SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. ----
Post-Effective Amendment No. 41
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 41
----
(Check appropriate box or boxes.)
TOUCHSTONE STRATEGIC TRUST
- - -----------------------------
(Exact name of Registrant as Specified in Charter)
FILE NOS. 811-3651 and 2-80859
- - ------------------------------
312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
- - ------------------------------------------------------
(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 629-2000
- - -----------------------------------------------------------------
Robert H. Leshner, 312 Walnut Street, 21st Floor,
- - -------------------------------------------------
Cincinnati, Ohio 45202
- - -----------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on __________ pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ___________ pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of securities under
Rule 24f-2 by filing Registrant's initial registration statement
effective April 14, 1983. Pursuant to paragraph (b)(1) of Rule
24f-2, Registrant filed a Rule 24f-2 Notice for the fiscal year
ended March 31, 1999 on June 10, 1999.
TOTAL NUMBER OF PAGES:
EXHIBIT INDEX ON PAGE:
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TOUCHSTONE STRATEGIC TRUST
------------------------
FORM N-1A
CROSS REFERENCE SHEET
----------------------
ITEM SECTION IN PROSPECTUS
- - ---- ---------------------
1........................... Cover Page; For More Information
2........................... Emerging Growth Fund, International Equity Fund,
Value Plus Fund, Enhanced 30 Fund, Equity Fund,
Utility Fund, Growth/Value Fund, Aggressive Growth
Fund; Investment Strategies and Risks
3........................... Emerging Growth Fund, International Equity Fund,
Value Plus Fund, Enhanced 30 Fund, Equity Fund,
Utility Fund, Growth/Value Fund, Aggressive Growth
Fund
4........................... Investment Strategies and Risks
5.......................... None
6........................... The Funds' Management
7........................... Investing with Touchstone, Distributions and
Taxes
8............................ Investing with Touchstone
9........................... None
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
- - ---- -----------------------
10.......................... Cover Page, Table of Contents
11.......................... The Trust
12.......................... Definitions, Policies and Risk
Considerations, Investment Restrictions,
Portfolio Turnover, Appendix
13.......................... Trustees and Officers
14.......................... None
15.......................... The Investment Adviser and Sub-Advisors, The
Distributor, Distribution Plans,
Custodian, Auditors, Transfer, Accounting and
Administrative Agents, Choosing a Share Class
16.......................... Securities Transactions
17.......................... The Trust, Choosing a Share Class
18.......................... Calculation of Share Price and Public
Offering Price, Other Purchase
Information, Redemption in Kind
19.......................... Taxes
20.......................... The Distributor
21.......................... Historical Performance Information
22.......................... None
<PAGE>
TOUCHSTONE FAMILY OF FUNDS
- - --------------------------------------------------------------------------------
PROSPECTUS
MAY 1, 2000
TOUCHSTONE STRATEGIC TRUST
o Touchstone Emerging Growth Fund
o Touchstone International Equity Fund
o Touchstone Value Plus Fund
o Touchstone Enhanced 30 Fund
o Touchstone Equity Fund
o Touchstone Utility Fund
o Touchstone Growth/Value Fund
o Touchstone Aggressive Growth Fund
Neither the Securities and Exchange Commission nor any state securities
commission has approved the Funds' shares as an investment or determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
<PAGE>
TOUCHSTONE FAMILY OF FUNDS
Each Fund is a series of Touchstone Strategic Trust (the "Trust"), a group of
eight equity mutual funds. The Trust is part of the Touchstone Family of Funds
which also consists of Touchstone Investment Trust, a group of six taxable bond
and money market mutual funds, and Touchstone Tax-Free Trust, a group of six
tax-free bond and money market mutual funds. Each Fund has a different
investment goal and risk level. For further information about the Touchstone
Family of Funds, contact Touchstone at 800.543.0407.
2
<PAGE>
TABLE OF CONTENTS
Page
Touchstone Emerging Growth Fund............................................
Touchstone International Equity Fund.......................................
Touchstone Value Plus Fund.................................................
Touchstone Enhanced 30 Fund................................................
Touchstone Equity Fund.....................................................
Touchstone Utility Fund....................................................
Touchstone Growth/Value Fund...............................................
Touchstone Aggressive Growth Fund..........................................
Investment Strategies And Risks............................................
The Funds' Management......................................................
Investing With Touchstone..................................................
Distributions And Taxes....................................................
Financial Highlights.......................................................
For More Information.......................................................
