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Touchstone Strategic Trust – ‘N-CSR’ for 6/30/18

On:  Tuesday, 8/28/18, at 4:07pm ET   ·   Effective:  8/28/18   ·   For:  6/30/18   ·   Accession #:  1144204-18-46667   ·   File #:  811-03651

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/28/18  Touchstone Strategic Trust        N-CSR       6/30/18    4:3.5M                                   Toppan Vintage/FA
          → Touchstone Core Municipal Bond Fund ⇒ Class A (TOHAX) — Class C (TOHCX) — Class Y (TOHYX) — Institutional (TOHIX)
          → Touchstone Credit Opportunities Fund ⇒ A (TCOAX) — C (TOCCX) — Institutional (TOCIX) — Y (TCOYX)
          → Touchstone International Growth Fund ⇒ A (TNSAX) — C (TNSCX) — Institutional (TNSIX) — Y (TNSYX)
          → Touchstone International Growth Opportunities Fund ⇒ Class A (TGGAX) — Class C (TGGCX) — Class Y (TYGGX) — Institutional (DSMGX)
          → Touchstone Large Cap Fund ⇒ Class A (TACLX) — Class C (TFCCX) — Class Y (TLCYX) — Institutional Class (TLCIX)
          → Touchstone Large Co. Growth Fund ⇒ Class A (TSAGX) — Class C (TCGLX) — Class Y (TLGYX) — Institutional (DSMLX)
          → Touchstone Small Cap Value Opportunities Fund ⇒ A (TSOAX) — C (TSOCX) — Institutional (TSOIX) — Y (TSOYX)
          → Touchstone Value Fund ⇒ A (TVLAX) — C (TVLCX) — Institutional (TVLIX) — Y (TVLYX)

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Certified Annual Shareholder Report by a            HTML   1.40M 
                          Management Investment Company                          
 4: EX-99.906CERT  Certifications                                   HTML      7K 
 3: EX-99.CERT  Certifications                                      HTML     16K 
 2: EX-99.CODEETH  Code of Ethics                                   HTML     28K 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-03651

Touchstone Strategic Trust – June Funds
(Exact name of registrant as specified in charter)

303 Broadway, Suite 1100
Cincinnati, Ohio 45202-4203
(Address of principal executive offices) (Zip code)

Jill T. McGruder

303 Broadway, Suite 1100
Cincinnati, Ohio 45202-4203
(Name and address of agent for service)

Registrant's telephone number, including area code: 800-638-8194

Date of fiscal year end: June 30

Date of reporting period: June 30, 2018

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

The Report to Shareholders is attached herewith.

June 30, 2018

Annual Report

Table of Contents

This report identifies the Funds' investments on June 30, 2018. These holdings are subject to change. Not all investments in each Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market forecasts provided in this report may not occur.

Letter from the President

Dear Shareholder:

We are pleased to provide you with the Touchstone Strategic Trust Annual Report. Inside you will find key financial information, as well as manager commentaries for the Funds, for the 12 months ended June 30, 2018.

The global economic recovery, now in its 10th year following the 2008 financial crisis, gained momentum in 2017 as the U.S., Japan, the European Union and China all reported solid economic growth through much of the last 12 months. Despite the overall solid economic fundamentals, the latter half of the period saw an increase in market volatility as tariffs and trade tensions raised the specter of an escalating global trade war. The “synchronized global expansion” showed signs of unraveling because of these growing trade tensions. Monetary policies across the major central banks remained divergent throughout the period as the Bank of Japan and the European Central Bank maintained accommodative stances, while the U.S. Federal Reserve Board (Fed) continued moving toward its goal of monetary policy normalization by raising rates three times in the fiscal year. Additionally, the Fed announced and began executing on plans to reduce the size of its balance sheet by selling securities it had acquired during its quantitative easing programs.

Global equities posted positive returns led by double-digit gains in U.S. equities. U.S. dollar strengthening, diverging economic data and widening trade disputes in the fiscal year’s final quarter affected results overseas. However, broad measures of non-U.S. markets still ended higher, with emerging market equities slightly outperforming developed market equities. Within the U.S. equity markets, growth-oriented stocks far outpaced their value-oriented counterparts, while small-capitalization stocks outperformed mid- and large-capitalization stocks.

The Fed’s three rate hikes during the year pushed short-term rates higher. After spending the first half of the year range-bound, longer-term rates shifted to modestly higher range-bound levels during the latter half. This rise in rates drove negative returns for investment grade bonds. Less sensitive to interest rate changes and more correlated to economic activity than their investment grade counterparts, non-investment grade bonds generated positive returns.

With 2019 now on the horizon, the post-crisis bull market is approaching its 10 year anniversary. While it has certainly experienced periods of volatility, the length and strength of this market environment only reinforces our view that investing is a long-term endeavor which requires a multi-year approach. A disciplined approach and appropriate time horizon can deter short-termism and reactive decision-making. Your financial advisor can help you by identifying a risk-return profile and developing an investment plan that will help you address your long-term financial goals.

We greatly appreciate your continued support. Thank you for including Touchstone as part of your investment plan.

Sincerely,

Jill T. McGruder

President

Touchstone Strategic Trust

Management's Discussion of Fund Performance (Unaudited)

Touchstone Credit Opportunities Fund

Sub-Advised by Ares Capital Management II LLC

Investment Philosophy

The Touchstone Credit Opportunities Fund employs a flexible investment approach by allocating assets among core investments and opportunistic investments as credit market conditions change. It invests in several broad investment categories, including high yield bonds, bank loans, special situations, structured credit and hedges.

Fund Performance

The Touchstone Credit Opportunities Fund (Class A Shares) outperformed its benchmark, the ICE BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, for the 12-month period ended June 30, 2018. The Fund’s total return was 3.50 percent (calculated excluding the maximum sales charge) while the total return of the benchmark was 1.36 percent.

Market Environment

Building upon momentum gained at the start of 2017, the twelve month period ended June 30, 2018 was characterized by continued improved fundamentals and favorable technical conditions, which drove investor appetite for risk assets broadly. Credit markets were initially robust in the third quarter of 2017 as a result of improving corporate earnings data and strengthening technical conditions. The Tax Cuts and Jobs Act that was enacted into law by the Trump Administration in the fourth quarter introduced a large fiscal stimulus, resulting in increased earnings reports from U.S. corporations. The U.S. Federal Open Market Committee (FOMC) also hiked rates in December 2017 and followed suit with two additional hikes in March and June of 2018. As a result, the yield curve has continued to flatten as the front-end shifts up alongside increases in the federal funds rate. The first half of 2018 saw rising interest rates, concerns over the U.S. trade policy and geopolitical uncertainty in Italy. Nonetheless, the economy continued to show signs of expansion as the Institute for Supply Management Purchasing Manager’s Index increased from 58.7 to 60.2 in June 2018, the 22nd consecutive month that the index increased at an accelerating rate. Inflation data released by the U.S. Bureau of Economic Analysis indicated a continued increase in core personal consumption expenditures, the U.S. Federal Reserve Board’s (Fed) primary inflation indicator, which reached its 2 percent target for the first time since 2012 in the second quarter of 2018. As a result of these factors over the last 12 months, both non-investment grade credit and bank loan indexes posted low- to mid-single digit returns.

