UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/A
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03651
Touchstone Strategic Trust – June Funds
(Exact name of registrant as specified in charter)
303 Broadway, Suite 1100
Cincinnati, Ohio 45202-4203
(Address of principal executive offices) (Zip code)
E. Blake Moore, Jr.
303 Broadway, Suite 1100
Cincinnati, Ohio 45202-4203
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-638-8194
Date of fiscal year end: June 30
Date of reporting period: June 30, 2022
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. § 3507.
Item 1. Reports to Stockholders.
| (a) | The Report to Shareholders is attached herewith. |
Annual Report
(As updated October 26, 2022 to reflect a reverse
stock split
for the Touchstone Small Company Fund Class C
shares)
| Touchstone Strategic Trust |
| Touchstone Balanced Fund |
| Touchstone Core Municipal Bond Fund (formerly Touchstone Ohio Tax-Free Bond Fund) |
| Touchstone International Equity Fund |
| Touchstone International Growth Fund |
| Touchstone Large Cap Focused Fund |
| Touchstone Large Cap Fund |
| Touchstone Large Company Growth Fund |
| Touchstone Small Company Fund |
| Touchstone Value Fund |
Table of Contents
This report identifies the Funds'
investments on June 30, 2022. These holdings are subject to change. Not all investments in each Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market
forecasts provided in this report may not occur.
2
Letter from the President
Dear Shareholder:
We are pleased to provide
you with the Touchstone Strategic Trust Annual Report. Inside you will find key financial information, as well as manager commentaries for the Funds, for the twelve months ended June 30, 2022.
Since the middle of
2021, investor sentiment has progressively moved negative given rising inflationary pressures, higher commodity costs, supply chain challenges, Russia’s surprising invasion of Ukraine and U.S. Federal Open
Market Committee (FOMC or Fed) actions regarding rate increases. By the end of the 12-month period, in the spring of 2022, the impact of the Ukrainian invasion was priced into the market and investor concern had
shifted back to Fed rate policy and the potential for an economic recession either in the 2nd half of this year or 2023. These recessionary concerns were exacerbated by negative growth in U.S. gross domestic
product (GDP) reported for Q1 2022 and inflationary pressures which continued throughout the first half of 2022. The change in the Consumer Price Index (CPI) remained above 8 percent annualized with some
consumer staples such as food and fuel registering in the double digit levels of inflationary growth. Outside the U.S., inflationary issues persisted as well, primarily in the developed markets of Western Europe
as Germany, Italy and France felt the impact of supply chain challenges and slowing natural gas and oil imports from Russia following their invasion of Ukraine. Faced with inflationary pressures, the Fed raised
the overnight Federal Funds Rate a significant level, up by 1.5 percent (150 basis points) over the first half of 2022, their first rate hike since 2018. The U.S. dollar strengthened as rising interest rates in
the U.S. created an attractive proposition for foreign investors to earn a positive interest return compared to near zero or negative rates abroad. Broadly, both developing and developed markets were impacted by
the strong U.S. dollar.
Given the
aforementioned macroeconomic backdrop during 12-month period, geopolitical concerns and diminishing expectations for the Fed’s ability to achieve a “soft landing”, it is not surprising that equity
markets posted negative returns. The S&P 500 Index was down -10.6 percent during the 12-month period and moved into Bear Market territory by declining over 20 percent from its January 2022 peak to the end of
June 2022. Expectedly, more defensive sectors such as Health Care, Utilities, and Consumer Staples performed relatively better than growth-leaning sectors such as Information Technology, Communication Services
and Consumer Discretionary. The Energy sector was a standout performer, benefitting from the aforementioned inflationary environment and rising oil and natural gas prices. Larger capitalization stocks and
value-oriented stocks outperformed smaller and middle capitalization stocks and growth style stocks. This would be expected given current recessionary concerns, and that smaller and middle capitalization
companies tending to be more sensitive to domestic economic conditions as opposed to their more economically diverse large capitalization brethren. Outside the U.S., equity markets fared worse, materially
impacted by the strong dollar headwind. Developed markets, measured by the MSCI EAFE Index declined -17.8 percent. Developed markets such as France, Germany, Switzerland and Japan led the MSCI EAFE
Index’s decline as well as the non-Energy cyclical and growth-oriented sectors as witnessed in the U.S. equity market. Similarly, the emerging markets, measured by the MSCI Emerging Markets Index was down
-8.1 percent on a local currency basis, also outperforming the U.S. equity markets but down -11.5 percent on a U.S. dollar basis. Cyclical sectors led the overall emerging markets’ index decline.
Countries such as Taiwan, South Korea and India declined the most.
During the 12-month
period, the U.S. fixed income markets priced in the persistent inflation and anticipated aggressive Fed rate moves. The Treasury yield curve experienced an increase across all relevant maturities but saw the
largest increase in the six month to five year portion of the curve. These moves in yield represented a headwind for the investment grade universe, reflected in a Bloomberg U.S. Aggregate Bond Index (Agg)
decline of -10.3 percent. The Bloomberg Municipal Bond Index declined -8.6 percent as municipal bonds were also impacted by the rising yield curve. In the U.S. credit markets, the looming concerns of
inflation and higher future financing rates weighed on the corporate debt space as both investment grade and non-investment grade corporate bond spreads widened out. The ICE Bank of America U.S. Cash Pay Index,
a measure of non-investment grade corporate bonds, declined -12.6 percent as a result of widening spreads. The leverage loan market also experienced a sell-off during the quarter, but were more defensive than
the high yield bond market as rates increased and leveraged loans are priced at floating interest rates rather than fixed interest rates. The Credit Suisse Leveraged Loan Index declined -2.3 percent.
3
Letter from the President (continued)
Markets such as these
reaffirm our belief in the importance of the steady hands of financial professionals, trust in your investment strategy, and the risks of trying to time the market. Additionally, we believe that environments that are
more volatile create more opportunity for active managers to add value, especially those that are Distinctively Active. We greatly value your continued support. Thank you for including Touchstone as part of your
investment plan.
Sincerely,
E. Blake Moore Jr.
President
Touchstone Strategic Trust
President
Touchstone Strategic Trust
4
Management's Discussion of Fund
Performance (Unaudited)
Touchstone Balanced Fund
Sub-Advised by Fort Washington
Investment Advisors, Inc.
Investment Philosophy
The Touchstone
Balanced Fund (the “Fund”) seeks to achieve its investment goal of providing investors with capital appreciation and current income by generally investing in a diversified portfolio comprising 60% equity
securities and 40 % fixed-income securities.
With respect to
equities, the Fund invests primarily in issuers having a market capitalization, at the time of purchase, above $5 billion. Equity securities include common stock and preferred stock. With respect to fixed-income, the
Fund will invest primarily in bonds, including mortgage-related securities, asset-backed securities, government securities (both U.S. government securities and foreign sovereign debt), and corporate debt
securities.
Fund Performance
The Touchstone
Balanced Fund (Class A Shares) underperformed its blended benchmark, 60% of the S&P 500® Index and 40% of the Bloomberg U.S. Aggregate Bond Index, for the 12-month period ended June 30, 2022. The Fund’s total return was
-13.32% (calculated excluding the maximum sales charge) while the total return of the blended benchmark was -10.24%.
Market Environment
The market environment
over the last 12 months has been full of uncertainty and volatility. 2021 saw a broad reopening of the economy from lockdowns stemming from the COVID-19 global pandemic. This coincided with an improving labor market
that saw unemployment reach 3.9% by the end of 2021, despite starting the year at 6.7%. Markets performed exceptionally well during the period as economic growth returned to pre-pandemic levels and financial
conditions remained extremely accommodative. Despite progress made through highly effective vaccines to combat COVID-19, several COVID-19 variants emerged throughout the year causing setbacks to the global economic
rebound. The first problematic variant, Delta, led to a broad disruption in supply chains across the economy during a period of heightened demand. These supply chain concerns weighed on financial markets while also
putting continued upward pressure on inflation. As Delta subsided, the highly contagious Omicron variant spread rapidly across the world. Markets quickly turned volatile as cases spiked, but the severity of the
variant was less than expected, and markets rallied into year end.
The first quarter of
2022 saw the fading of pandemic-related economic growth concerns, but persistently high inflation continued to shape the outlook for monetary policy and subsequent risks to the economy and risk assets.
Additionally, the Russian invasion of Ukraine introduced a number of short- and long-term concerns, ranging from the direct impact of higher commodity prices to the geopolitical implications of ongoing military
conflict, sanctions, and humanitarian concerns.
The second quarter of
2022 was characterized by a continuation of several themes from the prior quarter. Bond yields moved higher as inflation remained too high and persistent. This led to the U.S. Federal Reserve Board
(“Fed”) accelerating interest rate increases and drove market expectations for the Fed Funds rate in mid-2023 to 3.50-3.75%. Risk assets underperformed as these Fed expectations fueled concern that
the Fed may have to risk causing a recession to control inflation.
U.S. economic growth
(as measured by gross domestic product) in the first quarter of 2022 was -1.6%, but the details of the data did not indicate broad economic weakness. Inventory and trade were the primary detractors of growth and
were perceived as unlikely to be repeated in subsequent quarters. Consumer and business demand was solid, indicating a healthy pace of underlying growth. Consumers were in a very good position to weather a
drag from Fed tightening, as monthly job gains and incomes remained supportive. Across a broad array of indicators, the labor market was in exceptionally strong condition and consumers were confident in their
ability to easily find and/or switch jobs. These robust labor market conditions led to above average wage growth across the spectrum. We believe that this bodes well for consumer income and spending, but
the strength was also a source of unease for policymakers who were focused on the potential impact of inflation. Inflation dampened the mood of consumers as the prices of many essential items continued to climb
in the quarter, leading to concern that spending on discretionary items would suffer as consumers have to spend more of their income on essential items.
Business spending has
been a consistently solid contributor to the economy in spite of a number of challenges. Rising costs, delays/availability of input materials, and continued labor shortages have limited growth, but businesses
have proven resilient. Moving into the second half of 2022, business spending is subject to downside risks to growth from the ongoing war in Ukraine, China economic slowing, and tighter financial conditions.
Inflation data, and
the response from the Fed, remains the primary focus of markets. Inflation reported in second quarter of 2022 indicated broad-based strength, dampening hopes that inflation would decisively move lower into the second
half of the year.
5
Management's Discussion of Fund
Performance (Unaudited) (Continued)
This data, along with
indications that higher inflation is becoming embedded in consumer expectations, led the Fed to respond aggressively. A 0.50% increase in May was followed by a 0.75% increase in June. Market expectations
are for the Fed to raise interest rates a further 2.00% to nearly 3.50% at year-end. Recent Fed communications have solidified its commitment to reducing inflation closer to the 2% target, even if the ultimate
impact induces a recession.
Interest rates
increased materially over the last year to reflect persistently higher inflation and more aggressive Fed tightening. The 10 Year Treasury yield ended the period at 3.02% compared to 1.47% a year ago.
Current market expectations are for the Fed to end the tightening cycle in mid-2023 and begin to lower rates later that year. This indicates increasing concern that the sharp rise in the Fed Funds rate
will materially restrain economic growth over the next several quarters. Toward the end of the second quarter, interest rates declined from the highest levels as economic data softened. If growth continues
to moderate and inflation softens over the next several months, we believe interest rates have likely peaked for 2022.
Risk assets
underperformed over the last year amid increasing concern over Fed tightening and the impact on future growth. Credit spreads across sectors and quality ranges widened, with many sectors ending the second quarter at
the widest levels of the past year. We believe the foundation of strong consumers and businesses allow the economy to withstand tighter Fed policy, increasing the chances that a decline in economic activity will be
shallow and not result in significant weakness.
Portfolio Review
Allocation between
equities and fixed income was a neutral impact to relative performance during the period as equities and fixed income were both down during the period. Security selection detracted from relative performance, due
to underperformance within fixed income and equities.
The fixed income
component of the Fund trailed its benchmark due to its overweight to credit sectors such as Emerging Markets Debt and Investment Grade Credit. These sectors underperformed as credit spreads widened as risks
increased throughout the period. The equity portfolio trailed during the period, due to both security selection and sector allocation. Sector allocation detracted from returns within equities due to the
Fund’s overweight to Communication Services, the worst performing sector within the benchmark. Security selection within Communication Services and Consumer Discretionary also detracted from returns.
This was offset partially by strong selection within Health Care and Industrials. Positions in Bristol-Myers Squibb Company, UnitedHealth Group (both Health Care sector), Raytheon Technologies Corp.
(Industrials sector), and Schlumberger Limited (Energy sector) were the top contributors to attribution, while overweight exposures to Meta Platforms Inc., Netflix Inc. (both Communication Services sector), and
Alibaba Group Holdings Ltd. (Consumer Discretionary sector) detracted from returns.
Duration did not have
a material impact to relative returns compared to the benchmark during the period. Despite periods of tactical duration positioning compared to the benchmark, the overall relative performance impact was negligible.
Similar to duration, yield curve positioning did not have a material impact on performance during the 12-month period.
Outlook and Conclusion
The Fund is overweight
credit spread risk because in our view the U.S. economy can withstand expected Fed tightening, largely supported by a healthy consumer, with any decline in activity likely to be shallow, and valuations that are
generally compelling and above the 60th percentile relative to history. Risks are squarely focused on the evolution of inflation and the resulting reaction from the Fed. While there are signs that the
economy is slowing, inflation data has yet to take a decisive turn lower. The Fed is aggressively raising rates to combat inflation and is unlikely to change posture until it sees a string of data that confirms
inflation is heading back towards 2%. The effects of tighter monetary policy represent the biggest risk to growth, but we believe the underlying foundation is solid and there is a path to a soft landing for growth. As
our view of the economy and monetary policy changes and as risks evolve, we will adjust positioning.
We believe valuations
have adjusted appropriately given the macro environment and potential risks. If conditions improve, the Fund is positioned well to benefit. If volatility continues and economic growth deteriorates further,
the Fund’s fixed income allocation is positioned to add opportunistically if risk assets experience weakness. Additionally, we believe positive fixed income security selection can benefit in many different
market environments. Within equities, the Fund remains overweight Communication Services and Health Care. The largest underweights are Utilities, Consumer Staples, and Consumer Discretionary.
6
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone Balanced Fund - Class A* and the 60% S&P 500® Index and 40% Bloomberg U.S. Aggregate Bond Index
| Average Annual Total Returns** | |||
| Touchstone Balanced Fund | 1 Year | 5 Years | 10 Years |
| Class A | -17.64% | 6.61% | 7.81% |
| Class C | -14.81% | 6.90% | 7.70% |
| Class Y | -13.13% | 7.93% | 8.60% |
| Class R6* | -13.12% | 7.77% | 8.39% |
| 60% S&P 500® Index and 40% Bloomberg U.S. Aggregate Bond Index | -10.24% | 7.37% | 8.50% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Class R6 shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class R6 shares was October 28, 2021. Class R6 shares performance information was calculated using the historical performance of Class A shares for the period prior to October 28, 2021. The returns have been restated for sales loads and fees applicable to Class R6 shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Class R6 shares are not subject to 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.
Notes to Chart
S&P 500® Index is a group
of 500 widely held stocks and is commonly regarded to be representative of the large capitalization stock universe.
Bloomberg U.S. Aggregate Bond Index
is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years.
7
Management's Discussion of Fund
Performance (Unaudited)
Touchstone Core Municipal Bond
Fund
Sub-Advised by Sage Advisory
Services, Ltd. Co.
Investment Philosophy
The Touchstone Core
Municipal Bond Fund (the “Fund”) seeks a high level of current income exempt from federal income taxes, consistent with the protection of capital by investing primarily in high-quality, municipal debt
issued by U.S. states and their subdivisions, authorities, instrumentalities and corporations, as well as obligations issued by U.S. territories.
Fund Performance
The Touchstone Core
Municipal Bond Fund (Class A Shares) outperformed its benchmark, the Bloomberg Municipal Bond Index, for the 12-month period ended June 30, 2022. The Fund’s total return was -8.43% (calculated excluding the
maximum sales charge) while the total return of the benchmark was -8.57%.
Market Environment
Relative to the calm
first half of the 12-month period ended June 30, 2022, the second half of the period will go down as a historically significant period for all the wrong reasons. Inflation levels and rate moves not seen in decades
combined with a war and related supply shocks led to a rare mix of deep negative returns in both equities and fixed income. Unfortunately for investors, surging inflation after several years of excess liquidity and
stimulus forced markets though a rapid and painful shift. The result was global equities repricing lower by 20% and broad investment grade bonds down 10% in the second half of the period. To put the carnage into
perspective, this was the worst string of quarters for equities since the back half of 2008 and worst back-to-back quarters for bonds since the fourth quarter of 1979/first quarter of 1980.
Heading into 2022,
consensus centered around a gradual slowdown in growth but a strong first half of the reporting period, as the effects of COVID Omicron faded, and easing supply chains weakened inflationary pressures. The first wrench
to this outlook was persistently high inflation, which prompted the U.S. Federal Reserve Board (“Fed”) to shift to a more aggressive plan, and the second was the tragic invasion of Ukraine. This changed
the alchemy of crafting an outlook, as growth downgrades, a dramatic repricing of rates, and geopolitical risks took center stage.
Broad fixed income had
a modestly better second quarter in 2022 than the first though both saw mid-single digit percentage declines. Yields moved significantly higher across the curve and the curve flattened in anticipation of aggressive
policy. Investment grade and high yield credit spreads also widened in the first half of 2022, creating one of the worst fixed income backdrops in decades with negative returns across all sectors. Longer duration
segments saw the deepest negative returns, with longer duration Treasuries and credit experiencing double-digit drawdowns. During the second quarter of 2022, this dynamic shifted with yields more range-bound over the
last couple of months and spread widening accelerating on a more pessimistic economic outlook. This led to credit and higher-risk fixed income underperforming in the second quarter of 2022.
The municipal market
experienced a complete reversal as record investor inflows during 2021 turned abruptly into record outflows in 2022, pushing yields to their highest levels in almost a decade. As a result, municipal yields
underperformed comparable Treasury yields, driving Municipal to Treasury yield ratios to attractive valuations across the curve. Municipal credit quality has remained robust throughout the year as state and local
governments continue to benefit from record tax collections and billions of dollars in COVID-19 relief funding. With this backdrop, municipal credit spreads, on the other hand, only experienced modest spread widening.
Not surprisingly, higher credit quality outperformed lower credit quality, but not to the extent that one would expect in a risk-off market. Finally, the Treasury yield reversal in mid-June seems indicative of a
market capitulation trade that should provide a firmer tone to the municipal market going into the second half of the year.
Portfolio Review
The Fund’s
outperformance during the period was primarily attributable to the shorter duration of the Fund’s portfolio compared to the broader market, sector selection, and security selection. The Fund’s overweight
to A-rated bonds and underweight to AAA and BBB-rated bonds detracted from performance.
On October 28, 2021,
the Fund changed its name, investment goal, principal investment strategies, diversification status and sub-advisor. As part of the Fund’s transition from an Ohio-specific to a national mandate and new
sub-advisor, Sage Advisory Services, Ltd. Co., significant changes were made to the Fund. The Fund’s state allocation went from 100 percent allocation to Ohio to less than 20 percent by the end of June 2022. In
conjunction with that transition, we realigned the portfolio to mirror our Firm’s investment outlook. The Fund’s duration, curve allocation, and credit/sector weightings were realigned and actively managed
to maximize the return profile of the Fund.
8
Management's Discussion of Fund
Performance (Unaudited) (Continued)
The Fund is slightly long
duration relative to the index in anticipation of a stronger tone to the municipal market over the summer months. The curve positioning remains overweight 3-year and longer duration, with the underweight inside of 3
years.
Outlook and Conclusion
We anticipate
continued yield volatility as the market continues to wrestle with inflation expectations and the potential for an economic recession. Fed funds policy will be a major driver of both the direction of yields and the
economic outlook for the near future. Mid-term elections will add uncertainty into the markets, further enhancing the volatility outlook. Despite this challenging environment, we expect yields to be below the peaks of
the year and result in a slightly positive return environment for the latter half of 2022.
The Fund’s
credit weighting remains heavily tilted toward single-A credits, followed by a slight overweight in BBB and lower credits. The largest credit underweight is in AAA credits, which will only be realigned if a
significant and prolonged recession is anticipated. Sector distribution remains neutral General Obligation, overweight to Revenue, and no allocation to Pre-refunded bonds. Sector shifts will be driven primarily by
valuation metrics and market availability as sector-specific supply has been limited due to multiple market-related factors. Finally, the Fund’s allocation to Ohio-specific credits will continue to be
transitioned, but only if attractive swap opportunities present themselves. The remaining Ohio credits continue to provide excellent value-based return opportunities.
9
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone Core Municipal Bond Fund - Class A* and the Bloomberg Municipal Bond Index
| Average Annual Total Returns** | |||
| Touchstone Core Municipal Bond Fund | 1 Year | 5 Years | 10 Years |
| Class A | -11.41% | -0.02% | 1.41% |
| Class C | -10.17% | 0.17% | 1.29% |
| Class Y* | -8.19% | 1.21% | 2.06% |
| Institutional Class* | -8.13% | 1.26% | 2.08% |
| Bloomberg Municipal Bond Index | -8.57% | 1.51% | 2.38% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the difference in sales loads and fees paid by shareholders in the different classes. The inception date of Class Y shares and Institutional Class shares was August 30, 2016. Class Y shares and Institutional Class shares performance information was calculated using the historical performance of Class A shares for the periods prior to August 30, 2016. The returns have been restated for sales loads and fees applicable to Class Y shares and Institutional Class shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 3.36% of the NAV (or 3.25% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to 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.
Note to Chart
Bloomberg Municipal Bond Index is a
widely recognized unmanaged index of municipal bonds with maturities of at least one year.
10
Management's Discussion of Fund
Performance (Unaudited)
Touchstone International Equity
Fund
Sub-Advised by Fort Washington
Investment Advisors, Inc.
Investment Philosophy
The Touchstone
International Equity Fund (the “Fund”) seeks growth of capital by investing primarily in common stocks of established companies across the capitalization spectrum, located in or that conduct their business
mainly in one or more foreign countries. The investment philosophy focuses on quality at a reasonable price, where quality is defined based on the following five fundamental factors: business quality, valuation,
growth, management and balance sheet strength.
Fund Performance
The Touchstone
International Equity Fund (Class A Shares) underperformed its benchmark, the MSCI EAFE Index, for the twelve month period ended June 30, 2022. The Fund’s total return was -18.87% (calculated excluding the
maximum sales charge) while the benchmark’s total return was -17.77%.
Market Environment
We entered the second
half of calendar year 2021 in the midst of a vigorous global economic recovery, fueled by the cumulative impact of more than a year of unprecedented monetary and fiscal stimulus. The lifting of COVID lockdown measures
in a number of countries, helped by the accelerated vaccine rollout, also pushed global economic demand. Unfortunately signs of cracks started to emerge, with a number of headwinds dominating market sentiment as we
neared the end of 2021. Still, global markets finished the year on a positive note with many global markets soaring to new or near all-time highs.
The first half of
calendar 2022 was different from the year that preceded it. A number of negative factors in late 2021 manifested themselves with a vengeance, leading to deepening worries of a global recession and a widespread rout of
global equities. Inflation proved to be more than just transitory, as U.S. Federal Reserve Board (“Fed”) Chairman Powell initially characterized it, hitting a multi-decade high. The war in Ukraine and the
subsequent escalating sanctions on Russia worked to exacerbate already heightened inflationary pressures and supply chain disruptions. In an attempt to tame stubborn inflation and rising inflation expectations,
various central banks played catch-up and implemented a series of interest rate hikes, with others signaling their intention to follow suit. In March, the Fed raised interest rates, followed by two successive hikes,
lifting the benchmark rate by 150 basis points cumulatively year-to-date, the fastest hike in many decades. The European Central Bank and the Bank of England also rushed to combat inflation. The Bank of England
implemented rate hikes while the European Central Bank confirmed plans to raise rates, with both institutions reversing asset purchases for the first time in years. In contrast, the Bank of Japan stayed firm in
maintaining its current easing stance and China implemented modest economic stimulus measures amid a new round of COVID Omicron cases and stringent lockdown measures in a number of its major cities. In sum, all of
these factors have significantly increased the possibility of a global recession, contributing to a precipitous drop in global equities during the first half of 2022. The MSCI EAFE Index closed down nearly 20% for the
first six months of 2022 and 18% for the twelve months ending June 2022, respectively.
For the twelve months
ending June 2022, developed market equities significantly outpaced emerging market stocks, though both saw sharp declines. Poor Chinese equity performance was partly responsible for emerging markets’ relative
lackluster performance. A number of cities in China, including Shanghai with the world’s busiest port, were essentially shut down amid China’s heavy-handed “zero-COVID” policy lockdown
measures. Chinese equities were also hit due to the government’s broadening regulatory crackdown on various industries, as well as its fragile property market. The strengthening U.S. dollar, especially against
developing country currencies, also contributed to emerging markets’ underperformance.
From an
investment-style standpoint, while Value outpaced Growth in the twelve-month period ending June 2022, market weakness has been broad based. Growth stocks were at the epicenter of the pain during the first half of
2022, a departure from 2021. Rising rates, stubbornly high inflation and growing recessionary fears prompted investors to rotate out of high valuation, growth-sensitive stocks. By market capitalization, large
companies were comparatively more resilient than their smaller company counterparts as they benefited from investors’ broad risk aversion given the mounting economic concerns.
Most sectors
registered a loss during the last twelve-month period. Dramatic declines were felt in the Information Technology sector as investors rotated away from more expensive, often unprofitable stocks. The Consumer
Discretionary and Industrials sectors were also hit with escalating recessionary fears. Traditionally defensive sectors such as Utilities, Consumer Staples and Health Care provided some refuge. Energy was a huge
positive outlier on the back of surging oil and gas prices, especially after the war broke out in Ukraine in February, 2022.
During the last
twelve-month period, a number of commodity prices leapt at an historic pace in response to the war, given Russia’s role as a key producer of several important commodities including oil, gas, fertilizers and
wheat. However, some industrial metals prices started to soften in April 2022 as investors began pricing in a deteriorating economic outlook. Gold, long considered a
11
Management's Discussion of Fund
Performance (Unaudited) (Continued)
safe-haven asset, managed to hold onto
its value. The once highly touted crypto market has cooled of late with the price of Bitcoin slipping by nearly 70% off its recent high.
Bonds sold off sharply
over the last twelve-month period with the U.S. 10-year Treasury yield nearly doubling, amid surging inflation and the Fed’s more hawkish stance, though bond prices rallied heading into period end amid rising
growth concerns, slightly curtailing the negative returns. The U.S. dollar continued to strengthen against most currencies, benefiting from broad risk aversion and relatively faster rising U.S. interest rates.
Portfolio Review
The Fund’s
relative performance benefitted from holdings in Materials, Consumer Discretionary, Consumer Staples and Energy, while detractors from relative performance largely came from Industrials and Health Care. By
geography, holdings in Canada, Japan, and India were the positive drivers of relative performance. On the other hand, the U.K., Germany, Brazil, China and Switzerland detracted from relative performance.
The Fund’s relatively high cash position was a positive factor in a declining market. Given the Fund’s concentration and bottom-up approach, it is more meaningful to discuss the drivers of
performance attribution from the perspective of individual holdings.
Among the contributors
to relative performance included Pretium Resources (Canada, Materials sector), Indian Energy Exchange (India, Financials sector), TotalEnergies SE (France, Energy sector), TGS ASA (Norway, Energy sector), and Nippon
Telegraph and Telephone Corporation (Japan, Communication Services sector).
Pretium Resources is a
Canada-based junior gold miner, whose Brucejack mine in northwestern British Columbia is potentially one of the largest and highest-grade gold mining assets in the world. Australia-based Newcrest Mining agreed
to acquire Pretium in a cash and shares deal at an attractive 23% premium, adding to a wave of consolidation in the sector. From our perspective, it was only a matter of time before such an attractive asset in a
stable jurisdiction with exploration upside attracted merger & acquisition interest.
Indian Energy Exchange
is India’s pioneering platform for trading electricity, with participants including electricity generators, distribution companies, traders and industrial users of electricity. The exchange provides an
efficient means for the allocation of electricity supply and a transparent pricing mechanism, having established a dominant market position with a virtual monopoly in the country. The combination of steadily
rising electricity demand, increasing penetration of its platform and high operating leverage supports steady double-digit earnings growth, virtually all of which we believe is likely to be distributed to shareholders
given the low capital requirements of the business. In addition to reporting continued strong results, the company launched a natural gas exchange, significantly increasing its total addressable market.
Energy was the only
sector in the benchmark to generate positive returns over the fiscal year period as the Russia-Ukraine military conflict sent oil prices soaring and acted as a reminder of Europe’s dependence on Russian energy.
The Fund’s energy holdings include TotalEnergies SE and TGS ASA. TotalEnergies is one of the world’s largest integrated energy companies. The French-based company operates in upstream oil
and gas exploration and production, low carbon energy businesses, as well as refining and marketing and chemicals, with operations in more than 130 countries. TotalEnergies has some of the highest production
growth and returns with among the lowest carbon intensity in the industry, a solid balance sheet, and was the only European major not to have cut its dividends during the downturn. TGS ASA is a Norwegian
provider of marine seismic data for the global oil and gas industry. It operates an asset-light flexible business model, focusing on the multi-client segment and providing marine data acquisition services using
vessels and crews contracted from third parties, allowing it to generate the best returns among its peers throughout a full cycle. Oil services providers like TGS tend to have outsized leverage to higher oil
prices and have benefitted from accelerating investment in exploration following a multiyear lull in spending.
Nippon Telegraph and
Telephone is Japan’s leading telecom company with leadership in fixed-line, broadband services, and operates the country’s largest wireless telecom carrier NTT DoCoMo. It also provides IT and
communications systems integration services worldwide via its subsidiaries NTT Communications and NTT Data. The market continues to appreciate NTT’s defensive profile in an uncertain macro environment,
including its solid balance sheet, cash flow generation, track record of extracting synergies, and unlocking cost savings, as well as its consistency in maintaining an attractive shareholder return policy.
Among the detractors
from relative performance were Adecco Group AG (Switzerland, Industrials sector), Samsung Electronics (South Korea, Information Technology sector), JCDecaux SA (France, Communication Services sector), Fresenius SE &
Co. KGaA (Germany, Health Care sector), and Boa Vista Servicos S.A. (Brazil, Industrials sector).
Swiss-based Adecco is
the largest recruitment provider globally with a presence in more than 60 countries. The company offers services in the broad categories of temporary staffing, permanent placement, career transition, talent
development as well as outsourcing and consulting. The share prices of staffing companies like Adecco has been under pressure on concerns of a macro slowdown in the face of rising interest rates. In
addition, the market has been skeptical about a recent large and potentially expensive acquisition to improve its business mix by increasing exposure to higher-margin professional and in-house services
12
Management's Discussion of Fund
Performance (Unaudited) (Continued)
businesses. We like the
company’s exposure to the secular trend of growing temporary employment, the high returns on capital, and consistent cash generation. As a dominant player in a highly fragmented industry, we think Adecco
benefits from economies of scale and has a strong brand to attract talent and employers. The company’s ability to service global contracts also gives it a competitive advantage over smaller competitors,
especially with the industry trending towards multinational companies fully outsourcing global hiring functions.
South Korea-based
Samsung Electronics is one of the world’s leading semiconductor producers. It has a dominant market position in memory chips aided by the company’s leading-edge process technologies. Samsung
also has leadership in smartphones, mobile network equipment, display panels and consumer electronics. Semiconductor stocks have been under pressure in anticipation of a cycle downturn given the weakening demand
for end-market products and resulting inventory correction, though we think that Samsung should be relatively more resilient given its diversified portfolio of products. With an overcapitalized balance sheet,
the company has continued to increase its commitment to shareholder returns, which potentially should also provide support to its stock price.
JCDecaux is the global
leader in the highly fragmented outdoor advertising market, with a total of more than 1.1 million advertising panels in over 75 countries. The outdoor signs of the French advertising group can be seen across big
cities and at transport hubs around the world. Its share price came under pressure on concerns over the persistent COVID lockdowns in China as well as downgrades of its outlook given the likelihood of a recession.
Outdoor advertisers are on the front lines of consumer and travel activities and suffer from high operational gearing due to their fixed-cost nature. Despite the current challenges, we believe JCDecaux has
the strongest financial position among its peers and is well-positioned to benefit from further consolidation opportunities in its industry. We believe the increasing digitization of the company’s
advertising panels will help drive top-line growth and improve financial returns over time.
Fresenius is a
German-based diversified global health care provider with businesses in kidney dialysis, hospital construction and operation, as well as technologies and products for infusion, transfusion and clinical nutrition.
Fresenius has a dominant position in most of its respective markets and its core businesses are well-positioned to grow, supported by demographics and growing per capita health care consumption. Its share
price has been under pressure as the company continues to work through a series of operational challenges since COVID. Moreover, a negative ruling by the U.S. Supreme Court on the reimbursement model has led to
some uncertainty in its dialysis business.
Boa Vista Servicos
operates Brazil’s second-largest credit bureau, offering business and consumer credit data and analytics, as well as fraud management services. The company was established in 2010 via the spin-out of the
Sao Paulo Chamber of Commerce’s credit analysis service. Following investments from private equity investors, the company expanded its footprint nationwide via a series of acquisitions, including the local
operations of Equifax. We like the company’s prospects for solid top-line growth, given Brazil’s underpenetrated consumer credit market, its net cash balance sheet and strong market position among
Brazil’s new fintech providers. Despite its attractive profile, the stock’s price has been under pressure in sympathy with its local fintech peers and due to a weaker growth outlook as a result of
sharply rising interest rates and a difficult macro backdrop in Brazil.
The Fund added new
holdings including PagSeguro Digital Ltd. (Brazil, Technology sector), Rotork plc (United Kingdom, Industrials sector), ASML NA (Netherlands, Technology sector), LVMH Moet Hennessy-Louis Vuitton SE (France, Consumer
Discretionary sector), AVEVA Group plc (United Kingdom, Technology sector), Sanofi NA (France, Healthcare sector), Megacable Holdings SAB (Mexico, Communication Services) and Fuchs Petrolub (Germany, Materials
sector). During the second half of 2021, the Fund added a few defensive holdings while selling growth stocks that had outperformed and were trading at a dizzying premium. We also trimmed some industrial
cyclicals that had mostly anticipated continued economic recovery. However, the intense selling we observed in the first half of 2022 gave us an opportunity to increase the Fund’s weight towards high-quality
growth businesses whose valuations have started looking more reasonable. Funds were raised by selling some defensive names that had held up well during the downturn and outpaced their underlying fundamentals. Despite
these changes, sector and country allocations remained stable.
PagSeguro is the
leading disruptor in Brazil’s merchant acquiring market, focusing on micro-merchants and small and medium sized enterprises was added. The company also acts as a card issuer to consumers and individual
entrepreneurs. Founded in 2006, the company is able to leverage off the network and expertise of its parent, UOL (Universo Online), which is the largest Internet content and services company in Brazil.
PagSeguro quickly gained market share from the entrenched incumbent payment providers by offering point-of-sale devices for sale at a price considerably less than their competitors charged for a year’s
rental. The company’s product particularly appealed to the nation’s large underbanked population of small merchants. We like PagSeguro’s entrepreneurial culture, operating in a still
underpenetrated market for digital payments. After a collapse in the share price over the past year following a sharp run up in interest rates, the valuation is as cheap as it’s been since the company was
listed in 2018 while the prospects for secular growth remain intact.
We purchased
U.K.-based Rotork, a global market leader in flow control products and solutions for the oil and gas, water, chemical and other industrial markets. The company’s products include actuators, gearboxes,
valves and related accessories, and
13
Management's Discussion of Fund
Performance (Unaudited) (Continued)
instrumentation and control products
for managing the movement of liquids, gases and powders. We like the company’s strong market position across diversified market segments, which help reduce the volatility of demand over the course of the
business cycle, and have been long-time admirers of management’s track record of generating margins much higher than industrial peers and returns well in excess of their cost of capital. In the wake of a
number of years of global underinvestment in oil and gas and resulting subdued topline growth at Rotork, we think the company could be poised for a period of renewed growth as Europe reasserts its energy independence.
Following a period of weak share price performance we like the risk-reward balance for this well capitalized, high quality industrial business.
We initiated a
position in Dutch-based ASML NA. The firm provides a complete range of lithography equipment, including 100 percent market share in the most advanced Extreme Ultraviolet systems. Exponential demand growth for devices
using semiconductors and the emerging national security imperative for self-sufficiency in semiconductor technology will continue to underpin the demand for manufacturing equipment. The recent panic selling gave us
the opportunity to purchase ASML at a favorable price, given its best-in-class execution and monopolistic product position.