3
<PAGE>
TOUCHSTONE EMERGING GROWTH FUND
- - -------------------------------
THE FUND'S INVESTMENT GOAL
The Emerging Growth Fund seeks to increase the value of Fund shares as a primary
goal and to earn income as a secondary goal.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily (at least 65% of total assets) in the common stocks
of smaller, rapidly growing (emerging growth) companies. In selecting its
investments, the portfolio managers focus on those companies they believe will
grow faster than the U.S. economy in general. They also choose companies they
believe are priced lower in the market than their true value (i.e. companies
whose price earnings ratios appear reasonable when compared to their estimated
future earnings growth rates).
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o Because securities of small cap companies may be more thinly traded
and may have more frequent and larger price changes than securities of
larger cap companies
o If the market continually values the stocks in the Fund's portfolio
lower than the portfolio managers believe they should be valued
o If the stocks in the Fund's portfolio are not undervalued as expected
o If the companies in which the Fund invests do not grow as rapidly as
expected
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
4
<PAGE>
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. This Fund's approach may be appropriate
for you if you are comfortable with wide market fluctuations.
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Emerging Growth
Fund. It shows changes in the performance of the Fund's Class A shares from year
to year since the Fund started. The chart does not reflect any sales charges.
Sales charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class.
EMERGING GROWTH FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1995 22.56%
1996 10.56%
1997 32.20%
1998 2.57%
1999 45.85%
During the period shown in the bar chart, the highest quarterly return was
26.84% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -19.30% (for the quarter ended September 30, 1998).
The year-to-date return for the Fund's Class A shares as of March 31, 2000
is 17.92%.
The following table indicates the risks of investing in the Emerging Growth
Fund. It shows how the Fund's average annual returns for the periods shown
compare to those of the Russell 2000 Index and to the Wiesenberger Small Cap -
MF index. The Russell 2000 Index is a widely recognized unmanaged index of small
cap stock performance. The Wiesenberger Small Cap -- MF is a composite index of
the annual returns of mutual funds that have an investment style
5
<PAGE>
similar to that of the Emerging Growth Fund. The table shows the effect of the
applicable sales charge.
FOR THE PERIODS ENDED DECEMBER 31, 1999
Past 12 Past 5 Since
Months Years Fund Started*
Emerging Growth Fund -- Class A 37.45% 20.36% 19.95%
- - -------------------------------------- -------- -------- --------
Russell 2000 Index 21.35% 16.44% 13.78%
- - -------------------------------------- -------- -------- --------
Wiesenberger Small Cap -- MF 30.92% 20.20% 19.37%
- - -------------------------------------- -------- -------- --------
Emerging Growth Fund -- Class C 44.86% -- 44.86%
- - -------------------------------------- -------- -------- --------
Russell 2000 Index 21.35% -- 20.93%
- - -------------------------------------- -------- -------- --------
Wiesenberger Small Cap -- MF 30.92% -- 30.92%
- - -------------------------------------- -------- -------- --------
* Class A shares began operations on October 3, 1994. Class C shares began
operations on January 1, 1999.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
6
<PAGE>
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.80% 0.80%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00%
- - --------------------------------------------------------------------------------
Other Expenses 2.24% 2.24%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 3.29% 4.04%
- - --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement3 1.79% 1.79%
- - --------------------------------------------------------------------------------
Net Expenses 1.50% 2.25%
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
** You may be charged a fee for each wire redemption. This fee is subject
to change.
3 Touchstone Advisors has contractually agreed to waive or reimburse
certain of the Total Annual Fund Operating Expenses of each Class of
the Fund (the "Sponsor Agreement"). The Sponsor Agreement will remain
in place until at least December 31, 2000.
The following example should help you compare the cost of investing in the
Emerging Growth Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $ 719 $ 350
------------------------------------------------------
3 Years $1,372 $1,178
------------------------------------------------------
5 Years $2,047 $2,022
------------------------------------------------------
10 Years $3,839 $4,203
------------------------------------------------------
o The example for the 3, 5 and 10-year periods is calculated using the
Total Fund Operating Expenses before the limits agreed to under the
Sponsor Agreement for periods after year 1.
7
<PAGE>
INTERNATIONAL EQUITY FUND
- - -------------------------
THE FUND'S INVESTMENT GOAL
The International Equity Fund seeks to increase the value of Fund shares over
the long-term.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily (at least 80% of total assets) in equity securities
of foreign companies and will invest in at least three countries outside the
United States. The Fund focuses on companies located in Europe, Australia and
the Far East. The Fund may invest up to 40% of its assets in securities issued
by companies active in emerging market countries.
