (a holding company). (a restaurant chain),
Inc she resigns or is Capital Analysts
303 Broadway removed Incorporated (an
Cincinnati, OH Trustee since investment advisor and
Year of Birth: 1955 1999 broker-dealer), IFS
Financial Services,
Inc.(a holding
company), Integrity
and National Integrity
Life Insurance Co.,
Touchstone Securities
(the Trust's
distributor),
Touchstone Advisors
(the Trust's
investment advisor and
administrator) and W&S
Financial Group
Distributors (a
distribution company).
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until retirement President and Chief Executive 45 Director of Cincinnati
105 East Fourth Street at age 75 or until Officer of Cox Financial Corp. (a Bell (a communications
Cincinnati, OH he resigns or is financial services company). company), Bethesda
Year of Birth: 1947 removed Inc. (a hospital),
Trustee since Timken Co. (a
1999 manufacturing
company), Diebold (a
technology solutions
company), and Ohio
Business Alliance for
Higher Education.
Director of Duke
Energy from
1994-2008.
- ------------------------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until retirement Principal of HJL Enterprises (a 45 None
c/o Touchstone at age 75 or until privately held investment company).
Advisors, Inc. he resigns or is
303 Broadway removed
Cincinnati, OH Trustee since
Year of Birth: 1938 1989
- ------------------------------------------------------------------------------------------------------------------------------------
72
- --------------------------------------------------------------------------------
Management of the Trust (Continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF FUNDS
OVERSEEN
TERM OF IN THE
NAME POSITION(S) OFFICE(2) AND TOUCHSTONE OTHER
ADDRESS HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Siekmann Trustee Until retirement Executive for Duro Bag 45 None
c/o Touchstone Advisors, at age 75 or until Manufacturing Co. (a bag
Inc. he resigns or is manufacturer) from 2002-2008.
303 Broadway removed
Cincinnati, OH Trustee since
Year of Birth: 1938 2005
- ------------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until retirement CEO, Chairman and Director of 45 Director of Q Med (a
c/o Touchstone Advisors, at age 75 or until Avaton, Inc. (a wireless health care management
Inc. he resigns or is entertainment company) until company) from
303 Broadway removed 2006. President of Cincinnati 2004-2007
Cincinnati, OH Trustee since Biomedical (a life science and
Year of Birth: 1948 2002 economic development company)
from 2003-2007. Chairman of
Integrated Media Technologies (a
media company)
- ------------------------------------------------------------------------------------------------------------------------------------
Susan J. Hickenlooper Trustee Until retirement Trustee of Episcopal Retirement 45 Trustee of Gateway
c/o Touchstone Advisors, at age 75 or until Homes Foundation Trust (a charitable
Inc. he resigns or is organization) from
303 Broadway removed 2006-2008, Trustee of
Cincinnati, OH Trustee since Cincinnati Parks
Year of Birth: 1946 2009 Foundation (a
charitable
organization).
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ms. McGruder, as a director of the Advisor and the Trust's Distributor,
and an officer of affiliates of the Advisor and the Trust's 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 5 series of the Trust, 20 series
of Touchstone Funds Group Trust, 2 series of Touchstone Institutional
Funds Trust, 4 series of Touchstone Investment Trust, 3 series of
Touchstone Tax-Free Trust, and 11 variable annuity series of Touchstone
Variable Series Trust.
(4) Each Trustee is also a Trustee of Touchstone Funds Group Trust, Touchstone
Institutional Funds Trust, Touchstone Investment Trust, Touchstone
Tax-Free Trust, and Touchstone Variable Series Trust.
73
- --------------------------------------------------------------------------------
Management of the Trust (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL OFFICERS(1):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF FUNDS
OVERSEEN
TERM OF IN THE
NAME POSITION(S) OFFICE(2) AND TOUCHSTONE OTHER
ADDRESS HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder President Until resignation, See biography above. 45
Touchstone Advisors, removal or
Inc. disqualification
303 Broadway President since
Cincinnati, OH 2004; President
Year of Birth: 1955 from 2000-2002
- ------------------------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice Until resignation, Senior Vice President of Compliance 45
Touchstone Advisors, President removal or and Fund Administration of IFS
Inc. disqualification Financial Services, Inc.
