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 811-08416
Touchstone Variable Series
Trust
(Exact name of registrant as specified in charter)
303 Broadway, Suite 1100
Cincinnati, Ohio 45202-4203
(Address of principal executive offices) (Zip code)
E. Blake Moore, Jr.
303 Broadway, Suite 1100
Cincinnati, Ohio 45202-4203
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-638-8194
Date of fiscal year end: December 31
Date of reporting period: June 30, 2021
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
| (a) | The Report to Shareholders is attached herewith. |
Semi-Annual Report
| Touchstone Variable Series Trust |
| Touchstone Balanced Fund |
| Touchstone Bond Fund |
| Touchstone Common Stock Fund |
| Touchstone Small Company Fund |
Table of Contents
This report identifies the Funds'
investments on June 30, 2021. 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
Tabular Presentation of
Portfolio of Investments (Unaudited)
June 30, 2021
The tables below provide
each Fund’s sector allocation and/or credit quality. We hope it will be useful to shareholders as it summarizes key information about each Fund’s investments.
* Credit quality ratings
are from 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®).
3
Tabular Presentation of
Portfolio of Investments (Unaudited) (Continued)
Touchstone Small Company Fund
| Sector Allocation*(% of Net Assets) | |
| Information Technology | 21.4% |
| Health Care | 19.4 |
| Industrials | 17.6 |
| Consumer Discretionary | 16.6 |
| Financials | 10.7 |
| Real Estate | 5.9 |
| Communication Services | 3.8 |
| Consumer Staples | 1.2 |
| Materials | 1.1 |
| Short-Term Investment Fund | 2.4 |
| Other Assets/Liabilities (Net) | (0.1) |
| Total | 100.0% |
* Sector classifications are based
upon the Global Industry Classification Standard (GICS®).
4
Touchstone Bond Fund (Unaudited) (Continued)
Futures Contracts
The Fund had the following futures
contracts, brokered by Wells Fargo, open at June 30, 2021:
| Description | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) |
| Short Futures: | ||||
| Ultra Long U.S. Treasury Bond Futures | 9/21/2021 | 7 | $1,346,824 | $(1,989) |
| Long Futures: | ||||
| 5-Year U.S. Treasury Note Futures | 9/21/2021 | 49 | 6,046,272 | 1,783 |
| $(206) |
See accompanying Notes
to Financial Statements.
11
Touchstone Small Company
Fund (Unaudited) (Continued)
Other Information:
The inputs or methodology
used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below,
please refer to the security valuation section in the accompanying Notes to Financial Statements.
| Valuation Inputs at Reporting Date: | ||||
| Description | Level 1 | Level 2 | Level 3 | Total |
| Common Stocks | $75,578,870 | $— | $— | $75,578,870 |
| Short-Term Investment Fund | 1,875,835 | — | — | 1,875,835 |
| Total | $77,454,705 | $— | $— | $77,454,705 |
See accompanying Notes to Financial
Statements.
14
Statements of Assets and
Liabilities
June 30, 2021 (Unaudited)
| Touchstone Balanced Fund | Touchstone Bond Fund | Touchstone Common Stock Fund | Touchstone Small Company Fund | |
| Assets | ||||
| Investments, at cost | $64,118,864 | $102,639,903 | $128,565,681 | $51,428,437 |
| Investments, at market value * | $72,976,500 | $106,491,653 | $257,373,107 | $77,454,705 |
| Cash | — | 78,597 | — | — |
| Foreign currency † | — | — | 1,146 | — |
| Dividends and interest receivable | 120,883 | 455,578 | 80,645 | 35,640 |
| Receivable for capital shares sold | 56,057 | 141,457 | — | 4,404 |
| Receivable for investments sold | 172,342 | — | — | — |
| Receivable for securities lending income | 19 | 46 | — | 11 |
| Tax reclaim receivable | — | — | 41,681 | — |
| Total Assets | 73,325,801 | 107,167,331 | 257,496,579 | 77,494,760 |
| Liabilities | ||||
| Bank overdrafts | — | — | 440,200 | — |
| Payable for return of collateral for securities on loan | 97,812 | 244,530 | — | — |
| Payable for capital shares redeemed | 81,788 | 4,872 | 166,216 | 25,393 |
| Payable for investments purchased | 176,896 | 38,535 | — | — |
| Payable to Investment Advisor | 17,324 | 32,175 | 99,816 | 29,688 |
| Payable to other affiliates | 19,604 | 29,580 | 80,277 | 9,271 |
| Payable to Trustees | 9,965 | 9,965 | 9,965 | 9,965 |
| Payable for professional services | 13,750 | 18,416 | 24,299 | 14,426 |
| Payable for reports to shareholders | 3,978 | 11,185 | 9,898 | 15,677 |
| Payable for transfer agent services | 2,290 | 35,076 | 95,306 | 14,593 |
| Payable for variation margin on futures contracts | — | 206 | — | — |
| Other accrued expenses and liabilities | 54,383 | 6,614 | 26,397 | 6,233 |
| Total Liabilities | 477,790 | 431,154 | 952,374 | 125,246 |
| Net Assets | $72,848,011 | $106,736,177 | $256,544,205 | $77,369,514 |
| Net assets consist of: | ||||
| Paid-in capital | 49,974,463 | 99,830,577 | 108,169,659 | 39,699,927 |
| Distributable earnings (deficit) | 22,873,548 | 6,905,600 | 148,374,546 | 37,669,587 |
| Net Assets | $72,848,011 | $106,736,177 | $256,544,205 | $77,369,514 |
| Pricing of Class SC Shares | ||||
| Net assets applicable to Class SC | $53,059,239 | $66,026,521 | $92,138,018 | $— |
| Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 3,505,458 | 6,195,326 | 7,094,985 | — |
| Net asset value, offering price and redemption price per share | $15.14 | $10.66 | $12.99 | $— |
| Pricing of Class I Shares | ||||
| Net assets applicable to Class I | $19,788,772 | $40,709,656 | $164,406,187 | $77,369,514 |
| Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 1,307,245 | 3,812,835 | 12,615,718 | 4,156,818 |
| Net asset value, offering price and redemption price per share | $15.14 | $10.68 | $13.03 | $18.61 |
| *Includes market value of securities on loan of: | $95,434 | $238,584 | $— | $— |
| †Cost of foreign currency: | $— | $— | $1,080 | $— |
See accompanying Notes to Financial
Statements.
15
Statements of Operations
For the Six Months Ended June 30, 2021
(Unaudited)
| Touchstone Balanced Fund | Touchstone Bond Fund | Touchstone Common Stock Fund | Touchstone Small Company Fund | |
| Investment Income | ||||
| Dividends | $154,228 | $80,994 | $1,330,718 | $302,977 |
| Interest | 103,458 | 1,169,596 | — | — |
| Income from securities loaned | 201 | 409 | 1,778 | 37 |
| Total Investment Income | 257,887 | 1,250,999 | 1,332,496 | 303,014 |
| Expenses | ||||
| Investment advisory fees | 111,819 | 208,750 | 603,869 | 190,775 |
| Administration fees | 27,411 | 70,565 | 166,522 | 51,587 |
| Compliance fees and expenses | 1,459 | 1,459 | 1,459 | 1,459 |
| Custody fees | 18,084 | 23,961 | 8,243 | 3,557 |
| Professional fees | 12,700 | 14,925 | 16,712 | 12,712 |
| Transfer Agent fees, Class SC | 6 | 5,978 | 7,262 | — |
| Transfer Agent fees, Class I | 2,654 | 14,872 | 61,550 | 11,548 |
| Reports to Shareholders, Class SC | 1,157 | 2,287 | 2,342 | — |
| Reports to Shareholders, Class I | 2,538 | 6,332 | 7,385 | 13,151 |
| Shareholder servicing fees, Class SC | 27,133 | 22,796 | 84,706 | — |
| Trustee fees | 10,073 | 10,073 | 10,073 | 10,073 |
| Other expenses | 10,479 | 16,666 | 13,146 | 8,901 |
| Total Expenses | 225,513 | 398,664 | 983,269 | 303,763 |
| Fees waived and/or reimbursed by the Advisor and/or Affiliates(A) | (61,318) | (19,980) | (18,439) | (13,784) |
| Net Expenses | 164,195 | 378,684 | 964,830 | 289,979 |
| Net Investment Income (Loss) | 93,692 | 872,315 | 367,666 | 13,035 |
| Realized and Unrealized Gains (Losses) on Investments | ||||
| Net realized gains on investments | 12,964,565 | 721,613 | 10,386,388 | 11,702,927 |
| Net realized gains on futures contracts | — | 115,121 | — | — |
| Net realized gains on foreign currency transactions | — | — | — | 246 |
| Net change in unrealized appreciation (depreciation) on investments(B) | (9,786,140) | (2,967,432) | 30,876,553 | 1,084,029 |
| Net change in unrealized appreciation (depreciation) on futures contracts | — | (206) | — | — |
| Net change in unrealized appreciation (depreciation) on foreign currency transactions | — | — | (199) | — |
| Net Realized and Unrealized Gains (Losses) on Investments | 3,178,425 | (2,130,904) | 41,262,742 | 12,787,202 |
| Change in Net Assets Resulting from Operations | $3,272,117 | $(1,258,589) | $41,630,408 | $12,800,237 |
| (A) | See Note 4 in Notes to Financial Statements. |
| (B) | Change in unrealized appreciation (depreciation) does not include net appreciation of $13,379,210 for the Touchstone Balanced Fund in connection with the Fund's reorganization. See Note 9 in the Notes to Financial Statements. |
See accompanying Notes to Financial
Statements.