The portfolio manager uses a growth-oriented style to choose investments for the
Fund. This includes the use of both qualitative and quantitative analysis to
identify markets and companies that offer solid growth prospects at reasonable
prices. In selecting investments for the Fund, the portfolio manager combines a
top-down regional and country analysis with a bottom-up security selection. Key
factors in determining regional allocations are earnings, interest rates,
valuation and risk. In selecting individual stocks, the portfolio manager
employs a "growth at a reasonable price" approach. The portfolio manager looks
for companies it believes to have above average earnings growth prospects, but
sell at a fair value.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o Because investments in foreign securities may have more frequent and
larger price changes than U.S. securities and may lose value due to
changes in currency exchange rates and other factors
o Because securities of companies in emerging market countries involve
unique risks, such as exposure to economies less diverse and mature
than that of the U.S. and economic or political changes may cause
larger price changes in these securities than other foreign securities
o If the stocks in the Fund's portfolio do not grow over the long term
as expected
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
8
<PAGE>
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. This Fund's approach may be appropriate
for you if you are comfortable with wide market fluctuations.
THE FUND'S PERFORMANCE
The bar chart shown below indicates the risks of investing in the International
Equity Fund. It shows changes in the performance of the Fund's Class A shares
from year to year since the Fund started. The chart does not reflect any sales
charges. Sales charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class.
INTERNATIONAL EQUITY FUND --
CLASS A PERFORMANCE
YEARS TOTAL RETURN
1995 5.29%
1996 11.61%
1997 15.57%
1998 19.94%
1999 39.50%
During the period shown in the bar chart, the highest quarterly return was
29.45% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -13.67% (for the quarter ended September 30, 1998).
The year-to-date return for the Fund's Class A shares as of March 31, 2000
is -2.12%.
9
<PAGE>
The following table indicates the risks of investing in the International Equity
Fund. It shows how the Fund's average annual returns for the periods shown
compare to those of the MSCI EAFE Index and the Wiesenberger Non-US Equity -- MF
index. The MSCI EAFE Index is a Morgan Stanley index that includes stocks traded
on 16 exchanges in Europe, Australia and the Far East. The Wiesenberger Non-US
Equity -- MF is a composite index of the annual returns of mutual funds that
have an investment style similar to that of the International Equity Fund. The
table shows the effect of the applicable sales charge.
FOR THE PERIODS ENDED DECEMBER 31, 1999
Past 12 Past 5 Since
Months Years Fund Started*
INTERNATIONAL EQUITY FUND -- CLASS A 31.44% 16.43% 13.61%
- - -------------------------------------- -------- -------- --------
MSCI EAFE Index 25.63% 11.13% 10.28%
- - -------------------------------------- -------- -------- --------
Wiesenberger Non-US Equity -- MF 47.89% 12.97% 11.30%
- - -------------------------------------- -------- -------- --------
INTERNATIONAL EQUITY FUND -- CLASS C 38.44% -- 38.44%
- - -------------------------------------- -------- -------- --------
MSCI EAFE Index 25.63% -- 25.63%
- - -------------------------------------- -------- -------- --------
Wiesenberger Non-US Equity -- MF 47.88% -- 47.88%
- - -------------------------------------- -------- -------- --------
* Class A shares began operations on October 3, 1994. Class C shares began
operations on January 1, 1999.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
10
<PAGE>
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.95% 0.95%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00%
- - --------------------------------------------------------------------------------
Other Expenses 2.91% 2.91%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 4.11% 4.86%
- - --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement3 2.51% 2.51%
- - --------------------------------------------------------------------------------
Net Expenses 1.60% 2.35%
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
** You may be charged a fee for each wire redemption. This fee is subject
to change.
3 Touchstone Advisors has contractually agreed to waive or reimburse
certain of the Total Annual Fund Operating Expenses of each Class of
the Fund (the "Sponsor Agreement"). The Sponsor Agreement will remain
in place until at least December 31, 2000.
11
<PAGE>
The following example should help you compare the cost of investing in the
International Equity Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $ 728 $ 360
------------------------------------------------------
3 Years $1,537 $1,347
------------------------------------------------------
5 Years $2,359 $2,336
------------------------------------------------------
10 Years $4,481 $4,822
------------------------------------------------------
o The example for the 3, 5 and 10-year periods is calculated using the
Total Fund Operating Expenses before the limits agreed to under the
Sponsor Agreement for periods after year 1.
