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Touchstone Funds Group Trust – ‘N-CSR’ for 9/30/17

On:  Wednesday, 11/29/17, at 5:01pm ET   ·   Effective:  11/29/17   ·   For:  9/30/17   ·   Accession #:  1144204-17-61506   ·   File #:  811-08104

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

11/29/17  Touchstone Funds Group Trust      N-CSR       9/30/17    4:6.8M                                   Toppan Vintage/FA
          → Touchstone Active Bond Fund ⇒ Class A (TOBAX) — Class C (TODCX) — Class T — Class Y (TOBYX) — Institutional (TOBIX)
          → Touchstone Ares Credit Opportunities Fund ⇒ Class A (TMARX) — Class C (TMACX) — Class Y (TMAYX) — Institutional Class (TARBX)
          → Touchstone Emerging Markets Small Cap Fund ⇒ Class A (TEMAX) — Class C (TEFCX) — Class Y (TEMYX) — Institutional (TMEIX)
          → Touchstone High Yield Fund ⇒ Class A (THYAX) — Class C (THYCX) — Class Y (THYYX) — Institutional (THIYX)
          → Touchstone Impact Bond Fund ⇒ Class A (TCPAX) — Class C (TCPCX) — Class Y (TCPYX) — Institutional (TCPNX)
          → Touchstone Merger Arbitrage Fund ⇒ Class A (TMGAX) — Class C (TMGCX) — Class Y (TMGYX) — Institutional (TMGLX)
          → Touchstone Mid Cap Fund ⇒ Class A (TMAPX) — Class C (TMCJX) — Class Y (TMCPX) — Class Z (TMCTX) — Institutional (TMPIX)
          → Touchstone Mid Cap Value Fund ⇒ Class A (TCVAX) — Class C (TMFCX) — Class Y (TCVYX) — Institutional (TCVIX)
          → Touchstone Sands Capital International Growth Equity Fund ⇒ Class A (TPYAX) — Class C (TPYCX) — Class Y (TPYYX)
          → Touchstone Sands Capital Select Growth Fund ⇒ Class A (TSNAX) — Class C (TSNCX) — Class Y (CFSIX) — Class Z (PTSGX)
          → Touchstone Small Cap Fund ⇒ Class A (TSFAX) — Class C (TSFCX) — Class Y (TSFYX) — Institutional (TSFIX)
          → Touchstone Small Cap Value Fund ⇒ Class A (TVOAX) — Class C (TVOCX) — Class Y (TVOYX) — Institutional (TVOIX)
          → Touchstone Ultra Short Duration Fixed Income Fund ⇒ Class A (TSDAX) — Class C (TSDCX) — Class S (SSSGX) — Class T — Class Y (TSYYX) — Class Z (TSDOX) — Institutional Class (TSDIX)

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Certified Annual Shareholder Report by a            HTML   2.76M 
                          Management Investment Company                          
 4: EX-99.906 CERT  Certifications                                  HTML      8K 
 3: EX-99.CERT  Certifications                                      HTML     17K 
 2: EX-99.CODE ETH  Code of Ethics                                  HTML     29K 

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 811-08104

Touchstone Funds Group Trust

(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: September 30

Date of reporting period: September 30, 2017

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

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

Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.

September 30, 2017

Annual Report

Touchstone Funds Group Trust

Touchstone Active Bond Fund

Touchstone Arbitrage Fund

Touchstone Emerging Markets Small Cap Fund

Touchstone High Yield Fund

Touchstone Merger Arbitrage Fund

Touchstone Mid Cap Fund

Touchstone Mid Cap Value Fund

Touchstone Premium Yield Equity Fund

Touchstone Sands Capital Select Growth Fund

Touchstone Small Cap Fund

Touchstone Small Cap Value Fund

Touchstone Total Return Bond Fund

Touchstone Ultra Short Duration Fixed Income Fund

Table of Contents

This report identifies the Funds’ investments on September 30, 2017. These holdings are subject to change. Not all investments in each Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market forecasts provided in this report may not occur.

2

Letter from the President

Dear Fellow Shareholder:

We are pleased to provide you with the Touchstone Funds Group Trust Annual Report. Inside you will find key financial information, as well as manager commentaries, for the 12 months ended September 30, 2017.

In a year of considerable geopolitical uncertainty, steady but unspectacular economic growth provided the support needed for global capital markets to continue moving higher. The effects of 2016’s biggest political events (e.g., Brexit, President Trump’s election) extended into 2017 as the focus shifted from politics to policy. In the U.S., the much anticipated stimulus from infrastructure spending and tax reform failed to arrive in substantive form. Meanwhile across the Atlantic, the United Kingdom and the European Union continued to debate the exact form of their post-Brexit relationship. In both cases, policy disappointments and political risks were overshadowed by solid economic growth and an improvement in corporate fundamentals. These same factors were the impetus for continued monetary policy normalization by the U.S. Federal Reserve Board (Fed), which raised short-term interest rates three times during the fiscal year and announced plans for reducing its $4.5 trillion balance sheet.

Global equity markets posted strong results during the period with most major U.S. and non-U.S. indexes generating double-digit returns. Investors’ increased appetite for risk was apparent, as emerging market equities led global equities and small-cap stocks were the strongest domestic performers. After trailing value-oriented stocks during much of 2016, growth stocks returned to favor and outperformed across the market capitalization spectrum.

While the Fed pushed toward a normalization of U.S. monetary policy, other developed market central banks continued to provide accommodative monetary conditions in an attempt to solidify positive economic trends. U.S. interest rates increased due to a combination of short-term rate hikes by the Federal Reserve and increased expectations for growth and inflation following the presidential election. While the higher interest rates pressured returns for U.S. Treasuries, credit-exposed securities enjoyed the same tailwinds of a stable economy and improving corporate earnings that boosted equity prices. Corporate bonds across the credit quality spectrum generated positive returns with non-investment grade securities leading the way.

As we close in on the end of 2017, the turning of the year provides a natural point to assess the recent past and to look toward the future. From a financial perspective, it has been yet another period of strong returns across many asset classes. This makes it a particularly timely juncture to take stock of your current financial situation, and with the help of your financial advisor, reassess your plans for the year – and years – ahead.

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

Sincerely,

Jill T. McGruder

President

Touchstone Funds Group Trust

Management’s Discussion of Fund Performance (Unaudited)

Touchstone Active Bond Fund

Sub-Advised by Fort Washington Investment Advisors, Inc.

Investment Philosophy

The Touchstone Active Bond Fund seeks to provide as high a level of current income as is consistent with the preservation of capital. Capital appreciation is a secondary goal. In deciding what securities to buy and sell for the Fund, the overall investment opportunities and risks in different sectors of the debt securities market are analyzed by focusing on maximizing total return and reducing volatility of the Fund’s portfolio. A disciplined sector allocation process is followed in order to build a broadly diversified portfolio of bonds.

Fund Performance

The Touchstone Active Bond Fund (Class A Shares) outperformed its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 1.26 percent (excluding the maximum sales charge) while the total return of the benchmark was 0.07 percent.

Market Environment

Risk assets performed extremely well during the 12-month period and did so with some of the lowest volatility on record. The outperformance was driven in part by a steady increase in investor optimism surrounding domestic and global economic growth, which has been substantiated with solid underlying fundamentals.

Some investors have identified the election of President Donald Trump in November 2016 as the catalyst that spurred the 12-month market rally in the U.S. During the campaign, Donald Trump laid out a business-friendly agenda focused on fiscal stimulus and tax reform, and emphasized the subsequent economic boost that these policies would provide. This spurred what has become known as the “Trump Trade.” Immediately following the presidential election, yields on U.S. Treasuries spiked higher along the yield curve, the U.S. Dollar Index jumped, and the S&P 500^® Index posted notable returns. However, as months passed and it became increasingly clear that passing key focal points of the agenda would be difficult, parts of the Trump Trade began to unwind. External events such as escalating tensions with North Korea, terrorist attacks, and two major hurricanes contributed to interest rates receding and the dollar losing ground against other major currencies. Risk assets, however, continued their impressive run as the S&P 500^® Index reached record highs and corporate bond spreads narrowed to levels last seen in 2014.

As the Trump Trade began to unwind, the long end of the yield curve began to fall. However, rates at the short end of the curve maintained their upward momentum as the U.S. Federal Reserve Board (Fed) raised the federal funds rate three times during the last 12 months and signaled further tightening in the U.S. Financial conditions remained relatively easy and have provided support for risk assets and economic growth. While market expectations of Fed rate hikes are still very shallow going forward, it will be difficult for the Fed not to support a quicker pace of rate hikes if strong underlying fundamentals persist. Global central bank policies were generally accommodative during the period, but they have begun to inflect under the guidance of the European Central Bank.

Portfolio Review

The Fund outperformed during the 12-month period as a result of an overweight to non-Treasury sectors and positive security selection. Risk premiums across the bond market contracted during the period, and although the Fund’s positions across non-Treasury sectors benefited performance, the allocation to High Yield bonds (commonly known as “junk bonds”) was the most significant contributor to performance. The Fund maintained its overweight to that sector, as we believed High Yield bonds offered adequate compensation for their credit and liquidity risk. However, as credit spreads continued to tighten during the period and the relative return

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

potential from non-investment grade bonds degraded, the Fund decreased its exposure to High Yield, which now sits at multi-year lows.

The Fund has a neutral bias on the overall direction of interest rates in the near term, but made several tactical adjustments in an attempt to take advantage of short-term movements. These short-term tactical shifts, such as opportunistic investments in Treasury Inflation Protected Securities (TIPS), had a positive impact on the performance of the Fund.

Outlook

U.S. economic growth remains stable, and recession risk is increasingly low, notwithstanding the age of the credit cycle. Given this backdrop, the Fund continued to be overweight in risk assets relative to the benchmark, though this overweight has declined somewhat in recent quarters as asset prices have increased to reflect the market’s optimistic view of the economy. In our opinion, High Yield bonds are no longer attractive given current spread levels. Instead, the Fund has increased its exposure to securitized assets, particularly within Asset-Backed Securities and non-agency Mortgage-Backed Securities, where we believe a more attractive risk/reward profile is available. These sectors are closely levered to the health of the consumer, which we believe to be strong. In aggregate, we remain comfortable with a modest overweight to risk given the positive economic outlook and low rate of expected defaults. Global factors will be watched closely for any broader impact which might influence the economic outlook and affect the Fund’s allocation to risk assets.

The economic environment and the outlook for further action from the Fed suggest the potential for higher interest rates but, in our view, progress on tax reform or tax cuts will need to be made in order for rates to go meaningfully higher.

As previously mentioned, valuations across risk assets have adjusted to the more positive economic outlook and are at fair value given the positive macro outlook. Going forward, we believe the Trump administration’s inability to execute on expanded fiscal policy and lack of tangible progress on tax cuts or reform could create some disruption to risk assets. We believe global central banks will need to maintain accommodative policies to support ongoing recoveries abroad. Meanwhile, additional rate hikes by the Fed could further tighten domestic financial conditions as the year progresses.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Active Bond Fund - Class A^*and the

Bloomberg Barclays U.S. Aggregate 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

Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years.

Management’s Discussion of Fund Performance (Unaudited)

Touchstone Arbitrage Fund

Sub-Advised by Longfellow Investment Management Co.

Investment Philosophy

The Touchstone Arbitrage Fund seeks to achieve positive absolute returns regardless of market conditions over the long term by investing primarily in securities of companies that are involved in publicly announced mergers, takeovers, tender offers, debt restructurings, minority purchases, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations.

Fund Performance

The Touchstone Arbitrage Fund (Class A Shares) outperformed its benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 2.20 percent (excluding the maximum sales charge) while the benchmark’s total return was 0.66 percent.

Market Environment

During the 12-month period ended September 30, 2017, risk assets continued to exhibit strong gains. U.S. equities posted double-digit total returns. Despite the strong return environment, price volatility following the U.S. election has been one of the calmest periods in history. This lack of realized volatility was a significant surprise given the uncertainty across monetary policy, fiscal policy, taxation and geopolitics. With the U.S. Federal Reserve Board (Fed) continuing on its path of rate normalization and balance sheet tapering, Longfellow’s view is that this lack of volatility will prove fleeting as risk assets revert back to their historical averages.

After excluding deal outliers (e.g., regulatory uncertainty, antitrust concerns, financing), we do not see a broad dispersion of annualized spreads across sectors. The pace of deal activity declined over the course of the period and reached the lowest point in the final quarter of the fiscal year. Those deals that were occurring tended to cluster in pockets of asset managers, regional banks, biotechnology, energy exploration and production (E&P to drilling) and semiconductors.