Portfolio Review

Despite increased volatility in 2018 related to swings in equities, U.S. Treasuries, and oil prices as well as ongoing investor concerns about global trade tensions and political turmoil in Italy during May, the Fund ultimately delivered positive returns in all investment categories except Cash, Hedges, and Forwards, which were essentially unchanged for the period. The largest contributor to performance was the High Yield Bond/Unsecured asset category despite the overall increase in interest rates. Bank Loans continued their strong performance due to their low duration and floating rate nature. Buoyed by the rising rate environment and consistent Collateralized Loan Obligation (CLO) demand, the Loan/Senior Secured portion of the Fund was the second largest contributor to performance. Stressed/Distressed investments also positively contributed to the Fund’s performance, which was largely related to positions in post-reorganization equities including MModal, LLC and Dex Media, Inc. as well as event-driven equity investments such as Envision Healthcare Corp. (Health Care sector) and Acadia Healthcare Company, Inc. (Health Care sector). Robust demand for CLO paper persisted, even amid stout supply conditions, particularly in April. As a result, the Structured Credit portion of the Fund posted positive returns over the period as investors sought higher beta assets amid compressing spreads in the loan market.

Management's Discussion of Fund Performance (Unaudited) (Continued)

During the 12 month period, the Fund’s exposure to floating rate bank loans decreased while high yield bond exposure slightly increased largely related to purchases of over-sold longer-duration, higher quality bonds following bouts of rate volatility. The Fund’s exposure to CLO debt declined slightly while the Fund’s exposure to CLO equity increased, as CLOs saw robust investor demand in both the primary and secondary markets. In terms of sector allocation, we lowered the Fund’s exposure to the Energy sector. While we continued to maintain a constructive view on the sector, we had been selectively reducing exposure to names that either increased in value or experienced execution issues. We increased Fund exposure to the Media space, given its consumer orientation, relatively stable cash flows (for some credits driven by highly recurring revenue models), asset support (exclusive media content, vast content libraries, cable infrastructure) and positive mergers and acquisitions (M&A) catalysts. Conversely, we reduced Fund exposure to Technology and Electronics as execution risk in the space appears to be elevating, while equity valuations are starting to compress. Credit risk exposure continued to be overweight as we increased the Fund’s CCC-rated exposure as a result of our view that corporate earnings were accelerating, economic growth was improving, and the Fed was prudent in raising short term interest rates.

Over the period, the yield curve shifted higher and continued to flatten as the Fed tightened policy, as seen by the three rate hikes of 25 basis points each in December 2017, March 2018 and June 2018. The Fund’s overall duration increased slightly. The shorter-duration positioning benefited performance as the 10-year U.S. Treasury yield increased by 56 basis points to 2.86 percent during the 12 month period. Additionally, the Fund’s allocation to floating rate assets also contributed to Fund performance as the 3-Month London Interbank Offered Rate (LIBOR) increased over the last 12 months.

Outlook

While we believe corporate fundamentals are strong from a growth perspective and that the economy should continue to expand, structural headwinds such as demographics and low inflation may limit any dramatic steepening of the yield curve in the near- to medium-term. In fact, the yield curve continues to flatten and many are watching closely for signs of inversion, which is widely believed to be a leading indicator of impending recession, though the data is inconsistent about how long after the yield curve inverts the recession begins. However, an inverted yield curve is somewhat predictive of negative returns and spread widening in the high yield market one year out. Looking ahead into the back half of 2018, we are comfortable with the Fund’s duration positioning, particularly because of its allocation to floating rate bank loans and CLO debt.

We continue to believe the M&A environment will remain robust and provide many opportunities for the Fund going forward. Relatively low interest rates and high equity valuations should encourage consolidation, continuing a favorite theme of ours for credit investing. We think the odds of consolidation increase along with higher valuations, and suspect this will benefit higher quality companies and select troubled or over-levered credits as well. As a result, the Fund is seeking senior secured paper of stressed/distressed companies that may benefit from an acquisition. As discussed earlier, we see a growing opportunity to buy higher quality, longer-dated bonds at discounts. Lastly, we believe the credit markets are continuing on a path of differentiating winners from losers, which should benefit the Fund due to Ares’ deep, fundamental, bottom-up approach and long tenure as credit investors.

Our primary concerns largely remain the same as previous quarters with the exception of a newer concern surrounding the impact of global trade tensions. After months of speculation, the market largely shrugged off the first $35 billion of imposed tariffs; it was unclear if the news was already priced in, the economic reports immediately following the tariffs temporarily steered the focus to the strong economy, or the market believed that the U.S. is simply using the tariffs as a negotiating tactic that will ultimately get resolved. Now the $200 billion of potential additional tariffs announced on July 10^th will test this and whether the market will start pricing in a higher probability of a full-blown global trade war. From a fundamental perspective, we believe

Management's Discussion of Fund Performance (Unaudited) (Continued)

the imposed tariffs are likely to only modestly increase inflation and impact gross domestic product at a manageable level, but it is difficult to determine how far the administration intends to take the next $200 billion in assessing global implications. Given this uncertainty around future trade policy, there could be other indirect consequences including tightening credit conditions, weakening business confidence, scaled back capital spending and a slowdown in M&A. While there likely will not be a quick resolution to these tensions and we expect continued rhetoric and volatility, we ultimately believe that there is a probability that this will lead to a negotiated settlement versus an all-out trade war and we would look to any future sell-offs in individual sectors as potential buying opportunities.

Equally concerning are high valuations in both the equity and credit markets. On an absolute basis, current spread levels are in the top quintile of historical valuations. This creates significant downside risks in the case of any exogenous shocks to the market or idiosyncratic events. Rising global sovereign bond yields also remain a key risk factor in 2018. Throughout the last few years, the U.S. high yield and bank loan markets have benefited from an influx of foreign demand, spurred in part by extremely low sovereign interest rates. Quantitative easing (QE) policies in Japan and Europe have created zero to negative absolute interest rates in significant parts of the yield curve. In Europe in particular, with growth and inflation expectations rising, and QE set to taper, we could see volatility from unanticipated capital flows. For example as U.S. corporations have been repatriating cash as a result of tax reform, there have been concerns in short-term dollar funding markets causing LIBOR to rise at a quicker pace than many have anticipated. These unanticipated consequences of regulatory and tax changes cause some concern for us. A European Central Bank policy misstep could have real implications in the U.S. We are also cautious that the Tax Cuts and Jobs Act also poses a potential risk due to any unanticipated repercussions - namely, the reduction in the deductibility of corporate and mortgage interest expense and reduction of state and local income taxes - and how these affect consumer behavior and spending. We remain cognizant of slowing growth in China, as well as further deterioration of their banking system. Lastly, we believe that volatility around a tightening of monetary policy could have negative impacts on capital markets.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone Credit Opportunities Fund - Class A* and the ICE BofA Merrill Lynch 3-Month U.S. Treasury Bill Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Note to Chart

ICE BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index of Treasury securities maturing in 90 days that assumes reinvestment of all income.

Management's Discussion of Fund Performance (Unaudited)

Touchstone International Growth Opportunities Fund

Effective April 17, 2018, the Fund changed its name from Touchstone Global Growth Fund to Touchstone International Growth Opportunities Fund and its investment strategy changed from a global to international focus.

Sub-Advised by DSM Capital Partners LLC

Investment Philosophy

The Touchstone International Growth Opportunities Fund seeks long-term capital appreciation by primarily investing in equity securities of large capitalization foreign companies believed to offer the best opportunity for reliable growth at attractive stock valuations. The Fund utilizes a bottom-up idea-driven growth style with a distinct valuation discipline. It seeks to identify companies which are believed to exhibit certain quality characteristics, including: predictable growth, solid fundamentals, attractive profitability and successful management.

Fund Performance

The Touchstone International Growth Opportunities Fund (Class A shares) outperformed the MSCI All Country World Ex-USA Index and the MSCI All Country World Index for the 12-month period ended June 30, 2018. The Fund’s total return was 15.00 percent (calculated excluding the maximum sales charge) while the returns of its benchmarks were 7.28 and 10.73 percent, respectively. The Fund’s primary benchmark was changed to reflect its strategy change from global growth to international growth.