We repurchased LVMH SE
and AVEVA Group PLC after having sold them in the months before the pandemic when the stocks’ prices became too rich. Based in Paris, LVMH SE is the world’s leading luxury goods maker and retailer. The
company has an impressive portfolio of prestigious brands in diversified segments, with many brands holding leadership positions in their respective markets. Some of its high-profile brands include Louis Vuitton,
Tiffany, Bulgari, Dior, Hennessy, Sephora and Givenchy. We like LVMH’s brand, scale and pricing power and believe the company will continue to benefit from consumers’ insatiable appetite for luxury goods
for years to come. AVEVA Group plc is a software provider in product lifecycle management for highly complex industrial and engineering assets. Its market has high barriers to entry and AVEVA is poised to
benefit from global megatrends in technology (IoT, AI, and the energy transition) underpinning its long-term growth prospects.
The Fund added Sanofi
SA, a French based global pharmaceutical company which manufactures products for various therapeutic areas. A lack of focus had resulted in subpar growth and returns for Sanofi in the past. However, this is
changing as Sanofi’s CEO and CFO work to address its past weaknesses: cost, product focus and pipeline. Dupixent, its most promising product, is performing better than expectations while headwinds from its
diabetes exposure are subsiding as that segment now represents less than 10% of total sales. We believe the combined effect of all of these positive developments should lift its earnings and support the undervalued
stock. Paul Hudson, Sanofi’s CEO, is known in the industry for his ability to find promising drugs and focus research and development efforts, as he has done previously at Novartis. We think this should help
reinvigorate Sanofi’s drug pipeline, boding well for its long-term future.
We also bought
Megacable Holdings SAB. The company provides cable television, broadband internet and telephone services in Mexico. The company operates in a geographical area which supports a favorable quasi-duopoly with benign
regulation. Corporate earnings have been growing steadily and average revenue per user resilient over the last few years. Megacable is well positioned to benefit from increasing broadband penetration in Mexico. To
meet this demand, the company has been investing in the broadband business with internally generated funds. Despite the heavy capital investment, the company is able to distribute a generous dividend of around 4% to
its shareholders and still maintain a very healthy balance sheet.
Fuchs Petrolub was
also added. The company is the largest independent supplier of lubricants in the world. Founded in 1931, it produces and sells about 10,000 different high-value lubricants and related specialty products for various
industrial applications worldwide. The recent underperformance of Fuch’s share price is largely due to concerns over higher costs for base oil and chemical additives, as well as logistics, putting pressure on
its margins in the near term. However, the company has the pricing power to pass on the costs with a time lag of two to three quarters. Fuchs is also confident that they have a range of competitive products targeted
for the electric vehicle market, including high-value greases for electric motors and battery coolants that have higher average selling prices than engine oil. The company has a consistent record of market share gains
within global lubricants, generates high returns and has a strong balance sheet.
During the period, the
Fund sold Gruma SAB deCV (Mexico, Consumer Discretionary), Nippon Telegraph and Telephone (Japan, Communication Services), Calbee Inc. (Japan, Consumer Discretionary), Compass Group plc (United Kingdom, Consumer
Discretionary), Alibaba Group (China, Consumer Discretionary), Nayuki Holdings Limited (China, Consumer Discretionary), Indian Energy Exchange Ltd. (India, Financials sector) and Pretium Resources.
Gruma SAB de CV is the
largest producer of corn flour and tortillas in the world, operating almost 80 plants worldwide and with sales totaling $5bn from over 100 countries. With 70% share in the Mexican corn flour market, the company
benefits from massive economies of scale. Gruma is also the largest producer of tortillas in the US, operating under the ubiquitous Mission brand, where the company has nearly 50% share in the supermarket
channel. The Fund has owned the name for some time and still like the combination of slow, stable top line growth, and growing dividend payout. However, after its recent relative outperformance, especially in
the face of increasing input costs, we decided to take profits.
14
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Nippon Telegraph and
Telephone is another name we sold. The company recently bought out the minority shareholders of separately listed NTT DoCoMo, Japan’s largest wireless telecom operator with nearly 80 million subscribers. The
company has significant opportunities to unlock cost savings, sports a strong balance sheet and generates solid free cash flow annually, which it is using to increase dividends and engage in a proactive buyback
program. We decided to take profits after its considerable stock price outperformance in a mature, low-growth environment.
We also exited the
Fund’s position in Calbee Inc., a leader in Japan’s snack food industry with well over 50% domestic market share in the categories where they compete. Its domestic market, while not growing, is
stable and provides the company with reliable cash flow while management aims to grow its overseas business, especially in Indonesia, China and the U.K. where it already has a sizable presence. We also
appreciate the company’s net cash balance sheet and track record of consistently growing dividends. However, following some relative share price outperformance we exited the position due to the risk of margin
compression from escalating input costs.
Prior holding Compass
Group PLC was sold once again after we bought it back in the wake of pandemic induced weakness in the business and share price. Compass is a leading player in the highly fragmented global catering market, providing
catering and support services to offices, hospitals, factories, stadiums and universities. The Fund had previously held the stock prior to the onset of the pandemic, having sold our position due to its rich valuation
in late 2019. When the price declined early in 2020, we took advantage to re-establish a position in this high quality franchise. Subsequently the market has anticipated a full recovery in the business, parts of which
remain below pre-pandemic levels, once again leaving the stock price expensive on near term earnings.
We exited Fund
positions in Alibaba Group, the dominant player in China’s large and fast growing e-commerce market and Nayuki Holdings Limited, a premium teahouse chain in China with attractive unit business economics. After
the Chinese government’s broadening regulatory crackdown in various industries and its iron-fist Covid policy lockdown measures, we thought it prudent to reduce exposure there.
Indian Energy Exchange
is another name we sold. The company operates an electricity trading platform for the physical delivery of electricity in India. Established in 2008, Indian Energy Exchange has achieved a dominant market
position with a virtual monopoly in the country. We believe the combination of steadily rising electricity demand, increasing penetration of Indian Energy Exchange’s transparent and efficient day ahead power
market, and high operating leverage should lead to steady double digit earnings growth, virtually all of which has the potential to be distributed to shareholders given the low capital requirements of the business.
However, with the stock price rising significantly from our initial purchase, we could no longer justify its valuation and decided to take profit.
Lastly, we sold Pretium
Resources, a gold mining company based in Vancouver, Canada after it entered into a binding agreement to be acquired by Newcrest Mining Ltd. an Australia-based mining company.
Outlook and Conclusion
We believe that
central banks generally and the U.S. Federal Reserve Board in particular waited far too long to curtail the economy. The result has been new 40 year highs in inflation rates across much of the developed world,
forcing a belated but aggressive response from central bankers as well as a sharp rise in market interest rates across the yield curve. Combined with continued constraints on supply, resulting from Russian
sanctions, China’s “zero-COVID” policy, as well as pandemic-induced absenteeism and early retirements, policy makers find themselves in a once in a generation dilemma. While much of the air has
already come out of the most egregiously valued bubble assets, notably money losing technology companies and digital currencies, many valuations remain elevated, dependent on continued near record negative real
interest rates. As central bankers make increasingly hawkish noises, markets have now come to anticipate further monetary tightening through the second half of 2022 and even into next year. Recently,
expectations have been growing of a recession as soon as the second half of this year, particularly in Europe, where the sharp rise in energy prices, accelerated by the situation in Ukraine, is leading to a
significant fall in consumer and business confidence. The continent remains acutely vulnerable to any further reduction of oil and gas flows from Russia, against which many European countries have seemingly
declared economic war.
Despite generational
highs in inflation plus expectations of further monetary tightening and probable economic recession, we’re relatively sanguine about the prospects for inflation peaking and rolling over in the coming months.
This confidence mostly comes from the sharp slowdown in money supply growth in the past 18 months, as trillions in central bank financed government handouts, the cause of the inflationary impulse to begin with,
are now well and truly behind us. Although the U.S. labor market remains tight, there are indications of softening demand for labor, with rising initial jobless claims and some significant layoff announcements
among previously fast growing businesses. In addition there’s already been a dramatic rise in mortgage interest rates and thus a commensurate fall in housing affordability, which is now nearing 30 year
lows. In fact, the recent combination of rising house pricing and higher mortgage rates has led to a 70% increase in the monthly payment for an average new home purchase in just the last two years.
15
Management's Discussion of Fund
Performance (Unaudited) (Continued)
There’s also
ample evidence of the pandemic era stay-at-home spending bubble having popped, leading to sharp increases in retail inventory levels, typically a harbinger of future deflation, though admittedly pent up demand and
prices for travel and entertainment services remain strong so far. Overall, although less confident about this call for impending deflation than we were about our expectation for a rise in inflation 18 months
ago, on balance we think the odds favor lower than expected inflation and thus less monetary tightening than the market was pricing in even a few weeks ago. What we’re less sure about is whether the
financial plumbing is equipped to handle the reversal of almost 15 years of near zero interest rates and continual quantitative easing, though we’re somewhat comforted by the strength of private sector balance
sheets and the capitalization levels of the U.S. banking system.
The pandemic has by
now mostly become a nonissue for markets, with most countries choosing to “live with COVID” now that the majority of populations have been vaccinated or infected, and in any case the surviving strains of
the virus appear to be less virulent. The one glaring exception to the rule is China, where the virus first appeared nearly three years ago and where the authorities continue to clamp down on any outbreaks.
On the one hand they’ve managed to successfully suppress several potentially devastating outbreaks, including in Shanghai and Beijing, though this has come at significant economic and social cost.
Meanwhile, economic easing measures have accelerated in recent months, in particular with respect to the all-important property sector, though we continue to wonder if it’s too late to avoid a major correction
of this, the world’s biggest asset bubble, given the financial leverage that’s propping it up.
Japan is once again
reaching an inflection point. With official and market interest rates rising in the rest of the developed world, Japan’s authorities are sticking with their policy of near zero rates across the yield
curve, leading to a sharp fall in the value of the yen, which is now at its lowest level in real terms in 50 years, and an accompanying rise in the level of the Bank of Japan’s holdings of Japanese government
bonds, the market for which is now evaporating. With central government debt to gross domestic product of 250%, of which fully half is held by the central bank, and continued large fiscal deficits, a tipping
point must be reached sooner or later, though arguably the steady collapse of the yen is already reflecting this. Perhaps more ominous still is the thought of Japan as the canary in the coal mine, since if the
yen and Japanese financial markets really tip into something approaching hyperinflation, as some expect, this is unlikely to bode well for many other countries which share Japan’s penchant for fiscal profligacy
funded by money printing. Fortunately the drop in recent weeks of market interest rates elsewhere in the world has taken some pressure off of the yen and Japanese bond markets, at least in the short term.
The flip side of the
weak yen is the strong dollar, which despite all time low real interest rates and the freezing of hundreds of billions of Russian foreign reserves, continues to win the prize for least bad fiat currency.
Although it’s still relatively soon to tell, a rising dollar has the potential to strain the competitiveness of dollar-linked emerging markets and the finances of dollar borrowers, but on the other hand
reduce the strain on Europe’s export-oriented manufacturing sector emanating from rising energy costs.
In summary, the
post-pandemic era has begun with a variety of daunting challenges for policy makers and investors. Fine tuning the economic policy response in the wake of a once in a generation monetary bubble, while managing a
costly energy transition in the face of ongoing geopolitical uncertainties with respect to Russia, is likely to prove tricky, to say the least. For investors, while real interest rates remain low and asset
prices overall look somewhat elevated, we believe there are growing pockets of value, particularly in more cyclically sensitive sectors. Given our expectation that monetary tightening could be over sooner than
the market believes, combined with the financial strength and attractive valuations of the businesses the Fund owns, we feel good about the prospects for the Fund into the second half of 2022 and beyond.
16
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone International Equity Fund - Class A* and the MSCI EAFE Index
| Average Annual Total Returns** | |||
| Touchstone International Equity Fund | 1 Year | 5 Years | 10 Years |
| Class A | -22.91% | 0.13% | 4.86% |
| Class C | -20.15% | 0.21% | 4.35% |
| Class Y | -18.61% | 1.48% | 5.80% |
| Institutional Class* | -18.52% | 1.58% | 5.83% |
| MSCI EAFE Index | -17.77% | 2.20% | 5.40% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Institutional Class shares was October 30, 2017. Institutional Class shares performance information was calculated using the historical performance of Class A shares for the period prior to October 30, 2017. The returns have been restated for sales loads and fees applicable to Institutional Class shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to 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.
Notes to Chart
The MSCI EAFE Index is a free
float-adjusted market capitalization index that is designed to measure developed market equity performance excluding the U.S. and Canada.
MSCI makes no express or implied
warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This
report is not approved or produced by MSCI.
17
Management's Discussion of Fund
Performance (Unaudited)
Touchstone International Growth
Fund
Sub-Advised by DSM Capital Partners
LLC
Investment Philosophy
The Touchstone
International Growth Fund (the “Fund”) seeks long-term capital appreciation by primarily investing in international equity securities of large capitalization companies believed to offer the best
opportunity for reliable growth at attractive stock valuations. The Fund utilizes a bottom-up idea-driven growth style with a distinct valuation discipline. It seeks to identify companies which are believed to exhibit
certain quality characteristics, including: predictable growth, solid fundamentals, attractive profitability and successful management.
Fund Performance
The Touchstone
International Growth Fund (Class A shares) underperformed its benchmark, the MSCI All Country World Ex-U.S. Index, for the 12-month period ended June 30, 2022. The Fund’s total return was -31.60%, (calculated
excluding the maximum sales charge), while the total return of the benchmark was -19.42%.
Market Environment
Global equities ended
the period with a large decline. Since peaking in November 2021, the market is systematically correcting the price distortions created by an era of artificially low interest rates that were contrived by monetary
authorities worldwide. Many central banks have started to raise interest rates, some aggressively so, with the notable exception of the Bank of Japan. The U.S. Federal Reserve Board has also started
shrinking its balance sheet, which serves as another form of tightening.
Developed markets
outperformed emerging markets over the 12-month period. France, U.K., Canada and Switzerland were the primary contributors. Within emerging market equities, countries such as China, Brazil, and South Korea
declined the most.
Stylistically, Value
outperformed Growth over the 12-month period. Large capitalization stocks outperformed their mid-and small capitalization counterparts as larger companies tend to have more diverse business lines and revenue
sources compared to the more economically-sensitive smaller capitalization companies.
Within the benchmark,
only the Energy sector finished in positive territory over the 12-month period. The Financials and Utilities sectors also outperformed while the Information Technology and Consumer Discretionary were the weakest
sectors.
Portfolio Review
The Fund’s
relative underperformance versus its benchmark was primarily due to stock selection in the Consumer Discretionary, Communications Services, and Financials sectors, as well as the portfolio’s overweight to the
Consumer Discretionary and Information Technology sectors. The Fund’s underweight in the Energy sector, the benchmark’s strongest sector during the period, also detracted from relative performance in
the period.
The holdings that
contributed most to the Fund’s performance during the period included AstraZeneca (Healthcare sector), Endava (Technology sector), Dollarama (Consumer Discretionary sector), Linde (Materials sector) and
Microsoft Corp. (Information Technology sector).
The weakest
contributors to the Fund’s performance during the period included Nexi SpA (Information Technology sector), New Oriental Education (Consumer Discretionary sector), Naver Corp. (Communication Services sector),
Alibaba Group (Consumer Discretionary sector) and Evolution AB (Consumer Discretionary sector).
The Fund’s
positioning during the 12-month period has been consistent with our investment philosophy. Over the period, we have taken steps to align the valuation level of the portfolio to one more reflective of the 1990’s
when interest rates were higher and the ten-year U.S. Treasury Bond yield was 5% or more. Accordingly, we have sold entirely or trimmed the higher price/earnings ratio ("P/E") positions, while starting new
positions and adding to existing positions of lower P/E growth stocks. Over the reporting period, the lower P/E growth stocks purchased have defended well. However, performance was negatively impacted by
the portfolio’s investments in China. President Xi and the Chinese government’s regulatory and reform efforts caused significant disruptions to businesses operating in the areas of internet
platforms, education, real estate and finance. While Xi’s policies may be intended to create “common prosperity”, they have caused economic growth headwinds across the country, especially when
combined with commodity and energy cost increases, and ongoing COVID-related shutdowns.
18
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Outlook and Conclusion
Over the past few
months, the headwinds of rising inflation causing increased interest rates have brought into question not just market valuations, but the prospects for global economic growth as well. In many developed economies
the rate of inflation remains at 40-year highs. The U.S. Consumer Price Index (CPI) increased 8.6% over the year ended May 2022, up from 8.3% in April. Within the CPI, the gas component rose 107%; the food
component was up 10.1%; and the shelter index increased 5.5 %. In the Eurozone, the May CPI reading increased 8.1% year over year, and accelerated from 7.4% in April. The U.K. CPI in May was 9.1%.
At this time, only China and Japan are reporting very modest signs of inflation.
As a result, central
banks are raising interest rates at an accelerated pace to bring inflation under control. In contrast to views of just six months ago, many forecasters expect interest rate hikes to be aggressive and front-end
loaded. In addition, inflation causes consumers to devote a larger percentage of their income to essentials like gas, energy for heating and cooling, food and rent, leaving less discretionary spending available
for items such as clothing, restaurants and travel.
The global supply
chain continues to be a persistent issue for any business manufacturing and shipping products. Russian sanctions and China’s COVID lockdowns make the procurement of raw materials and the production of
goods much more difficult. Freight congestion remains fairly high, and while freight costs may begin to decline, they remain well above historical levels. If demand starts to wane at the consumer and
industrial level, some of the supply chain pressures may ease to the benefit of many manufacturers in 2023.
Although changes to
the portfolio have been limited the last several quarters, given the likelihood of continued near term volatility due to concerns over high inflation and rising interest rates, we will continue to initiate and add to
positions opportunistically. Accordingly, we believe careful attention to the valuation of the portfolio is warranted. With gross domestic product forecasts being cut, we are also paying close attention to
the resiliency of earnings growth for our companies.
After the 2008 Great
Financial Crisis the Federal Reserve and other central banks reduced interest rates to zero or even negative levels in order to encourage investors holding cash to invest in the global economy and hasten the economic
recovery. However, as a result of their zero interest rate policy as well as Quantitative Easing, “risk assets” such as stocks, private equity, high yield and investment grade bonds, and real estate
all moved much higher very quickly from the lows of the financial crisis, with some reaching speculative valuation levels. With interest rates normalizing, valuations will continue to matter and investors will not be
rewarded for investing in speculative assets as they were over the past five years or more.
In our view, the
investment environment going forward will be much more like the 1990s, than the historically unique period since the Great Financial Crisis in 2008. As a result, we believe valuations will normalize and
excessive valuations will continue to slowly decline, much as they did after the internet bubble in 2000. In our view, interest rates will likely move higher, perhaps to levels similar to the 1990s.
Consistent with what occurred after the 2000 bubble, we expect the rebound in technology and other growth stocks to be slower and more selective when compared to the period after 2008/2009.
DSM Capital Partners
LLC has always focused on investments in what are believed to be predictable non-cyclical businesses with reasonable absolute valuations. In 2021, we were focused on adding lower P/E growth stocks to the
portfolio that would defend in a difficult market as a result of higher interest rates. At DSM, we continue to focus on identifying new investment candidates whose business fundamentals over the intermediate to
longer term remain strong, but whose valuations have declined significantly, providing a very attractive entry level to drive future returns. In 2022, we believe it is an exciting time to be a growth stock
investor.
19
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone International Growth Fund - Class A* and the MSCI All Country World Ex USA Index
| Average Annual Total Returns** | |||
| Touchstone International Growth Fund | 1 Year | 5 Years | 10 Years |
| Class A* | -35.03% | 0.12% | 7.28% |
| Class C* | -32.75% | 0.57% | 7.11% |
| Class Y* | -31.39% | 1.59% | 8.15% |
| Institutional Class | -31.34% | 1.69% | 8.23% |
| MSCI All Country World Ex USA Index | -19.42% | 2.50% | 4.83% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares and Class Y shares was August 15, 2016. Class A shares, Class C shares and Class Y shares performance information was calculated using the historical performance of Institutional Class shares for periods prior to August 15, 2016. The returns have been restated for sales loads and fees applicable to Class A, Class C and Class Y shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to 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.
Note to Chart
MSCI All Country World Ex USA Index
is an unmanaged, capitalization-weighted index composed of companies representative of both developed and emerging markets excluding the United States.
MSCI makes no express or implied
warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This
report is not approved or produced by MSCI.
20
Management's Discussion of Fund
Performance (Unaudited)
Touchstone Large Cap Focused Fund
Sub-Advised by Fort Washington
Investment Advisors, Inc.
Investment Philosophy
The Touchstone Large
Cap Focused Fund (the “Fund”) seeks capital appreciation by investing in large capitalization companies that are trading below what is believed to be the estimate of their intrinsic value and have a
sustainable competitive advantage or a high barrier to entry in place. The barrier(s) to entry can be created through a cost advantage, economies of scale, high customer loyalty or a government barrier (e.g. license
or subsidy). Fort Washington Investment Advisors, Inc. believes that the strongest barrier to entry is the combination of economies of scale and high customer loyalty.
Fund Performance
The Touchstone Large
Cap Focused Fund (Class A Shares) underperformed the S&P 500® Index for the 12-month period ended June 30, 2022. The Fund’s total return was -14.07% (calculated excluding the maximum sales charge) while
the return of its benchmark was -10.62%.
Market Environment
Over the twelve-month
period, U.S. equities declined. The third quarter 2021 marked the weakest quarterly return for many U.S. equity indices since the pandemic recovery began in the second quarter of 2020. Headwinds that concerned
investors during the quarter included COVID-19 Delta variant spread, anti-business Chinese regulatory action, and rising inflation driven by supply constraints. In the fourth quarter of 2021, U.S. equities rallied to
reach all-time highs despite a surge in COVID cases and anticipated U.S. Federal Reserve Board (Fed) tightening. U.S. equities declined slightly in the first quarter of 2022 and significantly in the second quarter
of 2022 amid the Russian invasion of Ukraine, high inflation reports, and Federal Reserve tightening. The benchmark sectors that led the market higher during the period were Energy, Utilities, and Consumer
Staples. The Communication Services sector was the worst performer for the index, followed by Consumer Discretionary, Information Technology, and Industrials.
Portfolio Review
Sectors in which the
Fund outperformed the benchmark include Health Care, Industrials, Financials, and Information Technology. Sectors where the Fund underperformed were Consumer Staples, Real Estate, Communication Services, Energy,
Consumer Discretionary, and Materials. Sector allocation was negative primarily due to an overweight in Communication Services and an underweight in Utilities.
The three stocks that
contributed most to performance were UnitedHealth Group (Healthcare sector), Bristol-Myers Squibb (Healthcare sector), and Raytheon Technologies Corp. (Industrials sector). UnitedHealth Group Inc. outperformed
as the firm delivered bottom line results that beat expectations over the period and increased 2022 guidance during the second quarter. Bristol-Myers Squibb outperformed as it continues to make solid progress with
recently launched drugs and its pipeline. Raytheon saw outperformance due to increased commercial aerospace demand during the period and potential increases in defense spending due to elevated geopolitical
risk.
The three stocks that
detracted the most from performance were Meta Platforms Inc. (Communication Services sector), Netflix Inc. (Communication Services sector), and Alibaba Group Holdings Ltd. (Consumer Discretionary sector). Shares
in Meta Platforms underperformed after the company issued lower than expected guidance during the first quarter of 2022 and reported lower than expected earnings due to higher investments in the Meta and Reels
segments. Shares in Netflix underperformed primarily due to lower than expected guidance for net subscriber additions which prompted investor concern over market saturation. Alibaba underperformed primarily due
to continued concern regarding the regulatory environment in China during the period.
Outlook and Conclusion
In the first half of
2022, the U.S. equity market officially entered bear market territory down more than 20% from the most recent peak. Investors felt the weight of inflation reaching multi-decade highs, Russia invading Ukraine, economic
growth slowing, and the Federal Reserve rapidly implementing restrictive policy measures. Amidst this backdrop, U.S. equity performance was led by inflation beneficiaries and defensive sectors like Energy, Utilities,
Staples, and Health Care. Longer duration sectors like Information Technology and Communication Services lagged in the second quarter of 2022, continuing the trend we witnessed in the first quarter. While the
U.S. economy is still relatively healthy by virtue of consumer demand, business spending, and labor market conditions, we continue to see an elevated probability of a slowdown in the back half of the year mainly due
to the lag effects of higher interest rates and higher prices.
21
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Based on our outlook,
the investment team has been mitigating risk through a combination of long standing elements of our process and gradual shifts in portfolio positioning. Several components of our Large Cap Focused Equity process help
mitigate the impact of higher inflation and interest rates. First, consistently using conservative discount rates provides a cushion when rates rise. Second, focusing on barriers to entry in fundamental analysis,
specifically businesses with pricing power, is especially important today as companies are increasingly looking to pass on cost pressures. Last, prioritizing what we believe to be a margin of safety with each holding
seeks to provide additional risk mitigation for challenging market environments. Additionally, since early 2021, the Large Cap Focused Equity team has been gradually reducing risk in the portfolio in terms of both
sector weights and exposures within sectors. Sector weights in Consumer Discretionary and Communication Services have decreased while the Consumer Staples weight and the cash position have increased. Within Financials
for example, we have shifted weight from a bank with growing exposure to crypto currency to a more traditional specialty lines property and casualty insurance business. Within Industrials, we have shifted weight from
a short cycle manufacturer of motion and control technologies to a high barrier aerospace and defense company.
At the end of the
period, the Fund continued to emphasize businesses with higher barriers to entry and returns on capital. We have continued to gradually dial back risk in the portfolio while looking for opportunities that fit our
framework through the volatility. We believe this moderate shift in risk posture combined with continued disciplined execution of our process will benefit the portfolio going forward.
22
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone Large Cap Focused Fund - Class A* and the S&P 500® Index
| Average Annual Total Returns** | |||
| Touchstone Large Cap Focused Fund | 1 Year | 5 Years | 10 Years |
| Class A | -18.38% | 10.88% | 12.29% |
| Class C | -15.57% | 11.12% | 12.15% |
| Class Y | -13.86% | 12.31% | 13.18% |
| Class R6* | -13.90% | 12.07% | 12.90% |
| Institutional Class* | -13.85% | 12.37% | 13.15% |
| S&P 500® Index | -10.62% | 11.31% | 12.96% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares, Class R6 shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class R6 shares and Institutional Class shares was October 28, 2021 and December 23, 2014, respectively. Class R6 shares and Institutional Class shares performance was calculated using the historical performance of Class A shares for the periods prior to October 28, 2021 and December 23, 2014, respectively. The returns have been restated for sales loads and fees applicable to Class R6 shares and Institutional Class shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares, Class R6 shares and Institutional Class shares are not subject to 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.
Note to Chart
S&P 500® Index is a group
of 500 widely held stocks and is commonly regarded to be representative of the large capitalization stock universe.
23
Management's Discussion of Fund
Performance (Unaudited)
Touchstone Large Cap Fund
Sub-Advised by The London Company
Investment Philosophy
The Touchstone Large
Cap Fund (the “Fund”) seeks long-term capital growth by investing primarily in common stocks of large-capitalization U.S. listed companies. The Fund seeks to purchase financially stable large-cap companies
that it believes are consistently generating high returns on unleveraged operating capital, run by shareholder-oriented management, and trading at a discount to the company’s respective private market values.
Fund Performance
The Touchstone Large
Cap Fund (Class A Shares) outperformed its benchmark, the Russell 1000® Index, for the 12-month period ended June 30, 2022. The Fund’s total return was -11.44% (calculated excluding the maximum sales
charge) while the benchmark’s total return was -13.04%.
Market Environment
For the twelve-month
period ending June 30, 2022, the major U.S. stock indices declined. The first 6 months of the period was relatively strong reflecting reasonably strong economic growth and an accommodative monetary policy.
As the period progressed, fears over how rising inflation and more hawkish comments and actions from the U.S. Federal Reserve Board (Fed) would impact the economy caused broad based selling in the equity
markets.
Small cap stocks
performed the worst, followed by the mid cap stocks. Even though they declined, large cap stocks fared the best. Value stocks outperformed Growth stocks across the board and defensive stocks performed
better than cyclical names.
The Omicron strain of
COVID emerged late in 2021 and in February 2022, Russia invaded Ukraine, both of which have further constrained supply chains and stoked inflation. With regard to monetary policy, a strong labor market combined
with high inflation resulted in a shift toward tighter monetary policy earlier in the year from the Federal Reserve.
The war in Ukraine has
also caused Energy prices to spike with the price of crude oil moving from $70-80 per barrel pre-invasion to a high of approximately $130 post invasion. It has since settled out to the $100-110 range. This
caused the energy sector to be the strongest sector during the period.
In terms of factors
impacting stocks during the period, Value, Yield, Quality, and Momentum factors were the strongest. Volatility was the only group where the factors consistently performed poorly. Growth factors did well,
but dividend growth was clearly the best and while Quality overall was strong, companies with weaker balance sheets (more leverage) did better.
Portfolio Review
The Fund’s
outperformance was a result of strong stock selection, partially offset by underweight positions in the leading sectors, Energy, Health Care, and Utilities. In terms of stock selection, the best performing
stocks based on relative performance vs. the benchmark during the period were O’Reilly Automotive Inc. (Consumer Discretionary sector), Progressive Corp. (Financials sector), Berkshire Hathaway Inc. (Financials
sector), Pfizer Inc. (Health Care sector), and Church & Dwight Co. Inc. (Consumer Staples sector).
O’Reilly
Automotive outperformance during the quarter was led by its share gains and the recovery in its Pro customers. Auto parts stocks have historically outperformed when consumers are experiencing higher inflation. That
said, lapping stimulus payments and the severity of winter weather with the delay in spring weather impacted ticket count. O’Reilly remains the gold standard for service, part availability, and logistics in this
industry. The average age of cars on the road continues to rise and is now in the sweet spot for auto repairs and failures. O’Reilly has a strong balance sheet and recent insider buying activity has been
favorable.
Progressive
outperformed reflecting improved profitability in its latest quarterly results. The company continues to execute its plan to slow premium growth in favor of maintaining its 96% combined ratio. Results in the
Personal Auto Loss ratio have improved suggesting its pricing actions have continued to stick and rate hikes have been successful. Progressive’s segmentation and virtuous cycle of risk selection should translate
to a more profitable book coming out of this cycle. We remain attracted to its best-in-class operations and conservative underwriting philosophy.
Berkshire Hathaway
benefited from the market pivoting to safety for the first six months of the year. Recent earnings results reflected quality, as most BRK-B businesses were able to push through price hikes in light of the
inflationary environment. We believe that Berkshire Hathaway’s strong balance sheet positions the company well to capitalize on potential disruptions in the insurance market during a downturn.
24
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Pfizer outperformed
the broader market as we believe fundamentals should be relatively insulated from macroeconomic weakness. Pfizer has been the big winner in the pharma industry over the course of the COVID pandemic with its Comirnaty
vaccine and Paxlovid therapeutic. Vaccine profits positioned Pfizer with ~$24B of cash and equivalents on the balance sheet as of 3/31, and the company has commenced putting that cash to work on business
development. Notably, Pfizer announced the acquisition of Biohaven in the quarter. As Pfizer deploys capital to expand the pipeline and continues to execute on research and development, we think concerns around
medium-term growth should be addressed. Pfizer pays a growing dividend above 3%.
After a slow start to
2021, Church & Dwight posted a strong rally to end the year, and has outperformed market in 2022 due to the defensive nature of its business. The company experienced solid organic sales growth despite lower
product availability impacting demand, and effectively managed costs through the challenging market environment. They continue to execute on their disciplined merger and acquisition strategy, announcing an acquisition
of a fast-growing mouthwash brand (TheraBreath) to add to their oral care portfolio during the quarter. Church and Dwight’s leading portfolio of diversified consumer staple products provides durable cash flow
generation and a quality source of downside protection.
Among the individual
stocks that detracted from Fund performance during the period were Meta Platforms Inc. (Communication Services sector), CarMax Inc. (Consumer Discretionary sector), Citrix Systems Inc. (Information Technology sector),
FedEx Corp. (Industrials sector), and BlackRock Inc. (Financials sector).
Meta is being hit by a
confluence of headwinds in the current operating environment. The company reported better-than-feared results back in April, which included revenues at the midpoint of guidance. Stock weakness since then can be
attributed to a perceived slowdown in the ad industry as consumers are dealing with high inflation and companies continue to struggle with inventory positions. Despite near-term headwinds, we continue to believe Meta
is structurally advanced in the oligopolistic digital ad industry with its leading ad platform sitting atop services that continue to grow (measured by monthly average users).
After being a top
contributor in the first half of 2021, CarMax underperformed in the period due to concerns around the used car market, normalized average selling prices, and higher interest rates. Used car sales have improved at
CarMax recently due to higher prices as unit volumes were negative. The wholesale and financing businesses are solid. Management is focused on growing profitable market share in multiple channels by utilizing
its omni platform and existing infrastructure. CarMax continues to disrupt the used car ecosystem and we maintain our conviction in the stock.
Citrix Systems was
weak during the second half of 2021. There were a number of internal issues that negatively impacted the company including a shift to subscription based sales, as well as a complicated technical selling process.
An activist firm, Elliott Management, started purchasing shares of the company late in the year and helped oust the CEO. The Chairman accepted the interim CEO role for a second time. We sold the
stock in the fourth quarter of 2021.
FedEx was weak in the
third quarter of 2021 after issuing higher guidance for capital spending, mostly for additional airplane purchases. Investors remain concerned that the FedEx network cannot support the incredibly high package
and freight volumes seen across the industry today. FedEx yields have been trending upwards but margin leverage has been elusive. More recently the stock has outperformed after announcing a series of
initiatives to increase shareholder value, but not enough to overcome the performance earlier in the period.
BlackRock
underperformed reflecting the company’s ties to the broader equity market. We understand the correlation of Blackrock’s AUM and fee revenue to market moves in the near term, but we continue to see
Blackrock as a well-run company and a secular winner in the asset management industry. Despite market volatility, we expect underlying organic growth to continue. Blackrock is a good fit to our investment process with
its strong balance sheet, high margins, and consistent capital return.
During the period, we
trimmed two long-term holdings, Altria Group Inc. and Berkshire Hathaway, and added to the position in BlackRock.
The trim of Altria
reflected recent strength and our desire to reduce the position to closer to 4% of the portfolio. We maintain high conviction in the company. The trim of Berkshire Hathaway was also on recent strength and we continue
to believe the outlook is strong. Post the trim, Berkshire Hathaway will be closer to 7% of the portfolio.
We added to Blackrock
on recent weakness. The stock traded off with the broader equity market. With roughly 50% of its $9.6T in AUM tied to equities, we realize it will trade with the broader equity market. That said, we believe the
company is well positioned for continued growth in its various ETF products, generates attractive EBIT margins (over 35%), and maintains a strong balance sheet. With the recent downdraft in the stock, we believe
current valuation (12x EV/earnings before interest, taxes, depreciation, and amortization (EBITDA)(enterprise multiple)) is an attractive time to add to a long-term holding.
25
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Outlook and Conclusion
Looking ahead, as the
Fed attempts to navigate a soft landing, we recognize that economic data may continue to decelerate and valuation multiples for stocks could compress further. With persistently high inflation combined with a
tight labor market, we should expect additional rate hikes from the Fed while Quantitative Tightening continues. This less accommodative monetary policy will continue to impact the economy. We recognize
the difficulty in navigating a soft landing, so the odds of a recession over the next 12-18 months have increased.
On a positive note,
the U.S. consumer remains in reasonably good shape. Unemployment is low, wages are rising, and there are still ample savings remaining from the pandemic. With consumer spending such an important part of
U.S. gross domestic product (GDP), the strong labor market could limit the downside risk to the economy over the next few months. Things could change quickly though and higher rates may lead to slower growth and
greater job losses. Longer term, we remain positive on the U.S. economy and expect real GDP growth in the 2-3% range driven by growth in the labor force and improving productivity.
In terms of the equity
market, we note that multiple compression may continue reflecting higher interest rates and higher than normal inflation. A slowing economy could also lead to weaker earnings for many companies. Therefore,
we expect greater volatility in stock prices and lower expected returns relative to the strong returns generated from 2009-2021.
We believe the Fund
provides the opportunity to own a group of competitively advantaged businesses (judged by return on capital), with strong balance sheets (lower net debt/EBITDA), at reasonable valuations. Finally, we believe in
the quality of the Fund’s holdings for the next few years and believe it is positioned well.
26
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone Large Cap Fund - Class A* and the Russell 1000® Index
| Average Annual Total Returns** | |||
| Touchstone Large Cap Fund | 1 Year | 5 Years | Since Inception* |
| Class A | -15.87% | 6.30% | 6.44% |
| Class C | -13.01% | 6.76% | 6.45% |
| Class Y | -11.20% | 7.84% | 7.50% |
| Institutional Class | -11.15% | 7.94% | 7.61% |
| Russell 1000® Index | -13.04% | 11.00% | 10.31% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of the Fund was July 9, 2014. The returns of the index listed above are based on the inception date of the Fund. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to 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.