Portfolio Review

Though macro trends contributed to the performance of the broader equity markets, they did not have a discernable impact on the Fund over the 12-month period. Despite the three interest rate hikes from the Fed during the period, deal spreads tightened marginally as a result of low deal flow and continued investor interest in the merger arbitrage space. Deals tend to price in an annualized deal spread near 4 percent.

During the fiscal year, the Touchstone Arbitrage Fund invested in two broken deals (KLA-Tencor Corp. in late 2016 and RiteAid Corp. in early 2017), but managed to avoid other notable terminations in its investable universe, such as Lattice Semiconductor Corp., Humana Inc./Aetna Inc., Cigna Corp./Anthem Inc. and Deutsche Borse AG/London Stock Exchange Group PLC. While the Fund was able to manage its position in KLA-Tencor to minimize performance impact, the position in RiteAid was a primary detractor to Fund performance. Walgreens Boots Alliance Inc.’s proposed acquisition of RiteAid ran into regulatory trouble in 2016 as the Federal Trade Commission (FTC) refused to grant anti-trust approval based on the initial terms of the deal. The original merger agreement contained a provision to divest 865 stores to Fred’s Inc. that we believed would be sufficient to secure anti-trust approval. After initial indications that a greater number of stores would need to be divested, RiteAid and Walgreens revised their proposed deal, increasing the number of divested stores to 1,200. The FTC still was not satisfied with the size of the expanded divestiture, and the two companies eventually agreed to discontinue the merger agreement and proceed with an asset sale. Walgreens will acquire approximately half of RiteAid’s store locations, but the two companies will remain independent entities. RiteAid’s stock consistently traded down over the period, as the deal’s terms changed and its completion date extended.

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

After a tumultuous 2016, Abbott Laboratories and Alere Inc.’s new merger agreement received various regulatory approvals and progressed toward its early October close date. Abbott will acquire Alere for $51.00 per common share, compared to the previous agreement of $56 per share. As clarity around the deal closure increased, the deal spread tightened, which contributed to the Fund’s performance.

The Fund benefited from an upward revision in price in the merger between The Canadian Imperial Bank of Commerce (CIBC) and PrivateBancorp, Inc. PrivateBancorp is a high-quality, Chicago-based middle market commercial bank with nearly $20 billion in assets, complemented by private banking and wealth management capabilities. CIBC raised the price being paid for PrivateBancorp by approximately 20 percent. Stocks in the Financials sector enjoyed strong gains following the November election, and some PrivateBancorp shareholders raised opposition to the merger, believing that the deal price needed to be revised to reflect the change in market conditions.

The Fund also benefited from its involvement in a multiple bidder situation, as Starwood Capital Group Management LLC and D.R. Horton Inc. fought to acquire Forestar Group Inc. In April 2017, Forestar Group announced a definitive merger agreement to be acquired by Starwood Capital Group for $14.25 per share in cash. D.R. Horton made a competing proposal to acquire 75 percent of Forestar Group for $16.25 per share. Under the proposal, Forestar stockholders would have the right to elect, for each share of common stock held, either to receive $16.25 per share in cash as merger consideration or to retain such share of the surviving entity. The competitive bidding process between Starwood Capital Group and D.R. Horton continued for a couple more rounds, before D.R. Horton ultimately won out with a bid of $17.75 per share for 75 percent of the equity of Forestar Group.

Nexstar Media Group Inc.’s transaction with Media General Inc. closed during the period. Nexstar agreed to acquire Media General for $10.55 per share in cash and 0.1249 of a share of Nexstar Class A common stock for each Media General share. In addition, the terms allowed for additional consideration to Media General shareholders in the form of a contingent value right (CVR) for each Media General share. The CVR entitled Media General shareholders to net cash proceeds that would be received from the sale of Media General’s spectrum in an upcoming Federal Communications Commission (FCC) spectrum auction (a process whereby a government uses an auction system to sell the rights (licenses) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources). The Fund’s portfolio benefited not only from the closing of the merger, but also the additional upside from the contingent value right, which ended up being meaningfully higher than market expectations.

Reckitt Benckiser Group PLC signed a merger agreement with Mead Johnson Nutrition Co. under which Mead Johnson shareholders were to receive $90 in cash for each share of common stock. The transaction proceeded smoothly and attained the necessary shareholder and regulatory approvals en route to its June 2017 closing. The Fund benefited from the narrowing of the deal spread and timely closure of the deal.

Outlook

Access to capital, slow global growth and strong corporate balance sheets are expected to drive a rebound in strategic mergers and acquisitions (M&A), which has slowed in recent months. Historically, we believe low funding costs should also provide a tailwind for financial buyers. On balance, we see a backdrop that remains supportive for continued deal activity. The continued strength of the broad equity market should also provide a tailwind for deals. Our team at Longfellow has found a positive correlation between year-over-year gains in the S&P 500^® Index and subsequent increases in deal activity. We believe this relationship should support an increase in deal activity for the year ahead, particularly should tax reform emerge out of Washington DC.

With deal spreads based in part on short-term interest rates, we believe Fund returns should benefit from the Fed’s continued path toward interest rate normalization. The current forecast from the Fed implies one additional

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

increase in calendar year 2017, as well as the start of balance sheet reductions in October. However, the prospect of the Fed stopping the reinvestment of its mortgage holdings leads to the risk of policy missteps that could introduce volatility to the market. We believe such volatility may provide the Fund incremental investment opportunities. Policy disappointments out of Congress or by President Trump could drive volatility as timelines for expectations of tax and other regulatory reform gets extended.

We continue to believe the Fund is well positioned to provide absolute returns, low realized volatility and low sensitivity to underlying price movements within equity markets. The Fund’s portfolio has a strong focus on liquidity management while managing downside risks. Off of our base-case expectations for deal activity and interest rate policy, we are optimistic regarding the tailwinds for deal activity and potential for wider spreads.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Arbitrage Fund - Class A^* and the

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

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 Emerging Markets Small Cap Fund

Sub-Advised by Copper Rock Capital Partners LLC

Investment Philosophy

The Touchstone Emerging Markets Small Cap Fund seeks capital appreciation by primarily investing in equity securities of emerging markets 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.

Fund Performance

The Touchstone Emerging Markets Small Cap Fund (Class A Shares) outperformed its benchmark, the MSCI Emerging Markets Small Cap Index for the 12-month period ended September 30, 2017. The Fund’s total return was 19.27 percent (calculated excluding the maximum sales charge) while the total return of the benchmark was 14.89 percent.

Market Environment

Global equity markets continued to climb higher during the 12-month period, as investor sentiment was generally positive overall and earnings revisions remained above average. Spurred by a weaker U.S. dollar relative to the end of 2016, fundamental economic improvements continued in 2017 as corporate earnings forecasts and economic growth in the emerging markets arena surpassed that of their developed market counterparts. The pace of earnings-per-share growth further benefited the emerging markets and helped boost returns throughout 2017. As a whole, emerging markets benefited from strong demand in the global technology cycle, better commodity prices and a solid economic environment in China.

Portfolio Review

Stock selection was broadly positive across the Fund’s portfolio during the period. At the sector level, the Fund’s performance benefited the most from the Materials, Information Technology, Consumer Discretionary and Health Care sectors. The Fund’s allocation to stocks in China was the largest contributor to performance by country. There was also positive stock selection from the Fund’s holdings in Brazil, India, South Africa, the United Arab Emirates, Indonesia and Mexico. Conversely, South Korea performed the worst among major emerging market countries, primarily due to geo-political concerns as well as individual stocks that performed poorly during the period.

Among the individual stocks that contributed to Fund performance were BYD Electronic (International) Co. Ltd., Elite Material Co. Ltd. (both from the Information Technology sector), China Lodging Group Ltd. and Magazine Luiza SA (both from the Consumer Discretionary sector). BYD Electronic, a China-based investment holding company, manufactures handset components as well as metal and glass casing systems for original equipment manufacturers. The continued growth of handsets and tablets to support mobile telephony throughout Asia was the primary driver of returns during the period. Further, at the end of April 2017, BYD Electronic reported first quarter year-over-year earnings that were significantly ahead of consensus estimates. In August 2017, BYD Electronic reported strong earnings as well as guidance for a positive second half of the year, primarily as a result of an increase in customer orders and improved operating efficiency within the company. Going forward, we believe there is opportunity for further upside as a new upgrade cycle in smartphones and tablets is on the horizon, and the company is positioned well as mobile device hardware upgrades come to market. Elite Material is a Taiwan-based producer of prepared laminated cover claddings for printed circuit boards. The company is among the largest halogen-free laminate suppliers in the world, and the stock outperformed as halogen-free laminates continued to grow in market penetration. China Lodging Group operates a multi-brand group of hotels in China that caters to a mix of business and leisure customers. The company reported strong quarterly results and revised its forward guidance. Revenues across all hotel categories rose during the period,

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

but a more significant increase was seen in the mid- to upscale hotel category. The company’s large customer base also proved to be a strategic advantage, as management can leverage its model with new hotel additions and smaller owner-operated facilities in its network. We exited the Fund’s position as the company continued to outperform and thus moved beyond the Fund’s investment strategy’s market cap limit. Magazine Luiza is a Brazil-based consumer electronics and home goods retailer. The company has benefited as Brazil’s economy has slowly begun to recover and discretionary spending has increased. The company also delivered strong top-line growth and operating leverage due to its superior omni-channel sales platform. Further, the company has spent the past few years revamping its stores and developing its e-commerce offering to match how modern consumers want to see and buy products.

Among the individual stocks that detracted from performance during the period were Vieworks Co. Ltd., Value Added Technology Co. (both from the Health Care sector) and Grape King Bio. Ltd. (Consumer Staples sector). Vieworks is a South Korea-based manufacturer of imaging equipment used in X-rays and flat-panel inspection. During 2017, the company experienced pricing pressure in its X-ray products as new entrants came to the market and one of its major customers increased its in-house production. These combined pressures contributed to the company’s weak results. While Vieworks’ industry can be volatile on a quarter-to-quarter basis, we believe the company has the ability to innovate and take share from incumbents in more challenging applications for imaging technology. Investors have also anticipated a recovery in the company’s sales, which we believe should benefit shares going forward. However, because Viework’s growth may be postponed we chose to reduce the Fund’s position in the stock. Value Added Technology Co. is a Korea-based manufacturer of radiographic systems for dental diagnoses. The company reported disappointing results during the first quarter of 2017 due to one-off expenses that impacted margins. Further, the company’s transition from 2D to 3D X-ray systems caused some inventory write-offs and higher research and development expenses. However, the demand for the company’s 3D product continued to be strong and we believe it is unlikely that the company will incur more charges. As such, we expect the stock to benefit going forward. Taiwan-based Grape King Bio produces and sells health food products with the genesis of its products derived from the medicinal qualities of the mushroom. Grape King Bio declined following reports that it had fabricated the expiration date on some products to extend shelf life. The company negated this finding in news briefs and public commentaries, and we believe the company made solid arguments on the invalidity of the allegations. However, the Taiwanese legal discovery process could take a long time and weigh on stock performance in the near term.

Outlook

We anticipate steady economic growth across emerging markets in 2018 and we believe earnings should continue to rise. Currently, there appears to be greater confidence in the economic cycle of emerging markets compared to developed markets, which we expect will lead to higher multiples.

At the end of the period, Brazil was the Fund’s largest overweight position as we identified a number of high-quality companies experiencing growth. Further, with the benefit of lower interest rates and increased employment, we believe Brazil will continue to recover from its deep recession. China also remains attractive, as its steady economic growth, along with focused policy, has helped reduce concern about the country’s debt levels. The new head of the China Banking Regulatory Commission has also been vocal about implementing tighter controls and a more aligned regulatory framework across the country. We believe these measures, combined with China’s supply-side discipline in overcapacity industries, should result in continued growth in the country’s private sector.

The Fund remained overweight to the Consumer Discretionary and Financials sectors as a result of what we believe are long-term trends of rising discretionary spending and financial market participation in emerging markets. In addition, the Fund was meaningfully overweight to the Industrials sector as global growth remained

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

solid in that sector. The Fund was positioned cautiously within the Consumer Staples sector as valuations have risen within the sector and growth in discretionary spending has increased.

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Emerging Markets Small Cap Fund - Class A* and the

MSCI Emerging Markets 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.

Notes to Chart

MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of small companies from emerging markets.

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 High Yield Fund

Sub-Advised by Fort Washington Investment Advisors, Inc.

Investment Philosophy

The Touchstone High Yield Fund seeks a high level of income. Capital appreciation is a secondary consideration. The Fund primarily invests in non-investment-grade securities.