Market Environment

The stock market benefited from strong earnings growth during the 12-month period ended June 30, 2018. The synchronization and strength of global growth in 2017 was better than many had anticipated and contributed to higher corporate earnings. This was compounded by tax reform and fiscal stimulus in the U.S. As a result, the equity markets experienced strong gains in 2017 and into early 2018.

However, by February, investors grew concerned that accelerating global growth would become a catalyst for inflation and higher than anticipated interest rates. Market worries were further exacerbated by escalating trade rhetoric and protectionist policies. Though it initially originated in the U.S., American trade partners around the globe responded by imposing retaliatory tariffs and spurring a tit-for-tat trade dispute that increased trade barriers. As a result, markets have traded sideways from February through the end of the fiscal year.

Portfolio Review

During the 12-month period ended June 30, 2018, stock selection and the Fund’s overweight to the Information Technology sector contributed meaningfully to relative performance. Further gains were generated by positive stock selection in the Financials and Consumer Discretionary sectors which also benefited returns. The portfolio faced a modest headwind from its lack of exposure to the market leading Energy sector, which notched gains as crude oil prices moved higher during the fiscal year.

As indicated, stock selection within the Information Technology sector was particularly strong, as holdings such as Tencent Holdings Ltd. (a broad internet and value-added services platform), Alibaba Group Holding Ltd. (a China-based e-commerce company), Adobe Systems Inc. (an application software development company) and Microsoft Corp. (a software development and cloud computing company) all added to relative performance. Each of these companies generated strong earnings growth that exceeded consensus expectations. China-based sportswear manufacturer ANTA Sports Products Ltd. (Consumer Discretionary sector) was also a top contributor to Fund performance.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Among the detractors to Fund performance during the period were specialty pharmaceutical company Regeneron Pharmaceuticals Inc. (Health Care sector), China-based social media platform Weibo Corp., semiconductor company AMS AG (both from the Information Technology sector), water treatment systems company Beijing Enterprises Water Group Ltd. (Utilities sector) and luggage manufacturer Samsonite International SA (Consumer Discretionary sector). Regeneron traded down significantly during the year despite consistently beating quarterly earnings estimates. Research and trials that could pave the way for competition for two of its key drugs (Eylea and Dupixent) has led to concerns about the company’s longer term growth and profitability. However, in our opinion, the company continues to have growth drivers from opportunities for new treatment applications for its drug portfolio, and therefore the Fund remains invested in the stock. Similarly, Weibo underperformed as slowing user growth brought into question the company’s long-term growth trajectory. While user growth has declined slightly, Weibo continues to attract users at a very high rate (more than 20% user growth), which we believe will support the company continuing to generate high levels of earnings and revenue growth.

Outlook

We projected for many years that the current global economic cycle will prove to be longer than the majority of previous economic growth periods. We previously thought that global growth would approximate 3 percent; we now believe the global economy may accelerate to a growth rate above that. This is based on fiscal stimulus and deregulatory policies in the U.S., continued economic growth in China, and improving economic outlooks in Europe and Japan. Notwithstanding the weaker growth of the U.S. and Europe in the first quarter, gross domestic product (GDP) growth for the second quarter and the remainder of 2018 should be much stronger. We continue to believe that the current global economic cycle will be driven by low inflation and low, albeit rising, interest rates.

Trade tensions between the U.S. and Canada, Mexico, China and the eurozone remain a source of investor uncertainty across the globe. We believe President Trump’s intent to renegotiate long-standing trade deals has clearly put investors on edge, thus resulting in weak market performance. Concurrently, the U.S. dollar, which is seen as a safe haven, strengthened while investors’ concerns of a trade war and its impact on the global economy escalated. However, with the combined value of the U.S., Chinese and European economies in excess of $50 trillion, we believe the impact of possible tariffs will be limited by their small relative size.

China is reportedly moving forward with a tax cut for most tax payers in order to enhance consumer spending which should boost domestically driven economic growth. The Chinese government is also accelerating government spending and loosening monetary policy. Each of these initiatives should be a beneficial offset to the potentially negative impact of a trade war with the U.S. Meanwhile, in the eurozone, the economic growth outlook remains firm, with the possibility of 2 percent or more GDP growth. As with the U.S., first quarter growth was slow but the second quarter may be primed for a rebound.

Going forward, we believe today’s uncertainties will be of little concern over time. As recent concerns about the economic impact of tariffs begin to dissipate, we anticipate that a weight will be lifted from investors’ shoulders and global equity markets will resume their march higher. For example, just as past worries about European sovereign debt and concerns over Facebook, Inc. subsided, the recent apprehension about trade wars and rising interest rates in the U.S. and Europe should gradually subside too. Looking ahead, we believe the positive scenario of global economic growth, moderate global inflation, low interest rates, healthy global corporate earnings, normal global market valuations and an improving global financial system should continue to form the foundation of an upwardly driven global equity market.

The Fund remains focused on earnings, as we believe strong and growing earnings, when combined with reasonable valuations, are the key to driving stock prices higher over time. Further, the businesses we identity for the Fund are continuously subject to analysis by our investment team. The Fund’s portfolio holdings remain characterized by strong balance sheets and strong free cash flow, and we continue to project a mid- to high-teens earnings growth rate through 2022 with valuations that remain attractive.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone International Growth Opportunities Fund - Class A*, MSCI All Country World Index and MSCI All Country World Ex USA Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Notes to Chart

MSCI All Country World Index measures the equity market performance of developed and emerging markets.

MSCI All Country World Ex USA Index measures the performance of global equity market, excluding the United States.

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI.

Management's Discussion of Fund Performance (Unaudited)

Touchstone International Small Cap Fund

Sub-Advised by Copper Rock Capital Partners LLC

Investment Philosophy

The Touchstone International Small Cap Fund seeks capital appreciation by primarily investing in equity securities of non-U.S. small-cap companies diversified across sectors and industries. The Fund’s investment process seeks to add value through bottom-up stock selection and in-depth fundamental research and searches for companies believed to have strong management, superior earnings growth prospects and attractive relative valuations.

Fund Performance

The Touchstone International Small Cap Fund (Class A Shares) underperformed its benchmark, the S&P Developed Ex-U.S. Small Cap Index, for the 12-month period ended June 30, 2018. The Fund’s total return was 8.85 percent (calculated excluding the maximum sales charge) while the total return of the benchmark was 11.43 percent.

Market Environment

Overall, global stock markets posted strong performance during the second half of 2017. In the fourth quarter of 2017, the passage of U.S. tax reforms carried positive investor sentiment throughout the markets. During the first quarter of 2018, however markets began to price in the more aggressive tightening from global central banks amid investors’ concern about inflation trends. There was also an increase in market volatility to more normalized levels, combined with a weakening U.S. dollar and flattening yield curve. The combination of tighter financial conditions, peaking economic activity and trade disputes induced higher levels of equity market volatility which dampened investors’ appetite for risk. As a result, valuation multiples contracted despite strong earnings results. Late in the 12-month period, markets experienced some performance erosion due to investors’ rapid rotation away from cyclical sectors into more defensive sectors, which was triggered by heightened tensions about potential tariffs and trade wars.

Portfolio Review

Regionally, stock selection within the Pacific ex-Japan, the U.K. and emerging markets contributed the most to Fund performance, while stock selection in Japan, Canada and Continental Europe detracted from relative returns. From a sector standpoint, stock selection in the Real Estate, Energy, Materials, Consumer Staples, Health Care and Utilities sectors benefited Fund performance. The majority of underperformance came from stock selection in the Consumer Discretionary sector, while the Information Technology and Industrials sectors also lagged.