Note to Chart
Russell 1000® Index measures
the performance of the 1,000 largest companies in the Russell 3000® Index.
The Frank Russell Company (FRC) is
the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying,
dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy
in the presentation thereof.
27
Management's Discussion of Fund
Performance (Unaudited)
Touchstone Large Company Growth
Fund
Sub-Advised by DSM Capital Partners
LLC
Investment Philosophy
The Touchstone Large
Company Growth Fund (the “Fund”) seeks long-term capital appreciation by primarily investing in U.S. equity securities of large capitalization companies believed to offer the best opportunity for reliable
growth at attractive stock valuations. The Fund utilizes a bottom-up idea-driven growth style with a distinct valuation discipline. It seeks to identify companies which are believed to exhibit certain quality
characteristics, including: predictable growth, solid fundamentals, attractive profitability and successful management.
Fund Performance
The Touchstone Large
Company Growth Fund (Class A shares) underperformed its benchmark, the Russell 1000® Growth Index, for the 12-month period ended June 30, 2022. The Fund’s total return was -23.29% (calculated excluding the
maximum sales charge), while the total return of the benchmark was -18.77%.
Market Environment
U.S. equities ended
the period with a large decline. Since peaking in November 2021, the market systematically corrected the price distortions created by an era of artificially low interest rates that were contrived by monetary
authorities worldwide. Many central banks raised interest rates, some aggressively so, with the notable exception of the Bank of Japan. The U.S. Federal Reserve Board (Fed) has also started shrinking its balance
sheet, which serves as another form of tightening. From a sector perspective, Utilities finished in positive territory for the period. The Consumer Discretionary, Communication Services, and Information Technology
were the worst performing sectors. Growth-oriented sectors underperformed while defensive Utilities sector and the Consumer Staples sector outperformed at the end of the period. Stylistically, Value outperformed
Growth as the inflationary pressures that impacted domestic equity markets and impacted higher growth companies negatively. Large capitalization stocks outperformed their mid and small capitalization counterparts for
the period as larger companies tended to have more diverse business lines and revenue sources compared to the more economically sensitive smaller capitalization companies.
Portfolio Review
During the 12-month
period the Fund’s underperformance versus the benchmark was primarily due to stock selection in the Information Technology and Communications Services sectors. These detractors were partially offset by the
Fund’s cash position in the declining market environment and its stock selection within the Health Care and Financials sectors.
Among the holdings
that contributed most to the Fund’s performance during the period were UnitedHealth Group Inc. (Healthcare sector), Fortinet Inc. (Information Technology sector), Aon plc (Financials sector), Automatic Data
Processing Inc. (Industrials sector) and EPAM Systems Inc. (Technology sector).
Among the weakest
contributors to the Fund’s performance during the period were PayPal Holdings Inc. (Financials sector), Meta Platforms Inc. (Communication Services sector), Amazon.com Inc. (Consumer Discretionary sector),
Netflix Inc. (Communication Services sector) and Adobe Inc. (Technology sector).
The Fund’s
positioning during the 12-month period has been consistent with our investment philosophy. Over the period, we have taken steps to align the valuation level of the portfolio to one more reflective of the
1990’s when interest rates were higher and the ten-year U.S. Treasury Note’s yield was 5% or more. Accordingly, we have sold entirely or trimmed the higher price/earnings ratio ("P/E") positions,
while starting new positions and adding to existing positions of lower P/E growth stocks. Over the reporting period, the lower P/E growth stocks purchased have defended well. However, performance was
negatively impacted by Meta Platforms, Netflix and PayPal Holdings as each experienced significant declines following challenging earnings reports.
Outlook and Conclusion
Over the past few
months, the headwinds of rising inflation causing increased interest rates have brought into question not just market valuations, but the prospects for global economic growth as well. In many developed
economies, the rate of inflation remains at 40-year highs. The U.S. Consumer Price Index (CPI) increased 8.6% over the year ended May 2022, up from 8.3% in April. Within the CPI, the gas component rose 107%;
the food component was up 10.1%; and the shelter index increased 5.5%. In the Eurozone, the May CPI reading increased 8.1% year over year, and accelerated from 7.4% in April. The U.K. CPI in May was 9.1%.
At this time, only China and Japan are reporting very modest signs of inflation.
As a result, central
banks are raising interest rates at an accelerated pace to bring inflation under control. In contrast to views of just six months ago, many forecasters expect interest rate hikes to be aggressive and front-end
loaded. In addition, inflation causes
28
Management's Discussion of Fund
Performance (Unaudited) (Continued)
consumers to devote a larger percentage
of their income to essentials like gas, energy for heating and cooling, food and rent, leaving less discretionary spending available for items such as clothing, restaurants and travel.
The global supply
chain continues to be a persistent issue for any business manufacturing and shipping products. Russian sanctions and China’s COVID lockdowns make the procurement of raw materials and the production of
goods much more difficult. Freight congestion remains fairly high, and while freight costs may begin to decline, they remain well above historical levels. If demand starts to wane at the consumer and
industrial level, some of the supply chain pressures may ease to the benefit of many manufacturers in 2023.
Although changes to
the portfolio have been limited the last several quarters, given the likelihood of continued near term volatility due to concerns over high inflation and rising interest rates, we will continue to initiate and add to
positions opportunistically. Accordingly, we believe careful attention to the valuation of the portfolio is warranted. With gross domestic product forecasts being cut, we are also paying close attention to
the resiliency of earnings growth for our companies.
After the 2008 Great
Financial Crisis the Fed and other central banks reduced interest rates to zero or even negative levels in order to encourage investors holding cash to invest in the global economy and hasten the economic recovery.
However, as a result of their zero interest rate policy as well as Quantitative Easing, “risk assets” such as stocks, private equity, high yield and investment grade bonds, and real estate all moved
much higher very quickly from the lows of the financial crisis, with some reaching speculative valuation levels. With interest rates normalizing, valuations will continue to matter and investors will not be rewarded
for investing in speculative assets as they were over the past five years or more.
In our view, the
investment environment going forward will be much more like the 1990s, than the historically unique period since the Great Financial Crisis in 2008. As a result, valuations will normalize and excessive
valuations will continue to slowly decline, much as they did after the internet bubble in 2000. In our view, interest rates will likely move higher, perhaps to levels similar to the 1990s. Consistent with
what occurred after the 2000 bubble, we expect the rebound in technology and other growth stocks to be slower and more selective when compared to the period after 2008/2009.
DSM Capital Partners
LLC has always focused on investments in what are believed to be predictable non-cyclical businesses with reasonable absolute valuations. In 2021, we were focused on adding lower P/E growth stocks to the
portfolio that would defend in a difficult market as a result of higher interest rates. At DSM, we continue to focus on identifying new investment candidates whose business fundamentals over the intermediate to
longer term remain strong, but whose valuations have declined significantly, providing a very attractive entry level to drive future returns. In 2022, we believe it is an exciting time to be a growth stock
investor.
29
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone Large Company Growth Fund - Class A*, the Russell 1000® Growth Index and the S&P 500® Index
| Average Annual Total Returns** | |||
| Touchstone Large Company Growth Fund | 1 Year | 5 Years | 10 Years |
| Class A* | -27.12% | 9.52% | 12.15% |
| Class C* | -24.49% | 10.00% | 11.98% |
| Class Y* | -23.09% | 11.10% | 13.10% |
| Institutional Class | -23.03% | 11.21% | 13.18% |
| Russell 1000® Growth Index | -18.77% | 14.29% | 14.80% |
| S&P 500® Index | -10.62% | 11.31% | 12.96% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares and Class Y shares was August 15, 2016. Class A shares, Class C shares and Class Y shares performance information was calculated using the historical performance of Institutional Class shares for periods prior to August 15, 2016. The returns have been restated for sales loads and fees applicable to Class A, Class C and Class Y shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to 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.
Note to Chart
Russell 1000® Growth Index
measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
The Frank Russell Company (FRC) is
the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying,
dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy
in the presentation thereof.
S&P 500® Index is a group
of 500 widely held stocks and is commonly regarded to be representative of the large capitalization stock universe.
30
Management's Discussion of Fund
Performance (Unaudited)
Touchstone Small Company Fund
Sub-Advised by Fort Washington
Investment Advisors, Inc.
Investment Philosophy
The Touchstone Small
Company Fund (the “Fund”) seeks to provide investors with growth of capital by investing primarily in common stocks of small companies that the sub-advisor believes are high quality, have superior business
models, solid management teams, sustainable growth potential and are attractively valued.
Fund Performance
The Touchstone Small
Company Fund (Class A Shares) outperformed its benchmark, the Russell 2000® Index for the 12-month period ended June 30, 2022. The Fund’s total return was -17.95% (calculated excluding the maximum sales
charge) while the total return of the benchmark was -25.20%.
Market Environment
Small cap equities
experienced a challenging market environment for the year ended June 30, 2022. Over the course of the 12-month period, economic growth and corporate profit growth remained strong. However, equity valuations
contracted meaningfully, driving the entirety of the equity market in declines. Equity market valuations contracted primarily due to the end of unprecedented fiscal and monetary stimulus; accelerating inflationary
pressures; and higher interest rates.
From a sector
perspective, Energy and Utilities were the only positive sectors for the 12-month period. Consumer Staples, Financials, Industrials, Real Estate, and Materials outperformed the overall small cap market. Information
Technology, Consumer Discretionary, Health Care, and Communication Services sectors underperformed the overall small cap market.
Portfolio Review
The Fund’s top
three performing sectors for the 12-month period ended June 30, 2022 were Health Care, Information Technology, and Industrials. Stock selection was a strong relative positive contributor to returns. The Fund’s
three bottom performing sectors were Financials, Energy, and Utilities. Financials sector performance was impacted by negative stock selection, while the Fund’s underweight allocation to the outperforming Energy
and Utilities sectors detracted from relative performance.
Among the Fund’s
top five performing stocks were Tower Semiconductor Corp. (Information Technology sector), a leading foundry of high-value analog semiconductor solutions; Vocera Communications (Communication Services sector), a
provider of communication technology to health care systems; Premier Inc. (Health Care sector), a provider of supply chain and technology solutions to health care systems; Quanta Services Inc. (Industrials sector), an
engineering and construction company providing services to the utility, energy, and renewable energy markets; and Box Inc. (Technology sector), a provider of software for companies to manage data in the cloud. Tower
Semiconductor and Vocera Communications were both acquired.
Among the Fund’s
bottom five performers were Tactile Systems Technology Inc. (Health Care sector), a provider of at-home therapies for chronic conditions; 8X8 Inc. (Information Technology sector), a provider of communication services;
Foot Locker Inc. (Consumer Discretionary sector), a specialty retailer of footwear; American Eagle Outfitters (Consumer Discretionary sector), a specialty retailer of apparel; and Pacwest Bancorp (Financials sector),
a regional bank. The Fund exited four of these positions but continues to hold American Eagle Outfitters.
Outlook and Conclusion
We believe economic
growth rates will continue to moderate due to a slow down and normalization in demand across several sectors that benefitted from pent-up demand and fiscal and monetary stimulus. We also expect inflationary pressures
and higher interest rates to negatively impact economic growth. However, we are seeing clear signs across sectors that moderating demand and increasing supply should moderate inflation looking forward, with price
levels declining in certain areas of the economy. The U.S. Federal Reserve Board has followed through on a more aggressive plan to raise interest rates. While we expect short-term rates to continue to increase in the
third quarter and early fourth quarter of 2022, expectations could peak as inflation and growth moderate. We believe that the political environment is having a negative impact on consumer and business sentiment.
However, material legislative changes impacting the economic outlook positively or negative seem unlikely. Small cap earnings forecasts peaked in May 2022. We anticipate earnings forecasts will continue to weaken due
to moderating economic growth and higher costs.
Small cap equities are
trading at their lowest price to earnings valuation since the great financial crisis. While we expect earnings forecasts to decline, we believe high quality, free cash flow generating companies with strong balance
sheets have increasingly attractive expected forward returns.
31
Management's Discussion of Fund
Performance (Unaudited) (Continued)
We remain focused on
executing our fundamental stock selection and portfolio management process. We believe that stocks experience a four-stage investment cycle and our research process is focused on the dynamics that apply to each stage
of the investment cycle. We believe that excess returns and lower volatility are driven by the ability to successfully identify a stock’s current stage and the potential for it to transition to a different stage
of its investment cycle.
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone Small Company Fund - Class A* and the Russell 2000® Index
| Average Annual Total Returns** | |||
| Touchstone Small Company Fund | 1 Year | 5 Years | 10 Years |
| Class A | -22.04% | 5.46% | 9.68% |
| Class C | -19.23% | 5.71% | 9.63% |
| Class Y | -17.81% | 6.81% | 10.56% |
| Class R6* | -17.73% | 6.95% | 10.59% |
| Institutional Class* | -17.70% | 6.83% | 10.55% |
| Russell 2000® Index | -25.20% | 5.17% | 9.35% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares, Institutional Class shares and Class R6 shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Institutional Class shares and Class R6 shares was October 30, 2017 and December 23, 2014, respectively. Institutional Class shares and Class R6 shares performance was calculated using the historical performance of Class A shares for the periods prior to October 30, 2017 and December 23, 2014, respectively. The returns have been restated for sales loads and fees applicable to Institutional Class and Class R6 shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares, Institutional Class shares and Class R6 shares are not subject to 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.
Notes to Chart
Russell 2000® Index measures
the performance of the small-cap segment of the U.S. equity universe.
The Frank Russell Company (FRC) is
the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying,
dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy
in the presentation thereof.
32
Management's Discussion of Fund
Performance (Unaudited)
Touchstone Value Fund
Sub-Advised by Barrow, Hanley,
Mewhinney & Strauss, LLC
Investment Philosophy
The Touchstone Value
Fund (the “Fund”) seeks long-term capital growth by primarily investing in equity securities of large- and mid-cap companies believed to be undervalued. The Fund uses traditional methods of stock selection
— research and analysis — to identify companies that have price-to-earnings and price-to-book ratios below the market, that also have above-average dividend yields, and that focus on companies that are out
of favor due to internal or external challenges judged to be short-term in nature. Stock selection is driven by fundamental analysis on individual companies rather than by broad market themes.
Fund Performance
The Touchstone Value
Fund (Class A Shares) outperformed its benchmark, the Russell 1000® Value Index, for the 12-month period ended June 30, 2022. The Fund’s total return was -5.30% (calculated excluding the maximum sales
charge), while the total return of the benchmark was -6.82% for the same period.
Market Environment
Value outperformed
growth significantly in the past twelve months; valuation multiples compressed with higher rates and inflation weighed heavily on growth stocks. Further compression would likely remain a tailwind for value, though
given the strength of the outperformance, a pause may unfold at some point. Importantly, we believe the long-term setup remains positive given: attractive valuations, the eventual improvement in economic growth, and
increasing importance of dividends amidst the market volatility as a stable source of return relative to earnings growth and multiple expansion. Earnings estimates have proven surprisingly resilient this year.
Portfolio Review
The Fund benefitted
from the value rally that began in late 2020 and outperformed the value index over the period. Additionally, stock selection and an underweight in the Information Technology sector as well as stock selection in
the Financials and Health Care sectors contributed. An overweight position in the Energy sector also positively contributed to relative performance. Conversely, selection in Industrials as well as
selection in Communication Services and Consumer Staples were the largest detractors from relative performance.
Among the top individual
contributors to relative performance included Hess Corporation (Energy sector), Pioneer Natural Resources Company (Energy sector) and Elevance Health, Inc. (Health Care sector).
Hess Corporation, a
global independent oil and gas producer, outperformed with the benefits of higher oil prices and several positive announcements that the company had during the quarter. The company increased its quarterly dividend by
50% after its second offshore production platform in Guyana began oil production at the end of the first quarter. Concurrently, with the completion of three new exploration wells, the company announced the addition of
one billion barrels of gross reserves in its Guyana offshore asset, totaling 11 billion barrels of gross total reserves. The stock currently trades at 8x forward price/earnings ratio (P/E) and offers a 1.5% dividend
yield with a commitment to return 75% of excess cash flow to shareholders via dividends and share repurchases.
Pioneer Natural
Resources Company, an exploration and production company focused on Texas’ Permian Basin remains attractive and trades at less than 11x forward P/E with meaningful dividend yields that will continue to increase
from strong payout ratios and reasonable capital expenditure spending. As well, we continue to engage with the management team who is committed to reducing greenhouse gas (GHG) emissions. Pioneer has reduced its GHG
emissions by 20% over the last two years.
Managed Care
Organization (MCO) Elevance Health (formerly Anthem, Inc.) outperformed in the period. We have long believed that MCOs represent one of the cheapest parts of the healthcare sector. With Medicare For All not garnering
sufficient support within the Democratic Party, we believe that a major overhang on the industry has been removed. During the period, despite COVID and utilization variabilities, MCOs delivered strong results,
resulting in a partial upward re-rating on the stock valuations. Over time, we expect other investors to start appreciating the strong margin stability and growth opportunities that are not fully reflected in certain
stocks, such as Elevance.
Among the largest
individual detractors to relative performance included Altice USA, Inc. (Communication Services sector), Vertiv Holdings Co. (Industrials sector) and Stanley Black & Decker, Inc. (Industrials sector).
Altice USA, Inc. Class
A underperformed in the second half of 2021 as the CEO disclosed disappointing net advertising trends at a sell-side conference in September. The operational underperformance appears manageable and is mostly contained
to one-third of
33
Management's Discussion of Fund
Performance (Unaudited) (Continued)
the footprint that competes with
another fiber optic product (Verizon FIOS). Altice plans to address this by accelerating fiber investments in the areas where there is solid competitive overlap, which should help to stabilize market share and return
the company to net subscriber growth. The step-up in investment will weigh on free cash flow and earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2022, which will limit the share repurchase
program for some time. Cable names in general came under pressure in the fourth quarter as several companies pre-announced worse net advertising trends. Investors are still trying to determine whether this is due to
increased competition from fiber and/or fixed wireless broadband, or whether fewer people moving/less churn in a world still recovering from a pandemic – all of which has called into question what a new normal
environment looks like. Long-term, we continue to believe that broadband is an essential service and, in an environment wherein more people are working from home, having fast and reliable internet is more critical
than ever. Trading at 7.5x EV/trough EBITDA appears too cheap in an environment in which peers trade for 10x EV/EBITDA (enterprise multiple).
Vertiv Holdings, a
leader in electrical and cooling products for data centers, detracted from relative performance. Margins have remained depressed from the rapid cost inflation the company experienced, but price increases in shorter
lead time channels have started to deliver the expected reversal. Management, led by Dave Cote, has taken the necessary steps but it will take some time for those efforts to flow through the longer lead time channels
and backlog. The long-term outlook for its business remains positive, with industry growth expected of 5-7% annually, and supported by its diversified customer base, recurring revenue, and high barriers to entry. As
the company’s pricing power flows through in the balance of the year, we believe results should improve significantly helping shares recover.
Stanley Black &
Decker, a global leader in power tools, hand tools, and other industrial accessories detracted from relative performance as inflationary pressures and supply chain constraints weighed heavily on management’s
outlook. Incremental pricing efforts are underway and should help margin recovery, but may not fully offset rising costs, leading management to reduce guidance for earnings and free cash flow. Near term headwinds,
including concerns over slowing residential and economic growth, sent shares lower, and have overshadowed the meaningful portfolio simplification story underway to help unlock the significant valuation discount that
exists currently. The recent divestiture of a small oil and gas business continues the efforts by management in this regard and expectations remain for further such transactions in the future.
The largest new
holdings in the Fund’s portfolio are Air Products and Chemicals, Inc. (Materials sector), M&T Bank Corporation (Financials sector), VICI Properties Inc. (Real Estate sector), Perrigo Co. (Healthcare sector),
and Fidelity National Information Services (Information Technology sector). The largest eliminated holdings were Goldman Sachs Group, Inc. (Financials sector), Raytheon Technologies Corporation (Industrials sector),
MGM Growth Properties (Real Estate sector), Ralph Lauren Corporation (Consumer Staples sector), and General Dynamics Corporation (Industrials sector). Overall, we began selling the stocks that were rewarded in
the post-COVID economic reopening and purchasing stocks that had fallen out of favor in the year-to-date sell off in 2022.
Outlook and Conclusion
Value-led markets
historically have lasted much longer, on average, and have performed with greater magnitude than the current run. Barrow Hanley has previously demonstrated a strong track record of delivering outperformance when value
cycles occur and the current period strengthens the resolve that a long-term secular value cycle is underway. The investment process has been proven over multiple market cycles; adhering to the long-standing active,
fundamental, and valuation-focused discipline and has delivered consistent and repeatable results. We continue to look for stocks in every sector, more recently several stocks in the Materials sector and the
Financials sector as we believe both will benefit from interest rate increases and higher inflation.
34
Management's Discussion of Fund
Performance (Unaudited) (Continued)
Comparison of the Change in
Value of a $10,000 Investment in the Touchstone Value Fund - Class A* and the Russell 1000® Value Index
| Average Annual Total Returns** | |||
| Touchstone Value Fund | 1 Year | 5 Years | 10 Years |
| Class A | -10.03% | 6.61% | 9.52% |
| Class C | -6.98% | 7.06% | 9.50% |
| Class Y | -5.06% | 8.16% | 10.45% |
| Class R6* | -4.98% | 8.18% | 10.46% |
| Institutional Class | -5.02% | 8.31% | 10.58% |
| Russell 1000® Value Index | -6.82% | 7.17% | 10.50% |
| * | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares, Institutional Class shares and Class R6 shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class R6 shares was October 28, 2021. Class R6 shares performance was calculated using the historical performance of Class A shares for the periods prior to October 28, 2021. The returns have been restated for sales loads and fees applicable to Class R6 shares. |
| ** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares, Class R6 shares and Institutional Class shares are not subject to 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.
Note to Chart
Russell 1000® Value Index
measures those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
The Frank Russell Company (FRC) is
the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying,
dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy
in the presentation thereof.
35
Tabular Presentation of
Portfolios of Investments (Unaudited)
June 30, 2022
The tables below provide
each Fund’s geographic allocation, sector allocation and/or credit quality. We hope it will be useful to shareholders as it summarizes key information about each Fund’s investments.
* Credit quality ratings
are from S&P Global Ratings ("S&P") and Moody's Investors Service (“Moody's”). If agency ratings differ, the higher rating will be used. Where no rating has been assigned, it may be for
reasons unrelated to the creditworthiness of the issuer.
** Sector
classifications are based upon the Global Industry Classification Standard (GICS®).
36
Tabular Presentation of
Portfolios of Investments (Unaudited) (Continued)
* Sector classifications
are based upon the Global Industry Classification Standard (GICS®).
37
Tabular Presentation of
Portfolios of Investments (Unaudited) (Continued)
* Sector classifications
are based upon the Global Industry Classification Standard (GICS®).
38
Touchstone International Equity
Fund (Continued)
| Shares | Market Value | |||
| Short-Term Investment Fund — 7.9% | ||||
| 8,114,973 | Dreyfus Government Cash Management, Institutional Shares, 1.35%∞Ω | $ 8,114,973 | ||
| Total Investment Securities — 97.6% (Cost $105,860,648) | $100,280,778 | |||
| Other Assets in Excess of Liabilities — 2.4% | 2,491,005 | |||
| Net Assets — 100.0% | $102,771,783 | |||
| * | Non-income producing security. |
| ∞ | Open-End Fund. |
| Ω | Represents the 7-Day SEC yield as of June 30, 2022. |
| Portfolio Abbreviations: |
| PLC – Public Limited Company |
| 144a - This is a restricted security that was sold in a transaction qualifying for the exemption under Rule 144a of the Securities Act of 1933. This security may be sold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2022, these securities were valued at $4,273,362 or 4.2% of net assets. These securities were deemed liquid pursuant to procedures approved by the Board of Trustees. |
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 | ||||
| France | $— | $16,968,629 | $— | $16,968,629 |
| United Kingdom | 421,707 | 14,799,325 | — | 15,221,032 |
| Switzerland | — | 13,702,215 | — | 13,702,215 |
| Germany | — | 8,164,411 | — | 8,164,411 |
| Mexico | 4,962,872 | — | — | 4,962,872 |
| Japan | — | 4,923,625 | — | 4,923,625 |
| United States | 3,320,750 | — | — | 3,320,750 |
| Canada | 3,161,504 | — | — | 3,161,504 |
| Brazil | 3,120,339 | — | — | 3,120,339 |
| Hong Kong | — | 3,079,155 | — | 3,079,155 |
| South Korea | — | 2,999,300 | — | 2,999,300 |
| Greece | — | 2,751,549 | — | 2,751,549 |
| India | — | 2,664,089 | — | 2,664,089 |
| China | — | 2,005,246 | — | 2,005,246 |
| Norway | — | 1,738,165 | — | 1,738,165 |
| Tanzania | 1,368,696 | — | — | 1,368,696 |
| Netherlands | — | 1,039,364 | — | 1,039,364 |
| Spain | — | 974,864 | — | 974,864 |
| Short-Term Investment Fund | 8,114,973 | — | — | 8,114,973 |
| Total | $24,470,841 | $75,809,937 | $— | $100,280,778 |
See accompanying Notes to Financial
Statements.
47
Touchstone International Growth
Fund (Continued)
| Portfolio Abbreviations: |
| ADR – American Depositary Receipt |
| PCL – Public Company Limited |
| PLC – Public Limited Company |
| REIT – Real Estate Investment Trust |
| 144a - This is a restricted security that was sold in a transaction qualifying for the exemption under Rule 144a of the Securities Act of 1933. This security may be sold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2022, these securities were valued at $5,715,768 or 9.4% of net assets. These securities were deemed liquid pursuant to procedures approved by the Board of Trustees. |
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 | ||||
| Canada | $9,304,031 | $— | $— | $9,304,031 |
| India | 5,717,739 | 1,844,340 | — | 7,562,079 |
| France | — | 7,037,505 | — | 7,037,505 |
| United Kingdom | 463,450 | 6,277,920 | — | 6,741,370 |
| United States | 3,775,768 | — | — | 3,775,768 |
| Switzerland | — | 3,478,035 | — | 3,478,035 |
| Israel | 2,481,643 | — | — | 2,481,643 |
| Singapore | — | 2,360,134 | — | 2,360,134 |
| Sweden | — | 2,239,456 | — | 2,239,456 |
| Taiwan | 2,041,297 | — | — | 2,041,297 |
| Germany | — | 1,808,540 | — | 1,808,540 |
| Spain | — | 1,794,979 | — | 1,794,979 |
| South Korea | — | 1,652,626 | — | 1,652,626 |
| Thailand | — | 1,499,741 | — | 1,499,741 |
| Italy | — | 1,284,697 | — | 1,284,697 |
| Japan | — | 974,952 | — | 974,952 |
| Netherlands | — | 474,328 | — | 474,328 |
| Short-Term Investment Funds | 9,223,672 | — | — | 9,223,672 |
| Total | $33,007,600 | $32,727,253 | $— | $65,734,853 |
See accompanying Notes to Financial
Statements.
49
Touchstone Small Company
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 | $756,728,487 | $— | $— | $756,728,487 |
| Short-Term Investment Funds | 16,844,546 | — | — | 16,844,546 |
| Total | $773,573,033 | $— | $— | $773,573,033 |
See accompanying Notes to Financial
Statements.
54
Statements of Assets and
Liabilities
June 30, 2022
| Touchstone Balanced Fund | Touchstone Core Municipal Bond Fund | Touchstone International Equity Fund | Touchstone International Growth Fund | Touchstone Large Cap Focused Fund | Touchstone Large Cap Fund | |
| Assets | ||||||
| Investments, at cost | $694,430,587 | $63,345,880 | $105,860,648 | $71,822,774 | $1,771,486,471 | $194,904,219 |
| Investments, at market value * | $754,105,772 | $60,662,099 | $100,280,778 | $65,734,853 | $2,500,490,194 | $278,058,090 |
| Cash | 12 | — | — | — | — | — |
| Cash deposits held at prime broker (A) | 90,400 | — | — | — | — | — |
| Foreign currency † | 1,030 | — | 20,095 | 19,095 | — | — |
| Dividends and interest receivable | 2,015,934 | 499,650 | 178,660 | 47,309 | 1,473,877 | 465,247 |
| Receivable for capital shares sold | 1,168,946 | 783 | 3,723 | 1,521 | 910,302 | 71,898 |
| Receivable for investments sold | 435,113 | 477,624 | 3,635,394 | — | 2,509,810 | — |
| Receivable for variation margin on futures contracts | 23,806 | — | — | — | — | — |
| Receivable for securities lending income | 301 | — | 611 | 3,236 | — | — |
| Tax reclaim receivable | 4,063 | — | 481,679 | 151,998 | 360,768 | — |
| Other assets | 2,468 | 205 | 568 | 2,681 | 10,484 | 1,236 |
| Total Assets | 757,847,845 | 61,640,361 | 104,601,508 | 65,960,693 | 2,505,755,435 | 278,596,471 |
| Liabilities | ||||||
| Dividends payable | — | 8,041 | — | — | — | — |
| Payable for return of collateral for securities on loan | 1,732,824 | — | — | 4,804,762 | — | — |
| Payable for capital shares redeemed | 722,820 | 58,473 | 152,247 | 10,035 | 3,875,282 | 245,515 |
| Payable for investments purchased | 3,327,132 | 3,039,993 | 1,468,406 | — | 1,255,417 | — |
| Payable to Investment Advisor | 392,627 | — | 58,091 | 860 | 1,095,633 | 96,562 |
| Payable to other affiliates | 259,873 | 1,090 | 20,680 | 7,494 | 703,865 | 32,957 |
| Payable to Trustees | 14,298 | 14,298 | 14,298 | 14,298 | 14,298 | 14,298 |
| Payable for professional services | 39,846 | 26,426 | 40,339 | 39,403 | 61,302 | 26,292 |
| Payable for reports to shareholders | 15,418 | 2,650 | 6,290 | 11,230 | 28,556 | 6,233 |
| Payable for transfer agent services | 201,184 | 4,604 | 55,480 | 36,494 | 485,305 | 57,864 |
| Other accrued expenses and liabilities | 32,729 | 7,009 | 13,894 | 7,986 | 60,816 | 19,178 |
| Total Liabilities | 6,738,751 | 3,162,584 | 1,829,725 | 4,932,562 | 7,580,474 | 498,899 |
| Net Assets | $751,109,094 | $58,477,777 | $102,771,783 | $61,028,131 | $2,498,174,961 | $278,097,572 |
| Net assets consist of: | ||||||
| Paid-in capital | 693,495,358 | 61,197,708 | 176,225,930 | 73,711,367 | 1,730,792,744 | 184,392,495 |
| Distributable earnings (deficit) | 57,613,736 | (2,719,931) | (73,454,147) | (12,683,236) | 767,382,217 | 93,705,077 |
| Net Assets | $751,109,094 | $58,477,777 | $102,771,783 | $61,028,131 | $2,498,174,961 | $278,097,572 |
| *Includes market value of securities on loan of: | $1,695,572 | $— | $— | $4,456,197 | $— | $— |
| †Cost of foreign currency: | $1,018 | $— | $19,961 | $18,820 | $— | $— |
| (A) | Represents segregated cash for futures contracts. |
See accompanying Notes to Financial
Statements.
56
Statements of Assets and
Liabilities (Continued)
| Touchstone Large Company Growth Fund | Touchstone Small Company Fund | Touchstone Value Fund |
| $127,838,041 | $697,205,040 | $448,195,795 |
| $163,519,155 | $773,573,033 | $497,768,909 |
| — | — | 8,968 |
| — | — | — |
| — | — | — |
| 42,630 | 568,656 | 1,093,562 |
| 190 | 212,642 | 165,566 |
| — | — | 6,408,244 |
| — | — | — |
| — | 2,105 | — |
| — | — | — |
| 927 | 3,062 | 1,934 |
| 163,562,902 | 774,359,498 | 505,447,183 |
| — | — | — |
| — | 4,695,000 | — |
| 552,378 | 3,354,933 | 929,767 |
| — | — | 2,101,418 |
| 65,877 | 423,921 | 199,647 |
| 19,672 | 208,113 | 72,574 |
| 14,298 | 14,298 | 14,298 |
| 24,661 | 34,345 | 30,460 |
| 3,260 | 20,441 | 12,817 |
| 15,195 | 179,830 | 94,249 |
| 14,657 | 23,186 | 32,116 |
| 709,998 | 8,954,067 | 3,487,346 |
| $162,852,904 | $765,405,431 | $501,959,837 |
| 122,453,792 | 684,323,113 | 429,027,588 |
| 40,399,112 | 81,082,318 | 72,932,249 |
| $162,852,904 | $765,405,431 | $501,959,837 |
| $— | $4,554,000 | $— |
| $— | $— | $— |
57
Statements of Assets and
Liabilities (Continued)
| Touchstone Balanced Fund | Touchstone Core Municipal Bond Fund | Touchstone International Equity Fund | Touchstone International Growth Fund | Touchstone Large Cap Focused Fund | Touchstone Large Cap Fund | |
| Pricing of Class A Shares | ||||||
| Net assets applicable to Class A shares | $521,933,028 | $25,101,075 | $76,670,565 | $1,172,380 | $1,736,899,862 | $4,510,218 |
| Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 24,301,776 | 2,340,518 | 5,766,066 | 111,639 | 36,800,973 | 293,082 |
| Net asset value price per share* | $21.48 | $10.72 | $13.30 | $10.50 | $47.20 | $15.39 |
| Maximum sales charge - Class A shares | 5.00% | 3.25% | 5.00% | 5.00% | 5.00% | 5.00% |
| Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to the nearest cent) - Class A shares | $22.61 | $11.08 | $14.00 | $11.05 | $49.68 | $16.20 |
| Pricing of Class C Shares | ||||||
| Net assets applicable to Class C shares | $73,905,847 | $942,853 | $2,398,603 | $786,606 | $49,114,840 | $2,995,388 |
| Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 3,436,170 | 87,878 | 196,879 | 78,215 | 1,152,330 | 198,734 |
| Net asset value and offering price per share** | $21.51 | $10.73 | $12.18 | $10.06 | $42.62 | $15.07 |
| Pricing of Class Y Shares | ||||||
| Net assets applicable to Class Y shares | $155,158,616 | $2,739,711 | $20,429,580 | $47,844,685 | $493,825,299 | $202,912,756 |
| Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 7,292,176 | 255,118 | 1,557,833 | 4,423,784 | 10,474,833 | 13,162,906 |
| Net asset value, offering price and redemption price per share | $21.28 | $10.74 | $13.11 | $10.82 | $47.14 | $15.42 |
| Pricing of Institutional Class Shares | ||||||
| Net assets applicable to Institutional Class shares | $— | $29,694,138 | $3,273,035 | $11,224,460 | $217,531,313 | $67,679,210 |
| Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | — | 2,765,942 | 250,107 | 1,029,051 | 4,605,774 | 4,383,744 |
| Net asset value, offering price and redemption price per share | $— | $10.74 | $13.09 | $10.91 | $47.23 | $15.44 |
| Pricing of Class R6 Shares | ||||||
| Net assets applicable to Class R6 shares | $111,603 | $— | $— | $— | $803,647 | $— |
| Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 5,248 | — | — | — | 17,008 | — |
| Net asset value, offering price and redemption price per share | $21.27 | $— | $— | $— | $47.25 | $— |
| * | There is no sales load on subscriptions of $1 million or more for all funds except for Core Municipal Bond Fund. There is no sales load on subscriptions of $500,000 or more for Core Municipal Bond Fund. Redemptions that were part of a $500,000 or $1 million or more subscription, as applicable, may be subject to a contingent deferred sales load if redeemed within a one-year period from the date of purchase. |
| ** | Redemption price per share varies by length of time shares are held due to the terms of the contingent deferred sales charge. |
| ^ | The Shares of beneficial interest outstanding and Net asset value and offering price per share were updated to reflect the effect of a 1 for 0.379048 reverse stock split for Class C shares on October 14, 2022 (See Note 10 in the Notes to Financial Statements). |
See accompanying Notes to Financial
Statements.