Fund Performance

The Touchstone High Yield Fund (Class A Shares) underperformed its benchmark, BofA Merrill Lynch High Yield Cash Pay Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 7.45 percent (calculated excluding the maximum sales charge) while the benchmark’s total return was 9.06 percent.

Market Environment

The High Yield market has been a tale of two stories over the last 12 months. The period began with two very bullish quarters, as spreads across all ratings categories tightened significantly amid a broad-based rally in risk. CCC-rated bonds clearly outperformed in this environment as credit spreads tightened by nearly 250 basis points during the first half of the fiscal year. The rally in risk assets coincided with the presidential election and continued through February before moderating. The rally was supported by positive economic fundamentals (including gross domestic product (GDP), wages, employment, housing, etc.) but was further buoyed by the optimism surrounding hopes for healthcare reform, tax cuts and a more pro-business approach from the incoming administration. High yield returns continued to be solid in the second half of the fiscal year. However, those returns were more evenly distributed among ratings categories, as BB and B-rated bonds were able to perform well versus CCC-rated bonds. Spreads across categories have tightened to sit in the top quartile of their historical ranges.

Sector factors for the 12-month period also were bifurcated. The first six months of the period were marked by a continuation of commodity driven returns, with the Energy and Metals & Mining sectors being strong outperformers. During the latter half of the period, West Texas Intermediate (WTI) crude oil prices remained range bound between $40 and $50/barrel. As a result, low quality Energy-related names did quite poorly. The low commodity prices began to wear on the market which was counting on a more sustained rally in the underlying commodity.

Sector themes to highlight during this period were the weakness in Retail, weakness in Supermarkets and weakness in several large issuers with over-levered capital structures. Retail and Supermarkets both continued to struggle with the same issue: the fixed cost structures of brick-and-mortar locations make it difficult to compete in a lower cost, internet-based economy. While the equities of many of these companies have been pressured for some time, we have finally begun to see movement in their bond valuations as the competitive threats of e-commerce quickly became a reality.

The environment for credit remains positive as the economic fundamentals that have driven the last 12 months remain in place today: solid GDP growth, low unemployment, firm wages, strong housing market and ample liquidity. With monetary policy remaining accommodative, we would expect defaults to remain low and top-line growth to continue, which should allow companies to grow cash flows and reduce debt on their balance sheets.

Portfolio Review

As noted above, the bifurcated market environment over the last 12 months means that performance drivers have varied over the course of the fiscal year. The Fund’s higher quality bias was a significant headwind due to the outperformance of CCC-rated bonds versus BB/B. Based on performance attribution, the ratings composition seems to be the largest reason for underperformance relative to the benchmark.

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

The Fund’s positioning in the Energy sector was a headwind for the first half of the period and a significant contributor during the second half as low quality Energy names struggled towards the end of the fiscal year. The Fund had a cautious stance in the Retail sector for the entire period and that positioning has been a significant contributor throughout. Lastly, positioning within the Media and Health Care sectors (two sectors that we tend to favor) were also strong contributors throughout the period, materially adding to performance.

There were no material changes made to portfolio positioning in the period, though the Fund decreased its overweight to the Cable/Satellite sector while also reducing its large underweight to the Metals/Mining sector. The Fund has continued to pare down exposure to downgraded CCC-rated bonds as well as low spreading BBB/BB rated bonds. The capital has been redeployed into B-rated bonds, where we think there continues to be a favorable return outlook given the low default rate environment. The largest sector overweights for the Fund were to Midstream Energy and Food & Beverage. We view both of these sectors as having favorable cash flow characteristics relative to their leverage profiles. The largest underweight continued to be in the Packaging sector, a small sector with low yields and poor relative value.

Outlook

Positive data on GDP growth, unemployment and the consumer all point to a stable to positive economic outlook, creating a benign outlook for defaults going forward. With stable financial conditions and liquidity, and no significant concentration of debt maturing in the coming year, the supply/demand dynamics also appear relatively balanced for the foreseeable future. However, should the economy struggle and credit spreads widen, the Fund’s higher quality nature would be beneficial.

In light of the current historically low spread and yield levels, the Fund is positioned toward the lower portion of our risk range. Yield is below that of the benchmark and credit quality is one notch higher (BB- vs B+). We believe that the market is fairly valued and unlikely to experience significant additional spread tightening. The Fund is positioned to emphasize credit selection over sector allocation. In our view, few sectors are materially mispriced and meriting a considerable overweight or underweight.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone HighYield Fund - Class A^*and the BofA Merrill Lynch HighYield Cash Pay 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

BofA Merrill Lynch High Yield Cash Pay Index is an unmanaged index used as a general measure of market performance consisting of fixed-rate, coupon-bearing bonds with an outstanding par which is greater than or equal to $50 million, a maturity range greater than or equal to one year and must be less than BBB/Baa3 rated but not in default.

Management’s Discussion of Fund Performance (Unaudited)

Touchstone Merger Arbitrage Fund

Sub-Advised by Longfellow Investment Management Co.

Investment Philosophy

The Touchstone Merger Arbitrage Fund seeks to achieve positive absolute returns regardless of market conditions over the long term by investing primarily in securities of companies that are involved in publicly announced mergers and other corporate reorganizations. Merger arbitrage is an investment strategy that seeks to capture the “arbitrage spread” represented by the difference between the market price of the securities of the company being purchased and the value that is offered for these securities by the acquiring company. The Fund selects securities based on proposed financing terms, the size of the transaction, anti-trust concerns, regulatory approvals and shareholder voting requirements.

Fund Performance

The Touchstone Merger Arbitrage Fund (Class A Shares) outperformed its benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 3.01 percent (excluding the maximum sales charge) while the benchmark’s total return was 0.66 percent.

Market Environment

During the 12-month period ended September 30, 2017, risk assets continued to exhibit strong gains. U.S. equities posted double-digit total returns. Despite the strong return environment, price volatility following the U.S. election has been one of the calmest periods in history. This lack of realized volatility was a significant surprise given the uncertainty across monetary policy, fiscal policy, taxation and geopolitics. With the U.S. Federal Reserve Board (Fed) continuing on its path of rate normalization and balance sheet tapering, Longfellow’s view is that this lack of volatility will prove fleeting as risk assets revert back to their historical averages.

After excluding deal outliers (e.g., regulatory uncertainty, antitrust concerns, financing), we do not see a broad dispersion of annualized spreads across sectors. The pace of deal activity declined over the course of the period and reached the lowest point in the final quarter of the fiscal year. Those deals that were occurring tended to cluster in pockets of asset managers, regional banks, biotechnology, energy exploration and production (E&P to drilling) and semiconductors.

Portfolio Review

Though macro trends contributed to the performance of the broader equity markets, they did not have a discernable impact on the Fund over the 12-month period. Despite the three interest rate hikes from the Fed during the period, deal spreads tightened marginally as a result of low deal flow and continued investor interest in the merger arbitrage space. Deals tend to price in an annualized deal spread near 4 percent.

During the fiscal year, the Touchstone Merger Arbitrage Fund invested in two broken deals (KLA-Tencor Corp. in late 2016 and RiteAid Corp. in early 2017), but managed to avoid other notable terminations in its investable universe, such as Lattice Semiconductor Corp., Humana Inc./Aetna Inc., Cigna Corp./Anthem Inc. and Deutsche Borse AG/London Stock Exchange Group PLC. While the Fund was able to manage its position in KLA-Tencor to minimize performance impact, the position in RiteAid was a primary detractor to Fund performance. Walgreens Boots Alliance Inc.’s proposed acquisition of RiteAid ran into regulatory trouble in 2016 as the Federal Trade Commission (FTC) refused to grant anti-trust approval based on the initial terms of the deal. The original merger agreement contained a provision to divest 865 stores to Fred’s Inc. that we believed would be sufficient to secure anti-trust approval. After initial indications that a greater number of stores would need to be divested, RiteAid and Walgreens revised their proposed deal, increasing the number of divested stores to 1,200. The

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

FTC still was not satisfied with the size of the expanded divestiture, and the two companies eventually agreed to discontinue the merger agreement and proceed with an asset sale. Walgreens will acquire approximately half of RiteAid’s store locations, but the two companies will remain independent entities. RiteAid’s stock consistently traded down over the period, as the deal’s terms changed and its completion date extended.

After a tumultuous 2016, Abbott Laboratories and Alere Inc.’s new merger agreement received various regulatory approvals and progressed toward its early October close date. Abbott will acquire Alere for $51.00 per common share, compared to the previous agreement of $56 per share. As clarity around the deal closure increased, the deal spread tightened, which contributed to the Fund’s performance.

The Fund benefited from an upward revision in price in the merger between The Canadian Imperial Bank of Commerce (CIBC) and PrivateBancorp, Inc. PrivateBancorp is a high-quality, Chicago-based middle market commercial bank with nearly $20 billion in assets, complemented by private banking and wealth management capabilities. CIBC raised the price being paid for PrivateBancorp by approximately 20 percent. Stocks in the Financials sector enjoyed strong gains following the November election, and some PrivateBancorp shareholders raised opposition to the merger, believing that the deal price needed to be revised to reflect the change in market conditions.

The Fund also benefited from its involvement in a multiple bidder situation, as Starwood Capital Group Management LLC and D.R. Horton Inc. fought to acquire Forestar Group Inc. In April 2017, Forestar Group announced a definitive merger agreement to be acquired by Starwood Capital Group for $14.25 per share in cash. D.R. Horton made a competing proposal to acquire 75 percent of Forestar Group for $16.25 per share. Under the proposal, Forestar stockholders would have the right to elect, for each share of common stock held, either to receive $16.25 per share in cash as merger consideration or to retain such share of the surviving entity. The competitive bidding process between Starwood Capital Group and D.R. Horton continued for a couple more rounds, before D.R. Horton ultimately won out with a bid of $17.75 per share for 75 percent of the equity of Forestar Group.

Nexstar Media Group Inc.’s transaction with Media General Inc. closed during the period. Nexstar agreed to acquire Media General for $10.55 per share in cash and 0.1249 of a share of Nexstar Class A common stock for each Media General share. In addition, the terms allowed for additional consideration to Media General shareholders in the form of a contingent value right (CVR) for each Media General share. The CVR entitled Media General shareholders to net cash proceeds that would be received from the sale of Media General’s spectrum in an upcoming Federal Communications Commission (FCC) spectrum auction (a process whereby a government uses an auction system to sell the rights (licences) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources). The Fund’s portfolio benefited not only from the closing of the merger, but also the additional upside from the contingent value right, which ended up being meaningfully higher than market expectations.

Reckitt Benckiser Group PLC signed a merger agreement with Mead Johnson Nutrition Co. under which Mead Johnson shareholders were to receive $90 in cash for each share of common stock. The transaction proceeded smoothly and attained the necessary shareholder and regulatory approvals en route to its June 2017 closing. The Fund benefited from the narrowing of the deal spread and timely closure of the deal.

Outlook

Access to capital, slow global growth and strong corporate balance sheets are expected to drive a rebound in strategic mergers and acquisitions (M&A), which has slowed in recent months. Historically we believe low funding costs should also provide a tailwind for financial buyers. On balance, we see a backdrop that remains supportive for continued deal activity. The continued strength of the broad equity market should also provide a tailwind for deals. Our team at Longfellow has found a positive correlation between year-over-year gains in

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

the S&P 500^® Index and subsequent increases in deal activity. We believe this relationship should support an increase in deal activity for the year ahead, particularly should tax reform emerge out of Washington DC.

With deal spreads based in part on short-term interest rates, we believe Fund returns should benefit from the Fed’s continued path toward interest rate normalization. The current forecast from the Fed implies one additional increase in calendar year 2017, as well as the start of balance sheet reductions in October. However, the prospect of the Fed stopping the reinvestment of its mortgage holdings leads to the risk of policy missteps that could introduce volatility to the market. We believe such volatility may provide the Fund incremental investment opportunities. Policy disappointments out of Congress or by President Trump could drive volatility as timelines for expectations of tax and other regulatory reform gets extended.

We continue to believe the Fund is well positioned to provide absolute returns, low realized volatility and low sensitivity to underlying price movements within equity markets. The Fund’s portfolio has a strong focus on liquidity management while managing downside risks. Off of our base-case expectations for deal activity and interest rate policy, we are optimistic regarding the tailwinds for deal activity and potential for wider spreads.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Merger Arbitrage Fund - Class A* and the

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

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 Mid Cap Fund

Sub-Advised by The London Company

Investment Philosophy

The Touchstone Mid Cap Fund seeks long-term capital growth by investing primarily in common stocks of mid-cap U.S.-listed companies. The Fund utilizes a bottom-up security selection process that screens potential investments against a proprietary quantitative model for return on capital, earnings-to-enterprise value ratio, and free cash flow yield. Its goal is to purchase financially stable companies that are believed to consistently generate high returns on unleveraged operating capital, are run by shareholder-oriented managements and are trading at a discount to their respective private market values.

