LETTER FROM THE PRESIDENT
Dear Fellow Touchstone Contract Owner:
Thank you for owning a Touchstone variable annuity. We are pleased to provide
you with this update of the investment activity and performance of the
Touchstone Variable Series Trust for the year ended December 31, 1999.
LOOKING BACK
Shrugging off three interest rate increases implemented by the Federal Reserve
Board, all major U.S. equity markets indices finished 1999 in record territory.
However, drilling down into the indices reveals widely mixed results. Among
large companies, robust advances in a relatively narrow band of
technology-related sectors overwhelmed middling returns elsewhere. Mid cap and
small cap issues led by technology shares rebounded strongly from the previous
year. The leading international equity market index, the MSCI EAFE Index,
performed better than the S&P 500 Index for the first time in five years. Fixed
income markets meanwhile experienced flat or falling returns. The U.S. fixed
income market, in particular, endured one of the worst years in its history.
Movements in the various financial markets came against an extremely positive
domestic backdrop of continued high employment, modest inflation, fiscal and
monetary restraint and enhanced productivity boosted by advancing technology. As
the current economic expansion neared record length, real economic growth
remained strong and corporate earnings gains impressive.
THE VALUE OF DIVERSIFICATION
Performance disparities among asset classes, industry sectors and types of
stocks are hardly new. Nonetheless, they seldom have been as pronounced as in
recent years. Stocks have outperformed bonds dramatically. Technology stocks
have outdistanced the rest of the market - even those of new companies with
uncertain prospects and no earnings. Large stocks have outperformed small stocks
and growth stocks have outperformed value stocks over the past several years.
Despite this recent experience, historical trends show that performance of
investment sectors and styles runs in cycles. Traditionally, diversification
among asset classes possessing complementary returns has been shown to reduce a
portfolio's overall volatility. If market returns eventually revert to their
mean, as efficient market theory implies they will, then asset classes and
styles that have lagged may be poised to rebound. Now may be an opportune time
to review your asset allocation mix in light of the benefits of diversification.
As you pursue your wealth-building goals in today's investment world,
professional advice is more important than ever. The registered representative
who assisted you in the purchase of your Touchstone variable annuity can help
you assess your situation and options.
LOOKING AHEAD
Consumer confidence is high entering the new year as the U.S. economy continues
to demonstrate vigor. The impact of influences such as widely anticipated
interest rate hikes, rising energy prices and a widening U.S. trade deficit
remains to be determined in the months ahead. Other factors at work will include
a presidential election campaign domestically and generally improving economic
conditions abroad.
Regardless of what the future holds, companies that can perform on their own
merits will most likely be the ones offering the best opportunities. As they
assess the forces that drive the financial markets, our managers will remain
steadfastly focused on identifying the opportunities and the companies capable
of succeeding in any economic environment. Their overriding goal, as well as
ours, is to deliver superior long-term performance across all of our investment
options.
<PAGE>
2
Thank you again for the opportunity to work on your behalf. We appreciate your
continued confidence in Touchstone and, as always, pledge every effort to
continue to merit your trust.
Sincerely,
/s/ Jill T. McGruder
Jill T. McGruder
President and Chief Executive Officer
Touchstone Family of Funds and Variable Annuities
P.S. Please check out our new look and enhanced presence on the web at
www.touchstonefunds.com. We value your comments.
- ------------------------
Touchstone Variable Annuities are underwritten by Western-Southern Life
Assurance Company, Cincinnati, Ohio, and distributed by Touchstone Securities,
Inc.* For a prospectus containing more information, including all fees and
expenses, call 800.669.2796. Please read the prospectus carefully before
investing or sending money.
*Member NASD/SIPC
<PAGE>
3
TOUCHSTONE SMALL CAP VALUE FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Small Cap Value Fund
Since inception on May 1, 1999, the Touchstone Small Cap Value Fund has
outperformed its benchmark index, the small cap-oriented Russell 2000. Through
December 31, 1999, the Fund increased 17.9% while the Russell 2000 increased
17.4%.
Making the greatest positive impact on the Fund's performance was portfolio
holdings in the market-leading technology sector, where many stocks became
bargain-priced in the dramatic decline of 1998 and early 1999. According to Todd
Investment Advisors, the manager of the Touchstone Small Cap Value Fund, the
technology sector's overweighted position within the portfolio reflects both the
growing role that technology plays in the economy and the attractive values in
the group. Strong performance by health care and energy stocks also contributed
to the Fund's gains.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 N/A
Since Inception 05/01/99 N/A
Cumulative Total Return
Since Inception 05/01/99 17.9%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Touchstone Small Cap Russell 2000 Russell 2000 Wilshire Small Cap Value
Value Fund (Major Index) Value (Minor Index) (Minor Index 2)
5/99 10000 10000 10000 10000
6/99 10710 10605 10680 10456
9/99 10090 9934 9844 9494
12/99 11790 11735 9995 9650
</TABLE>
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
4
TOUCHSTONE SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 99.1%
AIRLINES - 1.6%
17,000 Frontier Airlines* $ 193,375
- -------------------------------------------------------
APPAREL RETAILERS - 7.2%
13,400 bebe stores* 355,100
32,000 Children's Place Retail
Stores (The)* 511,991
- -------------------------------------------------------
867,091
- -------------------------------------------------------
BANKING - 0.9%
3,500 Eldorado Bancshares* 37,625
1,600 Greater Bay Bancorp 68,200
- -------------------------------------------------------
105,825
- -------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 4.6%
10,000 Hain Food Group (The)* 223,750
32,000 Topps Company (The)* 330,000
- -------------------------------------------------------
553,750
- -------------------------------------------------------
BUILDING MATERIALS - 1.0%
3,000 Centex Construction Products 117,000
- -------------------------------------------------------
COMMERCIAL SERVICES - 6.6%
4,600 Advance Paradigm* 99,188
2,900 ICT Group* 35,525
10,200 StarTek* 369,750
10,000 Workflow Management* 286,250
- -------------------------------------------------------
790,713
- -------------------------------------------------------
COMMUNICATIONS - 13.6%
13,500 Comtech Telecommunications* 199,125
26,000 Corsair Communications* 211,250
10,600 Gilat Communications* 255,063
20,000 InterVoice* 465,000
7,900 PairGain Technologies* 111,588
8,500 Performance Technologies* 147,688
22,000 Premiere Technologies* 154,000
3,200 Tollgrade Communications* 110,400
- -------------------------------------------------------
1,654,114
- -------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 11.5%
27,000 Applix* 487,688
6,000 CIBER* 165,000
2,700 CSG Systems International* 107,663
9,500 InfoCure* 296,281
19,200 Take-Two Interactive Software* 248,400
3,900 THQ* 90,431
- -------------------------------------------------------
1,395,463
- -------------------------------------------------------
COMPUTERS & INFORMATION - 8.5%
3,000 Cybex Computer Products* 122,250
6,600 Datalink* 127,050
30,000 Dot Hill Systems* 148,125
5,350 Equinox Systems* 48,150
3,700 Miami Computer Supply* 136,900
4,000 Percon* 59,000
4,600 ScanSource* 186,588
13,000 Troy Group* 195,000
- -------------------------------------------------------
1,023,063
- -------------------------------------------------------
Value
Shares (Note 1)
ELECTRONICS - 5.2%
5,500 Actel* $ 132,000
5,000 American Xtal Technology* 87,188
6,500 Catapult Communications* 64,594
7,500 Genesis Microchip* 158,438
9,000 Hauppauge Digital* 181,688
- -------------------------------------------------------
623,908
- -------------------------------------------------------
ENTERTAINMENT & LEISURE - 0.6%
6,000 Equity Marketing* 77,250
- -------------------------------------------------------
FINANCIAL SERVICES - 3.7%
6,500 Actrade International* 97,094
5,000 Knight/Trimark Group, Class A* 229,688
4,300 Waddell & Reed Financial, Class A 116,638
- -------------------------------------------------------
443,420
- -------------------------------------------------------
HEAVY MACHINERY - 0.9%
4,000 Woodward Governor 109,500
- -------------------------------------------------------
INDUSTRIAL - DIVERSIFIED - 1.9%
5,000 Zomax* 225,938
- -------------------------------------------------------
INSURANCE - 1.2%
27,000 GAINSCO 145,125
- -------------------------------------------------------
MEDICAL SUPPLIES - 8.6%
10,000 Excel Technology* 179,375
10,800 II-VI* 217,350
30,000 LaserSight* 300,000
15,000 PolyMedica* 346,875
- -------------------------------------------------------
1,043,600
- -------------------------------------------------------
METALS - 1.4%
8,000 Mobile Mini 169,000
- -------------------------------------------------------
OIL & GAS - 8.3%
9,000 Marine Drilling Companies* 201,938
12,100 Pride International* 176,963
15,000 Swift Energy* 172,500
8,400 Tidewater 302,400
5,000 WICOR 145,938
- -------------------------------------------------------
999,739
- -------------------------------------------------------
PHARMACEUTICALS - 5.6%
12,500 Guilford Pharmaceuticals* 212,500
3,750 Jones Pharma 162,891
4,300 Protein Design Labs* 301,000
- -------------------------------------------------------
676,391
- -------------------------------------------------------
RETAILERS - 4.1%
11,500 Electronics Boutique Holdings* 207,000
7,000 Funco* 78,313
6,000 PC Connection* 207,000
- -------------------------------------------------------
492,313
- -------------------------------------------------------
TELEPHONE SYSTEMS - 2.1%
7,700 Hector Communications* 107,800
10,000 Hickory Tech 148,125
- -------------------------------------------------------
255,925
- -------------------------------------------------------
TOTAL COMMON STOCKS
(COST $10,159,387) $11,962,503
- -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
5
TOUCHSTONE SMALL CAP VALUE FUND
Schedule of Investments continued
Value
(Note 1)
TOTAL INVESTMENTS AT VALUE - 99.1%
(COST $10,159,387) (A) $11,962,503
CASH AND OTHER ASSETS
NET OF LIABILITIES - 0.9% 107,426
- -------------------------------------------------------
NET ASSETS - 100.0% $12,069,929
- -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$10,159,387 resulting in gross unrealized appreciation and depreciation of
$2,492,369 and $689,253, respectively, and net unrealized appreciation of
$1,803,116.
The accompanying notes are an integral part of the financial statements.
<PAGE>
6
TOUCHSTONE EMERGING GROWTH FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Emerging Growth Fund
During the annual period ended December 31, 1999, several factors affected the
Touchstone Emerging Growth Fund. After experiencing a difficult period during
the third quarter of 1999, the equity markets surged in the fourth quarter to
finish the year very strongly. In fact, small cap stocks led the surge,
increasing their value by 18% (as measured by the Russell 2000 Index) during the
fourth quarter, eclipsing the performance of large cap stocks (as measured by
the S&P 500 Index) which were up 15%. Indeed, 1999 marked the first full
calendar year that the Russell 2000 outperformed the S&P 500 since 1993, albeit
by a very narrow margin (21.3% for the Russell 2000 versus 21.0% for the S&P
500). The Touchstone Emerging Growth Fund, with a return of 48.8%, exceeded the
Russell 2000, which was its benchmark.
As the growth-style manager of the Touchstone Emerging Growth Fund, Westfield
Capital Management found that good stock selection and an overweight position in
technology, telecommunications, and select health care stocks drove perform ance
in 1999. The growth-style portion of the portfolio was underweight in the
consumer and financial sectors as many companies in those sectors did not meet
the Westfield's minimum earnings growth criteria.
Though the strict valuation discipline eliminated the traditional internet and
dot.com companies, the portfolio invested heavily in internet infrastructure
stocks. Westfield views business-to-business e-commerce as an attractive sector
with outstanding growth prospects. Traditional businesses are developing
e-business models and Westfield invested in chip, software, telecommunications,
and wireless stocks to take advantage of this major shift. In health care,
Westfield focused on a select group of outstanding companies in medical devices,
biotechnology and genomics.
The value-style manager of the Fund, David L. Babson & Company, reported that
1999 was a very difficult year for those small cap managers with a value
discipline. For all of 1999, the Russell 2000 Growth Index was up 43%, while the
Russell 2000 Value Index was down nearly 2% -- the widest differential in
performance ever.
The value portion of the Touchstone Emerging Growth Fund was hurt by increased
weightings in the Materials & Processing and Financial Services sectors -- two
of the worst performing sectors in the Russell 2000 -- due to investors'
concerns of rising interest rates.
Nevertheless, the Fund did benefit from several investments that delivered
strong performance during the year. CommScope, the global leader in manufac tur
ing coaxial cable, saw its stock increase 150% during 1999, and nearly four-fold
from the original investment a couple of years ago. The company is benefiting
from increased spending by AT&T and other cable companies to upgrade their cable
services. Nabors Industries, the leading operator of oil rigs in North America,
saw its stock increase 129% during the year due to increased drilling activity
by its customers seeking to capitalize on the recent improvements in oil prices.
Finally, Scitex, a leading maker of printing equipment, saw its stock increase
43% during the second half of 1999 (+24% for the full year), as the gradual
global economic recovery is encouraging the company's overseas customers to
begin ordering new equipment again.
<PAGE>
7
TOUCHSTONE EMERGING GROWTH FUND
While 1999 was a challenging year for the value side of the small cap market,
the Touchstone Emerging Growth Fund delivered superior results, demonstrating
once again the benefits of having both a value and growth discipline in one
fund. Babson and Westfield look forward to continuing to deliver strong
performance.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 48.8%
Five Years Ended 12/31/99 21.9%
Since Inception 11/21/94 21.6%
Cumlative Total Return
Since Inception 11/21/94 172.0%
Touchstone Emerging Russell 2000 Wiesenberger Small Cap
Growth Fund (Major Index) (Minor Index)
11/94 10000 10000 10000
12/94 10100 10268 10249
3/95 10330 10741 10850
6/95 10980 11748 12077
9/95 11950 12908 13655
12/95 12077 13187 13492
3/96 12677 13860 14229
6/96 13266 14554 15207
9/96 13011 14603 15499
12/96 13425 15363 15741
3/97 13051 14568 14553
6/97 15482 16930 16872
9/97 17947 19449 19435
12/97 17945 18798 18365
3/98 19634 20689 20406
6/98 18970 19724 19796
9/98 15288 15750 15639
12/98 18533 18319 18622
3/99 17929 17325 17782
6/99 21362 20019 20423
9/99 21350 18754 19772
12/99 27198 22153 24704
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
8
TOUCHSTONE EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 97.0%
AUTOMOTIVE - 0.6%
24,500 Exide $ 203,656
- -------------------------------------------------------
BANKING - 1.3%
14,900 Dime Bancorp 225,363
15,300 Golden State Bancorp* 263,925
- -------------------------------------------------------
489,288
- -------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 1.5%
41,300 DiMon 134,225
13,000 Ralcorp Holdings* 259,188
27,800 Vlasic Foods International* 158,113
- -------------------------------------------------------
551,526
- -------------------------------------------------------
BUILDING MATERIALS - 1.5%
28,500 Dal-Tile International* 288,563
6,500 Martin Marietta Materials 266,500
- -------------------------------------------------------
555,063
- -------------------------------------------------------
COMMERCIAL SERVICES - 17.8%
25,300 Administaff* 765,325
27,000 Applied Analytical Industries* 246,375
10,700 A.C. Nielson* 263,488
15,000 Career Education* 575,625
9,000 CDI* 217,125
16,000 DeVry* 298,000
21,000 Diamond Technology Partners* 1,804,688
12,300 Forrester Research* 847,163
6,400 PerkinElmer 266,800
23,300 Safety-Kleen* 263,581
31,300 Stericycle* 588,831
19,500 Unova* 253,500
13,400 Wallace Computer Services 222,775
- -------------------------------------------------------
6,613,276
- -------------------------------------------------------
COMMUNICATIONS - 13.5%
31,100 Advanced Fibre Communications* 1,389,781
21,700 AudioCodes* 1,996,390
5,400 Ditech Communications* 504,900
19,000 Powerwave Technologies* 1,109,125
- -------------------------------------------------------
5,000,196
- -------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 12.3%
26,700 CBT Group, ADR* 894,450
28,000 Mail.com* 525,000
33,900 Natural MicroSystems* 1,586,944
26,000 Perot Systems, Class A* 494,000
10,600 Policy Management System* 270,963
21,000 Scientific Learning* 766,500
- -------------------------------------------------------
4,537,857
- -------------------------------------------------------
COMPUTERS & INFORMATION - 1.3%
13,000 Gerber Scientific 285,188
12,400 Scitex* 180,575
- -------------------------------------------------------
465,763
- -------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.0%
23,900 Magnetek* 183,731
10,000 Ucar International* 178,125
- -------------------------------------------------------
361,856
- -------------------------------------------------------
ELECTRONICS - 0.9%
8,500 Dionex* 350,094
- -------------------------------------------------------
Value
Shares (Note 1)
ENTERTAINMENT & LEISURE - 2.5%
17,000 Cinar, Class B* $ 416,500
13,500 SFX Entertainment, Class A* 488,531
- -------------------------------------------------------
905,031
- -------------------------------------------------------
FINANCIAL SERVICES - 1.2%
25,400 First Sierra Financial* 434,975
- -------------------------------------------------------
FOOD RETAILERS - 0.6%
15,100 Pantry (The)* 213,288
- -------------------------------------------------------
HEALTH CARE PROVIDERS - 1.6%
14,000 Syncor International* 407,750
27,000 Total Renal Care Holdings* 180,563
- -------------------------------------------------------
588,313
- -------------------------------------------------------
HEAVY CONSTRUCTION - 0.5%
22,100 Foster Wheeler 196,138
- -------------------------------------------------------
HEAVY MACHINERY - 2.9%
24,100 Helix Technology 1,079,981
- -------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 0.3%
6,000 LA-Z-Boy Chair 100,875
- -------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.6%
8,000 Snap-on 212,500
- -------------------------------------------------------
INSURANCE - 1.5%
22,200 HCC Insurance Holdings 292,763
7,650 HSB Group 258,666
- -------------------------------------------------------
551,429
- -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 6.2%
16,000 American Tower Systems, Class A* 489,000
7,100 Central Newspapers, Class A 279,563
20,600 Hollinger International 266,513
34,200 Information Holdings* 993,938
7,900 Lee Enterprises 252,306
- -------------------------------------------------------
2,281,320
- -------------------------------------------------------
MEDICAL SUPPLIES - 4.2%
7,900 Arthocare* 481,900
14,600 Novoste* 240,900
7,400 Roper Industries 279,813
24,500 Varian* 551,250
- -------------------------------------------------------
1,553,863
- -------------------------------------------------------
METALS - 2.0%
10,200 Belden 214,200
8,300 Harsco 263,525
13,000 Ryerson Tull 252,688
- -------------------------------------------------------
730,413
- -------------------------------------------------------
OIL & GAS - 6.7%
7,000 Equitable Resources 233,625
9,405 Friede Goldman Halter* 65,247
17,100 Hanover Compressor* 645,525
13,900 Helmerich & Payne 303,194
9,300 Nabors Industries* 287,719
40,100 Santa Fe Snyder* 320,800
23,200 Stolt Comex Seaway* 256,650
54,000 Superior Energy Services* 364,500
- -------------------------------------------------------
2,477,260
- -------------------------------------------------------
PHARMACEUTICALS - 9.2%
16,700 Albany Molecular Research* 509,350
26,000 ILEX Oncology* 627,250
10,000 Millennium Pharmaceuticals* 1,220,000
- -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
9
TOUCHSTONE EMERGING GROWTH FUND
Schedule of Investments continued
Value
Shares (Note 1)
COMMON STOCKS - Continued
PHARMACEUTICALS - Continued
27,500 Taro Pharmaceutical Industries* $ 398,750
33,800 Titan Pharmaceuticals* 642,200
- -------------------------------------------------------
3,397,550
- -------------------------------------------------------
REAL ESTATE - 0.6%
9,900 Prentiss Properties Trust, REIT 207,900
- -------------------------------------------------------
RETAILERS - 1.5%
17,500 Enesco Group 193,594
10,000 Tweeter Home Entertainment
Group* 355,000
- -------------------------------------------------------
548,594
- -------------------------------------------------------
TEXTILES, CLOTHING & FABRICS - 1.8%
13,716 Albany International 212,597
28,100 Stride Rite 182,650
20,600 Unifi * 253,638
- -------------------------------------------------------
648,885
- -------------------------------------------------------
TRANSPORTATION - 1.4%
23,900 Fritz Companies* 250,950
15,800 Yellow* 265,638
- -------------------------------------------------------
516,588
- -------------------------------------------------------
TOTAL COMMON STOCKS
(COST $26,652,692) $35,773,478
- -------------------------------------------------------
Value
Units (Note 1)
WARRANTS - 0.0%
BANKING - 0.0%
5,700 Golden State Bancorp* $ 4,988
- -------------------------------------------------------
TOTAL WARRANTS
(COST $21,258) $ 4,988
- -------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 97.0%
(COST $26,673,950) (A) $35,778,466
CASH AND OTHER ASSETS
NET OF LIABILITIES - 3.0% 1,100,995
- -------------------------------------------------------
NET ASSETS - 100.0% $36,879,461
- -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$26,680,804 resulting in gross unrealized appreciation and depreciation of
$12,398,355 and $3,300,693, respectively, and net unrealized appreciation
of $9,097,662
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE>
10
TOUCHSTONE INTERNATIONAL EQUITY FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone International Equity Fund
The Touchstone International Equity Fund portfolio finished the year well ahead
of its benchmark, the MSCI EAFE Index. While the MSCI EAFE Index ended 1999 with
a 27.3% return, the Touchstone International Equity Fund had a 36.5% return.