58
Statements of Assets and
Liabilities (Continued)
| Touchstone Large Company Growth Fund | Touchstone Small Company Fund^ | Touchstone Value Fund |
| $3,289,756 | $451,080,564 | $156,947,118 |
| 90,978 | 99,009,476 | 15,826,900 |
| $36.16 | $4.56 | $9.92 |
| 5.00% | 5.00% | 5.00% |
| $38.06 | $4.80 | $10.44 |
| $205,986 | $17,385,224 | $5,721,844 |
| 6,072 | 3,825,130 | 578,990 |
| $33.92 | $4.54 | $9.88 |
| $13,916,535 | $222,140,874 | $86,614,576 |
| 377,043 | 42,613,241 | 8,690,225 |
| $36.91 | $5.21 | $9.97 |
| $145,440,627 | $21,298,787 | $252,280,872 |
| 3,907,081 | 4,086,128 | 25,399,494 |
| $37.22 | $5.21 | $9.93 |
| $— | $53,499,982 | $395,427 |
| — | 11,219,188 | 39,804 |
| $— | $4.77 | $9.93 |
59
Statements of Operations For the Year Ended June 30, 2022
| Touchstone Balanced Fund | Touchstone Core Municipal Bond Fund | Touchstone International Equity Fund | Touchstone International Growth Fund | Touchstone Large Cap Focused Fund | Touchstone Large Cap Fund | |
| Investment Income | ||||||
| Dividends* | $7,435,212 | $— | $3,071,702 | $797,618 | $33,929,885 | $5,498,874 |
| Interest | 6,472,943 | 1,435,938 | — | — | — | — |
| Income from securities loaned | 4,171 | — | 13,047 | 6,860 | 436 | — |
| Total Investment Income | 13,912,326 | 1,435,938 | 3,084,749 | 804,478 | 33,930,321 | 5,498,874 |
| Expenses | ||||||
| Investment advisory fees | 4,379,676 | 280,517 | 884,634 | 663,906 | 15,751,675 | 2,118,536 |
| Administration fees | 1,176,158 | 83,978 | 163,913 | 107,484 | 3,925,334 | 458,025 |
| Compliance fees and expenses | 3,200 | 3,201 | 3,200 | 3,200 | 3,200 | 3,200 |
| Custody fees | 59,927 | 6,838 | 31,190 | 19,046 | 39,808 | 17,433 |
| Professional fees | 59,651 | 47,725 | 44,619 | 36,309 | 125,137 | 33,255 |
| Transfer Agent fees, Class A | 459,340 | 13,702 | 124,285 | 4,022 | 1,149,260 | 4,085 |
| Transfer Agent fees, Class C | 58,473 | 506 | 5,657 | 1,847 | 51,676 | 1,282 |
| Transfer Agent fees, Class Y | 187,103 | 3,167 | 28,188 | 93,368 | 590,238 | 182,703 |
| Transfer Agent fees, Institutional Class | — | 660 | 167 | 13,992 | 96,813 | 6,426 |
| Transfer Agent fees, Class R6 | 15 | — | — | — | 26 | — |
| Registration Fees, Class A | 25,498 | 9,595 | 21,349 | 11,689 | 36,703 | 13,627 |
| Registration Fees, Class C | 17,058 | 4,645 | 11,190 | 8,685 | 16,193 | 7,936 |
| Registration Fees, Class Y | 24,477 | 6,240 | 15,498 | 15,840 | 47,519 | 34,123 |
| Registration Fees, Institutional Class | — | 4,127 | 10,708 | 15,761 | 16,171 | 14,794 |
| Registration Fees, Class R6 | 3,371 | — | — | — | 3,625 | — |
| Reports to Shareholders, Class A | 56,372 | 3,716 | 11,583 | 5,658 | 71,764 | 3,159 |
| Reports to Shareholders, Class C | 7,701 | 3,339 | 5,842 | 5,308 | 6,994 | 3,398 |
| Reports to Shareholders, Class Y | 15,477 | 3,010 | 4,258 | 12,889 | 27,089 | 18,044 |
| Reports to Shareholders, Institutional Class | — | 2,913 | 2,926 | 5,850 | 8,337 | 3,078 |
| Reports to Shareholders, Class R6 | 1,041 | — | — | — | 1,096 | — |
| Distribution expenses, Class A | 1,518,530 | 72,232 | 238,930 | 4,267 | 5,262,773 | 11,916 |
| Distribution and shareholder servicing expenses, Class C | 837,364 | 11,516 | 31,408 | 10,525 | 609,096 | 37,723 |
| Trustee fees | 28,238 | 28,238 | 28,238 | 28,238 | 28,238 | 28,238 |
| Other expenses | 220,667 | 23,753 | 90,075 | 68,168 | 669,169 | 117,424 |
| Total Expenses | 9,139,337 | 613,618 | 1,757,858 | 1,136,052 | 28,537,934 | 3,118,405 |
| Fees waived and/or reimbursed by the Advisor and/or Affiliates(A) | (4,428) | (182,428) | (125,153) | (316,924) | (413,437) | (345,465) |
| Fees recouped by the Advisor(A) | 81,985 | — | — | — | — | — |
| Net Expenses | 9,216,894 | 431,190 | 1,632,705 | 819,128 | 28,124,497 | 2,772,940 |
| Net Investment Income (Loss) | 4,695,432 | 1,004,748 | 1,452,044 | (14,650) | 5,805,824 | 2,725,934 |
| Realized and Unrealized Gains (Losses) on Investments | ||||||
| Net realized gains (losses) on investments(B)(C) | 33,471,525 | (24,917) | 7,954,770 | (2,615,573) | 254,979,759 | 22,912,067 |
| Net realized gains on futures contracts | 823,799 | — | — | — | — | — |
| Net realized losses on foreign currency transactions | — | — | (149,770) | (31,372) | — | — |
| Net change in unrealized appreciation (depreciation) on investments(D) | (163,247,426) | (6,539,645) | (34,295,050) | (26,798,310) | (674,276,909) | (58,860,797) |
| Net change in unrealized appreciation (depreciation) on futures contracts | 313 | — | — | — | — | — |
| Net change in unrealized appreciation (depreciation) on foreign currency transactions | (37) | — | (20,263) | (16,885) | — | — |
| Net Realized and Unrealized Gains (Losses) on Investments | (128,951,826) | (6,564,562) | (26,510,313) | (29,462,140) | (419,297,150) | (35,948,730) |
| Change in Net Assets Resulting from Operations | $(124,256,394) | $(5,559,814) | $(25,058,269) | $(29,476,790) | $(413,491,326) | $(33,222,796) |
| *Net of foreign tax withholding of: | $177 | $— | $346,574 | $95,881 | $— | $39,999 |
| (A) | See Note 4 in Notes to Financial Statements. |
| (B) | Includes foreign capital gains taxes paid of $155,752 and $65,228 for the International Equity Fund and the International Growth Fund, respectively. |
| (C) | For the year ended June 30, 2022, the Balanced Fund, the Large Cap Focused Fund, the Large Cap Fund, the Large Company Growth Fund and the Small Company Fund had a redemption-in-kind of securities in the amount of $20,471,881, $133,840,394, $21,000,498, $25,368,539 and $56,618,499, respectively. Net realized gains (losses) on investments includes the realized gain on the transactions of $14,901,474, $68,381,811, $9,406,419, $13,920,625 and $21,352,219, respectively, which will not be recognized by the Fund for tax purposes. |
| (D) | Change in unrealized appreciation (depreciation) does not include net appreciation of $18,402,967, $5,530,353, $209,596,258 and $15,906,544 for the Touchstone Balanced Fund, the Touchstone International Equity Fund, the Touchstone Large Cap Focused Fund and the Touchstone Value Fund, respectively, in connection with the Funds' reorganization. See Note 9 in the Notes to Financial Statements. |
See accompanying Notes to Financial
Statements.
60
Statements of Operations (Continued)
| Touchstone Large Company Growth Fund | Touchstone Small Company Fund | Touchstone Value Fund |
| $1,071,998 | $8,068,446 | $11,992,633 |
| — | — | — |
| 1,876 | 8,229 | — |
| 1,073,874 | 8,076,675 | 11,992,633 |
| 1,420,452 | 6,300,401 | 3,391,345 |
| 306,409 | 1,223,024 | 739,648 |
| 3,201 | 3,200 | 3,200 |
| 12,400 | 34,134 | 20,496 |
| 30,032 | 51,979 | 65,268 |
| 3,308 | 405,498 | 159,033 |
| 332 | 23,453 | 4,969 |
| 23,977 | 295,683 | 98,584 |
| 69,016 | 10,351 | 118,027 |
| — | 205 | 10 |
| 12,453 | 25,829 | 18,076 |
| 6,275 | 13,258 | 9,585 |
| 12,647 | 22,210 | 16,089 |
| 21,770 | 10,466 | 72,532 |
| — | 12,423 | 3,348 |
| 3,566 | 25,870 | 19,556 |
| 2,889 | 4,478 | 3,374 |
| 3,146 | 22,867 | 7,914 |
| 4,008 | 4,302 | 16,643 |
| — | 3,623 | 1,040 |
| 9,023 | 1,419,419 | 424,856 |
| 3,897 | 228,140 | 56,870 |
| 28,238 | 28,238 | 28,238 |
| 80,439 | 252,629 | 82,046 |
| 2,057,478 | 10,421,680 | 5,360,747 |
| (321,996) | (241,834) | (591,195) |
| — | — | — |
| 1,735,482 | 10,179,846 | 4,769,552 |
| (661,608) | (2,103,171) | 7,223,081 |
| 52,866,635 | 72,654,827 | 53,432,153 |
| — | — | — |
| — | (2,521) | — |
| (106,678,470) | (239,902,157) | (84,024,306) |
| — | — | — |
| — | — | — |
| (53,811,835) | (167,249,851) | (30,592,153) |
| $(54,473,443) | $(169,353,022) | $(23,369,072) |
| $— | $— | $— |
61
Statements of Changes in Net
Assets
| Touchstone Balanced Fund | Touchstone Core Municipal Bond Fund | Touchstone International Equity Fund | ||||
| For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | |
| From Operations | ||||||
| Net investment income (loss) | $4,695,432 | $3,124,533 | $1,004,748 | $1,211,675 | $1,452,044 | $811,340 |
| Net realized gains (losses) on investments, futures contracts and foreign currency transactions | 34,295,324 | 32,138,897 | (24,917) | 61,169 | 7,805,000 | 13,205,169 |
| Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | (163,247,150) | 78,354,237 | (6,539,645) | 179,252 | (34,315,313) | 23,636,169 |
| Change in Net Assets from Operations | (124,256,394) | 113,617,667 | (5,559,814) | 1,452,096 | (25,058,269) | 37,652,678 |
| Distributions to Shareholders: | ||||||
| Distributed earnings, Class A | (18,683,622) | (20,171,816) | (422,124) | (759,648) | (12,810,410) | (394,252) |
| Distributed earnings, Class C | (2,017,932) | (3,376,561) | (8,006) | (20,387) | (443,920) | (503) |
| Distributed earnings, Class Y | (7,153,486) | (10,441,301) | (56,450) | (72,530) | (3,217,018) | (151,009) |
| Distributed earnings, Institutional Class | — | — | (551,274) | (359,126) | (555,566) | (102,145) |
| Distributed earnings, Class R6 | (430) | — | — | — | — | — |
| Total Distributions | (27,855,470) | (33,989,678) | (1,037,854) | (1,211,691) | (17,026,914) | (647,909) |
| Change in Net Assets from Share Transactions(A) | 317,880,186 | 116,319,904 | 15,095,708 | 229,658 | 22,502,489 | (32,507,841) |
| Total Increase (Decrease) in Net Assets | 165,768,322 | 195,947,893 | 8,498,040 | 470,063 | (19,582,694) | 4,496,928 |
| Net Assets | ||||||
| Beginning of period | 585,340,772 | 389,392,879 | 49,979,737 | 49,509,674 | 122,354,477 | 117,857,549 |
| End of period | $751,109,094 | $585,340,772 | $58,477,777 | $49,979,737 | $102,771,783 | $122,354,477 |
| (A) | For details on share transactions by class, see Statements of Changes in Net Assets - Capital Stock Activity on pages 66 to 69. |
See accompanying Notes to Financial
Statements.
62
Statements of Changes in Net
Assets (Continued)
| Touchstone International Growth Fund | Touchstone Large Cap Focused Fund | Touchstone Large Cap Fund | Touchstone Large Company Growth Fund | ||||
| For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 |
| $(14,650) | $(324,122) | $5,805,824 | $4,381,657 | $2,725,934 | $3,265,990 | $(661,608) | $(955,947) |
| (2,646,945) | 21,844,022 | 254,979,759 | 223,307,044 | 22,912,067 | 14,682,457 | 52,866,635 | 46,369,147 |
| (26,815,195) | (2,303,009) | (674,276,909) | 516,360,601 | (58,860,797) | 85,403,699 | (106,678,470) | 34,594,589 |
| (29,476,790) | 19,216,891 | (413,491,326) | 744,049,302 | (33,222,796) | 103,352,146 | (54,473,443) | 80,007,789 |
| — | — | (144,110,933) | (72,232,394) | (138,543) | (27,980) | (686,500) | (322,644) |
| — | — | (4,540,418) | (2,013,341) | (84,629) | — | (91,216) | (75,536) |
| — | — | (46,283,019) | (23,353,681) | (7,855,117) | (2,756,697) | (4,818,063) | (3,492,139) |
| (362) | (29,001) | (15,167,079) | (8,585,123) | (2,885,087) | (904,834) | (42,296,250) | (26,267,865) |
| — | — | (165) | — | — | — | — | — |
| (362) | (29,001) | (210,101,614) | (106,184,539) | (10,963,376) | (3,689,511) | (47,892,029) | (30,158,184) |
| (10,868,501) | 50,853,513 | 756,668,107 | 89,413,334 | (46,985,624) | (5,958,798) | 2,486,868 | (13,485,397) |
| (40,345,653) | 70,041,403 | 133,075,167 | 727,278,097 | (91,171,796) | 93,703,837 | (99,878,604) | 36,364,208 |
| 101,373,784 | 31,332,381 | 2,365,099,794 | 1,637,821,697 | 369,269,368 | 275,565,531 | 262,731,508 | 226,367,300 |
| $61,028,131 | $101,373,784 | $2,498,174,961 | $2,365,099,794 | $278,097,572 | $369,269,368 | $162,852,904 | $262,731,508 |
63
Statements of Changes in Net
Assets (Continued)
| Touchstone Small Company Fund | Touchstone Value Fund | |||
| For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | |
| From Operations | ||||
| Net investment income (loss) | $(2,103,171) | $(3,042,778) | $7,223,081 | $4,453,429 |
| Net realized gains (losses) on investments and foreign currency transactions | 72,652,306 | 201,596,566 | 53,432,153 | 21,403,643 |
| Net change in unrealized appreciation (depreciation) on investments | (239,902,157) | 208,112,135 | (84,024,306) | 95,152,352 |
| Change in Net Assets from Operations | (169,353,022) | 406,665,923 | (23,369,072) | 121,009,424 |
| Distributions to Shareholders: | ||||
| Distributed earnings, Class A | (100,933,144) | (526,115) | (14,640,827) | (776,520) |
| Distributed earnings, Class C | (8,485,889) | (48,748) | (442,410) | (34,628) |
| Distributed earnings, Class Y | (42,208,035) | (196,776) | (8,719,641) | (2,368,580) |
| Distributed earnings, Institutional Class | (2,833,076) | (13,108) | (25,683,573) | (6,305,785) |
| Distributed earnings, Class R6 | (10,437,867) | (57,850) | (1,961) | — |
| Total Distributions | (164,898,011) | (842,597) | (49,488,412) | (9,485,513) |
| Change in Net Assets from Share Transactions(A) | 100,055,548 | (113,421,577) | 150,160,610 | 57,417,338 |
| Total Increase (Decrease) in Net Assets | (234,195,485) | 292,401,749 | 77,303,126 | 168,941,249 |
| Net Assets | ||||
| Beginning of period | 999,600,916 | 707,199,167 | 424,656,711 | 255,715,462 |
| End of period | $765,405,431 | $999,600,916 | $501,959,837 | $424,656,711 |
| (A) | For details on share transactions by class, see Statements of Changes in Net Assets - Capital Stock Activity on pages 69 to 70. |
See accompanying Notes to Financial
Statements.
64
Statements of Changes in Net
Assets - Capital Stock Activity
| Touchstone Balanced Fund | Touchstone Core Municipal Bond Fund | |||||||
| For the Year Ended June 30, 2022(A) | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | |||||
| Shares | Dollars | Shares | Dollars | Shares | Dollars | Shares | Dollars | |
| Class A(B) | ||||||||
| Proceeds from Shares issued | 2,071,514 | $51,804,611 | 1,466,609 | $34,722,660 | 82,130 | $942,504 | 117,818 | $1,400,793 |
| Proceeds from Shares issued in connection with reorganization(C) | 12,703,235 | 326,253,191 | — | — | — | — | — | — |
| Net shares increase due to stock split | — | — | — | — | — | — | — | — |
| Reinvestment of distributions | 695,294 | 17,702,007 | 833,000 | 19,264,341 | 29,811 | 342,750 | 50,202 | 596,606 |
| Cost of Shares redeemed | (3,788,521) | (94,469,765) | (1,260,991) | (30,118,012) | (367,762) | (4,187,142) | (281,021) | (3,336,930) |
| Change from Class A Share Transactions | 11,681,522 | 301,290,044 | 1,038,618 | 23,868,989 | (255,821) | (2,901,888) | (113,001) | (1,339,531) |
| Class C | ||||||||
| Proceeds from Shares issued | 894,829 | 22,824,368 | 1,079,296 | 25,816,477 | 33,277 | 366,528 | 6,947 | 82,902 |
| Proceeds from Shares issued in connection with reorganization(C) | 721,908 | 18,587,124 | — | — | — | — | — | — |
| Net shares increase due to stock split | — | — | — | — | — | — | — | — |
| Reinvestment of distributions | 77,652 | 2,003,428 | 141,948 | 3,289,385 | 689 | 7,946 | 1,669 | 19,873 |
| Cost of Shares redeemed | (816,261) | (20,385,578) | (696,913) | (16,339,915) | (45,123) | (494,884) | (82,503) | (982,412) |
| Change from Class C Share Transactions | 878,128 | 23,029,342 | 524,331 | 12,765,947 | (11,157) | (120,410) | (73,887) | (879,637) |
| Class Y(D) | ||||||||
| Proceeds from Shares issued | 4,190,499 | 102,045,837 | 4,074,596 | 95,993,587 | 79,167 | 908,797 | 134,759 | 1,602,926 |
| Proceeds from Shares issued in connection with reorganization(C) | — | — | — | — | — | — | — | — |
| Net shares increase due to stock split | — | — | — | — | — | — | — | — |
| Reinvestment of distributions | 283,307 | 7,147,940 | 454,002 | 10,425,611 | 3,831 | 44,150 | 4,722 | 56,160 |
| Cost of Shares redeemed | (5,008,449) | (115,748,212) | (1,131,521) | (26,734,230) | (117,610) | (1,328,373) | (70,525) | (839,958) |
| Change from Class Y Share Transactions | (534,643) | (6,554,435) | 3,397,077 | 79,684,968 | (34,612) | (375,426) | 68,956 | 819,128 |
| Institutional Class | ||||||||
| Proceeds from Shares issued | — | — | — | — | 1,731,152 | 20,620,289 | 146,972 | 1,743,284 |
| Proceeds from Shares issued in connection with reorganization(C) | — | — | — | — | — | — | — | — |
| Net shares increase due to stock split | — | — | — | — | — | — | — | — |
| Reinvestment of distributions | — | — | — | — | 47,679 | 547,245 | 29,346 | 349,022 |
| Cost of Shares redeemed | — | — | — | — | (229,859) | (2,674,102) | (38,939) | (462,608) |
| Change from Institutional Class Share Transactions | — | — | — | — | 1,548,972 | 18,493,432 | 137,379 | 1,629,698 |
| Class R6 | ||||||||
| Proceeds from Shares issued | 5,228 | 114,805 | — | — | — | — | — | — |
| Reinvestment of distributions | 20 | 430 | — | — | — | — | — | — |
| Change from Class R6 Share Transactions | 5,248 | 115,235 | — | — | — | — | — | — |
| Change from Share Transactions | 12,030,255 | $317,880,186 | 4,960,026 | $116,319,904 | 1,247,382 | $15,095,708 | 19,447 | $229,658 |
| (A) | Represents the period from commencement of operations (October 28, 2021) through June 30, 2022 for Class R6. |
| (B) | Effective July 16, 2021, Class B shares of the AIG Active Allocation Fund and AIG Multi-Asset Allocation Fund were reorganized into Class A shares of the Touchstone Balanced Fund. |
| (C) | See Note 9 in Notes to Financial Statements. |
| (D) | Effective July 16, 2021, Class W shares of the AIG International Dividend Strategy Fund were reorganized into Class Y shares of the Touchstone International Equity Fund. |
See accompanying Notes to Financial
Statements.
66
Statements of Changes in Net
Assets - Capital Stock Activity (Continued)
| Touchstone International Equity Fund | Touchstone International Growth Fund | ||||||
| For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | ||||
| Shares | Dollars | Shares | Dollars | Shares | Dollars | Shares | Dollars |
| 469,378 | $8,288,140 | 207,265 | $3,466,458 | 25,427 | $341,175 | 17,989 | $289,648 |
| 2,291,115 | 43,002,245 | — | — | — | — | 97,100 | 1,290,678 |
| — | — | — | — | — | — | 32,844 | — |
| 811,352 | 12,465,621 | 21,556 | 369,692 | — | — | — | — |
| (2,467,086) | (43,314,837) | (1,149,415) | (18,959,641) | (58,165) | (773,559) | (38,276) | (564,950) |
| 1,104,759 | 20,441,169 | (920,594) | (15,123,491) | (32,738) | (432,384) | 109,657 | 1,015,376 |
| 29,057 | 424,401 | 11,590 | 194,768 | 9,141 | 112,674 | 29,320 | 430,015 |
| 122,778 | 2,140,804 | — | — | — | — | 48,931 | 631,074 |
| — | — | — | — | — | — | 16,544 | — |
| 30,546 | 429,513 | 30 | 491 | — | — | — | — |
| (106,024) | (1,641,566) | (50,705) | (745,214) | (19,774) | (254,521) | (24,564) | (372,108) |
| 76,357 | 1,353,152 | (39,085) | (549,955) | (10,633) | (141,847) | 70,231 | 688,981 |
| 348,174 | 5,357,930 | 349,073 | 6,178,013 | 117,736 | 1,738,578 | 77,402 | 1,153,585 |
| 53,869 | 998,993 | — | — | — | — | 5,338,452 | 72,719,437 |
| — | — | — | — | — | — | 33,230 | — |
| 209,605 | 3,180,484 | 8,826 | 149,244 | — | — | — | — |
| (549,548) | (9,100,100) | (597,691) | (9,525,838) | (418,756) | (5,776,915) | (762,790) | (11,389,617) |
| 62,100 | 437,307 | (239,792) | (3,198,581) | (301,020) | (4,038,337) | 4,686,294 | 62,483,405 |
| 716 | 12,694 | 326,028 | 5,389,374 | 89,919 | 1,315,535 | 134,196 | 2,022,011 |
| — | — | — | — | — | — | 282,595 | 3,877,901 |
| — | — | — | — | — | — | 1,095,088 | — |
| 36,664 | 555,566 | 6,055 | 102,145 | 25 | 360 | 1,123 | 28,917 |
| (18,960) | (297,399) | (1,136,788) | (19,127,333) | (529,482) | (7,571,828) | (1,338,444) | (19,263,078) |
| 18,420 | 270,861 | (804,705) | (13,635,814) | (439,538) | (6,255,933) | 174,558 | (13,334,249) |
| — | — | — | — | — | — | — | — |
| — | — | — | — | — | — | — | — |
| — | — | — | — | — | — | — | — |
| 1,261,636 | $22,502,489 | (2,004,176) | $(32,507,841) | (783,929) | $(10,868,501) | 5,040,740 | $50,853,513 |
67
Statements of Changes in Net
Assets - Capital Stock Activity (Continued)
| Touchstone Large Cap Focused Fund | Touchstone Large Cap Fund | |||||||
| For the Year Ended June 30, 2022(A) | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | |||||
| Shares | Dollars | Shares | Dollars | Shares | Dollars | Shares | Dollars | |
| Class A | ||||||||
| Proceeds from Shares issued | 1,340,013 | $77,295,565 | 1,524,656 | $76,745,640 | 78,046 | $1,363,874 | 104,007 | $1,512,734 |
| Proceeds from Shares issued in connection with reorganization(B) | 11,569,461 | 681,748,263 | — | — | — | — | — | — |
| Reinvestment of distributions | 2,295,540 | 133,285,514 | 1,343,599 | 65,769,214 | 6,281 | 118,085 | 1,558 | 24,185 |
| Cost of Shares redeemed | (4,668,669) | (265,221,706) | (3,086,035) | (155,866,155) | (30,720) | (525,957) | (95,257) | (1,367,690) |
| Change from Class A Share Transactions | 10,536,345 | 627,107,636 | (217,780) | (13,351,301) | 53,607 | 956,002 | 10,308 | 169,229 |
| Class C | ||||||||
| Proceeds from Shares issued | 224,240 | 11,852,311 | 166,455 | 8,057,729 | 10,943 | 175,780 | 1,416 | 20,032 |
| Proceeds from Shares issued in connection with reorganization(B) | 446,479 | 24,084,368 | — | — | — | — | — | — |
| Reinvestment of distributions | 85,678 | 4,508,375 | 44,113 | 1,981,119 | 4,613 | 84,323 | — | — |
| Cost of Shares redeemed | (379,100) | (19,674,805) | (391,914) | (17,295,180) | (63,742) | (1,113,651) | (174,814) | (2,535,160) |
| Change from Class C Share Transactions | 377,297 | 20,770,249 | (181,346) | (7,256,332) | (48,186) | (853,548) | (173,398) | (2,515,128) |
| Class Y(C) | ||||||||
| Proceeds from Shares issued | 4,114,587 | 236,829,946 | 3,821,151 | 200,689,582 | 1,150,810 | 20,630,434 | 1,169,625 | 18,630,577 |
| Proceeds from Shares issued in connection with reorganization(B) | 681,058 | 40,068,287 | — | — | — | — | — | — |
| Reinvestment of distributions | 747,215 | 43,376,695 | 437,489 | 21,384,607 | 406,710 | 7,668,528 | 173,509 | 2,691,115 |
| Cost of Shares redeemed | (4,885,257) | (274,179,208) | (2,789,494) | (139,140,516) | (3,509,211) | (63,649,856) | (2,051,020) | (32,393,077) |
| Change from Class Y Share Transactions | 657,603 | 46,095,720 | 1,469,146 | 82,933,673 | (1,951,691) | (35,350,894) | (707,886) | (11,071,385) |
| Institutional Class | ||||||||
| Proceeds from Shares issued | 4,978,600 | 278,659,299 | 3,340,243 | 166,343,316 | 2,165,174 | 39,064,241 | 2,119,773 | 34,538,882 |
| Reinvestment of distributions | 258,156 | 15,015,301 | 173,680 | 8,505,633 | 134,812 | 2,547,446 | 56,203 | 872,839 |
| Cost of Shares redeemed | (4,162,961) | (231,872,423) | (3,011,062) | (147,761,655) | (2,961,832) | (53,348,871) | (1,743,984) | (27,953,235) |
| Change from Institutional Class Share Transactions | 1,073,795 | 61,802,177 | 502,861 | 27,087,294 | (661,846) | (11,737,184) | 431,992 | 7,458,486 |
| Class R6 | ||||||||
| Proceeds from Shares issued | 18,091 | 948,609 | — | — | — | — | — | — |
| Reinvestment of distributions | 3 | 165 | — | — | — | — | — | — |
| Cost of Shares redeemed | (1,086) | (56,449) | — | — | — | — | — | — |
| Change from Class R6 Share Transactions | 17,008 | 892,325 | — | — | — | — | — | — |
| Change from Share Transactions | 12,662,048 | $756,668,107 | 1,572,881 | $89,413,334 | (2,608,116) | $(46,985,624) | (438,984) | $(5,958,798) |
| ^ | The June 30, 2021 and June 30, 2022 Class C share amounts relating to Proceeds from Shares issued, Reinvestment of distributions, Cost of Shares redeemed, and Change from Class C Share Transactions as well as Change from Share transactions were updated to reflect the effect of a 1 for 0.379048 reverse stock split for Class C shares on October 14, 2022 (See Note 10 in the Notes to Financial Statements). |
| (A) | Represents the period from commencement of operations (October 28, 2021) through June 30, 2022 for Class R6. |
| (B) | See Note 9 in Notes to Financial Statements. |
| (C) | Effective July 16, 2021, Class W shares of the AIG Focused Alpha Large-Cap Fund were reorganized into Class Y shares of the Touchstone Large Cap Focused Fund. |
See accompanying Notes to Financial
Statements.
68
Statements of Changes in Net
Assets - Capital Stock Activity (Continued)
| Touchstone Large Company Growth Fund | Touchstone Small Company Fund^ | ||||||
| For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | For the Year Ended June 30, 2022 | For the Year Ended June 30, 2021 | ||||
| Shares | Dollars | Shares | Dollars | Shares | Dollars | Shares | Dollars |
| 23,624 | $1,073,254 | 30,562 | $1,579,939 | 3,089,369 | $18,264,217 | 3,075,590 | $17,218,868 |
| — | — | — | — | — | — | — | — |
| 14,010 | 686,500 | 6,746 | 322,644 | 16,920,322 | 96,615,036 | 93,455 | 505,592 |
| (9,825) | (486,656) | (18,633) | (968,868) | (12,245,547) | (70,525,090) | (15,524,699) | (80,974,108) |
| 27,809 | 1,273,098 | 18,675 | 933,715 | 7,764,144 | 44,354,163 | (12,355,654) | (63,249,648) |
| 1,391 | 59,787 | 1,658 | 82,710 | 306,024 | 1,898,466 | 238,411 | 1,798,689 |
| — | — | — | — | — | — | — | — |
| 1,916 | 88,481 | 1,612 | 73,982 | 1,470,185 | 8,416,613 | 6,964 | 48,323 |
| (5,874) | (246,977) | (7,524) | (386,344) | (1,013,412) | (6,546,227) | (1,228,836) | (8,058,123) |
| (2,567) | (98,709) | (4,254) | (229,652) | 762,797 | 3,768,852 | (983,461) | (6,211,111) |
| 27,974 | 1,444,993 | 150,337 | 7,767,761 | 9,325,160 | 60,109,420 | 8,997,577 | 57,602,814 |
| — | — | — | — | — | — | — | — |
| 96,442 | 4,817,277 | 72,037 | 3,491,645 | 6,441,959 | 42,001,576 | 32,470 | 195,796 |
| (245,654) | (11,562,989) | (225,751) | (11,468,545) | (11,049,942) | (71,888,664) | (12,972,512) | (71,392,653) |
| (121,238) | (5,300,719) | (3,377) | (209,139) | 4,717,177 | 30,222,332 | (3,942,465) | (13,594,043) |
| 1,440,464 | 70,878,080 | 998,459 | 53,254,493 | 1,642,193 | 10,324,078 | 551,770 | 3,508,683 |
| 791,411 | 39,847,570 | 503,639 | 24,547,358 | 405,783 | 2,645,704 | 2,177 | 13,108 |
| (2,253,830) | (104,112,452) | (1,715,936) | (91,782,172) | (483,053) | (3,305,409) | (528,096) | (3,157,833) |
| (21,955) | 6,613,198 | (213,838) | (13,980,321) | 1,564,923 | 9,664,373 | 25,851 | 363,958 |
| — | — | — | — | 14,482,860 | 87,457,173 | 21,970,125 | 114,262,491 |
| — | — | — | — | 1,747,162 | 10,413,085 | 10,144 | 56,706 |
| — | — | — | — | (14,245,220) | (85,824,430) | (28,152,157) | (145,049,930) |
| — | — | — | — | 1,984,802 | 12,045,828 | (6,171,888) | (30,730,733) |
| (117,951) | $2,486,868 | (202,794) | $(13,485,397) | 16,793,843 | $100,055,548 | (23,427,617) | $(113,421,577) |
69
Statements of Changes in Net
Assets - Capital Stock Activity (Continued)
| Touchstone Value Fund | ||||
| For the Year Ended June 30, 2022(A) | For the Year Ended June 30, 2021 | |||
| Shares | Dollars | Shares | Dollars | |
| Class A | ||||
| Proceeds from Shares issued | 711,431 | $7,911,031 | 294,009 | $2,988,202 |
| Proceeds from Shares issued in connection with reorganization(B) | 16,002,448 | 178,897,865 | — | — |
| Reinvestment of distributions | 1,283,854 | 13,979,764 | 74,853 | 722,633 |
| Cost of Shares redeemed | (5,066,703) | (55,887,177) | (563,236) | (5,436,299) |
| Change from Class A Share Transactions | 12,931,030 | 144,901,483 | (194,374) | (1,725,464) |
| Class C | ||||
| Proceeds from Shares issued | 155,614 | 1,684,614 | 43,137 | 463,857 |
| Proceeds from Shares issued in connection with reorganization(B) | 454,230 | 5,060,481 | — | — |
| Reinvestment of distributions | 40,098 | 434,249 | 3,629 | 34,591 |
| Cost of Shares redeemed | (241,736) | (2,688,461) | (150,389) | (1,401,306) |
| Change from Class C Share Transactions | 408,206 | 4,490,883 | (103,623) | (902,858) |
| Class Y(C) | ||||
| Proceeds from Shares issued | 1,271,629 | 14,268,625 | 2,240,371 | 23,194,008 |
| Proceeds from Shares issued in connection with reorganization(B) | 493,844 | 5,545,569 | — | — |
| Reinvestment of distributions | 779,077 | 8,531,614 | 238,204 | 2,317,284 |
| Cost of Shares redeemed | (2,625,149) | (29,423,662) | (3,105,283) | (28,962,292) |
| Change from Class Y Share Transactions | (80,599) | (1,077,854) | (626,708) | (3,451,000) |
| Institutional Class | ||||
| Proceeds from Shares issued | 5,463,546 | 60,984,321 | 12,763,089 | 135,117,333 |
| Reinvestment of distributions | 1,915,258 | 20,913,854 | 587,454 | 5,736,439 |
| Cost of Shares redeemed | (7,279,817) | (80,473,980) | (7,394,847) | (77,357,112) |
| Change from Institutional Class Share Transactions | 98,987 | 1,424,195 | 5,955,696 | 63,496,660 |
| Class R6 | ||||
| Proceeds from Shares issued | 39,612 | 419,942 | — | — |
| Reinvestment of distributions | 192 | 1,961 | — | — |
| Change from Class R6 Share Transactions | 39,804 | 421,903 | — | — |
| Change from Share Transactions | 13,397,428 | $150,160,610 | 5,030,991 | $57,417,338 |
| (A) | Represents the period from commencement of operations (October 28, 2021) through June 30, 2022 for Class R6. |
| (B) | See Note 9 in Notes to Financial Statements. |
| (C) | Effective July 16, 2021, Class W shares of the AIG Strategic Value Fund were reorganized into Class Y shares of the Touchstone Value Fund. |
See accompanying Notes to Financial
Statements.