Among the individual stocks that contributed to performance during the period were Open House Co. Ltd. (Real Estate sector), AMG Advanced Metallurgical Group NV (Materials sector), Beach Energy Ltd. (Energy sector) and Royal Unibrew A/S (Consumer Staples sector). Open House Co. Ltd. engages in the real estate brokerage business in Japan. During the fourth quarter of 2017, management reported strong year-end earnings driven by superior revenue growth across the single-family home and condominium segments. We believe Open House remains poised for unit growth on the trend of many Japanese residents leaving the countryside and moving to urban city areas. AMG Advanced Metallurgical Group is a Netherlands-based processor of a wide array of mineral ores. The company also owns some tantalum/lithium and graphite mines. AMG has benefited from its plans to double earnings by 2020 through two new hard rock lithium concentrate plants located on an existing pegmatite mine site in Brazil. The company sources lithium in Brazil at an industry-low cost and has also signed an offtake agreement with an established Chinese converter. Since the sourced lithium was previously a residual product, incremental margins from processing have helped increase returns from an already elevated level. AMG is also only one of two suppliers of vanadium in North America, an essential ingredient

Management's Discussion of Fund Performance (Unaudited) (Continued)

in making high-strength steel which is a growing category. AMG sources vanadium ore from recycled oil refinery waste and is paid to take the waste, which covers its fixed costs. Beach Energy is an Australia-based oil and gas exploration and production company. A series of positive exploration and drilling results have culminated into a significant increase in reserves and a lengthening of the company’s reserve lifespan. The stock also benefited from the tailwind of rising Brent crude oil prices which climbed higher during the last quarter of the period. Royal Unibrew, a Denmark-based beverage distribution company, outperformed after it issued an upward adjustment to its fiscal-year earnings outlook based on faster integration and cost synergies of its recent Italian acquisition, Terme di Crodo. In addition, Royal Unibrew’s core beverage market of Northern Europe has experienced exceptionally warm weather trends over the most recent quarter, which led to company management’s confidence in issuing this improved guidance.

Among the individual stocks that detracted from Fund performance were Corus Entertainment Inc., Elior Group SA (both from the Consumer Discretionary sector) and Cembra Money Bank AG (Financials sector). Corus Entertainment, a Canada-based media company, reported disappointing revenue growth from its combination with Shaw Media Inc., a television broadcasting company. The increased size and power resulting from the combined ad agencies did not materialize as expected and ad revenue instead turned negative as advertisers temporarily shifted to digital outlets more quickly than anticipated. Elior Group is a catering and concessions company based in Paris. The company operates cafeterias for corporate and government-owned institutions, as well as meal service areas in airports and auto-routes. In November of 2017, the company negatively pre-announced fiscal-year results ending September 2017 and lowered profit targets. Management attributed this profit miss to the prior CEO’s mishandling of key business units, leading to cost overruns on new contracts and a lack of focus on its multi-year cost-cutting plan. Significant infighting between board members and the former CEO was an additional concern that led us to exit the position. Cembra Money Bank is a Swiss specialty financial services company that provides a range of corporate leasing, personal lending and vehicle financing. Cembra has successfully focused on high-margin lending and services, leveraged by targeting broad markets. The stock underperformed due to 1) a pause in stock performance after strength in the first half of 2017, 2) market rotation toward banks with corporate lending exposure as gross domestic product growth accelerated and 3) the company’s high and growing capital ratios which must be reinvested in high-return businesses or returned to shareholders. We remain attracted to Cembra due to its successful acquisitions and management’s discipline to make capital allocation decisions in its shareholders’ best interests.

Outlook

We continue to believe that we are in the later stages of a bull market with normalizing volatility, greater focus on valuation and returns closer to historical averages. We remain supportive of international small-capitalization equities, due in part to their three pillars of robust earnings growth, buoyant mergers and acquisitions activity and attractive capital return opportunities through dividend and share buybacks.

From a sector standpoint, we are encouraged by the Energy sector, which has endured a long period of balance sheet repair, and focused on capital discipline and cash generative projects. We believe these factors help provide a favorable risk/reward backdrop for a vibrant earnings revision profile while trading at attractive multiples. The Fund ended the period with an overweight allocation to the Energy sector as well as the Health Care, Consumer Staples, Information Technology, Financials and Materials sectors.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Looking ahead, we believe political developments will be front and center. There will likely be continued noise around Brexit, the health of Italy’s new coalition government, Brazil’s elections, and the U.S. mid-term elections. Central Bank rate decisions should also continue to grab headlines. In particular, U.S. rate increases remain data dependent, speculation about the European Central Bank’s pledge of no rate increases until summer 2019, and a more hawkish Bank of England all offer the potential of a policy surprise. We intend to remain selective towards emerging markets, where the combination of a stronger dollar, trade tensions and a busy election calendar have intersected to impact sentiment negatively.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone International Small Cap Fund - Class A* and the S&P Developed Ex-U.S. Small Cap Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Note to Chart

S&P Developed Ex-U.S. Small Cap Index is an unmanaged index of small-cap stocks from developed countries, excluding the United States.

Management's Discussion of Fund Performance (Unaudited)

Touchstone Large Cap Fund

Sub-Advised by The London Company

Investment Philosophy

The Touchstone Large Cap Fund seeks long-term capital growth by investing primarily in common stocks of large-cap U.S. listed companies. The Fund seeks to purchase financially stable large-cap companies that it believes are consistently generating high returns on unleveraged operating capital, run by shareholder-oriented management, and trading at a discount to the company’s respective private market values.

Fund Performance

The Touchstone Large Cap Fund (Class A Shares) underperformed its benchmark, the Russell 1000^® Index, for the 12-month period ended June 30, 2018. The Fund’s total return was 11.35 percent (excluding the maximum sales charge) while the benchmark’s total return was 14.54 percent.

Market Environment

During the trailing 12 months, the U.S. stock market moved consistently higher during 2017 but volatility returned during parts of 2018. The strong returns in 2017 were driven by improving economic data, tepid inflation, and the passage of tax reductions for corporations and individuals. After a strong January 2018, stocks traded lower in both February and March, ending the quarter in negative territory. However, the market turned around during the second quarter due to similar data points and economic news that drove the market in the second half of 2017. The labor market remained strong, with unemployment at roughly 4 percent and a year-over-year increase in average hourly earnings. Labor force participation remained below its all-time high, but we believe that was likely attributed to younger people staying in college longer and retiring baby boomers. In terms of monetary policy, the U.S. Federal Reserve Board (Fed) raised the short-term federal funds rate over the trailing 12 months but inflation has remained low.

Small-capitalization stocks outperformed large-capitalization stocks during the period, primarily due to benefits from the Tax Cuts and Jobs Act. Growth stocks outperformed value stocks with a preference for cyclical sectors over defensive sectors. Strength in the Information Technology sector, especially the dominance of a few companies known as the “FANG” stocks (Facebook Inc., Amazon.com Inc., Netflix Inc. and Google Inc./Alphabet Inc.), continued to drive much of the performance in the market.

The benchmark was led by the Information Technology and Consumer Discretionary sectors while the Consumer Staples sector lagged.

Portfolio Review

Within the Fund, stock selection detracted from relative performance as did sector allocation but to a lesser degree. At the sector level, an overweight to the Consumer Discretionary sector and an underweight to the Health Care sector had a positive impact on relative performance. This was partially offset by the negative impact from an underweight to the Information Technology sector and an overweight to the Financials sector.