12
<PAGE>
TOUCHSTONE VALUE PLUS FUND
- - --------------------------
THE FUND'S INVESTMENT GOAL
The Value Plus Fund seeks to increase the value of Fund shares over the
long-term.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily (at least 65% of total assets) in common stock of
larger companies that the portfolio manager believes are undervalued. In
choosing undervalued stocks, the portfolio manager looks for companies that have
proven management and unique features or advantages, but are believed to be
priced lower than their true value. These companies may not pay dividends. The
Fund may also invest in common stocks of rapidly growing companies to enhance
the Fund's return and vary its investments to avoid having too much of the
Fund's assets subject to risks specific to undervalued stocks.
Approximately 70% of total assets will generally be invested in large cap
companies and approximately 30% will generally be invested in mid cap companies.
A large cap company has a market capitalization of more than $5 billion. A mid
cap company has a market capitalization of between $1 billion and $5 billion.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the market continually values the stocks in the Fund's portfolio
lower than the portfolio manager believes they should be valued
o If the stocks in the Fund's portfolio are not undervalued as expected
o Because the price of mid cap stocks may fluctuate more than the price
of large cap stocks
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
As with any mutual fund, there is no guarantee that it will achieve its goal.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
13
<PAGE>
WHO MAY WANT TO INVEST
This Fund will be most appealing to you if you are a moderate or risk tolerant
investor. You should be comfortable with a fair degree of volatility. Capital
appreciation may be important to you, but you may not want to take extreme risks
in order to achieve it. This Fund's approach may be most appropriate for you if
you are comfortable with a moderate level of risk.
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Value Plus Fund.
It shows changes in the performance of the Fund's Class A shares from year to
year since the Fund started. The chart does not reflect any sales charges. Sales
charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class.
VALUE PLUS FUND -- CLASS A PERFORMANCE
YEAR TOTAL RETURN
1999 15.51%
During the period shown in the bar chart, the highest quarterly return was
13.01% (for the quarter ended December 31,1999) and the lowest quarterly
return was -8.68% (for the quarter ended September 30, 1999).
The year-to-date return for the Fund's Class A shares as of March 31, 2000
is -1.74%.
The following table indicates the risks of investing in the Value Plus Fund. It
shows how the Fund's average annual returns for the periods shown compare to
those of the S&P 500 Index, the S&P/Barra Value Index and the Wilshire Large Cap
Value Index. The S&P 500 Index is a widely recognized unmanaged index of common
stock prices. The S&P/Barra Value Index is a capitalization-weighted index of
stocks in the S&P 500 with high book-to-price ratios relative to the S&P 500 as
a whole. The Wilshire Large Cap Value Index is an index of equity securities
that fit Wilshire Asset Management's value stock characteristics and fall into
the largest 750 securities in the Wilshire 500 Index. The table shows the
effect of the applicable sales charge.
14
<PAGE>
FOR THE PERIODS ENDED DECEMBER 31, 1999
Past 12 Since
Months Fund Started*
VALUE PLUS FUND -- CLASS A 8.82% 7.89%
- - -------------------------------------- -------- --------
S&P 500 Index 21.04% 19.79%
- - -------------------------------------- -------- --------
S&P/Barra Value Index 12.68% 13.06%
- - -------------------------------------- -------- --------
Wilshire Large Cap Value Index 3.55% 2.57%
- - -------------------------------------- -------- --------
VALUE PLUS FUND -- CLASS C 14.24% 14.24%
- - -------------------------------------- -------- --------
S&P 500 Index 21.04% 21.04%
- - -------------------------------------- -------- --------
S&P/Barra Value Index 12.68% 12.68%
- - -------------------------------------- -------- --------
Wilshire Large Cap Value Index 3.55% 3.55%
- - -------------------------------------- -------- --------
* Class A shares began operations on May 1, 1998. Class C shares began
operations on January 1, 1999.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
15
<PAGE>
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.75% 0.75%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00%
- - --------------------------------------------------------------------------------
Other Expenses 1.02% 1.02%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.02% 2.77%
- - --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement3 0.72% 0.72%
- - --------------------------------------------------------------------------------
Net Expenses 1.30% 2.05%
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
** You may be charged a fee for each wire redemption. This fee is subject
to change.
3 Touchstone Advisors has contractually agreed to waive or reimburse
certain of the Total Annual Fund Operating Expenses of each Class of
the Fund (the "Sponsor Agreement"). The Sponsor Agreement will remain
in place until at least December 31, 2000.
16
<PAGE>
The following example should help you compare the cost of investing in the Value
Plus Fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Fund for the time periods indicated and then sell
all of your shares at the end of those periods. The example also assumes that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $ 700 $ 330
------------------------------------------------------
3 Years $1,107 $ 906
------------------------------------------------------
5 Years $1,538 $1,508
------------------------------------------------------
10 Years $2,734 $3,134
------------------------------------------------------
o The example for the 3, 5 and 10-year period is calculated using the
Total Fund Operating Expenses before the limits agreed to under the
Sponsor Agreement for periods after year 1.