70
Financial Highlights
| Touchstone Balanced Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income (loss) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets | Ratio of gross expenses to average net assets | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 11/30/17 | $19.68 | $0.21 | $2.89 | $3.10 | $(0.25) | $ (0.13) | $(0.38) | $22.40 | 15.95% | $258,279 | 1.03% | 1.04% | 0.99% | 46% | ||||||||||||||
| 06/30/18(2)(3) | 22.40 | 0.16 | 0.22 | 0.38 | (0.18) | (1.06) | (1.24) | 21.54 | 1.72(4) | 239,056 | 1.01(5) | 1.07(5) | 1.24(5) | 119(4) | ||||||||||||||
| 06/30/19 | 21.54 | 0.32 | 1.73 | 2.05 | (0.34) | (1.07) | (1.41) | 22.18 | 10.13 | 244,037 | 1.01 | 1.09 | 1.49 | 81 | ||||||||||||||
| 06/30/20 | 22.18 | 0.27 | 1.85 | 2.12 | (0.28) | (2.41) | (2.69) | 21.61 | 10.09 | 250,298 | 1.01 | 1.07 | 1.25 | 135 | ||||||||||||||
| 06/30/21 | 21.61 | 0.16(6) | 5.47 | 5.63 | (0.15) | (1.57) | (1.72) | 25.52 | 26.92 | 322,009 | 1.01 | 1.03 | 0.66 | 60 | ||||||||||||||
| 06/30/22 | 25.52 | 0.14(6) | (3.42) | (3.28) | (0.15) | (0.61) | (0.76) | 21.48 | (13.32) | 521,933 | 0.99 | 0.99 | 0.54 | 92(7)(8) | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 11/30/17 | $19.73 | $0.04 | $2.91 | $2.95 | $(0.09) | $ (0.13) | $(0.22) | $22.46 | 15.09% | $42,800 | 1.79% | 1.81% | 0.23% | 46% | ||||||||||||||
| 06/30/18(2)(3) | 22.46 | 0.06 | 0.22 | 0.28 | (0.05) | (1.06) | (1.11) | 21.63 | 1.25(4) | 39,769 | 1.78(5) | 1.86(5) | 0.47(5) | 119(4) | ||||||||||||||
| 06/30/19 | 21.63 | 0.15 | 1.75 | 1.90 | (0.17) | (1.07) | (1.24) | 22.29 | 9.33 | 34,380 | 1.78 | 1.89 | 0.72 | 81 | ||||||||||||||
| 06/30/20 | 22.29 | 0.11 | 1.86 | 1.97 | (0.13) | (2.41) | (2.54) | 21.72 | 9.23 | 44,174 | 1.78 | 1.88 | 0.48 | 135 | ||||||||||||||
| 06/30/21 | 21.72 | (0.03)(6) | 5.49 | 5.46 | (0.02) | (1.57) | (1.59) | 25.59 | 25.93 | 65,455 | 1.78 | 1.81 | (0.11) | 60 | ||||||||||||||
| 06/30/22 | 25.59 | (0.05)(6) | (3.42) | (3.47) | — | (0.61) | (0.61) | 21.51 | (13.96) | 73,906 | 1.75 | 1.75 | (0.22) | 92(7)(8) | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 11/30/17(9) | $19.57 | $0.28 | $2.84 | $3.12 | $(0.30) | $ (0.13) | $(0.43) | $22.26 | 16.20% | $31,215 | 0.78% | 0.80% | 1.25% | 46% | ||||||||||||||
| 06/30/18(2)(3) | 22.26 | 0.19 | 0.22 | 0.41 | (0.22) | (1.06) | (1.28) | 21.39 | 1.86(4) | 30,612 | 0.81(5) | 0.90(5) | 1.44(5) | 119(4) | ||||||||||||||
| 06/30/19 | 21.39 | 0.35 | 1.72 | 2.07 | (0.38) | (1.07) | (1.45) | 22.01 | 10.33 | 60,638 | 0.81 | 0.88 | 1.69 | 81 | ||||||||||||||
| 06/30/20 | 22.01 | 0.32 | 1.84 | 2.16 | (0.33) | (2.41) | (2.74) | 21.43 | 10.35 | 94,921 | 0.81 | 0.87 | 1.45 | 135 | ||||||||||||||
| 06/30/21 | 21.43 | 0.20(6) | 5.41 | 5.61 | (0.19) | (1.57) | (1.76) | 25.28 | 27.12 | 197,877 | 0.81 | 0.81 | 0.86 | 60 | ||||||||||||||
| 06/30/22 | 25.28 | 0.18(6) | (3.38) | (3.20) | (0.19) | (0.61) | (0.80) | 21.28 | (13.13) | 155,159 | 0.79(10) | 0.75 | 0.74 | 92(7)(8) | ||||||||||||||
| Class R6 | ||||||||||||||||||||||||||||
| 06/30/22(11) | $26.15 | $0.13(6) | $(4.22) | $(4.09) | $(0.18) | $ (0.61) | $(0.79) | $21.27 | (16.08)%(4) | $112 | 0.64%(5) | 33.98%(5) | 0.89%(5) | 92%(7)(8) | ||||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | Represents the seven months ended June 30, 2018. |
| (3) | The Fund changed its fiscal year end from November 30 to June 30. |
| (4) | Not annualized. |
| (5) | Annualized. |
| (6) | The net investment income per share was based on average shares outstanding for the period. |
| (7) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
| (8) | Portfolio turnover excludes the purchases and sales of securities by the AIG Asset Allocation Fund and AIG Multi-Asset Allocation Fund acquired on July 16, 2021 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
| (9) | Effective October 28, 2017, Class I shares of the Sentinel Balanced Fund (the “Predecessor Fund”) were reorganized into Class Y shares of the Fund. |
| (10) | Net expenses include amounts recouped by the Advisor. |
| (11) | Represents the period from commencement of operations (October 28, 2021) through June 30, 2022 for Class R6. |
See accompanying Notes to Financial
Statements.
71
Financial Highlights (Continued)
| Touchstone Core Municipal Bond Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets | Ratio of gross expenses to average net assets | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 06/30/18 | $11.55 | $0.33 | $(0.22) | $0.11 | $(0.33) | $ — | $(0.33) | $11.33 | 0.99% | $35,728 | 0.85% | 1.13% | 2.91% | 47% | ||||||||||||||
| 06/30/19 | 11.33 | 0.32 | 0.30 | 0.62 | (0.32) | — | (0.32) | 11.63 | 5.60 | 33,515 | 0.85 | 1.15 | 2.85 | 53 | ||||||||||||||
| 06/30/20 | 11.63 | 0.30 | 0.21 | 0.51 | (0.30) | (0.01) | (0.31) | 11.83 | 4.38 | 32,060 | 0.85 | 1.18 | 2.53 | 33 | ||||||||||||||
| 06/30/21 | 11.83 | 0.28 | 0.06 | 0.34 | (0.28) | — | (0.28) | 11.89 | 2.90 | 30,870 | 0.85 | 1.15 | 2.35 | 21 | ||||||||||||||
| 06/30/22 | 11.89 | 0.16 | (1.16) | (1.00) | (0.16) | (0.01) | (0.17) | 10.72 | (8.43) | 25,101 | 0.82 | 1.08 | 1.40 | 157 | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 06/30/18 | $11.57 | $0.25 | $(0.24) | $0.01 | $(0.25) | $ — | $(0.25) | $11.33 | 0.06% | $5,363 | 1.60% | 2.01% | 2.16% | 47% | ||||||||||||||
| 06/30/19 | 11.33 | 0.23 | 0.33 | 0.56 | (0.24) | — | (0.24) | 11.65 | 4.97 | 2,756 | 1.60 | 2.08 | 2.10 | 53 | ||||||||||||||
| 06/30/20 | 11.65 | 0.21 | 0.21 | 0.42 | (0.21) | (0.01) | (0.22) | 11.85 | 3.61 | 2,050 | 1.60 | 2.32 | 1.78 | 33 | ||||||||||||||
| 06/30/21 | 11.85 | 0.18 | 0.07 | 0.25 | (0.19) | — | (0.19) | 11.91 | 2.13 | 1,180 | 1.60 | 2.27 | 1.60 | 21 | ||||||||||||||
| 06/30/22 | 11.91 | 0.08 | (1.17) | (1.09) | (0.08) | (0.01) | (0.09) | 10.73 | (9.27) | 943 | 1.57 | 2.47 | 0.65 | 157 | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 06/30/18 | $11.56 | $0.29 | $(0.16) | $0.13 | $(0.36) | $ — | $(0.36) | $11.33 | 1.15% | $4,596 | 0.60% | 1.16% | 3.16% | 47% | ||||||||||||||
| 06/30/19 | 11.33 | 0.35 | 0.31 | 0.66 | (0.35) | — | (0.35) | 11.64 | 5.96 | 3,031 | 0.60 | 1.05 | 3.10 | 53 | ||||||||||||||
| 06/30/20 | 11.64 | 0.33 | 0.22 | 0.55 | (0.33) | (0.01) | (0.34) | 11.85 | 4.73 | 2,616 | 0.60 | 1.31 | 2.78 | 33 | ||||||||||||||
| 06/30/21 | 11.85 | 0.31 | 0.05 | 0.36 | (0.31) | — | (0.31) | 11.90 | 3.07 | 3,449 | 0.60 | 1.25 | 2.60 | 21 | ||||||||||||||
| 06/30/22 | 11.90 | 0.19 | (1.15) | (0.96) | (0.19) | (0.01) | (0.20) | 10.74 | (8.19) | 2,740 | 0.57 | 1.11 | 1.65 | 157 | ||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||
| 06/30/18 | $11.56 | $0.30 | $(0.16) | $0.14 | $(0.37) | $ — | $(0.37) | $11.33 | 1.18% | $560 | 0.55% | 2.54% | 3.21% | 47% | ||||||||||||||
| 06/30/19 | 11.33 | 0.36 | 0.31 | 0.67 | (0.36) | — | (0.36) | 11.64 | 6.05 | 7,913 | 0.55 | 0.96 | 3.15 | 53 | ||||||||||||||
| 06/30/20 | 11.64 | 0.33 | 0.21 | 0.54 | (0.33) | (0.01) | (0.34) | 11.84 | 4.69 | 12,785 | 0.55 | 0.91 | 2.83 | 33 | ||||||||||||||
| 06/30/21 | 11.84 | 0.32 | 0.06 | 0.38 | (0.32) | — | (0.32) | 11.90 | 3.20 | 14,481 | 0.55 | 0.85 | 2.65 | 21 | ||||||||||||||
| 06/30/22 | 11.90 | 0.20 | (1.15) | (0.95) | (0.20) | (0.01) | (0.21) | 10.74 | (8.13) | 29,694 | 0.50 | 0.75 | 1.72 | 157 | ||||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
See accompanying Notes to Financial
Statements.
72
Financial Highlights (Continued)
| Touchstone International Equity Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income (loss) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets | Ratio of gross expenses to average net assets | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 11/30/17 | $15.52 | $0.17 | $4.05 | $4.22 | $(0.10) | $ — | $(0.10) | $19.64 | 27.39% | $129,139 | 1.37% | 1.39% | 0.92% | 37% | ||||||||||||||
| 06/30/18(2)(3) | 19.64 | 0.36(4) | (0.94) | (0.58) | (0.21) | (0.70) | (0.91) | 18.15 | (3.23)(5) | 118,391 | 1.23(6) | 1.30(6) | 3.22(4)(6) | 26(5) | ||||||||||||||
| 06/30/19 | 18.15 | 0.20(7) | (0.57) | (0.37) | (0.26) | (1.87) | (2.13) | 15.65 | (0.78) | 106,870 | 1.30 | 1.37 | 1.26 | 43 | ||||||||||||||
| 06/30/20 | 15.65 | 0.08(7) | (0.98) | (0.90) | (0.19) | (0.63) | (0.82) | 13.93 | (6.28) | 77,744 | 1.29 | 1.40 | 0.57 | 45 | ||||||||||||||
| 06/30/21 | 13.93 | 0.09(7) | 4.94 | 5.03 | (0.08) | — | (0.08) | 18.88 | 36.16 | 88,022 | 1.36 | 1.37 | 0.56 | 31 | ||||||||||||||
| 06/30/22 | 18.88 | 0.18(7) | (3.44) | (3.26) | (0.08) | (2.24) | (2.32) | 13.30 | (18.87) | 76,671 | 1.36 | 1.40 | 1.08 | 45(8) | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 11/30/17 | $14.66 | $(0.06) | $3.86 | $3.80 | $— | $ — | $— | $18.46 | 25.92% | $6,924 | 2.45% | 2.49% | (0.16)% | 37% | ||||||||||||||
| 06/30/18(2)(3) | 18.46 | 0.26(4) | (0.90) | (0.64) | — | (0.70) | (0.70) | 17.12 | (3.72)(5) | 6,737 | 2.18(6) | 2.25(6) | 2.27(4)(6) | 26(5) | ||||||||||||||
| 06/30/19 | 17.12 | 0.03(7) | (0.54) | (0.51) | (0.10) | (1.87) | (1.97) | 14.64 | (1.87) | 3,783 | 2.34 | 2.42 | 0.21 | 43 | ||||||||||||||
| 06/30/20 | 14.64 | (0.09)(7) | (0.93) | (1.02) | — | (0.63) | (0.63) | 12.99 | (7.41) | 2,073 | 2.49 | 2.74 | (0.63) | 45 | ||||||||||||||
| 06/30/21 | 12.99 | (0.04)(7) | 4.60 | 4.56 | (—)(9) | — | (—)(9) | 17.55 | 35.14 | 2,115 | 2.15 | 2.90 | (0.24) | 31 | ||||||||||||||
| 06/30/22 | 17.55 | 0.07(7) | (3.18) | (3.11) | (0.02) | (2.24) | (2.26) | 12.18 | (19.45) | 2,399 | 1.99 | 2.71 | 0.45 | 45(8) | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 11/30/17(10) | $15.40 | $0.25 | $3.98 | $4.23 | $(0.18) | $ — | $(0.18) | $19.45 | 27.78% | $63,320 | 1.01% | 1.03% | 1.28% | 37% | ||||||||||||||
| 06/30/18(2)(3) | 19.45 | 0.40(4) | (0.93) | (0.53) | (0.29) | (0.70) | (0.99) | 17.93 | (3.05)(5) | 57,438 | 0.99(6) | 1.09(6) | 3.47(4)(6) | 26(5) | ||||||||||||||
| 06/30/19 | 17.93 | 0.25(7) | (0.57) | (0.32) | (0.30) | (1.87) | (2.17) | 15.44 | (0.47) | 42,120 | 0.99 | 1.12 | 1.57 | 43 | ||||||||||||||
| 06/30/20 | 15.44 | 0.13(7) | (0.97) | (0.84) | (0.24) | (0.63) | (0.87) | 13.73 | (6.03) | 23,835 | 0.99 | 1.15 | 0.87 | 45 | ||||||||||||||
| 06/30/21 | 13.73 | 0.15(7) | 4.88 | 5.03 | (0.11) | — | (0.11) | 18.65 | 36.71 | 27,903 | 0.99 | 1.19 | 0.93 | 31 | ||||||||||||||
| 06/30/22 | 18.65 | 0.23(7) | (3.40) | (3.17) | (0.13) | (2.24) | (2.37) | 13.11 | (18.61) | 20,430 | 0.99 | 1.19 | 1.45 | 45(8) | ||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||
| 11/30/17(11) | $18.91 | $0.02 | $0.53 | $0.55 | $— | $ — | $— | $19.46 | 2.91%(5) | $3 | 0.89%(6) | 1,921.18%(6) | 1.40%(6) | 37% | ||||||||||||||
| 06/30/18(2)(3) | 19.46 | 0.56(4) | (1.09) | (0.53) | (0.31) | (0.70) | (1.01) | 17.92 | (3.02)(5) | 2,260 | 0.89(6) | 1.63(6) | 3.57(4)(6) | 26(5) | ||||||||||||||
| 06/30/19 | 17.92 | 0.26(7) | (0.57) | (0.31) | (0.32) | (1.87) | (2.19) | 15.42 | (0.39) | 2,592 | 0.89 | 1.38 | 1.67 | 43 | ||||||||||||||
| 06/30/20 | 15.42 | 0.14(7) | (0.95) | (0.81) | (0.27) | (0.63) | (0.90) | 13.71 | (5.89) | 14,205 | 0.89 | 1.12 | 0.97 | 45 | ||||||||||||||
| 06/30/21 | 13.71 | 0.16(7) | 4.88 | 5.04 | (0.12) | — | (0.12) | 18.63 | 36.83 | 4,315 | 0.89 | 1.06 | 1.03 | 31 | ||||||||||||||
| 06/30/22 | 18.63 | 0.25(7) | (3.40) | (3.15) | (0.15) | (2.24) | (2.39) | 13.09 | (18.52) | 3,273 | 0.89 | 1.34 | 1.55 | 45(8) | ||||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | Represents the seven months ended June 30, 2018. |
| (3) | The Fund changed its fiscal year end from November 30 to June 30. |
| (4) | Reflects the impact of a special dividend that resulted in a one-time increase to net investment income. If the special dividend had not occurred, the ratio of net investment income to average net assets would have been lower by 1.54% for Class A, Class C, Class Y and Institutional Class shares and the net investment income per share would have been lower by $0.17, $0.16, $0.17 and $0.16 for Class A, Class C, Class Y and Institutional Class shares, respectively. |
| (5) | Not annualized. |
| (6) | Annualized. |
| (7) | The net investment income per share was based on average shares outstanding for the period. |
| (8) | Portfolio turnover excludes the purchases and sales of securities by the AIG International Dividend Strategy Fund acquired on July 16, 2021 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
| (9) | Less than $0.005 per share. |
| (10) | Effective October 28, 2017, Class I shares of the Sentinel Balanced Fund (the “Predecessor Fund”) were reorganized into Class Y shares of the Fund. |
| (11) | Represents the period from commencement of operations (October 30, 2017) through November 30, 2017. |
See accompanying Notes to Financial
Statements.
73
Financial Highlights (Continued)
| Touchstone International Growth Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income (loss) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets | Ratio of gross expenses to average net assets | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 06/30/18(2) | $11.61 | $(0.01) | $1.75 | $1.74 | $— | $ (0.24) | $(0.24) | $13.11 | 15.00% | $918 | 1.36% | 3.75% | (0.05)% | 109% | ||||||||||||||
| 06/30/19(2) | 13.11 | (0.04)(3) | (0.47) | (0.51) | — | (1.49) | (1.49) | 11.11 | (1.78) | 760 | 1.24 | 4.36 | (0.31) | 103 | ||||||||||||||
| 06/30/20(2) | 11.11 | (0.03)(3) | 0.60 | 0.57 | — | — | — | 11.68 | 5.07 | 777 | 1.24 | 4.17 | (0.26) | 74 | ||||||||||||||
| 06/30/21(2) | 11.68 | (0.10)(3) | 3.77 | 3.67 | — | — | — | 15.35 | 31.51 | 2,216 | 1.24 | 2.31 | (0.63) | 116(4) | ||||||||||||||
| 06/30/22 | 15.35 | (0.04) | (4.81) | (4.85) | — | — | — | 10.50 | (31.60) | 1,172 | 1.24 | 2.62 | (0.27) | 49 | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 06/30/18(2) | $11.57 | $(0.05) | $1.69 | $1.64 | $— | $ (0.24) | $(0.24) | $12.97 | 14.14% | $436 | 2.10% | 5.06% | (0.79)% | 109% | ||||||||||||||
| 06/30/19(2) | 12.97 | (0.12)(3) | (0.48) | (0.60) | — | (1.49) | (1.49) | 10.88 | (2.52) | 185 | 1.99 | 6.35 | (1.06) | 103 | ||||||||||||||
| 06/30/20(2) | 10.88 | (0.11)(3) | 0.57 | 0.46 | — | — | — | 11.34 | 4.28 | 403 | 1.99 | 5.96 | (1.01) | 74 | ||||||||||||||
| 06/30/21(2) | 11.34 | (0.20)(3) | 3.67 | 3.47 | — | — | — | 14.81 | 30.55 | 1,316 | 1.99 | 3.43 | (1.38) | 116(4) | ||||||||||||||
| 06/30/22 | 14.81 | (0.14) | (4.61) | (4.75) | — | — | — | 10.06 | (32.07) | 787 | 1.99 | 3.62 | (1.02) | 49 | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 06/30/18(2) | $11.81 | $0.01 | $1.79 | $1.80 | $— | $ (0.24) | $(0.24) | $13.37 | 15.32% | $4,553 | 1.03% | 1.81% | 0.28% | 109% | ||||||||||||||
| 06/30/19(2) | 13.37 | (0.01)(3) | (0.49) | (0.50) | (0.01) | (1.51) | (1.52) | 11.35 | (1.53) | 2,341 | 0.99 | 1.89 | (0.06) | 103 | ||||||||||||||
| 06/30/20(2) | 11.35 | (—)(3)(5) | 0.60 | 0.60 | — | — | — | 11.95 | 5.28 | 867 | 0.99 | 2.50 | (0.01) | 74 | ||||||||||||||
| 06/30/21(2) | 11.95 | (0.06)(3) | 3.88 | 3.82 | — | — | — | 15.77 | 31.88 | 74,507 | 0.99 | 1.25 | (0.38) | 116(4) | ||||||||||||||
| 06/30/22 | 15.77 | (—)(5) | (4.95) | (4.95) | — | — | — | 10.82 | (31.39) | 47,845 | 0.99 | 1.31 | (0.02) | 49 | ||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||
| 06/30/18(2) | $11.88 | $0.04 | $1.78 | $1.82 | $— | $ (0.24) | $(0.24) | $13.46 | 15.42% | $28,159 | 1.02% | 1.31% | 0.28% | 109% | ||||||||||||||
| 06/30/19(2) | 13.46 | 0.01(3) | (0.50) | (0.49) | (0.02) | (1.52) | (1.54) | 11.43 | (1.46) | 31,435 | 0.89 | 1.30 | 0.04 | 103 | ||||||||||||||
| 06/30/20(2) | 11.43 | 0.01(3) | 0.61 | 0.62 | (—)(5) | — | (—)(5) | 12.05 | 5.46 | 29,285 | 0.89 | 1.35 | 0.09 | 74 | ||||||||||||||
| 06/30/21(2) | 12.05 | (0.05)(3) | 3.91 | 3.86 | (0.02) | — | (0.02) | 15.89 | 32.00 | 23,334 | 0.89 | 1.20 | (0.28) | 116(4) | ||||||||||||||
| 06/30/22 | 15.89 | 0.03 | (5.01) | (4.98) | (— )(5) | — | (— )(5) | 10.91 | (31.34) | 11,224 | 0.89 | 1.32 | 0.08 | 49 | ||||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | During the year ended June 30, 2021, the Fund effected the following stock split effective the close of business September 11, 2020: 1.9160 for 1 for Class A shares, 1.9095 for 1 for Class C shares, 1.8839 for 1 for Class Y shares and 1.8777 for 1 for Institutional Class shares. All historical per share information has been retroactively adjusted to reflect this stock split. |
| (3) | The net investment income (loss) per share was based on average shares outstanding for the period. |
| (4) | Portfolio turnover excludes the purchases and sales of securities of the International Small Cap Fund acquired on September 11, 2020. If these transactions were included, portfolio turnover would have been higher. |
| (5) | Less than $0.005 per share. |
See accompanying Notes to Financial
Statements.
74
Financial Highlights (Continued)
| Touchstone Large Cap Focused Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income (loss) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets(2) | Ratio of gross expenses to average net assets(3) | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 11/30/17 | $42.28 | $0.45 | $8.99 | $9.44 | $(0.51) | $ (2.46) | $(2.97) | $48.75 | 23.67% | $1,321,506 | 1.02% | 1.02% | 0.98% | 12%(4) | ||||||||||||||
| 06/30/18(5)(6) | 48.75 | 0.23 | 1.85 | 2.08 | (0.07) | (6.96) | (7.03) | 43.80 | 4.74(7) | 1,218,721 | 0.97(8) | 1.09(8) | 0.88(8) | 9(4)(7) | ||||||||||||||
| 06/30/19 | 43.80 | 0.38(9) | 3.72 | 4.10 | (0.27) | (4.26) | (4.53) | 43.37 | 10.51 | 1,170,490 | 0.97 | 1.09 | 0.88 | 15(4) | ||||||||||||||
| 06/30/20 | 43.37 | 0.27 | 3.78 | 4.05 | (0.27) | (4.85) | (5.12) | 42.30 | 9.54 | 1,120,305 | 1.01 | 1.10 | 0.66 | 29(4) | ||||||||||||||
| 06/30/21 | 42.30 | 0.08(9) | 19.10 | 19.18 | (0.09) | (2.71) | (2.80) | 58.68 | 46.68 | 1,541,127 | 1.01 | 1.05 | 0.15 | 16(4) | ||||||||||||||
| 06/30/22 | 58.68 | 0.04 | (7.56) | (7.52) | (0.05) | (3.91) | (3.96) | 47.20 | (14.07) | 1,736,900 | 0.99 | 0.99 | 0.13 | 27(4)(10) | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 11/30/17 | $40.44 | $—(11) | $8.67 | $8.67 | $(0.17) | $ (2.46) | $(2.63) | $46.48 | 22.69% | $74,122 | 1.82% | 1.82% | 0.18% | 12%(4) | ||||||||||||||
| 06/30/18(5)(6) | 46.48 | 0.03 | 1.74 | 1.77 | — | (6.96) | (6.96) | 41.29 | 4.24(7) | 67,599 | 1.78(8) | 1.89(8) | 0.07(8) | 9(4)(7) | ||||||||||||||
| 06/30/19 | 41.29 | 0.03(9) | 3.50 | 3.53 | — | (4.26) | (4.26) | 40.56 | 9.61 | 47,838 | 1.79 | 1.90 | 0.07 | 15(4) | ||||||||||||||
| 06/30/20 | 40.56 | (0.19) | 3.64 | 3.45 | — | (4.85) | (4.85) | 39.16 | 8.69 | 37,450 | 1.82 | 1.94 | (0.15) | 29(4) | ||||||||||||||
| 06/30/21 | 39.16 | (0.30)(9) | 17.58 | 17.28 | — | (2.71) | (2.71) | 53.73 | 45.49 | 41,645 | 1.80 | 1.88 | (0.64) | 16(4) | ||||||||||||||
| 06/30/22 | 53.73 | (0.02) | (7.18) | (7.20) | — | (3.91) | (3.91) | 42.62 | (14.78) | 49,115 | 1.80 | 1.80 | (0.68) | 27(4)(10) | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 11/30/17(12) | $42.26 | $0.56 | $8.99 | $9.55 | $(0.63) | $ (2.46) | $(3.09) | $48.72 | 24.03% | $438,732 | 0.74% | 0.75% | 1.26% | 12%(4) | ||||||||||||||
| 06/30/18(5)(6) | 48.72 | 0.29 | 1.84 | 2.13 | (0.21) | (6.96) | (7.17) | 43.68 | 4.85(7) | 394,077 | 0.74(8) | 0.90(8) | 1.11(8) | 9(4)(7) | ||||||||||||||
| 06/30/19 | 43.68 | 0.48(9) | 3.71 | 4.19 | (0.37) | (4.26) | (4.63) | 43.24 | 10.81 | 413,137 | 0.73 | 0.89 | 1.13 | 15(4) | ||||||||||||||
| 06/30/20 | 43.24 | 0.40 | 3.76 | 4.16 | (0.37) | (4.85) | (5.22) | 42.18 | 9.84 | 352,103 | 0.75 | 0.91 | 0.92 | 29(4) | ||||||||||||||
| 06/30/21 | 42.18 | 0.22(9) | 19.05 | 19.27 | (0.16) | (2.71) | (2.87) | 58.58 | 47.07 | 575,053 | 0.73 | 0.86 | 0.43 | 16(4) | ||||||||||||||
| 06/30/22 | 58.58 | 0.20 | (7.57) | (7.37) | (0.16) | (3.91) | (4.07) | 47.14 | (13.86) | 493,825 | 0.73 | 0.78 | 0.39 | 27(4)(10) | ||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||
| 11/30/17(13) | $42.32 | $0.61 | $9.01 | $9.62 | $(0.67) | $ (2.46) | $(3.13) | $48.81 | 24.14% | $44,738 | 0.68% | 0.70% | 1.32% | 12%(4) | ||||||||||||||
| 06/30/18(5)(6) | 48.81 | 0.34 | 1.80 | 2.14 | (0.24) | (6.96) | (7.20) | 43.75 | 4.93(7) | 46,683 | 0.67(8) | 0.88(8) | 1.18(8) | 9(4)(7) | ||||||||||||||
| 06/30/19 | 43.75 | 0.51(9) | 3.71 | 4.22 | (0.40) | (4.26) | (4.66) | 43.31 | 10.87 | 100,473 | 0.66 | 0.85 | 1.20 | 15(4) | ||||||||||||||
| 06/30/20 | 43.31 | 0.35 | 3.83 | 4.18 | (0.40) | (4.85) | (5.25) | 42.24 | 9.87 | 127,963 | 0.71 | 0.88 | 0.96 | 29(4) | ||||||||||||||
| 06/30/21 | 42.24 | 0.23(9) | 19.10 | 19.33 | (0.17) | (2.71) | (2.88) | 58.69 | 47.14 | 207,274 | 0.70 | 0.81 | 0.46 | 16(4) | ||||||||||||||
| 06/30/22 | 58.69 | 0.26 | (7.63) | (7.37) | (0.18) | (3.91) | (4.09) | 47.23 | (13.85) | 217,531 | 0.70 | 0.73 | 0.42 | 27(4)(10) | ||||||||||||||
| Class R6 | ||||||||||||||||||||||||||||
| 06/30/22(14) | $61.99 | $0.22 | $(10.89) | $(10.67) | $(0.16) | $ (3.91) | $(4.07) | $47.25 | (18.43)%(7) | $804 | 0.66%(8) | 3.02%(8) | 0.47%(8) | 27%(4)(10) | ||||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | The ratios shown include liquidity provider expenses. The ratio of net expenses to average net assets excluding liquidity provider expenses for Class A shares was 0.98%, 1.00%, 0.98%, 0.96%, 0.95% and 1.02%; for Class C shares was 1.79%, 1.79%, 1.79%, 1.78%, 1.76% and 1.82%; for Class Y shares was 0.72%, 0.72%, 0.72%, 0.72%, 0.72% and 0.74%; for Institutional Class shares was 0.69%, 0.69%, 0.68%, 0.65%, 0.65% and 0.68% for the years ended June 30, 2022, 2021, 2020 and 2019, the seven months ended June 30, 2018 and the year ended November 30, 2017, respectively; and for Class R6 shares was 0.65% for the period ended June 30, 2022. |
| (3) | The ratios shown include liquidity provider expenses. The ratio of gross expenses to average net assets excluding liquidity provider expenses for Class A shares was 0.98%, 1.04%, 1.07%, 1.08%, 1.07% and 1.02%; for Class C shares was 1.79%, 1.87%, 1.91%, 1.89%, 1.87% and 1.82%; for Class Y shares was 0.77%, 0.85%, 0.88%, 0.88%, 0.88% and 0.75%; for Institutional Class shares was 0.72%, 0.80%, 0.85%, 0.84%, 0.86% and 0.70% for the years ended June 30, 2022, 2021, 2020 and 2019, the seven months ended June 30, 2018 and the year ended November 30, 2017, respectively; and for Class R6 shares was 3.01% for the period ended June 30, 2022. |
| (4) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
| (5) | Represents the seven months ended June 30, 2018. |
| (6) | The Fund changed its fiscal year end from November 30 to June 30. |
| (7) | Not annualized. |
| (8) | Annualized. |
| (9) | The net investment income (loss) per share was based on average shares outstanding for the period. |
| (10) | Portfolio turnover excludes the purchases and sales of securities of the AIG Focused Alpha Large-Cap Fund acquired on July 16, 2021 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
| (11) | Less than $0.005 per share. |
| (12) | Effective October 28, 2017, Class I shares of the Sentinel International Equity Fund (the “Predecessor Fund”) were reorganized into Class Y shares of the Fund. |
| (13) | Effective October 30, 2017, Class R6 shares of the Predecessor Fund were reorganized into Institutional Class shares of the Fund. |
| (14) | Represents the period from commencement of operations (October 28, 2021) through June 30, 2022 for Class R6. |
See accompanying Notes to Financial
Statements.
75
Financial Highlights (Continued)
| Touchstone Large Cap Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income (loss) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets(2) | Ratio of gross expenses to average net assets(3) | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 06/30/18 | $11.96 | $0.09 | $1.27 | $1.36 | $(0.05) | $ — | $(0.05) | $13.27 | 11.35% | $2,975 | 1.12% | 1.50% | 0.48% | 10% | ||||||||||||||
| 06/30/19 | 13.27 | 0.09(4) | 0.83 | 0.92 | (0.08) | — | (0.08) | 14.11 | 7.04 | 4,067 | 1.11 | 1.67 | 0.63 | 19(5) | ||||||||||||||
| 06/30/20 | 14.11 | 0.15 | (0.24) | (0.09) | (0.11) | (0.87) | (0.98) | 13.04 | (1.18) | 2,989 | 1.03 | 1.91 | 1.03 | 20 | ||||||||||||||
| 06/30/21 | 13.04 | 0.11 | 4.83 | 4.94 | (0.12) | — | (0.12) | 17.86 | 38.06 | 4,278 | 1.04 | 1.53 | 0.75 | 15(5) | ||||||||||||||
| 06/30/22 | 17.86 | 0.08 | (2.03) | (1.95) | (0.12) | (0.40) | (0.52) | 15.39 | (11.44) | 4,510 | 1.05 | 1.48 | 0.51 | 12(5) | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 06/30/18 | $11.80 | $(0.04) | $1.28 | $1.24 | $— | $ — | $— | $13.04 | 10.51% | $7,849 | 1.87% | 2.12% | (0.27)% | 10% | ||||||||||||||
| 06/30/19 | 13.04 | (0.02)(4) | 0.83 | 0.81 | — | — | — | 13.85 | 6.21 | 7,372 | 1.86 | 2.13 | (0.12) | 19(5) | ||||||||||||||
| 06/30/20 | 13.85 | 0.01 | (0.20) | (0.19) | — | (0.87) | (0.87) | 12.79 | (1.89) | 5,376 | 1.78 | 2.09 | 0.27 | 20 | ||||||||||||||
| 06/30/21 | 12.79 | (0.10) | 4.84 | 4.74 | — | — | — | 17.53 | 37.06 | 4,328 | 1.79 | 2.03 | (—)(6) | 15(5) | ||||||||||||||
| 06/30/22 | 17.53 | (0.10) | (1.96) | (2.06) | — | (0.40) | (0.40) | 15.07 | (12.15) | 2,995 | 1.80 | 2.12 | (0.24) | 12(5) | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 06/30/18 | $12.00 | $0.10 | $1.30 | $1.40 | $(0.09) | $ — | $(0.09) | $13.31 | 11.62% | $231,984 | 0.87% | 0.99% | 0.73% | 10% | ||||||||||||||
| 06/30/19 | 13.31 | 0.12(4) | 0.84 | 0.96 | (0.13) | — | (0.13) | 14.14 | 7.31 | 213,650 | 0.86 | 0.99 | 0.88 | 19(5) | ||||||||||||||
| 06/30/20 | 14.14 | 0.17 | (0.22) | (0.05) | (0.15) | (0.87) | (1.02) | 13.07 | (0.93) | 206,798 | 0.78 | 0.90 | 1.28 | 20 | ||||||||||||||
| 06/30/21 | 13.07 | 0.16 | 4.83 | 4.99 | (0.18) | — | (0.18) | 17.88 | 38.39 | 270,305 | 0.79 | 0.88 | 1.00 | 15(5) | ||||||||||||||
| 06/30/22 | 17.88 | 0.15 | (2.05) | (1.90) | (0.16) | (0.40) | (0.56) | 15.42 | (11.20) | 202,913 | 0.80 | 0.88 | 0.76 | 12(5) | ||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||
| 06/30/18 | $12.02 | $0.10 | $1.31 | $1.41 | $(0.10) | $ — | $(0.10) | $13.33 | 11.70% | $124,759 | 0.77% | 0.91% | 0.83% | 10% | ||||||||||||||
| 06/30/19 | 13.33 | 0.14(4) | 0.83 | 0.97 | (0.14) | — | (0.14) | 14.16 | 7.43 | 59,211 | 0.77 | 0.92 | 0.98 | 19(5) | ||||||||||||||
| 06/30/20 | 14.16 | 0.15 | (0.19) | (0.04) | (0.16) | (0.87) | (1.03) | 13.09 | (0.83) | 60,402 | 0.68 | 0.84 | 1.38 | 20 | ||||||||||||||
| 06/30/21 | 13.09 | 0.16 | 4.86 | 5.02 | (0.20) | — | (0.20) | 17.91 | 38.59 | 90,358 | 0.69 | 0.82 | 1.10 | 15(5) | ||||||||||||||
| 06/30/22 | 17.91 | 0.18 | (2.08) | (1.90) | (0.17) | (0.40) | (0.57) | 15.44 | (11.15) | 67,679 | 0.70 | 0.82 | 0.86 | 12(5) | ||||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | The ratios shown include liquidity provider expenses. The ratio of net expenses to average net assets excluding liquidity provider expenses for Class A shares was 1.03% and 1.03%; for Class C shares was 1.78% and 1.78%; for Class Y shares was 0.78% and 0.78%; and for Institutional Class shares was 0.68% and 0.68% for the years ended June 30, 2022 and 2021, respectively. |
| (3) | The ratios shown include liquidity provider expenses. The ratio of gross expenses to average net assets excluding liquidity provider expenses for Class A shares was 1.46% and 1.52%; for Class C shares was 2.10% and 2.02%; for Class Y shares was 0.86% and 0.87%; and for Institutional Class shares was 0.80% and 0.81% for the years ended June 30, 2022 and 2021, respectively. |
| (4) | The net investment income per share was based on average shares outstanding for the period. |
| (5) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
| (6) | Less than 0.005%. |
See accompanying Notes to Financial
Statements.