Among the individual stocks that contributed to Fund performance during the period were Progressive Corp. (Financials sector), Nike Inc. (Consumer Discretionary sector), Norfolk Southern Corp. (Industrials sector), Visa Inc. and Cisco Systems Inc. (both from the Information Technology sector). Progressive Corp., an insurance provider, contributed to performance during the period as the company continued to take market share in the auto insurance market. The company’s attractive pricing has helped drive market share gains while its conservative underwriting has kept losses minimal. Further, Progressive has been slowly building a homeowner’s insurance business and can now sell joint policies which should drive policy growth over time. Nike is a retailer of footwear, apparel, and sports equipment and accessories. Nike contributed to performance during the 12-month period

Management's Discussion of Fund Performance (Unaudited) (Continued)

as the company posted multiple solid earnings and announced a new $15 billion buyback authorization. The company showed growth in its North America segment after several quarters of deceleration. We remain attracted to Nike’s strong brand, global distribution and cash flow generation. Norfolk Southern, a railway transportation provider, rallied steadily throughout the period after a slow start last summer. The company continued to reduce its expenses while benefiting from strength in the overall economy. The company was also aggressive with recent share repurchases, which further contributed. Visa, a global payments technology company, moved steadily higher along with the Information Technology sector. The company was rewarded for stable growth in a low-growth world. Visa also hosted an encouraging investor day that detailed new opportunities to drive long-term expansion of its platform. Visa generated copious cash flow, and benefited from significant barriers to entry, a duopoly with Mastercard Inc. and an attractive long-term growth profile. Cisco Systems, an information technology and networking company, also rose along with strength in the Information Technology sector. Recent earnings were better than expected and the company continued to pivot toward higher margin software and services. Further, the company’s legacy switches and router business, which is no longer growing, continued to generate ample cash flow.

Among the stocks that detracted from Fund performance were Altria Group Inc. (Consumer Staples sector), Carnival Corp. (Consumer Discretionary sector), New Market Corp. (Materials sector), General Dynamics Corp. and Southwest Airlines Co. (both from the Industrials sector). Altria, the owner of multiple tobacco operating companies, detracted from performance along with many other stocks in the Consumer Staples sector. Rising interest rates also negatively impacted some higher yielding stocks, including Altria. While there have been some concerns about a possible loss in cigarette volume due to smoking alternatives, we remain attracted to Altria’s market position, strong pricing power, return on capital and shareholder-focused orientation longer term. We believe Altria’s partnership with Philip Morris International Inc. to gain approval from the Food and Drug Administration (FDA) to start selling its heat-not-burn tobacco device called iQOS should also position Altria nicely to compete in the smoking alternative space. Carnival, a cruise ship operator, detracted from performance as the company lowered its earnings per share (EPS) guidance reflecting rising fuel costs, and tempered near-term expectations due to issues with travel to the Caribbean. We believe any negative impact to the stock due to weather should be temporary, and the cruise industry’s promising long-term demographics (e.g., retiring baby boomers and experience-seeking millennials) should be positive for the company going forward. We are also attracted to the cruise industry’s strong barriers to entry and limited competition. NewMarket, a company that primarily serves the petroleum additives industry, detracted during the period due to higher raw material costs and lower pricing. We remain attracted to the company’s stable revenue outlook in the market for fuel additives and lubricants, pricing power in a consolidated industry and excellent history of capital allocation. General Dynamics, a global aerospace and defense company, benefited early in the year when political tensions with North Korea ran high and the market was under some pressure. However, from late April through the second quarter, the company and other prime defense contractors were negatively impacted as North and South Korean leaders met and announced an end to the Korean War, which led to the face-to-face meeting between President Trump and North Korean leader Kim Jong-un in June. These events deflated political tensions, which were perceived as a negative for defense-related stocks. Also, during the second quarter of 2018, General Dynamics provided more specific commentary about the transition to new commercial jet models in its Gulfstream unit, and how that transition is expected to lower operating margins from the record levels that have been reported. While the company remained fundamentally strong, continued to generate excellent free cash flow and prioritized the return of capital to its shareholders, recent news flow prompted short-term profit taking in the stock. Southwest Airlines, a passenger airline operator, declined due to rising fuel costs as well as concerns about capacity increases from competitor United Airlines Inc. While increased capacity could lead to lower revenue per available seat in the short term, we are not concerned about a price war given the consolidation in the industry. We also believe the recent consolidation in the industry will allow airlines to raise prices to offset fuel costs. As such,

Management's Discussion of Fund Performance (Unaudited) (Continued)

we remain attracted to Southwest’s low-cost position, which we believe should allow it to effectively compete with its larger peers.

During the 12-month period, we opportunistically took advantage of market weakness and added to the Fund’s position in Alphabet Inc. (Information Technology sector). We believe Alphabet, a multinational conglomerate that includes Google Inc. and its internet products, is structurally advantaged with long-term tailwinds from cloud computing and data centers.

We also initiated positions in The Home Depot Inc. (Consumer Discretionary sector) and Albemarle Corp. (Materials sector). In order to fund these purchases, we trimmed the Fund’s positions in Deere & Co. (Industrials sector), General Dynamics Corp. (Industrials sector) and Lowe’s Companies Inc. (Consumer Discretionary sector). Home Depot is the world’s largest home improvement specialty retailer, with industry-leading margins and returns on capital. Management has also excelled at building its business aimed at professionals. While professionals accounted for only 4 percent of the company’s customer base, they generate approximately 45 percent of sales and are less likely to be disintermediated by the internet. Home Depot is also expected to benefit from the tailwinds in the housing market for some time. Further, recent insider buying and management’s allocation of capital positively impacted the stock. Albemarle is a specialty chemical company with three reporting segments: lithium, bromine specialties and catalysts. The company is a low-cost producer of bromine, and in 2015 expanded into the lithium business where it gained significant market share. A primary use of lithium is in rechargeable batteries, which is expected to see growing demand over the next several years as electric vehicles become more prevalent. Albemarle maintained a top position in each market it serves and a strong balance sheet.

Outlook

The combination of solid economic growth, low inflation and relatively low interest rates has tended to create a positive environment for stocks. We believe this holds true today, but our outlook has a more balanced view. We believe the potential risks include relatively high valuations for stocks using traditional metrics, geopolitical turmoil, excessive government stimulus, rising inflation, risks of increasing tariffs or the Fed taking a more aggressive stance. We believe the risks and rewards are somewhat balanced as they relate to stocks overall, but we will remain cautious and focused.

Going forward, we remain optimistic despite the current market headwinds. We believe the attractive investment candidates we are vetting today are a result of what the market is providing, and is consistent with our general outlook. The market is not cheap and we could certainly see a pullback and/or greater volatility in the future. We seek companies with strong returns on capital and flexibility to enhance shareholder value using the balance sheet and that wisely deploy capital — which includes higher dividends, share repurchases at attractive prices and mergers and acquisitions activity. We believe the Fund is positioned well by remaining focused on those companies with pricing power, copious cash generation and prudent capital allocation.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone Large Cap Fund - Class A* and the Russell 1000^® Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Note to Chart

Russell 1000^® Index measures the performance of the 1,000 largest companies in the Russell 3000^® Index.

The Frank Russell Company (FRC) is the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy in the presentation thereof.

Management's Discussion of Fund Performance (Unaudited)

Touchstone Large Company Growth Fund

Sub-Advised by DSM Capital Partners LLC

Investment Philosophy

The Touchstone Large Company Growth Fund seeks long-term capital appreciation by primarily investing in U.S. equity securities of large capitalization companies believed to offer the best opportunity for reliable growth at attractive stock valuations. The Fund utilizes a bottom-up idea-driven growth style with a distinct valuation discipline. It seeks to identify companies which are believed to exhibit certain quality characteristics, including: predictable growth, solid fundamentals, attractive profitability and successful management.

Fund Performance

The Touchstone Large Company Growth Fund (Class A shares) underperformed its benchmark, the Russell 1000^® Growth Index and outperformed its benchmark the S&P 500^® Index, for the 12-month period ended June 30, 2018. The Fund’s total return was 19.75 percent (calculated excluding the maximum sales charge), while the total return of the Russell 1000^® Growth Index was 22.51 percent and the total return of the S&P 500^® Index was 14.37 percent.

Market Environment

The stock market benefited from strong earnings growth during the 12-month period that ended June 30, 2018. The synchronization and strength of global growth in 2017 was better than many had anticipated and contributed to higher corporate earnings. This was compounded by tax reform and fiscal stimulus in the U.S. As a result, the equity markets experienced strong gains in 2017 and into early 2018.