<PAGE>
TOUCHSTONE ENHANCED 30 FUND
- - ---------------------------
THE FUND'S INVESTMENT GOAL
The Enhanced 30 Fund seeks to achieve a total return which is higher than the
total return of the Dow Jones Industrial Average.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund's portfolio is based on the 30 stocks that comprise the Dow Jones
Industrial Average. The Dow Jones Industrial Average is a measurement of general
market price movement for 30 widely held stocks. The portfolio manager seeks to
surpass the total return of the Dow Jones Industrial Average by substituting
stocks that offer above average growth potential for those stocks in the Dow
Jones Industrial Average that appear to have less growth potential. The Fund's
portfolio will at all times consist of 30 stocks and up to 1/3 of these holdings
may represent substituted stocks in the enhanced portion of the portfolio.
The portfolio manager uses a database of 4,000 stocks from which to choose the
companies that will be substituted in the enhanced portion of the portfolio. A
specific process is followed to assist the portfolio manager in its selections:
o The 4,000 stocks are reduced to 1,400 by screening for quality and
market capitalization ($10 billion minimum).
o A model is applied to select stocks that the portfolio manager
believes are priced at a discount to intrinsic value. This model
reduces the stock choices to about 300 companies.
o The portfolio manager then searches for those companies that currently
have a catalyst at work which may help to unlock their earnings
potential.
Stocks are sold when the portfolio manager believes they are overpriced or face
a significant reduction in earnings prospects. The portfolio is rebalanced
periodically or as needed due to changes in the Dow Jones Industrial Average or
the other securities in the portfolio.
The portfolio manager's selection process is expected to cause the Fund's
portfolio to have the following characteristics:
o Attractive valuation
o Above-average earnings and dividend growth
o Above-average market capitalization ratio
o Dominant industry position
o Seasoned management
o Above-average quality
Unlike the Dow Jones Industrial Average, the Enhanced 30 Fund is not
price-weighted.
18
<PAGE>
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the stock selection model is not accurate in its stock screening
process
o If the stocks in the enhanced portion of the portfolio do not increase
the Fund's return as expected
o If the market continually values the stocks in the Fund's portfolio
lower than the portfolio manager believes they should be valued
o If the stocks in the Fund's portfolio are not undervalued as expected
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
You can find out more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies and Risks later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund will be most appealing to you if you are a moderate, or risk tolerant
investor. You should be comfortable with a fair degree of volatility. Capital
appreciation may be important to you, but you may not want to take extreme risks
in order to achieve it. This Fund's approach may be most appropriate for you if
you are comfortable with a moderate level of risk.
PERFORMANCE NOTE
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Enhanced 30 Fund started on May 1, 2000,
there is no performance information included in this Prospectus.
19
<PAGE>
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.65% 0.65%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00%
- - --------------------------------------------------------------------------------
Other Expenses 1.00% 1.00%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses3 1.90% 2.65%
- - --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement4 .90% .90%
- - --------------------------------------------------------------------------------
Net Expenses 1.00% 1.75%
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan
** You will be charged $8 for each wire redemption. This fee is subject
to change.
3 Total Annual Fund Operating Expenses are based on estimated amounts
for the current fiscal year.
20
<PAGE>
4 Touchstone Advisors has contractually agreed to waive or reimburse
certain of the Total Annual Fund Operating Expenses of each Class of
the Fund (the "Sponsor Agreement"). The Sponsor Agreement will remain
in place until at least March 31, 2001.
The following example should help you compare the cost of investing in the
Enhanced 30 Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then sell all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
------------------------------------------------------
1 Year $ 671 $ 301
------------------------------------------------------
3 Years $1,055 $ 854
------------------------------------------------------
o The example for the 3 year period is calculated using the Total Fund
Operating Expenses before the limits agreed to under the Sponsor
Agreement for the period after year 1.
21
<PAGE>
TOUCHSTONE EQUITY FUND
- - ----------------------
THE FUND'S INVESTMENT GOAL
The Equity Fund seeks long-term growth of capital by investing primarily in
growth-oriented stocks.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a diversified portfolio of common stocks which are
believed to have growth attributes superior to the general market. In selecting
investments, the portfolio manager focuses on those companies that have
attractive opportunities for growth of principal, yet sell at reasonable
valuations compared to the portfolio manager's expected growth rates of
revenues, cash flows and earnings. Under normal circumstances, the Fund will
invest at least 65% of its total assets in common stocks.