76
Financial Highlights (Continued)
| Touchstone Large Company Growth Fund | ||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment loss | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets(2) | Ratio of gross expenses to average net assets(3) | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | |||||||||||||
| Class A | ||||||||||||||||||||||||||
| 06/30/18 | $35.52 | $(0.24) | $7.19 | $6.95 | $ (1.14) | $(1.14) | $41.33 | 19.75% | $3,417 | 1.23% | 1.67% | (0.63)% | 44% | |||||||||||||
| 06/30/19 | 41.33 | (0.56) | 4.42 | 3.86 | (2.69) | (2.69) | 42.50 | 10.39 | 1,425 | 1.23 | 2.01 | (0.59) | 41 | |||||||||||||
| 06/30/20 | 42.50 | (0.08) | 8.19 | 8.11 | (3.15) | (3.15) | 47.46 | 20.07 | 2,112 | 1.07 | 2.28 | 0.60 | 30 | |||||||||||||
| 06/30/21 | 47.46 | (0.15) | 16.56 | 16.41 | (6.61) | (6.61) | 57.26 | 37.33 | 3,617 | 1.06 | 1.59 | (0.71) | 36(4) | |||||||||||||
| 06/30/22 | 57.26 | (0.18) | (10.40) | (10.58) | (10.52) | (10.52) | 36.16 | (23.29) | 3,290 | 1.07 | 1.58 | (0.61) | 41(4) | |||||||||||||
| Class C | ||||||||||||||||||||||||||
| 06/30/18 | $35.29 | $(0.30) | $6.89 | $6.59 | $ (1.14) | $(1.14) | $40.74 | 18.88% | $236 | 1.98% | 8.12% | (1.38)% | 44% | |||||||||||||
| 06/30/19 | 40.74 | (0.40) | 3.87 | 3.47 | (2.69) | (2.69) | 41.52 | 9.55 | 396 | 1.98 | 4.38 | (1.34) | 41 | |||||||||||||
| 06/30/20 | 41.52 | (0.31) | 7.87 | 7.56 | (3.15) | (3.15) | 45.93 | 19.19 | 592 | 1.82 | 4.64 | (1.35) | 30 | |||||||||||||
| 06/30/21 | 45.93 | (1.42) | 16.81 | 15.39 | (6.61) | (6.61) | 54.71 | 36.28 | 473 | 1.81 | 3.39 | (1.46) | 36(4) | |||||||||||||
| 06/30/22 | 54.71 | (1.24) | (9.03) | (10.27) | (10.52) | (10.52) | 33.92 | (23.87) | 206 | 1.82 | 4.24 | (1.36) | 41(4) | |||||||||||||
| Class Y | ||||||||||||||||||||||||||
| 06/30/18 | $35.60 | $(0.13) | $7.20 | $7.07 | $ (1.14) | $(1.14) | $41.53 | 20.02% | $15,961 | 0.98% | 1.12% | (0.38)% | 44% | |||||||||||||
| 06/30/19 | 41.53 | (0.12) | 4.10 | 3.98 | (2.69) | (2.69) | 42.82 | 10.66 | 19,580 | 0.98 | 1.16 | (0.34) | 41 | |||||||||||||
| 06/30/20 | 42.82 | (0.12) | 8.42 | 8.30 | (3.15) | (3.15) | 47.97 | 20.38 | 24,062 | 0.82 | 1.04 | (0.35) | 30 | |||||||||||||
| 06/30/21 | 47.97 | (0.26) | 17.00 | 16.74 | (6.61) | (6.61) | 58.10 | 37.64 | 28,952 | 0.81 | 0.96 | (0.46) | 36(4) | |||||||||||||
| 06/30/22 | 58.10 | (0.18) | (10.49) | (10.67) | (10.52) | (10.52) | 36.91 | (23.09) | 13,917 | 0.82 | 0.97 | (0.36) | 41(4) | |||||||||||||
| Institutional Class | ||||||||||||||||||||||||||
| 06/30/18 | $35.63 | $(0.11) | $7.23 | $7.12 | $ (1.14) | $(1.14) | $41.61 | 20.17% | $224,379 | 0.88% | 0.98% | (0.28)% | 44% | |||||||||||||
| 06/30/19 | 41.61 | (0.10) | 4.13 | 4.03 | (2.69) | (2.69) | 42.95 | 10.74 | 204,391 | 0.88 | 0.99 | (0.24) | 41 | |||||||||||||
| 06/30/20 | 42.95 | (0.12) | 8.50 | 8.38 | (3.15) | (3.15) | 48.18 | 20.51 | 199,601 | 0.73 | 0.86 | (0.25) | 30 | |||||||||||||
| 06/30/21 | 48.18 | (0.21) | 17.10 | 16.89 | (6.61) | (6.61) | 58.46 | 37.80 | 229,690 | 0.71 | 0.85 | (0.36) | 36(4) | |||||||||||||
| 06/30/22 | 58.46 | (0.14) | (10.58) | (10.72) | (10.52) | (10.52) | 37.22 | (23.03) | 145,441 | 0.72 | 0.84 | (0.26) | 41(4) | |||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | The ratios shown include liquidity provider expenses. The ratio of net expenses to average net assets excluding liquidity provider expenses for Class A shares was 1.04% and 1.04%; for Class C shares was 1.79% and 1.79%; for Class Y shares was 0.79% and 0.79%; and for Institutional Class shares was 0.69% and 0.69% for the years ended June 30, 2022 and 2021, respectively. |
| (3) | The ratios shown include liquidity provider expenses. The ratio of gross expenses to average net assets excluding liquidity provider expenses for Class A shares was 1.55% and 1.57%; for Class C shares was 4.21% and 3.37%; for Class Y shares was 0.94% and 0.94%; and for Institutional Class shares was 0.81% and 0.83% for the years ended June 30, 2022 and 2021, respectively. |
| (4) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
See accompanying Notes to Financial
Statements.
77
Financial Highlights (Continued)
| Touchstone Small Company Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income (loss) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets(2) | Ratio of gross expenses to average net assets(3) | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 11/30/17 | $5.19 | $(0.02) | $0.89 | $0.87 | $— | $ (0.42) | $(0.42) | $5.64 | 17.95% | $677,055 | 1.18% | 1.18% | (0.49)% | 82% | ||||||||||||||
| 06/30/18(4)(5) | 5.64 | (0.01) | 0.37 | 0.36 | — | (0.47) | (0.47) | 5.53 | 6.89(6) | 661,866 | 1.10(7) | 1.18(7) | (0.26)(7) | 30(6) | ||||||||||||||
| 06/30/19 | 5.53 | (0.01) | (0.07) | (0.08) | — | (0.62) | (0.62) | 4.83 | (0.73) | 589,664 | 1.12 | 1.20 | (0.26) | 94(8)(9) | ||||||||||||||
| 06/30/20 | 4.83 | (0.02) | (0.47) | (0.49) | — | (0.28) | (0.28) | 4.06 | (10.82) | 420,822 | 1.15 | 1.24 | (0.32) | 81 | ||||||||||||||
| 06/30/21 | 4.06 | (0.03) | 2.65 | 2.62 | — | (0.01) | (0.01) | 6.67 | 64.45 | 608,513 | 1.20 | 1.20 | (0.45) | 80(8) | ||||||||||||||
| 06/30/22 | 6.67 | (0.02)(10) | (0.95) | (0.97) | — | (1.14) | (1.14) | 4.56 | (17.95) | 451,081 | 1.17 | 1.17 | (0.31) | 70(8) | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 11/30/17^ | $8.94 | $(0.26) | $1.66 | $1.40 | $— | $ (1.11) | $(1.11) | $9.23 | 17.36% | $104,051 | 1.92% | 1.92% | (1.23)% | 82% | ||||||||||||||
| 06/30/18^(4)(5) | 9.23 | (0.05) | 0.58 | 0.53 | — | (1.24) | (1.24) | 8.52 | 6.51(6) | 97,136 | 1.85(7) | 1.93(7) | (1.02)(7) | 30(6) | ||||||||||||||
| 06/30/19^ | 8.52 | (0.13) | (0.10) | (0.23) | — | (1.64) | (1.64) | 6.65 | (1.65) | 39,390 | 1.88 | 1.96 | (1.01) | 94(8)(9) | ||||||||||||||
| 06/30/20^ | 6.65 | (0.13) | (0.53) | (0.66) | — | (0.74) | (0.74) | 5.25 | (11.22) | 21,204 | 1.95 | 2.07 | (1.12) | 81 | ||||||||||||||
| 06/30/21^ | 5.25 | (0.11) | 3.41 | 3.30 | — | (0.03) | (0.03) | 8.52 | 62.65 | 26,123 | 1.97 | 2.05 | (1.22) | 80(8) | ||||||||||||||
| 06/30/22^ | 8.52 | (0.08)(10) | (0.89) | (0.97) | — | (3.01) | (3.01) | 4.54 | (18.70) | 17,385 | 1.97 | 2.02 | (1.11) | 70(8) | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 11/30/17(11) | $5.56 | $(0.06) | $1.02 | $0.96 | $— | $ (0.42) | $(0.42) | $6.10 | 18.41% | $388,404 | 0.85% | 0.85% | (0.16)% | 82% | ||||||||||||||
| 06/30/18(4)(5) | 6.10 | (—)(12) | 0.41 | 0.41 | — | (0.47) | (0.47) | 6.04 | 7.21(6) | 383,050 | 0.84(7) | 0.92(7) | (0.01)(7) | 30(6) | ||||||||||||||
| 06/30/19 | 6.04 | (—)(12) | (0.09) | (0.09) | (—)(12) | (0.62) | (0.62) | 5.33 | (0.79) | 326,021 | 0.87 | 0.95 | —(12) | 94(8)(9) | ||||||||||||||
| 06/30/20 | 5.33 | (—)(12) | (0.52) | (0.52) | — | (0.28) | (0.28) | 4.53 | (10.35) | 189,336 | 0.89 | 0.98 | (0.06) | 81 | ||||||||||||||
| 06/30/21 | 4.53 | (0.01) | 2.94 | 2.93 | (—)(12) | (0.01) | (0.01) | 7.45 | 64.61 | 282,428 | 0.91 | 0.99 | (0.16) | 80(8) | ||||||||||||||
| 06/30/22 | 7.45 | (—)(10) | (1.10) | (1.10) | — | (1.14) | (1.14) | 5.21 | (17.81) | 222,141 | 0.91 | 0.97 | (0.05) | 70(8) | ||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||
| 11/30/17(13) | $5.80 | $(—)(12) | $0.30 | $0.30 | $— | $ — | $— | $6.10 | 5.17%(6) | $3 | 0.79%(7) | 2,069.15%(7) | (0.70)%(7) | 82% | ||||||||||||||
| 06/30/18(4)(5) | 6.10 | —(12) | 0.41 | 0.41 | — | (0.47) | (0.47) | 6.04 | 7.21(6) | 8 | 0.79(7) | 275.86(7) | 0.05(7) | 30(6) | ||||||||||||||
| 06/30/19 | 6.04 | —(12) | (0.10) | (0.10) | (—)(12) | (0.62) | (0.62) | 5.32 | (0.91) | 2,216 | 0.79 | 2.52 | 0.08 | 94(8)(9) | ||||||||||||||
| 06/30/20 | 5.32 | —(12) | (0.52) | (0.52) | — | (0.28) | (0.28) | 4.52 | (10.37) | 11,269 | 0.79 | 1.13 | 0.05 | 81 | ||||||||||||||
| 06/30/21 | 4.52 | (—)(12) | 2.93 | 2.93 | (—)(12) | (0.01) | (0.01) | 7.44 | 64.75 | 18,770 | 0.81 | 0.99 | (0.06) | 80(8) | ||||||||||||||
| 06/30/22 | 7.44 | —(10) | (1.09) | (1.09) | — | (1.14) | (1.14) | 5.21 | (17.70) | 21,299 | 0.81 | 0.96 | 0.05 | 70(8) | ||||||||||||||
| Class R6 | ||||||||||||||||||||||||||||
| 11/30/17 | $5.24 | $(0.03) | $0.94 | $0.91 | $— | $ (0.42) | $(0.42) | $5.73 | 18.58% | $67,052 | 0.75% | 0.77% | (0.07)% | 82% | ||||||||||||||
| 06/30/18(4)(5) | 5.73 | —(12) | 0.39 | 0.39 | — | (0.47) | (0.47) | 5.65 | 7.33(6) | 76,246 | 0.73(7) | 0.84(7) | 0.10(7) | 30(6) | ||||||||||||||
| 06/30/19 | 5.65 | 0.01 | (0.08) | (0.07) | (0.01) | (0.62) | (0.63) | 4.95 | (0.59) | 137,585 | 0.73 | 0.84 | 0.14 | 94(8)(9) | ||||||||||||||
| 06/30/20 | 4.95 | 0.01 | (0.49) | (0.48) | — | (0.28) | (0.28) | 4.19 | (10.35) | 64,567 | 0.76 | 0.88 | 0.07 | 81 | ||||||||||||||
| 06/30/21 | 4.19 | (—)(12) | 2.73 | 2.73 | (—)(12) | (0.01) | (0.01) | 6.91 | 65.08 | 63,766 | 0.81 | 0.89 | (0.06) | 80(8) | ||||||||||||||
| 06/30/22 | 6.91 | — (10)(12) | (1.00) | (1.00) | — | (1.14) | (1.14) | 4.77 | (17.73) | 53,500 | 0.81 | 0.87 | 0.05 | 70(8) | ||||||||||||||
| ^ | Updated to reflect the effect of a 1 for 0.379048 reverse stock split for Class C shares on October 14, 2022 (See Note 10 in the Notes to Financial Statements). All historical per share information has been retroactively adjusted to reflect this reverse stock split. |
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | The ratios shown include liquidity provider expenses. The ratio of net expenses to average net assets excluding liquidity provider expenses for Class A shares was 1.15% and 1.18%; for Class C shares was 1.95% and 1.95%; for Class Y shares was 0.89% and 0.89%; for Institutional Class shares was 0.79% and 0.79%; and for Class R6 shares was 0.79% and 0.79% for the years ended June 30, 2022 and 2021, respectively. |
| (3) | The ratios shown include liquidity provider expenses. The ratio of gross expenses to average net assets excluding liquidity provider expenses for Class A shares was 1.15% and 1.18%; for Class C shares was 2.00% and 2.03%; for Class Y shares was 0.95% and 0.97%; for Institutional Class shares was 0.94% and 0.97%; and for Class R6 shares was 0.85% and 0.87% for the years ended June 30, 2022 and 2021, respectively. |
| (4) | Represents the seven months ended June 30, 2018. |
| (5) | The Fund changed its fiscal year end from November 30 to June 30. |
| (6) | Not annualized. |
| (7) | Annualized. |
| (8) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
| (9) | Portfolio turnover excludes the purchases and sales of securities by the Touchstone Small Cap Growth Fund acquired on September 21, 2018. If these transactions were included, portfolio turnover would have been higher. |
| (10) | The net investment income per share was based on average shares outstanding for the period. |
| (11) | Effective October 28, 2017, Class I shares of the Sentinel Small Company Fund (the “Predecessor Fund”) were reorganized into Class Y shares of the Fund. |
| (12) | Less than $0.005 per share or 0.005%. |
| (13) | Represents the period from commencement of operations (October 30, 2017) through November 30, 2017. |
See accompanying Notes to Financial
Statements.
78
Financial Highlights (Continued)
| Touchstone Value Fund | ||||||||||||||||||||||||||||
| Period ended | Net asset value at beginning of period | Net investment income | Net realized and unrealized gains (losses) on investments | Total from investment operations | Distributions from net investment income | Distributions from realized capital gains | Total distributions | Net asset value at end of period | Total return(1) | Net assets at end of period (000's) | Ratio of net expenses to average net assets | Ratio of gross expenses to average net assets | Ratio of net investment income (loss) to average net assets | Portfolio turnover rate | ||||||||||||||
| Class A | ||||||||||||||||||||||||||||
| 06/30/18 | $10.13 | $0.14 | $0.55 | $0.69 | $(0.14) | $ (0.76) | $(0.90) | $9.92 | 6.92% | $36,968 | 1.08% | 1.26% | 1.42% | 24% | ||||||||||||||
| 06/30/19 | 9.92 | 0.16 | 0.57 | 0.73 | (0.16) | (1.08) | (1.24) | 9.41 | 8.53 | 32,964 | 1.08 | 1.26 | 1.67 | 37(2) | ||||||||||||||
| 06/30/20 | 9.41 | 0.13 | (0.98) | (0.85) | (0.12) | (0.49) | (0.61) | 7.95 | (9.83) | 24,567 | 1.08 | 1.26 | 1.37 | 57 | ||||||||||||||
| 06/30/21 | 7.95 | 0.10 | 3.62 | 3.72 | (0.10) | (0.16) | (0.26) | 11.41 | 47.49 | 33,052 | 1.08 | 1.24 | 1.08 | 37 | ||||||||||||||
| 06/30/22 | 11.41 | 0.11 | (0.63) | (0.52) | (0.12) | (0.85) | (0.97) | 9.92 | (5.30) | 156,947 | 1.08 | 1.13 | 1.03 | 63(3) | ||||||||||||||
| Class C | ||||||||||||||||||||||||||||
| 06/30/18 | $10.10 | $0.08 | $0.54 | $0.62 | $(0.07) | $ (0.76) | $(0.83) | $9.89 | 6.12% | $3,654 | 1.83% | 2.21% | 0.68% | 24% | ||||||||||||||
| 06/30/19 | 9.89 | 0.09 | 0.56 | 0.65 | (0.08) | (1.08) | (1.16) | 9.38 | 7.72 | 3,175 | 1.83 | 2.35 | 0.92 | 37(2) | ||||||||||||||
| 06/30/20 | 9.38 | 0.06 | (0.97) | (0.91) | (0.05) | (0.49) | (0.54) | 7.93 | (10.49) | 2,175 | 1.83 | 2.43 | 0.62 | 57 | ||||||||||||||
| 06/30/21 | 7.93 | 0.03 | 3.61 | 3.64 | (0.03) | (0.16) | (0.19) | 11.38 | 46.40 | 1,943 | 1.83 | 2.46 | 0.33 | 37 | ||||||||||||||
| 06/30/22 | 11.38 | 0.02 | (0.64) | (0.62) | (0.03) | (0.85) | (0.88) | 9.88 | (6.11) | 5,722 | 1.83 | 2.08 | 0.28 | 63(3) | ||||||||||||||
| Class Y | ||||||||||||||||||||||||||||
| 06/30/18 | $10.17 | $0.17 | $0.55 | $0.72 | $(0.17) | $ (0.76) | $(0.93) | $9.96 | 7.19% | $81,988 | 0.81% | 0.95% | 1.70% | 24% | ||||||||||||||
| 06/30/19 | 9.96 | 0.19 | 0.57 | 0.76 | (0.19) | (1.08) | (1.27) | 9.45 | 8.82 | 92,928 | 0.79 | 0.94 | 1.96 | 37(2) | ||||||||||||||
| 06/30/20 | 9.45 | 0.15 | (0.98) | (0.83) | (0.15) | (0.49) | (0.64) | 7.98 | (9.64) | 75,028 | 0.80 | 0.96 | 1.64 | 57 | ||||||||||||||
| 06/30/21 | 7.98 | 0.13 | 3.64 | 3.77 | (0.13) | (0.16) | (0.29) | 11.46 | 47.93 | 100,542 | 0.83 | 0.95 | 1.33 | 37 | ||||||||||||||
| 06/30/22 | 11.46 | 0.14 | (0.64) | (0.50) | (0.14) | (0.85) | (0.99) | 9.97 | (5.06) | 86,615 | 0.83 | 0.88 | 1.28 | 63(3) | ||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||
| 06/30/18 | $10.14 | $0.19 | $0.55 | $0.74 | $(0.19) | $ (0.76) | $(0.95) | $9.93 | 7.34% | $262,467 | 0.68% | 0.87% | 1.82% | 24% | ||||||||||||||
| 06/30/19 | 9.93 | 0.20 | 0.57 | 0.77 | (0.20) | (1.08) | (1.28) | 9.42 | 8.96 | 208,686 | 0.68 | 0.89 | 2.07 | 37(2) | ||||||||||||||
| 06/30/20 | 9.42 | 0.16 | (0.97) | (0.81) | (0.16) | (0.49) | (0.65) | 7.96 | (9.43) | 153,945 | 0.68 | 0.90 | 1.77 | 57 | ||||||||||||||
| 06/30/21 | 7.96 | 0.14 | 3.63 | 3.77 | (0.14) | (0.16) | (0.30) | 11.43 | 48.12 | 289,120 | 0.68 | 0.88 | 1.48 | 37 | ||||||||||||||
| 06/30/22 | 11.43 | 0.16 | (0.65) | (0.49) | (0.16) | (0.85) | (1.01) | 9.93 | (5.02) | 252,281 | 0.68 | 0.83 | 1.43 | 63(3) | ||||||||||||||
| Class R6 | ||||||||||||||||||||||||||||
| 06/30/22(4) | $11.91 | $0.11 | $(1.11) | $(1.00) | $(0.13) | $ (0.85) | $(0.98) | $9.93 | (9.10)%(5) | $395 | 0.63%(6) | 8.11%(6) | 1.47%(6) | 63%(3) | ||||||||||||||
| (1) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
| (2) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
| (3) | Portfolio turnover excludes the purchases and sales of securities of the AIG Strategic Value Fund acquired on July 16, 2021 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
| (4) | Represents the period from commencement of operations (October 28, 2021) through June 30, 2022 for Class R6. |
| (5) | Not annualized. |
| (6) | Annualized. |
See accompanying Notes to Financial
Statements.
79
Notes to Financial Statements
June 30, 2022
1. Organization
The Touchstone
Strategic Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a
Massachusetts business trust pursuant to an Agreement and Declaration of Trust dated November 18, 1982. The Trust consists of consists of nineteen funds, including the following nine funds (individually, a
“Fund”, and collectively, the “Funds”):
| Touchstone Balanced Fund ("Balanced Fund”) |
| Touchstone Core Municipal Bond Fund (formerly Touchstone Ohio Tax-Free Bond Fund) ("Core Municipal Bond Fund”) |
| Touchstone International Equity Fund ("International Equity Fund”) |
| Touchstone International Growth Fund ("International Growth Fund”) |
| Touchstone Large Cap Focused Fund ("Large Cap Focused Fund”) |
| Touchstone Large Cap Fund ("Large Cap Fund”) |
| Touchstone Large Company Growth Fund ("Large Company Growth Fund”) |
| Touchstone Small Company Fund ("Small Company Fund”) |
| Touchstone Value Fund ("Value Fund”) |
Each Fund is
diversified, with the exception of the Large Cap Focused Fund, the Large Cap Fund and the Large Company Growth Fund, which are non-diversified.
The Agreement and
Declaration of Trust permits the Trust to issue an unlimited number of shares of beneficial interest of each Fund. The table below indicates the classes of shares that each Fund is registered to offer:
| Class A | Class C | Class Y | Institutional Class | Class R6 | |
| Balanced Fund | X | X | X | X | |
| Core Municipal Bond Fund | X | X | X | X | |
| International Equity Fund | X | X | X | X | |
| International Growth Fund | X | X | X | X | |
| Large Cap Focused Fund | X | X | X | X | X |
| Large Cap Fund | X | X | X | X | |
| Large Company Growth Fund | X | X | X | X | |
| Small Company Fund | X | X | X | X | X |
| Value Fund | X | X | X | X | X |
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 goal, policies, and
strategies along with information on the classes of shares currently being offered.
2. Significant Accounting
Policies
The following is a
summary of the Funds’ significant accounting policies:
Each Fund is an
investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies.
Security valuation and
fair value measurements — U.S. generally accepted accounting principles (“U.S. GAAP”) defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in
an orderly transaction between market participants at the measurement date. All investments in securities are recorded at their fair value. The Funds define the term “market value”, as used
throughout this report, as the estimated fair value. The Funds use various methods to measure fair value of their portfolio securities on a recurring basis. U.S. GAAP fair value measurement standards require
disclosure of a hierarchy that prioritizes inputs to valuation methods. These inputs are summarized in the three broad levels listed below:
• Level 1 − quoted prices in
active markets for identical securities
• Level 2 − other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
• Level 3 − significant unobservable inputs
(including a 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.
The aggregate value by
input level, as of June 30, 2022, 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, portfolio
or sector allocation. The Funds did not hold or transfer any Level 3 categorized securities during the year ended June 30, 2022.
80
Notes to Financial
Statements (Continued)
Changes in valuation
techniques may result in transfers into or out of an investment’s assigned level within the hierarchy.
The Funds' portfolio
securities are valued as of the close of the regular session of trading on the New York Stock Exchange (“NYSE”) (currently 4:00 p.m., Eastern Time or at the time as of which the NYSE establishes official
closing prices). Portfolio securities traded on stock exchanges are valued at the last reported sale price, official close price, or last bid price if no sales are reported. Portfolio securities quoted by NASDAQ are
valued at the NASDAQ Official Closing Price (“NOCP”) or from the primary exchange on which the security trades. To the extent these securities are actively traded, they are categorized in Level 1 of the
fair value hierarchy. Options and futures are valued at the last quoted sales price. If there is no such reported sale on the valuation date, long option positions are valued at the most recent bid price, and
short option positions are valued at the most recent ask price on the valuation date and are categorized in Level 1. Shares of mutual funds in which the Funds invest are valued at their respective net asset value
(“NAV”) as reported by the underlying funds (the “Underlying Funds”) and are categorized in Level 1.
Debt securities held
by the Funds are valued at their evaluated bid by an independent pricing service or at their last broker-quoted bid prices as obtained from one or more of the major market makers for such securities. Independent
pricing services use information provided by market makers or estimates of market values through accepted market modeling conventions. Observable inputs to the models may include prepayment speeds, pricing spread,
yield, trade information, dealer quotes, market color, cash flow models, the securities’ terms and conditions, among others, and are generally categorized in Level 2. Investments in asset-backed and
mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche
specific spread to the benchmark yield based on the unique attributes of the tranche, and are generally categorized in Level 2. Debt securities with remaining maturities of 60 days or less may be valued at
amortized cost, provided such amount approximates market value and are categorized in Level 2. While this method provides consistency in valuation (and may only be used if it approximates market value), it may result
in periods during which fair value, as determined by amortized cost, is higher or lower than the price that would be received if the Fund sold the investment.
Securities mainly
traded on a non-U.S. exchange or denominated in foreign currencies are generally valued according to the preceding closing values on that exchange, translated to U.S. dollars using currency exchange rates as of the
close of regular trading on the NYSE, and are generally categorized in Level 1. However, if an event that may change the value of a security occurs after the time that the closing value on the non-U.S. exchange was
determined, but before the close of regular trading on the NYSE, the security may be priced based on fair value and is generally categorized in Level 2. This may cause the value of the security, if held on the books
of a Fund, to be different from the closing value on the non-U.S. exchange and may affect the calculation of that Fund’s NAV. The Funds may use fair value pricing under the following circumstances, among
others:
• If the value of a security has been materially affected by events occurring before the Funds' pricing time but after the close of the primary markets on which the security is
traded.
• If the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Funds' NAV
calculation.
• If a security is so thinly
traded that reliable market quotations are unavailable due to infrequent trading.
• If the validity of market
quotations is not reliable.
Securities held by the
Funds that do not have readily available market quotations, significant observable inputs, or securities for which the available market quotations are not reliable, are priced at their estimated fair value using
procedures approved by the Funds' Board of Trustees (the “Board”) and are generally categorized in Level 3.
Collateralized Loan
Obligations — The Balanced Fund may invest in collateralized loan obligations (“CLOs”). CLOs are types of asset-backed securities. A CLO is an entity that is backed by syndicated bank
loans. The cash flows of the CLO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or “equity” tranche.
This tranche bears the greatest risk of defaults from the underlying assets in the CLO and serves to protect the other, more senior, tranches from default in all but the most severe circumstances. Since it is shielded
from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than their underlying securities, and often receive higher ratings from one or more
of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due to actual defaults, increased sensitivity to future defaults
and the disappearance of one or more protecting tranches as a result of changes in the credit profile of the underlying pool of assets.
Investment
companies — The Funds may invest in securities of other investment companies, including exchange-traded funds (“ETFs”), open-end funds and closed-end funds. Open-end funds are
investment companies that issue new shares continuously and redeem shares daily. Closed-end funds are investment companies that typically issue a fixed number of shares that trade on a securities exchange or
over-the-counter (“OTC”). An ETF is an investment company that typically seeks to track the performance of an index by holding in its portfolio shares of all the companies, or a representative sample of
the companies, that are components of a particular index. ETF shares are traded on a securities exchange based on their market value. The risks of investment in other
81
Notes to Financial
Statements (Continued)
investment companies typically
reflect the risks of the types of securities in which the other investment companies invest. Investments in ETFs and closed-end funds are subject to the additional risk that their shares may trade at a premium or
discount to their NAV. When a Fund invests in another investment company, shareholders of the Fund indirectly bear their proportionate share of the other investment company’s fees and expenses, including
operating, registration, trustee, licensing, and marketing, as well as their share of the Fund’s fees and expenses.
Futures Contracts — The Balanced Fund may buy and sell futures contracts and related options to manage its exposure to changing interest rates and securities prices. Some strategies reduce the
Fund’s exposure to price fluctuations, while others tend to increase its market exposure. Futures and options on futures can be volatile instruments and involve certain risks that could negatively impact the
Fund’s return. In order to avoid leveraging and related risks, when the Fund purchases futures contracts, it will collateralize its position by depositing an amount of cash or liquid securities, equal to the
market value of the futures positions held, less margin deposits, in a segregated account with its custodian or otherwise “cover” its position in a manner consistent with the 1940 Act or the rules of the
Securities and Exchange Commission (the “SEC”) or interpretations thereunder. Collateral equal to the current fair value of the futures position will be determined on a daily basis.
When the contract is
closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund’s basis in the contract. Risks of entering into futures
contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. Second, it is possible that a lack of liquidity for futures
contracts could exist in the secondary market resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Fund could lose more
than the original margin deposit required to initiate the futures transaction. Finally, the risk exists that losses could exceed amounts disclosed on the Statements of Assets and Liabilities. There is minimal
counterparty credit risk involved in entering into futures contracts since they are exchange-traded instruments and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the
futures against default.
As of June 30, 2022, the
Balanced Fund did not hold any futures contracts.
Foreign currency
translation — The books and records of the Funds are maintained in U.S. dollars and translated into U.S. dollars on the following basis:
| (1) | market value of investment securities, assets and liabilities at the current rate of exchange on the valuation date; and |
| (2) | purchases and sales of investment securities, income, and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. |
The Funds do not isolate
that portion of gains and losses on investments in equity securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities.
Real Estate Investment
Trusts — The Funds may invest in real estate investment trusts (“REITs”) that involve risks not associated with investing in stocks. Risks associated with investments in REITs
include declines in the value of real estate, general and economic conditions, changes in the value of the underlying property and defaults by borrowers. The value of assets in the real estate industry may go through
cycles of relative underperformance and outperformance in comparison to equity securities markets in general. Dividend income is recorded using management’s estimate of the income included in distributions
received from REIT investments. The actual amounts of income, return of capital and capital gains are only determined by each REIT after its fiscal year-end and may differ from the estimated amount. Estimates of
income are adjusted in the Funds to the actual amounts when the amounts are determined.
Derivative instruments
and hedging activities — The Balanced Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement” or “MNA”) or similar
agreement with certain counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives and foreign exchange contracts, and typically contains, among
other things, collateral posting terms and master netting provisions in the event of a default or termination. Under an ISDA Master Agreement, a party may, under certain circumstances, offset with the counterparty
certain derivative financial instruments’ payables or receivables with collateral held or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net
payment in the event of default (close-out netting). These default events include bankruptcy or insolvency of the counterparty. Note, however, that bankruptcy or insolvency laws of a particular jurisdiction may impose
restrictions on or prohibitions against the right of offset.
When entering into a
derivative transaction, a Fund may be required to post and maintain collateral or margin (including both initial and maintenance margin). Collateral and margin requirements differ by type of derivative. Margin
requirements are established by the broker or clearing house for exchange-traded and centrally cleared derivatives (financial futures contracts, options, and centrally cleared swaps). Brokers can ask for margining in
excess of the clearing house’s minimum in certain circumstances. Collateral terms are contract specific for OTC derivatives (forward foreign currency contracts, options, and swaps). For derivatives traded under
an ISDA Master Agreement, the collateral requirements are typically calculated by netting the
82
Notes to Financial
Statements (Continued)
marked-to-market amount for each
transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty. For financial reporting purposes, cash collateral that has been pledged to
cover obligations of the Fund and cash collateral received from the counterparty, if any, are reported separately on the Statements of Assets and Liabilities as cash deposits held at prime broker and due to prime
broker, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Portfolio of Investments. To the extent amounts due to the Fund from its counterparties are not fully collateralized,
contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance.
Certain ISDA Master
Agreements allow counterparties to OTC derivatives transactions to terminate derivative contracts prior to maturity in the event a Fund’s net assets decline by a stated percentage or the Fund fails to meet the
terms of its ISDA Master Agreement, which would cause the Fund (counterparty) to accelerate payment of any net liability owed to the counterparty (Fund).
For financial reporting
purposes, the Balanced Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
As of June 30, 2022, the
Balanced Fund did not hold any assets and liabilities that were subject to a MNA in the Statement of Assets and Liabilities.
The following table sets
forth the effect of the Balanced Fund's derivative financial instruments by primary risk exposure on the Statements of Operations for the year ended June 30, 2022:
| Fund | Derivatives not accounted for as hedging instruments under ASC 815 | Realized Gains (Losses) on Derivatives | Change in Unrealized Appreciation (Depreciation) on Derivatives |
| Balanced Fund | Futures - Interest Rate Contracts*
| $823,799 | $313 |
| * | Statements of Operations Location: Net realized gains on futures contracts and net change in unrealized appreciation (depreciation) on futures contracts, respectively. |
For the year ended June
30, 2022, the average quarterly balances of outstanding derivative financial instruments was as follows:
| Balanced Fund | |
| Interest Rate Contracts: | |
| Futures Contracts - Notional Value | $13,652,934 |
Portfolio securities
loaned — The Funds may lend their portfolio securities. Lending portfolio securities exposes the Funds 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 Funds 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. The loaned securities are secured by collateral valued at least equal, at all times, to the market value of the loaned securities plus
accrued interest, if any. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the
security lending agreement. The cash collateral is reinvested by the Funds' custodian into an approved short-term investment vehicle. The approved short-term investment vehicle is subject to market risk.
As of June 30, 2022, the
following Funds loaned securities and received collateral as follows:
| Fund | Security Type | Market Value of Securities Loaned* | Market Value of Collateral Received** | Net Amount*** |
| Balanced Fund | Corporate Bonds | $831,137 | $848,250 | $17,113 |
| Preferred Stocks | 864,435 | 884,574 | 20,139 | |
| Total Balanced Fund | 1,695,572 | 1,732,824 | 37,252 | |
| International Growth Fund | Common Stocks | 4,456,197 | 4,804,762 | 348,565 |
| Small Company Fund | Common Stocks | 4,554,000 | 4,695,000 | 141,000 |
| * | The remaining contractual maturity is overnight for all securities. |
| ** | Gross amount of recognized liabilities for securities lending included in the Statements of Assets and Liabilities. |
| *** | Net amount represents the net amount payable due to (receive from) the borrower in the event of default. |
All cash collateral is
received, held, and administered by the Funds' custodian for the benefit of the lending Fund in its custody account or other account established for the purpose of holding collateral in cash equivalents.
Funds participating in
securities lending receive compensation in the form of fees. Securities lending income is derived from lending long securities from the Funds to creditworthy approved borrowers at rates that are determined based on
daily trading volumes, float, short-term interest rates and market liquidity and is shown net of fees on the Statements of Operations. When a
83
Notes to Financial
Statements (Continued)
Fund lends securities, it retains the
interest or dividends on the investment of any cash received as collateral, and the Fund continues to receive interest or dividends on the loaned securities.
Unrealized gain or loss
on the market value of the loaned securities that may occur during the term of the loan is recognized by the Fund. The Fund has the right under the lending agreement to recover any loaned securities from the borrower
on demand.
When-issued or delayed
delivery transactions — Each Fund may purchase or sell securities on a when-issued or delayed delivery basis. These transactions involve a commitment by the Fund to purchase or sell securities for a
predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed delivery purchases are outstanding, the Fund will set aside liquid assets in an amount
sufficient to meet the purchase price. When purchasing a security on a delayed delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations,
and takes such fluctuations into account when determining NAV. The Fund may dispose of or renegotiate a delayed delivery transaction after it is entered into, and may sell when-issued securities before they are
delivered, which may result in a capital gain or loss. When the Fund has sold a security on a delayed delivery basis, the Fund does not participate in future gains and losses with respect to the security.
Share valuation — The NAV 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 equity funds (all of the Funds except the Core Municipal Bond Fund) is equal to the NAV per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price).
The maximum offering price per share of Class A shares of the Core Municipal Bond Fund is equal to the NAV per share plus a sales load equal to 3.36% of the NAV (or 3.25% of the offering price). There is no sales load
on equity or fixed income fund purchases when aggregate purchases in all Touchstone funds equal at least $1 million or $500,000, respectively. The maximum offering price per share of Classes C, Y, Institutional Class
and R6 shares of the Funds is equal to the NAV per share.
The redemption price
per share of each class of shares of the Funds is generally equal to the NAV per share. However, Class A redemptions that were part of a no-load purchase due to the aggregate purchase amount in all Touchstone Funds
equaling at least the maximum breakpoint where a Finder’s Fee was paid may be subject to a contingent deferred sales charge (“CDSC”) of up to 1.00% or 0.50% for equity or fixed income funds,
respectively, if redeemed within a one-year period from the date of purchase. Additionally, purchases of Class C shares of the Funds are subject to a CDSC of 1.00% if redeemed within a one-year period from the date of
purchase. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed.