Fund Performance

The Touchstone Mid Cap Fund (Class A Shares) outperformed its benchmark, the Russell Midcap^® Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 18.08 percent (excluding the maximum sales charge) while the benchmark’s total return was 15.32 percent.

Market Environment

For the 12-month period, U.S. equity markets were generally robust and many posted impressive double-digit returns. Following the U.S. presidential election in November, equity markets responded well and remained steady over the course of the period, primarily driven by generally positive economic data and investors’ optimism that fiscal policies could spur gross domestic product (GDP) growth. Among the most significant drivers of outperformance during the period were historically low interest rates and tepid inflation which helped keep equities in favor. Credit markets also remained healthy which further benefited equities. Additionally, the strong U.S. labor market coupled with rising wages and solid housing data continued to benefit consumers. The U.S. Federal Reserve Board (Fed) was fairly transparent in its actions during the period and there were expectations that the Fed will raise the short-term federal funds rate again in December 2017.

Within the benchmark, the Information Technology, Financials and Industrials sectors outperformed, while the Telecommunication Services, Energy and Consumer Staples sectors detracted from performance.

Portfolio Review

At the sector level, the Fund’s underweight to the Energy and Real Estate sectors contributed to relative performance, while an overweight to the Consumer Staples and Consumer Discretionary sectors detracted.

Among the individual stocks that contributed to Fund performance were Old Dominion Freight Lines Inc., Cintas Corp. (both from the Industrials sector), Progressive Corp., M&T Bank Corp. (both from the Financials sector) and CarMax Inc. (Consumer Discretionary sector). Old Dominion Freight Lines, a national less-than-truckload motor carrier, outperformed during the period due to rational pricing in the less-than-full truckload space and positive volume growth. Stable economic growth coupled with some improvement in the industrial side of the economy were also positive for Old Dominion. Cintas, a provider of specialized services to businesses, steadily outperformed during the year. The company’s acquisition of G&K Services Inc. also progressed well, which led to both revenue and cost synergies. The strong labor market was also a tailwind to performance. Progressive, an insurance provider, outperformed as the company continued to exhibit premium growth along with profitable underwriting results. Progressive also posted improving top line growth in its personal auto and property businesses. In particular, growth in the agency’s personal auto business outpaced the industry and its conservative underwriting philosophy contributed to strong profitability and well-managed expenses. M&T Bank, a bank holding company, rallied along with other banks immediately following the U.S. presidential election and throughout the course of the fiscal year, which reflected investors’ renewed optimism for stronger economic growth and rising interest

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

rates. CarMax, a used-car retailer, outperformed after the company reported better than expected results during the period. Further, the company’s same-store sales increased and its gross profit per used car remained strong. The company continued to add new stores across the country and also enhanced its digital platform.

Among the individual stocks that detracted from performance were Tempur Sealy International Inc. (Consumer Discretionary sector), New Market Corp., Ball Corp. (both from the Materials sector), Tenet Healthcare Corp. (Health Care sector) and Edgewell Personal Care Inc. (Consumer Staples sector). Tempur Sealy, a provider of mattresses and bedding products, fell notably during the period after the company’s largest retail partner Mattress Firm Inc. pushed back on price increases at Tempur Sealy. The two management teams could not agree, and Tempur Sealy products will no longer be sold at Mattress Firm stores. Mattress Firm represented a meaningful amount of Tempur Sealy’s sales, so the unexpected announcement led to significant weakness in the stock. While Tempur Sealy rallied later in the fiscal period as the company worked with other retailers, near-term results are expected to remain choppy as the company increases advertising spending and ships products to other channels. As such, we exited the Fund’s position in the stock. NewMarket, a petroleum additives company, was generally flat for the period but the stock detracted from relative Fund returns due to its large size in the portfolio. The stock price fell during the third quarter of 2017 after the company reported higher raw material costs and lower pricing. We, however, remain attracted to the stable revenue outlook in the market for fuel additives and lubricants, as well as the company’s pricing power in a consolidated industry and its history of capital allocation. Ball is a packaging company for food, beverages and household products. Ball announced weaker than expected results in its latest earnings release, which negatively impacted the stock, but later rebounded after announcing capacity reductions. Overall the stock was relatively flat but it lagged the benchmark, thus detracting from relative performance. Tenet Healthcare, a healthcare services company, underperformed due to general weakness in the Health Care sector, as well as concerns stemming from the U.S. presidential election results. We exited the Fund’s position in the stock. Edgewell Personal Care, a consumer products company, fell during the period as concerns about the competitive market environment (i.e., Dollar Shave Club, which was acquired by Unilever, and Gillette) negatively impacted the stock. Going forward, we remain attracted to the company’s strong staple of brands in large markets and the long-term potential for mergers and acquisitions activity.

The Fund initiated new positions in Post Holdings Inc. (Consumer Staples sector), T. Rowe Price Group Inc. (Financials sector), Armstrong World Industries Inc. (Industrials sector) and Tiffany & Co. (Consumer Discretionary sector). Post is a consumer packaged goods holding company. We believe the primary attraction to Post has been the long-term success of its chairman, Bill Stiritz, who has a history of success in building businesses and creating shareholder value. Additionally, Stiritz purchased a significant number of shares in the open market which provided further confidence in his execution. T. Rowe Price, an asset manager, is a best-in-breed operator that offers a compelling risk/reward entry point. Further, T. Rowe Price has maintained a strong balance sheet with no long-term debt, as well as a favorable amount of cash and other investments. We believe this will provide the company with flexibility to invest for the future and to better weather market downturns. Armstrong World Industries is the largest global producer of ceiling systems, operating in an oligopolistic industry with high barriers to entry. Armstrong has significant market share and pricing power as well as competitive advantages due to its exclusive long-term contracts with distributors. The company has generated high return on invested capital (ROIC) and has flexibility with its capital structure, which we believe provides downside protection. Tiffany & Co. is an iconic, global, luxury brand with an extensive history. The company’s strong brand recognition has allowed Tiffany to maintain consistently high earnings margins and returns. Although the company’s sales have decelerated in recent years, we believe Tiffany’s recent involvement with activist investor JANA Partners could lead to increased value by monetizing assets, optimizing its supply chain and accelerating topline growth.

The Fund sold its positions in PriceSmart Inc. (Consumer Staples sector), Tempur Sealy International Inc. (Consumer Discretionary sector), LogMeIn Inc. (Information Technology sector),Tenet Healthcare Corp. (Health

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

Care sector) and Dover Corp. (Industrials sector). The Fund trimmed its positions in Amphenol Corp. (Information Technology sector) and Copart Inc. (Industrials sector) due to valuation and size.

Outlook

A combination of solid economic growth, low inflation, and relatively low interest rates usually creates a positive environment for stocks. We believe this holds true today, but there are risks. In our opinion, we believe potential risks include relatively high valuations for stocks using traditional metrics, geopolitical turmoil, excessive government stimulus, 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 always remain cautious and focused on limiting downside in the Fund’s holdings.

Going forward, we believe the attractive candidates we are vetting today are a result of what the market is providing, and is consistent with our general outlook. Specifically, we believe the Fund’s downside risk can be mitigated by remaining focused on those companies with pricing power, copious cash generation and prudent capital allocation. We seek companies with strong returns on capital and flexibility to enhance shareholder value using the balance sheet. Further, global growth remains tepid but margins and in our opinion, returns on capital are stable and attractive. Looking ahead, we believe the Fund is positioned well for a slow growth environment that rewards strong capital allocation.

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

Comparison of the Change in Value of a $10,000 Investment in the Touchstone

Mid Cap Fund - Class A* and the Russell Midcap^® 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

Russell Midcap^® Index measures the performance of the 800 smallest companies in the Russell 1000^® Index.

The Frank Russell Company (FRC) is the source and owner of the Index 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 Mid Cap Value Fund

Sub-Advised by LMCG Investments, LLC

Investment Philosophy

The Touchstone Mid Cap Value Fund seeks capital appreciation by investing primarily in common stocks of medium capitalization companies. The Fund seeks to identify companies believed to be selling at a discount to their intrinsic value.

Fund Performance

The Touchstone Mid Cap Value Fund (Class A Shares) outperformed its benchmark, the Russell Midcap^® Value Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 14.62 percent (excluding the maximum sales charge) while the benchmark’s total return was 13.37 percent.

Market Environment

The beginning of the 12-month period was characterized by lackluster results as investors grew concerned about rising interest rates and uncertainty related to the upcoming U.S. presidential election. However, U.S. stock markets rallied in November and December of 2016 following the results of the election. Improved economic data, investors’ optimism about potential reductions in corporate and individual taxes, greater infrastructure spending, less government oversight and repatriation of foreign earnings contributed to the strong performance. U.S. markets also experienced a pronounced rotation out of defensive and higher yielding sectors into more cyclical market segments.

During 2017, the U.S. economy continued to expand at a modest to moderate pace with relatively low inflation. Economic data was generally favorable and included positive revisions to gross domestic product (GDP) growth during each quarter of the year. Consumers continued to lead the U.S. economy and help drive GDP growth. Specifically, consumers benefited from a strong labor market, low unemployment, steady wage growth and rising home prices—all of which contributed to greater consumer spending. The U.S. Federal Reserve Board (Fed) continued on its path to normalize the stance of monetary policy by raising interest rates three times and also started to reduce its balance sheet.

During the 12-month period, from a style standpoint within the mid-cap universe, growth stocks outperformed value stocks for the period. From a factor standpoint, the market favored quality and growth throughout much of the period, which was generally positive for the Fund.

Portfolio Review

The Fund’s strongest contributors to performance were reported in the Real Estate, Financials and Materials sectors. Primary detractors were from the Industrials and Energy sectors.

The Fund’s slightly overweight position to the Financials sector contributed to returns. Within the sector, the Fund’s stock selection within the insurance industry (Unum Group, Allstate Corp.) and capital markets (Ameriprise Financial Inc., E*TRADE Financial Corp.) were particularly strong. Stock selection also drove outperformance in the Materials sector, with particular strength in the Fund’s concentrated chemicals holdings, including FMC Corp., Olin Corp. and Allegheny Technologies Inc.

Conversely, weaker stock selection within the Energy sector was partially offset by the Fund’s overall underweight position to the sector. The Fund has tended to be overweight to exploration and production companies within the Energy space, which was negatively impacted most recently compared to transportation and refining companies. Among the Fund’s largest detractors were Newfield Exploration Co. and Pioneer Natural Resources Co. Stock selection within the Industrials sector also detracted from performance. Stericycle Inc. (a waste management

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

company) and Fluor Corp. (an infrastructure construction company) struggled during the period; however, we continued to hold both companies in the Fund’s portfolio.

Outlook

From a macroeconomic standpoint, we believe an improving global economic environment that leads to higher interest rates would benefit the Fund on a relative basis. Real estate investment trusts (REITs) and the Utilities sector have tended to perform opposite the direction of interest rates. Given how low interest rates have been globally, we believe any positive economic news could cause rates to move higher and cause these bond-proxy sectors to underperform.

Looking ahead, our greatest concern is that the market environment will continue to reward growth and visibility, irrespective of valuation and quality. However, we will not deviate from our process of buying high-quality companies that are temporarily out of favor and believe that buying growth and visibility, irrespective of valuation, is a risky strategy. We will continue to seek attractively valued investment opportunities with favorable risk-reward profiles.

The Fund utilizes a classic value-driven philosophy based on the belief that leading businesses selling at a discount to fair value have the potential to generate excess returns. The strategy focuses on stocks that are temporarily out of favor in the market, specifically, companies with higher returns on capital, free cash flow and strong balance sheets. Emphasis is placed on those companies having the cash flow characteristics as well as the balance sheet strength necessary to buffer the company from any prolonged weakness. The companies we select often dominate a particular industry niche and generally have significant barriers to entry. As a result, we believe they are able to perpetuate a higher return on capital over time. The Fund’s overall investment process utilizes fundamental bottom-up security selection, while risk-control measures ensure security and sector diversification.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Mid Cap Value Fund - Class A^* and the Russell Midcap^® 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.

Notes to Chart

Russell Midcap^® Value Index measures the performance of those Russell Midcap 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 Premium Yield Equity Fund

Sub-Advised by Miller/Howard Investments, Inc.

Investment Philosophy

The Touchstone Premium Yield Equity Fund seeks long-term growth of capital and high current income by focusing on dividend-paying equity securities of U.S. and foreign companies believed to possess attractive long-term return potential primarily due to lower than average valuations and improving business outlooks.