However, by February, investors grew concerned that accelerating global growth would become a catalyst for inflation and higher than anticipated interest rates. Market worries were further exacerbated by escalating trade rhetoric and protectionist trade policies. Though it initially originated in the U.S., American trade partners around the globe responded by imposing retaliatory tariffs and spurring a tit-for-tat trade dispute that increased trade barriers. As a result, markets have traded sideways from February through the end of the fiscal year.

Portfolio Review

During the 12-month period that ended June 30, 2018, the Fund’s underperformance versus the benchmark was primarily due to weak stock selection in the Consumer Discretionary and Health Care sectors. This was partially offset by the Fund’s stock selection in and overweight to the Information Technology sector.

There were no significant changes made to the Fund’s positioning during the 12-month period. The majority of the Fund’s portfolio was invested in the Information Technology, Health Care and Consumer Discretionary sectors, with smaller weights in the Financials, Consumer Staples and Industrials sectors. The Fund’s allocation to the Financials sector increased during the period and was funded through a decline in the Consumer Discretionary exposure.

As previously discussed, stock selection was strong in the Information Technology sector. Holdings such as Adobe Systems Inc. (an application software development company), Tencent Holdings Ltd. (a broad internet and value-added services platform), Alibaba Group Holding Ltd. (a Chinese e-commerce company), Visa Inc. (an electronic payments company) and Facebook Inc. (a developer of social networking applications) all contributed materially to the Fund’s performance. For instance, Adobe generated gains during the fiscal period, driven by strong earnings that continued to beat consensus estimates.

Among the detractors to Fund performance during the period were specialty pharmaceutical companies Regeneron Pharmaceuticals Inc. and Allergan PLC (both from the Health Care sector), global cruise operator Norwegian

Management's Discussion of Fund Performance (Unaudited) (Continued)

Cruise Line Holdings Ltd. and consumer products manufacturer Newell Brands Inc. (both from the Consumer Discretionary sector), and investment management corporation BlackRock Inc. (Financials sector). Regeneron traded down significantly during the year despite consistently beating quarterly earnings estimates. Research and trials that could pave the way for competition for two of its key drugs (Eylea and Dupixent) led to concerns about the company’s longer term growth and profitability. However, in our opinion, the company continues to have growth drivers from opportunities for new treatment applications for its drug portfolio, therefore the Fund remains invested in the stock.

Outlook

We have projected for many years that the current global economic cycle will prove to be longer than the majority of previous economic growth periods. We previously thought that global growth would approximate three percent; we now believe the global economy may accelerate to a growth rate above that. This is based on fiscal stimulus and deregulatory policies in the U.S., continued economic growth in China, and improving economic outlooks in Europe and Japan. Despite the weaker growth of the U.S. and Europe in the first quarter, gross domestic product (GDP) growth for the second quarter and the remainder of 2018 should be stronger.

We continue to believe that the current global economic cycle will be driven by low inflation and low, albeit rising, interest rates. The changes in corporate tax rates in the U.S. are substantial, and we believe the resulting impact on GDP has been underestimated by many analysts.

Trade tensions between the U.S. and Canada, Mexico, China and the eurozone remain a source of investor uncertainty across the globe. We believe President Trump’s intent to renegotiate long-standing trade deals have clearly put investors on edge, resulting in weak market performance. Concurrently, the U.S. dollar strengthened while concerns of a trade war and its impact on the global economy escalated. However, with the combined value of the U.S., Chinese and European economies in excess of $50 trillion, we believe the impact of possible tariffs will be limited by their small relative size.

Going forward, we believe today’s uncertainties will be of little concern over time. As recent concerns about the economic impact of tariffs begin to dissipate, we anticipate that a weight will be lifted from investors’ shoulders and global equity markets will resume their march higher. For example, just as past worries about European sovereign debt and concerns over Facebook subsided, the recent apprehension about trade wars and rising interest rates in the U.S. and Europe should gradually subside too. Looking ahead, we believe the positive scenario of global economic growth, moderate global inflation, low interest rates, healthy global corporate earnings, normal global market valuations and an improving global financial system, should continue to form the foundation of an upwardly driven global equity market.

The Fund remains focused on earnings, as we believe strong and growing earnings, when combined with reasonable valuations, are the key to driving stock prices higher over time. Further, the businesses we identity for the Fund are continuously subject to analysis by our investment team. The Fund’s portfolio holdings remain characterized by strong balance sheets and strong free cash flow, and we continue to project a mid- to high-teens earnings growth rate through 2022 with valuations that remain attractive.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone Large Company Growth Fund- Class A*, the Russell 1000^® Growth Index and the S&P 500^® Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Note to Chart

Russell 1000^® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Frank Russell Company (FRC) is the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy in the presentation thereof.

S&P 500^® Index is a group of 500 widely held stocks and is commonly regarded to be representative of the large capitalization stock universe.

Management's Discussion of Fund Performance (Unaudited)

Touchstone Ohio Tax-Free Bond Fund

Sub-Advised by Fort Washington Investment Advisors, Inc.

Investment Philosophy

The Touchstone Ohio Tax-Free Bond Fund seeks the highest level of interest income exempt from federal income and Ohio personal income taxes, consistent with the protection of capital. It invests primarily in high-quality, long-term Ohio Municipal obligations.

Fund Performance

The Touchstone Ohio Tax-Free Bond Fund (Class A Shares) underperformed its benchmark, the Bloomberg Barclays Municipal Bond Index, for the 12-month period ended June 30, 2018. The Fund’s total return was 0.99 percent (calculated excluding the maximum sales charge) while the total return of the benchmark was 1.56 percent.

Market Environment

The U.S. economy showed solid growth during the fiscal year. In particular, U.S. employment growth remained strong with an average of 200,000 new jobs per month, and the unemployment rate declined to 4 percent as new workers entered the workforce. Inflation gradually increased during the year, with most major indicators exceeding the U.S. Federal Reserve Board’s (Fed) target rate of 2 percent. The Fed raised the federal funds rates at each meeting beginning in December 2017. The federal funds rate ended the fiscal year at 2 percent, which was up from 1.25 percent at the beginning of the period. The Fed also began to reduce its holdings of U.S. Treasuries and mortgaged-backed securities, thereby unwinding the quantitative easing measures taken following the financial crisis. Following the most recent Federal Open Market Committee meeting in June 2018, Fed Chairman Powell announced expectations for two additional rate increases this year, with the caveat that any additional actions will be driven by economic data.

Against the backdrop of a growing economy and tightening monetary policy, interest rates on U.S. Treasuries increased over the course of the 12-month period. Short-term interest rates rose over 1 percent, which was in line with the increases in the federal funds rate, while longer term maturities increased but to a lesser degree. This caused the U.S. Treasury curve to flatten considerably as 10-year U.S. Treasury Notes increased meaningfully.

The municipal market performed well over the period with various events influencing performance. The single most impactful event was the Tax Cuts and Jobs Act (TCJA), which was announced in late 2017 and reduced individual and corporate tax rates. This caused new issue supply to swell in late 2017 as issuers rushed to market, selling bonds to beat restrictions contained in the new law that eliminated advanced refundings or the ability of municipalities to issue tax-free bonds to refinance outstanding debt in advance of call or maturity dates. Since the beginning of 2018, however, new issue supply has declined substantially. The combination of lower new issue supply and continued strong demand from individual investors helped municipals outperform other bond sectors during the period. Thus far in 2018, rising interest rates have focused investor demand on bonds with short-term maturities in the one- to five-year range, which also helped the municipals sector outperform. Going forward, barring any disruptions in the global markets or the U.S. economy, the Fed will likely raise the federal funds rate. If this occurs, we believe interest rates across the yield curve will move higher as well, especially on 10- and 30-year maturities.