Investment income — Dividend income from securities is recognized on the ex-dividend date, net of foreign withholding taxes, if any, which are reduced by any amounts reclaimable by the Funds, where
applicable. Interest income from securities is recorded on the basis of interest accrued, premium amortized and discount accreted. Realized gains and losses resulting from principal pay downs on mortgage-backed and
asset-backed securities are included in interest income. Market discounts, original issue discounts and market premiums on debt securities are accreted/amortized to interest income over the life of the security or to
the appropriate call date, as applicable, with a corresponding adjustment in the cost basis of that security. In addition, it is the Funds’ policy to accrue for foreign capital gains taxes, if applicable, on
certain foreign securities held by the Funds. An estimated foreign capital gains tax is recorded daily on net unrealized gains on these securities and is payable upon the sale of such securities when a gain is
realized.
Distributions to
shareholders — Each Fund intends to distribute to its shareholders substantially all of its income and capital gains. Each Fund, except the Balanced Fund, the Core Municipal Bond Fund and the
Value Fund, declares and distributes net investment income, if any, annually, as a dividend to shareholders. The Balanced Fund and Value Fund declare and distribute net investment income, if any quarterly, as a
dividend to shareholders. The Core Municipal Bond Fund declares distributions from net investment income on a daily basis and distributes as a dividend to shareholders on a monthly basis. Each Fund makes distributions
of capital gains, if any, at least annually, net of applicable capital loss carryforwards. Income distributions and capital gain distributions are determined in accordance with income tax regulations. Recognition of
the Funds' net investment income from investments in Underlying Funds is affected by the timing of dividend declarations by the Underlying Funds.
Allocations — Investment income earned, realized capital gains and losses, and unrealized appreciation and depreciation for a Fund 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 their proportionate share of total net assets of the Fund. Expenses not directly billed to a Fund are allocated proportionally among all Funds in the Trust, and, if applicable,
Touchstone Funds Group Trust and Touchstone Variable Series Trust (collectively with the Trust, “Touchstone Fund Complex”), daily in relation to net assets of each Fund or another reasonable
measure.
Security transactions — Security transactions are reflected for financial reporting purposes as of the trade date. Realized gains and losses on sales of portfolio securities are calculated using the
identified cost basis.
84
Notes to Financial
Statements (Continued)
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.
LIBOR Transition — Many debt securities, derivatives and other financial instruments in which the Funds may invest, as well as any borrowings made by the Funds from banks or from other lenders,
utilize the London Interbank Offered Rate (“LIBOR”) as the reference or benchmark index for interest rate calculations. LIBOR is a measure of the average interest rate at which major global banks can
borrow from one another. Plans are underway to phase out the use of LIBOR by June 30, 2023. The ICE Benchmark Administration Limited, the administrator of LIBOR, ceased publishing most LIBOR maturities, including some
U.S. LIBOR maturities, on December 31, 2021, and is expected to cease publishing the remaining and most liquid U.S. LIBOR maturities on June 30, 2023. Before then, it is expected that market participants have or will
transition to the use of different reference or benchmark indices. However, there is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement index. As such, the
potential effect of a transition away from LIBOR on the Funds’ investments cannot yet be determined.
3. Investment Transactions
Investment transactions
(excluding short-term investments and U.S. Government securities) were as follows for the year ended June 30, 2022:
| Balanced Fund* | Core Municipal Bond Fund | International Equity Fund | International Growth Fund | |
| Purchases of investment securities | $424,429,775 | $108,929,964 | $52,998,473 | $39,592,039 |
| Proceeds from sales and maturities | $343,979,039 | $95,031,231 | $87,665,688 | $54,346,818 |
| Large Cap Focused Fund* | Large Cap Fund* | Large Company Growth Fund* | Small Company Fund* | Value Fund | |
| Purchases of investment securities | $773,683,167 | $40,667,930 | $93,494,841 | $659,524,759 | $343,619,262 |
| Proceeds from sales and maturities | $841,812,442 | $79,139,683 | $120,719,988 | $645,981,882 | $420,094,757 |
| * | Balanced Fund, Large Cap Focused Fund, Large Cap Fund, Large Company Growth Fund and Small Company Fund had a redemption-in-kind out of the Fund of $21,938,249, $168,998,235, $28,554,517, $30,606,093 and $70,196,559, respectively. The redemptions were comprised of securities of $20,471,881, $133,840,394, $21,000,498, $25,368,539 and $56,618,499 which are excluded from the proceeds from sales and maturities and cash in the amount of $1,466,368, $35,157,841, $7,554,019, $5,237,554 and $13,578,060 for the Balanced Fund, Large Cap Focused Fund, Large Cap Fund, Large Company Growth Fund and Small Company Fund, respectively. |
For the year ended
June 30, 2022, purchases and proceeds from sales and maturities in U.S. Government Securities were $461,281,529 and $455,278,073, respectively, for the Balanced Fund. There were no purchases or proceeds from sales and
maturities of U.S. Government securities by the other Funds for the year ended June 30, 2022.
4. Transactions with
Affiliates and Other Related Parties
Certain officers of
the Trust are also officers of Touchstone Advisors, Inc. (the “Advisor”), Touchstone Securities, Inc. (the “Underwriter”), or The Bank of New York Mellon (“BNY Mellon”), the
Sub-Administrator to the Funds. Such officers receive no compensation from the Trust. The Advisor and the Underwriter are each wholly-owned subsidiaries of Western & Southern Financial Group, Inc. ("Western &
Southern").
On behalf of the
Funds, the Advisor pays each Independent Trustee a quarterly retainer plus additional retainers to the Lead Independent Trustee and the chairs of each standing committee. Interested Trustees do not receive
compensation from the Funds. Each Independent Trustee also receives compensation for each Board meeting and committee meeting attended. Each standing committee chair receives additional compensation for each committee
meeting that he or she oversees. The Advisor is reimbursed by the Funds for the Independent Trustees’ compensation and out-of-pocket expenses relating to their services. The Funds accrued Trustee-related
expenses of $254,142 for the Funds’ Board for the year ended June 30, 2022.
85
Notes to Financial
Statements (Continued)
MANAGEMENT & EXPENSE
LIMITATION AGREEMENTS
The Advisor provides
general investment supervisory services for the Funds, under the terms of an advisory agreement (the “Advisory Agreement”). Under the Advisory Agreement, each Fund pays the Advisor a fee, which is computed
and accrued daily and paid monthly, at an annual rate based on average daily net assets of each Fund as shown in the table below.
| Balanced Fund | 0.55% on the first $200 million 0.50% on the next $200 million 0.45% on the next $600 million 0.40% on the next $1 billion 0.35% on such assets over $2 billion |
| Core Municipal Bond Fund* | 0.40% on the first $300 million 0.30% on such assets over $300 million |
| International Equity Fund | 0.70% on the first $500 million 0.65% on the next $300 million 0.60% on the next $200 million 0.50% on the next $1 billion 0.40% on such assets over $2 billion |
| International Growth Fund | 0.80% on the first $1 billion 0.75% on the next $500 million 0.70% on the next $500 million 0.65% on such assets over $2 billion |
| Large Cap Focused Fund | 0.70% on the first $500 million 0.65% on the next $300 million 0.60% on the next $200 million 0.50% on the next $1 billion 0.40% on such assets over $2 billion |
| Large Cap Fund | 0.60% on the first $500 million 0.54% on the next $500 million 0.50% on such assets over $1 billion |
| Large Company Growth Fund | 0.60% on all assets |
| Small Company Fund | 0.70% on the first $500 million 0.65% on the next $300 million 0.60% on the next $200 million 0.50% on the next $1 billion 0.40% on such assets over $2 billion |
| Value Fund** | 0.65% on the first $200 million 0.55% on such assets over $200 million |
| * | Prior to October 28, 2021, the Fund paid 0.50% on the first $100 million, 0.45% on the next $100 million, 0.40% on the next $100 million and 0.375% on assets over $300 million. |
| ** | Prior to September 1, 2021, the Fund paid 0.65% on all assets. |
The Advisor has entered
into investment sub-advisory agreements with the following parties (each, a “Sub-Advisor”):
| Barrow, Hanley, Mewhinney & Strauss, LLC | London Company of Virginia d/b/a The London Company |
| Value Fund | Large Cap Fund |
| DSM Capital Partners LLC | Fort Washington Investment Advisors, Inc.* |
| International Growth Fund | Balanced Fund |
| Large Company Growth Fund | International Equity Fund |
| Sage Advisory Services, Ltd Co. | Large Cap Focused Fund |
| Core Municipal Bond Fund** | Small Company Fund |
* Affiliate of the
Advisor and wholly-owned subsidiary of Western & Southern.
** Prior to October 28, 2021, Fort
Washington Investment Advisors, Inc. was the sub-advisor to the Fund.
The Advisor pays
sub-advisory fees to each Sub-Advisor from its advisory fee.
The Advisor entered
into an expense limitation agreement (the “Expense Limitation Agreement”) to contractually limit the annual operating expenses of the Funds, excluding: dividend and interest expenses relating to short sales;
interest; taxes; brokerage commissions and other transaction costs; portfolio transaction and investment related expenses, including expenses associated with the Funds’ liquidity providers; other expenditures
which are capitalized in accordance with U.S. GAAP; the cost of “Acquired Fund
86
Notes to Financial
Statements (Continued)
Fees and Expenses”, if any; and
other extraordinary expenses not incurred in the ordinary course of business. The maximum annual 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 a portion of its fees, and to reimburse certain fund expenses in order to maintain the following expense limitations for the Funds:
| Class A | Class C | Class Y | Institutional Class | Class R6 | Termination Date | |
| Balanced Fund* | 1.01% | 1.78% | 0.81% | — | 0.64% | July 29, 2023 |
| Core Municipal Bond Fund** | 0.80% | 1.55% | 0.55% | 0.48% | — | October 29 , 2022 |
| International Equity Fund | 1.36% | 1.99% | 0.99% | 0.89% | — | July 29, 2023 |
| International Growth Fund | 1.24% | 1.99% | 0.99% | 0.89% | — | October 29, 2022 |
| Large Cap Focused Fund* | 1.00% | 1.79% | 0.72% | 0.69% | 0.65% | July 29, 2023 |
| Large Cap Fund | 1.03% | 1.78% | 0.78% | 0.68% | — | October 29, 2022 |
| Large Company Growth Fund | 1.04% | 1.79% | 0.79% | 0.69% | — | October 29, 2022 |
| Small Company Fund | 1.22% | 1.95% | 0.89% | 0.79% | 0.79% | October 29, 2022 |
| Value Fund* | 1.08% | 1.83% | 0.83% | 0.68% | 0.63% | July 29, 2023 |
| * | The termination date for Class R6 shares is October 29, 2022. |
| ** | Prior to October 28, 2021, the expense limitation for Class A shares, Class C shares, Class Y and Institutional Class were 0.85%, 1.60%, 0.60% and 0.55%, respectively. |
The Expense Limitation
Agreement can be terminated by a vote of the Funds’ Board if it deems the termination to be beneficial to the Funds’ shareholders.
During the year ended
June 30, 2022, the Advisor or its affiliates waived investment advisory fees, administration fees or other operating expenses, including distribution fees of the Funds, as follows:
| Fund | Investment Advisory Fees Waived | Administration Fees Waived | Other Operating Expenses Reimbursed/ Waived | Total |
| Balanced Fund | $— | $2 | $4,426 | $4,428 |
| Core Municipal Bond Fund | — | 44,979 | 137,449 | 182,428 |
| International Equity Fund | — | 3,723 | 121,430 | 125,153 |
| International Growth Fund | — | 101,712 | 215,212 | 316,924 |
| Large Cap Focused Fund | — | 47 | 413,390 | 413,437 |
| Large Cap Fund | — | 79,185 | 266,280 | 345,465 |
| Large Company Growth Fund | — | 164,598 | 157,398 | 321,996 |
| Small Company Fund | — | 27,811 | 214,023 | 241,834 |
| Value Fund | — | 235,068 | 356,127 | 591,195 |
Under the terms of
the Expense Limitation Agreement, the Advisor is entitled to recover, subject to approval by the Funds’ Board, such amounts waived or reimbursed for a period of up to three years from the date on which the
Advisor reduced its compensation or assumed expenses for the Funds. A Fund will make repayments to the Advisor only if such repayment does not cause the Fund's operating expenses (after the repayment is taken into
account) to exceed the Fund's expense limit in place when such amounts were waived or reimbursed by the Advisor and the Fund's current expense limitation.
As of June 30, 2022, the
Advisor may seek recoupment of previously waived fees and reimbursed expenses as follows:
| Fund | Expires on or before June 30, 2023 | Expires on or before June 30, 2024 | Expires on or before June 30, 2025 | Total |
| Balanced Fund | $— | $— | $4,428 | $4,428 |
| Core Municipal Bond Fund | 157,632 | 73,030 | 99,819 | 330,481 |
| International Equity Fund | 174,004 | 67,613 | 64,511 | 306,128 |
| International Growth Fund | 193,290 | 255,371 | 302,133 | 750,794 |
| Large Cap Focused Fund | 1,851,991 | 757,813 | 413,033 | 3,022,837 |
| Large Cap Fund | 393,233 | 338,365 | 321,303 | 1,052,901 |
| Large Company Growth Fund | 326,338 | 357,163 | 309,075 | 992,576 |
| Small Company Fund | 818,548 | 262,375 | 229,745 | 1,310,668 |
| Value Fund | 606,669 | 515,267 | 498,918 | 1,620,854 |
For the year ended June
30, 2022, the Advisor recouped previously waived fees or reimbursed expenses from the Balanced Fund of $81,985.
87
Notes to Financial
Statements (Continued)
ADMINISTRATION AGREEMENT
The Advisor entered
into an Administration 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 SEC and state securities authorities, as well as materials for meetings of the Board; calculating the daily NAV per share; and maintaining the financial
books and records of each Fund.
For its services, the
Advisor’s annual administrative fee is:
0.145%
on the first $20 billion of the aggregate average daily net assets;
0.11% on the next $10
billion of aggregate average daily net assets;
0.09% on the next $10
billion of aggregate average daily net assets; and
0.07% on the
aggregate average daily net assets over $40 billion.
The fee is computed and
allocated among the Touchstone Fund Complex on the basis of relative daily net assets.
The Advisor has engaged
BNY Mellon as the Sub-Administrator to the Trust. BNY Mellon provides administrative and accounting services to the Trust and is compensated directly by the Advisor, not the Trust.
TRANSFER AGENT AGREEMENT
Under the terms of the
Transfer Agent Agreement between the Trust and BNY Mellon Investment Servicing (U.S.) Inc. ("Transfer Agent"), the Transfer Agent to the Funds 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, the Transfer Agent receives a monthly fee from each Fund. In addition, each Fund pays out-of-pocket expenses incurred by the Transfer Agent, including, but not limited to, postage and
supplies.
The Funds may
reimburse the Advisor for fees paid to intermediaries such as banks, broker-dealers, financial advisors or other financial institutions for sub-transfer agency, sub-administration and other services provided to
investors whose shares of record are held in omnibus, other group accounts, retirement plans or accounts traded through registered securities clearing agents. These fees, which are included in Transfer Agent fees in
the Statements of Operations, may vary based on, for example, the nature of services provided, but generally range up to 0.15% of the assets of the class serviced or maintained by the intermediary or up to $22 per
sub-account maintained by the intermediary.
PLANS OF DISTRIBUTION AND
SHAREHOLDER SERVICING FEE ARRANGEMENTS
The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act for each class of shares it offers that is subject to 12b-1 distribution fees. The plans allow each Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders. The fees charged to the Funds are limited to the actual expenses incurred. Under the Class A plan, each Fund offering Class A shares pays an annual
fee not to exceed 0.25% of average daily net assets that are attributable to Class A shares. Under the Class C plan, each Fund offering Class C shares pays an annual fee not to exceed 1.00% of average daily net assets
that are attributable to Class C shares (of which up to 0.75% is a distribution fee and up to 0.25% is a shareholder servicing fee).
UNDERWRITING AGREEMENT
The Underwriter is the
Funds’ principal underwriter and, as such, acts as exclusive agent for distribution of the Funds’ shares. Under the terms of the Underwriting Agreement between the Trust and the Underwriter, the
Underwriter earned underwriting and broker commissions on the sale of Class A shares of the Funds. W&S Brokerage Services, Inc., an affiliate of the Underwriter and the Advisor, also earned broker commissions on
the sale of Class A shares of the Funds. Listed below are the total underwriting and broker commissions earned by the Underwriter and its affiliate during the year ended June 30, 2022:
| Fund | Amount |
| Balanced Fund | $ 56,755 |
| Core Municipal Bond Fund | 1,866 |
| International Equity Fund | 3,789 |
| International Growth Fund | 703 |
| Large Cap Focused Fund | 38,288 |
| Large Cap Fund | 658 |
| Large Company Growth Fund | 1,399 |
| Small Company Fund | 14,996 |
| Value Fund | 7,592 |
88
Notes to Financial
Statements (Continued)
In addition, the
Underwriter collected CDSC on the redemption of Class A and Class C shares of the Funds listed below during the year ended June 30, 2022:
| Fund | Class A | Class C |
| Balanced Fund | $ 285 | $ 2,935 |
| International Equity Fund | — | 44 |
| Large Cap Focused Fund | 350 | 1,057 |
| Small Company Fund | 119 | 63 |
| Value Fund | — | 80 |
INTERFUND TRANSACTIONS
Pursuant to Rule 17a-7
under the 1940 Act, the Funds may engage in purchase and sale transactions with funds that have a common investment advisor (or affiliated investment advisors), common Trustees and/or common Officers. During the year
ended June 30, 2022, the Funds did not engage in any Rule 17a-7 transactions.
5. Liquidity
ReFlow Fund LLC — The Funds may participate in the ReFlow Fund LLC liquidity program (“ReFlow”), which is designed to provide an alternative liquidity source for funds experiencing
redemptions. In order to pay cash to shareholders who redeem their shares on a given day, a fund typically must hold cash in its portfolio, liquidate portfolio securities, or borrow money. ReFlow provides
participating funds with another source of cash by standing ready to purchase shares from a fund up to the amount of the fund’s net redemptions on a given day, cumulatively limited to 3% of the outstanding
voting shares of a Fund. ReFlow then generally redeems those shares (in cash or in-kind) when the Fund experiences net sales, at the end of a maximum holding period determined by ReFlow, or at other times at
ReFlow’s discretion. In return for this service, the Fund will pay a fee to ReFlow at a rate determined by a daily auction with other participating mutual funds.
During the year ended
June 30, 2022, the following Funds utilized ReFlow. The shares ReFlow subscribed to and redemptions-in-kind were as follows:
| Fund | Shares ReFlow Subscribed to | Redemptions-in-kind |
| Balanced Fund | 1,016,494 | $ 20,471,881 |
| Large Cap Focused Fund | 3,066,329 | 133,840,394 |
| Large Cap Fund | 1,481,736 | 21,000,498 |
| Large Company Growth Fund | 644,886 | 25,368,539 |
| Small Company Fund | 11,667,038 | 56,618,499 |
Interfund Lending — Pursuant to an Exemptive Order issued by the SEC on March 28, 2017, the Funds, along with certain other funds in the Touchstone Fund Complex, may participate in an interfund
lending program. The interfund lending program provides an alternate credit facility that allows the Funds to lend to or borrow from other participating funds in the Touchstone Fund Complex, subject to the conditions
of the Exemptive Order. The Funds may not borrow under the facility for leverage purposes and the loans’ duration may be no more than 7 days.
During the year
ended June 30, 2022, the following Funds participated as borrowers in the interfund lending program. The daily average amount borrowed, weighted average interest rate and interest expense were as follows:
| Fund | Daily Average Amount Borrowed | Weighted Average Interest Rate | Interest Expense* |
| International Equity Fund | $ 43,441 | 0.68% | $ 300 |
| International Growth Fund | $ 8,857 | 0.68% | $ 61 |
| Large Cap Fund | $ 406,115 | 0.80% | $ 3,439 |
| Large Company Growth Fund | $ 26,394 | 0.68% | $ 181 |
| * | Included in Other expenses in the Statements of Operations. |
6. Federal Tax Information
Federal Income Tax — It is each Fund’s policy to continue to comply with the special provisions of the Internal Revenue Code applicable to regulated investment companies. As provided therein, in
any fiscal year in which a Fund so qualifies and distributes at least 90% of its investment company taxable income, the Fund (but not the shareholders) will be relieved of federal income tax on the income distributed.
It is each Fund’s policy to distribute all of its taxable and tax-exempt income and accordingly, no provision for income taxes has been made.
89
Notes to Financial
Statements (Continued)
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 investment company taxable
income (earned during the calendar year) and 98.2% 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 June 30, 2022 and June 30, 2021 are as follows:
| Balanced Fund | Core Municipal Bond Fund | International Equity Fund | ||||
| Year Ended June 30, 2022 | Year Ended June 30, 2021 | Year Ended June 30, 2022 | Year Ended June 30, 2021 | Year Ended June 30, 2022 | Year Ended June 30, 2021 | |
| From ordinary income | $7,937,924 | $7,630,981 | $— | $— | $6,873,595 | $647,909 |
| From tax-exempt income | — | — | 1,004,748 | 1,211,675 | — | — |
| From long-term capital gains | 19,917,546 | 26,358,697 | 37,471 | 5,224 | 10,153,319 | — |
| Total distributions | $27,855,470 | $33,989,678 | $1,042,219 | $1,216,899 | $17,026,914 | $647,909 |
| International Growth Fund | Large Cap Focused Fund | Large Cap Fund | ||||
| Year Ended June 30, 2022 | Year Ended June 30, 2021 | Year Ended June 30, 2022 | Year Ended June 30, 2021 | Year Ended June 30, 2022 | Year Ended June 30, 2021 | |
| From ordinary income | $362 | $— | $39,814,540 | $12,163,638 | $3,996,630 | $3,689,511 |
| From long-term capital gains | — | — | 170,287,074 | 94,020,901 | 6,966,746 | — |
| Total distributions | $362 | $— | $210,101,614 | $106,184,539 | $10,963,376 | $3,689,511 |
| Large Company Growth Fund | Small Company Fund | Value Fund | ||||
| Year Ended June 30, 2022 | Year Ended June 30, 2021 | Year Ended June 30, 2022 | Year Ended June 30, 2021 | Year Ended June 30, 2022 | Year Ended June 30, 2021 | |
| From ordinary income | $2,681,389 | $1,164,162 | $48,143,409 | $842,597 | $15,794,980 | $4,536,512 |
| From long-term capital gains | 45,210,640 | 28,994,022 | 116,754,602 | — | 33,693,432 | 4,949,001 |
| Total distributions | $47,892,029 | $30,158,184 | $164,898,011 | $842,597 | $49,488,412 | $9,485,513 |
The following
information is computed on a tax basis for each item as of June 30, 2022:
| Balanced Fund | Core Municipal Bond Fund | International Equity Fund | International Growth Fund | Large Cap Focused Fund | |
| Tax cost of portfolio investments | $694,848,526 | $63,345,880 | $106,498,868 | $72,019,027 | $1,772,160,498 |
| Gross unrealized appreciation on investments | 131,765,907 | 230,106 | 13,697,620 | 6,502,668 | 850,074,984 |
| Gross unrealized depreciation on investments | (72,508,661) | (2,913,887) | (19,915,710) | (12,786,842) | (121,745,288) |
| Net unrealized appreciation (depreciation) on investments | 59,257,246 | (2,683,781) | (6,218,090) | (6,284,174) | 728,329,696 |
| Gross unrealized appreciation on foreign currency transactions | 13 | — | 2,748 | 278 | — |
| Gross unrealized depreciation on foreign currency transactions | — | — | (7,500) | (12,589) | — |
| Net unrealized appreciation (depreciation) on foreign currency transactions | 13 | — | (4,752) | (12,311) | — |
| Capital loss carryforwards | — | — | (65,508,598) | (6,386,751) | — |
| Late year ordinary losses deferrals | (1,639,566) | (28,109) | (1,722,707) | — | — |
| Undistributed ordinary income | — | — | — | — | 12,237,564 |
| Undistributed capital gains | — | — | — | — | 26,814,957 |
| Other temporary differences | (3,957) | (8,041) | — | — | — |
| Accumulated earnings (deficit) | $57,613,736 | $(2,719,931) | $(73,454,147) | $(12,683,236) | $767,382,217 |
90
Notes to Financial
Statements (Continued)
| Large Cap Fund | Large Company Growth Fund | Small Company Fund | Value Fund | |
| Tax cost of portfolio investments | $195,229,568 | $127,910,277 | $709,210,198 | $451,217,867 |
| Gross unrealized appreciation on investments | 94,149,687 | 43,178,848 | 127,289,870 | 87,497,177 |
| Gross unrealized depreciation on investments | (11,321,165) | (7,569,970) | (62,927,035) | (40,946,135) |
| Net unrealized appreciation (depreciation) on investments | 82,828,522 | 35,608,878 | 64,362,835 | 46,551,042 |
| Late year ordinary losses deferrals | — | (174,283) | (890,599) | — |
| Undistributed ordinary income | 1,812,304 | — | — | 3,069,694 |
| Undistributed capital gains | 9,064,251 | 4,964,517 | 17,610,082 | 23,311,513 |
| Accumulated earnings (deficit) | $93,705,077 | $40,399,112 | $81,082,318 | $72,932,249 |
The difference
between the tax cost of portfolio investments and the financial statement cost is primarily due to wash sale loss deferrals, investments in passive foreign investment company (“PFIC”) adjustments, basis
adjustments on securities no longer treated as PFICs, callable bonds and nontaxable distribution basis outstanding.
As of June 30, 2022, the
International Equity Fund and International Growth Fund had the following capital loss carryforwards for federal income tax purposes:
| Fund | No Expiration Short Term | No Expiration Long Term | Total |
| International Equity Fund* | $ 34,975,398 | $ 30,533,200 | $ 65,508,598 |
| International Growth Fund* | 6,386,751 | — | 6,386,751 |
| * | Future utilization may be limited under current tax laws. |
The capital loss
carryforwards may be utilized in future years to offset net realized capital gains, if any, prior to distributing such gains to shareholders.
During the year ended
June 30, 2022, the following Fund utilized capital loss carryforwards:
| Fund | Utilized |
| International Equity Fund | $ 721,485 |
Under current laws,
certain capital losses realized after October 31 and ordinary losses realized after December 31 may be deferred (and certain ordinary losses after October and/or December 31 may be deferred) and treated as occurring
on the first day of the following fiscal year. For the year ended June 30, 2022, the following Funds elected to defer the following losses:
| Fund | Realized Capital Losses | Ordinary Losses | Total |
| Balanced Fund | $ 1,639,566 | $ — | $ 1,639,566 |
| Core Municipal Bond Fund | 28,109 | — | 28,109 |
| International Equity Fund | 1,722,707 | — | 1,722,707 |
| Large Company Growth Fund | — | 174,283 | 174,283 |
| Small Company Fund | — | 890,599 | 890,599 |
The Funds have analyzed
their tax positions taken or to be taken on federal income tax returns for all open tax years (tax years ended June 30, 2019 through 2022) and have concluded that no provision for income tax is required in their
financial statements.
Certain
reclassifications, the result of permanent differences between financial statement and income tax reporting requirements, have been made to the components of capital as presented on the Statements of Assets and
Liabilities. These reclassifications have no impact on the net assets or NAV per share of the Funds. The following reclassifications, which are primarily attributed to the tax treatment of net operating loss,
redemptions in-kind, deemed distributions on shareholder redemptions, differing tax and GAAP distribution requirements, acquired capital loss carryforwards and different tax treatment of the mergers, and acquired wash
sales from mergers have been made to the following Funds for the year ended June 30, 2022:
| Fund | Paid-In Capital | Distributable Earnings |
| Balanced Fund | $ 19,929,136 | $ (19,929,136) |
| Core Municipal Bond Fund | (4,388) | 4,388 |
| International Equity Fund | 66,422,508 | (66,422,508) |
| International Growth Fund | (218,706) | 218,706 |
91
Notes to Financial
Statements (Continued)
| Fund | Paid-In Capital | Distributable Earnings |
| Large Cap Focused Fund | $86,420,740 | $(86,420,740) |
| Large Cap Fund | 11,486,481 | (11,486,481) |
| Large Company Growth Fund | 21,350,111 | (21,350,111) |
| Small Company Fund | 19,056,071 | (19,056,071) |
| Value Fund | 6,058,231 | (6,058,231) |
7. Commitments and
Contingencies
The Funds indemnify
the Trust’s officers and Trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that
contain a variety of representations and warranties and which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made
against the Funds.
8. Principal Risks
Risks Associated with
Foreign Investments – Some of the Funds may invest in the securities of foreign issuers. Investing in securities issued by companies whose principal business activities are outside the U.S. may involve
significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to
domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal
of funds or other assets of a Fund, political or financial instability or diplomatic and other developments which could affect such investments. Political and military events, including in North Korea, Venezuela,
Russia, Ukraine, Iran, Syria, and other areas of the Middle East, and nationalist unrest in Europe and South America, may cause market disruptions. Foreign stock markets, while growing in volume and sophistication,
are generally not as developed as those in the U.S., and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S.
companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker-dealers, and issuers than in the U.S.
Risks Associated with
Sector Concentration – Certain Funds may invest a high percentage of their assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, these Funds
may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility in the Funds' NAVs and magnified effect
on the total return.
Risks Associated with
Credit – An issuer may be unable to make timely payments of either principal or interest. This may cause the issuer’s securities to decline in value. Credit risk is particularly
relevant to those Funds that invest a significant amount of their assets in junk bonds or lower-rated securities.
Risks Associated with
Cyber Security - With the increased use of technologies, such as mobile devices and "cloud"-based service offerings and the dependence on the Internet and computer systems to perform necessary business
functions, the Funds' service providers are susceptible to cyber security risks that could result in losses to a Fund and its shareholders. Cyber security breaches are either intentional or unintentional events that
allow an unauthorized party to gain access to Fund assets, customer data, or proprietary information, or cause a Fund or Fund service provider to suffer data corruption or lose operational functionality. A cyber
security breach could result in the loss or theft of customer data or funds, loss or theft of proprietary information or corporate data, physical damage to a computer or network system, or costs associated with system
repairs, any of which could have a substantial impact on a Fund. Cyber security incidents could cause a Fund, the Advisor, a Sub-Advisor, or other service provider to incur regulatory penalties, reputational damage,
compliance costs associated with corrective measures, litigation costs, or financial loss. They may also result in violations of applicable privacy and other laws. In addition, such incidents could affect issuers in
which a Fund invests, thereby causing the Fund’s investments to lose value.
Risks Associated with
Interest Rate Changes – The price of debt securities is generally linked to the prevailing market interest rates. In general, when interest rates rise, the price of debt securities falls, and when
interest rates fall, the price of debt securities rises. The price volatility of a debt security also depends on its maturity. Longer-term securities are generally more volatile, so the longer the average maturity or
duration of these securities, the greater their price risk. Duration is a measure of the expected life, taking into account any prepayment or call features of the security, that is used to determine the price
sensitivity of the security for a given change in interest rates. Specifically, duration is the change in the value of a fixed-income security that will result from a 1% change in interest rates, and generally is
stated in years. For example, as a general rule a 1% rise in interest rates means a 1% fall in
92
Notes to Financial
Statements (Continued)
value for every year of duration.
Maturity, on the other hand, is the date on which a fixed-income security becomes due for payment of principal. The negative impact on fixed income securities if interest rates increase as a result could negatively
impact a Fund’s NAV.
Risks Associated with
Health Crises – An outbreak of respiratory disease caused by COVID-19 was first detected in China in December 2019 and subsequently spread internationally. As of the date of issuance of these
financial statements, COVID-19 has resulted in closing borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and
customer activity, as well as general concern and uncertainty. The impact of COVID-19 may be short term or may last for an extended period of time and has resulted in a substantial economic downturn. Health crises
caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the
future, has and could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies, including certain Fund service providers and issuers of the Fund's
investments, and the market in general in significant and unforeseen ways. Any such impact could adversely affect a Fund’s performance, the performance of the securities in which a Fund invests and may lead to
losses on your investment in a Fund.
Please see the
Funds’ prospectus and statement of additional information for a complete discussion of these and other risks.
9. Fund Reorganizations
Balanced Fund:
The shareholders of
the AIG Active Allocation Fund and AIG Multi-Asset Allocation Fund, each a series of SunAmerica Series, Inc., approved an Agreement and Plan of Reorganization providing for the transfer of all assets and liabilities
of the AIG Active Allocation Fund and AIG Multi-Asset Allocation Fund to the Touchstone Balanced Fund. The tax-free reorganizations took place on July 16, 2021.
The following is a
summary of shares outstanding, net assets, net asset value per share and unrealized appreciation immediately before and after the tax-free reorganizations.
| Before Reorganization | After Reorganization | |||
| AIG Active Allocation Fund | AIG Multi-Asset Allocation Fund | Touchstone Balanced Fund | Touchstone Balanced Fund | |
| Class A | ||||
| Shares | 4,274,242(A) | 7,806,800(D) | 12,619,656 | 25,322,891 |
| Net Assets | $109,774,276 | $200,499,312 | $324,106,590 | $650,359,781 |
| Net Assets Value | $25.68(A) | $25.68(D) | $25.68 | $25.68 |
| Class B* | ||||
| Shares | 225,143(B) | 397,050(E) | — | — |
| Net Assets | $5,782,265 | $10,197,338 | $— | $— |
| Net Asset Value | $25.68(B) | $25.68(E) | $— | $— |
| Class C | ||||
| Shares | 359,911(C) | 361,997(F) | 2,574,613 | 3,296,521 |
| Net Assets | $9,266,692 | $9,320,432 | $66,289,088 | $84,876,212 |
| Net Asset Value | $25.75(C) | $25.75(F) | $25.75 | $25.75 |
| Class Y | ||||
| Shares | — | — | 7,978,792 | 7,978,792 |
| Net Assets | $— | $— | $203,060,748 | $203,060,748 |
| Net Asset Value | $— | $— | $25.45 | $25.45 |
| Fund Total | ||||
| Shares Outstanding | 4,859,296 | 8,565,847 | 23,173,061 | 36,598,204 |
| Net Assets | $124,823,233 | $220,017,082 | $593,456,426 | $938,296,741 |
| Unrealized Appreciation (Depreciation) | $7,087,346 | $11,315,621 | $206,862,646 | $225,265,613 |
| (A) | Reflects a 0.6343:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| (B) | Reflects a 0.6271:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| (C) | Reflects a 0.6288:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| (D) | Reflects a 0.6818:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| (E) | Reflects a 0.6813:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
93
Notes to Financial
Statements (Continued)
| (F) | Reflects a 0.6799:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| * | Class B shares of the AIG Active Allocation Fund and AIG Multi-Asset Allocation Fund were exchanged for Class A shares of the Touchstone Balanced Fund. |
Assuming the
reorganization had been completed on July 1, 2021, the Balanced Fund’s results of operations for the year ended June 30, 2022 would have been as follows:
| Net investment income | $6,606,731 |
| Net realized and unrealized gain(loss) on investments | $(131,576,289) |
| Net decrease in net assets resulting from operations | $(124,969,558) |
Because the combined
investment portfolios have been managed as a single portfolio since the reorganization was completed, it is not practical to separate the amounts of revenue and earnings to the Balanced Fund that have been included in
its statement of operations since the reorganization.
International Equity Fund:
The shareholders of
the AIG International Dividend Strategy Fund, a series of SunAmerica Equity Funds, approved an Agreement and Plan of Reorganization providing for the transfer of all assets and liabilities of the AIG International
Dividend Strategy Fund to the Touchstone International Equity Fund. The tax-free reorganization took place on July 16, 2021.