The portfolio manager uses a database of stocks from which to choose companies
and then performs a detailed fundamental analysis on the companies which pass
the initial screening. The intent of this analysis is to:
o Identify superior growth attributes relative to the general market.
o Identify high quality large cap companies with superior financial
condition.
o Acquire a detailed understanding of a company's earnings power.
o Position the portfolio for a superior risk/reward ratio.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the detailed fundamental analysis of companies in the stock
screening process is not accurate.
o If the companies in which the Fund invests do not grow as rapidly or
increase in value as expected
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
22
<PAGE>
WHO MAY WANT TO INVEST
This Fund will be most appealing to you if you are a moderate or risk tolerant
person. You should be comfortable with a fair degree of volatility. Capital
appreciation of your investment capital may be important to you, however, you
may be uncomfortable taking extreme risk in order to achieve it. This Fund's
approach may be appropriate for you if you are comfortable with a moderate
level of risk.
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Equity Fund. It
shows changes in the performance of the Fund's Class C shares from year to year
since the Fund started. The chart does not reflect any sales charges. Sales
charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class A shares offered by the Fund will differ from the Class C
returns shown in the bar chart, depending on the expenses of that class.
EQUITY FUND -- CLASS C PERFORMANCE
YEARS TOTAL RETURN
1994 -2.43%
1995 31.03%
1996 13.42%
1997 28.37%
1998 20.70%
1999 17.17%
During the period shown in the bar chart, the highest quarterly return was
19.92% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -10.57% (for the quarter ended September 30, 1998).
The year-to-date return for the Fund's Class C shares as of March 31, 2000
is 6.50%.
The following table shows indicates the risk of investing in the Equity Fund. It
shows how the Fund's average annual returns for the periods shown compare to
that of the Standard & Poor's 500 Index. The Standard & Poor's 500 Index is a
widely recognized unmanaged index of common stock prices. The table shows the
effect of the applicable sales charge.
23
<PAGE>
FOR THE PERIODS ENDED DECEMBER 31, 1999
Past 12 Past 5 Since
Months Years Fund Started*
EQUITY FUND -- CLASS A 11.71% 21.59% 16.16%
- - -------------------------------------- -------- -------- --------
Standard & Poor's 500 Index 21.04% 28.51% 22.82%
- - -------------------------------------- -------- -------- --------
EQUITY FUND -- CLASS C 15.70% 21.65% 15.64%
- - -------------------------------------- -------- -------- --------
Standard & Poor's 500 Index 21.04% 28.51% 22.17%
- - -------------------------------------- -------- -------- --------
* Class A shares began operations on August 2, 1993. Class C shares began
operations on June 7, 1993.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.75% 0.75%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00%
- - --------------------------------------------------------------------------------
Other Expenses 0.31% 0.66%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.31% 2.41%
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
24
<PAGE>
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
** You will be charged $8 for each wire redemption. This fee is subject
to change.
The following example should help you compare the cost of investing in the
Equity Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then sell all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $ 701 $ 366
------------------------------------------------------
3 Years $ 966 $ 867
------------------------------------------------------
5 Years $1,252 $1,394
------------------------------------------------------
10 Years $2,063 $2,837
------------------------------------------------------
25
<PAGE>
TOUCHSTONE UTILITY FUND
- - -----------------------
THE FUND'S INVESTMENT GOAL
The Utility Fund seeks growth of capital and current income by investing
primarily in securities of public utilities.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a diversified portfolio of common, preferred, and
convertible preferred stocks and bonds of domestic public utilities. The Fund
will invest at least 65% of its total assets in the securities of public
utilities, which are those companies involved in the production, supply or
distribution of electricity, natural gas, telecommunications (including cable
and wireless companies) and water. The Fund will invest in investment grade debt
securities which mature within 30 years.
The portfolio manager selects investments for the Fund by identifying companies
that have
o Sustainable growth rates in revenues, earnings, dividends, cash flows
and return on investment
o Favorable relative valuation indicators
o "Hidden assets" not recognized by the market
o Positive management assessment
o Favorably regulatory climate
The portfolio manager also determines the competitive strengths and weaknesses,
opportunities and threats to both the company and the industry. The portfolio
manager expects to hold the Fund's securities for the long term, but will sell a
security when a serious deterioration in the fundamental competitive position of
the company occurs or when there is a change in the company's management which
the portfolio manager believes is not in the best interests of shareholders.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the stocks of public utilities go down because of the occurrence of
events and risks unique to the public utilities market
o If the stocks in the Fund's portfolio do not grow over the long term
as expected
o If interest rates go up, causing the value of any debt securities held
by the Fund to decline
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
26
<PAGE>
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you are a moderate or risk tolerant
investor. You should be comfortable with a fair degree of volatility. Capital
appreciation may be important to you, but you may not want to take extreme risks
in order to achieve it. This Fund's approach may be most appropriate for you if
you are comfortable with a moderate level of risk.