Portfolio Review

In managing the Fund, we put greater emphasis on high-quality Ohio municipal bonds in the 20-year maturity range, where we believe the market offers the best combination of tax-free yield and total return. We believe

Management's Discussion of Fund Performance (Unaudited) (Continued)

this strategy can help the Fund maintain a shorter duration relative to the broader market and reduce volatility associated with longer term bonds. During the fiscal year, the Fund benefited from an allocation to Education bonds and an overweight position in pre-refunded bonds. The Fund’s position in Hospital bonds, in which the Fund was overweight, detracted from performance primarily due to security selection. The Fund was also negatively impacted by having a zero allocation to Transportation bonds, as the ability to invest in that industry was limited within the Ohio market.

The municipal yield curve flattened over the course of the fiscal year with short-term rates increasing in response to the Fed’s tightening monetary policy. However, the adjustment was not as dramatic as the flattening that occurred in the U.S. Treasury market as the preference for short-term bonds in a rising interest rate market helped restrain short-term municipal rates. The changes in the municipal yield curve were a slight benefit to Fund performance during the period.

Outlook

Positive economic growth was supportive to credit fundamentals across the municipal sector as state and local revenues increased as a result of the favorable macro conditions. However, while the environment for the municipal market was generally positive, we believe some sector-specific issues could increase volatility going forward. First, the TCJA’s reduction in corporate tax rates could impact the participation of banks and property and casualty insurance companies, which make up 20 to 25 percent of the current municipal market. While we have already seen some selling by banks, a further reduction in demand from these buyers in a more robust new issue market could negatively impact market performance. Second, state pension funding levels for some states are well below required levels. Over the long term, this could squeeze budgets, and cause credit deterioration and ratings downgrades as municipalities work to improve funding levels. Fortunately, Ohio’s major pension plans are in good shape with healthy funding levels and continue to improve following adjustments the state made a few years ago to better its plans.

We believe the Fund is properly positioned at quarter end. We will seek to take advantage of opportunities during periods of market volatility that lead to higher yields using cash and pre-refunded bonds to fund new purchases. We are likely to favor maturities in the 15- to 20-year range as we believe these securities offer better relative value in the current market.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone Ohio Tax-Free Bond Fund - Class A^* and the Bloomberg Barclays Municipal Bond Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Note to Chart

The Bloomberg Barclays Municipal Bond Index is a widely recognized unmanaged index of municipal bonds with maturities of at least one year.

Management's Discussion of Fund Performance (Unaudited)

Touchstone Small Cap Value Opportunities Fund

Sub-Advised by Thompson, Siegel & Walmsley LLC

Investment Philosophy

The Fund seeks long-term capital growth by primarily investing in equity securities of small-cap companies believed to present a value or potential worth that is not recognized by prevailing market prices or that have experienced some fundamental changes and are intrinsically undervalued by the investment community. The sub-advisor uses a combination of quantitative and qualitative methods to assess the outlook for a company.

Fund Performance

The Touchstone Small Cap Value Opportunities Fund (Class A Shares) underperformed its benchmark, the Russell 2000^® Value Index, for the 12-month period ended June 30, 2018. The Fund’s total return was 11.04 percent (calculated excluding the maximum sales charge) while the total return of the benchmark was 13.10 percent.

Market Environment

Over the trailing 12 months, the market generally favored more cyclical sectors, while more defensive areas of the market, such as the Consumer Staples and Utilities sectors, lagged. Despite heightened valuations, the market continued to move higher due, in part, to the passage of tax reform in late 2017. The market was also relatively complacent as evidenced by record-low volatility in 2017, outperformance from momentum stocks, and valuation factors generally being out of favor. During the latter part of 2017, the U.S. Federal Reserve Board (Fed) signaled a move towards a more normalized interest rate environment which, coupled with a rise in the 10-year U.S. Treasury and continued divergence in global trade policy, contributed to an increase in volatility and a decline in stock correlations. While 2018 started off strong, it was followed by a market correction in late January. Overall, small-cap stocks performed well during the period, though investor concerns surrounding a trade war benefited more domestic-oriented stocks.

Portfolio Review

Both stock selection and sector allocation contributed to relative performance. At the sector level, the Fund’s overweight to the Industrials sector and underweight to the Utilities sector were positive contributors to relative performance, but they were partially offset by an underweight to the Energy and Health Care sectors.

Among the individual stocks that contributed to Fund performance were Vonage Holdings Corp. (Telecommunication Services sector),The Stars Group Inc. (Consumer Discretionary sector) and Green Dot Corp. (Financials sector). The largest detractors were Basic Energy Services Inc. (Energy sector), Diebold Nixdorf Inc. (Information Technology sector) and Motorcar Parts of American Inc. (Consumer Discretionary sector).

At the end of the quarter, the Fund was overweight to the Financials, Industrials, Consumer Discretionary, Telecommunication Services, Health Care, Consumer Staples and Information Technology sectors, and underweight to the Real Estate, Utilities, Materials and Energy sectors.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Outlook

We believe the economy appears to be in good health, with no major indications of recession on the immediate horizon. We expect a continuation of noise in the marketplace leading to increased volatility, thereby creating short-term opportunities for the Fund. The market continues to trade at an expensive multiple, which is even further pronounced when comparing growth against value. In fact, we believe the relative valuation of the Russell 2000^® Growth Index compared to the Russell 2000^® Value Index indicates a significant disconnect in relative valuation. Going forward, however, we believe the backdrop of an expensive market influenced heavily by macroeconomic headlines and uncertainty in political rhetoric warrants a disciplined and risk-aware approach to investing. As such, we believe our disciplined focus on sustainability of cash flows, probabilistic outcomes, and identifying those stocks with the highest reward to risk should benefit the Fund in this environment.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone Small Cap Value Opportunities Fund - Class A* and the Russell 2000^® Value Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Note to Chart

Russell 2000^® Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

The Frank Russell Company (FRC) is the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy in the presentation thereof.

Management's Discussion of Fund Performance (Unaudited)

Touchstone Value Fund

Sub-Advised by Barrow, Hanley, Mewhinney & Strauss, LLC

Investment Philosophy

The Touchstone Value Fund seeks long-term growth by primarily investing in equity securities of large- and mid-cap companies believed to be undervalued. The Fund uses traditional methods of stock selection — research and analysis — to identify companies that have price-to-earnings and price-to-book ratios below the market, that also have above-average dividend yields, and that focus on companies that are out of favor due to internal or external challenges judged to be short-term in nature. Stock selection is driven by fundamental analysis on individual companies rather than by broad market themes.

Fund Performance

The Touchstone Value Fund (Class A Shares) outperformed its benchmark, the Russell 1000^® Value Index, for the 12-month period ended June 30, 2018. The Fund’s total return was 6.92 percent (calculated excluding the maximum sales charge), while the total return of the benchmark was 6.77 percent for the same period.

Market Environment

After a strong period for stocks in the second half of 2017, the first six months of 2018 produced negative returns along with a growing list of concerns about the sustainability of the current bull market. The extreme optimism and lack of volatility that characterized late 2017 were replaced in 2018 with higher interest rates, a stronger U.S. dollar, higher energy prices, and escalating trade wars, the last of which has generated the most apprehension from investors. While all are valid concerns, their effects have been offset by the meaningful benefits derived from tax cuts, repatriations of corporate cash, and higher government spending.

We believe the common theme to both the negatives and positives previously mentioned is that each scenario has very different and uneven impacts on individual industries and companies. Such a market environment could prove to be an inflection point in favor of active stock selection rather than the passive investing strategies that have been popular in recent years. It would also call into question the popularity of growth stocks relative to value stocks, as many passive benchmarks have outsized weightings in a handful of “superstar” growth stocks. While growth stocks have continued to outperform value stocks, we believe the underpinnings of a value cycle — most notably faster economic growth and higher interest rates — have become evident and could likely increase going forward.