The following is a
summary of shares outstanding, net assets, net asset value per share and unrealized appreciation immediately before and after the tax-free reorganization.
| Before Reorganization | After Reorganization | ||
| AIG International Dividend Strategy Fund | Touchstone International Equity Fund | Touchstone International Equity Fund | |
| Class A | |||
| Shares | 2,291,115(A) | 4,643,460 | 6,934,575 |
| Net Assets | $43,002,245 | $87,153,955 | $130,156,200 |
| Net Assets Value | $18.77(A) | $18.77 | $18.77 |
| Class C | |||
| Shares | 122,778(B) | 120,180 | 242,958 |
| Net Assets | $2,140,804 | $2,095,495 | $4,236,299 |
| Net Asset Value | $17.44(B) | $17.44 | $17.44 |
| Class Y* | |||
| Shares | 53,869(C) | 1,489,950 | 1,543,819 |
| Net Assets | $998,993 | $27,630,867 | $28,629,860 |
| Net Asset Value | $18.54(C) | $18.54 | $18.54 |
| Institutional Class | |||
| Shares | — | 231,167 | 231,167 |
| Net Assets | $— | $4,280,368 | $4,280,368 |
| Net Asset Value | $— | $18.52 | $18.52 |
| Fund Total | |||
| Shares Outstanding | 2,467,762 | 6,484,757 | 8,952,519 |
| Net Assets | $46,142,042 | $121,160,685 | $167,302,727 |
| Unrealized Appreciation (Depreciation) | $5,530,353 | $22,166,220 | $27,696,573 |
| (A) | Reflects a 0.4563:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| (B) | Reflects a 0.4439:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| (C) | Reflects a 0.4629:1 stock split which occurred on the date of the reorganization, July 16, 2021. |
| * | Class W shares of the AIG International Dividend Strategy Fund were exchanged for Class Y shares of the Touchstone International Equity Fund. |
Assuming the
reorganization had been completed on July 1, 2021, the International Equity Fund’s results of operations for the year ended June 30, 2022 would have been as follows:
| Net investment income | $1,403,181 |
| Net realized and unrealized gain(loss) on investments | $(26,674,240) |
| Net decrease in net assets resulting from operations | $(25,271,059) |
94
Notes to Financial
Statements (Continued)
Because the combined
investment portfolios have been managed as a single portfolio since the reorganization was completed, it is not practical to separate the amounts of revenue and earnings to the International Equity Fund that have been
included in its statement of operations since the reorganization.
Large Cap Focused Fund:
The shareholders of
the AIG Focused Alpha Large-Cap Fund, a series of SunAmerica Specialty Series, approved an Agreement and Plan of Reorganization providing for the transfer of all assets and liabilities of the AIG Focused Alpha
Large-Cap Fund to the Touchstone Large Cap Focused Fund. The tax-free reorganization took place on July 16, 2021.
The following is a
summary of shares outstanding, net assets, net asset value per share and unrealized appreciation immediately before and after the tax-free reorganization.
| Before Reorganization | After Reorganization | ||
| AIG Focused Alpha Large-Cap Fund | Touchstone Large Cap Focused Fund | Touchstone Large Cap Focused Fund | |
| Class A | |||
| Shares | 11,569,461(A) | 26,160,413 | 37,729,874 |
| Net Assets | $681,748,263 | $1,541,543,849 | $2,223,292,112 |
| Net Assets Value | $58.93(A) | $58.93 | $58.93 |
| Class C | |||
| Shares | 446,479(B) | 755,828 | 1,202,307 |
| Net Assets | $24,084,368 | $40,771,490 | $64,855,858 |
| Net Asset Value | $53.94(B) | $53.94 | $53.94 |
| Class Y* | |||
| Shares | 681,058(C) | 9,911,830 | 10,592,888 |
| Net Assets | $40,068,287 | $583,136,903 | $623,205,190 |
| Net Asset Value | $58.83(C) | $58.83 | $58.83 |
| Institutional Class | |||
| Shares | — | 3,557,114 | 3,557,114 |
| Net Assets | $— | $209,666,312 | $209,666,312 |
| Net Asset Value | $— | $58.94 | $58.94 |
| Fund Total | |||
| Shares Outstanding | 12,696,998 | 40,385,185 | 53,082,183 |
| Net Assets | $745,900,918 | $2,375,118,554 | $3,121,019,472 |
| Unrealized Appreciation (Depreciation) | $209,596,258 | $1,195,911,973 | $1,405,508,231 |
(A) Reflects a 0.5096:1 stock split which occurred on the date of the reorganization, July 16, 2021.
(B) Reflects a 0.4983:1 stock split which occurred on the date of the reorganization, July 16, 2021.
(C) Reflects a 0.5241:1 stock split which occurred on the date of the reorganization, July 16, 2021.
* Class W shares of the AIG Focused Alpha
Large-Cap Fund were exchanged for Class Y shares of the Touchstone Large Cap Focused Fund.
Assuming the
reorganization had been completed on July 1, 2021, the Large Cap Focused Fund’s results of operations for the year ended June 30, 2022 would have been as follows:
| Net investment income | $5,386,420 |
| Net realized and unrealized gain(loss) on investments | $(412,243,408) |
| Net decrease in net assets resulting from operations | $(406,856,988) |
Because the combined
investment portfolios have been managed as a single portfolio since the reorganization was completed, it is not practical to separate the amounts of revenue and earnings to the Large Cap Focused Fund that have been
included in its statement of operations since the reorganization.
Value Fund:
The shareholders of
the AIG Strategic Value Fund, a series of SunAmerica Series, Inc., approved an Agreement and Plan of Reorganization providing for the transfer of all assets and liabilities of the AIG Strategic Value Fund to the
Touchstone Value Fund. The tax-free reorganization took place on July 16, 2021.
95
Notes to Financial
Statements (Continued)
The following is a
summary of shares outstanding, net assets, net asset value per share and unrealized appreciation immediately before and after the tax-free reorganization.
| Before Reorganization | After Reorganization | ||
| AIG Strategic Value Fund | Touchstone Value Fund | Touchstone Value Fund | |
| Class A | |||
| Shares | 16,002,448(A) | 2,901,429 | 18,903,877 |
| Net Assets | $178,897,865 | $32,436,111 | $211,333,976 |
| Net Assets Value | $11.18(A) | $11.18 | $11.18 |
| Class C | |||
| Shares | 454,230(B) | 171,151 | 625,381 |
| Net Assets | $5,060,481 | $1,906,760 | $6,967,241 |
| Net Asset Value | $11.14(B) | $11.14 | $11.14 |
| Class Y* | |||
| Shares | 493,844(C) | 8,718,150 | 9,211,994 |
| Net Assets | $5,545,569 | $97,899,575 | $103,445,144 |
| Net Asset Value | $11.23(C) | $11.23 | $11.23 |
| Institutional Class | |||
| Shares | — | 25,628,393 | 25,628,393 |
| Net Assets | $— | $286,911,947 | $286,911,947 |
| Net Asset Value | $— | $11.20 | $11.20 |
| Fund Total | |||
| Shares Outstanding | 16,950,522 | 37,419,123 | 54,369,645 |
| Net Assets | $189,503,915 | $419,154,393 | $608,658,308 |
| Unrealized Appreciation (Depreciation) | $15,906,544 | $108,838,306 | $124,744,850 |
(A)Reflects a 2.5478:1 stock split which occurred on the date of the reorganization, July 16, 2021.
(B)Reflects a 2.2942:1 stock split which occurred on the date of the reorganization, July 16, 2021.
(C)Reflects a 2.5348:1 stock split which occurred on the date of the reorganization, July 16, 2021.
* Class W shares of the AIG Strategic
Value Fund were exchanged for Class Y shares of the Touchstone Value Fund.
Assuming the
reorganization had been completed on July 1, 2021, the Value Fund’s results of operations for the year ended June 30, 2022 would have been as follows:
| Net investment income | $7,276,890 |
| Net realized and unrealized gain(loss) on investments | $(33,394,576) |
| Net decrease in net assets resulting from operations | $(26,117,686) |
Because the combined
investment portfolios have been managed as a single portfolio since the reorganization was completed, it is not practical to separate the amounts of revenue and earnings to the Value Fund that have been included in
its statement of operations since the reorganization.
10. 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.
At a meeting of the
Board held on August 18, 2022, the Advisor proposed, and the Board approved, a reverse stock split of the Small Company Fund's issued and outstanding Class C shares (the "Reverse Stock Split"). The Reverse Stock
Split was completed on October 14, 2022 (the "Effective Date"). As a result of the Reverse Stock Split, for each Class C share of the Fund that a shareholder owns as of the Effective Date, the shareholder received a
proportional number of Class C shares of the Fund with the same aggregate dollar value. Thus, the total dollar value of an investment in the Fund was unchanged and each shareholder continues to own the same percentage
(by value) of the Fund immediately following the Reverse Stock Split as the shareholder did immediately prior to the Reverse Stock Split. The Reverse Stock Split is not a taxable event, nor did it have an impact on
the Fund's holdings or its performance. The Reverse Stock Split was carried out in accordance with a stock split ratio of 1 to 0.379048 calculated to result in a net asset value per share that better aligns the share
class prices of the Fund. The shares outstanding, NAV per share and other per share information have been updated in the accompanying financial statements and the financial highlights to reflect the effect of the
reverse stock split.
There were no other
subsequent events that necessitated recognition or disclosure in the Funds’ financial statements.
96
Report of Independent Registered
Public Accounting Firm
To the Shareholders of
Touchstone Balanced Fund, Touchstone Core Municipal Bond Fund (formerly Touchstone Ohio Tax-Free Bond Fund), Touchstone International Equity Fund, Touchstone International Growth Fund, Touchstone Large Cap Focused
Fund, Touchstone Large Cap Fund, Touchstone Large Company Growth Fund, Touchstone Small Company Fund and Touchstone Value Fund and the Board of Trustees of Touchstone Strategic Trust.
Opinion on the Financial
Statements
We have audited the
accompanying statements of assets and liabilities of Touchstone Balanced Fund, Touchstone Core Municipal Bond Fund (formerly Touchstone Ohio Tax-Free Bond Fund), Touchstone International Equity Fund, Touchstone
International Growth Fund, Touchstone Large Cap Focused Fund, Touchstone Large Cap Fund, Touchstone Large Company Growth Fund, Touchstone Small Company Fund and Touchstone Value Fund (collectively referred to as the
“Funds”), (nine of the funds constituting Touchstone Strategic Trust (the “Trust”)), including the portfolios of investments, as of June 30, 2022, and the related statements of operations and
changes in net assets, and the financial highlights for each of the periods indicated in the table below and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of each of the Funds (nine of the funds constituting Touchstone Strategic Trust) at June 30, 2022, and the results of their
operations, changes in net assets and financial highlights for each of the periods indicated in the table below, in conformity with U.S. generally accepted accounting principles.
| Individual funds constituting Touchstone Strategic Trust | Statement of operations | Statements of changes in net assets | Financial highlights |
| Touchstone Balanced Fund Touchstone International Equity Fund Touchstone Large Cap Focused Fund Touchstone Small Company Fund | For the year ended June 30, 2022 | For each of the two years in the period ended June 30, 2022 | For each of the four years in the period ended June 30, 2022, the the period from December 1, 2017 through June 30, 2018 and the period from December 1, 2016 to November 30, 2017 |
| Touchstone Core Municipal Bond Fund (formerly Touchstone Ohio Tax-Free Bond Fund) Touchstone International Growth Fund Touchstone Large Cap Fund Touchstone Large Company Growth Fund Touchstone Value Fund | For the year ended June 30, 2022 | For each of the two years in the period ended June 30, 2022 | For each of the five years in the period ended June 30, 2022 |
Basis for Opinion
These financial
statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our
audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly,
we express no such opinion.
97
Report of Independent Registered
Public Accounting Firm (Continued)
Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2022, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the
auditor of one or more Touchstone Investments’ investment companies since 1999.
Cincinnati, Ohio
August 19, 2022, except as to Note 10,
as to which the date is October 26, 2022.
98
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 June 30, 2022 are designated as “qualified dividend
income,” as defined in the Act, and are subject to reduced tax rates. The Funds intend to pass through the maximum allowable percentage for Form 1099 Div.
| Balanced Fund | 89.27 % |
| International Equity Fund | 69.06 % |
| Large Cap Focused Fund | 74.26 % |
| Large Cap Fund | 100.00 % |
| Value Fund | 79.08 % |
Dividend Received Deduction
For corporate
shareholders, the following ordinary distributions paid during the fiscal year ended June 30, 2022 qualify for the corporate dividends received deduction. The Funds intend to pass through the maximum allowable
percentage.
| Balanced Fund | 87.64 % |
| Large Cap Focused Fund | 72.80 % |
| Large Cap Fund | 100.00 % |
| Value Fund | 72.23 % |
For the fiscal year
ended June 30, 2022, the Funds designated long-term capital gains as follows:
| Balanced Fund | $ 19,917,546 |
| Core Municipal Bond Fund | $ 37,471 |
| International Equity Fund | $ 10,153,319 |
| Large Cap Focused Fund | $ 188,274,619 |
| Large Cap Fund | $ 13,373,992 |
| Large Company Growth Fund | $ 53,153,985 |
| Small Company Fund | $ 116,754,602 |
| Value Fund | $ 47,319,920 |
Of the dividends paid
from net investment income during the most-recent fiscal year, 100% was designated as exempt interest dividends for federal income tax purposes for the Core Municipal Bond Fund.
Foreign Tax Income & Foreign Tax
Credit
The International
Equity Fund intends to pass through a foreign tax credit to the shareholders. For the fiscal year ended June 30, 2022, the total amount of foreign source income is $3,345,176 or $0.43 per share. The total amount of
foreign taxes to be paid is $424,779 or $0.05 per share per share. Shareholder’s allocable share of the foreign tax credit will be reported on Form 1099 Div.
Proxy Voting Guidelines and Proxy
Voting Records
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 is
available as an appendix to the most recent Statement of Additional Information, which can be obtained without charge by calling toll free 1.800.543.0407 or by visiting the Touchstone website at
TouchstoneInvestments.com or on the Securities and Exchange Commission’s (the “Commission”) website sec.gov. Information regarding how those proxies were voted during the most recent twelve-month
period ended June 30, which will be filed by August 31 of that year, is also available without charge by calling toll free 1.800.543.0407 or on the Commission’s website at sec.gov.
Quarterly Portfolio Disclosure
Each Fund’s
holdings as of the end of the third month of every fiscal quarter will be disclosed on Form N-PORT within 60 days of the end of the fiscal quarter. The complete listing of each Fund’s portfolio holdings is
available on the Commission’s website and will be made available to shareholders upon request by calling 1.800.543.0407.
99
Other Items (Unaudited) (Continued)
Schedule of Shareholder Expenses
As a shareholder of
the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) and (2) ongoing costs, including investment advisory fees; shareholder servicing fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on
an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2022 through June 30, 2022).
Actual Expenses
The first line for
each share class of a Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the
expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under
the heading entitled “Expenses Paid During the Six Months Ended June 30, 2022” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison
Purposes
The second line for
each share class of a Fund in 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.
Please note that the
expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line for each share class of a Fund in
the table below is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would
have been higher.
| Net Expense Ratio Annualized June 30, 2022 | Beginning Account Value January 1, 2022 | Ending Account Value June 30, 2022 | Expenses Paid During the Six Months Ended June 30, 2022* | ||
| Balanced Fund | |||||
| Class A | Actual | 1.04% | $1,000.00 | $829.70 | $4.72** |
| Class A | Hypothetical | 1.04% | $1,000.00 | $1,019.64 | $5.21** |
| Class C | Actual | 1.79% | $1,000.00 | $826.70 | $8.11** |
| Class C | Hypothetical | 1.79% | $1,000.00 | $1,015.92 | $8.95** |
| Class Y | Actual | 0.80% | $1,000.00 | $830.70 | $3.63** |
| Class Y | Hypothetical | 0.80% | $1,000.00 | $1,020.83 | $4.01** |
| Class R6 | Actual | 0.65% | $1,000.00 | $831.10 | $2.95** |
| Class R6 | Hypothetical | 0.65% | $1,000.00 | $1,021.57 | $3.26** |
| Core Municipal Bond Fund | |||||
| Class A | Actual | 0.80% | $1,000.00 | $911.60 | $3.79 |
| Class A | Hypothetical | 0.80% | $1,000.00 | $1,020.83 | $4.01 |
| Class C | Actual | 1.55% | $1,000.00 | $906.70 | $7.33 |
| Class C | Hypothetical | 1.55% | $1,000.00 | $1,017.11 | $7.75 |
| Class Y | Actual | 0.55% | $1,000.00 | $912.80 | $2.61 |
| Class Y | Hypothetical | 0.55% | $1,000.00 | $1,022.07 | $2.76 |
| Institutional Class | Actual | 0.48% | $1,000.00 | $913.10 | $2.28 |
| Institutional Class | Hypothetical | 0.48% | $1,000.00 | $1,022.41 | $2.41 |
| International Equity Fund | |||||
| Class A | Actual | 1.38% | $1,000.00 | $857.50 | $6.36 |
| Class A | Hypothetical | 1.38% | $1,000.00 | $1,017.95 | $6.90 |
| Class C | Actual | 1.99% | $1,000.00 | $854.70 | $9.15 |
| Class C | Hypothetical | 1.99% | $1,000.00 | $1,014.93 | $9.94 |
| Class Y | Actual | 0.99% | $1,000.00 | $859.10 | $4.56 |
100
Other Items (Unaudited) (Continued)
| Net Expense Ratio Annualized June 30, 2022 | Beginning Account Value January 1, 2022 | Ending Account Value June 30, 2022 | Expenses Paid During the Six Months Ended June 30, 2022* | ||
| Class Y | Hypothetical | 0.99% | $1,000.00 | $1,019.89 | $4.96 |
| Institutional Class | Actual | 0.89% | $1,000.00 | $860.00 | $4.10 |
| Institutional Class | Hypothetical | 0.89% | $1,000.00 | $1,020.38 | $4.46 |
| International Growth Fund | |||||
| Class A | Actual | 1.24% | $1,000.00 | $750.50 | $5.38 |
| Class A | Hypothetical | 1.24% | $1,000.00 | $1,018.65 | $6.21 |
| Class C | Actual | 1.99% | $1,000.00 | $748.50 | $8.63 |
| Class C | Hypothetical | 1.99% | $1,000.00 | $1,014.93 | $9.94 |
| Class Y | Actual | 0.99% | $1,000.00 | $751.90 | $4.30 |
| Class Y | Hypothetical | 0.99% | $1,000.00 | $1,019.89 | $4.96 |
| Institutional Class | Actual | 0.89% | $1,000.00 | $752.40 | $3.87 |
| Institutional Class | Hypothetical | 0.89% | $1,000.00 | $1,020.38 | $4.46 |
| Large Cap Focused Fund | |||||
| Class A | Actual | 0.98% | $1,000.00 | $803.40 | $4.38*** |
| Class A | Hypothetical | 0.98% | $1,000.00 | $1,019.93 | $4.91*** |
| Class C | Actual | 1.79% | $1,000.00 | $800.10 | $7.99*** |
| Class C | Hypothetical | 1.79% | $1,000.00 | $1,015.92 | $8.95*** |
| Class Y | Actual | 0.72% | $1,000.00 | $804.40 | $3.22*** |
| Class Y | Hypothetical | 0.72% | $1,000.00 | $1,021.22 | $3.61*** |
| Institutional Class | Actual | 0.69% | $1,000.00 | $804.60 | $3.09*** |
| Institutional Class | Hypothetical | 0.69% | $1,000.00 | $1,021.37 | $3.46*** |
| Class R6 | Actual | 0.65% | $1,000.00 | $804.70 | $2.91*** |
| Class R6 | Hypothetical | 0.65% | $1,000.00 | $1,021.57 | $3.26*** |
| Large Cap Fund | |||||
| Class A | Actual | 1.05% | $1,000.00 | $806.20 | $4.70**** |
| Class A | Hypothetical | 1.05% | $1,000.00 | $1,019.59 | $5.26**** |
| Class C | Actual | 1.80% | $1,000.00 | $803.30 | $8.05**** |
| Class C | Hypothetical | 1.80% | $1,000.00 | $1,015.87 | $9.00**** |
| Class Y | Actual | 0.80% | $1,000.00 | $807.70 | $3.59**** |
| Class Y | Hypothetical | 0.80% | $1,000.00 | $1,020.83 | $4.01**** |
| Institutional Class | Actual | 0.70% | $1,000.00 | $808.00 | $3.14**** |
| Institutional Class | Hypothetical | 0.70% | $1,000.00 | $1,021.32 | $3.51**** |
| Large Company Growth Fund | |||||
| Class A | Actual | 1.08% | $1,000.00 | $736.80 | $4.65***** |
| Class A | Hypothetical | 1.08% | $1,000.00 | $1,019.44 | $5.41***** |
| Class C | Actual | 1.84% | $1,000.00 | $733.90 | $7.91***** |
| Class C | Hypothetical | 1.84% | $1,000.00 | $1,015.67 | $9.20***** |
| Class Y | Actual | 0.84% | $1,000.00 | $737.60 | $3.62***** |
| Class Y | Hypothetical | 0.84% | $1,000.00 | $1,020.63 | $4.21***** |
| Institutional Class | Actual | 0.73% | $1,000.00 | $737.90 | $3.15***** |
| Institutional Class | Hypothetical | 0.73% | $1,000.00 | $1,021.17 | $3.66***** |
| Small Company Fund | |||||
| Class A | Actual | 1.18% | $1,000.00 | $786.20 | $5.23****** |
| Class A | Hypothetical | 1.18% | $1,000.00 | $1,018.94 | $5.91****** |
| Class C | Actual | 1.97% | $1,000.00 | $781.80 | $8.70****** |
| Class C | Hypothetical | 1.97% | $1,000.00 | $1,015.03 | $9.84****** |
| Class Y | Actual | 0.90% | $1,000.00 | $785.80 | $3.99****** |
| Class Y | Hypothetical | 0.90% | $1,000.00 | $1,020.33 | $4.51****** |
| Institutional Class | Actual | 0.80% | $1,000.00 | $785.80 | $3.54****** |
| Institutional Class | Hypothetical | 0.80% | $1,000.00 | $1,020.83 | $4.01****** |
| Class R6 | Actual | 0.80% | $1,000.00 | $787.10 | $3.54****** |
| Class R6 | Hypothetical | 0.80% | $1,000.00 | $1,020.83 | $4.01****** |
| Value Fund | |||||
| Class A | Actual | 1.08% | $1,000.00 | $897.50 | $5.08 |
| Class A | Hypothetical | 1.08% | $1,000.00 | $1,019.44 | $5.41 |
| Class C | Actual | 1.83% | $1,000.00 | $893.90 | $8.59 |
| Class C | Hypothetical | 1.83% | $1,000.00 | $1,015.72 | $9.15 |
| Class Y | Actual | 0.83% | $1,000.00 | $899.00 | $3.91 |
| Class Y | Hypothetical | 0.83% | $1,000.00 | $1,020.68 | $4.16 |
101
Other Items (Unaudited) (Continued)
| Net Expense Ratio Annualized June 30, 2022 | Beginning Account Value January 1, 2022 | Ending Account Value June 30, 2022 | Expenses Paid During the Six Months Ended June 30, 2022* | ||
| Institutional Class | Actual | 0.68% | $1,000.00 | $898.60 | $3.20 |
| Institutional Class | Hypothetical | 0.68% | $1,000.00 | $1,021.42 | $3.41 |
| Class R6 | Actual | 0.63% | $1,000.00 | $898.70 | $2.97 |
| Class R6 | Hypothetical | 0.63% | $1,000.00 | $1,021.67 | $3.16 |
| * | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect one-half year period). |
| ** | Excluding liquidity provider expenses, your actual cost of investment in Class A, Class C, Class Y and Class R6 would be $4.67, $8.06, $3.59 and $2.91, respectively, and your hypothetical cost of investment in Class A, Class C, Class Y and Class R6 would be $5.16, $8.90, $3.96 and $3.21, respectively. |
| *** | Excluding liquidity provider expenses, your actual cost of investment in Class A, Class C, Class Y, Institutional Class and Class R6 would be $4.34, $7.94, $3.18, $3.04 and $2.86, respectively, and your hypothetical cost of investment in Class A, Class C, Class Y, Institutional Class and Class R6 would be $4.86, $8.90, $3.56, $3.41 and $3.21, respectively. |
| **** | Excluding liquidity provider expenses, your actual cost of investment in Class A, Class C, Class Y and Institutional Class would be $4.61, $7.96, $3.50 and $3.05, respectively, and your hypothetical cost of investment in Class A, Class C, Class Y and Institutional Class would be $5.16, $8.90, $3.91 and $3.41, respectively. |
| ***** | Excluding liquidity provider expenses, your actual cost of investment in Class A, Class C, Class Y and Institutional Class would be $4.48, $7.74, $3.45 and $2.97, respectively, and your hypothetical cost of investment in Class A, Class C, Class Y and Institutional Class would be $5.21, $9.00, $4.01 and $3.46, respectively. |
| ****** | Excluding liquidity provider expenses, your actual cost of investment in Class A, Class C, Class Y, Institutional Class and Class R6 would be $5.18, $8.66, $3.94, $3.50 and $3.50, respectively, and your hypothetical cost of investment in Class A, Class C, Class Y, Institutional Class and Class R6 would be $5.86, $9.79, $4.46, $3.96 and $3.96, respectively. |
Liquidity Risk Management
The Funds have adopted
and implemented a written liquidity risk management program (the “LRM Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each Fund adopt a program that
is reasonably designed to assess and manage the Funds’ liquidity risk, which is the risk that a Fund could not meet redemption requests without significant dilution of remaining investors’ interests in a
Fund.
Assessment and
management of a Fund’s liquidity risk under the LRM Program takes into consideration certain factors, such as a Fund’s investment strategy and the liquidity of its portfolio investments during normal and
reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to
other funding sources. As required by the rule, the LRM Program includes policies and procedures for classification of Fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid
investments, and limiting holdings of illiquid investments.
The Board of Trustees
of the Trust approved the appointment of a LRM Program administrator responsible for administering the LRM Program and for carrying out the specific responsibilities set forth in the LRM Program, including reporting
to the Board on at least an annual basis regarding the LRM Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The
Board has reviewed the Program Administrator Report covering the period from May 15, 2021 through May 12, 2022 (the “Review Period”). The Program Administrator Report stated that during the Review Period
the LRM Program operated adequately and effectively in promoting effective liquidity risk management for the Funds.
102
Management of the Trust (Unaudited)
Listed below is
required 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 or by visiting the Touchstone website at TouchstoneInvestments.com.
| Interested Trustees1: | |||||
| Name Address Year of Birth | Position Held with Trust | Term of Office And Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Funds Overseen in the Touchstone Fund Complex2 | Other Directorships Held During Past 5 Years3 |
| Jill T. McGruder Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1955 | Trustee | Until retirement at age 75 or until she resigns or is removed Trustee since 1999 | President of Touchstone Funds from 1999 to 2020; Director and CEO of IFS Financial Services, Inc. (a holding company) since 1999; and Senior Vice President and Chief Marketing Officer of Western & Southern Financial Group, Inc. (a financial services company) since 2016. | 36 | Director, Integrity Life Insurance Co. and National Integrity Life Insurance Co. since 2005; Director, Touchstone Securities (the Distributor) since 1999; Director, Touchstone Advisors (the Advisor) since 1999; Director, W&S Brokerage Services, Inc. since 1999; Director, W&S Financial Group Distributors, Inc. since 1999; Director, Insurance Profillment Solutions LLC since 2014; Director, Columbus Life Insurance Co. since 2016; Director, The Lafayette Life Insurance Co. since 2016; Director, Gerber Life Insurance Company since 2019; Director, Western & Southern Agency, Inc. since 2018; and Director, LL Global, Inc. (not-for-profit trade organization with operating divisions LIMRA and LOMA) since 2016. |
| E. Blake Moore, Jr. Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1958 | President and Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 2021 | President, Touchstone Funds since 2021; Chief Executive Officer of Touchstone Advisors, Inc. and Touchstone Securities, Inc. since 2020; President, Foresters Investment Management Company, Inc. from 2018 to 2020; President, North American Asset Management at Foresters Financial from 2018 to 2020; Managing Director, Head of Americas at UBS Asset Management from 2015 to 2017; and Executive Vice President, Head of Distribution at Mackenzie Investments from 2011 to 2014. | 36 | Trustee, College of Wooster since 2008; and Director, UBS Funds from 2015 to 2017. |
| Independent Trustees: | |||||
| Karen Carnahan c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1954 | Trustee | Until retirement at age 75 or until she resigns or is removed Trustee since 2019 | Retired; formerly Chief Operating Officer of Shred-it (a business services company) from 2014 to 2015; formerly President & Chief Operating Officer of the document management division of Cintas Corporation (a business services company) from 2008 to 2014. | 36 | Director, Cintas Corporation since 2019; Director, Boys & Girls Club of West Chester/Liberty since 2016; and Board of Advisors, Best Upon Request from 2020 to 2021. |
| William C. Gale c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1952 | Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 2013 | Retired; formerly Senior Vice President and Chief Financial Officer of Cintas Corporation (a business services company) from 1995 to 2015. | 36 | None. |
103
Management of the Trust (Unaudited) (Continued)
| Independent Trustees (Continued): | |||||
| Name Address Year of Birth | Position Held with Trust | Term of Office And Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Funds Overseen in the Touchstone Fund Complex2 | Other Directorships Held During Past 5 Years3 |
| Susan J. Hickenlooper, CFA4 c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1946 | Trustee | Until retirement at age 75 or until she resigns or is removed Trustee since 2009 | Retired from investment management. | 36 | Trustee, Episcopal Diocese of Southern Ohio from 2014 to 2018. |
| Susan M. King c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1963 | Trustee | Until retirement at age 75 or until she resigns or is removed Trustee since 2021 | Formerly, Partner of ID Fund LLC (2020 to 2021); formerly, Senior Vice President, Head of Product and Marketing Strategy of Foresters Financial (2018 to 2020); formerly, Managing Director, Head of Sales Strategy and Marketing, Americas of UBS Asset Management (2015 to 2017); formerly, Director, Allianz Funds, Allianz Funds Multi-Strategy Trust and AllianzGI Institutional Multi-Series Trust (2014 to 2015); and formerly, Director, Alliance Capital Cash Management Offshore Funds (2003 to 2005). | 36 | Trustee, Claremont McKenna College since 2017; Trustee, Israel Cancer Research Fund since 2019; and Board Member of WHAM! (Women's Health Access Matters) since 2021. |
| Kevin A. Robie c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1956 | Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 2013 | Retired; formerly Vice President of Portfolio Management at Soin LLC (private multinational holding company and family office) from 2004 to 2020. | 36 | Director, SaverSystems, Inc. since 2015; Director, Buckeye EcoCare, Inc. from 2013 to 2018; Director, Turner Property Services Group, Inc. since 2017; Trustee, Dayton Region New Market Fund, LLC (private fund) since 2010; and Trustee, Entrepreneurs Center, Inc. (business incubator) since 2006. |
| William H. Zimmer III c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1953 | Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 2019 | Independent Treasury Consultant since 2014. | 36 | Director, Deaconess Associations, Inc. (healthcare) since 2001; Trustee, Huntington Funds (mutual funds) from 2006 to 2015; and Director, National Association of Corporate Treasurers from 2011 to 2015. |
1 Ms. McGruder, as a director of the Advisor and the Distributor, and an officer of affiliates of the Advisor and the Distributor, is an “interested person” of the
Trust within the meaning of Section 2(a)(19) of the 1940 Act. Mr. Moore, as an officer of the Advisor and the Distributor, is an “interested person” of the Trust within the meaning of Section 2(a)(19) of
the 1940 Act.
2 As of June 30, 2022, the Touchstone Fund Complex consisted of 19 series of the Trust, 13 series of Touchstone Funds Group Trust and 4 variable annuity series of Touchstone
Variable Series Trust.
3 Each Trustee is also a Trustee of Touchstone ETF Trust, Touchstone Funds Group Trust and Touchstone Variable Series Trust.
4 Upon the recommendation of the Governance Committee, the Board extended the mandatory retirement age for Ms. Hickenlooper for a one-year period to allow her to remain a
Trustee of the Trust through December 31, 2022.
104
Management of the Trust (Unaudited) (Continued)
| Principal Officers: | |||
| Name Address Year of Birth | Position(s) Held with Trust1 | Term of Office And Length of Time Served | Principal Occupation(s) During Past 5 Years |
| E. Blake Moore, Jr. Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1958 | President and Trustee | Until resignation, removal or disqualification President since January 2021 | See biography above. |
| Timothy D. Paulin Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1963 | Vice President | Until resignation, removal or disqualification Vice President since 2010 | Senior Vice President of Investment Research and Product Management of Touchstone Advisors, Inc. |
| Timothy S. Stearns Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1963 | Chief Compliance Officer | Until resignation, removal or disqualification Chief Compliance Officer since 2013 | Chief Compliance Officer of Touchstone Advisors, Inc. and Touchstone Securities, Inc. |
| Terrie A. Wiedenheft Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1962 | Controller and Treasurer | Until resignation, removal or disqualification Controller and Treasurer since 2006 | Senior Vice President and Chief Administration Officer within the Office of the Chief Marketing Officer of Western & Southern Financial Group (since 2021); and Senior Vice President, Chief Financial Officer, and Chief Operations Officer of IFS Financial Services, Inc. (a holding company). |
| Meredyth A. Whitford-Schultz Western & Southern Financial Group 400 Broadway Cincinnati, Ohio 45202 Year of Birth: 1981 | Secretary | Until resignation, removal or disqualification Secretary since 2018 | Senior Counsel - Securities/Mutual Funds of Western & Southern Financial Group (2015 to present); Associate at Morgan Lewis & Bockius LLP (law firm) (2014 to 2015); Associate at Bingham McCutchen LLP (law firm) (2008 to 2014). |
(1) Each officer also holds the same office with Touchstone ETF Trust, Touchstone Funds Group Trust and Touchstone Variable Series Trust.
105
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
• We collect
only the information we need to service your account and administer our business.
• We are committed to keeping your information confidential and we place strict limits and controls on the use and sharing of your information.
• We make
every effort to ensure the accuracy of your information.
We Collect the Following Nonpublic
Personal Information About You:
• 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
• 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
• We restrict access to nonpublic personal information about you to authorized employees who need the information to administer your business.
• We maintain physical, electronic and procedural safeguards that comply with federal standards to protect this information.
• 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.
• 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 Strategic Trust, Touchstone Variable Series Trust, Touchstone Securities, Inc.,* and W&S Brokerage Services, Inc.
*Touchstone Securities,
Inc. serves as the underwriter to the Touchstone Funds.
A Member of Western &
Southern Financial Group®
The Privacy Protection
Policy is not part of the Annual Report.
107
Touchstone Investments
Distributor
Touchstone Securities, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203
800.638.8194
www.touchstoneinvestments.com
303 Broadway
Cincinnati, Ohio 45202-4203
800.638.8194
www.touchstoneinvestments.com
Investment Advisor
Touchstone Advisors, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203
303 Broadway
Cincinnati, Ohio 45202-4203
Transfer Agent
BNY Mellon Investment Servicing (US)
Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
4400 Computer Drive
Westborough, Massachusetts 01581
Shareholder Service
800.543.0407
* A Member of Western &
Southern Financial Group
TSF-54BB-TST-AR-2206
| (b) | Not applicable. |
Item 2. Code of Ethics.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
| (d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this Item’s instructions. |
| (e) | Not applicable. |
| (f) | A copy of the code of ethics is attached hereto as Exhibit 13(a)(1). |
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. Ms. Karen Carnahan 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.
Audit Fees
| (a) | Audit fees for Touchstone Strategic Trust (June Funds) totaled $171,300 and $171,300 for the fiscal years ended June 30, 2022 and June 30, 2021, respectively including fees associated with the annual audits and filings of Form N-1A and Form N-CEN. |
Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $17,200 and $10,000 for the fiscal years ended June 30, 2022 and June 30, 2021, respectively. The fees for the June 30, 2022 and June 30, 2021 fiscal years relate to the review of Form N-14 and N-1A filings.
Tax Fees
| (c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $69,430 and $49,570 for the fiscal years ended June 30, 2022 and June 30, 2021, respectively. The fees relate to the preparation of federal income and excise tax returns, review of capital gains distribution calculations and tax agent services. |
All Other Fees
| (d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $18,512 and $26,999 for the fiscal years ended June 30, 2022 and June 30, 2021, respectively. The fees relate to the PFIC Analyzer and Global Withholding Tax Reporter subscriptions. |
| (e)(1) | Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
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-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) | The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent. |
| (g) | The aggregate non-audit fees for Touchstone Strategic Trust (June Funds) and certain entities*, totaled approximately $551,319 and $499,534 for the fiscal years ended June 30, 2022 and June 30, 2021, respectively. |
* These include the advisors (excluding sub-advisors) and any entity controlling, controlled by or under common control with the advisors that provides ongoing services to the registrant (Funds).
| (h) | The registrant's audit committee of the Board of Trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. |
| (i) | Not applicable. |
| (j) | Not applicable. |
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1(a) of this form. |
| (b) | Not applicable. |
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.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (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 (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
| (a)(1) | Code of ethics, and any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (a)(3) | Not applicable. |
| (a)(4) | Not applicable. |
| (b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | Touchstone Strategic Trust |
| By (Signature and Title)* | /s/ E. Blake Moore, Jr. | |
| E. Blake Moore, Jr., President | ||
| (principal executive officer) |
| Date | October 26, 2022 |
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/ E. Blake Moore, Jr. | |
| E. Blake Moore, Jr., President | ||
| (principal executive officer) |
| Date | October 26, 2022 |
| By (Signature and Title)* | /s/ Terrie A. Wiedenheft | |
| Terrie A. Wiedenheft, Controller and Treasurer | ||
| (principal financial officer) |
| Date | October 26, 2022 |
* Print the name and title of each signing officer under his or her signature.