Fund Performance

The Touchstone Premium Yield Equity Fund (Class A Shares) underperformed the Russell 3000^® Value Index and the Dow Jones U.S. Select Dividend Index for the 12-month period ended September 30, 2017. The Fund’s total return was 10.10 percent (excluding the maximum sales charge) while the returns of its benchmarks were 15.53 percent and 13.21 percent, respectively.

Market Environment

The U.S. economy continued to grow, though without inspiring investor confidence. The U.S. labor market, the strongest part of the economic picture, continued to tighten and labor force participation rates (percentage of the population that is either working or actively seeking work) increased. Job quality (part-time vs. full-time) was a drag on take-home pay until wage growth picked up at the end of the 12-month period. There has not yet been a meaningful impact on inflation, in part because of volatile energy and commodity prices, thereby allowing the U.S. Federal Reserve Board (Fed) to raise the federal funds rate in a measured, cautious manner.

Financials and Materials sectors were the best performing sectors in the Russell 3000^® Value Index during the 12-month period ended September 30, 2017. Energy and Telecommunication Services were the worst performing sectors in the index for the same period. The Energy sector was driven by uncertainty around the commodity price environment and a tremendous amount of fatigue. Investors were waiting on the sidelines for commodity price fundamentals to firm before returning to the sector. Telecommunication Services posted negative absolute returns due to expectations that the next capex (capital expenditure) cycle will be expensive and would continue to put pressure on cash flow.

Portfolio Review

During the 12-month period, the highest dividend-yielding stocks underperformed those with low or no dividend, representing a headwind for the Fund’s process of investing in stocks that yield more than the Index and increase their dividends over time. The Fund’s overweight allocation to high-yielding stocks, and zero exposure to the lowest dividend-yielding quintile of stocks, detracted from Fund performance.

The Fund’s underweight allocation to the Financials sector detracted from returns during the period. Stock selection within the Financials and Industrials sectors also negatively impacted Fund performance. From a stock selection standpoint, top relative contributors to performance during the period included Western Digital Corp. (Information Technology sector), AbbVie Inc. (Health Care sector) and Microchip Technology Inc. (Information Technology sector).

Among the individual stocks that detracted from performance during the period included Qualcomm Inc. (Information Technology sector), Plains GP Holdings LP (Energy sector) and L Brands Inc. (Consumer Discretionary sector).

The following stocks were added to the Fund during the 12-month period. BB&T Corp. (Financials sector) is a well-managed, small business-oriented lender. BB&T experienced a demographic tailwind across its branch footprint in the southeast and mid-Atlantic regions. The company also has a solid yield and dividend culture,

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

and we anticipate return on equity (ROE) improvements as recent acquisitions are integrated. Dupont Fabros Technology Inc. (Real Estate sector), an industry leader in providing outsourced data, was purchased as we believe it was well positioned to benefit from the increasing demand for off-site data storage. Cracker Barrel Old Country Store Inc. (Consumer Discretionary sector) is a Southern-themed chain restaurant. The company moderated its intense expansion program and its balance sheet cash grew despite the company quadrupling its dividend payout since 2012. Crown Castle International Corp. (Real Estate sector) is a U.S. lessor of shared cell towers and other wireless infrastructure. We believe Crown Castle possesses strong infill growth opportunities where additional tower capacity is required to resolve data intensity-driven congestion. With many existing cell towers in its U.S. portfolio, we think Crown Castle’s incumbency positions it to directly benefit from the continuing data deluge. Pitney Bowes Inc. (Industrials sector) is a name that is synonymous with office postage and sorting machines. While the company’s legacy mail business continued its steady decline which began with the advent of email, we believe Pitney retains important strengths, including longstanding customer relationships with the majority of Fortune 500 businesses, as well as over a million small businesses. Pitney’s management plans to leverage its unparalleled customer base in order to move deeper into e-commerce, information management and business data intelligence. Taiwan Semiconductor Manufacturing Co. Ltd. (Information Technology sector), a chip fabricator, delivered a strong dividend and consistent dividend growth forecasts that were underpinned by a balance sheet with no net debt. Tupperware Brands Corp. (Consumer Discretionary sector) is a direct-to-consumer marketer of home goods. The company sources the vast majority of its sales outside the U.S., including two-thirds from Emerging Markets (China, Mexico and Brazil) where it is a leading aspirational brand among rapidly expanding middle class segments. Williams Companies Inc. (Energy sector), a pipeline operator and energy infrastructure company, took swift action under activist pressure to lower its cost of capital and reduce debt after rebuffing a hostile bid from Energy Transfer Partners LP (Energy sector, not owned by the Fund) last year. We believe the company is now better positioned and solid dividend growth should be possible through the end of the decade.

Hanesbrands Inc. (Consumer Discretionary sector) is an underwear manufacturer that sells its product through an ultra-low-cost global supply chain. The Fund initiated its purchase in January 2017 following a strong boost to the company’s dividend. Soon after the purchase, the stock fell on earnings guidance that came in below expectations. We believe the initial market reaction was overdone and believe the stock remains attractive. Welltower Inc. (Real Estate sector) is a healthcare real estate investment trust (REIT) that invests in senior housing and medical office buildings. Over the past decade, Welltower aggressively culled its portfolio to its best performing assets and created a streamlined high-recurring revenue model at the high end of the market in major metropolitan areas. We believe National Grid PLC (Utilities sector), a U.K. and U.S. utility company, provides a rare mix of good valuation, diversification and potential catalysts. The company agreed to divest its British gas utility business in December and plans to use proceeds for an aggressive buyback and special dividend that should supplement a well-supported current yield. International Paper Co. (Materials sector) is a paper company that has consistently paid consecutive quarterly dividends. While the company no longer supplies the majority of the nation’s newsprint as it did in years past, it streamlined its business toward pulp and containerboard, which are historically the two best mass market wood product categories. International Paper also continued to make progress on reducing debt following a large acquisition last year, which we believe should improve dividend growth prospects going forward. Cypress Semiconductor Corp. (Information Technology sector) is a manufacturer of digital dashboard hardware for automobiles. This feature continued to be an imperative focus for car manufacturers seeking to improve the intelligence capability and connectivity of the fleet. While Cypress’ stock lagged due to concerns about weakening automotive sales, we believe the increasing content-per-vehicle should offset any declines in auto unit volume. Analyst research also indicated that Cypress’ increasing content in the upcoming new iPhone and its products should also play an essential role in the industrial and residential Internet of things (IoT). HP Inc. (Information Technology sector), a printer and personal computers (PC) company, increased PC sales despite a soft industry overall. In addition, HP committed to leadership in the growing 3-D printing

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

market and also benefited from a buoyant steady cash flow and yield. Target Corp. (Consumer Discretionary sector), a large retailer, continued to focus on its private label brands, revamping its grocery segment, catching up in e-commerce and launching small box stores in urban areas to focus on millennials. We believe Target is among the most aggressive in pushing its higher quality private-label products, including newly launched apparel and houseware lines.

The following stocks were sold from the Fund during the 12-month period. Wells Fargo & Co. (Financials sector), a bank and financial services company, was sold following reports that the bank’s consumer division opened accounts on behalf of customers without consent. Environmental, social and governance (ESG) reviews are a vital layer of risk control in the Fund’s portfolio management, and we believe the scandal revealed a failure of corporate culture that needs to be resolved. Adient PLC (Consumer Discretionary sector), an automotive seating manufacturer, spun off from Johnson Controls International PLC (Industrials sector) and the Fund exited the shares that were received in the spin-off because they did not pay a dividend. General Electric Co. (Industrials sector), a global infrastructure and technology conglomerate, was sold due to its full valuation and dividend outlook. In particular, we believe General Electric’s disappointing cash generation and return on invested capital created near-term cloudiness on the company’s dividend outlook. Omega Healthcare Investors Inc. (Financials sector), a healthcare REIT, was sold in order to rotate into Welltower Inc. based on that company’s higher leverage. Novartis AG (Health Care sector), a healthcare products and pharmaceuticals company, was sold as the company’s immunotherapy progress continued to be elusive and asset dispositions were disappointing. Domtar Corp. (Materials sector) is a pulp, paper and personal care products company. The company was transitioning to personal care and pulp, but the majority of its earnings are generated by its uncoated free sheet paper. The strong U.S. dollar made imports more competitive in the uncoated free sheet paper space and, despite tariffs, certain countries like Brazil and Portugal can still export. We believe Domtar offers attractive exposure to healthy pulp and fluff markets, but we believe International Paper Co. (Materials sector, not owned by the Fund) has similar exposure and a better product mix. Plains GP Holdings was sold (also purchased in the 12-month period) in advance of the company’s expected dividend cut. Procter & Gamble Co. (Consumer Staples sector), a consumer goods company, was sold as we believe the stock reached full valuation. Further, we believe Amazon.com Inc.’s pricing power and house brands will likely be a growing threat to national brands.

Outlook

We see a variety of potential tailwinds for the Fund with four key examples: fifth generation wireless technology (5G), natural gas, banks and healthcare.

5G is the next generation of wireless communication. We believe the biggest players and beneficiaries are some of the largest companies and are all held in the Fund: AT&T Inc., Verizon Communications Inc. and its global peers, the most research-intensive semiconductor companies such as Qualcomm, auto companies, tower companies and network infrastructure companies. Certainly, there will be a place for smaller innovators and specialists, but we believe none of this will happen without the big and solid telecommunications and technology companies that already exist—including the high-quality dividend stocks that the Fund already owns.

Natural gas is abundant and cheap, thanks to the U.S. shale revolution, and it produces only moderate pollution, especially compared to coal. Indeed, there is such a quantity of natural gas and natural gas liquids that the U.S. has ample supplies for export. Since the great decline in oil prices, we believe many of these companies have been somewhat held hostage to price in terms of how investors have perceived the companies, but we believe this cannot last much longer. Business in these areas is good and growing. It is a volume business more than a price business, and it does not depend on oil quotes (though there are few overlaps where oil can be an influence or competitor). Obviously, domestic and global demand for natural gas has, and will continue to have, a strong influence across all portfolios and we believe there are many beneficiaries of this tailwind, including the high-yielding major pipeline companies held in the Fund.

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

Banks that passed the Fed’s Comprehensive Capital Analysis and Review stress test are once again able to raise dividends and buy back stock. A few have quickly entered the Fund’s dividend yield universe, and we believe most should qualify as sustainable dividend growers—in addition to offering their new found financial strength as an attractive feature. While we are not interest-rate bulls, we believe these stocks do offer a hedge against rising interest rates, should that come to pass. Further, reduced regulation will have a meaningful impact on costs for banks. Financial companies may play a larger role in the Fund, but we will be selective.

Healthcare is truly in a golden age for treatment breakthroughs. Indeed, and ironically, one of the biggest risks is that new drugs are too good and actually cure disease, reducing the patient population rather than merely treating a disease long term. Still, many serious illnesses are still untreated or uncured, the developed world’s population is aging and in need of more medical treatment and the developing world is increasing its ability to handle drug costs. As such, we believe there is ample opportunity for global healthcare companies, no matter what is finally decided in Washington, D.C.

We believe these tailwinds can help drive quality companies to greater growth, built on top of the established cash flows they have already created. Going forward, we will seek companies with established and repeatable cash flows and with a potential for upside surprises that are not yet appreciated in market prices. While not every tailwind proves sustainable, we believe they are always an investment factor worthy of our ardor and analysis.

We believe the current debates in Washington D.C. are a mixed bag for the Fund’s strategy: less regulation and rising interest rates could help its banking stocks, but healthcare reform could negatively impact its drug stocks. Income tax reform could reduce the advantages of REITs and master limited partnerships (MLPs), but we believe the remainder of the Fund’s holdings could benefit from the potential for improved after-tax returns and cash available to pay dividends. Juggling all the plusses and minuses, we still believe that what matters most is reliable income generation and growth of that income over time. Until we gain more clarity, we continue to look for safer balance sheets and cash flows, even at the cost of some current yield.

Dividend paying investments may not experience the same price appreciation as non-dividend paying instruments, dividend-issuing companies may choose not to pay a dividend or the dividend may be less than what is anticipated.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Premium Yield Equity Fund - Class A*, the Russell 3000^® Value Index and the Dow Jones U.S. Select Dividend 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

Russell 3000^® Value Index measures the performance of those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values.

Dow Jones U.S. Select Dividend Index measures 100 leading U.S. dividend-paying companies.