According to the manager of the Touchstone International Equity Fund, Credit
Suisse Asset Management, performance lagged in the first quarter because the
Fund was underweight in Japan and the manager was too defensive in investing in
European and Japanese stocks. Performance was strong in the second half of the
year due to the positive impact of regional allocations and stock selections.
In Japan, the economic recovery appeared to gather momentum in the second half
of 1999 and corporate restructuring activity remained strong. During this
period, Credit Suisse moved from a benchmark neutral weight to overweight. The
most prominent Japanese sector overweights were in consumer finance and telecom
mu ni cations as well as an exposure to smaller companies in consumer and tech
nology related businesses. These decisions helped performance.
In Continental Europe, Credit Suisse moved from a slight underweight to an over
weight position during the fourth quarter in the midst of a favorable economic
environment, strong mergers and acquisition activity and a benign inflation
outlook. The Fund's overweights in Finland and France proved especially
beneficial due to large holdings in technology/telecommunications names like
Nokia and ST Microelectronics.
Elsewhere, regional allocations and stock selection also boosted performance.
The Fund was underweight in the U.K. because Credit Suisse believed there was a
likelihood of further rate increases by the Bank of England. This underweight
had a positive impact on performance as did stock selection in the U.K. which
empha sized companies such as GEC Marconi, an old defense company in the process
of reinventing itself as a telecom equipment manufacturer, and BP Amoco, the
global oil and gas giant.
Finally, the Fund's modest allocation to the Emerging Markets also had a
positive impact on performance; particularly in Brazil, Mexico, Korea, and
Taiwan -- those countries poised to benefit most from a pick-up in global growth
and rebound in commodity prices.
<PAGE>
11
TOUCHSTONE INTERNATIONAL EQUITY FUND
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 36.5%
Five Years Ended 12/31/99 17.2%
Since Inception 11/21/94 15.7%
Cumulative Total Return
Since Inception 11/21/94 110.4%
Touchstone MSCI EAFE Wiesenberger
International Equity Index Non-US Equity Index
Equity Fund (Major Index) (Minor Index)
11/94 10000 10000 10000
12/94 9510 10065 9912
3/95 9140 10260 9770
6/95 9540 10343 10233
9/95 9970 10782 10677
12/95 10028 11228 10840
3/96 10650 11560 11377
6/96 10890 11752 11805
9/96 10790 11746 11753
12/96 11178 11942 12206
3/97 11349 11763 12345
6/97 12632 13299 13615
9/97 13187 13214 13684
12/97 12827 12187 12487
3/98 14974 13990 14017
6/98 15850 14148 13722
9/98 13639 12146 11511
12/98 15419 14666 13448
3/99 15165 14880 13743
6/99 15629 15268 14892
9/99 16424 15949 15191
12/99 21043 18669 19490
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
12
TOUCHSTONE INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 98.7%
AUSTRALIA - 0.0%
175 Southcorp $ 615
- -------------------------------------------------------
BRAZIL - 1.0%
7,400 Petroleo Brasileiro, ADR 189,795
1,535 Telecomunicacoes Brasileiras
(Telebras), ADR 197,248
- -------------------------------------------------------
387,043
- -------------------------------------------------------
CHINA - 0.4%
3,255 China Steel, 144A, ADR 48,176
12,800 China Telecom* 80,026
200 China Telecom, ADR* 25,713
- -------------------------------------------------------
153,915
- -------------------------------------------------------
FINLAND - 3.6%
6,353 Nokia Oyj 1,152,853
8,217 UPM-Kymmene 331,359
- -------------------------------------------------------
1,484,212
- -------------------------------------------------------
FRANCE - 13.1%
2,707 Alcatel Alsthom 622,226
6,264 Alstom 209,028
11 Aventis 640
3,139 AXA 437,978
6,213 Banque Nationale de Paris 573,749
2,824 Carrefour Supermarche 521,289
9,583 Credit Lyonnais* 438,614
1,471 Groupe Danone 347,019
1,737 Pinault-Printemps-Redoute 458,803
6,435 Renault 310,489
4,632 Scor 204,535
5,680 Total Fina S.A., Class B 758,734
5,441 Vivendi 491,761
- -------------------------------------------------------
5,374,865
- -------------------------------------------------------
GERMANY - 11.1%
1,302 Allianz Holdings 437,756
5,927 BASF 304,741
9,464 Deutsche Bank 800,024
4,293 Dresdner Bank 233,062
4,624 Mannesmann 1,116,474
1,469 Muenchener
Rueckversicherungs-Gasellschaft 372,909
6,102 Preussag 340,191
560 SAP 273,814
3,045 Siemens 387,718
4,665 Veba 226,921
- -------------------------------------------------------
4,493,610
- -------------------------------------------------------
GREAT BRITAIN - 9.5%
59,101 BP Amoco 595,693
12,349 British Aerospace 81,176
15,432 British Telecommunications 369,315
13,152 Glaxo Wellcome 373,006
500 Jazztel, ADR* 32,563
45,249 Legal & General Group 123,242
22,847 Lloyds TSB Group 283,762
27,403 Marconi 486,159
11,235 Peninsular and Oriental
Steam Navigation 187,351
10,343 Reuters Group 143,663
Value
Shares (Note 1)
GREAT BRITAIN - Continued
29,895 Sainsbury (J) $ 171,406
17,720 Shell Transport & Trading 147,749
28,325 SmithKline Beecham 360,949
5,926 South African Breweries 60,320
86,758 Vodafone Group 427,417
- -------------------------------------------------------
3,843,771
- -------------------------------------------------------
GREECE - 0.3%
410 Alpha Credit Bank 32,131
761 Intracom 34,862
3,100 National Bank of Greece, GDR 43,594
- -------------------------------------------------------
110,587
- -------------------------------------------------------
HONG KONG - 0.0%
4 Hang Seng Bank 46
- -------------------------------------------------------
INDIA - 0.6%
3,000 Larsen & Toubro, GDR 99,750
5,400 State Bank of India, GDR 55,778
3,800 Videsh Sanchar Nigam, GDR 78,982
- -------------------------------------------------------
234,510
- -------------------------------------------------------
ITALY - 4.1%
11,110 Assicurazione Generali 368,946
20,036 Concessioni e Costruzioni
Autostrade* 136,386
55,039 ENI 302,019
20,590 Istituto Bancario San Paolo
di Torino 279,276
63,603 Istituto Nazionale
delle Assicurazioni 169,409
103,860 Tecnost* 391,812
- -------------------------------------------------------
1,647,848
- -------------------------------------------------------
JAPAN - 34.8%
900 Advantest 237,699
8,000 Alps Electric 121,999
50 Avex 12,472
16,000 Bank of Tokyo 222,870
4,000 Bridgestone 88,037
2,000 Canon 79,429
4,000 Daikin Industries 54,387
15,000 Daiwa Securities 234,618
200 Don Quijote 31,302
3,000 Fanuc
26,000 Fuji Bank Limited (The) 252,548
1,390 Fuji Soft ABC 108,774
9 Fuji Television Network 123,251
4,000 Fujisawa Pharmaceutical 97,036
6,000 Fujitsu 273,501
13,000 Fukuyama Transporting 93,466
9,200 Hitachi Credit 186,736
3,000 Hitachi Maxell 88,330
7,000 House Foods 106,133
7,000 Industrial Bank of Japan 67,446
1,900 ITO Yokado 206,300
7,000 Kaneka 89,494
4,000 Kao 114,057
12,000 Kirin Brewery 126,186
55,000 Kubota 210,359
2,800 Kyocera 725,814
The accompanying notes are an integral part of the financial statements.
<PAGE>
13
TOUCHSTONE INTERNATIONAL EQUITY FUND
Schedule of Investments continued
Value
Shares (Note 1)
COMMON STOCKS - Continued
JAPAN - Continued
1,000 Matsushita Communication
Industrial $ 264,110
11,000 Matsushita Electric 304,509
8,000 Minebea 137,181
19,000 Mitsubishi 146,640
27,500 Mitsui Chemicals 221,388
4,000 Mitsumi Electric 125,208
5,000 Mori Seiki 67,006
1,000 Murata Manufacturing 234,765
9,000 NEC 214,370
500 NIDEC 146,239
11,000 Nikko Securities Co. (The) 139,127
1,300 Nintendo 214,017
9,000 Nippon Meat Packers 116,649
48 Nippon Telegraph & Telephone 821,677
7,000 Nomura Securities 126,333
11 NTT Data 252,861
6 NTT Mobile Communication
Network 230,656
1,800 Orix 405,321
1,000 Rohm Company 410,838
46,000 Sakura Bank 266,380
13,000 Sanwa Bank (The) 158,065
2,000 Secom 220,092
12,000 Sekisui House 106,231
1,000 Seven-Eleven Japan 158,466
Sharp 127,898
4,000 Shin-Etsu Chemical 172,161
197 Softbank 188,463
1,700 Sony 503,864
100 Sony, ADR 28,475
8,000 Sumitomo Bank 109,479
25,000 Sumitomo Chemical 117,382
11,000 Sumitomo Marine & Fire
Insurance Co. (The) 67,788
13,000 Sumitomo Realty & Development 43,236
28,000 Sumitomo Trust & Banking 188,986
3,000 Taisho Pharmaceutical 88,037
4,000 Taiyo Yuden 237,112
4,000 Takeda Chemical Industries 197,594
2,400 TDK 331,253
14,000 Tokyo Broadcasting System 473,834
2,000 Tokyo Electron 273,892
5,000 Tostem 89,749
15,000 Toyota Motor 726,303
1,400 WORLD 171,183
4,000 Yamanouchi Pharmaceutical 139,685
2,000 Yamato Transport 77,472
- -------------------------------------------------------
14,176,005
- -------------------------------------------------------
MEXICO - 1.2%
3,115 Cemex SA de CV, ADR* 86,831
1,700 Grupo Televisa, GDR* 116,025
2,500 Telefonos de Mexico, Class L, ADR 281,250
- -------------------------------------------------------
484,106
- -------------------------------------------------------
Value
Shares (Note 1)
NETHERLANDS - 7.2%
4,697 Akzo Nobel $ 235,817
3,613 Equant* 410,504
6,683 Fortis 240,864
7,597 ING Groep 459,075
4,384 Koninklijke (Royal) Philips
Electronics 596,663
4,965 STMicroelectronics 764,835
4,258 Verenigde Nederlandse 223,993
- -------------------------------------------------------
2,931,751
- -------------------------------------------------------
PORTUGAL - 1.2%
42,418 Portugal Telecom 465,697
363 PT Multimedia - Servicos
de Telecomunicaceous e Multimedia
SGPS* 20,666
- -------------------------------------------------------
486,363
- -------------------------------------------------------
SOUTH AFRICA - 0.1%
8,900 Standard Bank Investment Corp. 36,975
- -------------------------------------------------------
SOUTH KOREA - 0.9%
6,300 Korea Electric Power, ADR 105,525
2,300 Korea Telecom, ADR 171,925
1,146 Pohang Iron & Steel 40,110
272 Samsung Electronics, 144A, GDR 33,252
- -------------------------------------------------------
350,812
- -------------------------------------------------------
SPAIN - 3.1%
29,120 Banco Santander Central Hispano 329,976
38,021 Telefonica 950,606
- -------------------------------------------------------
1,280,582
- -------------------------------------------------------
SWEDEN - 1.4%
6,423 Ericsson 413,680
5,544 Skandia Forsakrings 167,763
- -------------------------------------------------------
581,443
- -------------------------------------------------------
SWITZERLAND - 4.4%
2,304 ABB 281,938
240 Novartis 352,573
36 Roche Holding 427,521
1,364 Union Bank of Switzerland 368,533
600 Zurich Allied 342,319
- -------------------------------------------------------
1,772,884
- -------------------------------------------------------
TAIWAN - 0.7%
6,592 Taiwan Semiconductor
Manufacturing, ADR 296,640
- -------------------------------------------------------
TOTAL COMMON STOCKS
(COST $30,690,496) $40,128,583
- -------------------------------------------------------
INVESTMENT TRUST - 0.2%
TAIWAN - 0.2%
592 Morgan Stanley Taiwan OPALS,
Series B, 144A (b) $ 85,711
- -------------------------------------------------------
TOTAL INVESTMENT TRUST (COST $73,870) $ 85,711
- -------------------------------------------------------
PREFERRED STOCK - 0.8%
GERMANY - 0.8%
531 SAP $ 320,126
- -------------------------------------------------------
TOTAL PREFERRED STOCK (COST $222,303) $ 320,126
- -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
14
TOUCHSTONE INTERNATIONAL EQUITY FUND
Schedule of Investments continued
Value
Shares (Note 1)
WARRANTS - 0.0%
FRANCE - 0.0%
1,059 Banque Nationale de Paris* $ 4,890
- -------------------------------------------------------
TOTAL WARRANTS (COST $0) $ 4,890
- -------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
CORPORATE BOND - 0.0%
GREAT BRITAIN - 0.0%
GBP 3,900 British
Aerospace 7.450% 11/30/03 $ 61
- -------------------------------------------------------
TOTAL CORPORATE BOND (COST $138) $ 61
- -------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 99.7%
(COST $30,986,807) (A) $40,539,371
CASH AND OTHER ASSETS
NET OF LIABILITIES - 0.3% 124,006
- -------------------------------------------------------
NET ASSETS - 100.0% $40,663,377
- -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$31,292,611 resulting in gross unrealized appreciation and depreciation of
$10,240,114 and $993,354, respectively, and net unrealized appreciation of
$9,246,760
(b) Board valued security.
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At December
31, 1999, these securities were valued at $167,139, or 0.4% of net
assets.
ADR - American Depositary Receipt
GBP - Great Britain Pound
GDR - Global Depositary Receipt
OPALS - Optimised Portfolios As Listed Securities
Industry sector diversification of the International Equity Fund's investments
as a percentage of net assets as of December 31, 1999 was as follows:
Industry Percentage
Sector Net Assets
Banking 12.80%
Communications 10.35%
Electrical Equipment 9.44%
Telephone Systems 7.74%
Electronics 7.57%
Insurance 5.41%
Pharmaceuticals 5.01%
Heavy Machinery 4.98%
Oil & Gas 4.90%
Commercial Services 4.25%
Financial Services 3.58%
Retailers 3.38%
Chemicals 3.30%
Automotive 2.55%
Computer Software & Processing 2.41%
Media - Broadcasting & Publishing 2.35%
Transportation 2.05%
Beverages, Food & Tobacco 1.86%
Multiple Utilities 1.46%
Forest Products & Paper 0.81%
Entertainment & Leisure 0.56%
Metals 0.44%
Food Retailers 0.42%
Textiles, Clothing & Fabrics 0.42%
Computers & Information 0.36%
Construction 0.26%
Electric Utilities 0.26%
Building Materials 0.21%
Miscellaneous 0.21%
Aerospace & Defense 0.20%
Real Estate 0.11%
Containers & Packaging 0.00%
Other assets in excess of liabilities 0.35%
- -----------------------------------------------------------
100.00%
- -----------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
15
TOUCHSTONE INCOME OPPORTUNITY FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Income Opportunity Fund
For the twelve months ended December 31, 1999, the Touchstone Income Opportunity
Fund performed better than the index. The Fund's benchmark was the Lehman
Brothers Corporate Bond Index, which produced a return of (2.1)%. The Income
Opportunity Fund had a 2.7% return in 1999.
Emerging assets, however, closed the year on a very strong note with the JP
Morgan Emerging Market Bond Plus Mutual Fund Index returning 5.41% in December,
bringing the year-to-date gain to 25.97%. At the end of the year, the emerging
market percentage was 40% of the Fund. The manager of the Touchstone Income
Opportunity Fund, Alliance Capital Management, moved the emphasis of the
portfolio in 1999 from corporate assets to sovereign debt because they believe
that sovereign debt will outperform corporate debt due to its greater liquidity.
During the second half of the year, Alliance increased the weighting in Russia
by about 1.25%, which proved to be positive for the Fund. Russian debt was the
outperforming asset for both the month of December and the year, returning
14.84% and 165.70% respectively. The Touchstone Income Opportunity Fund also
continued to hold a large position in Mexico, which was upgraded this year by
Moody's to Ba1, one notch below investment grade, and performed well, returning
15.30% for the year.
Alliance reduced the position in emerging market corporates from about 10% to
roughly 5.7%. Two defaulted positions, FSW International and NTS Steel, were
sold. During the second half of the year, Alliance also elected to sell the
position in Paging Network Brazil. The com pany, located in Brazil, had been
negatively impacted by the devaluation of the Brazilian currency and the
decreasing demand for paging services due to the popularity of cellular phones.
The high yield market is completing its second straight year of low single-digit
returns. The Merrill Lynch High Yield Index returned 1.573% for the year. This
is the first occurrence in the history of the high yield market of sub-coupon
returns in a non-recessionary economic environment. Alliance believes this poor
perform ance is a function of significant spread widening brought about by
reduced liquidity following the global dislocation of 1998 (i.e., Asia, Russia,
Brazil) and a persistently rising high yield default rate. According to Moody's,
defaults are currently averaging about 6%. During the second half of the year,
Alliance began to actively reduce exposure to possible problem/restructuring
scenarios when credit fundamentals suggested that it was warranted and market
prices repre sented fair value. Alliance elected to sell several assets
including Aqua Chem, Eagle Geophysical, Orion Network and TVN Entertainment.
These securities were sold due to credit concerns and Alliance's belief that the
money could be invested in better performing assets. During the month of
December, two other assets posted large price declines due to poor operating
performance. These securities include Pen Tab and Republic Technologies. Pen Tab
was downgraded in early December to Caa2 by Moody's due to their weaker than
expected operating performance and heightened liquidity concerns. There has been
little support from the underwriter and the bonds moved down in price from the
mid 80s to $25.00. Alliance continues to hold the position.
Another security in the Portfolio which posted a price decline was Republic
Technologies. The company missed earnings expectations and the bonds rapidly
declined in price from the low 90s to its year end price of $65.00.
Alliance has been in contact with both the company and the sponsor, and
continues to hold the credit, believing it will improve.
<PAGE>
16
TOUCHSTONE INCOME OPPORTUNITY FUND
In general for the high yield market, primary activity slowed during 1999 from
1998 levels, although $94.7 billion in new issues came to market. Media and
telecommunications continued to be the dominant suppliers of new issuance,
accounting for 69.6% ($12.1 billion of $17.4 billion issued) of the supply in
the fourth quarter. One big change in the high yield market this year was the
lack of demand from mutual funds, which saw redemptions for most of the year.