16
Statements of Changes in Net
Assets
| Touchstone Balanced Fund | Touchstone Bond Fund | Touchstone Common Stock Fund | ||||
| For the Six Months Ended June 30, 2021 (Unaudited) | For the Year Ended December 31, 2020 | For the Six Months Ended June 30, 2021 (Unaudited) | For the Year Ended December 31, 2020 | For the Six Months Ended June 30, 2021 (Unaudited) | For the Year Ended December 31, 2020 | |
| From Operations | ||||||
| Net investment income | $93,692 | $144,557 | $872,315 | $2,436,828 | $367,666 | $1,205,731 |
| Net realized gains (losses) on investments, futures contracts and foreign currency transactions | 12,964,565 | 829,246 | 836,734 | 2,466,744 | 10,386,388 | 8,742,461 |
| Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | (9,786,140) | 2,066,136 | (2,967,638) | 4,279,852 | 30,876,354 | 35,894,956 |
| Change in Net Assets from Operations | 3,272,117 | 3,039,939 | (1,258,589) | 9,183,424 | 41,630,408 | 45,843,148 |
| Distributions to Shareholders: | ||||||
| Distributed earnings, Class SC | — | — | — | (1,095,780) | — | (2,849,400) |
| Distributed earnings, Class I | — | (853,726) | — | (654,859) | — | (4,937,726) |
| Total Distributions | — | (853,726) | — | (1,750,639) | — | (7,787,126) |
| Share Transactions Class SC | ||||||
| Proceeds from Shares issued | 143,070 | — | 2,132,711 | 3,519,318 | 352,868 | 592,608 |
| Proceeds from Shares issued in connection with reorganization(A) | 53,069,713 | — | — | — | — | — |
| Reinvestment of distributions | — | — | — | 1,095,780 | — | 2,849,400 |
| Cost of Shares redeemed | (1,376,664) | — | (1,335,523) | (2,617,540) | (8,462,798) | (14,588,347) |
| Change in Net Assets from Class SC Share Transactions | 51,836,119 | — | 797,188 | 1,997,558 | (8,109,930) | (11,146,339) |
| Share Transactions Class I | ||||||
| Proceeds from Shares issued | 652,735 | 941,388 | 3,860,775 | 2,996,827 | 915,714 | 2,019,265 |
| Reinvestment of distributions | — | 853,726 | — | 654,859 | — | 4,937,726 |
| Cost of Shares redeemed | (1,521,467) | (3,001,190) | (2,021,388) | (5,004,840) | (12,460,764) | (21,380,209) |
| Change in Net Assets from Class I Share Transactions | (868,732) | (1,206,076) | 1,839,387 | (1,353,154) | (11,545,050) | (14,423,218) |
| Change in Net Assets from Share Transactions | 50,967,387 | (1,206,076) | 2,636,575 | 644,404 | (19,654,980) | (25,569,557) |
| Total Increase (Decrease) in Net Assets | 54,239,504 | 980,137 | 1,377,986 | 8,077,189 | 21,975,428 | 12,486,465 |
| Net Assets | ||||||
| Beginning of period | 18,608,507 | 17,628,370 | 105,358,191 | 97,281,002 | 234,568,777 | 222,082,312 |
| End of period | $72,848,011 | $18,608,507 | $106,736,177 | $105,358,191 | $256,544,205 | $234,568,777 |
| Share Transactions Class SC | ||||||
| Shares issued | 9,571 | — | 200,987 | 335,573 | 28,384 | 68,312 |
| Shares issued in connection with reorganization(A) | 3,588,149 | — | — | — | — | — |
| Shares reinvested | — | — | — | 101,744 | — | 264,595 |
| Shares redeemed | (92,262) | — | (125,781) | (256,378) | (699,008) | (1,536,646) |
| Change in Class SC Shares Outstanding | 3,505,458 | — | 75,206 | 180,939 | (670,624) | (1,203,739) |
| Share Transactions Class I | ||||||
| Shares issued | 45,894 | 75,076 | 365,390 | 286,624 | 74,395 | 211,775 |
| Shares reinvested | — | 63,156 | — | 60,748 | — | 457,240 |
| Shares redeemed | (107,565) | (243,950) | (190,862) | (484,927) | (1,027,243) | (2,247,613) |
| Change in Class I Shares Outstanding | (61,671) | (105,718) | 174,528 | (137,555) | (952,848) | (1,578,598) |
| Change in Shares Outstanding | 3,443,787 | (105,718) | 249,734 | 43,384 | (1,623,472) | (2,782,337) |
| (A) | See Note 9 in Notes to Financial Statements. |
See accompanying Notes to Financial
Statements.
18
Statements of Changes in Net
Assets (Continued)
| Touchstone Small Company Fund | |
| For the Six Months Ended June 30, 2021 (Unaudited) | For the Year Ended December 31, 2020 |
| $13,035 | $35,655 |
| 11,703,173 | 394,740 |
| 1,084,029 | 10,708,779 |
| 12,800,237 | 11,139,174 |
| — | — |
| — | (2,307,257) |
| — | (2,307,257) |
| — | — |
| — | — |
| — | — |
| — | — |
| — | — |
| 2,285,940 | 3,874,376 |
| — | 2,307,256 |
| (9,349,059) | (8,011,200) |
| (7,063,119) | (1,829,568) |
| (7,063,119) | (1,829,568) |
| 5,737,118 | 7,002,349 |
| 71,632,396 | 64,630,047 |
| $77,369,514 | $71,632,396 |
| — | — |
| — | — |
| — | — |
| — | — |
| — | — |
| 130,678 | 320,869 |
| — | 153,118 |
| (532,919) | (635,071) |
| (402,241) | (161,084) |
| (402,241) | (161,084) |
19
Financial Highlights
| Touchstone Balanced Fund—Class SC | |
| Selected Data for a Share Outstanding Throughout The Period | |
| Period Ended June 30, 2021 (Unaudited)(A) | |
| Net asset value at beginning of period | $14.67(B) |
| Income (loss) from investment operations: | |
| Net investment income | 0.02(C) |
| Net realized and unrealized gains on investments | 0.45 |
| Total from investment operations | 0.47 |
| Net asset value at end of period | $15.14 |
| Total return(D) | 3.20%(E) |
| Ratios and supplemental data: | |
| Net assets at end of period (000's) | $53,059 |
| Ratio to average net assets: | |
| Net expenses | 0.79%(F) |
| Gross expenses | 1.10%(F) |
| Net investment income | 0.44%(F) |
| Portfolio turnover rate | 137%(E)(G) |
| Touchstone Balanced Fund—Class I | ||||||
| Selected Data for a Share Outstanding Throughout Each Period | ||||||
| Six Months Ended June 30, 2021 (Unaudited) | Year Ended December 31, | |||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| Net asset value at beginning of period | $13.59 | $11.95 | $9.86 | $14.85 | $13.02 | $12.49 |
| Income (loss) from investment operations: | ||||||
| Net investment income | 0.03(C) | 0.12(C) | 0.14(C) | 0.18(C) | 0.14 | 0.15(C) |
| Net realized and unrealized gains (losses) on investments | 1.52 | 2.16 | 2.11 | (0.92) | 1.69 | 0.78 |
| Total from investment operations | 1.55 | 2.28 | 2.25 | (0.74) | 1.83 | 0.93 |
| Distributions from: | ||||||
| Net investment income | — | (0.16) | (0.16) | (0.12) | — | (0.18) |
| Realized capital gains | — | (0.48) | —(H) | (4.13) | — | (0.20) |
| Return of capital | — | — | — | — | — | (0.02) |
| Total distributions | — | (0.64) | (0.16) | (4.25) | — | (0.40) |
| Net asset value at end of period | $15.14 | $13.59 | $11.95 | $9.86 | $14.85 | $13.02 |
| Total return(D) | 11.41%(E) | 19.16% | 22.80% | (6.07%) | 14.06% | 7.42% |
| Ratios and supplemental data: | ||||||
| Net assets at end of period (000's) | $19,789 | $18,609 | $17,628 | $15,971 | $17,964 | $15,988 |
| Ratio to average net assets: | ||||||
| Net expenses | 0.83%(F) | 0.85% | 0.85% | 0.85% | 0.85% | 0.85% |
| Gross expenses | 1.13%(F) | 1.38% | 1.48% | 1.15% | 0.97% | 0.88% |
| Net investment income | 0.49%(F) | 0.85% | 1.22% | 1.22% | 1.01% | 1.16% |
| Portfolio turnover rate | 137%(E)(G) | 71% | 129% | 140% | 142% | 30% |
| (A) | Represents the period from commencement of operations (April 13, 2021) through June 30, 2021. |
| (B) | Net asset value at the beginning of period is based on the net asset value of Class I shares on April 13, 2021. |
| (C) | The net investment income per share was based on average shares outstanding for the period. |
| (D) | Total returns do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts. If these charges were included, the returns would be lower. |
| (E) | Not annualized. |
| (F) | Annualized. |
| (G) | Portfolio turnover excludes the purchases and sales of securities of the Aggressive ETF Fund, the Conservative ETF Fund and the Moderate ETF Fund acquired on April 16, 2021 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
| (H) | Less than $0.005 per share. |
See accompanying Notes to Financial
Statements.