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Utility Fund. It
shows changes in the performance of the Fund's Class A shares from year to year
since the Fund started. The chart does not reflect any sales charges. Sales
charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class.
27
<PAGE>
UTILITY FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1990 2.34%
1991 22.70%
1992 7.66%
1993 8.03%
1994 -2.02%
1995 26.46%
1996 5.77%
1997 27.90%
1998 17.64%
1999 1.45%
During the period shown in the bar chart, the highest quarterly return was
16.83% (for the quarter ended December 31, 1997) and the lowest quarterly
return was -12.26% (for the quarter ended March 31, 1999).
The year-to-date return for the Fund's Class A shares as of March 31, 2000
is 2.11%.
The following table indicates the risks of investing in the Utility Fund. It
shows how the Fund's average annual returns for the periods shown compare to
those of the Standard & Poor's Utility Index. The Standard & Poor's Utility
Index is a widely recognized unmanaged index consisting of electric power,
natural gas and telephone companies. The table shows the effect of the
applicable sales charge.
FOR THE PERIODS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Past 12 Past 5 Past 10 Since
Months Years Years Fund Started*
<S> <C> <C> <C> <C>
UTILITY FUND -- CLASS A -4.39% 13.99% 10.66% 11.01%
- - -------------------------------------- --------- -------- -------- --------
Standard & Poor's Utility Index -8.91% 13.81% 9.18% 10.03%
- - -------------------------------------- --------- -------- -------- --------
UTILITY FUND -- CLASS C -0.98% 14.02% -- 9.98%
- - -------------------------------------- --------- -------- -------- --------
Standard & Poor's Utility Index -8.91% 13.81% -- 8.89%
- - -------------------------------------- --------- -------- -------- --------
</TABLE>
* Class A shares began operations on August 15, 1989. Class C shares began
operations on August 2, 1993.
28
<PAGE>
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.75% 0.75%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.23% 0.92%
- - --------------------------------------------------------------------------------
Other Expenses 0.35% 0.83%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.33% 2.50%
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
** You will be charged $8 for each wire redemption. This fee is subject
to change.
29
<PAGE>
The following example should help you compare the cost of investing in the
Utility Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then sell all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $ 703 $ 375
------------------------------------------------------
3 Years $ 972 $ 894
------------------------------------------------------
5 Years $1,262 $1,439
------------------------------------------------------
10 Years $2,084 $2,925
------------------------------------------------------
30
<PAGE>
TOUCHSTONE GROWTH/VALUE FUND
- - ----------------------------
THE FUND'S INVESTMENT GOAL
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuation may not reflect the prospects
for accelerated earnings/cash flow growth.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in domestic stocks of large cap growth companies that
the portfolio manager believes have a demonstrated record of achievement with
excellent prospects for earnings and/or cash flow growth over a 3 to 5 year
period. In choosing securities, the portfolio manager looks for companies that
it believes to be priced lower than their true value. These may include
companies in the technology sector. The Fund may also invest (up to 10% of total
assets) in common stocks of small cap companies.
The portfolio manager will invest in two basic categories of companies:
o "Core" companies (approximately 67%) which the portfolio manager
believes have shown above-average and consistent long-term growth in
earnings and cash flow (net income plus depreciation and amortization)
and have excellent prospects for future growth
o "Earnings/cash flow acceleration" companies (up to 34%) which are
currently experiencing a dramatic increase in earnings and/or cash
flow or are projected to do so.
The Fund is non-diversified and may invest a significant percentage of its
assets in the securities of a single company.
The portfolio manager expects to hold investments in the Fund for an average of
18 to 36 months. However, changes in the portfolio manager's outlook and market
conditions may significantly affect the amount of time the Fund holds a
security. The Fund's portfolio turnover may vary greatly from year to year and
during a particular year. The portfolio manager does not set a price target for
its holdings in order to determine when to sell an investment. Rather, the
portfolio manager generally will sell a security if one or more of the following
occurs:
(1) a change in the fundamentals of a company or an industry;
(2) excessive valuation;
(3) better risk/reward opportunities may be found in other stocks; or
(4) excessive overweighting.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
31
<PAGE>
o If the stock market as a whole goes down
o If the market continually values the stocks in the Fund's portfolio
lower than the portfolio manager believes they should be valued
o If the stocks in the Fund's portfolio are not undervalued as expected
o If the companies in the Fund's portfolio do not increase their
earnings and/or cash flow as expected
o Because the Fund may invest in the technology sector which at times
may be subject to greater market fluctuation than other sectors
o Because the Fund is non-diversified, it may hold a significant
percentage of its assets in the securities of one company and the
securities of that company may not increase in value as expected
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund will be most appealing to you if you are a moderate or risk tolerant
investor. You should be comfortable with a fair to high degree of volatility.