This has left structured products, insurance, pension, and crossover accounts as
the major participants in the market, which has in turn led to lower trading
volumes and reduced demand for new issuance.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 2.7%
Five Years Ended 12/31/99 9.7%
Since Inception 11/21/94 8.2%
Cumulative Total Return
Since Inception 11/21/94 49.5%
CDA/Wiesenberger
Touchstone Lehman Brothers CDA/Wiesenberger Corporate High
Income Corporate Bond Global Income Yield Average
Opportunity Fund (Major Index) (Minor Index) (Minor Index 2)
11/94 10000 10000 10000 10000
12/94 9420 10088 9877 10037
3/95 8990 10666 10235 10523
6/95 10373 11442 10805 11057
9/95 11030 11698 10988 11409
12/95 11620 12276 11387 11769
3/96 12283 11976 11296 12049
6/96 13057 12017 11442 12283
9/96 14087 12259 11797 12822
12/96 14800 12684 12155 13219
3/97 15138 12574 11942 13249
6/97 16189 13078 12303 13966
9/97 16986 13583 12615 14731
12/97 16581 13974 12662 14909
3/98 17478 14209 12855 15492
6/98 16750 14558 12854 15471
9/98 13958 15043 12888 14234
12/98 14547 15169 13262 14678
3/99 14754 15095 13065 15095
6/99 14685 14856 12850 15142
9/99 14498 14912 12958 14781
12/99 14945 14910 13014 15096
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
17
TOUCHSTONE INCOME OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Principal Interest Maturity Value
Amount Rate Date (Note 1)
CORPORATE BONDS - 52.2%
AEROSPACE & DEFENSE - 1.2%
$ 500,000 Pacific Aerospace
& Electronics 11.25% 08/01/05 $ 300,000
- -------------------------------------------------------
AUTOMOTIVE - 5.9%
750,000 Sonic Automotive,
Series B 11.00% 08/01/08 742,500
750,000 Tenneco
Automotive,
144A 11.625% 10/15/09 765,000
- -------------------------------------------------------
1,507,500
- -------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 0.9%
400,000 Richmont
Marketing
Specialists 10.125% 12/15/07 240,000
- -------------------------------------------------------
COMMERCIAL SERVICES - 2.8%
500,000 Building One
Services 10.50% 05/01/09 480,000
500,000 Dialog, Series A,
Yankee Dollar 11.00% 11/15/07 240,000
- -------------------------------------------------------
720,000
- -------------------------------------------------------
COMMUNICATIONS - 8.6%
750,000 Netia Holdings,
Series B, 144A 13.125% 06/15/09 772,500
450,000 Northeast Optic
Network 12.75% 08/15/08 481,500
400,000 Turkcell, 144A 12.75% 08/01/05 414,500
500,000 United Pan-Europe
Communications,
144A 11.25% 11/01/09 513,125
- -------------------------------------------------------
2,181,625
- -------------------------------------------------------
ENTERTAINMENT & LEISURE - 1.8%
450,000 Bell Sports,
Series B 11.00% 08/15/08 450,000
- -------------------------------------------------------
HEALTH CARE PROVIDERS - 2.0%
500,000 LifePoint Hospitals
Holdings,
Series B 10.75% 05/15/09 517,500
- -------------------------------------------------------
HEAVY MACHINERY - 5.4%
700,000 Generac Portable
Products 11.25% 07/01/06 714,000
750,000 Pentacon,
Series B 12.25% 04/01/09 675,000
- -------------------------------------------------------
1,389,000
- -------------------------------------------------------
INDUSTRIAL - DIVERSIFIED - 0.9%
880,000 Pen-Tab
Industries,
Series B 10.875% 02/01/07 220,000
- -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 3.5%
1,000,000 Innova S. de R.L.,
Yankee-Dollar 12.875% 04/01/07 890,000
- -------------------------------------------------------
MEDICAL SUPPLIES - 2.8%
700,000 Kelso & Company,
144A 12.75% 10/01/09 724,500
- -------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
METALS - 1.9%
$ 750,000 Republic
Technologies
International,
144A 13.75% 07/15/09 $ 495,000
- -------------------------------------------------------
OIL & GAS - 5.1%
750,000 EOTT Energy
Partners 11.00% 10/01/09 776,250
500,000 Western Gas
Resources 10.00% 06/15/09 512,500
- -------------------------------------------------------
1,288,750
- -------------------------------------------------------
TELEPHONE SYSTEMS - 9.4%
550,000 Exodus
Communications,
144A 10.75% 12/15/09 559,625
550,000 Global Crossing
Holdings, 144A 9.125% 11/15/06 543,813
500,000 Metromedia Fiber
Network 10.00% 12/15/09 512,500
750,000 Worldwide
Fiber, 144A 12.00% 08/01/09 772,500
- -------------------------------------------------------
2,388,438
- -------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $14,597,618) $13,312,313
- -------------------------------------------------------
SOVEREIGN GOVERNMENT OBLIGATIONS - 45.3%
ARGENTINA - 4.1%
$1,144,000 Republic of
Argentina, Brady
Bond(b) 6.813% 03/31/05 $ 1,034,519
- -------------------------------------------------------
BRAZIL - 7.7%
1,200,000 Republic of
Brazil 11.625% 04/15/04 1,200,000
1,000,000 Republic of
Brazil, Brady
Bond(b) 6.938% 04/15/24 758,750
- -------------------------------------------------------
1,958,750
- -------------------------------------------------------
BULGARIA - 6.4%
1,050,000 Government of
Bulgaria, Brady
Bond, IAB,
PDI(b) 6.50% 07/28/11 828,188
1,000,000 Government of
Bulgaria, Brady
Bond, Series A(b) 6.50% 07/28/24 798,750
- -------------------------------------------------------
1,626,938
- -------------------------------------------------------
COLOMBIA - 2.7%
750,000 Republic of
Colombia 9.75% 04/23/09 697,500
- -------------------------------------------------------
MEXICO - 7.3%
1,750,000 United Mexican
States 10.375% 02/17/09 1,863,749
- -------------------------------------------------------
MOROCCO - 2.7%
750,000 Kingdom of
Morocco,
Series A(b) 6.844% 01/01/09 676,875
- -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
18
TOUCHSTONE INCOME OPPORTUNITY FUND
Schedule of Investments continued
Principal Interest Maturity Value
Amount Rate Date (Note 1)
SOVEREIGN GOVERNMENT OBLIGATIONS - Continued
PERU - 3.6%
$1,500,000 Republic of
Peru, Brady Bond,
FLIRB(b) 3.75% 03/07/17 $ 928,125
- -------------------------------------------------------
PHILIPPINE ISLANDS - 3.1%
800,000 Republic of
Philippines 9.875% 01/15/19 791,000
- -------------------------------------------------------
RUSSIA - 2.6%
1,100,000 Russian Federation,
Euro-Dollar 8.75% 07/24/05 651,750
- -------------------------------------------------------
TURKEY - 3.2%
750,000 Republic of
Turkey 12.375% 06/15/09 804,375
- -------------------------------------------------------
VENEZUELA - 1.9%
750,000 Republic of
Venezuela 9.25% 09/15/27 495,000
- -------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT
OBLIGATIONS (COST $10,764,664) $11,528,581
- -------------------------------------------------------
Value
Shares (Note 1)
WARRANTS - 0.0%
COMMUNICATIONS - 0.0%
600 Paging do Brazil, Class B*, 144A $ 0
- -------------------------------------------------------
NIGERIA - 0.0%
750 Central Bank of Nigeria* 0
- -------------------------------------------------------
TELEPHONE SYSTEMS - 0.0%
10,125 Conecel Holdings* 0
400 Loral Space & Communications* 3,800
300 Primus Telecommunications* 7,500
- -------------------------------------------------------
11,300
- -------------------------------------------------------
TOTAL WARRANTS (COST $0) $ 11,300
- -------------------------------------------------------
Value
(Note 1)
TOTAL INVESTMENTS AT VALUE - 97.5%
(COST $25,362,282)(A) $24,852,194
CASH AND OTHER ASSETS
NET OF LIABILITIES - 2.5% 635,365
- -------------------------------------------------------
NET ASSETS - 100.0% $25,487,559
- -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$25,401,301 resulting in gross unrealized appreciation and depreciation of
$1,093,596 and $1,642,703 respectively, and net unrealized depreciation of
$549,107
(b) Interest rate shown reflects current rate on instrument with variable or
floating rates.
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $5,560,563 or 21.8% of net assets.
Brady Bond - U.S. dollar denominated bonds of developing countries that
were exchanged, in a restructuring, for commercial bank loans in
default. The bonds are collateralized by U.S. Treasury zero-coupon
bonds to ensure principal.
Euro-Dollar - Bonds issued offshore that pay interest and principal in U.S.
dollars.
FLIRB - Front-Load Interest Reduction Bonds
IAB - Interest Arrears Bonds
PDI - Past Due Interest Bonds
Yankee Dollar - U.S. dollar denominated bonds issued by non-U.S. companies in
the U.S.
The accompanying notes are an integral part of the financial statements.
<PAGE>
19
TOUCHSTONE HIGH YIELD FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone High Yield Fund
The high yield market suffered considerably from the highest default rate seen
since 1990, resulting from a surge in lower-rated, first time issuers that
placed debt in 1997 and 1998. The credit problems were compounded by the
after-effects of the recent Asian liquidity crisis. As a result, there was
considerable principal erosion with the Moody's default rate for 1999 finishing
at 5.5% on an issuer basis and 7.8% on a par-weighted basis. Credit problems
affected all sectors of the market, even the higher quality segment on which the
Touchstone High Yield Fund focuses. This led to the Touchstone High Yield Fund
ending 1999 with a return of (8.1)%, compared to the (1.1)% return of the Fund's
benchmark, the Merrill Lynch High Yield Bond Index.
Although the Touchstone High Yield Fund did not suffer any defaults, Fort
Washington Investment Advisors, the manager of the Touchstone High Yield Fund,
reported that they did sell one security at what would be considered a defaulted
level. Furthermore, other issues did realize material market value losses as
their outlooks became more uncertain. Concentration in these issues compounded
this impact, resulting in performance which trailed the overall market.
Looking forward, the Fund continues to focus on higher quality credits where the
risk return profile appears most attractive. Although the economy remains rather
strong, defaults will likely remain above historical averages as some of the
weaker issues run their course. High default rates, an active Federal Reserve
and increasing interest rates create a difficult environment for high yield
which will likely limit significant capital appreciation in the first half of
the year. However, much of this environment is already reflected in the high
yield market allowing for returns approximating yields. If defaults begin to
ease and the Federal Reserve becomes less restrictive, high yield could perform
well in the second half of 2000. Fort Washington expects that the Fund will be
well-positioned to perform in this environment.
<PAGE>
20
TOUCHSTONE HIGH YIELD FUND
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 N/A
Since Inception 05/01/99 N/A
Cumulative Total Return
Since Inception 05/01/99 (8.1%)
Weisenberger:
Merrill Lynch Corporate - Smith Barney
Touchstone High High Yield Bond High Yield - VA Corporate - BBB
Yield Fund (Major Index) (Minor Index) (Minor Index)
5/99 10000 10000 10000 10000
6/99 9830 9912 9781 9810
9/99 9220 9788 9548 9828
12/99 9189 9894 9751 9847
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
21
TOUCHSTONE HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Principal Interest Maturity Value
Amount Rate Date (Note 1)
CORPORATE BONDS - 95.6%
AUTOMOTIVE - 4.6%
$ 500,000 Accuride,
Series B 9.25% 02/01/08 $ 455,000
250,000 Federal-Mogul 7.375% 01/15/06 229,065
- -------------------------------------------------------
684,065
- -------------------------------------------------------
CHEMICALS - 3.4%
500,000 Lyondell Chemical,
Series B 9.875% 05/01/07 510,000
- -------------------------------------------------------
COMMERCIAL SERVICES - 8.8%
500,000 Allied Waste
North America,
144A 10.00% 08/01/09 447,500
500,000 Rural/Metro 7.875% 03/15/08 393,750
500,000 United Rentals,
Series B 8.80% 08/15/08 466,875
- -------------------------------------------------------
1,308,125
- -------------------------------------------------------
COMMUNICATIONS - 8.8%
500,000 Charter
Communications
Holdings 8.625% 04/01/09 461,875
500,000 Pinnacle
Holdings(b) 0.00% 03/15/08 327,500
500,000 Williams
Communications
Group 10.875% 10/01/09 522,500
- -------------------------------------------------------
1,311,875
- -------------------------------------------------------
COSMETICS & PERSONAL CARE - 1.3%
250,000 Revlon Consumer
Products 9.00% 11/01/06 187,500
- -------------------------------------------------------
ELECTRIC UTILITIES - 3.1%
500,000 AES 8.50% 11/01/07 467,500
- -------------------------------------------------------
ELECTRICAL EQUIPMENT - 3.3%
500,000 Integrated Electrical
Services, Series B9.375%02/01/09 490,625
- -------------------------------------------------------
ENTERTAINMENT & LEISURE - 2.9%
500,000 Carmike
Cinemas,
Series B 9.375% 02/01/09 433,750
- -------------------------------------------------------
FINANCIAL SERVICES - 0.4%
500,000 ContiFinancial 8.125% 04/01/08 56,250
- -------------------------------------------------------
FOOD RETAILERS - 4.8%
500,000 Marsh
Supermarkets,
Series B 8.875% 08/01/07 460,000
250,000 Stater Brothers
Holdings 10.75% 08/15/06 253,125
- -------------------------------------------------------
713,125
- -------------------------------------------------------
FOREST PRODUCTS & PAPER - 8.9%
500,000 Delta Mills,
Series B 9.625% 09/01/07 350,000
500,000 Republic Group 9.50% 07/15/08 470,000
500,000 Tembec Finance,
Yankee Dollar 9.875% 09/30/05 518,750
- -------------------------------------------------------
1,338,750
- -------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
HEALTH CARE PROVIDERS - 8.3%
$ 200,000 Columbia/HCA
Healthcare 7.00% 07/01/07 $ 176,539
500,000 Genesis Health
Ventures 9.25% 10/01/06 205,000
500,000 LifePoint
Hospitals
Holdings,
Series B 10.75% 05/15/09 517,500
500,000 Omnicare,
Convertible 5.00% 12/01/07 335,000
- -------------------------------------------------------
1,234,039
- -------------------------------------------------------
HOUSING - 3.0%
500,000 Champion
Enterprises,
144A 7.625% 05/15/09 448,890
- -------------------------------------------------------
INSURANCE - 2.8%
500,000 Willis Corroon 9.00% 02/01/09 416,250
- -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 9.9%
500,000 American Lawyer
Media, Series B 9.75% 12/15/07 485,000
500,000 Chancellor
Media 9.00% 10/01/08 520,000
500,000 Susquehanna
Media 8.50% 05/15/09 486,875
- -------------------------------------------------------
1,491,875
- -------------------------------------------------------
METALS - 6.2%
500,000 Algoma Steel 12.375% 07/15/05 470,000
500,000 LTV Corporation
(The) 8.20% 09/15/07 450,000
- -------------------------------------------------------
920,000
- -------------------------------------------------------
OIL & GAS - 6.9%
500,000 HS Resources 9.25% 11/15/06 495,000
500,000 RBF Finance 11.00% 03/15/06 532,499
- -------------------------------------------------------
1,027,499
- -------------------------------------------------------
RESTAURANTS - 2.5%
500,000 Advantica
Restaurant
Group 11.25% 01/15/08 370,000
- -------------------------------------------------------
TELEPHONE SYSTEMS - 2.5%
500,000 Paging
Network 8.875% 02/01/06 145,000
250,000 Sprint Capital 6.875% 11/15/28 222,393
- -------------------------------------------------------
367,393
- -------------------------------------------------------
TRANSPORTATION - 3.2%
500,000 American
Commercial
Lines, Series B 10.25% 06/30/08 480,000
- -------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $16,105,045) $14,257,511
- -------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 95.6%
(COST $16,105,045)(A) $14,257,511
CASH AND OTHER ASSETS
NET OF LIABILITIES - 4.4% 658,421
- -------------------------------------------------------
NET ASSETS - 100.0% $14,915,932
- -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
22
TOUCHSTONE HIGH YIELD FUND
Schedule of Investments continued
Notes to the Schedule of Investments:
(a) The aggregate identified cost for federal income tax purposes is
$16,105,045 resulting in gross unrealized appreciation and depreciation of
$70,047 and $1,917,580, respectively, and net unrealized depreciation of
$1,847,533.
(b) Step coupon bond, zero coupon until 03/12/2003, 10.00% thereafter.
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $896,390 or 6.0% of net assets.
Yankee Dollar - U.S. dollar denominated bonds issued by non-U.S. companies in
the U.S.
The accompanying notes are an integral part of the financial statements.
<PAGE>
23
TOUCHSTONE VALUE PLUS FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Value Plus Fund
Fort Washington Investment Advisors, the manager of the Touchstone Value Plus
Fund, states that they have been in the top quartile of the large value equity
manager universe for 1999. The Fund's return of 15.0% exceeded the 12.0% return
of its benchmark, the S&P/Barra Value Index.
The U.S. stock market finished 1999 with a flourish to record another big year.
Despite the protestations of countless naysayers, stocks recorded their fifth
straight year of twenty plus percent returns, as measured by the S&P 500 Index.
Yet once again this performance was concentrated in a relative handful of large
capitalization, mostly technology stocks. The market's "underbelly" is very
soft; since April of 1998, 70% of the roughly 6,000 U.S. common stocks are down
in price. In fact, over one half of the stocks in the S&P 500 Index had a
negative absolute return for 1999.
The best performing sectors in the portfolio for the last quarter were Consumer
Staples and Communication Services. Leading the performance in these sectors
were Sysco and Frontier Corp (now Global Crossings). Other notable performers in
the quarter were Nortel Networks and Amgen. Consumer Cyclicals was the worst
performing sector with Stewart Enterprises showing the worst underperformance.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 15.0%
Since Inception 05/01/98 10.1%
Cumulative Total Return
Since Inception 05/01/98 17.4%
Touchstone Wilshire Large
Value Plus S&P 500 S&P/Barra Value Cap Value
Fund (Major Index) (Minor Index) (Minor Index 2)
5/98 10000 10000 10000 10000
6/99 9840 10227 9934 9968
9/98 8810 9210 8651 8853
12/98 10211 11171 10159 10075
3/99 10542 11729 10449 10073
6/99 11344 12556 11577 10862
9/99 10321 11771 10509 9771
12/99 11744 13523 11379 10433
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
24
TOUCHSTONE VALUE PLUS FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 98.2%
ADVERTISING - 2.3%
2,900 Interpublic Group of
Companies (The) $ 167,294
- --------------------------------------------------------
AEROSPACE & DEFENSE - 2.1%
2,600 Honeywell International 149,988
- --------------------------------------------------------
AUTOMOTIVE - 1.9%
3,150 Magna International, Class A 133,481
- --------------------------------------------------------
BANKING - 3.2%
2,757 Bank One 88,396
1,000 Chase Manhattan 77,688
3,850 North Fork Bancorporation 67,375
- --------------------------------------------------------
233,459
- --------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 3.8%
3,150 McCormick & Company 93,713
5,075 Pepsico 178,894
- --------------------------------------------------------
272,607
- --------------------------------------------------------
COMMUNICATIONS - 3.0%
2,150 Nortel Networks 217,150
- --------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 8.1%
6,900 Ceridian* 148,781
2,200 Computer Associates International 153,863
5,570 Compuware* 207,483
1,500 First Data 73,969
- --------------------------------------------------------
584,096
- --------------------------------------------------------
COMPUTERS & INFORMATION - 9.6%
1,550 Hewlett-Packard 176,603
1,550 International Business Machines 167,400
2,250 Lexmark International Group,
Class A* 203,625
1,800 Sun Microsystems* 139,388
- --------------------------------------------------------
687,016
- --------------------------------------------------------
ELECTRIC UTILITIES - 1.4%
3,175 CMS Energy 99,020
- --------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.5%
1,225 Thomas & Betts 39,047
- --------------------------------------------------------
ELECTRONICS - 2.4%
2,050 Intel 168,741
- --------------------------------------------------------
FINANCIAL SERVICES - 7.1%
3,162 Citigroup 175,689
1,350 Federal Home Loan Mortgage
Corporation 63,534
2,675 Federal National Mortgage
Association 167,020
2,400 SLM Holding 101,400
- --------------------------------------------------------
507,643
- --------------------------------------------------------
FOOD RETAILERS - 1.5%
3,277 Albertson's 105,683
- --------------------------------------------------------
FOREST PRODUCTS & PAPER - 5.2%
3,375 Kimberly-Clark 220,214
3,575 Mead 155,289
- --------------------------------------------------------
375,503
- --------------------------------------------------------
HEALTH CARE PROVIDERS - 1.3%
5,850 Manor Care* 93,600
- --------------------------------------------------------
HEAVY MACHINERY - 3.2%
850 Applied Materials* 107,684
Value
Shares (Note 1)
HEAVY MACHINERY - Continued
2,200 Ingersoll-Rand $ 121,138
- --------------------------------------------------------
228,822
- --------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 2.1%
975 General Electric 150,881
- --------------------------------------------------------
INSURANCE - 5.0%
1,175 Aetna 65,580
4,700 AXA Financial 159,213
3,375 Reliastar Financial 132,258
- --------------------------------------------------------
357,051
- --------------------------------------------------------
MEDICAL SUPPLIES - 2.2%
1,050 Baxter International 65,953
3,450 Becton Dickinson & Company 92,288
- --------------------------------------------------------
158,241
- --------------------------------------------------------
METALS - 1.9%
5,325 Masco 135,122
- --------------------------------------------------------
OIL & GAS - 8.2%
6,675 Conoco, Class A 165,206
1,773 Exxon Mobil 142,837
1,700 Schlumberger 95,625
3,350 Tosco 91,078
329 Transocean Sedco Forex 11,087
2,700 Williams Companies (The) 82,519
- --------------------------------------------------------
588,352
- --------------------------------------------------------
PHARMACEUTICALS - 7.5%
3,425 Abbott Laboratories 124,370
2,650 Amgen* 159,166
2,800 Cardinal Health 134,050
1,750 Merck 117,359
- --------------------------------------------------------
534,945
- --------------------------------------------------------
RETAILERS - 3.0%
2,075 Federated Department Stores* 104,917
10,325 Office Depot* 112,930
- --------------------------------------------------------
217,847
- --------------------------------------------------------
TELEPHONE SYSTEMS - 10.5%
2,225 Alltel 183,980
1,875 Bell Atlantic 115,430
3,128 Global Crossing* 156,400
2,813 MCI WorldCom* 149,238
2,950 SBC Communications 143,813
- --------------------------------------------------------
748,861
- --------------------------------------------------------
TRANSPORTATION - 1.2%
900 US Freightways 43,088
3,325 Wisconsin Central Transport* 44,680
- --------------------------------------------------------
87,768
- --------------------------------------------------------
TOTAL COMMON STOCKS
(COST $6,704,636) $ 7,042,218
- --------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 98.2%
(COST $6,704,636) (A) $ 7,042,218
CASH AND OTHER ASSETS
NET OF LIABILITIES - 1.8% 128,575
- --------------------------------------------------------
NET ASSETS - 100.0% $ 7,170,793
- --------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is $6,777,983
resulting in gross unrealized appreciation and depreciation of $868,950 and
$604,715, respectively, and net unrealized appreciation of $264,235.