20
Financial Highlights (Continued)
| Touchstone Bond Fund—Class SC | |||
| Selected Data for a Share Outstanding Throughout Each Period | |||
| Six Months Ended June 30, 2021 (Unaudited) | Year Ended December 31, 2020 | Period Ended December 31, 2019(A) | |
| Net asset value at beginning of period | $10.79 | $10.01 | $9.90 |
| Income (loss) from investment operations: | |||
| Net investment income | 0.09 | 0.24 | 0.11 |
| Net realized and unrealized gains (losses) on investments | (0.22) | 0.72 | 0.13 |
| Total from investment operations | (0.13) | 0.96 | 0.24 |
| Distributions from: | |||
| Net investment income | — | (0.18) | (0.13) |
| Net asset value at end of period | $10.66 | $10.79 | $10.01 |
| Total return(B) | (1.21%)(C) | 9.62% | 2.43%(C) |
| Ratios and supplemental data: | |||
| Net assets at end of period (000's) | $66,027 | $66,042 | $59,462 |
| Ratio to average net assets: | |||
| Net expenses | 0.76%(D) | 0.77% | 0.78%(D) |
| Gross expenses | 0.76%(D) | 0.77% | 0.84%(D) |
| Net investment income | 1.64%(D) | 2.39% | 2.29%(D) |
| Portfolio turnover rate | 81%(C) | 168% | 335%(E) |
| Touchstone Bond Fund—Class I | ||||||
| Selected Data for a Share Outstanding Throughout Each Period | ||||||
| Six Months Ended June 30, 2021 (Unaudited) | Year Ended December 31, | |||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| Net asset value at beginning of period | $10.81 | $10.02 | $9.19 | $9.60 | $9.26 | $9.38 |
| Income (loss) from investment operations: | ||||||
| Net investment income | 0.06 | 0.28 | 0.33 | 0.28 | 0.18 | 0.14(F) |
| Net realized and unrealized gains (losses) on investments | (0.19) | 0.69 | 0.63 | (0.46) | 0.16 | (0.06) |
| Total from investment operations | (0.13) | 0.97 | 0.96 | (0.18) | 0.34 | 0.08 |
| Distributions from: | ||||||
| Net investment income | — | (0.18) | (0.13) | (0.23) | — | (0.20) |
| Net asset value at end of period | $10.68 | $10.81 | $10.02 | $9.19 | $9.60 | $9.26 |
| Total return(B) | (1.20%)(C) | 9.71% | 10.46% | (1.88%) | 3.67% | 0.81% |
| Ratios and supplemental data: | ||||||
| Net assets at end of period (000's) | $40,710 | $39,316 | $37,819 | $41,808 | $46,922 | $48,680 |
| Ratio to average net assets: | ||||||
| Net expenses | 0.67%(D) | 0.67% | 0.67% | 0.67% | 0.68% | 0.67% |
| Gross expenses | 0.77%(D) | 0.82% | 0.94% | 0.87% | 0.71% | 0.67% |
| Net investment income | 1.73%(D) | 2.49% | 2.58% | 2.62% | 1.83% | 1.46% |
| Portfolio turnover rate | 81%(C) | 168% | 335%(E) | 431% | 168% | 197% |
| (A) | Represents the period from commencement of operations (July 12, 2019) through December 31, 2019. |
| (B) | Total returns do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts. If these charges were included, the returns would be lower. |
| (C) | Not annualized. |
| (D) | Annualized. |
| (E) | Portfolio turnover excludes the purchases and sales of securities of the Touchstone Active Bond Fund acquired on July 12, 2019. If these transactions were included, portfolio turnover would have been higher. |
| (F) | The net investment income per share was based on average shares outstanding for the period. |
See accompanying Notes to Financial
Statements.
21
Financial Highlights (Continued)
| Touchstone Common Stock Fund—Class SC | |||
| Selected Data for a Share Outstanding Throughout Each Period | |||
| Six Months Ended June 30, 2021 (Unaudited) | Year Ended December 31, 2020 | Period Ended December 31, 2019(A) | |
| Net asset value at beginning of period | $10.98 | $9.20 | $8.61 |
| Income (loss) from investment operations: | |||
| Net investment income | 0.01 | 0.04 | 0.02 |
| Net realized and unrealized gains on investments | 2.00 | 2.11 | 0.72 |
| Total from investment operations | 2.01 | 2.15 | 0.74 |
| Distributions from: | |||
| Net investment income | — | (0.06) | (0.05) |
| Realized capital gains | — | (0.31) | (0.10) |
| Total distributions | — | (0.37) | (0.15) |
| Net asset value at end of period | $12.99 | $10.98 | $9.20 |
| Total return(B) | 18.31%(C) | 23.48% | 8.60%(C) |
| Ratios and supplemental data: | |||
| Net assets at end of period (000's) | $92,138 | $85,232 | $82,546 |
| Ratio to average net assets: | |||
| Net expenses | 0.88%(D) | 0.90% | 0.94%(D) |
| Gross expenses | 0.88%(D) | 0.90% | 0.94%(D) |
| Net investment income | 0.20%(D) | 0.47% | 0.46%(D) |
| Portfolio turnover rate | 2%(C) | 15% | 18%(E) |
| Touchstone Common Stock Fund—Class I | ||||||
| Selected Data for a Share Outstanding Throughout Each Period | ||||||
| Six Months Ended June 30, 2021 (Unaudited) | Year Ended December 31, | |||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| Net asset value at beginning of period | $11.01 | $9.21 | $7.28 | $18.74 | $15.52 | $15.46 |
| Income (loss) from investment operations: | ||||||
| Net investment income | 0.03 | 0.07 | 0.08 | 0.14(F) | 0.22 | 0.25(F) |
| Net realized and unrealized gains (losses) on investments | 1.99 | 2.10 | 2.00 | (1.00) | 3.11 | 1.49 |
| Total from investment operations | 2.02 | 2.17 | 2.08 | (0.86) | 3.33 | 1.74 |
| Distributions from: | ||||||
| Net investment income | — | (0.06) | (0.05) | (0.11) | (—)(G) | (0.27) |
| Realized capital gains | — | (0.31) | (0.10) | (10.49) | (0.11) | (1.41) |
| Total distributions | — | (0.37) | (0.15) | (10.60) | (0.11) | (1.68) |
| Net asset value at end of period | $13.03 | $11.01 | $9.21 | $7.28 | $18.74 | $15.52 |
| Total return(B) | 18.35%(C) | 23.68% | 28.58% | (8.05%) | 21.50% | 11.26% |
| Ratios and supplemental data: | ||||||
| Net assets at end of period (000's) | $164,406 | $149,336 | $139,536 | $124,796 | $158,438 | $149,238 |
| Ratio to average net assets: | ||||||
| Net expenses | 0.73%(D) | 0.73% | 0.73% | 0.73% | 0.71% | 0.73% |
| Gross expenses | 0.75%(D) | 0.80% | 0.82% | 0.83% | 0.71% | 0.73% |
| Net investment income | 0.35%(D) | 0.64% | 0.82% | 0.77% | 1.21% | 1.58% |
| Portfolio turnover rate | 2%(C) | 15% | 18%(E) | 10% | 84% | 6% |
| (A) | Represents the period from commencement of operations (July 12, 2019) through December 31, 2019. |
| (B) | Total returns do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts. If these charges were included, the returns would be lower. |
| (C) | Not annualized. |
| (D) | Annualized. |
| (E) | Portfolio turnover excludes the purchases and sales of securities of the Touchstone Focused Fund and the Touchstone Large Cap Core Equity Fund acquired on July 12, 2019. If these transactions were included, portfolio turnover would have been higher. |
| (F) | The net investment income per share was based on average shares outstanding for the period. |
| (G) | Less than $0.005 per share. |
See accompanying Notes to Financial
Statements.
22
Financial Highlights (Continued)
| Touchstone Small Company Fund—Class I | ||||||
| Selected Data for a Share Outstanding Throughout Each Period | ||||||
| Six Months Ended June 30, 2021 (Unaudited) | Year Ended December 31, | |||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| Net asset value at beginning of period | $15.71 | $13.69 | $12.69 | $15.73 | $13.58 | $12.14 |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | —(A)(B) | 0.01 | 0.02 | 0.01 | (0.01) | 0.01(B) |
| Net realized and unrealized gains (losses) on investments | 2.90 | 2.53 | 2.64 | (1.11) | 2.57 | 2.44 |
| Total from investment operations | 2.90 | 2.54 | 2.66 | (1.10) | 2.56 | 2.45 |
| Distributions from: | ||||||
| Net investment income | — | (0.02) | —(A) | — | (0.01) | (0.01) |
| Realized capital gains | — | (0.50) | (1.66) | (1.94) | (0.40) | (1.00) |
| Total distributions | — | (0.52) | (1.66) | (1.94) | (0.41) | (1.01) |
| Net asset value at end of period | $18.61 | $15.71 | $13.69 | $12.69 | $15.73 | $13.58 |
| Total return(C) | 18.46%(D) | 18.70% | 21.40% | (7.98%) | 19.12% | 20.23% |
| Ratios and supplemental data: | ||||||
| Net assets at end of period (000's) | $77,370 | $71,632 | $64,630 | $57,884 | $70,339 | $67,102 |
| Ratio to average net assets: | ||||||
| Net expenses | 0.76%(E) | 0.76% | 0.76% | 0.76% | 0.76% | 0.76% |
| Gross expenses | 0.80%(E) | 0.87% | 0.85% | 0.84% | 0.76% | 0.76% |
| Net investment income (loss) | 0.03%(E) | 0.06% | 0.13% | 0.05% | (0.06%) | 0.08% |
| Portfolio turnover rate | 36%(D) | 95% | 85% | 68% | 68% | 68% |
| (A) | Less than $0.005 per share. |
| (B) | The net investment income (loss) per share was based on average shares outstanding for the period. |
| (C) | Total returns do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts. If these charges were included, the returns would be lower. |
| (D) | Not annualized. |
| (E) | Annualized. |
See accompanying Notes to Financial
Statements.