303 Broadway Vice President
Cincinnati, OH since 2003
Year of Birth: 1956
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Graziano Vice Until resignation, President of Touchstone Advisors, 45
Touchstone Advisors, President removal or Inc.; Executive Vice President of
Inc. disqualification Pioneer Investment Management, Head
303 Broadway Vice President of Retail Distribution
Cincinnati, OH since 2009 and Strategic Marketing 2007-2008;
Year of Birth: 1954 Executive Vice President of Pioneer
Investment Management, Chief
Marketing Officer 2002-2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph Melcher Chief Until resignation, Vice President of Compliance of IFS 45
Touchstone Advisors, Compliance removal or Financial Services (a holding
Inc. Officer disqualification company); Assistant Vice President
303 Broadway Chief of Compliance of IFS Financial
Cincinnati, OH Compliance Services 2005-2010.
Year of Birth: 1973 Officer since
2010
- ------------------------------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller Until resignation, Chief Financial Officer and Senior 45
Touchstone Advisors, and Treasurer removal or Vice President of
Inc. disqualification IFS Financial Services, Inc.
303 Broadway Controller since
Cincinnati, OH 2000
Year of Birth: 1962 Treasurer since
2003
- ------------------------------------------------------------------------------------------------------------------------------------
Jay S. Fitton Secretary Until resignation, Assistant Vice President and Senior 45
JPMorgan. removal or Counsel at JPMorgan Chase Bank, N.A.
303 Broadway disqualification
Cincinnati, OH Secretary since
Year of Birth: 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 Tax-Free Trust, and Touchstone Variable Series Trust.
(2) The Touchstone Fund Complex consists of 5 series of the Trust, 20 series
of Touchstone Funds Group Trust, 2 series of Touchstone Institutional
Funds Trust, 4 series of Touchstone Investment Trust, 3 series of
Touchstone Tax-Free Trust, and 11 variable annuity series of Touchstone
Variable Series Trust.
74
PRIVACY PROTECTION POLICY
WE RESPECT YOUR PRIVACY
Thank you for your decision to invest with us. Touchstone and its affiliates
have always placed a high value on the trust and confidence our clients place in
us. We believe that confidence must be earned and validated through time. In
today's world, when technology allows the sharing of information at light
speeds, trust must be reinforced by our sincere pledge to take the steps
necessary to ensure that the information you share with us is treated with
respect and confidentiality.
OUR PLEDGE TO OUR CLIENTS
o We collect only the information we need to service your account and
administer our business.
o We are committed to keeping your information confidential and we place
strict limits and controls on the use and sharing of your information.
o We make every effort to ensure the accuracy of your information.
WE COLLECT THE FOLLOWING NONPUBLIC PERSONAL INFORMATION ABOUT YOU:
o Information we receive from you on or in applications or other forms,
correspondence, or conversations, including, but not limited to, your
name, address, phone number, social security number, assets, income and
date of birth; and
o Information about your transactions with us, our affiliates, or others,
including, but not limited to, your account number and balance, payment
history, parties to transactions, cost basis information, and other
financial information.
CATEGORIES OF INFORMATION WE DISCLOSE AND PARTIES TO WHOM WE DISCLOSE
We do not disclose any nonpublic personal information about our current or
former clients to nonaffiliated third parties, except as required or permitted
by law.
WE PLACE STRICT LIMITS AND CONTROLS ON THE USE AND SHARING OF YOUR INFORMATION
o We restrict access to nonpublic personal information about you to
authorized employees who need the information to administer your business.
o We maintain physical, electronic and procedural safeguards that comply
with federal standards to protect this information.
o We do not disclose any nonpublic personal information about our current or
former clients to anyone, except as required or permitted by law or as
described in this document.
o We will not sell your personal information to anyone.