The accompanying notes are an integral part of the financial statements.
<PAGE>
25
TOUCHSTONE GROWTH & INCOME FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Growth & Income Fund
The S&P 500 Index posted an unprecedented fifth consecutive year of 20+% returns
in 1999 to end a phenomenal decade of U.S. equity market performance. 1999 was
similar to 1998 in that the overall market exceeded even the most opti mis tic
predictions, a narrow group of technology and growth stocks domi nated market
index returns, and the dispersion of returns between growth and value styles has
never been greater. The Touchstone Growth & Income Fund posted a 2.4% return for
1999, compared to 21.1% for the S&P 500 Index.
Despite three interest rate hikes by the Federal Reserve and record valuations
among technology stocks, the broad market posted solid returns in the first half
of the year, declined sharply in the third quarter and fully recovered by year
end to reach new highs. However, only a narrow group of stocks in the broad
market index participated in this record setting performance.
For the second consecutive year, growth managers fully participated in this
narrow market, while value managers generally remained on the sidelines. The
dominance of technology and the underperformance of the finance sector led to
the largest ever performance dispersion between the large cap style indices as
measured by the Russell 1000 Value Index (+7.4%) and the Russell 1000 Growth
Index (+33.2%). For the year, only 31% of the stocks in the S&P 500 outperformed
the index and 50% of the stocks had negative returns. The Russell 1000 Value
Index had similarly poor breadth, with only 35% of its stocks outperforming the
index, and 50% of its stocks declining. The majority of active large cap value
managers underperformed the value benchmark.
The manager of the Touchstone Growth & Income Fund, Scudder Kemper Investments,
observed that the Fund's performance relative to the benchmark and their peer
group suffered in the second half of the year. A number of portfolio holdings
declined sharply after posting negative revenue or earnings surprises. The
market, which typically is more forgiving of disappointments among low
price/earnings stocks, punished these underperformers nonethe less. A handful of
stocks including Xerox, Lockheed Martin, American Home Products, and First Union
were the most significant detractors from perform ance for the fourth quarter
and full year.
The most significant positive contributors to fourth quarter performance were
telecommunication and telecommunication equipment holdings, led by Corning (the
portfolio's largest position), which rallied 80% on continuing positive news
coming out of its fiber and photonics businesses. Global Crossing rose 83%
following its successful closure of the Frontier acquisition. Sprint received a
takeover bid from Worldcom and leapt 27% in the quarter. In the cyclical arena,
the portfolio benefited from its holdings in Georgia Pacific and Weyerhaeuser,
which both rallied 23% on news of a tight supply/demand balance in pulp and
container board. American Airlines (+21%) was the best performing of the major
airlines during the quarter, announcing the spin-off of Sabre Group earlier than
expected. In the technology sector, Philips Electronics posted a 30% gain, as it
benefited from the tight capacity in semiconductor contract manufacturing
(through its ownership of Taiwan Semiconductor). In the financial sector, the
Fund was rewarded by evidence of the turn in the property and casualty insurance
cycle, as Marsh & McLennan (+38%) and St. Paul (+22%) contributed most signifi
cantly. Morgan Stanley Dean Witter (+58%) and Lehman Brothers (+45%) also added
value, as they both posted positive surprises on the heels of strong investment
banking results.
<PAGE>
26
TOUCHSTONE GROWTH & INCOME FUND
As a disciplined value investor, Scudder will adhere to the value process which
they have historically followed. They believe that the portfolio is positioned
to ensure participation when the style shift occurs.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 2.4%
Since Inception 01/01/99 2.4%
Cumulative Total Return
Since Inception 01/01/99 2.4%
Touchstone S&P 500 Composite Wiesenberger
Growth & Income Total Return Growth & Income
Fund (Major Index) (Minor Index)
1/99 10000 10000 10000
3/99 10105 10500 10166
6/99 11208 11240 11045
9/99 9895 10537 10234
12/99 10268 12105 11264
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts whrough which shares of the fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
27
TOUCHSTONE GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 98.6%
AEROSPACE & DEFENSE - 2.9%
31,700 Lockheed Martin $ 693,438
10,500 Northrop Grumman 567,656
12,800 Rockwell International 612,800
- --------------------------------------------------------
1,873,894
- --------------------------------------------------------
AIRLINES - 0.7%
6,500 AMR* 435,500
- --------------------------------------------------------
AUTOMOTIVE - 2.0%
13,100 Ford Motor 700,031
15,966 Meritor Automotive 309,341
6,700 Paccar 296,894
- --------------------------------------------------------
1,306,266
- --------------------------------------------------------
BANKING - 9.0%
21,600 Bank of America 1,084,050
17,300 Chase Manhattan 1,343,994
17,946 First Union 588,853
27,900 FleetBoston Financial 971,269
24,300 PNC Bank 1,081,350
32,800 US Bancorp 781,050
- --------------------------------------------------------
5,850,566
- --------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 3.5%
16,200 Heinz (H. J.) 644,963
37,800 Pepsico 1,332,450
13,700 Philip Morris 317,669
- --------------------------------------------------------
2,295,082
- --------------------------------------------------------
CHEMICALS - 1.4%
11,600 Air Products & Chemicals 389,325
1 Du Pont (E.I.) De Nemours 66
41,700 Lyondell Petro Chemical 531,675
- --------------------------------------------------------
921,066
- --------------------------------------------------------
COMMERCIAL SERVICES - 1.6%
31,000 Unicom 1,038,500
- --------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 3.5%
16,100 Cadence Design Systems* 386,400
26,900 Computer Associates International 1,881,319
- --------------------------------------------------------
2,267,719
- --------------------------------------------------------
COSMETICS & PERSONAL CARE - 1.0%
9,900 Colgate-Palmolive 643,500
- --------------------------------------------------------
ELECTRIC UTILITIES - 1.2%
11,200 Cinergy 270,200
18,532 ScottishPower, ADR 518,896
- --------------------------------------------------------
789,096
- --------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.0%
10,900 Emerson Electric 625,388
- --------------------------------------------------------
ELECTRONICS - 2.6%
12,400 Koninklijke (Royal) Philips
Electronics (NY Reg.) 1,674,000
- --------------------------------------------------------
FINANCIAL SERVICES - 9.2%
32,200 Citigroup 1,789,113
17,900 Federal National Mortgage
Association 1,117,631
5,000 J.P. Morgan 633,125
10,200 Lehman Brothers Holdings 863,813
6,400 Morgan Stanley Dean Witter 913,600
16,000 SLM Holding 676,000
- --------------------------------------------------------
5,993,282
- --------------------------------------------------------
Value
Shares (Note 1)
FOOD RETAILERS - 0.8%
15,326 Albertson's $ 494,264
- --------------------------------------------------------
FOREST PRODUCTS & PAPER - 2.2%
8,900 Georgia-Pacific 451,675
13,200 Weyerhaeuser 947,925
- --------------------------------------------------------
1,399,600
- --------------------------------------------------------
HEAVY MACHINERY - 1.8%
22,100 Parker Hannifin 1,134,006
- --------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 1.6%
6,800 General Electric 1,052,300
- --------------------------------------------------------
HOUSEHOLD PRODUCTS - 5.5%
27,500 Corning 3,545,776
- --------------------------------------------------------
INSURANCE - 8.0%
36,900 Allstate Corporation (The) 885,600
33,600 Lincoln National 1,344,000
10,700 Marsh & McLennan Companies 1,023,856
26,300 St. Paul Companies (The) 885,981
20,031 XL Capital, Class A 1,039,108
- --------------------------------------------------------
5,178,545
- --------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 1.7%
17,700 McGraw-Hill Companies (The) 1,090,763
- --------------------------------------------------------
METALS - 0.8%
17,450 Allegheny Technologies 391,534
18,300 Oregon Steel Mills 145,256
- --------------------------------------------------------
536,790
- --------------------------------------------------------
OIL & GAS - 11.4%
18,100 Burlington Resources 598,431
22,200 Conoco, Class A 549,450
22,479 Conoco, Class B 559,165
32,821 Exxon Mobil 2,644,142
12,200 Royal Dutch Petroleum 737,338
17,300 Texaco 939,606
13,044 Total Fina S.A., ADR 903,297
14,100 Williams Companies (The) 430,931
- --------------------------------------------------------
7,362,360
- --------------------------------------------------------
PHARMACEUTICALS - 3.8%
31,900 American Home Products 1,258,056
8,600 Bristol-Myers Squibb 552,013
11,700 Glaxo Wellcome, ADR 653,738
- --------------------------------------------------------
2,463,807
- --------------------------------------------------------
RETAILERS - 1.2%
11,000 Dayton Hudson 807,813
- --------------------------------------------------------
TELEPHONE SYSTEMS - 17.2%
13,100 Alltel 1,083,206
29,600 AT&T 1,502,200
37,800 Bell Atlantic 2,327,063
40,400 Bellsouth 1,891,225
10,045 Global Crossing* 502,250
13,700 GTE 966,706
38,602 SBC Communications 1,881,848
15,500 Sprint 1,043,344
- --------------------------------------------------------
11,197,842
- --------------------------------------------------------
TRANSPORTATION - 3.0%
22,400 Canadian National Railway 589,400
30,500 CSX 956,938
18,800 Norfolk Southern 385,400
- --------------------------------------------------------
1,931,738
- --------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
28
TOUCHSTONE GROWTH & INCOME FUND
Schedule of Investments continued
Value
Shares (Note 1)
COMMON STOCKS - Continued
TOTAL COMMON STOCKS
(COST $62,024,769) $63,909,463
- --------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.6%
CHEMICALS - 0.6%
11,400 Monsanto, ACES $ 377,625
- --------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $471,268) $ 377,625
- --------------------------------------------------------
Value
Shares (Note 1)
TOTAL INVESTMENTS AT VALUE - 99.2%
(COST $62,496,037) (A) $64,287,088
CASH AND OTHER ASSETS
NET OF LIABILITIES - 0.8% 492,194
- --------------------------------------------------------
NET ASSETS - 100.0% $64,779,282
- --------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$62,525,563 resulting in gross unrealized appreciation and depreciation of
$9,388,453 and $7,626,928, respectively, and net unrealized appreciation of
$1,761,525
ACES - Adjustable Conversion-Rate Equity Security
ADR - American Depository Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE>
29
TOUCHSTONE ENHANCED 30 FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Enhanced 30 Fund
At the end of 1999, significant transaction activity contributed to the
Touchstone Enhanced 30 Fund slightly lagging the market. As of December 31,
1999, the Enhanced 30 had a total return of 6.0%, compared to the 6.6% return on
the Dow.
The Touchstone Enhanced 30 is designed to track and/or change with its
benchmark, the Dow Jones Industrial Average. This Fund is always invested in 30
large names, of which 20 must be in the Dow. That gives the opportunity to
enhance the Fund by replacing slower growing companies with more rapid movers.
The Enhanced 30 currently has seven substitutions for more mature Dow
names, which offer expectancy of faster earnings growth than the stocks
replaced, without impairing portfolio quality. These substitutions include Cisco
Systems, Bank of America, Pfizer, Abbott Laboratories, MCI Worldcom, Intel
Corporation, and Lucent Technologies. The stocks replaced include Alcoa, AT&T,
Eastman Kodak, General Motors, International Paper and Philip Morris.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 N/A
Since Inception 05/01/99 N/A
Cumulative Total Return
Since Inception 05/01/99 6.0%
Touchstone Dow Jones
Enhanced Industrial Average
30 Fund (Major Index)
5/99 10000 10000
6/99 10160 10169
9/99 9600 9581
12/99 10599 10656
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts whrough which shares of the fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
30
TOUCHSTONE ENHANCED 30 FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 98.4%
AEROSPACE & DEFENSE - 5.4%
8,900 Boeing $ 369,906
6,200 Honeywell International 357,663
- --------------------------------------------------------
727,569
- --------------------------------------------------------
BANKING - 6.3%
2,900 American Express 482,125
7,300 Bank of America 366,369
- --------------------------------------------------------
848,494
- --------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 6.2%
7,700 Coca-Cola 448,525
9,700 McDonald's 391,031
- --------------------------------------------------------
839,556
- --------------------------------------------------------
BUILDING MATERIALS - 3.6%
7,200 Home Depot 493,650
- --------------------------------------------------------
CHEMICALS - 3.2%
6,500 Du Pont (E.I.) de Nemours 428,188
- --------------------------------------------------------
COMMUNICATIONS - 3.7%
6,700 Lucent Technologies 501,244
- --------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 4.0%
4,600 Microsoft* 537,050
- --------------------------------------------------------
COMPUTERS & INFORMATION - 13.4%
6,500 Cisco Systems* 696,309
5,700 Hewlett-Packard 649,444
4,500 International Business Machines 486,000
- --------------------------------------------------------
1,831,753
- --------------------------------------------------------
COSMETICS & PERSONAL CARE - 3.2%
4,000 Proctor & Gamble 438,250
- --------------------------------------------------------
ELECTRONICS - 3.6%
5,900 Intel 485,644
- --------------------------------------------------------
ENTERTAINMENT & LEISURE - 3.2%
14,700 Walt Disney Company (The) 429,975
- --------------------------------------------------------
FINANCIAL SERVICES - 7.0%
9,500 Citigroup 527,844
3,300 J.P. Morgan 417,863
- --------------------------------------------------------
945,707
- --------------------------------------------------------
Value
Shares (Note 1)
HEAVY MACHINERY - 5.5%
6,600 Caterpillar $ 310,613
6,600 United Technologies 429,000
- --------------------------------------------------------
739,613
- --------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 4.1%
3,600 General Electric 557,100
- --------------------------------------------------------
INDUSTRIAL - DIVERSIFIED - 2.9%
4,000 Minnesota Mining
& Manufacturing (3M) 391,500
- --------------------------------------------------------
MEDICAL SUPPLIES - 2.7%
3,900 Johnson & Johnson 363,188
- --------------------------------------------------------
OIL & GAS - 3.1%
5,148 Exxon Mobil 414,736
- --------------------------------------------------------
PHARMACEUTICALS - 8.5%
9,400 Abbott Laboratories 341,338
6,000 Merck 402,375
12,700 Pfizer 411,956
- --------------------------------------------------------
1,155,669
- --------------------------------------------------------
RETAILERS - 4.2%
8,200 Wal-Mart Stores 566,825
- --------------------------------------------------------
TELEPHONE SYSTEMS - 4.6%
4,950 MCI WorldCom* 262,659
7,400 SBC Communications 360,750
- --------------------------------------------------------
623,409
- --------------------------------------------------------
TOTAL COMMON STOCKS
(COST $12,240,619) $13,319,120
- --------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 98.4%
(COST $12,240,619) (A) $13,319,120
CASH AND OTHER ASSETS
NET OF LIABILITIES - 1.6% 212,984
- --------------------------------------------------------
NET ASSETS - 100.0% $13,532,104
- --------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$12,240,619, resulting in gross unrealized appreciation and depreciation of
$1,673,127 and $594,626, respectively, and net unrealized appreciation of
$1,078,501.
The accompanying notes are an integral part of the financial statements.
<PAGE>
31
TOUCHSTONE BALANCED FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Balanced Fund
The U.S. stock market continued its strong performance in 1999, completing
five consecutive years of sharply rising prices. Meanwhile, it was a rough year
for bonds and, by some measures, it was the worst year ever. At year end, bonds
and fixed income securities represented 40% of the Balanced Fund's assets. The
Touchstone Balanced Fund had a return of 9.6% for 1999. Its benchmark, the
Lehman Brothers Aggregate Index, had a return of (0.8)%.
The U.S. economy remains strong and there are indications of excessive optimism
in the stock market. The three rate increases implemented by the Federal Reserve
since June 1999 have been taken in stride, and even welcomed, by the stock
market. The stock market was characterized throughout 1999 -- and especially in
the fourth quarter -- by two extremely contradictory trends: the rapid
escalation of many technology stocks and the only modest gains or even price
declines for stocks across most other industry sectors. Many technology stocks
did not generate any earnings, yet increased dramatically, driven by the
prospect of continued rapid growth for e-commerce and the Internet. On the other
hand, many "bricks and mortar" stocks with solid earnings and favorable business
prospects declined in price.
The manager of the Touchstone Balanced Fund, OpCap Advisors, observed that as
technology stocks soared, many non-tech issues were left behind. A full
one-third of NYSE stocks declined 20% or more in 1999. Even stocks of
traditional companies with excellent competitive positions and strong earnings
growth tended to fare poorly in this technology-focused market environment.
Perform ance disparities among industry sectors and types of stocks are hardly
new. Nonetheless, few such disparities have been as dramatic as that which
occurred during 1999 between the technology stocks and the rest of the market.
OpCap remained focused on generating excellent long-term results with
below-market risk by investing in companies with superior fundamentals and inex
pensive valuations. At year end, common stocks represented 55% of the Fund's net
assets.
Among the Fund's equity holdings, Oak Industries, a leading manufacturer of
cable TV and telecommunications infrastructure products, was a top contribu tor
to performance. In November, Corning agreed to acquire Oak for approxi mately
$75 per share, a 51% premium to market, confirming OpCap's assessment of the
inherent worth of Oak's valuable franchises. Another major contributor to
performance was Molex, the second largest electronics connector manufac turer in
the world. The company's stock appreciated significantly during the last few
months of the year, reflecting the recovery of Asian markets and the company's
strong position in cell phone components. Emmis, a major broadcasting company
focused on large media markets, continues to be rewarded by the market for
strong performance in radio and television.
The five largest equity holdings at December 31, 1999 were AMFM, representing
3.0% of net assets; Computer Associates International, representing 1.8% of net
assets; Federal Home Loan Mortgage Corporation, representing 1.7% of the Fund's
net assets; Wells Fargo, representing 1.6% of net assets; and Sprint,
representing 1.5% of net assets.
In addition to its holdings of common stocks, bonds, and fixed income
securities, the Fund was invested in cash and cash equivalents. The fixed income
portion of the portfolio lagged along with the bond market at large.