23
Notes to Financial Statements
June 30, 2021 (Unaudited)
1. Organization
The Touchstone
Variable Series Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established
as a Massachusetts business trust pursuant to an Agreement and Declaration of Trust dated February 7, 1994. The Trust consists of the following four funds (individually, a “Fund”, and collectively, the
“Funds”):
| Touchstone Balanced Fund ("Balanced Fund”) |
| Touchstone Bond Fund ("Bond Fund”) |
| Touchstone Common Stock Fund ("Common Stock Fund”) |
| Touchstone Small Company Fund ("Small Company Fund”) |
Each Fund is diversified
with the exception of the Common Stock Fund which is non-diversified.
The Agreement and
Declaration of Trust permits the Trust to issue an unlimited number of shares of beneficial interest of each Fund. Shares of beneficial interest of each Fund are available as a funding vehicle for the separate
accounts of life insurance companies issuing variable annuity and variable life insurance policies. As of June 30, 2021, the following affiliates of Touchstone Advisors, Inc. (the "Advisor") were invested in the
Funds: separate accounts of Western-Southern Life Assurance Company, The Western & Southern Life Insurance Company, Integrity Life Insurance Company, National Integrity Life Insurance Company, and Columbus Life
Insurance Company, which are all part of Western & Southern Financial Group, Inc. (“Western & Southern”), and certain supplemental executive retirement plans sponsored by Western & Southern and
its affiliates.
The Balanced Fund,
Bond Fund and Common Stock Fund offer Class SC shares and Class I shares. The Small Company Fund offers Class I shares. The assets of each Fund are segregated, and a shareholder’s interest is limited to the Fund
in which shares are held. The Funds’ prospectus provides a description of each Fund’s investment goal, policies, and strategies along with information on the classes of shares currently being offered.
2. Significant Accounting
Policies
The following is a
summary of the Funds’ significant accounting policies:
Each Fund is an
investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies.
Security valuation and
fair value measurements — U.S. generally accepted accounting principles (“U.S. GAAP”) defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in
an orderly transaction between market participants at the measurement date. All investments in securities are recorded at their fair value. The Funds define the term “market value”, as used throughout this
report, as the estimated fair value. The Funds use various methods to measure fair value of their portfolio securities on a recurring basis. U.S. GAAP fair value measurement standards require disclosure of a hierarchy
that prioritizes inputs to valuation methods. These inputs are summarized in the three broad levels listed below:
• Level 1 − quoted prices in
active markets for identical securities
• Level 2 − other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
• Level 3 − significant unobservable inputs
(including a Fund's own assumptions in determining the fair value of investments)
The inputs or methodology
used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The aggregate value by
input level, as of June 30, 2021, for each Fund’s investments, is included in each Fund’s Portfolio of Investments, which also includes a breakdown of the Fund’s investments by portfolio or sector
allocation. The Funds did not hold or transfer any Level 3 categorized securities during the six months ended June 30, 2021.
Changes in valuation
techniques may result in transfers into or out of an investment’s assigned level within the hierarchy.
The Funds' portfolio
securities are valued as of the close of the regular session of trading on the New York Stock Exchange (“NYSE”) (currently 4:00 p.m., Eastern Time or at the time as of which the NYSE establishes official
closing prices). Portfolio securities traded on stock exchanges are valued at the last reported sale price, official close price, or last bid price if no sales are reported. Portfolio securities quoted by NASDAQ are
valued at the NASDAQ Official Closing Price (“NOCP”) or from the primary exchange on which the security trades. To the extent these securities are actively traded, they are categorized in Level 1 of the
fair value hierarchy. Options and futures are valued at the last quoted sales price. If there is no such reported sale on the valuation date, long option positions are valued at the most recent bid price, and short
option positions are valued at the most recent ask price
24
Notes to Financial
Statements (Unaudited) (Continued)
on the valuation date and are
categorized in Level 1. Shares of mutual funds in which the Funds invest are valued at their respective net asset value (“NAV”) as reported by the underlying funds and are categorized in Level 1.
Debt securities held
by the Funds are valued at their evaluated bid by an independent pricing service or at their last broker-quoted bid prices as obtained from one or more of the major market makers for such securities. Independent
pricing services use information provided by market makers or estimates of market values through accepted market modeling conventions. Observable inputs to the models may include prepayment speeds, pricing spread,
yield, trade information, dealer quotes, market color, cash flow models, the securities’ terms and conditions, among others, and are generally categorized in Level 2. Investments in asset-backed and
mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche
specific spread to the benchmark yield based on the unique attributes of the tranche, and are generally categorized in Level 2. Debt securities with remaining maturities of 60 days or less may be valued at
amortized cost, provided such amount approximates market value and are categorized in Level 2. While this method provides consistency in valuation (and may only be used if it approximates market value), it may result
in periods during which fair value, as determined by amortized cost, is higher or lower than the price that would be received if the Fund sold the investment.
Securities mainly
traded on a non-U.S. exchange or denominated in foreign currencies are generally valued according to the preceding closing values on that exchange, translated to U.S. dollars using currency exchange rates as of the
close of regular trading on the NYSE, and are generally categorized in Level 1. However, if an event that may change the value of a security occurs after the time that the closing value on the non-U.S. exchange was
determined, but before the close of regular trading on the NYSE, the security may be priced based on fair value and is generally categorized in Level 2. This may cause the value of the security, if held on the books
of a Fund, to be different from the closing value on the non-U.S. exchange and may affect the calculation of that Fund’s NAV. The Funds may use fair value pricing under the following circumstances, among
others:
• If the value of a security has been materially affected by events occurring before the Funds’ pricing time but after the close of the primary markets on which the security is
traded.
• If the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Funds’
NAV calculation.
• If a security is so thinly
traded that reliable market quotations are unavailable due to infrequent trading.
• If the validity of market
quotations is not reliable.
Securities held by the
Funds that do not have readily available market quotations, significant observable inputs, or securities for which the available market quotations are not reliable, are priced at their estimated fair value using
procedures approved by the Funds’ Board of Trustees (the “Board”) and are generally categorized in Level 3.
Investment
companies — The Funds may invest in securities of other investment companies, including exchange-traded funds (“ETFs”), open-end funds and closed-end funds. Open-end funds are
investment companies that issue new shares continuously and redeem shares daily. Closed-end funds are investment companies that typically issue a fixed number of shares that trade on a securities exchange or
over-the-counter (“OTC”). An ETF is an investment company that typically seeks to track the performance of an index by holding in its portfolio shares of all the companies, or a representative sample of
the companies, that are components of a particular index. ETF shares are traded on a securities exchange based on their market value. The risks of investment in other investment companies typically reflect the risks
of the types of securities in which the other investment companies invest. Investments in ETFs and closed-end funds are subject to the additional risk that their shares may trade at a premium or discount to their NAV.
When a Fund invests in another investment company, shareholders of the Fund indirectly bear their proportionate share of the other investment company’s fees and expenses, including operating, registration,
trustee, licensing, and marketing, as well as their share of the Fund’s fees and expenses.
Collateralized Loan
Obligations — The Bond Fund may invest in collateralized loan obligations (“CLOs”). CLOs are types of asset-backed securities. A CLO is an entity that is backed by syndicated bank
loans. The cash flows of the CLO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or “equity” tranche.
This tranche bears the greatest risk of defaults from the underlying assets in the CLO and serves to protect the other, more senior, tranches from default in all but the most severe circumstances. Since it is shielded
from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than their underlying securities, and often receive higher ratings from one or more
of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due to actual defaults, increased sensitivity to future defaults
and the disappearance of one or more protecting tranches as a result of changes in the credit profile of the underlying pool of assets.
Futures Contracts — The Balanced Fund and the Bond Fund may buy and sell futures contracts and related options to manage their exposure to changing interest rates and securities prices. Some
strategies reduce the Funds' exposure to price fluctuations, while others tend to increase its market exposure. Futures and options on futures can be volatile instruments and involve certain risks that could
negatively impact the Funds' returns. In order to avoid leveraging and related risks, when the Funds purchase
25
Notes to Financial
Statements (Unaudited) (Continued)
futures contracts, the Funds will
collateralize their positions by depositing an amount of cash or liquid securities, equal to the market value of the futures positions held, less margin deposits, in a segregated account with their custodian or
otherwise “cover” their positions in a manner consistent with the 1940 Act, or the rules of the Securities and Exchange Commission (“SEC”) or interpretations thereunder. Collateral equal to the
current fair value of the futures position will be determined on a daily basis.
When the contract is
closed, the Funds record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Funds' basis in the contract. Risks of entering into futures contracts
include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. Second, it is possible that a lack of liquidity for futures contracts
could exist in the secondary market resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Funds could lose more than the
original margin deposit required to initiate the futures transaction. Finally, the risk exists that losses could exceed amounts disclosed on the Statements of Assets and Liabilities. There is minimal counterparty
credit risk involved in entering into futures contracts since they are exchange-traded instruments and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against
default.