Frank Russell Company (FRC) is the source and owner of the Russell 3000^® Value Index 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 Sands Capital Select Growth Fund

Sub-Advised by Sands Capital Management, LLC

Investment Philosophy

The Touchstone Sands Capital Select Growth Fund primarily invests in common stocks of large capitalization U.S. companies that are believed to have above-average potential for revenue or earnings growth. The Fund typically invests in 25 to 35 companies. Sands Capital generally seeks stocks with sustainable above-average earnings growth and capital appreciation potential. In addition, Sands Capital looks for companies that have a significant competitive advantage, a leadership position or proprietary niche, a clear mission in an understandable business, financial strength and are valued rationally in relation to comparable companies, the market and the business prospects for that particular company.

Fund Performance

The Touchstone Sands Capital Select Growth Fund (Class A Shares) underperformed its benchmark the Russell 1000^® Growth Index for the 12-month period ended September 30, 2017. The Fund’s total return was 19.63 percent (excluding the maximum sales charge) while the total return of the benchmark was 21.94 percent for the same period.

Market Environment

We witnessed two extreme environments for U.S. growth equities over the past 12 months. The fourth quarter of 2016 was fueled by the reflation theme or “Trump Trade”—which benefited mostly stocks of slower growing or cyclical companies. During the first nine months of 2017, share prices of faster-growing U.S. companies outperformed stocks of slower growing companies. We believe the stark reversal in performance was a result of investors shifting their attention from potential short-term catalysts, back to fundamentals. We believe strong underlying fundamentals and consensus-beating earnings have supported this year’s steady climb of faster-growing company share prices.

While we monitor macroeconomic events, we believe the uncertainty of macro-driven factors reinforces the benefits of thoroughly understanding individual companies and secular trends from which they may benefit. Regardless of the macro environment, the foundation of our investment process will always remain our bottom-up analysis of business fundamentals. Because the only certainty in financial markets might be the constant of change, we expect that selectively owning the right businesses will be the main driver of our ability to add value for shareholders with prudence over time.

Portfolio Review

On a relative basis, among the top five contributors to the most recent 12-month’s investment results were Alibaba Group Holding Ltd. (Information Technology sector), Netflix Inc. (Consumer Discretionary sector) and Visa Inc., Salesforce.com Inc. and Adobe Systems Inc. (all from the Information Technology sector). Alibaba’s share price in 2015 was challenged by negative macro sentiment, as well as self-imposed business disruptions from platform enhancement initiatives. With its long-term investment horizon, the Fund continued to own the business because we believed the disruptions were transitory, and that the company’s efforts to set a clear standard of service, improve logistics and overhaul its advertising system would lead to higher, more sustainable growth over time.

Over the past year, Alibaba executed on these initiatives, which we believe translated into strong overall business performance. For example, gross merchandise value (GMV) through Tmall.com (a Chinese language website), Alibaba’s formalized e-commerce channel, accelerated to 49 percent year-over-year growth in the second quarter. This indicated to us that Alibaba’s initiatives to improve product quality and delivery are paying off. Alibaba’s

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

improvements to the advertising algorithm enhanced targeting accuracy, and we expect this to be the main driver of its guidance of 42 to 46 percent organic revenue growth in fiscal year 2018 (ending March 31, 2018).

These improvements are just the beginning, as we believe Alibaba is building a unique platform that is transforming the massive retail market in China. Furthermore, we believe that the company is at the forefront globally of bringing a completely integrated omni-channel experience at scale, which should expand Alibaba’s addressable market to all of retail, both online and offline. Starting with categories that have traditionally low online penetration such as large appliances and fresh produce, Alibaba has already started to help retail partners reconfigure existing stores and build new prototypes with digitized back-end operations and optimized storefronts. These new concepts are increasing productivity, and we expect more retailers should adopt this approach over time. Throughout the process, Alibaba has amassed vast amounts of rich data. Currently, this data is used to help monetization by increasing the algorithm’s targeting accuracy. Over time, we believe Alibaba could generate additional revenue from this data by providing retailers and brands with valuable consumer intelligence.

While many growth drivers remain for its domestic e-commerce revenue, Alibaba is also investing in earlier-stage assets that we believe could further extend its growth runway. For example, it is already a leader in the public cloud in China and formalized e-commerce in Southeast Asia. It is also the main channel for Chinese merchants to export to world consumers. All of these businesses have experienced strong revenue growth and could contribute to Alibaba growing at above-average rates for many years to come.

The top five relative detractors from investment results were Under Armour Inc. (Consumer Discretionary sector), Snap Inc. (Information Technology sector), Cerner Corp. (Health Care sector), Palo Alto Networks Inc. (Information Technology sector) and Chipotle Mexican Grill Inc. (Consumer Discretionary sector). Under Armour’s visionary management team has built a strong sports wear brand in the U.S., and is in the early stages of expanding its businesses internationally. As the company continued to execute well in its core categories of U.S. men’s and youth apparel, it is laying the foundation for the next potential legs of its growth in footwear, international and women’s. We believe success in these new categories will fuel the company’s transition into a global mega brand. However, the path from here to there is rarely without speed bumps, and Under Armour encountered its fair share recently. The U.S. athletic apparel and footwear channel was pressured from the broader retail consolidation and elevated inventories. Under Armour has more sizable exposure to the domestic wholesale channel than its peers, which magnified the negative impact on the company’s financials. In addition to this channel weakness, we believe the industry is in the midst of a cyclical preference for fashion-infused athletic apparel and footwear. In our view, Under Armour is under represented in this category, resulting in another headwind for the business.

While we expect the sporting goods retail channel to remain under pressure over the next couple of quarters, we believe Under Armour has some growth levers it can pull to grow through this period. The company made progress with its merchandising strategy and evolved its product offering, which we expect will enable it to diversify away from core wholesale segments (i.e., sporting goods retailers) by adding additional wholesale partners (e.g., mid-tier channel, family footwear channel). We believe these additional partners should stabilize Under Armour’s growth results until faster-growing and increasingly profitable business segments—including international, footwear and direct-to-consumer—reach critical mass and become important drivers of earnings growth.

Over the past 12 months, positions were initiated in ServiceNow Inc. (Information Technology sector), Monster Beverage Corp. (Consumer Staples sector), Snap Inc. (Information Technology sector), Starbucks Corp. (Consumer Discretionary sector), Costar Group Inc. and Activision Blizzard Inc. (both from the Information Technology sector). During the same time period, positions that were sold included Monsanto Co. (Materials sector), Cerner Corp. (Health Care sector), Mobileye NV (Information Technology sector), Schlumberger Ltd. (Energy sector) and athenahealth Inc. (Health Care sector).

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

Outlook

We view secular trends, innovation and company-specific competitive advantages as key to driving growth through a variety of economic environments. For a business to possess the above-average earnings growth potential we require, it is often a key innovator or vital facilitator within an attractive industry that is benefiting from positive secular change. Secular trends are distinct from short-term economic factors as they tend to persist through market cycles and can provide powerful structural tailwinds that enhance the sustainability of a business’s growth for many years. We believe our long-term investment horizon allows us to capture the benefit of these characteristics and realize the ultimate earnings power of a company, while weathering volatility over shorter periods. Furthermore, our approach—active, concentrated and benchmark-agnostic—enables us to have outsized exposure to companies within this sphere that we believe are the best fits with our six investment criteria. We believe the majority of businesses in the Fund’s portfolio benefit from one or more secular trends. However, we have identified four broad trends that together comprise a majority of the portfolio:

Retail Revolution: E-commerce

E-commerce is the fastest growing segment of retail sales, but only accounts for about 7 percent of the total worldwide retail market. As a proportion of total retail sales, e-commerce is expected to nearly double by 2019. Brands now have the ability to directly interact with consumers through novel mediums such as social media and lifestyle apps, and become embedded in their daily routines. Tools such as Amazon Prime and Visa Checkout reduce the friction associated with online payment. Portfolio beneficiaries include Alibaba Group Holding Ltd., Amazon.com Inc., Facebook Inc., The Priceline Group Inc. and Visa Inc.

Union of Healthcare and Technology

Major areas of unmet need continue to exist in the treatment of disease. However, improved understanding of disease biology and new approaches to treatment are enabling more productive drug development. Additionally, we expect genomic sequencing and health care information systems to facilitate precision medicine, enabling physicians to provide more targeted care. We are also witnessing the rise of minimally invasive surgical technologies, which have quality of life advantages for the patient and efficiency benefits for providers, leading them to increasingly become the standard of care. Portfolio beneficiaries include Alexion Pharmaceuticals Inc., BioMarin Pharmaceutical Inc., EdwardsLife sciences Corp., Illumina Inc. and Regeneron Pharmaceuticals Inc.

Software-as-a-Service (SaaS)

In our view, information technology spending is shifting toward innovations that make enterprises more agile and efficient. Cloud-based software is a key facilitator of this shift. Fast deployment, scalability, easy and frequent updates and lower total cost of ownership create a compelling customer value proposition. SaaS businesses tend to benefit from revenue visibility, “sticky” clientele, margin leverage opportunities and low customer acquisition costs. Portfolio beneficiaries include Adobe Systems Inc., Amazon.com Inc., Palo Alto Networks Inc., Service Now Inc. and Splunk Inc.

Data-Driven Decision Making

We believe companies with large, proprietary pools of consumer data and tools that use this data to create unique content have sizable monetization opportunities. Advertising is already well on its way toward transformation, as access to consumer data is enabling companies to create targeted, more effective ads. At the micro level, companies are beginning to use predictive analytics to generate insights from their own pools of data. Portfolio beneficiaries include Alphabet Inc., Baidu Inc., Facebook Inc., Netflix Inc. and Splunk Inc.

We believe the Fund owns companies that are positioned to deliver strong business results and earnings growth over our five- to ten-year investment horizon. Our focus on the sustainability of a business’s future earnings growth typically steers us toward companies we believe are benefiting from secular trends that should provide

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

powerful growth tailwinds throughout economic cycles. We have high conviction in the long-term growth estimates for the Fund’s portfolio companies and believe they can deliver the growth necessary to support above average relative and absolute returns over the next several years.

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Sands Capital Select Growth Fund - Class A* and the Russell 1000^® Growth 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

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.

Management’s Discussion of Fund Performance (Unaudited)

Touchstone Small Cap Fund

Sub-Advised by The London Company

Investment Philosophy

The Touchstone Small Cap Fund seeks capital appreciation by investing primarily in common stocks of U.S. companies with small market capitalizations. The Fund utilizes a bottom-up security selection process that screens potential investments against a proprietary quantitative model for return on capital, earnings-to-enterprise value ratio, and free cash flow yield.

Fund Performance

The Touchstone Small Cap Fund (Class A Shares) underperformed its benchmark, the Russell 2000^® Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 9.17 percent (excluding the maximum sales charge) while the benchmark’s total return was 20.74 percent.

Market Environment

For the 12-month period, U.S. equity markets were generally robust and many posted impressive double-digit returns. Following the U.S. presidential election in November, equity markets responded well and remained steady over the course of the period, primarily driven by generally positive economic data and investors’ optimism that fiscal policies could spur gross domestic product (GDP) growth. Among the most significant drivers of outperformance during the period were historically low interest rates and tepid inflation which helped keep equities in favor. Credit markets also remained healthy which further benefited equities. Additionally, the strong U.S. labor market coupled with rising wages and solid housing data continued to benefit consumers. The U.S. Federal Reserve Board (Fed) was fairly transparent in its actions during the period and there were expectations that the Fed will raise the short-term federal funds rate again in December 2017.

Within the benchmark, the Financials, Industrials, Materials, Health Care and Information Technology sectors contributed to performance, while the Energy and Consumer Staples sectors lagged.

Portfolio Review

Within the Fund, sector exposure and stock selection had a negative impact on relative performance. At the sector level, the Fund’s underweight to the Financials sector and overweight to the Consumer Staples sector detracted from returns, which was partially offset by an overweight to the Materials and Industrials sectors.