<PAGE>
32
TOUCHSTONE BALANCED FUND
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 9.6%
Five Years Ended 12/31/99 14.8%
Since Inception 11/21/94 14.8%
Cumulative Total Return
Since Inception 11/21/94 102.8%
WIESENBERGER: BALANCED - DOMESTIC - VARIABLE ANNUITY (MINOR INDEX)
Blend: Wiesenberger:
60% S&P 500- Balanced
S&P 500 Lehman 40% Lehman -Domestic-
Touchstone Composite Brothers Brothers Variable
Balanced Total Return Aggregate Bond Aggregate Annuity
Fund (Major Index) (Major Index 2) (Minor Index) (Minor Index)
11/94 10000 10000 10000 10000 10000
12/94 10170 10148 10069 10101 10072
3/95 10780 11136 10577 10851 10575
6/95 11842 12200 11221 11688 11266
9/95 12576 13169 11442 12290 11847
12/95 12668 13962 11929 12898 12275
3/96 13109 14711 11718 13174 12517
6/96 13276 15371 11784 13512 12735
9/96 13737 15846 12002 13820 13013
12/96 14793 17167 12362 14632 13623
3/97 14701 17628 12293 14800 13535
6/97 16183 20705 12745 16500 14924
9/97 17206 22256 13168 17425 15896
12/97 17546 22895 13556 17894 16023
3/98 18750 26089 13767 19445 17273
6/98 18851 26950 14088 19971 17612
9/98 17127 24269 14684 19095 16428
12/98 18500 29437 14733 21455 18516
3/99 18646 30908 14658 22009 18880
6/99 19799 33087 14529 22816 19599
9/99 18924 31019 14629 21973 18798
12/99 20279 35635 14611 23847 20306
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts whrough which shares of the fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
33
TOUCHSTONE BALANCED FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 56.1%
ADVERTISING - 2.7%
4,000 Lamar Advertising* $ 242,250
4,800 WPP Group 399,000
5,100 Young & Rubicam 360,825
- --------------------------------------------------------
1,002,075
- --------------------------------------------------------
AEROSPACE & DEFENSE - 0.9%
8,000 Boeing 332,500
- --------------------------------------------------------
AIRLINES - 1.3%
7,200 AMR* 482,400
- --------------------------------------------------------
BANKING - 4.3%
3,100 Chase Manhattan 240,831
9,948 FleetBoston Financial 346,315
11,000 Household International 409,750
14,300 Wells Fargo 578,256
- --------------------------------------------------------
1,575,152
- --------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 2.2%
11,216 Diageo, ADR 358,912
11,400 McDonald's 459,563
- --------------------------------------------------------
818,475
- --------------------------------------------------------
BUILDING MATERIALS - 0.1%
5,778 Huttig Building Products* 28,528
- --------------------------------------------------------
CHEMICALS - 2.2%
7,500 Du Pont (E.I.) De Nemours 494,063
8,900 Monsanto 317,063
- --------------------------------------------------------
811,126
- --------------------------------------------------------
COMMERCIAL SERVICES - 1.4%
5,000 PerkinElmer 208,438
17,300 Waste Management 297,344
- --------------------------------------------------------
505,782
- --------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 1.8%
9,600 Computer Associates International 671,400
- --------------------------------------------------------
COMPUTERS & INFORMATION - 0.8%
11,100 Compaq Computer 300,394
- --------------------------------------------------------
CONTAINERS & PACKAGING - 0.4%
12,000 American National Can Group 156,000
- --------------------------------------------------------
COSMETICS & PERSONAL CARE - 0.8%
9,000 Avon Products 297,000
- --------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.3%
8,000 Emerson Electric 459,000
- --------------------------------------------------------
ELECTRONICS - 2.5%
10,000 Arrow Electronics* 253,750
6,500 Avnet 393,250
4,700 Molex 266,431
- --------------------------------------------------------
913,431
- --------------------------------------------------------
FINANCIAL SERVICES - 3.8%
9,000 Citigroup 500,063
9,800 Countrywide Credit 247,450
13,600 Federal Home Loan Mortgage
Corporation 640,050
- --------------------------------------------------------
1,387,563
- --------------------------------------------------------
FOOD RETAILERS - 1.1%
21,000 Kroger Company (The)* 396,375
- --------------------------------------------------------
HEAVY MACHINERY - 4.2%
10,000 Applied Power, Class A 367,500
7,000 Caterpillar 329,438
Value
Shares (Note 1)
HEAVY MACHINERY - Continued
6,000 Dover $ 272,250
8,500 Parker Hannifin 436,156
3,000 W.W. Grainger 143,438
- --------------------------------------------------------
1,548,782
- --------------------------------------------------------
INDUSTRIAL - DIVERSIFIED - 2.4%
10,000 Carlisle Companies 360,000
5,500 Minnesota Mining
& Manufacturing (3M) 538,313
- --------------------------------------------------------
898,313
- --------------------------------------------------------
INSURANCE - 4.2%
7,200 AFLAC 339,750
8,729 Conseco 156,031
9,000 Everest Reinsurance Holdings 200,813
7,000 PartnerRe 227,063
9,000 Protective Life 286,313
6,600 XL Capital, Class A 342,375
- --------------------------------------------------------
1,552,345
- --------------------------------------------------------
LODGING - 1.1%
193,200 Homestead Village* 410,550
- --------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 4.0%
14,100 AMFM* 1,103,314
3,000 Emmis Communications, Class A* 373,922
- --------------------------------------------------------
1,477,236
- --------------------------------------------------------
METALS - 1.6%
3,900 Alcoa 323,700
13,000 Crane 258,375
- --------------------------------------------------------
582,075
- --------------------------------------------------------
OIL & GAS - 0.9%
9,400 Anadarko Petroleum 320,775
- --------------------------------------------------------
PHARMACEUTICALS - 2.2%
8,800 American Home Products 347,050
6,200 Teva Pharmaceutical Industries, ADR 444,463
- --------------------------------------------------------
791,513
- --------------------------------------------------------
REAL ESTATE - 0.9%
17,500 Prologis Trust, REIT 336,875
- --------------------------------------------------------
RESTAURANTS - 0.4%
10,000 Bob Evans Farms 154,375
- --------------------------------------------------------
RETAILERS - 1.3%
6,000 CVS 239,625
7,000 May Department Stores 225,750
- --------------------------------------------------------
465,375
- --------------------------------------------------------
TELEPHONE SYSTEMS - 3.3%
4,500 Bell Atlantic 277,031
7,500 MCI WorldCom* 397,969
8,000 Sprint 538,500
- --------------------------------------------------------
1,213,500
- --------------------------------------------------------
TRANSPORTATION - 2.0%
12,500 Air Express International 403,906
6,600 Sabre Group Holdings* 338,250
- --------------------------------------------------------
742,156
- --------------------------------------------------------
TOTAL COMMON STOCKS
(COST $20,186,733) $20,631,071
- --------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
34
TOUCHSTONE BALANCED FUND
Schedule of Investments continued
Value
Shares (Note 1)
PREFERRED STOCK - 0.9%
ENTERTAINMENT & LEISURE - 0.9%
10,200 News Corporation Limited
(The), ADR $ 341,063
- --------------------------------------------------------
TOTAL PREFERRED STOCK
(COST $250,660) $ 341,063
- --------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
ASSET-BACKED SECURITIES - 2.0%
ELECTRIC UTILITIES - 2.0%
$ 750,000 Peco Energy
Transition Trust,
Series 1999-A,
Class A2 5.63% 03/01/05 $ 727,823
- --------------------------------------------------------
FINANCIAL SERVICES - 0.0%
4,111 Merrill Lynch
Mortgage
Investors, Series
1991-I, Class A 7.65% 01/15/12 4,113
- --------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $753,735) $ 731,936
- --------------------------------------------------------
CORPORATE BONDS - 16.7%
BANKING - 3.3%
$ 750,000 Associates
Corporation of
North America 5.75% 11/01/03 $ 714,094
250,000 BB&T 7.25% 06/15/07 241,972
250,000 Chase Manhattan 7.25% 06/01/07 245,109
691 Nykredit 6.00% 10/01/26 89
- --------------------------------------------------------
1,201,264
- --------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 0.4%
160,000 Coca-Cola
Femsa 8.95% 11/01/06 160,400
- --------------------------------------------------------
CHEMICALS - 0.3%
100,000 Belo 6.875% 06/01/02 98,505
- --------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 1.0%
400,000 Computer
Associates
International 6.375% 04/15/05 372,143
- --------------------------------------------------------
ELECTRIC UTILITIES - 3.9%
215,000 Financiera
Energy 9.375% 06/15/06 181,635
750,000 Tennessee Valley
Authority 5.00% 12/18/03 703,337
550,000 Wisconsin
Electric Power 6.625% 12/01/02 545,182
- --------------------------------------------------------
1,430,154
- --------------------------------------------------------
FINANCIAL SERVICES - 4.5%
20,000 Access Financial 7.10% 05/15/21 19,886
750,000 AT&T Capital 7.50% 11/15/00 753,668
250,000 Ford Credit 5.75% 01/25/01 247,395
500,000 GMAC 7.125% 05/01/01 500,883
120,000 Paine Webber
Group 7.00% 03/01/00 120,086
- --------------------------------------------------------
1,641,918
- --------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
MEDIA - BROADCASTING & PUBLISHING - 1.3%
$ 500,000 CSC Holdings 7.625% 07/15/18 $ 465,000
- --------------------------------------------------------
METALS - 0.8%
300,000 AK Steel 9.125% 12/15/06 305,250
- --------------------------------------------------------
MULTIPLE UTILITIES - 0.8%
300,000 New Brunswick 7.125% 10/01/02 301,014
- --------------------------------------------------------
OIL & GAS - 0.4%
150,000 Petroleos
Mexicanos 8.85% 09/15/07 143,625
- --------------------------------------------------------
TOTAL CORPORATE BONDS (COST $6,377,189) $ 6,119,273
- --------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 11.5%
$ 35,000 Federal National
Mortgage
Association 6.15% 10/25/07 $ 34,514
500,000 Federal National
Mortgage
Association 6.00% 05/15/08 467,312
750,000 Federal National
Mortgage
Association 6.50% 04/29/09 702,708
633,091 Federal National
Mortgage
Association 6.50% 12/01/12 614,351
695,793 Federal National
Mortgage
Association 6.00% 01/01/14 660,496
500,000 Federal National
Mortgage
Association 6.247% 06/25/16 467,015
564,575 Federal National
Mortgage
Association 6.50% 07/18/28 525,119
40,000 General Electric
Capital Mortgage
Services, Series
1993-14, Class A7 6.50% 11/25/23 34,928
44,500 General Electric
Capital Mortgage
Services, Series
1994-10,
Class A10 6.50% 03/25/24 42,329
665,817 Government
National
Mortgage
Association 4.00% 10/20/25 601,874
40,000 Merrill Lynch
Mortgage
Investors, Series
1995-C3,
Class A3 7.089% 12/26/25 39,333
50,000 Prudential Home
Mortgage
Securities, Series
1994-17,
Class A6 6.25% 04/25/24 41,609
- --------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $4,510,271) $ 4,231,588
- --------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
35
TOUCHSTONE BALANCED FUND
Schedule of Investments continued
Principal Interest Maturity Value
Amount Rate Date (Note 1)
MUNICIPAL BONDS - 0.5%
HOUSING - 0.4%
$ 40,000 Baltimore
Community
Development
Financing 8.20% 08/15/07 $ 41,504
40,000 New York State
Housing Finance
Agency Service 7.50% 09/15/03 40,262
50,000 Ohio Housing
Financial Agency 7.90% 10/01/14 51,051
- --------------------------------------------------------
132,817
- --------------------------------------------------------
TRANSPORTATION - 0.1%
30,000 Oklahoma City
Airport 9.40% 11/01/10 32,908
- --------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $161,278) $ 165,725
- --------------------------------------------------------
SOVEREIGN GOVERNMENT OBLIGATIONS - 2.0%
SOUTH AFRICA - 1.4%
ZAR 3,180,000 Republic
of South
Africa 13.00% 08/31/10 $ 496,942
- --------------------------------------------------------
UNITED KINGDOM - 0.6%
GBP 105,000 United
Kingdom
Treasury 8.00% 12/07/15 226,428
- --------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT
OBLIGATIONS (COST $819,277) $ 723,370
- --------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
U.S. TREASURY OBLIGATIONS - 9.0%
$ 100,000 U.S. Treasury
Note 5.75% 10/31/00 $ 99,781
550,000 U.S. Treasury
Note 5.625% 05/15/01 545,875
350,000 U.S. Treasury
Note 5.75% 08/15/03 342,672
50,000 U.S. Treasury
Note 7.00% 07/15/06 51,219
505,000 U.S. Treasury
Bond 6.25% 04/30/01 505,474
725,000 U.S. Treasury
Bond 7.25% 08/15/22 764,422
975,000 U.S. Treasury
Bond 6.75% 08/15/26 979,266
- --------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $3,511,444) $ 3,288,709
- --------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 98.7%
(COST $36,570,587)(A) $36,232,735
CASH AND OTHER ASSETS
NET OF LIABILITIES - 1.3% 483,299
- --------------------------------------------------------
NET ASSETS - 100.0% $36,716,034
- --------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$36,577,477, resulting in gross unrealized appreciation and depreciation of
$3,457,291 and $3,802,033, respectively, and net unrealized depreciation of
$344,742.
ADR - American Depository Receipt
REIT - Real Estate Investment Trust
GBP - Great Britain Pound
ZAR - South African Rand
The accompanying notes are an integral part of the financial statements.
<PAGE>
36
TOUCHSTONE BOND FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Bond Fund
The bond market ended its final quarter of the century on a down note, generat
ing a negative return in December and locking in an equally poor return for the
quarter. The Federal Reserve induced sell-off continued and produced only the
second negative total return for bonds in a year since 1975. There are few
places to hide in the fixed income market when the Federal Reserve begins to
tighten the money supply. The benchmark for the Bond Fund, the Lehman Brothers
Aggregate Index, had a (0.8)% return in 1999. The Bond Fund return for the same
period was (1.9)%.
This environment wasn't conducive to an outstanding bond portfolio performance.
While the Touchstone Bond Fund is structured to produce above market income as a
defensive measure, lower prices have offset this tactic causing returns to
closely track the index. Performance for the account gross of fees for the
fourth quarter and the year were -0.21% and -0.97% versus -0.12% and -0.83% for
the Lehman Brothers Aggregate Index.
Fixed income has not been the investment asset of choice for the past several
years when compared to the stellar returns in the equity market. The manager of
the Touchstone Bond Fund, Fort Washington Investment Advisors, believes that
there could continue to be rough sledding in the bond market.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 (1.3%)
Since Inception 01/01/99 (1.3%)
Cumulative Total Return
Since Inception 01/01/99 (1.3%)
Wiesenberger:
Lehman Corporate -
Brothers Investment
Touchstone Aggregate Bond Grade
Bond Fund (Major Index) (Minor Index)
1/99 10000 10000 10000
3/99 9951 9949 9940
6/99 9862 9861 9803
9/99 9921 9929 9847
12/99 9881 9917 9830
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
37
TOUCHSTONE BOND FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Principal Interest Maturity Value
Amount Rate Date (Note 1)
AGENCY FOR INTERNATIONAL DEVELOPMENT BONDS - 1.9%
CENTRAL AMERICA - 1.2%
$ 120,000 Central America
International
Development,
Series F+ 10.00% 12/01/11 $ 132,586
120,000 Central America
International
Development,
Series G+ 10.00% 12/01/11 132,586
120,000 Central America
International
Development,
Series H+ 10.00% 12/01/11 132,586
- --------------------------------------------------------
397,758
- --------------------------------------------------------
HONDURAS - 0.7%
100,000 Republic of Honduras
International
Development,
Series C+ 13.00% 06/01/06 118,494
100,000 Republic of Honduras
International
Development,
Series D+ 13.00% 06/01/11 133,383
- --------------------------------------------------------
251,877
- --------------------------------------------------------
TOTAL AGENCY FOR INTERNATIONAL
DEVELOPMENT BONDS (COST $560,000) $ 649,635
- --------------------------------------------------------
ASSET-BACKED SECURITIES - 8.0%
CREDIT CARD RECEIVABLES - 1.8%
$ 650,000 Discover Card Master
Trust, Series
1998-6, Class A 5.85% 01/17/06 $ 626,730
- --------------------------------------------------------
ELECTRIC UTILITIES - 2.7%
1,000,000 Peco Energy Transition
Trust, Series 1999-A,
Class A4 5.80% 03/01/07 951,730
- --------------------------------------------------------
FINANCIAL SERVICES - 3.5%
28,690 Chase Manhattan
Grantor Trust,
Series 1996-A,
Class A 5.20% 02/15/02 28,595
900,000 Chemical Credit
Card Master Trust,
Series 1996-2,
Class A 5.98% 09/15/08 855,405
72,833 Navistar Financial
Corp. Owner Trust,
Series 1996-A,
Class A2 6.35% 11/15/02 72,795
246,067 World Omni
Auto Lease,
Series 1997-B,
Class A3 6.18% 11/25/03 246,007
- --------------------------------------------------------
1,202,802
- --------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $2,840,733) $ 2,781,262
- --------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
CORPORATE BONDS - 50.7%
AIRLINES - 4.1%
$1,500,000 Delta Air Lines,
Series C 6.65% 03/15/04 $ 1,432,586
- --------------------------------------------------------
BANKING - 5.3%
1,000,000 American
Express 6.75% 06/23/04 982,550
500,000 Credit Suisse
First Boston -
London 7.90% 05/01/07 475,729
350,000 First Union 6.55% 10/15/35 332,532
49,276 Mercantile Safe
Deposit+ 12.125% 01/02/01 49,399
- --------------------------------------------------------
1,840,210
- --------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 2.5%
1,000,000 Pepsi Bottling, 144A
5.625% 02/17/09 882,956
- --------------------------------------------------------
CHEMICALS - 2.8%
1,000,000 Du Pont (E.I.)
De Nemours 6.875% 10/15/09 967,203
- --------------------------------------------------------
COMMUNICATIONS - 1.4%
500,000 Harris
Corporation 6.65% 08/01/06 497,730
- --------------------------------------------------------
ELECTRIC UTILITIES - 8.2%
1,000,000 Consumers
Energy,
Series B 6.50% 06/15/18 930,469
1,000,000 PSE&G Capital 6.74% 10/23/01 988,668
1,000,000 Tennessee Valley
Authority,
Series G 5.375% 11/13/08 891,177
- --------------------------------------------------------
2,810,314
- --------------------------------------------------------
ELECTRONICS - 2.7%
1,000,000 Raytheon 5.70% 11/01/03 938,371
- --------------------------------------------------------
FINANCIAL SERVICES - 5.1%
750,000 Ford Credit 5.75% 02/23/04 710,515
200,000 Ford Credit 6.75% 05/15/05 194,561
1,000,000 Safeco Capital 8.072% 07/15/37 879,482
- --------------------------------------------------------
1,784,558
- --------------------------------------------------------
FOREST PRODUCTS & PAPER - 0.8%
250,000 Georgia-Pacific 9.50% 05/15/22 264,531
- --------------------------------------------------------
HEALTH CARE PROVIDERS - 2.3%
850,000 Columbia/HCA
Health 6.73% 07/15/45 791,072
- --------------------------------------------------------
HOUSEHOLD PRODUCTS - 2.0%
750,000 Owens-Illinois 7.15% 05/15/05 696,290
- --------------------------------------------------------
HOUSING - 2.6%
1,000,000 Champion
Enterprises,
144A 7.625% 05/15/09 897,780
- --------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 2.2%
500,000 Cox
Communications 6.375% 06/15/00 500,493
250,000 News America
Holdings 10.125% 10/15/12 275,052
- --------------------------------------------------------
775,545
- --------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
TOUCHSTONE BOND FUND
Schedule of Investments continued
Principal Interest Maturity Value
Amount Rate Date (Note 1)
CORPORATE BONDS - Continued
OIL & GAS - 2.2%
$ 750,000 Husky Oil 8.90% 08/15/28 $ 748,947
- --------------------------------------------------------
RETAILERS - 1.4%
500,000 Wal-Mart Stores 5.85% 06/01/00 499,703
- --------------------------------------------------------
TELEPHONE SYSTEMS - 3.0%
1,000,000 MCI WorldCom 8.875% 01/15/06 1,044,870
- --------------------------------------------------------
TRANSPORTATION - 2.1%
750,000 Norfolk Southern 7.35% 05/15/07 733,254
- --------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $18,477,454) $17,605,920
- --------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 30.2%
$ 236,999 Federal Government
Loan Mortgage
Corporation 7.00% 10/01/25 $ 229,962
278,684 Federal Government
Loan Mortgage
Corporation 7.00% 12/01/25 270,409
1,250,000 Federal National
Mortgage
Association 5.75% 04/15/03 1,213,630
2,937,245 Federal National
Mortgage
Association 6.50% 07/01/28 2,768,540
336,014 Government
National Mortgage
Association 7.00% 02/15/09 335,079
2,077 Government
National Mortgage
Association 7.50% 07/15/23 2,055
325,487 Government
National Mortgage
Association 7.50% 12/15/25 322,096
633,930 Government
National Mortgage
Association 7.50% 12/15/27 627,326
1,204,526 Government
National Mortgage
Association 7.00% 05/15/28 1,163,999
442,152 Government
National Mortgage
Association 7.00% 07/15/28 427,276
457,061 Government
National Mortgage
Association 7.00% 07/15/28 441,683
1,942,951 Government
National Mortgage
Association 6.50% 09/15/28 1,825,159
920,000 Housing
Securities 6.75% 09/25/08 833,778
- --------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $11,069,628) $10,460,992
- --------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
SOVEREIGN GOVERNMENT OBLIGATIONS - 2.9%
CANADA - 2.9%
$1,000,000 Province
of Ontario 7.375% 01/27/03 $ 1,010,650
- --------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT
OBLIGATIONS (COST $1,077,440) $ 1,010,650
- --------------------------------------------------------
Value
Shares (Note 1)
PREFERRED STOCKS - 4.1%
ELECTRIC UTILITIES - 2.2%
9,300 Appalachian Power, 8.25%
Cumulative $ 206,925
16,800 Columbus Southern Power,
8.375% Cumulative 374,850
7,500 Virginia Power Capital Trust,
8.05% Cumulative 162,188
- --------------------------------------------------------
743,963
- --------------------------------------------------------
OIL & GAS - 1.9%
29,900 Transcanada Capital, 8.75%
Cumulative 674,619
- --------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $1,632,493) $ 1,418,582
- --------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 97.8%
(COST $35,657,748)(A) $33,927,041
CASH AND OTHER ASSETS
NET OF LIABILITIES - 2.2% 773,213
- --------------------------------------------------------
NET ASSETS - 100.0% $34,700,254
- --------------------------------------------------------
Notes to the Schedule of Investments:
+ Restricted and Board valued security (Note 5).