As of June 30, 2021, the
Bond Fund held futures contracts as shown on the Portfolio of Investments.
Foreign currency
translation — The books and records of the Funds are maintained in U.S. dollars and translated into U.S. dollars on the following basis:
| (1) | market value of investment securities, assets and liabilities at the current rate of exchange on the valuation date; and |
| (2) | purchases and sales of investment securities, income, and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. |
The Funds do not isolate
that portion of gains and losses on investments in equity securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities.
Real Estate Investment
Trusts — The Funds may invest in real estate investment trusts (“REITs”) that involve risks not associated with investing in stocks. Risks associated with investments in REITs
include declines in the value of real estate, general and economic conditions, changes in the value of the underlying property and defaults by borrowers. The value of assets in the real estate industry may go through
cycles of relative underperformance and outperformance in comparison to equity securities markets in general. Dividend income is recorded using management’s estimate of the income included in distributions
received from REIT investments. The actual amounts of income, return of capital and capital gains are only determined by each REIT after its fiscal year-end and may differ from the estimated amount. Estimates of
income are adjusted in the Funds to the actual amounts when the amounts are determined.
Derivative instruments
and hedging activities — The Balanced Fund and Bond Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement” or “MNA”)
or similar agreement with certain counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives and foreign exchange contracts, and typically
contains, among other things, collateral posting terms and master netting provisions in the event of a default or termination. Under an ISDA Master Agreement, a party may, under certain circumstances, offset with the
counterparty certain derivative financial instruments’ payables or receivables with collateral held or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a
single net payment in the event of default (close-out netting). These default events include bankruptcy or insolvency of the counterparty. Note, however, that bankruptcy or insolvency laws of a particular jurisdiction
may impose restrictions on or prohibitions against the right of offset.
When entering into a
derivative transaction, a Fund may be required to post and maintain collateral or margin (including both initial and maintenance margin). Collateral and margin requirements differ by type of derivative. Margin
requirements are established by the broker or clearing house for exchange-traded and centrally cleared derivatives (financial futures contracts, options, and centrally cleared swaps). Brokers can ask for margining in
excess of the clearing house’s minimum in certain circumstances. Collateral terms are contract specific for OTC derivatives (forward foreign currency contracts, options, and swaps). For derivatives traded under
an ISDA Master Agreement, the collateral requirements are typically calculated by netting the marked-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral
currently pledged by the Fund and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any,
are reported separately on the Statements of Assets and Liabilities as cash deposits held at prime broker and due to prime broker, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the
Portfolio of Investments. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance.
Certain ISDA Master
Agreements allow counterparties to OTC derivatives transactions to terminate derivative contracts prior to maturity in the event a Fund’s net assets decline by a stated percentage or the Fund fails to meet the
terms of its ISDA Master Agreement, which would cause the Fund (counterparty) to accelerate payment of any net liability owed to the counterparty (Fund).
26
Notes to Financial
Statements (Unaudited) (Continued)
For financial reporting
purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
As of June 30, 2021, the
Funds did not hold any assets and liabilities that were subject to a MNA.
The following table sets
forth the effect of the Bond Fund's derivative financial instruments by primary risk exposure on the Statements of Operations for the six months ended June 30, 2021:
| Fund | Derivatives not accounted for as hedging instruments under ASC 815 | Realized Gains (Losses) on Derivatives | Change in Unrealized Appreciation (Depreciation) on Derivatives |
| Bond Fund | Futures - Interest Rate Contracts*
| $115,121 | $(206) |
| * | Statements of Operations Location: Net realized gains on futures contracts and Net Change in unrealized appreciation (depreciation) on futures contracts, respectively. |
For the six months ended
June 30, 2021, the average quarterly notional value of outstanding derivative financial instruments for the Bond Fund was as follows:
| Bond Fund | |
| Interest Rate Contracts: | |
| Futures Contracts - Notional Value | $4,930,400 |
Portfolio securities
loaned — The Funds may lend their portfolio securities. Lending portfolio securities exposes the Funds to the risk that the borrower may fail to return the loaned securities or may not be
able to provide additional collateral or that the Funds may experience delays in recovery of the loaned securities or loss of rights in the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain cash collateral with the Funds' custodian. The loaned securities are secured by collateral valued at least equal, at all times, to the market value of the loaned securities plus accrued
interest, if any. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security
lending agreement. The cash collateral is reinvested by the Funds' custodian into an approved short-term investment vehicle. The approved short-term investment vehicle is subject to market risk.
As of June 30, 2021, the
following Funds loaned securities and received collateral as follows:
| Fund | Security Type | Market Value of Securities Loaned* | Market Value of Collateral Received** | Net Amount*** |
| Balanced Fund | Corporate Bonds | $95,434 | $97,812 | $2,378 |
| Bond Fund | Corporate Bonds | 238,584 | 244,530 | 5,946 |
| * | The remaining contractual maturity is overnight for all securities. |
| ** | Gross amount of recognized liabilities for securities lending included in the Statements of Assets and Liabilities. |
| *** | Net amount represents the net amount payable due to (receive from) the borrower in the event of default. |
All cash collateral is
received, held, and administered by the Funds' custodian for the benefit of the lending Fund in its custody account or other account established for the purpose of holding collateral in cash equivalents.
Funds participating in
securities lending receive compensation in the form of fees. Securities lending income is derived from lending long securities from the Funds to creditworthy approved borrowers at rates that are determined based on
daily trading volumes, float, short-term interest rates and market liquidity and is shown net of fees on the Statements of Operations. When a Fund lends securities, it retains the interest or dividends on the
investment of any cash received as collateral, and the Fund continues to receive interest or dividends on the loaned securities.
Unrealized gain or loss
on the market value of the loaned securities that may occur during the term of the loan is recognized by the Fund. The Fund has the right under the lending agreement to recover any loaned securities from the borrower
on demand.
When-issued or delayed
delivery transactions — Each Fund may purchase or sell securities on a when-issued or delayed delivery basis. These transactions involve a commitment by the Fund to purchase or sell securities for a
predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed delivery purchases are outstanding, the Fund will set aside liquid assets in an amount
sufficient to meet the purchase price. When purchasing a security on a delayed delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations,
and takes such fluctuations into account when determining NAV. The Fund may dispose of or renegotiate a delayed delivery
27
Notes to Financial
Statements (Unaudited) (Continued)
transaction after it is entered into,
and may sell when-issued securities before they are delivered, which may result in a capital gain or loss. When the Fund has sold a security on a delayed delivery basis, the Fund does not participate in future gains
and losses with respect to the security.
Share valuation — The NAV per share of each class of shares of each Fund is calculated daily by dividing the total value of a Fund’s assets attributable to that class, less liabilities
attributable to that class, by the number of outstanding shares of that class.
Investment income — Dividend income from securities is recognized on the ex-dividend date, net of foreign withholding taxes, if any, which are reduced by any amounts reclaimable by the Funds, where
applicable. Interest income from securities is recorded on the basis of interest accrued, premium amortized and discount accreted. Realized gains and losses resulting from principal pay downs on mortgage-backed and
asset-backed securities are included in interest income. Market discounts, original issue discounts and market premiums on debt securities are accreted/amortized to interest income over the life of the security, or to
the appropriate call date, as applicable, with a corresponding adjustment in the cost basis of that security.
Distributions to
shareholders — Each Fund intends to distribute to its shareholders substantially all of its income and capital gains. Each Fund declares and distributes net investment income, if any, annually,
as a dividend to shareholders. Each Fund makes distributions of capital gains, if any, at least annually, net of applicable capital loss carryforwards. Income distributions and capital gain distributions are
determined in accordance with income tax regulations. Recognition of the Funds' net investment income from investments in underlying funds is affected by the timing of dividend declarations by the underlying
funds.
Allocations — Investment income earned, realized capital gains and losses, and unrealized appreciation and depreciation for a Fund are allocated daily to each class of shares based upon its
proportionate share of total net assets of the Fund. Class-specific expenses are charged directly to the class incurring the expense. Common expenses, which are not attributable to a specific class, are allocated
daily to each class of shares based upon their proportionate share of total net assets of the Fund. Expenses not directly billed to a Fund are allocated proportionally among all Funds in the Trust, and, if applicable,
Touchstone Strategic Trust and Touchstone Funds Group Trust (collectively with the Trust, “Touchstone Fund Complex”), daily in relation to net assets of each Fund or another reasonable measure.
Security transactions — Security transactions are reflected for financial reporting purposes as of the trade date. Realized gains and losses on sales of portfolio securities are calculated using the
identified cost basis.
Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from
those estimates.
LIBOR Transition — Many debt securities, derivatives and other financial instruments in which the Funds may invest, as well as any borrowings made by the Funds from banks or from other lenders,
utilize the London Interbank Offered Rate (“LIBOR”) as the reference or benchmark index for interest rate calculations. LIBOR is a measure of the average interest rate at which major global banks can
borrow from one another. Plans are underway to phase out the use of LIBOR by June 30, 2023. The ICE Benchmark Administration Limited, the administrator of LIBOR, is expected to cease publishing most LIBOR maturities,
including some US LIBOR maturities, on December 31, 2021, and the remaining and most liquid US LIBOR maturities on June 30, 2023. Before then, it is expected that market participants will transition to the use of
different reference or benchmark indices. However, there is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement index. As such, the potential effect of a
transition away from LIBOR on the Funds’ investments cannot yet be determined.