Among the individual stocks that contributed to Fund performance during the period were Orbital ATK Inc., Landstar System Inc., GATX Corp. (all three from the Industrials sector), Olin Corp. (Materials sector) and Service Corp. International (Consumer Discretionary sector). Orbital ATK, an aerospace manufacturer and defense industry company, bounced back early in 2017 following weakness in late 2016, which was largely tied to an accounting restatement surrounding an ammunition contract with the U.S. Army. Orbital was later able to submit 10-Qs and 10-Ks for the periods in question. The company also reported solid operating results, strong bookings, and maintained its outlook for the remainder of the year. Furthermore, during the third quarter of the calendar year, Orbital received an all-cash takeover bid from Northrop Grumman Corp., which Orbital accepted. The deal is expected to close during the first quarter of 2018. Landstar System, a transportation services company specializing in logistics and supply chain solutions, rallied in step with the Industrials sector. Landstar posted better than expected results and raised near-term earnings guidance despite challenging business conditions. Going forward, we believe expectations of secular tightening in trucking capacity could lead to greater pricing power during the contract renewal season. As such, we remain attracted to the high returns on the company’s capital driven by its flexible business model with limited capital spending needs. GATX, a railcar leasing company, outperformed as investors focused on the potential for improved industrial activity and rising

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

lease rates following the U.S. presidential election. The company also benefited from steady fleet utilization, remarking income and an announcement that it intends to exit the majority of its Portfolio Management’s marine investment. While the railcar leasing environment remained difficult due to oversupply, low fleet utilization and large railcar manufacturing backlog, signs of improvement in rail traffic helped stabilize many commodities, which benefited the rail carloads. We remain attracted to the company’s long-term customer contracts and visibility of cash flow. Olin is a manufacturer of ammunition, chlorine and sodium hydroxide. The stock moved higher during the period as pricing for the company’s key chlor-alkali product (caustic soda) consistently increased. Further, there was a better global balance of supply and demand which led to improved industry fundamentals and a positive outlook for the company. Olin has also begun to demonstrate operating leverage following its acquisition of Dow Chemical’s chlorine business. Service Corp. is a provider of funeral goods and services, as well as cemetery property. The company continued to benefit from demographic tailwinds that favor the industry, and has also gained market share over the last few years through acquisitions as well as organic growth. Service Corp.’s cemetery pre-need sales were strong during the period and management raised guidance for the year. Further, the company returned a significant amount of capital to shareholders via dividends and share repurchases, which also benefited the stock.

Among the individual stocks that detracted from Fund performance were Vista Outdoor Inc. (Consumer Discretionary sector), Dril-Quip Inc. (Energy sector), NewMarket Corp. (Materials sector), Energizer Holdings Inc. (Consumer Staples sector) and Superior Energy Services Inc. (Energy sector). Vista Outdoor fell early in the calendar year after the company reported weaker than expected volume in its operations and took an impairment charge. The impairment charge was related to prior acquisitions, whereas the acquired businesses were determined to be worth less than what management previously anticipated. We exited the stock during the period based on the difficult outlook for the business and concerns around its acquisition strategy. Dril-Quip, a deep-water exploration and drilling company, moved lower during the quarter. The industry environment remained challenging and orders for offshore drilling were weak. We remain attracted to the company’s competitive advantages and strong balance sheet. New Market, a petroleum additives company, was generally flat for the period but the stock detracted from relative Fund returns due to its large size in the Fund’s portfolio. The stock price fell during the most recent quarter of the period after the company reported higher raw material costs and lower pricing. We, however, remain attracted to the positive revenue outlook in the market for fuel additives and lubricants, as well as the company’s pricing power in a consolidated industry and its history of capital allocation. Energizer, a battery manufacturer, declined during the period with most of the weakness occurring in the fourth quarter of 2016. Despite a strong rally in the market overall, some of the more conservative, defensive holdings like Energizer lagged. The Fund maintained its position as we believe industry fundamentals may continue to improve. Superior Energy Services, an oilfield services and equipment company, moved lower along with the majority of the Energy sector. The Fund exited its position in the stock.

During the period, the Fund initiated positions in Dril-Quip Inc. (Energy sector), Ingevity Corp. (Materials sector), Bruker Corp. (Health Care sector), Cooper Tire & Rubber Co. and Sturm Ruger & Co. Inc. (both from the Consumer Discretionary sector). Ingevity Corp. manufactures specialty chemicals and carbon materials. Increasingly stringent U.S. and global gasoline vapor emissions standards have driven increased demand for activated carbon, and products of Ingevity’s competitors have appeared inadequate to comply with these stricter standards. Given the risk associated with non-compliance for car manufacturers, we expect Ingevity to maintain its substantial market position and high margins. Bruker Corp. develops and manufactures high performance scientific instruments which enable scientists to explore life and materials at molecular, cellular and microscopic levels. The company’s leading market share and high quality products have led to improving returns and margins over the years. Cooper Tire & Rubber has benefited from the tire industry’s significant capacity utilization which has allowed for increased returns across the industry. Sturm Ruger & Co. has recently repurchased significant amounts of stock which has benefited the stock.

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

The Fund added to its existing positions in Landstar System Inc. (Industrials sector). The Fund trimmed its positions in Tempur Sealy International Inc. and Deckers Outdoor Corp. (both from the Consumer Discretionary sector) and Dril-Quip Inc. (Energy sector). The Fund sold its positions in Vista Outdoor Inc., Cabela’s Inc. (both from the Consumer Discretionary sector), World Fuel Services Inc., Superior Energy Services Inc. (both from the Energy sector) and Tenet Healthcare Corp. (Health Care sector).

Outlook

A combination of solid economic growth, low inflation, and relatively low interest rates usually creates a positive environment for stocks. We believe this holds true today, but there are risks. In our opinion, potential risks include relatively high valuations for stocks using traditional metrics, geopolitical turmoil, excessive government stimulus, 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 always remain cautious and focused on limiting downside in the Fund’s holdings.

Going forward, we believe the attractive candidates we are vetting today are a result of what the market is providing, and is consistent with our general outlook. Specifically, we believe the Fund’s downside risk can be mitigated by remaining focused on those companies with pricing power, copious cash generation and prudent capital allocation. We seek companies with strong returns on capital and flexibility to enhance shareholder value using the balance sheet. Further, global growth remains tepid but margins and in our opinion, returns on capital are stable and attractive. Looking ahead, we believe the Fund is positioned well for a slow growth environment that rewards strong capital allocation.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Small Cap Fund - Class A^* and the

Russell 2000^® 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

Russell 2000^® Index measures the performance of the small-cap segment of the U.S. equity universe.

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

Management’s Discussion of Fund Performance (Unaudited)

Touchstone Small Cap Value Fund

Sub-Advised by LMCG Investments, LLC

Investment Philosophy

The Touchstone Small Cap Value Fund seeks long-term capital growth by investing primarily in common stocks of small capitalization companies. The Fund seeks to identify companies believed to be selling at a discount to their intrinsic value.

Fund Performance

The Touchstone Small Cap Value Fund (Class A Shares) underperformed its benchmark, the Russell 2000^® Value Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 17.46 percent (excluding the maximum sales charge) while the benchmark’s total return was 20.55 percent.

Market Environment

The beginning of the 12-month period was characterized by lackluster results as investors grew concerned about rising interest rates and uncertainty related to the upcoming U.S. presidential election. However, U.S. stock markets rallied in November and December of 2016 following the results of the election. Improved economic data, investors’ optimism about potential reductions in corporate and individual taxes, greater infrastructure spending, less government oversight and repatriation of foreign earnings contributed to the strong performance. U.S. markets also experienced a pronounced rotation out of defensive and higher yielding sectors into more cyclical market segments.

During 2017, the U.S. economy continued to expand at a modest to moderate pace with relatively low inflation. Economic data was generally favorable and included positive revisions to gross domestic product (GDP) growth during each quarter of the year. Consumers continued to lead the U.S. economy and help drive GDP growth. Specifically, consumers benefited from a strong labor market, low unemployment, steady wage growth and rising home prices—all of which contributed to greater consumer spending. The U.S. Federal Reserve Board (Fed) continued on its path to normalize the stance of monetary policy by raising interest rates three times and also started to reduce its balance sheet.

From a style standpoint within the small-cap universe, growth stocks and value stocks finished in-line with one another for the 12-month period. From a factor perspective, the market favored stocks with higher beta¹ and smaller capitalization for the first six months of the period, before switching to reward companies with lower or no yield and higher foreign exposure. This created a mixed overall backdrop for the Fund’s style, particularly during the most recent six months.

Portfolio Review

The Fund’s strongest contributors to performance were reported in the Information Technology and Materials sectors. Primary detractors were from the Health Care and Industrials sectors. Stock selection was the primary driver of underperformance during the period, though it was partially offset by relative strength from sector allocation.

Stock selection within the Health Care sector detracted from performance, with particular weakness from the Fund’s healthcare services and providers stocks. These holdings moved lower due to investors’ uncertainty about the U.S. election and potential for a rollback of the Affordable Care Act by the Trump administration. The Fund was also negatively impacted by its lack of exposure to biotechnology companies, which outperformed during the period.

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

The Fund’s overweight position to the Industrials sector contributed to performance but stock selection detracted. Team Inc., a provider of specialty industrial services, was the largest individual detractor. Team struggled as bottom-line results came in below expectations. On the positive side, the company continued to integrate acquisitions and streamline its organization. As such, we remain attracted to Team’s long-term prospects and expect reductions in company expenses in 2018. We added to the Fund’s position during the period as we believe the stock will benefit from a more normal spending environment going forward.

Stock selection drove performance within the Information Technology sector, with particular strength in the Fund’s information technology services and electronic equipment segments, including Blackhawk Network Holdings Inc., Virtusa Corp. and Coherent Inc. An overweight position to the sector during the period also benefited returns, though that weight was reduced later in the period as the Fund realized gains in the sector and identified opportunities elsewhere.

Sector allocation and stock selection drove performance within the Materials sector, with particular strength in the Fund’s chemicals segment. Olin Corp. and Innophos Holdings Inc. were the largest individual contributors in the sector for the period, along with Allegheny Technologies Inc. in the metals and mining industry.

Outlook

From a macroeconomic standpoint, we believe an improving global economic environment that leads to higher interest rates would benefit the Fund on a relative basis. Real estate investment trusts (REITs) and the Utilities sector have tended to perform opposite the direction of interest rates. Given how low interest rates have been globally, we believe any positive economic news could cause rates to move higher and cause these bond-proxy sectors to underperform.

Looking ahead, our greatest concern is that the market environment will continue to reward growth and visibility, irrespective of valuation and quality. However, we will not deviate from our process of buying high-quality companies that are temporarily out of favor and believe that buying growth and visibility, irrespective of valuation, is a risky strategy. We will continue to seek attractively valued investment opportunities with favorable risk-reward profiles.

The Fund utilizes a classic value-driven philosophy based on the belief that leading businesses selling at a discount to fair value have the potential to generate excess returns. The strategy focuses on stocks that are temporarily out of favor in the market, specifically companies with higher returns on capital, free cash flow and strong balance sheets. Emphasis is placed on those companies having the cash flow characteristics as well as the balance sheet strength necessary to buffer the company from any prolonged weakness. The companies we select often dominate a particular industry niche and generally have significant barriers to entry. As a result, we believe they are able to perpetuate a higher return on capital over time. The Fund’s overall investment process utilizes fundamental bottom-up security selection, while risk-control measures ensure security and sector diversification.

¹Beta is a measure of the volatility of a portfolio relative to its benchmark.

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 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.

Notes 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 Total Return Bond Fund

Sub-Advised by EARNEST Partners LLC

Investment Philosophy

The Touchstone Total Return Bond Fund seeks current income. Capital appreciation is a secondary goal. The Fund invests primarily in fixed income securities or sectors that are considered undervalued for their risk characteristics.

Fund Performance

The Touchstone Total Return Bond Fund (Class A Shares) outperformed its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index, for the 12-month period ended September 30, 2017. The Fund’s total return was 0.15 percent (excluding the maximum sales charge) while the benchmark’s total return was 0.07 percent.

Market Environment

Major market events during the last 12 months began with the 2016 U.S. presidential election. The election of President Trump, along with Republicans maintaining control in both Congressional chambers, lifted investors’ expectations for economic growth and inflation. This shift in outlook was coined the “reflation trade” in which underlying expectations would lead to higher interest rates and increased demand for assets which generally tend to perform better during periods of higher economic growth. The yield on the 10-year Treasury note began to increase early in the period and approached its peak by December.

While consumer and business optimism significantly increased, economic data was mixed. Business spending and investments remained tepid for most of the period and the lack of wage increases kept consumer spending in check. The job market, however, was a source of strength throughout the period. But even as job participation increased and unemployment ticked lower - and eventually under the natural rate of employment - wages experienced only modest growth. The U.S. Federal Reserve Board (Fed) appeared convinced that the lack of wage growth was indicative of remaining slack in the labor markets, thereby providing a rationale for increasing the federal funds rate at a moderate pace over the last 12 months. All told, the Fed raised interest rates three times during the period.

As controversies and agendas unfolded in Washington, D.C., during the period, the market began to downplay the reflation trade, which helped drive down interest rate expectations in the latter half of the fiscal year. The yield on the 10-year Treasury declined from its peak, but finished the fiscal year higher.

Portfolio Review

Increasing interest rates created a difficult environment for fixed income investments. As such, the Bloomberg Barclays U.S. Aggregate Bond Index generated only a modest return for the period. However, due to the strong performance of spread sectors, the index outperformed relative to similar duration U.S. Treasuries during the period. The rising interest rate environment was especially difficult for U.S. Treasuries, as these securities are inherently exposed to interest rate risk without any of the additional yield spread that bonds can generate.