(a) The aggregate identified cost for federal income tax purposes is
$35,657,748 resulting in gross unrealized appreciation and depreciation of
$119,626 and $1,850,332 respectively, and net unrealized depreciation of
$1,730,706
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $1,780,736 or 5.1% of net assets.
The accompanying notes are an integral part of the financial statements.
<PAGE>
39
TOUCHSTONE STANDBY INCOME FUND
Touchstone Standby Income Fund
The Touchstone Standby Income Fund continued to achieve success in 1999. Ft.
Washington Investment Advisors, the manager of the Touchstone Standby Income
Fund, attributed this to their investment philosophy of sector rotation and
trend analysis. The Fund's benchmark, the Merrill Lynch 91-Day Treasury Index,
posted a 4.8% return for 1999. The Standby Income Fund achieved a 4.9% return
for the year.
Fort Washington began 1999 with a near balanced allocation to the Commercial
Paper, corporate bond and ABS (asset-backed securities) markets and an index
matched average maturity. As the year concluded, the Fund had a significantly
higher Commercial Paper allocation, effectively unwinding the position that had
helped them to achieve success in 1998. ABS and corporate spreads, which had
reached historically wide levels in 1998, began to tighten, adding to the Fund's
total return. This, coupled with the increasing likelihood that the Federal
Reserve was becoming more hostile to the bond market, caused Fort Washington to
shorten duration and seek the liquidity provided by the Commercial Paper market.
Fort Washington's defensive posture allowed the success to continue into 1999,
even as the bond market experienced its second worst year ever. The Fund's 5.4%
return in 1999 again placed the Touchstone Standby Income Fund in the top
quartile of the Morningstar Ultra Short Index.
GROWTH OF A $10,000 INVESTMENT
Average Annual Total Return
One Year Ended 12/31/99 4.9%
Five Years Ended 12/31/99 5.4%
Since Inception 11/21/94 5.4%
Cumulative Total Return
Since Inception 11/21/94 30.9%
Merrill Lynch 30-Day
Touchstone 91-Day Money Market Smith Barney
Standby Treasury Yield Index 3-Month
Income Fund (Major Index) (Minor Index) Treasury Bill
11/94 10000 10000 10000 10000
12/94 10057 10042 10050 10046
3/95 10213 10178 10200 10187
6/95 10369 10319 10354 10326
9/95 10482 10457 10501 10462
12/95 10651 10594 10656 10597
3/96 10777 10725 10787 10725
6/96 10915 10853 10926 10857
9/96 11057 10984 11077 10993
12/96 11203 11118 11221 11127
3/97 11334 11252 11364 11266
6/97 11486 11393 11519 11405
9/97 11657 11536 11673 11546
12/97 11809 11683 11819 11691
3/98 11964 11825 11973 11836
6/98 12129 11974 12127 11980
9/98 12310 12125 12299 12122
12/98 12483 12267 12438 12249
3/99 12643 12401 12570 12382
6/99 12777 12535 12717 12517
9/99 12921 12679 12878 12660
12/99 13089 12834 13039 12819
Past performance is not indicative of future performance.
Performance information does not reflect fees that are paid by the separate
accounts through which shares of the Fund are sold. Inclusion of those fees
would reduce total return figures for all periods.
<PAGE>
40
TOUCHSTONE STANDBY INCOME FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
Principal Interest Maturity Value
Amount Rate Date (Note 1)
ASSET-BACKED SECURITIES - 26.3%
$ 607,855 Auto Finance Group
Receivables Trust,
Series 1997-A,
Class A 6.35% 10/15/02 $ 605,983
809,953 Auto Finance Group
Receivables Trust,
Series 1997-B,
Class A 6.20% 02/15/03 805,231
593,494 Capital Asset
Research Funding,
Series 1998-A,
Class A, 144A 5.905% 12/15/05 595,163
1,300,000 Chase Credit Card
Master Trust,
Series 1998-6,
Class B(a) 6.973% 09/15/04 1,303,055
1,400,000 Citibank Credit
Card Master Trust,
Series 1997-3,
Class A 6.839% 02/10/04
988,856 Mellon Auto
Grantor
Trust, Series
1999-1, Class B 5.76% 10/17/05 976,268
48,823 Newcourt
Equipment Trust
Securities,
Series 1998-1,
Class A2 5.17% 09/20/00 48,823
1,081,221 Onyx Acceptance
Auto Trust,
Series 1998-1,
Class A 5.95% 07/15/04 1,071,652
336,721 Summit Acceptance
Auto Trust,
Series 1996-A,
Class A1, 144A 7.01% 07/15/02 337,774
614,016 UCFC Home
Equity Loan,
Series 1998-D,
Class AF1 6.105% 04/15/13 611,707
- --------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $7,793,404) $ 7,753,948
- --------------------------------------------------------
COMMERCIAL PAPER - 27.6%
$ 585,000 Centennial Energy
Holdings,
Sec. 4(2) 7.10% 01/21/00 $ 582,231
435,000 ConAgra 7.00% 01/12/00 433,731
625,000 Conoco,
Sec. 4(2) 6.75% 01/31/00 620,430
1,480,000 Consolidation
Coal 6.43% 01/21/00 1,466,254
995,000 PHH 7.15% 01/21/00 990,060
1,110,000 Popular North
America 6.678% 01/21/00 1,099,705
Principal Interest Maturity Value
Amount Rate Date (Note 1)
COMMERCIAL PAPER - Continued
- --------------------------------------------------------
$1,465,000 South Carolina
Electric & Gas 6.60% 02/01/00 $ 1,454,257
1,500,000 UOP, Sec. 4(2) 6.75% 01/28/00 1,485,375
- --------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $8,132,043) $ 8,132,043
- --------------------------------------------------------
CORPORATE BONDS - 27.2%
BANKING - 8.4%
$1,100,000 MBNA, MTN (a) 6.58% 07/07/03 $ 1,089,934
- --------------------------------------------------------
1,400,000 Popular, Series 3,
MTN 6.40% 08/25/00 1,396,266
- --------------------------------------------------------
2,486,200
- --------------------------------------------------------
ELECTRIC UTILITIES - 4.7%
1,400,000 SCANA,
MTN (a) 6.813% 07/14/00 1,399,615
- --------------------------------------------------------
FINANCIAL SERVICES - 4.8%
1,400,000 Potomac Capital
Investment, 144A 7.55% 11/19/01 1,403,520
- --------------------------------------------------------
REAL ESTATE - 4.4%
1,300,000 Federal Realty
Investment
Trust, REIT 8.875% 01/15/00 1,300,658
- --------------------------------------------------------
RETAILERS - 4.9%
1,400,000 Dayton Hudson 10.00% 12/01/00 1,438,408
- --------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $8,091,468) $ 8,028,401
- --------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 13.3%
$2,600,000 Federal Home
Loan Bank 5.73% 01/14/00 $ 2,588,411
1,350,000 Federal Home
Loan Mortgage
Corportation,
Series UB 6.00% 11/15/08 1,331,627
- --------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST $3,947,692) $ 3,920,038
- --------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 94.4%
(COST $27,964,607)(B) $27,834,430
CASH AND OTHER ASSETS
NET OF LIABILITIES - 5.6% 1,644,646
- --------------------------------------------------------
NET ASSETS - 100.0% $29,479,076
- --------------------------------------------------------
Notes to the Schedule of Investments:
(a) Interest rate shown reflects current rate on instrument with variable rate.
(b) The aggregate identified cost for federal income tax purposes is
$27,964,607, resulting in gross unrealized appreciation and depreciation of
$8,494 and $138,671, respectively, and net unrealized depreciation of
$130,177.
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $932,937 or 3.2% of net assets.
Sec. 4(2) - Securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Directors.
MTN - Medium Term Note
REIT - Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE>
41
<TABLE>
TOUCHSTONE VARIABLE SERIES TRUST
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1999
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
SMALL CAP EMERGING INTERNATIONAL INCOME HIGH
VALUE GROWTH EQUITY OPPORTUNITY YIELD
FUND FUND FUND FUND FUND
ASSETS:
<S> <C> <C> <C> <C> <C>
Investments, at value (Note 1)(a) $11,962,503 $35,778,466 $40,539,371 $24,852,194 $14,257,511
Cash 119,274 1,274,155 337,970 49,078 240,742
Foreign currency(b) -- -- -- -- --
Receivables for:
Investments sold -- 86,301 438,359 -- --
Fund shares sold -- -- -- -- --
Dividends 758 16,953 11,293 -- --
Foreign tax reclaims -- -- 22,088 -- --
Interest 578 5,095 915 763,018 442,269
Reimbursement receivable from
Investment Advisor (Note 4) 1,554 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total assets 12,084,667 37,160,970 41,349,996 25,664,290 14,940,522
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Investments purchased -- 5,190 384,219 -- --
Unrealized depreciation on foreign
forward currency contracts (Note 1) -- -- 2,836 -- --
Fund shares redeemed 130 12,106 15,470 17,051 439
Payable to Investment Advisor (Note 4) -- 231,756 192,676 126,461 7,181
Payable to Custodian -- -- 52,325 -- --
Other accrued expenses 14,608 32,457 39,093 33,219 16,970
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,738 281,509 686,619 176,731 24,590
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (C): $12,069,929 $36,879,461 $40,663,377 $25,487,559 $14,915,932
- ------------------------------------------------------------------------------------------------------------------------------
Shares outstanding 1,023,624 1,918,131 2,317,813 3,311,401 1,732,234
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value $ 11.79 $ 19.23 $ 17.54 $ 7.70 $ 8.61
- ------------------------------------------------------------------------------------------------------------------------------
(a) Cost of investments of: $10,159,387 $26,673,950 $30,986,807 $25,362,282 $16,105,045
(b) Cost of foreign currency of: $-- $ -- $ -- $ -- $ --
(c) See the Statements of Changes in Net Assets for components of net assets.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
42
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE SERIES TRUST
Statements of Assets and Liabilities continued
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
VALUE GROWTH & ENHANCED TOUCHSTONE TOUCHSTONE STANDBY
PLUS INCOME 30 BALANCED BOND INCOME
FUND FUND FUND FUND FUND FUND
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Investments, at value (Note 1)(a) $ 7,042,218 $64,287,088 $13,319,120 $36,232,735 $33,927,041 $27,834,430
Cash 115,838 874,565 202,505 389,415 512,951 1,422,141
Foreign currency(b) -- -- -- 6,785 -- --
Receivables for:
Investments sold -- -- -- 149,510 -- --
Fund shares sold 1,939 -- -- -- -- 70,948
Dividends 7,459 116,758 12,926 9,746 29,626 --
Foreign tax reclaims 92 -- -- -- 1,635 --
Interest 249 2,475 595 210,184 446,635 200,374
Reimbursement receivable from
Investment Advisor (Note 4) 19,656 -- 12,418 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total assets 7,187,451 65,280,886 13,547,564 36,998,375 34,917,888 29,527,893
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Investments purchased -- -- -- -- -- --
Unrealized depreciation on
foreign forward currency
contracts (Note 1) -- -- -- -- -- --
Fund shares redeemed -- 13,832 743 9,153 18,242 --
Payable to Investment Advisor (Note 4) -- 425,142 -- 223,932 163,711 21,684
Other accrued expenses 16,658 62,630 14,717 49,256 35,681 27,133
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 16,658 501,604 15,460 282,341 217,634 48,817
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (C): $ 7,170,793 $64,779,282 $13,532,104 $36,716,034 $34,700,254 $29,479,076
- ------------------------------------------------------------------------------------------------------------------------------
Shares outstanding 639,240 6,048,210 1,282,358 2,661,139 3,475,682 2,971,667
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value 11.22 $ 10.71 $ 10.55 $ 13.80 $ 9.98 $ 9.92
- ------------------------------------------------------------------------------------------------------------------------------
(a) Cost of investments of: $ 6,704,636 $62,496,037 $12,240,619 $36,570,587 $35,657,748 $27,964,607
(b) Cost of foreign currency of: $ -- $ -- $ -- $ 6,718 $ -- $ --
(c) See the Statements of Changes in Net Assets for components of net assets.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
43
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE SERIES TRUST
STATEMENTS OF OPERATIONS
For the Period Ended December 31, 1999
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
SMALL CAP EMERGING INTERNATIONAL INCOME HIGH
VALUE GROWTH EQUITY OPPORTUNITY YIELD
FUND(A) FUND FUND FUND FUND(A)
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1):
Interest $ 23,855 $ 62,904 $ 47,478 $3,644,851 $1,011,846
Dividends (c) 13,302 194,679 509,397 --
- ------------------------------------------------------------------------------------------------------------------------------
Total investment income 37,157 257,583 556,875 3,644,851 1,011,846
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 56,215 249,804 326,334 200,285 59,450
Custody, administration and fund accounting fees 57,676 90,100 193,206 92,327 55,339
Sponsor fees (Note 3) 14,054 62,451 68,702 61,626 19,817
Professional fees 6,581 11,956 12,490 12,686 7,004
Printing fees 6,440 17,689 18,883 18,080 7,971
Amortization of organization expenses (Note 1) -- 3,467 3,467 3,467 --
Trustee fees (Note 3) 505 3,391 3,727 3,851 760
Miscellaneous 894 4,569 4,939 5,040 1,340
- ------------------------------------------------------------------------------------------------------------------------------
Total expenses 142,365 443,427 631,748 397,362 151,681
Waiver of Sponsor fee (Note 4) (14,054) (62,451) (68,702) (61,626) (19,817)
Reimbursement from Investment Advisor (Note 4) (57,768) (18,047) (133,659) (73,824) (52,269)
- ------------------------------------------------------------------------------------------------------------------------------
Net expenses 70,543 362,929 429,387 261,912 79,595
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (33,386) (105,346) 127,488 3,382,939 932,251
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on:
Investments 50,549 6,087,461 6,454,159 (6,795,726) (357,539)
Foreign currency -- -- (154,872) -- --
- ------------------------------------------------------------------------------------------------------------------------------
50,549 6,087,461 6,299,287 (6,795,726) (357,539)
- ------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 1,803,116 6,580,932 4,755,365 4,138,625 (1,847,534)
Foreign currency -- -- (3,238) -- --
- ------------------------------------------------------------------------------------------------------------------------------
1,803,116 6,580,932 4,752,127 4,138,625 (1,847,534)
- ------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS): 1,853,665 12,668,393 11,051,414 (2,657,101) (2,205,073)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,820,279 $12,563,047 $11,178,902 $ 725,838 $(1,272,822)
- ------------------------------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on May 1, 1999.
(b) The Fund commenced operations on January 1, 1999.
(c) Net of foreign tax withholding of: $ -- $ -- $ 54,612 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
44
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE SERIES TRUST
Statements of Operations continued
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
VALUE GROWTH & ENHANCED TOUCHSTONE TOUCHSTONE STANDBY
PLUS INCOME 30 BALANCED BOND INCOME
FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1):
Interest $ 17,729 $ 46,869 $ 16,660 $1,136,909 $2,432,806 $1,723,174
Dividends (c) 82,883 1,687,588 102,944 259,320 158,506 --
- -------------------------------------------------------------------------------------------------------------------------------
Total investment income 100,612 1,734,457 119,604 1,396,229 2,591,312 1,723,174
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 53,453 593,584 49,247 323,935 209,984 70,038
Custody, administration and fund
accounting fees 86,513 126,012 54,990 89,865 78,266 81,490
Sponsor fees (Note 3) 14,254 148,396 15,153 80,984 76,358 56,030
Professional fees 7,524 19,571 6,624 14,156 13,124 11,514
Printing fees 6,528 42,135 6,435 22,818 22,046 15,669
Amortization of organization
expenses (Note 1) -- -- -- 3,467 -- 3,496
Trustee fees (Note 3) 588 8,150 505 4,168 3,749 2,402
Miscellaneous 463 10,673 894 6,021 5,446 3,822
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 169,323 948,521 133,848 545,414 408,973 244,461
Waiver of Sponsor fee (Note 4) (14,254) (148,396) (15,153) (80,984) (76,358) (56,030)
Reimbursement from Investment
Advisor (Note 4) (73,108) (169,442) (61,666) (100,004) (46,273) (48,355)
- -------------------------------------------------------------------------------------------------------------------------------
Net expenses 81,961 630,683 57,029 364,426 286,342 140,076
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 18,651 1,103,774 62,575 1,031,803 2,304,970 1,583,098
- -------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 835,544 2,473,484 (351,490) 3,104,646 (378,508) (111,349)
Foreign currency -- -- -- (33,666) -- --
- -------------------------------------------------------------------------------------------------------------------------------
835,544 2,473,484 (351,490) 3,070,980 (378,508) (111,349)
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 81,625 (1,294,188) 1,078,501 (413,041) (2,428,089) (136,309)
Foreign currency -- -- -- 2,121 -- --
- -------------------------------------------------------------------------------------------------------------------------------
81,625 (1,294,188) 1,078,501 (410,920) (2,428,089) (136,309)
- -------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS): 917,169 1,179,296 727,011 2,660,060 (2,806,597) (247,658)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS: $ 935,820 $2,283,070 $ 789,586 $3,691,863 $ (501,627) $1,335,440
- -------------------------------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on May 1, 1999.
(b) The Fund commenced operations on January 1, 1999.