3. Investment Transactions
Investment transactions
(excluding short-term investments and U.S. Government securities) were as follows for the six months ended June 30, 2021:
| Balanced Fund | Bond Fund | Common Stock Fund | Small Company Fund | |
| Purchases of investment securities | $43,463,915 | $12,875,082 | $4,880,847 | $27,078,719 |
| Proceeds from sales and maturities | $53,462,458 | $28,930,865 | $24,230,018 | $35,727,604 |
For the six months
ended June 30, 2021, purchases and proceeds from sales and maturities in U.S. Government Securities were $10,768,573 and $4,295,312, respectively, for the Balanced Fund, and $69,341,249 and $50,053,869 respectively,
for the Bond Fund.
28
Notes to Financial
Statements (Unaudited) (Continued)
4. Transactions with
Affiliates and Other Related Parties
Certain officers of
the Trust are also officers of the Advisor, Touchstone Securities, Inc. (the “Underwriter”), or The Bank of New York Mellon (“BNY Mellon”), the Sub-Administrator to the Funds. Such officers
receive no compensation from the Trust. The Advisor and the Underwriter are each wholly-owned subsidiaries of Western & Southern.
On behalf of the
Funds, the Advisor pays each Independent Trustee a quarterly retainer plus additional retainers to the Lead Independent Trustee and the chairs of each standing committee. Interested Trustees do not receive
compensation from the Funds. Each Independent Trustee also receives compensation for each Board meeting and committee meeting attended. Each standing committee chair receives additional compensation for each committee
meeting that he or she oversees. The Advisor is reimbursed by the Funds for the Independent Trustees’ compensation and out-of-pocket expenses relating to their services. The Funds accrued Trustee-related
expenses of $40,292 for the six months ended June 30, 2021.
MANAGEMENT & EXPENSE
LIMITATION AGREEMENTS
The Advisor provides
general investment supervisory services for the Funds, under the terms of an advisory agreement (the “Advisory Agreement”). Under the Advisory Agreement, each Fund pays the Advisor a fee, which is computed
and accrued daily and paid monthly, at an annual rate based on average daily net assets of each Fund as shown in the table below.
| Balanced Fund | 0.55% on all assets |
| Bond Fund | 0.40% on the first $300 million 0.35% on such assets over $300 million |
| Common Stock Fund Small Company Fund | 0.50% on the first $200 million 0.45% on the next $300 million 0.40% on such assets over $500 million |
The Advisor has
entered into investment sub-advisory agreements with Fort Washington Investment Advisors, Inc. (the “Sub-Advisor”), an affiliate of the Advisor and wholly-owned subsidiary of Western & Southern. The
Advisor pays sub-advisory fees to the Sub-Advisor from its advisory fee.
The Advisor entered
into an expense limitation agreement (the “Expense Limitation Agreement”) to contractually limit the annual operating expenses of the Funds, excluding: dividend and interest expenses relating to short sales;
interest; taxes; brokerage commissions and other transaction costs; portfolio transaction and investment related expenses, including expenses associated with the Funds’ liquidity providers; other expenditures
which are capitalized in accordance with U.S. GAAP; the cost of “Acquired Fund Fees and Expenses”, if any; and other extraordinary expenses not incurred in the ordinary course of business. The maximum
annual operating expense limit in any year with respect to the Funds is based on a percentage of the average daily net assets of the Funds. The Advisor has agreed to waive a portion of its fees, and to reimburse
certain fund expenses in order to maintain the following expense limitations for the Funds:
| Class SC | Class I | |
| Balanced Fund* | 0.79% | 0.79% |
| Bond Fund | 0.97% | 0.67% |
| Common Stock Fund | 1.06% | 0.73% |
| Small Company Fund | — | 0.76% |
| * | Prior to April 13, 2021, the expense limitation for Class I shares was 0.85%. |
These expense
limitations will terminate on April 29, 2022 but can be terminated with respect to a Fund by a vote of the Funds’ Board if it deems the termination to be beneficial to the Fund’s shareholders.
During the six months
ended June 30, 2021, the Advisor or its affiliates waived investment advisory fees, administration fees or shareholder servicing fees and other operating expenses of the Funds as follows:
| Fund | Investment Advisory Fees Waived | Administration Fees Waived | Shareholder Servicing Fees and Operating Expenses Reimbursed/ Waived | Total |
| Balanced Fund | $— | $17,687 | $43,631 | $61,318 |
| Bond Fund | — | — | 19,980 | 19,980 |
| Common Stock Fund | — | — | 18,439 | 18,439 |
| Small Company Fund | — | — | 13,784 | 13,784 |
29
Notes to Financial
Statements (Unaudited) (Continued)
Under the terms of
the Expense Limitation Agreement, the Advisor is entitled to recover, subject to approval by the Funds’ Board, such amounts waived or reimbursed for a period of up to three years from the date on which the
Advisor reduced its compensation or assumed expenses for the Funds. A Fund will make repayments to the Advisor only if such repayment does not cause the Fund's operating expenses (after the repayment is taken into
account) to exceed the Fund's expense limit in place when such amounts were waived or reimbursed by the Advisor and the Fund's current expense limitation.
As of June 30, 2021, the
Advisor may seek recoupment of previously waived fees and reimbursed expenses as follows:
| Fund | Expires on or before December 31, 2021 | Expires on or before December 31, 2022 | Expires on or before December 31, 2023 | Expires on or before December 31, 2024 | Total |
| Balanced Fund | $34,798 | $108,321 | $90,621 | $61,318 | $295,058 |
| Bond Fund | 65,525 | 125,065 | 56,535 | 19,980 | 267,105 |
| Common Stock Fund | 120,940 | 124,593 | 90,446 | 18,439 | 354,418 |
| Small Company Fund | 53,872 | 55,878 | 64,631 | 13,784 | 188,165 |
ADMINISTRATION AGREEMENT
The Advisor entered
into an Administration Agreement with the Trust, whereby the Advisor is responsible for: supplying executive and regulatory compliance services; supervising the preparation of tax returns; coordinating the preparation
of reports to shareholders and reports to and filings with the SEC and state securities authorities, as well as materials for meetings of the Board; calculating the daily NAV per share; and maintaining the financial
books and records of each Fund.
For its services, the
Advisor’s annual administrative fee is:
0.145%
on the first $20 billion of the aggregate average daily net assets;
0.11% on the next $10
billion of aggregate average daily net assets;
0.09% on the next $10
billion of aggregate average daily net assets; and
0.07% on the
aggregate average daily net assets over $40 billion.
The fee is computed and
allocated among the Touchstone Fund Complex on the basis of relative daily net assets.
The Advisor has engaged
BNY Mellon as the Sub-Administrator to the Trust. BNY Mellon provides administrative and accounting services to the Trust and is compensated directly by the Advisor, not the Trust.
TRANSFER AGENT AGREEMENT
Under the terms of the
Transfer Agent Agreement between the Trust and BNY Mellon Investment Servicing (U.S.) Inc. ("Transfer Agent"), the Transfer Agent maintains the records of each shareholder’s account, answers shareholders’
inquiries concerning their accounts, processes purchases and redemptions of each Fund’s shares, acts as dividend and distribution disbursing agent, and performs other shareholder service functions. For these
services, the Transfer Agent receives a monthly fee from each Fund. In addition, each Fund pays out-of-pocket expenses incurred by the Transfer Agent, including, but not limited to, postage and supplies.
The Funds may
reimburse the Advisor for fees paid to intermediaries such as banks, broker-dealers, financial advisors or other financial institutions for sub-transfer agency, sub-administration and other services provided to
investors whose shares of record are held in omnibus, other group accounts, retirement plans or accounts traded through registered securities clearing agents. These fees, which are included in Transfer Agent fees in
the Statements of Operations, may vary based on, for example, the nature of services provided, but generally range up to 0.15% of the assets of the class serviced or maintained by the intermediary or up to $22 per
sub-account maintained by the intermediary.
PLANS OF DISTRIBUTION
The Trust has adopted
a Shareholder Services Plan under which Class SC shares of each Fund, may directly or indirectly bear expenses for shareholder services provided. Each Fund offering Class SC shares will incur or reimburse expenses for
shareholder services at an annual rate not to exceed 0.25% of the average daily net assets.
UNDERWRITING AGREEMENT
The Underwriter acts as
exclusive agent for the distribution of the Funds’ shares. The Underwriter receives no compensation under this agreement.
30
Notes to Financial
Statements (Unaudited) (Continued)
INTERFUND TRANSACTIONS
Pursuant to Rule 17a-7
under the 1940 Act, the Funds may engage in purchase and sale transactions with funds that have a common investment advisor (or affiliated investment advisors), common Trustees and/or common Officers. During the six
months ended June 30, 2021, the Funds did not engage in any Rule 17a-7 transactions.
5. Liquidity
Interfund Lending — Pursuant to an Exemptive Order issued by the SEC on March 28, 2017, the Funds, along with certain other funds in the Touchstone Fund Complex, may participate in an interfund
lending program. The interfund lending program provides an alternate credit facility that allows the Funds to lend to or borrow from other participating funds in the Touchstone Fund Complex, subject to the conditions
of the Exemptive Order. The Funds may not borrow under the facility for leverage purposes and the loans’ duration may be no more than 7 days.