Portfolio Review

During the 12-month period, the Fund’s overweight position and positive stock selection in the Energy and Consumer Discretionary sectors were primary contributors, though the Financials and Utilities sectors also generated positive relative returns. This was partially offset by relative weakness in the Health Care and Industrials sectors.

The Fund’s overweight to, and stock selection in, the Energy sector contributed meaningfully to the Fund’s performance during the period. Most of the Fund’s Energy stocks were influenced by higher oil prices, including Occidental Petroleum Corp., ConocoPhillips and BP PLC; this positioning benefited the Fund. Occidental Petroleum, a petroleum and natural gas exploration and production company, performed well during the period as its Permian Basin oil production exceeded expectations and its mid-stream business captured significant margins in a tight market. Exploration and production company ConocoPhillips also contributed to performance as the company’s cash flows were affected by higher oil prices. The increased production and higher operating cash flows along with proceeds from 2017’s asset sale in Canada allowed management to pay off company

Management's Discussion of Fund Performance (Unaudited) (Continued)

debt and institute a multi-year share repurchase program. BP, an integrated oil and gas company, moved higher during the period as the company’s financial results for both its upstream and downstream assets exceeded expectations.

The Health Care sector was the largest detractor from the Fund’s relative performance over the course of the full fiscal year, largely due to overweight positions in Cardinal Health Inc. and Teva Pharmaceutical Industries Ltd.

Cardinal Health is one of the largest pharmaceutical distributors in North America, with a dominant medical product distribution business. Distributors typically make a disproportionate amount of profits from generic drug distribution, and as a result, Cardinal has been negatively impacted by generic drug pricing that has been weaker than usual over the last two years. We believe accelerating approvals from the Food and Drug Administration (FDA) of new generics will continue to pressure generic drug prices, but the consolidation of generic drug purchasing into large group purchasing organizations has run its course and should lead to moderating generic drug price deflation. Looking ahead, we believe Cardinal Health’s valuation should improve as its pharmaceutical business continues to recover and its medical business makes headway on integration issues related to the company’s acquisition of Cordis.

Teva Pharmaceutical Industries develops, manufactures and markets both generic and branded prescription drugs. The company’s underperformance was driven by a sharp decline in earnings as generic drug price deflation accelerated following the company’s acquisition of Allergan PLC’s generic drug business. Though the company’s new CEO began to aggressively cut costs in order to stabilize earnings and pay down debt, we believe the risks Teva faces appear to be long-term in nature. As a result, our investment thesis changed materially and the Fund exited the stock.

Other individual stocks that contributed to performance during the fiscal year were XL Group Ltd. (Financials sector),Microsoft Corp. (Information Technology sector) and Twenty-First Century Fox Inc. (Consumer Discretionary sector). XL Group is a global insurance company that generates the majority of its earnings from primary insurance and the remainder from reinsurance. Shares of XL moved higher following the announcement from AXA, a French insurance conglomerate, that it would acquire XL at a significant premium. Microsoft develops, manufactures and sells computer software, consumer electronics, personal computers and services. The company’s transition from de-emphasizing some legacy businesses to focus on well-positioned enterprise businesses has been successful thus far. In particular, its Office 365 and Azure products have experienced rapid growth as customers look to move workloads from their own internally managed servers to the cloud. Acceleration in these businesses, despite increasingly larger bases, support our view that Microsoft can capture an increased portion of a larger market as the business model shifts to be more cloud based. As incremental costs associated with these cloud investments slow and the businesses reach scale, the profit contribution has become more important. Twenty-First Century Fox owns and operates a collection of top-tier media assets which include domestic and international cable networks, a broadcast network, and film and television libraries and studios. In December 2017, The Walt Disney Co. offered to purchase a majority of the company’s assets and acquisition interest from Comcast denoted the start of a bidding war with Disney, which benefit the Twenty-First Century Fox stock and the Fund’s performance.

Among the individual stocks that detracted from performance were General Electric Co., Johnson Controls International PLC (both from the Industrials sector) and Philip Morris International Inc. (Consumer Staples sector). General Electric (GE), a global digital industrial company, has market-leading franchises in industries that, in general, have grown and have high barriers to entry. However, the company’s financial performance has been below average. The company’s new CEO was also expected to generate greater cost discipline, rising margins, better cash conversion and portfolio simplification. While progress was made in these areas, it was offset by a greater than expected decline in the market for gas turbines due to growing renewables penetration.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Additionally, a larger than expected charge from GE Capital led to balance sheet concerns and a widening of credit spreads. While overcapacity issues in the power business continues to suppress margins, we believe the oligopolistic structure of the industry and long-term nature of the service agreements could lead to improved cash generation and a rebound in General Electric’s performance. Johnson Controls International produces, installs and services HVAC, fire and security systems and is a large producer of automotive batteries. The stock detracted from performance due to a cash flow shortfall. In our view, the problems were primarily related to working capital and taxes, which we believe to be one-time in nature and should be resolved by late 2018. Importantly, the company is executing well on cost synergies from the Tyco acquisition, a significant driver of Johnson’s expected earnings growth going forward. Philip Morris International, a cigarette and tobacco manufacturer, declined following poor results in the first quarter of 2018, primarily due to mishandled communications for the company’s iQOS heat-not-burn product in Japan. A change in the way Philip Morris reported Japanese market share showed an apparent drop in Japan’s iQOS market share. Though a deeper analysis actually demonstrated an increase in iQOS market share, the damage to the stock was done before explanations could be made and the stock continued to be penalized. On a more positive note, iQOS is now being marketed in approximately 40 markets around the globe and market shares are rising, although none as rapidly as in Japan and South Korea. Further, we believe that the FDA could approve iQOS for distribution in the U.S. by Philip Morris’ sister company Altria Group Inc. before year-end.

Outlook

The current bull market has spanned nine years and, if it continues for a few more months, will become the longest bull market in history (since 1928). However, as the bull market has stumbled recently, we are reminded of how other bull markets have played out. After extended bull markets, investor bullishness for the areas of the market that have already been successful typically becomes extreme. In this cycle, that area has clearly been growth stocks, specifically a handful of highly priced technology and internet-related names. The valuation gap between growth and value has recently widened further as investors continue to chase the best performing stocks of the last few years. While value has not yet overtaken growth, market returns have moderated thus far in 2018 and the Fund has benefited as a result.

We remain confident that our conservative, defensive style of investing is a proven one. Importantly, our investment process has historically provided downside protection by focusing on undervalued companies with strong fundamentals and a meaningful and growing dividend. If markets fall or produce modest returns compared to the past nine years, we believe the Fund is well positioned going forward.

Management's Discussion of Fund Performance (Unaudited) (Continued)

Comparison of the Change in Value of a $10,000 Investment in the Touchstone Value Fund - Class A* and the Russell 1000^® Value Index

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Note to Chart

Russell 1000^® Value Index measures those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.

The Frank Russell Company (FRC) is the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy in the presentation thereof.

Tabular Presentation of Portfolios of Investments (Unaudited)

June 30, 2018

The tables below provide each Fund’s geographic allocation, credit quality and/or sector allocation. We hope it will be useful to shareholders as it summarizes key information about each Fund’s investments.

Tabular Presentation of Portfolios of Investments (Unaudited) (Continued)

* Sector classifications are based upon the Global Industry Classification Standard (GICS^®).

Tabular Presentation of Portfolios of Investments (Unaudited) (Continued)

Portfolio of Investments

Touchstone Credit Opportunities Fund – June 30, 2018

Touchstone Credit Opportunities Fund (Continued)

Touchstone Credit Opportunities Fund (Continued)

Touchstone Credit Opportunities Fund (Continued)

Touchstone Credit Opportunities Fund (Continued)