(c) Net of foreign tax withholding of: $ 532 $ 5,587 $ -- $ 2,284 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
45
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
TOUCHSTONE TOUCHSTONE TOUCHSTONE
SMALL CAP EMERGING GROWTH INTERNATIONAL EQUITY
VALUE FUND FUND FUND
--------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
PERIOD ENDED(A) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (33,386)$ (105,346) $ 35,176 $ 127,488 $ 139,038
Net realized gain (loss ) 50,549 6,087,461 993,434 6,299,287 748,210
Net change in unrealized appreciation (depreciation) 1,803,116 6,580,932 (296,091) 4,752,127 3,381,779
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,820,279 12,563,047 732,519 11,178,902 4,269,027
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (49,174) (150,630) (164,384)
Realized capital gains -- (5,252,284) (1,035,008) (3,011,529) (845,182)
Distribution in excess of net investment income -- -- -- -- (106,570)
Return of capital distributions -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (5,252,284) (1,084,182) (3,162,159) (1,116,136)
- --------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Capital contribution (Note 7) -- -- -- -- --
Proceeds from shares sold 10,268,930 3,035,224 13,916,105 2,925,528 12,081,975
Reinvestment of dividends -- 5,252,284 1,084,183 3,162,159 1,116,136
Cost of shares redeemed (19,280) (9,982,713) (2,801,672) (7,254,079) (2,240,707)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 10,249,650 (1,695,205) 12,198,616 (1,166,392) 10,957,404
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 12,069,929 5,615,558 11,846,953 6,850,351 14,110,295
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period -- 31,263,903 19,416,950 33,813,026 19,702,731
- --------------------------------------------------------------------------------------------------------------------------
End of period $12,069,929 $36,879,461 $31,263,903 $40,663,377 $33,813,026
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $10,249,650 $26,889,174 $28,584,379 $28,074,667 $29,242,515
Undistributed (distributions in excess of) net
investment income -- -- -- 32,278 (186,882)
Accumulated net realized gain (loss) on investments 17,163 885,771 155,940 3,007,124 (39,788)
Net unrealized appreciation (depreciation)
on investments 1,803,116 9,104,516 2,523,584 9,549,308 4,797,181
- --------------------------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $12,069,929 $36,879,461 $31,263,903 $40,663,377 $33,813,026
- --------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING (NOTE 1):
Share contribution (Note 7) -- -- -- -- --
Shares sold 1,025,510 187,027 892,493 206,084 869,535
Reinvestment of dividends -- 280,421 73,504 184,168 79,724
- --------------------------------------------------------------------------------------------------------------------------
1,025,510 467,448 965,997 390,252 949,259
Shares redeemed (1,886) (588,054) (188,219) (494,330) (168,341)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,023,624 (120,606) 777,778 (104,078) 780,918
Beginning of period -- 2,038,737 1,260,959 2,421,891 1,640,973
- --------------------------------------------------------------------------------------------------------------------------
End of period 1,023,624 1,918,131 2,038,737 2,317,813 2,421,891
- --------------------------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on May 1, 1999.
(b) The Fund commenced operations on May 1, 1998.
(c) The Fund commenced operations on January 1, 1999.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
46
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE SERIES TRUST
Statements of Changes in Net Assets continued
Touchstone Touchstone Touchstone Touchstone
Income Opportunity High Yield Value Plus Growth &
Fund Fund Fund Income Fund
----------------------- -------------- ------------------------- -------------
For the For the For the For the For the For the
Year Ended Year Ended Period Ended(a) Year Ended Period Ended(b) Year Ended(c)
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 3,382,939 $ 3,478,291 $ 932,251 $ 18,651 $ 7,993 $ 1,103,774
Net realized gain (loss ) (6,795,726) (4,004,977) (357,539) 835,544 (239,885) 2,473,484
Net change in unrealized
appreciation (depreciation) 4,138,625 (4,418,973) (1,847,534) 81,625 255,957 (1,294,188)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 725,838 (4,945,659) (1,272,822) 935,820 24,065 2,283,070
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (3,721,950) (3,478,834) (936,630) (18,567) (8,332) --
Realized capital gains -- -- -- (278,688) -- --
Distribution in excess of net
investment income -- -- -- -- -- --
Return of capital distributions -- (96,964) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3,721,950) (3,575,798) (936,630) (297,255) (8,332) --
- -----------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Capital contribution (Note 7) -- -- -- -- -- 74,660,781
Proceeds from shares sold 3,201,943 17,222,143 16,270,006 7,276,057 5,347,995 6,044,998
Reinvestment of dividends 3,721,950 3,575,798 936,630 297,255 8,332 --
Cost of shares redeemed (12,934,235) (4,661,882) (81,252) (4,208,758) (2,204,386) (18,209,567)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from share transactions (6,010,342) 16,136,059 17,125,384 3,364,554 3,151,941 62,496,212
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets (9,006,454) 7,614,602 14,915,932 4,003,119 3,167,674 64,779,282
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 34,494,013 26,879,411 -- 3,167,674 -- --
End of period $25,487,559 $34,494,013 $14,915,932 $7,170,793 $3,167,674 $64,779,282
===================================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $37,601,057 $43,631,963 $17,121,005 $6,516,138 $3,151,602 $59,440,499
Undistributed (distributions in
excess of) net investment income (290,740) -- -- 103 -- 1,103,774
Accumulated net realized gain
(loss) on investments (11,312,434) (4,489,001) (357,539) 316,970 (239,885) 2,443,958
Net unrealized appreciation
(depreciation)on investments (510,324) (4,648,949) (1,847,534) 337,582 255,957 1,791,051
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to
shares outstanding $25,487,559 $34,494,013 $14,915,932 $7,170,793 $3,167,674 $64,779,282
===================================================================================================================================
SHARES OUTSTANDING (NOTE 1):
Share contribution (Note 7) -- -- -- -- -- 7,140,970
Shares sold 371,494 1,636,452 1,632,166 686,215 563,284 568,148
Reinvestment of dividends 477,283 369,671 108,784 26,780 852 --
- -----------------------------------------------------------------------------------------------------------------------------------
848,777 2,006,123 1,740,950 712,995 564,136 7,709,118
Shares redeemed (1,508,551) (474,021) (8,716) (385,059) (252,832) (1,660,908)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (659,774) 1,532,102 1,732,234 327,936 311,304 6,048,210
Beginning of period 3,971,175 2,439,073 -- 311,304 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
End of period 3,311,401 3,971,175 1,732,234 639,240 311,304 6,048,210
===================================================================================================================================
</TABLE>
(a) The Fund commenced operations on May 1, 1999.
(b) The Fund commenced operations on May 1, 1998.
(c) The Fund commenced operations on January 1, 1999.
<TABLE>
<CAPTION>
Statements of Changes in Net Assets continued
Touchstone Touchstone Touchstone Touchstone
Enhanced Balanced Bond Standby Income
Fund Fund Fund Fund
----------- ----------------------- -------------- -----------------------
For the For the For the For the For the For the
Period Ended(a) Year Ended Year Ended Year Ended(c) Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1999 1998 1999 1999 1998
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 62,575 $ 1,031,803 $ 897,150 $ 2,304,970 $ 1,583,098 $ 1,244,839
Net realized gain (loss ) (351,490) 3,070,980 1,451,424 (378,508) (111,349) 12,585
Net change in unrealized
appreciation (depreciation) 1,078,501 (410,920) (1,134,565) (2,428,089) (136,309) 6,334
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 789,586 3,691,863 1,214,009 (501,627) 1,335,440 1,263,758
- -------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (62,549) (1,026,659) (922,633) (346,319) (1,586,807) (1,244,085)
Realized capital gains -- (2,545,689) (1,163,140) -- -- --
Distribution in excess of net
investment income -- -- (10,746) -- -- --
Return of capital distributions -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (62,549) (3,572,348) (2,096,519) (346,319) (1,586,807) (1,244,085)
- -------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Capital contribution (Note 7) -- -- -- 38,450,838 -- --
Proceeds from shares sold 13,036,977 4,531,602 21,290,408 5,043,015 13,250,461 22,250,007
Reinvestment of dividends 62,549 3,572,348 2,096,506 346,319 1,586,054 1,246,263
Cost of shares redeemed (294,459) (12,757,150) (3,541,752) (8,291,972) (11,556,012) (14,628,204)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions 12,805,067 (4,653,200) 19,845,162 35,548,200 3,280,503 8,868,066
- -------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 13,532,104 (4,533,685) 18,962,652 34,700,254 3,029,136 8,887,739
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period -- 41,249,719 22,287,067 -- 26,449,940 17,562,201
- -------------------------------------------------------------------------------------------------------------------------------
End of period $13,532,104 $36,716,034 $41,249,719 $34,700,254 $29,479,076 $26,449,940
===============================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $12,805,067 $36,113,876 $40,767,171 $34,867,068 $29,720,531 $26,440,029
Undistributed (distributions in
excess of) net investment income 26 (4,602) 20,627 1,963,484 70 3,709
Accumulated net realized gain (loss)
on investments (351,490) 950,042 394,283 (399,591) (111,348) 70
Net unrealized appreciation
(depreciation)on investments 1,078,501 (343,282) 67,638 (1,730,707) (130,177) 6,132
- -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to
shares outstanding $13,532,104 $36,716,034 $41,249,719 $34,700,254 $29,479,076 $26,449,940
===============================================================================================================================
SHARES OUTSTANDING (NOTE 1):
Share contribution (Note 7) -- -- -- 3,770,359 -- --
Shares sold 1,306,360 314,596 1,468,902 500,745 1,331,119 2,223,752
Reinvestment of dividends 5,918 262,287 150,809 34,280 159,259 124,567
- -------------------------------------------------------------------------------------------------------------------------------
1,312,278 576,883 1,619,711 4,305,384 1,490,378 2,348,319
Shares redeemed (29,920) (870,844) (257,510) (829,702) (1,161,048) (1,461,706)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,282,358 (293,961) 1,362,201 3,475,682 329,330 886,613
Beginning of period -- 2,955,100 1,592,899 -- 2,642,337 1,755,724
- -------------------------------------------------------------------------------------------------------------------------------
End of period 1,282,358 2,661,139 2,955,100 3,475,682 2,971,667 2,642,337
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
Touchstone Variable Series Trust
<PAGE>
48
Touchstone Variable Series Trust
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share outstanding:
Touchstone Small Touchstone Emerging Growth
Cap Value Fund Fund
---------------- -------------------------------------------------------------
For the For the For the For the For the For the
Period Year Year Year Year Year
Ended (a) Ended Ended Ended Ended Ended
December December December December December December
31, 1999 31, 1999 31, 1998 31, 1997 31, 1996 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 15.33 $ 15.40 $ 12.20 $ 11.27 $ 10.10
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) (0.05) 0.02 0.03 0.04 0.11
Net realized and unrealized gain (loss) on investments 1.82 7.13 0.46 4.06 1.22 1.87
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.79 7.08 0.48 4.09 1.26 1.98
- ----------------------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (0.03) (0.03) (0.04) (0.15)
Realized capital gains -- (3.18) (0.52) (0.86) (0.29) (0.66)
Return of capital -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (3.18) (0.55) (0.89) (0.33) (0.81)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.79 $ 19.23 $ 15.33 $ 15.40 $ 12.20 $11.27
==================================================================================================================================
Total return (b) 17.90% 46.75% 3.28% 33.67% 11.16% 19.57%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $12,070 $36,879 $31,264 $19,417 $ 5,771 $2,615
Ratios to average net assets:
Net expenses 1.00%(c) 1.15% 1.15% 1.15% 1.15% 1.15%
Net investment income (loss) (0.48)%(c) (0.34)% 0.14% 0.27% 0.50% 1.09%
Expenses, without waiver and reimbursement 2.03%(c) 1.42% 1.49% 2.19% 3.22% 3.73%
Portfolio turnover 86% 89% 66% 88% 89% 101%
==================================================================================================================================
<CAPTION>
Touchstone International Equity
Fund
--------------------------------------------------------------
For the For the For the For the For the
Year Year Year Year Year
Ended Ended Ended Ended Ended
December December December December December
31, 1999 31, 1998 31, 1997 31, 1996 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.96 $ 12.01 $ 11.07 $ 10.00 $ 9.51
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.06 0.06 0.07 0.06 0.04
Net realized and unrealized gain (loss)
on investments 5.00 2.37 1.56 1.08 0.48
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.06 2.43 1.63 1.14 0.52
- -------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.07) (0.10) (0.05) (0.07) (0.03)
Realized capital gains (1.41) (0.38) (0.64) -- --
Return of capital -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.48) (0.48) (0.69) (0.07) (0.03)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.54 $ 13.96 $ 12.01 $ 11.07 $ 10.00
===================================================================================================================
Total return (b) 36.47% 20.21% 14.76% 11.47% 5.45%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $40,663 $33,813 $19,703 $ 8,758 $ 5,215
Ratios to average net assets:
Net expenses 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income (loss) 0.37% 0.49% 0.71% 0.86% 0.46%
Expenses, without waiver and reimbursement 1.84% 1.95% 3.19% 3.03% 3.69%
Portfolio turnover 156% 141% 149% 90% 86%
===================================================================================================================
(a) The Fund commenced operations on May 1, 1999.
(b) Total returns would have been lower had certain expenses not been
reimbursed or waived during the periods shown. (Note 4)
(c) Ratios are annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
Touchstone Variable Series Trust
<PAGE>
50
Touchstone Variable Series Trust
<TABLE>
Financial Highlights continued
Selected data for a share outstanding:
<CAPTION>
Touchstone Touchstone Touchstone
Income Opportunity High Yield Value Plus
Fund Fund Fund
----------------------------------------------------- -------- ------------------
For the For the For the For the For the For the For the For the
Year Year Year Year Year Period Year Period
Ended Ended Ended Ended Ended Ended(a) Ended Ended(b)
December December December December December December December December
31, 1999 31, 1998 31, 1997 31, 1996 31, 1995 31, 1999 31, 1999 31, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.69 $ 11.02 $ 11.21 $ 10.09 $ 9.42 $ 10.00 $10.18 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 1.11 1.02 1.20 1.17 1.22 0.58 0.03 0.03
Net realized and unrealized gain
(loss) on investments (0.88) (2.30) 0.11 1.45 0.79 (1.39) 1.49 0.18
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.23 (1.28) 1.31 2.62 2.01 (0.81) 1.52 0.21
- ----------------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1.22) (1.02) (1.19) (1.17) (1.34) (0.58) (0.03) (0.03)
Realized capital gains -- -- (0.31) (0.33) -- -- (0.45) --
Return of capital -- (0.03) -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.22) (1.05) (1.50) (1.50) (1.34) (0.58) (0.48) (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.70 $ 8.69 $ 11.02 $11.21 $10.09 $ 8.61 $11.22 $10.18
============================================================================================================================
Total return (d) 2.74% (12.27)% 12.03% 27.37% 23.35% (8.11)% 15.02% 2.11%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $25,488 $34,494 $26,879 $8,268 $2,602 $14,916 $7,171 $3,168
Ratios to average net assets:
Net expenses 0.85% 0.85% 0.85% 0.85% 0.85% 0.80%(e) 1.15% 1.15%(e)
Net investment income (loss) 10.98% 10.40% 10.93% 11.85% 12.81% 9.41%(e) 0.26% 0.65%(e)
Expenses, without waiver
and reimbursement 1.29% 1.25% 1.72% 2.85% 3.54% 1.53%(e) 2.37% 7.49%(e)
Portfolio turnover 176% 175% 189% 213% 104% 42% 101% 100%
=============================================================================================================================
<CAPTION>
Touchstone Touchstone Touchstone
Growth & Enhanced Balanced
Income Fund 30 Fund Fund
-------- -------- ---------------------------------------------------
For the For the For the For the For the For the For the
Year Period Year Year Year Year Year
Ended(c) Ended(a) Ended Ended Ended Ended Ended
December December December December December December December
31, 1999 31, 1999 31, 1999 31, 1998 31, 1997 31, 1996 31, 1995
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.46 $ 10.00 $ 13.96 $ 13.99 $ 12.84 $ 11.48 $ 10.17
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.23 0.05 0.43 0.35 0.31 0.30 0.32
Net realized and unrealized gain
(loss) on investments 0.02 0.55 0.90 0.40 2.05 1.60 2.15
- ----------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.25 0.60 1.33 0.75 2.36 1.90 2.47
- ----------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income -- (0.05) (0.43) (0.37) (0.32) (0.30) (0.37)
Realized capital gains -- -- (1.06) (0.41) (0.89) (0.24) (0.79)
Return of capital -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (0.05) (1.49) (0.78) (1.21) (0.54) (1.16)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.71 $ 10.55 $ 13.80 $ 13.96 $ 13.99 $12.84 $ 11.48
======================================================================================================================
Total return (d) 2.39% 5.99% 9.62% 5.44% 18.61% 16.78% 24.56%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $64,779 $13,532 $ 36,716 $ 41,250 $22,287 $6,695 $ 2,895
Ratios to average net assets:
Net expenses 0.85% 0.75%(e) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income (loss) 1.49% 0.83%(e) 2.55% 2.67% 2.61% 2.76% 2.87%
Expenses, without waiver and
reimbursement 1.28% 1.77%(e) 1.35% 1.37% 2.04% 2.72% 3.46%
Portfolio turnover 65% 9% 73% 51% 86% 75% 124%
======================================================================================================================
(a) The Fund commenced operations on May 1, 1999.
(b) The Fund commenced operations on May 1, 1998.
(c) The Fund commenced operations on January 1, 1999.
(d) Total returns would have been lower had certain expenses not been
reimbursed or waived during the periods shown. (Note 4)
(e) Ratios are annualized.
The accompanying notes are an integral part of the financial statements.
51
Touchstone Variable Series Trust
</TABLE>
<PAGE>
<TABLE>
52
TOUCHSTONE VARIABLE SERIES TRUST
Financial Highlights continued
Selected data for a share outstanding:
<CAPTION>
TOUCHSTONE TOUCHSTONE STANDBY INCOME
BOND FUND FUND
------------ -----------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED(A) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1999 31, 1999 31, 1995 31, 1996 31, 1997 31, 1998
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.20 $ 10.01 $ 10.00 $ 10.01 $ 10.02 $ 10.03
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.76 0.56 0.55 0.54 0.52 0.56
Net realized and unrealized gain (loss) on investments (0.89) (0.09) 0.01 (0.01) (0.01) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.13) 0.47 0.56 0.53 0.51 0.55
- -----------------------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.09) (0.56) (0.55) (0.54) (0.52) (0.56)
Realized capital gains -- -- -- -- -- --
Return of capital -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.09) (0.56) (0.55) (0.54) (0.52) (0.56)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.98 $ 9.92 $ 10.01 $ 10.00 $ 10.01 $ 10.02
===================================================================================================================================
Total return (b) (1.28)% 4.86% 5.71% 5.41% 5.18% 5.90%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $34,700 $29,479 $26,450 $17,562 $ 9,105 $ 5,790
Ratios to average net assets:
Net expenses 0.75% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income 6.04% 5.65% 5.47% 5.42% 5.15% 5.59%
Expenses, without waiver and reimbursement 1.07% 0.87% 0.95% 1.48% 1.54% 1.73%
Portfolio turnover 45% 56% 328% 251% 143% 159%
===================================================================================================================================
(a) The Fund commenced operations on January 1, 1999.
(b) Total returns would have been lower had certain expenses not been
reimbursed or waived during the periods shown. (Note 4)
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
53
TOUCHSTONE VARIABLE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Touchstone Variable Series Trust (the "Trust") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company, and was organized as a Massachusetts business
trust on February 7, 1994. The Trust consists of eleven Funds: Touchstone Small
Cap Value Fund, Touchstone Emerging Growth Fund, Touchstone International Equity
Fund, Touchstone Income Opportunity Fund, Touchstone High Yield Fund, Touchstone
Value Plus Fund, Touchstone Growth & Income Fund, Touchstone Enhanced 30 Fund,
Touchstone Balanced Fund, Touchstone Bond Fund and Touchstone Standby Income
Fund (collectively, the "Funds"). The Touchstone Value Plus Fund commenced
operations on May 1, 1998. The Touchstone Growth & Income Fund and the
Touchstone Bond Fund commenced operations on January 1, 1999. The Touchstone
Small Cap Value Fund, Touchstone High Yield Fund and Touchstone Enhanced 30 Fund
commenced operations on May 1, 1999. Prior to January 1999, the Trust was called
Select Advisors Variable Insurance Trust and each existing Fund available at
that time was referred to as a "Portfolio".
The Declaration of Trust permits the Trust to issue an unlimited number of
shares of beneficial interest. The Trust offers shares of beneficial interest of
each Fund to separate accounts of Western-Southern Life Assurance Company
("Western-Southern") as a funding vehicle for certain variable annuity contracts
issued by Western-Southern through its separate accounts and to a separate
account of Columbus Life Insurance Company ("Columbus Life") as a funding
vehicle for certain variable universal life insurance policies issued by
Columbus Life through the separate account.
As of December 31, 1999, Western-Southern, its direct subsidiary, Columbus Life,
and its indirect subsidiary, Touchstone Advisors, Inc., collectively owned 100%
of the outstanding shares of the Trust.