During the six months
ended June 30, 2021, the following Funds participated as borrowers in the interfund lending program. The daily average amount borrowed, weighted average interest rate and interest expense were as follows:
| Fund | Daily Average Amount Borrowed | Weighted Average Interest Rate | Interest Expense* |
| Balanced Fund | $ 119,040 | 0.67% | $ 401 |
| * | Included in Other expenses in the Statements of Operations. |
6. Federal Tax Information
Federal Income Tax — It is each Fund’s policy to continue to comply with the special provisions of the Internal Revenue Code applicable to regulated investment companies. As provided therein, in
any fiscal year in which a Fund so qualifies and distributes at least 90% of its investment company taxable income, the Fund (but not the shareholders) will be relieved of federal income tax on the income distributed.
It is each Fund’s policy to distribute all of its taxable income and accordingly, no provision for income taxes has been made.
In order to avoid
imposition of the excise tax applicable to regulated investment companies, it is also each Fund’s intention to declare and pay as dividends in each calendar year at least 98% of its investment company taxable
income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ending October 31) plus undistributed amounts from prior years.
The tax character of
distributions paid for the years ended December 31, 2020 and December 31, 2019 are as follows:
| Balanced Fund | Bond Fund | |||
| Year Ended December 31, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2020 | Year Ended December 31, 2019 | |
| From ordinary income | $363,954 | $229,313 | $1,750,639 | $1,256,802 |
| From long-term capital gains | 489,772 | 2,230 | — | — |
| Total distributions | $853,726 | $231,543 | $1,750,639 | $1,256,802 |
| Common Stock Fund | Small Company Fund | |||
| Year Ended December 31, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2020 | Year Ended December 31, 2019 | |
| From ordinary income | $1,270,647 | $2,959,215 | $90,022 | $749,375 |
| From long-term capital gains | 6,516,479 | 589,554 | 2,217,235 | 6,266,072 |
| Total distributions | $7,787,126 | $3,548,769 | $2,307,257 | $7,015,447 |
31
Notes to Financial
Statements (Unaudited) (Continued)
The following
information is computed on a tax basis for each item as of December 31, 2020:
| Balanced Fund | Bond Fund | Common Stock Fund | Small Company Fund | |
| Tax cost of portfolio investments | $13,411,541 | $98,299,475 | $138,692,337 | $48,704,735 |
| Gross unrealized appreciation on investments | 5,448,876 | 6,976,626 | 102,587,033 | 25,142,717 |
| Gross unrealized depreciation on investments | (187,393) | (260,158) | (5,172,408) | (1,730,599) |
| Net unrealized appreciation (depreciation) on investments | 5,261,483 | 6,716,468 | 97,414,625 | 23,412,118 |
| Gross unrealized appreciation on foreign currency transactions | — | — | 546 | — |
| Undistributed ordinary income | 310,998 | 3,142,324 | 1,512,848 | 69,653 |
| Undistributed long-term capital gains | 649,740 | — | 7,816,119 | 1,387,579 |
| Capital loss carryforwards | — | (1,682,533) | — | — |
| Other temporary differences | — | (12,070) | — | — |
| Distributable earnings (deficit) | $6,222,221 | $8,164,189 | $106,744,138 | $24,869,350 |
The difference between
the tax cost of portfolio investments and the financial statement cost is primarily due to wash sale loss deferrals and non-taxable distributions from corporate stock.
As of December 31, 2020,
the Funds had the following capital loss carryforwards for federal income tax purposes:
| Fund | No Expiration Short Term | No Expiration Long Term | Total |
| Bond Fund | $ 170,538 | $ 1,511,995 | $ 1,682,533 |
The capital loss
carryforwards may be utilized in future years to offset net realized capital gains, if any, prior to distributing such gains to shareholders.
During the year ended
December 31, 2020, the following Funds utilized capital loss carryforwards:
| Fund | Utilized |
| Bond Fund | $ 1,681,919 |
Under current laws,
certain capital losses realized after October 31 and ordinary losses realized after December 31 may be deferred (and certain ordinary losses after October and/or December 31 may be deferred) and treated as occurring
on the first day of the following fiscal year. For the year ended December 31, 2020, the following Funds did not elect to defer any losses.
The Funds have analyzed
their tax positions taken or to be taken on federal income tax returns for all open tax years (tax years ended December 31, 2017 through 2020) and have concluded that no provision for income tax is required in their
financial statements.
As of June 30, 2021, the
Trust had the following federal tax costs resulting in net appreciation (depreciation) as follows:
| Fund | Federal Tax Cost | Gross Unrealized Appreciation on Investments | Gross Unrealized Depreciation on Investments | Gross Unrealized Appreciation on Other* | Gross Unrealized Depreciation on Other* | Net Unrealized Appreciation (Depreciation) |
| Balanced Fund | $64,118,864 | $8,912,802 | $(55,166) | $— | $— | $8,857,636 |
| Bond Fund | 102,639,903 | 4,096,768 | (245,018) | 1,783 | (1,989) | 3,851,544 |
| Common Stock Fund | 128,565,681 | 130,418,462 | (1,611,036) | 281 | — | 128,807,707 |
| Small Company Fund | 51,428,437 | 26,165,921 | (139,653) | — | — | 26,026,268 |
| * | Other includes Derivatives and Foreign Currency Transactions. | |
7. Commitments and
Contingencies
The Funds indemnify
the Trust’s officers and Trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that
contain a variety of representations and warranties and which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made
against the Funds.
8. Principal Risks
Risks Associated with
Foreign Investments – Some of the Funds may invest in the securities of foreign issuers. Investing in securities issued by companies whose principal business activities are outside the U.S. may involve
significant risks not present in
32
Notes to Financial
Statements (Unaudited) (Continued)
domestic investments. For example,
there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Foreign issuers are generally
not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal of funds or other assets of a Fund, political or financial instability or
diplomatic and other developments which could affect such investments. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as those in the U.S., and securities of some
foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and
regulation of foreign securities markets, broker-dealers, and issuers than in the U.S.
Risks Associated with
Sector Concentration – Certain Funds may invest a high percentage of their assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, these Funds
may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility in the Funds' NAVs and magnified effect
on the total return.
Risks Associated with
Credit – An issuer may be unable to make timely payments of either principal or interest. This may cause the issuer’s securities to decline in value. Credit risk is particularly
relevant to those Funds that invest a significant amount of their assets in junk bonds or lower-rated securities.
Risks Associated with
Interest Rate Changes – The price of debt securities is generally linked to the prevailing market interest rates. In general, when interest rates rise, the price of debt securities falls, and when interest
rates fall, the price of debt securities rises. The price volatility of a debt security also depends on its maturity. Longer-term securities are generally more volatile, so the longer the average maturity or duration
of these securities, the greater their price risk. Duration is a measure of the expected life, taking into account any prepayment or call features of the security, that is used to determine the price sensitivity of
the security for a given change in interest rates. Specifically, duration is the change in the value of a fixed-income security that will result from a 1% change in interest rates, and generally is stated in years.
For example, as a general rule a 1% rise in interest rates means a 1% fall in value for every year of duration. Maturity, on the other hand, is the date on which a fixed-income security becomes due for payment of
principal. The negative impact on fixed income securities if interest rates increase as a result could negatively impact a Fund’s NAV.
Risks Associated with
Health Crises – An outbreak of respiratory disease caused by COVID-19 was first detected in China in December 2019 and subsequently spread internationally. As of the date of issuance of these
financial statements, COVID-19 has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity,
as well as general concern and uncertainty. The impact of COVID-19 may be short term or may last for an extended period of time and result in a substantial economic downturn. The impact of this outbreak, and other
epidemics and pandemics that may arise in the future, could negatively affect the worldwide economy, as well as the economies of individual countries, individual companies and the market in general in significant and
unforeseen ways. Any such impact could adversely affect a Fund’s performance, the performance of the securities in which a Fund invests and may lead to losses on your investment in a Fund.
Please see the
Funds’ prospectus for a complete discussion of these and other risks.
9. Fund Reorganizations
Balanced Fund:
The shareholders of
the Touchstone Aggressive ETF Fund, Touchstone Conservative ETF Fund and Touchstone Moderate ETF Fund, each a series of the Trust, approved an Agreement and Plan of Reorganization providing for the transfer of all
assets and liabilities of the Touchstone Aggressive ETF Fund, Touchstone Conservative ETF Fund and Touchstone Moderate ETF Fund to the Touchstone Balanced Fund. The tax-free reorganization took place on April 16,
2021.
33
Notes to Financial
Statements (Unaudited) (Continued)
The following is a
summary of shares outstanding, net assets, net asset value per share and unrealized appreciation immediately before and after the tax-free reorganization.
| Before Reorganization | After Reorganization | ||||
| Touchstone Aggressive ETF Fund | Touchstone Conservative ETF Fund | Touchstone Moderate ETF Fund | Touchstone Balanced Fund | Touchstone Balanced Fund | |
| Class SC | |||||
| Shares | 1,487,076(A) | 880,971(B) | 1,220,102(C) | 170 | 3,588,319 |
| Net Assets | $21,994,268 | $13,029,832 | $18,045,613 | $2,521 | $53,072,234 |
| Net Assets Value | $14.79(A) | $14.79(B) | $14.79(C) | $14.79 | $14.79 |
| Class I | |||||
| Shares | — | — | — | 1,317,216 | 1,317,216 |
| Net Assets | $— | $— | $— | $19,481,966 | $19,481,966 |
| Net Asset Value | $— | $— | $— | $14.79 | $14.79 |
| Fund Total | |||||
| Shares Outstanding | 1,487,076 | 880,971 | 1,220,102 | 1,317,386 | 4,905,535 |
| Net Assets | $21,994,268 | $13,029,832 | $18,045,613 | $19,484,487 | $72,554,200 |
| Unrealized Appreciation (Depreciation) | $6,458,478 | $2,668,289 | $4,252,443 | $6,703,226 | $20,082,436 |
| (A) | Reflects a 1.2829:1 stock split which occurred on the date of the reorganization, April 16, 2021. |
| (B) | Reflects a 0.8118:1 stock split which occurred on the date of the reorganization, April 16, 2021. |
| (C) | Reflects a 0.8538:1 stock split which occurred on the date of the reorganization, April 16, 2021. |
Assuming the
reorganization had been completed on January 1, 2021, the Balanced Fund’s results of operations for the six months ended June 30, 2021 would have been as follows:
| Net Investment Income | $150,169 |
| Net realized and unrealized gain(loss) on investments | $9,893,234 |
| Net increase in net assets resulting from operations | $10,043,403 |
Because the combined
investment portfolios have been managed as a single portfolio since the reorganization was completed, it is not practical to separate the amounts of revenue and earnings to the Balanced Fund’s that have been
included in its statement of operations since the reorganization.