WE MAY PROVIDE INFORMATION TO SERVICE YOUR ACCOUNT
Sometimes it is necessary to provide information about you to various companies
such as transfer agents, custodians, broker-dealers and marketing service firms
to facilitate the servicing of your account. These organizations have a
legitimate business need to see some of your personal information in order for
us to provide service to you. We may disclose to these various companies the
information that we collect as described above. We require that these companies,
including our own subsidiaries and affiliates, strictly maintain the
confidentiality of this information and abide by all applicable laws. Companies
within our corporate family that may receive this information are financial
service providers and insurance companies. We do not permit these associated
companies to sell the information for their own purposes, and we never sell our
customer information. This policy is applicable to the following affiliated
companies: Touchstone Funds Group Trust, Touchstone Investment Trust, Touchstone
Strategic Trust, Touchstone Tax-Free Trust, Touchstone Variable Series Trust,
Touchstone Institutional Funds Trust, Touchstone Securities, Inc.,* Capital
Analysts Incorporated and W&S Brokerage Services, Inc.
* Touchstone Securities, Inc. serves as the underwriter to the Touchstone
Funds.
A Member of Western & Southern Financial Group(R)
THE PRIVACY PROTECTION POLICY IS NOT PART OF THE ANNUAL REPORT.
75
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303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
- --------------------------------------------------------------------------------
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TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203 800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203
TRANSFER AGENT
JPMorgan Chase Bank, N.A.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
800.543.0407
* A Member of Western & Southern Financial Group
TSF-54-TST-AR-1003
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 $66,250 for the March 31, 2010
fiscal year and approximately $82,980 for the March 31, 2009 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 March 31, 2010
fiscal year and $4,000 for the March 31, 2009 fiscal year. The 2009 fees include
$4,000 related to post-audit review procedures, review of February 2009 N-1A
filing and issuance of our consent in connection with the new share class
offering in the Growth Opportunities and Mid Cap Funds.
(c) Tax Fees. Tax fees totaled approximately $27,820 for the March 31, 2010
fiscal year and approximately $31,290 for the March 31, 2009 fiscal year and
consisted of fees for tax compliance services and tax consultation services.
(d) All Other Fees. There were no other fees for the March 31, 2010 or March 31,
2009 fiscal years.
(e) (1) Audit Committee Pre-Approval Policies. The Audit Committee's
pre-approval policies describe the types of audit, audit-related, tax and other
services that have the general pre-approval of the Audit Committee. The
pre-approval policies provide that annual audit service fees, tax services not
specifically granted pre-approval, services exceeding pre-approved cost levels
and other services that have not received general pre-approval will be subject
to specific pre-approval by the Audit Committee. The pre-approval policies
further provide that the Committee may grant general pre-approval to other audit
services (statutory audits and services associated with SEC registration
statements, periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings), audit-related
services (accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "audit services," assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities, agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters and assistance with
internal control reporting requirements under Form N-SAR and Form N-CSR), tax
services that have historically been provided by the auditor that the Committee
believes would not impair the independence of the auditor and are consistent
with the SEC's rules on auditor independence and permissible non-audit services
classified as "all other services" that are routine and recurring services.
(e)(2) All services described in paragraphs (b) through (d) of Item 4 were
approved by the Audit Committee.
(f) Not applicable
(g) The aggregate non-audit fees for services to the registrant, its investment
adviser (excluding sub-advisors) and any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant were approximately $27,820 for the fiscal year ended March 31, 2010
and $31,290 for the fiscal year ended March 31, 2009.
(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 on March 9,
2004 with registrant's N-CSR for the Large Cap Growth Fund and is hereby
incorporated by reference.
(a)(2) Certifications required by Item 12(a)(2) of Form N-CSR are filed
herewith.
(b) Certification required by Item 11(b) of Form N-CSR is filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Touchstone Strategic Trust
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By (Signature and Title)
/s/ Jill T. McGruder
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Jill T. McGruder
President
Date: June 2, 2010
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: June 2, 2010
/s/ Terrie A. Wiedenheft
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Terrie A. Wiedenheft
Controller & Treasurer
Date: June 2, 2010