The steady economic growth environment coupled with investors’ high demand for bonds with additional yield provided a favorable backdrop for credit-sensitive securities such as U.S. Corporate Bonds, Commercial Mortgage-Backed Securities (CMBS), Asset-Backed Securities (ABS) and taxable Municipal Securities. Lower quality bonds were in particularly high demand during the period, as BBB-rated securities delivered outperformance. Securities rated A, AA and AAA also outperformed but to a lesser degree. Despite the increased demand for lower quality credit securities, investors did not abandon high-quality U.S. Agency bonds, which also outperformed during the period. Agency Multi-Family Mortgage-Backed Securities (MBS), whose prepayment protections

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

are typically beneficial during periods of uncertainty, delivered excess returns during the fiscal year. Conversely, Single-Family MBS underperformed due to the uncertain outlook.

The combination of the low interest rate environment and slow but steady growth economy helped create additional demand for spread products, which was the primary tailwind to Fund performance. The Fund’s underweight to Single-Family MBS and overweight to Agency Multi-Family MBS benefited Fund performance during the period. The Fund’s slight overweight to U.S. Corporate Credit was also a positive contributor to performance as the sector continued to experience strong demand.

The most notable change in the Fund’s positioning was a reduced weighting to CMBS. Specifically, the Fund’s pre-Financial Crisis CMBS holdings began to mature, thus reducing the Fund’s allocation. The proceeds from CMBS were spread throughout the portfolio, with Agency Multi-Family MBS receiving the largest portion of the allocation.

The Fund does not make active interest rate bets and, accordingly, the Fund’s duration was approximately matched to that of the benchmark during the period. By approximately matching the benchmark’s duration, the Fund’s interest rate risk is effectively equal to that of the benchmark over time.

Outlook

Conversations about the Fed’s balance sheet came into focus during the period, and it has become more evident that the Fed may gradually reduce the size of its holdings in the coming years. These holdings are almost entirely devoted to U.S. Treasuries and Single-Family MBS. If the Fed, the single largest buyer of these securities, is no longer at the table, these sectors could experience relative underperformance. For reasons related to these events, we have chosen to underweight both of these sectors. If these events were to unfold, the Fund could benefit from any weakness experienced by these sectors.

The commercial real estate and CMBS markets have recently been under scrutiny, largely due to the weakness that brick-and-mortar retailers have experienced. We believe this could benefit the Fund in two ways. First, the Fund’s CMBS holdings differ from the benchmark, as the portfolio’s holdings are pre-Financial Crisis securities with a larger focus on housing and office space. The performance and demand profile for these types of properties has remained strong, which we believe should benefit the Fund. Further, the properties backing these securities have demonstrated their value in surviving the Financial Crisis. We believe newer securities and properties have not necessarily encountered this type of environment, and surprises could loom. Second, the demand for CMBS debt has lost ground to Agency Multi-Family MBS. If the latter further gains in popularity, the Fund could benefit due to increased demand for holdings/sectors in which the Fund has been overweight.

Going forward, we believe an event that creates a surge in demand for U.S. Treasuries, such as a war with North Korea, could be a cause for concern. Historically, this type of exceptional demand for U.S. Treasuries has been short-lived as investors are reminded that other high-quality spread assets with a yield advantage exist as alternatives. The Fund’s overweight to spread products and slight overweight to U.S. Credit could cause a headwind to the Fund if economic growth significantly declined. However, the Fund’s emphasis on less economically sensitive sectors and high quality could act to mitigate this impact. Looking ahead, we believe the Fund is positioned well and maintains a discipline that balances risk and return objectives.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Total Return Bond Fund - Class A^* and the

Bloomberg Barclays U.S. Aggregate 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

Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years.

Management’s Discussion of Fund Performance (Unaudited)

Touchstone Ultra Short Duration Fixed Income Fund

Sub-Advised by Fort Washington Investment Advisors, Inc.

Investment Philosophy

The Touchstone Ultra Short Duration Fixed Income Fund seeks maximum total return consistent with the preservation of capital by primarily investing in a diversified portfolio of fixed income securities of different maturities, including U.S.Treasury securities, U.S. government agency and U.S. government-sponsored enterprise securities, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities, municipal bonds and cash equivalent securities including repurchase agreements and commercial paper. While the Fund may invest in securities of any maturity or duration, interest rate risk is managed by seeking to maintain an effective duration of one year or less under normal market conditions.

Fund Performance

The Touchstone Ultra Short Duration Fixed Income Fund (Class A shares) outperformed its benchmarks, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index and the BofA Merrill Lynch 1-Year U.S. Treasury Note Index for the 12-month period ended September 30, 2017. The Fund’s total return was 1.29 percent (excluding the maximum sales charge) while the total returns of its benchmarks were 0.66 percent and 0.60 percent, respectively.

Market Environment

The Fund’s fiscal year started off with a bang on the heels of the U.S. presidential election and expectations for President Trump’s pro-growth policies, which investors believed would shake gross domestic product (GDP) growth out of its stable but slow pace. The markets reacted strongly as the price of risk assets moved higher and interest rates climbed to heights not seen since the Taper Tantrum in 2013. Consumer and business confidence also reacted strongly and posted notable highs.

Overseas, the global economic outlook was less certain in late 2016 as central banks maintained a generally accommodative stance. The malaise within the Energy sector and China’s lackluster economic growth were still fresh in investors’ minds. The economic pictures in Europe and Asia were generally perceived as headwinds. Amid concerns surrounding key elections in the Netherlands, France and Germany – which would potentially give rise to more populist policies – and escalating tensions relating to Syria and North Korea, uncertainty on the global stage limited the upside potential for risk assets.

During the course of the fiscal year, however, populist candidates in Europe were largely defeated and growth in Europe and Asia began to firm, giving rise to a synchronized global expansion. Within the U.S., the White House and Republican-controlled Congress failed to reach an agreement on the Affordable Care Act and the markets began to question if the Trump administration could work with Congress to advance the president’s pro-growth policies. Despite the Trump administration’s inefficacy, domestic growth continued to improve and the global recovery gained traction with limited inflationary pressure. The U.S. Federal Reserve Board (Fed) raised the federal funds rate three times during the fiscal year, with rate increases of 25 basis points each in December, March and June. The yield curve on the U.S.Treasury ultimately shifted higher during the period, mirroring the Fed’s tightening of monetary policy.

Overall, equities, High Yield bonds (commonly known as “junk bonds”) and other risk assets posted strong results and performed best for the period. They were supported by the synchronized global expansion, low inflation and historically low volatility. Core bonds, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, were relatively flat for the period as coupon income and spread tightening offset the impact of higher interest rates. The short duration markets performed comparatively well. Tightening spreads largely

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

offset the impact of rising interest rates and the ability to reinvest cash flow at progressively higher rates over the course of the year produced positive returns.

Portfolio Review

Outperformance was primarily driven by the Fund’s favorable sector exposures. Consistent with its investment discipline and historical positioning, the Fund had limited exposure to government securities and maintained an emphasis on structured securities, such as Commercial Mortgage-Backed Securities (CMBS), Asset-Backed Securities (ABS) and Agency Mortgage-Backed Securities (MBS). This positioning benefited Fund performance, which was further bolstered by positive security selection. Given the spread tightening environment, portfolios with the most credit risk tended to perform best. Funds that focused on government securities generally posted lower returns.

The Fund’s sector allocations saw few meaningful changes during the fiscal year. Short duration Corporate Bonds remained attractive and the Fund’s allocation to that sector continued to be historically high. The Fund also maintained a significant allocation to ABS and slightly increased its exposure. We believe the ABS sector continues to offer the most compelling value, given its positive combination of quality and spread. As of the end of the period, the Corporate Bond and ABS sectors were the two most significant Fund weights. CMBS exposure remained fairly stable. Though CMBS is one of the highest returning sub-sectors, supply remains limited and bonds with attractive risk-return profiles in this sector are difficult to source. CMBS, ABS and Corporate Bonds all contributed to the Fund’s outperformance during the period. The most significant change was the increase in cash and equivalents toward the end of the period. With the yield curve relatively flat, generally tight spreads across all sectors, and the Fed likely to raise interest rates in December, we made a tactical decision to overweight the Fund’s allocation to cash. Further, we believe that commercial paper and variable rate demand notes are comparatively attractive assets in which to invest.

The Fund’s portfolio duration was near the lower end of its historical operating range. The Fund’s strategy focuses on low spread duration and high cash flow to mitigate the impact of spread widening. During the period, the short duration position reflected two primary concerns. First, the Fed expects to raise interest rates multiple times by the end of 2018, with the market potentially underappreciating the risk of inflation. Second, the flat Treasury curve and flat relative value landscape has not encouraged investors to move out on the curve and take duration risk or spread duration risk. The Fund’s historically low spread duration position likely had a small but negative impact on performance during the period.

Outlook

Looking ahead, our primary concerns are the tightening financial conditions brought on by the Fed’s rate increases, the potential for aggressive action by global central banks, and policy uncertainty in Europe, the Middle East and Asia. Compounding these risks is a fully valued market with most assets trading at historically tight spread levels. Global inflation and the resulting increase in foreign interest rates also pose significant risks. Given the relative attractiveness of U.S. markets, foreign purchases of U.S. assets have been strong and have contributed to the fully valued spread levels in the market. Should this trade unwind, it would create a difficult market environment in terms of both rates and spreads.

While it is difficult to predict changes in the level of interest rates, we believe the groundwork has been laid by the Fed to continue to raise rates. Tax reform, which the markets have largely ignored, has become a wild card that is gaining momentum and could have a substantive impact on growth, including fueling inflation. As such, we expect the front end of the yield curve to continue to rise and experience greater volatility than in prior quarters. Accordingly, the Fund’s current strategy targets a shorter duration with a concentrated maturity distribution, which should help to offset rate volatility in the front end of the curve. Given the potential for

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

higher rates and our belief that spreads will remain stable, the Fund is defensively positioned with regard to interest rate risk and neutrally positioned relative to spread risk.

Despite the risks present in the market, we still believe that an overweight to risk assets is appropriate, supported by steady economic growth expectations, a solid labor market, accommodative global central bank policies and supportive financial conditions. The market has also given little credence to the potential for significant tax reform or a fiscal policy boost, so any accomplishment of the Trump administration’s pro-growth policy initiatives would be an added bonus. Finally, consumer credit fundamentals appear favorable and support the Fund’s exposure to structured products. Given the positive consumer and commercial real estate fundamentals, we believe spreads on the Fund’s ABS and CMBS exposures should remain toward the low end of the range. A recovery in corporate profits should also support the spread environment for Corporate Bonds.

We remain most comfortable adding exposure in securities higher in the capital structure (i.e., higher credit quality), but in less liquid parts of the market where additional yield can be found without taking on additional fundamental credit risk. Valuations in most sectors are full, or fairly valued, and we believe are likely to remain so in the near term. The Fund’s exposure to subprime auto ABS presents some downside risk if liquidity premiums increase substantively, thereby creating a supply/demand imbalance. While it is possible that credit fundamentals could also deteriorate, we believe there is a low probability of this event and the downside price risk would likely be transient, as most of these securities would mature in six months to one year.

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

Comparison of the Change in Value of a $10,000 Investment in the

Touchstone Ultra Short Duration Fixed Income Fund - Class A^*,

the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index

and the BofA Merrill Lynch 1-Year U.S. Treasury Note 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

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.

BofA Merrill Lynch 1-Year U.S. Treasury Note Index is an unmanaged index comprised of a single issue purchased at the beginning of the month and held for a full month. The issue selected at each month-end rebalancing is the outstanding two-year Treasury Note Bill that matures closest to, but, not beyond one year from the rebalancing date.

Tabular Presentation of Portfolios of Investments (Unaudited)

September 30, 2017

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

* Credit quality ratings are from Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”). If agency ratings differ, the higher rating will be used. Where no rating has been assigned, it may be for reasons unrelated to the creditworthiness of the issuer.

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

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

* Credit quality ratings are from Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”). If agency ratings differ, the higher rating will be used. Where no rating has been assigned, it may be for reasons unrelated to the creditworthiness of the issuer.

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)

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

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

* Credit quality ratings are from Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”). If agency ratings differ, the higher rating will be used. Where no rating has been assigned, it may be for reasons unrelated to the creditworthiness of the issuer.

Portfolio of Investments

Touchstone Active Bond Fund – September 30, 2017

Touchstone Active Bond Fund (Continued)

Touchstone Active Bond Fund (Continued)