10. Subsequent Events
Subsequent events
occurring after the date of this report have been evaluated for potential impact to this report through the date the financial statements were issued. There were no subsequent events that necessitated recognition or
disclosure in the Funds’ financial statements.
34
Other Items (Unaudited)
Proxy Voting Guidelines and Proxy
Voting Records
The Sub-Advisors are
responsible for exercising the voting rights associated with the securities purchased and held by the Funds. A description of the policies and procedures that the Sub-Advisors use in fulfilling this responsibility is
available as an appendix to the most recent Statement of Additional Information, which can be obtained without charge by calling toll free 1.800.543.0407 or by visiting the Touchstone website at
TouchstoneInvestments.com or on the Securities and Exchange Commission’s (the “Commission”) website sec.gov. Information regarding how those proxies were voted during the most recent twelve-month
period ended June 30, which will be filed by August 31 of that year, is also available without charge by calling toll free 1.800.543.0407 or on the Commission’s website at sec.gov.
Quarterly Portfolio Disclosure
Each Fund’s
holdings as of the end of the third month of every fiscal quarter will be disclosed on Form N-PORT within 60 days of the end of the fiscal quarter. The complete listing of each Fund’s portfolio holdings is
available on the Commission’s website and will be made available to shareholders upon request by calling 1.800.543.0407.
Schedule of Shareholder Expenses
As a shareholder of
the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) and (2) ongoing costs, including investment advisory fees; shareholder servicing fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on
an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2021 through June 30, 2021).
Actual Expenses
The first line for
each share class of a Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the
expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under
the heading entitled “Expenses Paid During the Six Months Ended June 30, 2021” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison
Purposes
The second line for
each share class of a Fund in the table below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You
may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the
expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line for each share class of a Fund in
the table below is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would
have been higher.
| Net Expense Ratio Annualized June 30, 2021 | Beginning Account Value January 1, 2021 | Ending Account Value June 30, 2021 | Expenses Paid During the Six Months Ended June 30, 2021* | ||
| Balanced Fund | |||||
| Class SC(A) | Actual | 0.79% | $1,000.00 | $1,032.00 | $1.74 |
| Class SC(A) | Hypothetical | 0.79% | $1,000.00 | $1,009.11 | $1.72 |
| Class I | Actual | 0.83% | $1,000.00 | $1,114.10 | $4.35 |
| Class I | Hypothetical | 0.83% | $1,000.00 | $1,020.68 | $4.16 |
35
Other Items (Unaudited) (Continued)
| Net Expense Ratio Annualized June 30, 2021 | Beginning Account Value January 1, 2021 | Ending Account Value June 30, 2021 | Expenses Paid During the Six Months Ended June 30, 2021* | ||
| Bond Fund | |||||
| Class SC | Actual | 0.76% | $1,000.00 | $987.90 | $3.75 |
| Class SC | Hypothetical | 0.76% | $1,000.00 | $1,021.03 | $3.81 |
| Class I | Actual | 0.67% | $1,000.00 | $988.00 | $3.30 |
| Class I | Hypothetical | 0.67% | $1,000.00 | $1,021.47 | $3.36 |
| Common Stock Fund | |||||
| Class SC | Actual | 0.88% | $1,000.00 | $1,183.10 | $4.76 |
| Class SC | Hypothetical | 0.88% | $1,000.00 | $1,020.43 | $4.41 |
| Class I | Actual | 0.73% | $1,000.00 | $1,183.50 | $3.95 |
| Class I | Hypothetical | 0.73% | $1,000.00 | $1,021.17 | $3.66 |
| Small Company Fund | |||||
| Class I | Actual | 0.76% | $1,000.00 | $1,184.60 | $4.12 |
| Class I | Hypothetical | 0.76% | $1,000.00 | $1,021.03 | $3.81 |
| (A) | Represents the period from commencement of operations (April 13, 2021) through June 30, 2021. Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 79/365. |
| * | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect one-half year period). |
Liquidity Risk Management
The Funds have adopted
and implemented a written liquidity risk management program (the “LRM Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each Fund adopt a program that
is reasonably designed to assess and manage the Funds’ liquidity risk, which is the risk that a Fund could not meet redemption requests without significant dilution of remaining investors’ interests in a
Fund.
Assessment and
management of a Fund’s liquidity risk under the LRM Program takes into consideration certain factors, such as a Fund’s investment strategy and the liquidity of its portfolio investments during normal and
reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to
other funding sources. As required by the rule, the LRM Program includes policies and procedures for classification of Fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid
investments, and limiting holdings of illiquid investments.
The Board of Trustees
of the Trust approved the appointment of a LRM Program administrator responsible for administering the LRM Program and for carrying out the specific responsibilities set forth in the LRM Program, including reporting
to the Board on at least an annual basis regarding the LRM Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The
Board has reviewed the Program Administrator Report covering the period from May 15, 2020 through May 14, 2021 (the “Review Period”). The Program Administrator Report stated that during the Review Period
the LRM Program operated and was implemented effectively to manage the Funds’ liquidity risk.
36
PRIVACY PROTECTION POLICY
We Respect Your Privacy
Thank you for your
decision to invest with us. Touchstone and its affiliates have always placed a high value on the trust and confidence our clients place in us. We believe that confidence must be earned and validated through time. In
today’s world, when technology allows the sharing of information at light speeds, trust must be reinforced by our sincere pledge to take the steps necessary to ensure that the information you share with us is
treated with respect and confidentiality.
Our Pledge to Our Clients
• We collect
only the information we need to service your account and administer our business.
• We are committed to keeping your information confidential and we place strict limits and controls on the use and sharing of your information.
• We make
every effort to ensure the accuracy of your information.
We Collect the Following Nonpublic
Personal Information About You:
• Information we receive from you on or in applications or other forms, correspondence, or conversations, including, but not limited to, your name, address, phone number, social
security number, assets, income and date of birth; and
• Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payment history, parties to transactions,
cost basis information, and other financial information.
Categories of Information We
Disclose and Parties to Whom We Disclose
We do not disclose any
nonpublic personal information about our current or former clients to nonaffiliated third parties, except as required or permitted by law.
We Place Strict Limits and Controls
on the Use and Sharing of Your Information
• We restrict access to nonpublic personal information about you to authorized employees who need the information to administer your business.
• We maintain physical, electronic and procedural safeguards that comply with federal standards to protect this information.
• We do not disclose any nonpublic personal information about our current or former clients to anyone, except as required or permitted by law or as described in this document.
• We will not
sell your personal information to anyone.
We May Provide Information to
Service Your Account
Sometimes it is
necessary to provide information about you to various companies such as transfer agents, custodians, broker-dealers and marketing service firms to facilitate the servicing of your account. These organizations have a
legitimate business need to see some of your personal information in order for us to provide service to you. We may disclose to these various companies the information that we collect as described above. We require
that these companies, including our own subsidiaries and affiliates, strictly maintain the confidentiality of this information and abide by all applicable laws. Companies within our corporate family that may receive
this information are financial service providers and insurance companies. We do not permit these associated companies to sell the information for their own purposes, and we never sell our customer information.
This policy is applicable
to the following affiliated companies: Touchstone Funds Group Trust, Touchstone Strategic Trust, Touchstone Variable Series Trust, Touchstone Securities, Inc.,* and W&S Brokerage Services, Inc.
*Touchstone Securities,
Inc. serves as the underwriter to the Touchstone Funds.
A Member of Western &
Southern Financial Group®
The Privacy Protection
Policy is not part of the Semi-Annual Report.
39
| (b) | Not applicable. |
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1(a) of this form. |
| (b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
| (a)(1) | Not applicable. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (a)(3) | Not applicable. |
| (a)(4) | Not applicable. |
| (b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | Touchstone Variable Series Trust |
| By (Signature and Title)* | /s/ E. Blake Moore, Jr. | |
| E. Blake Moore, Jr., President | ||
| (principal executive officer) |
| Date | August 30, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | /s/ E. Blake Moore, Jr. | |
| E. Blake Moore, Jr., President | ||
| (principal executive officer) |
| Date | August 30, 2021 |
| By (Signature and Title)* | /s/ Terrie A. Wiedenheft | |
| Terrie A. Wiedenheft, Controller and Treasurer | ||
| (principal financial officer) |
| Date | August 30, 2021 |
* Print the name and title of each signing officer under his or her signature.