The accounting policies are in conformity with generally accepted accounting
principles ("GAAP") for investment companies. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the related amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies of the Funds:
INVESTMENT VALUATION. Securities for which market quotations are readily
available are valued at the last sale price on a national securities exchange,
or, in the absence of recorded sales, at the readily available closing bid price
on such exchanges, or at the quoted bid price in the over-the-counter market.
Securities quoted in foreign currencies are translated into U.S. dollars at the
current exchange rate. Debt securities are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. Securities or other
assets for which market quotations are not readily available are valued at fair
value in good faith under consistently applied procedures in accordance with
procedures established by the Trustees of the Trust. Such procedures include the
use of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All debt
securities with a remaining maturity of less than 60 days are valued at
amortized cost, which approximates market.
<PAGE>
54
TOUCHSTONE VARIABLE SERIES TRUST
Notes to Financial Statements continued
FOREIGN CURRENCY VALUE TRANSLATION. The accounting records of the Funds are
maintained in U.S. dollars. The market value of investment securities, other
assets and liabilities and forward currency contracts denominated in foreign
currencies are translated into U.S. dollars at the prevailing exchange rates at
the end of the period. Purchases and sales of securities, income receipts, and
expense payments are translated at the exchange rate prevailing on the
respective dates of such transactions. Reported net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received.
The effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the statements of operations from the effects
of changes in market prices of these securities, but are included with the net
realized and unrealized gain or loss on investments.
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date except
that certain dividends from foreign securities where the ex-dividend date has
passed are recorded as soon as the Trust is informed of the ex-dividend date.
Interest income, which includes the amortization of premium and accretion of
discount, if any, is recorded on an accrual basis. Dividend and interest income
is recorded net of foreign taxes where recovery of such taxes is not assured.
DIVIDENDS AND DISTRIBUTIONS. Distributions to shareholders for all Funds in the
Trust, except the Touchstone Standby Income Fund, are recorded by each Fund
annually. It is the policy of the Touchstone Standby Income Fund to record
income dividends daily and distribute them monthly. Distributions to
shareholders of net realized capital gains, if any, are declared and paid
annually.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from GAAP. These differences, which may result
in distribution reclassifications, are primarily due to non-deductible
organization costs, passive foreign investment companies (PFIC), foreign
currency transactions, losses deferred due to wash sales, and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid-in capital. Undistributed net
investment income and accumulated net realized gains and losses may include
temporary book and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is distributed
in the following year.
FEDERAL TAXES. Each Fund of the Trust is treated as a separate entity for
federal income tax purposes. Each Fund's policy is to comply with the provisions
of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all its income, including
net realized capital gains, if any, within the prescribed time periods.
Accordingly, no provision for a federal income tax is necessary.
<PAGE>
55
TOUCHSTONE VARIABLE SERIES TRUST
WRITTEN OPTIONS. Each Fund may enter into written option agreements. The premium
received for a written option is recorded as an asset with an equivalent
liability. The liability is marked-to-market based on the option's quoted daily
settlement price. When an option expires or the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security
and the liability related to such option is eliminated. When a written call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the Fund
purchased.
FORWARD FOREIGN CURRENCY AND SPOT CONTRACTS. Each Fund may enter into forward
foreign currency and spot contracts to protect securities and related
receivables and payables against fluctuations in foreign currency rates. A
forward foreign currency contract is an agreement to buy or sell currencies of
different countries on a specified future date at a specified rate.
Risks associated with such contracts include the movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. The market value of the contract will fluctuate with changes in
currency exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Trustees of the Trust
and the change in the market value is recorded by the Funds as unrealized
appreciation or depreciation of forward foreign currency contracts. As of
December 31, 1999, the following Funds had the following open forward foreign
currency and spot contracts:
<TABLE>
<CAPTION>
Unrealized
Contracts To In Exchange Appreciation/
Fund Name Maturity Deliver/Receive For Value (Depreciation)
Touchstone Balanced Fund
<S> <C> <C> <C> <C> <C> <C>
Sales 02/01/00 GBP 117,800 $193,281 $190,287 $ 2,994
03/13/00 ZAR 2,321,000 374,403 377,398 (2,995)
- --------------------------------------------------------------------------------------
(1)
======================================================================================
GBP -- Great British Pound
ZAR -- South African Rand
<CAPTION>
Touchstone International Equity Fund
<S> <C> <C> <C> <C> <C> <C>
Purchases 01/04/00 EUR 381,112 $387,019 $384,335 $(2,684)
Sales 01/04/00 GBP 238,777 $385,506 $385,657 $ (151)
01/04/00 ZAR 2,366 384 385 (1)
- --------------------------------------------------------------------------------------
(152)
======================================================================================
EUR-- European Monetary Unit (Euro)
GBP-- Great British Pound
ZAR-- South African Rand
</TABLE>
<PAGE>
56
TOUCHSTONE VARIABLE SERIES TRUST
Notes to Financial Statements continued
ORGANIZATION EXPENSE. Organization expenses were deferred and are being
amortized by each Fund except the Touchstone Small Cap Value Fund, Touchstone
High Yield Fund, Touchstone Value Plus Fund, Touchstone Growth & Income Fund,
Touchstone Enhanced 30 Fund and Touchstone Bond Fund on a straight-line basis
over a five year period from commencement of operations. The amount paid by the
Trust on any redemption by Touchstone Advisors, Inc. or, any other then-current
holder of the organizational seed capital shares ("Initial Shares") of the Fund,
will be reduced by a portion of any unamortized organization expenses of the
Fund determined by the proportion of the number of the Initial Shares of the
Fund redeemed to the number of the Initial Shares of the Fund outstanding after
taking into account any prior redemptions of the Initial Shares of the Fund.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, which are
agreements pursuant to which securities are acquired by the Fund from a third
party with the commitment that they will be repurchased by the seller at a fixed
price on an agreed upon date. Each Fund may enter into repurchase agreements
with banks or lenders meeting the creditworthiness standards established by the
Trustees of the Fund Trust. The Fund, through its custodian, receives as
collateral, delivery of the underlying securities, whose market value is
required to be at least 102% of the resale price at the time of purchase. The
resale price reflects the purchase price plus an agreed upon rate of interest.
In the event of counterparty default, the Fund has the right to use the
collateral to offset losses incurred.
SECURITIES TRANSACTIONS. Securities transactions are recorded on a trade date
basis. For financial and tax reporting purposes, realized gains and losses are
determined on the basis of specific lot identification.
EXPENSES. Expenses incurred by the Trust with respect to any two or more Funds
in the Trust are prorated to each Fund in the Trust, except where allocations of
direct expenses to each Fund can otherwise be made fairly. Expenses directly
attributable to a Fund are charged to that Fund.
2. Risks Associated with Foreign Investments
Some of the Funds may invest in the securities of foreign issuers. Investing in
securities issued by companies whose principal business activities are outside
the U.S. may involve significant risks not present in domestic investments. For
example, there is generally less publicly available information about foreign
companies, particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally not
bound by uniform accounting, auditing, 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
the Fund, political or financial instability or diplomatic and other
developments which could affect such investments. Foreign stock markets, while
growing in volume and sophistication, are generally not as developed as those in
the U.S., and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In general, there is less overall governmental
supervision and regulation of foreign securities markets, broker-dealers, and
issuers than in the U.S.
<PAGE>
57
TOUCHSTONE VARIABLE SERIES TRUST
3. Transactions with Affiliates
INVESTMENT ADVISOR. The Trust has an investment advisory agreement with
Touchstone Advisors, Inc. (the "Advisor"), a subsidiary of Western-Southern Life
Assurance Company ("Western-Southern"). Under the terms of the investment
agreement, each Fund pays an investment advisory fee that is computed daily and
paid monthly. For the year ended December 31, 1999, each Fund incurred
investment advisory fees equal on an annual basis to the following percentages
of the daily net assets of the Fund:
<TABLE>
<CAPTION>
Touchstone
Touchstone Touchstone Touchstone Income Touchstone Touchstone
Small Cap Emerging International Opportunity High Yield Value Plus
Value Fund Growth Fund Equity Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Rate 0.80% 0.80% 0.95% 0.65% 0.60% 0.75%
=================================================================================================
<CAPTION>
Touchstone Touchstone Touchstone Touchstone Touchstone
Growth & Enhanced Balanced Bond Standby
Income Fund 30 Fund Fund Fund Income Fund
<S> <C> <C> <C> <C> <C>
Rate 0.80% 0.65% 0.80% 0.55% 0.25%
=================================================================================================
</TABLE>
Subject to review and approval by the Board of Trustees, the Advisor has entered
into certain sub-advisory agreements for the investment advisory services in
connection with the management of each of the Funds. The Advisor pays each
sub-advisor a fee for services provided using an annual rate, as specified
below, that is computed daily and paid monthly based on average daily net
assets. As of December 31, 1999, the following sub-advisory agreements were in
place:
TOUCHSTONE SMALL CAP VALUE FUND
Todd Investment Advisors, Inc. 0.50%
TOUCHSTONE EMERGING GROWTH FUND
David L. Babson & Company, Inc. 0.50%
Westfield Capital Management Company, Inc. 0.45% on the first $10 million
0.40% on the next $40 million
0.35% thereafter
TOUCHSTONE INTERNATIONAL EQUITY FUND
Credit Suisse Asset Management 0.85% on the first $30 million
0.80% on the next $20 million
0.70% on the next $20 million
0.60% thereafter
TOUCHSTONE INCOME OPPORTUNITY FUND
Alliance Capital Management LP 0.40% on the first $50 million
0.35% on the next $20 million
0.30% on the next $20 million
0.25% thereafter
TOUCHSTONE HIGH YIELD FUND
Fort Washington Investment Advisors, Inc. 0.40%
TOUCHSTONE VALUE PLUS FUND
Fort Washington Investment Advisors, Inc. 0.45%
TOUCHSTONE GROWTH & INCOME FUND
Scudder Kemper Investments, Inc. 0.50% on the first $150 million
0.45% thereafter
TOUCHSTONE ENHANCED 30 FUND
Todd Investment Advisors, Inc. 0.40%
TOUCHSTONE BALANCED FUND
OpCap Advisors, Inc. 0.60% on the first $20 million*
0.50% on the next $30 million*
0.40% thereafter*
<PAGE>
58
TOUCHSTONE VARIABLE SERIES TRUST
Notes to Financial Statements continued
TOUCHSTONE BOND FUND
Fort Washington Investment Advisors, Inc. 0.30%
TOUCHSTONE STANDBY INCOME FUND
Fort Washington Investment Advisors, Inc. 0.15%
* Includes assets of the Touchstone Balanced Fund of the Touchstone Variable
Series Trust and the Touchstone Balanced Fund of the Touchstone Series Trust
(for which OpCap Advisors also acts in a sub-advisory capacity).
Fort Washington Investment Advisors, Inc., and Todd Investment Advisors, Inc.
are affiliates of the Sponsor and of Western-Southern.
SPONSOR. The Trust, on behalf of each Fund, has entered into a Sponsor Agreement
with the Advisor. The Advisor provides oversight of the various service
providers to the Trust, including the Trust's administrator, custodian and
transfer agent. The Advisor receives a fee from each Fund equal on an annual
basis to 0.20% of the average daily net assets of that Fund. The Advisor waived
all fees under the Sponsor Agreement through December 31, 1999. In the last
Sponsor Agreement, the Advisor agreed to continue to waive all fees through
April 30, 2000. The Sponsor Agreement may be terminated by the Sponsor or by the
Trust on not less than 30 days prior written notice.
TRUSTEES. Each Trustee who is not an "interested person" (as defined in the Act)
of the Trust, receives an aggregate of $5,000 annually, plus $1,000 per meeting
attended, as well as reimbursement for reasonable out-of-pocket expenses, from
the Trust and from Touchstone Variable Series Trust (included in a separate
report). For the year ended December 31, 1999, the Trust incurred $31,796 in
Trustee fees which was prorated to each fund.
4. Expense Reimbursements
The Advisor has agreed to waive fees and reimburse each Fund so that, following
such waiver of fees and reimbursement, the aggregate total operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary expenses) of
each Fund are not greater, on an annualized basis, than the percentage of
average daily net assets of the Fund listed below:
<TABLE>
<CAPTION>
Touchstone
Touchstone Touchstone Touchstone Income Touchstone Touchstone
Small Cap Emerging International Opportunity High Yield Value Plus
Value Fund Growth Fund Equity Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Voluntary
expense limit 1.00% 1.15% 1.25% 0.85% 0.80% 1.15%
Amount of
reimbursement $71,822 $80,498 $202,361 $135,450 $72,086 $87,362
===================================================================================================
Touchstone Touchstone Touchstone Touchstone Touchstone
Growth & Enhanced Balanced Bond Standby
Income Fund 30 Fund Fund Fund Income Fund
<S> <C> <C> <C> <C> <C>
Voluntary
expense limit 0.85% 0.75% 0.90% 0.75% 0.50%
Amount of
reimbursement $317,838 $76,819 $180,988 $122,631 $104,385
=====================================================================================
</TABLE>
The Advisor waived fees and reimbursed each Fund as described above through
December 31, 1999.
<PAGE>
59
TOUCHSTONE VARIABLE SERIES TRUST
5. Purchases and Sales of Investment Securities
Investment transactions (excluding purchases and sales of U.S. government
obligations, U.S. government agency obligations and short-term investments) for
the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Touchstone
Touchstone Touchstone Touchstone Income Touchstone Touchstone
Small Cap Emerging International Opportunity High Yield Value Plus
Value Fund Growth Fund Equity Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Cost of
purchases $19,235,229 $26,679,002 $52,346,854 $51,436,002 $22,208,640 $ 9,625,305
Proceeds from
sales $ 8,975,191 $31,806,025 $54,600,383 $57,752,661 $ 5,968,219 $ 6,514,469
=================================================================================================
<CAPTION>
Touchstone Touchstone Touchstone Touchstone Touchstone
Growth & Enhanced Balanced Bond Standby
Income Fund 30 Fund Fund Fund Income Fund
<S> <C> <C> <C> <C> <C>
Cost of
purchases $46,390,476 $13,571,829 $25,379,577 $12,621,736 $24,985,143
Proceeds from
sales $56,075,097 $ 979,721 $30,347,779 $ 7,063,516 $ 8,326,156
====================================================================================
</TABLE>
Purchases and sales of U.S. government obligations (excluding short-term
investments) for the year ended December 31, 1999 were as follows:
Touchstone Touchstone Touchstone Touchstone Touchstone
Value Plus Growth & Balanced Bond Standby
Fund Income Fund Fund Fund Income Fund
Cost of
purchases $233,283 $871,375 $3,213,094 $5,412,327 $ --
Proceeds from
sales $ 49,716 $950,727 $3,805,094 $9,210,829 $2,631,099
6. Restricted Securities
Restricted securities may be difficult to dispose of and involve time-consuming
negotiation and expense. Prompt sale of these securities may involve the seller
taking a discount to the security's stated market value. As of December 31,
1999, the Touchstone Bond Fund held restricted securities valued at $699,034 by
the Trustees, representing 2.01% of net assets. Acquisition date and cost of
each are as follows:
Acquisition Date Cost
Mercantile Safe Deposit 3/28/85 $ 49,269
Central America, Series F 8/1/86 120,000
Central America, Series G 8/1/86 120,000
Central America, Series H 8/1/86 120,000
Republic of Honduras, Series C 5/1/88 100,000
Republic of Honduras, Series D 5/1/88 100,000
The Bond II Portfolio of Select Advisors Portfolios received these securities
from The Western and Southern Life Insurance Company Separate Account A on
November 21, 1994, in exchange for a proportionate interest in the Bond II
Portfolio. As part of a subsequent reorganization, these securities were
redeemed in kind and acquired by the Touchstone Bond Fund. (Note 7)
<PAGE>
60
TOUCHSTONE VARIABLE SERIES TRUST
Notes to Financial Statements continued
7. Capital Contribution
The Touchstone Growth & Income Fund and the Touchstone Bond Fund were newly
established Funds, effective immediately after the close of business on December
31, 1998. At that time, shares of the newly established Touchstone Growth &
Income Fund and Touchstone Bond Fund were substituted, in a tax-free exchange,
for shares of the Select Advisors Portfolios: Growth & Income II Portfolio and
Select Advisors Portfolios: Bond II Portfolio, respectively. Thus, an initial
capital contribution equal to the amount of each respective Portfolio's net
assets was made at that time.
The following is a summary by Fund of the unrealized appreciation and
undistributed net investment income acquired from each series of Select Advisors
Portfolios as of the substitution date, as well as the number of shares issued
from each Portfolio from the substitution:
Undistributed
Touchstone Variable Series Unrealized Net Investment Shares
Trust Fund (New Fund) Appreciation Income Issued
Growth & Income $3,085,239 $1,995,493 7,140,970
Bond 697,382 4,714,604 3,770,359
<PAGE>
61
TOUCHSTONE VARIABLE SERIES TRUST
Federal Tax Information (unaudited)
At December 31, 1999, the following Funds had available, for Federal income tax
purposes, unused capital losses which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
expiration dates noted:
Expiration
Amount Date
Income Opportunity Fund $3,801,099 12/31/2006
7,148,242 12/31/2007
High Yield Bond Fund 357,539 12/31/2007
Enhanced 30 Fund 210,997 12/31/2007
Bond Fund 367,446 12/31/2007
Standby Income Fund 104,320 12/31/2007
From November 1, 1999 to December 31, 1999, the following Funds incurred the
following net losses. The Funds intend to elect to defer these losses and treat
them as arising on January 1, 2000:
Amount
International Equity Fund $ 12,452
Income Opportunity Fund 324,074
Enhanced 30 Fund 140,493
Balanced Fund 10,564
Bond Fund 32,145
Standby Income Fund 7,028
For corporate shareholders, a portion of the ordinary dividends paid during the
Fund's year ended December 31, 1999 qualified for the dividends received
deduction, as follows:
Amount
International Equity Fund 0.43%
Value Plus Fund 23.97%
Enhanced 30 Fund 100.00%
Balanced Fund 12.50%
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the
following as capital gain dividends for the year ended December 31, 1999, of
which 100% represents 20% rate gains:
Capital Gains
Dividend
Emerging Growth Fund $ 905,259
International Equity Fund 1,464,635
Balanced Fund 1,862,053
The Touchstone International Equity Fund paid foreign taxes of $24,659 or $0.01
per share, and the Fund recognized $344,230 or $0.15 per share of foreign source
income during the year ended December 31, 1999.
<PAGE>
62
TOUCHSTONE VARIABLE SERIES TRUST
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Touchstone Variable Series Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of Touchstone Variable Series Trust (comprised of
Small Cap Value Fund, Emerging Growth Fund, International Equity Fund, Income
Opportunity Fund, High Yield Fund, Value Plus Fund, Growth & Income Fund,
Enhanced 30 Fund, Balanced Fund, Bond Fund, and Standby Income Fund) (the Funds)
as of December 31, 1999, and the related statements of operations, the
statements of changes in net assets, and the financial highlights presented
herein for the year or period ended December 31, 1999. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The statements of
changes in net assets presented herein for the years or periods ended December
31, 1998 and the financial highlights presented herein for each of the
respective years or periods ended December 31, 1998 were audited by other
auditors whose report dated February 18, 1999 expressed an unqualified opinion.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the Touchstone Variable Series Trust as of
December 31, 1999, the results of their operations, the changes in their net
assets and financial highlights for the year or period then ended, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Cincinnati, Ohio
February 16, 2000
<PAGE>
63
TOUCHSTONE VARIABLE SERIES TRUST
Supplementary Data
A special meeting of the shareholders of Touchstone Growth & Income Fund (the
"Fund") of Touchstone Variable Series Trust was held on January 28, 1999. At the
meeting, the sole shareholder of the Fund, Western-Southern Life Assurance
Company ("Western-Southern"), voted on a proposal to approve a new portfolio
advisory agreement between Touchstone Advisors, Inc., the investment advisor to
the Fund (the "Advisor"), and Scudder Kemper Investments, Inc. ("Scudder
Kemper"), pursuant to which Scudder Kemper would act as sub-advisor with respect
to the assets of the Fund. Western-Southern voted in favor of the proposal.
The new agreement replaced the portfolio advisory agreement dated September 7,
1998 and is identical in all substantive respects to that portfolio advisory
agreement, except for different effective and termination dates.
<PAGE>
64
NOTES