Capital appreciation may be important to you, but you may not want to take
extreme risks in order to achieve it. This Fund's approach may be most
appropriate for you if you are comfortable with a moderate level of risk.
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Growth/Value
Fund. It shows changes in the performance of the Fund's Class A shares from year
to year since the Fund started. The chart does not reflect any sales charges.
Sales charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class.
32
<PAGE>
GROWTH/VALUE FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1996 20.65%
1997 23.78%
1998 39.06%
1999 68.25%
During the period shown in the bar chart, the highest quarterly return was
47.98% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -8.50% (for the quarter ended September 30, 1998).
The year-to-date return for the Fund's Class A shares as of March 31, 2000
is 16.82%.
The following table indicates the risks of investing in the Growth/Value Fund.
It shows how the Fund's average annual returns for the periods shown compare to
that of the Standard & Poor's 500 Index. The Standard & Poor's 500 Index is a
widely recognized unmanaged index of common stock prices. The table shows the
effect of the applicable sales charge.
FOR THE PERIODS ENDED DECEMBER 31, 1999
Past 12 Since Fund
Months Started*
Growth/Value Fund - Class A 58.57% 33.94%
- - -------------------------------------- -------- --------
Standard & Poor's 500 Index 21.04% 26.33%
- - -------------------------------------- -------- --------
Growth/Value Fund - Class C -- 49.49%
- - -------------------------------------- -------- --------
Standard & Poor's 500 Index -- 29.35%
- - -------------------------------------- -------- --------
* Class A shares began operations on September 29, 1995. Class C shares began
operations on August 1, 1999.
33
<PAGE>
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 1.00% 1.00%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.23% 0.98%
- - --------------------------------------------------------------------------------
Other Expenses 0.43% 0.43%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.66% 2.41%3
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
** You will be charged $8 for each wire redemption. This fee is subject
to change.
3 These expenses are based on estimates for the current fiscal year.
34
<PAGE>
The following example should help you compare the cost of investing in the
Growth/Value Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then sell all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $ 734 $ 366
------------------------------------------------------
3 Years $1,068 $ 867
------------------------------------------------------
5 Years $1,425 $1,394
------------------------------------------------------
10 Years $2,427 $2,837
------------------------------------------------------
35
<PAGE>
TOUCHSTONE AGGRESSIVE GROWTH FUND
- - ---------------------------------
THE FUND'S INVESTMENT GOAL
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes whose valuation may not yet reflect the prospectus
for accelerated earnings/cash flow growth.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in stocks of domestic growth companies that are
likely to benefit from new or innovative products, services or processes that
the portfolio manager believes will enhance the companies' prospects for future
growth in earnings and cash flow. The Fund will invest in companies of various
sizes, including stocks of mid cap and small cap companies. In choosing
securities, the portfolio manager looks for companies it believes to be priced
lower than their true value. These may include companies in the technology
sector. The Fund may also invest (up to 15% of total assets) in common stocks
which are not actively traded on a national or regional stock exchange.
The portfolio manager will invest in two basic categories of companies:
o "Core" companies (approximately 67%) which the portfolio manager
believes have shown above-average and consistent long-term growth in
earnings and cash flow (net income plus depreciation and amortization)
earnings and have excellent prospects for future growth
o "Earnings/cash flow acceleration" companies (up to 34%) which are
currently experiencing a dramatic increase in earnings and/or cash
flow or are projected to do so.
The Fund is non-diversified and may invest a significant percentage of its
assets in the securities of a single company.
The Fund may make short-term trades in order to take advantage of changing
market, industry or company conditions. The Fund's portfolio turnover may vary
greatly from year to year and during a particular year. The portfolio manager
does not set a price target for its holdings in order to determine when to sell
an investment. Rather, the portfolio manager generally will sell a security if
one or more of the following occurs:
(1) a change in the fundamentals of a company or an industry;
(2) excessive valuation;
(3) better risk/reward opportunities may be found in other stocks; or
(4) excessive overweighting.
36
<PAGE>
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the portfolio manager is unable to sell the stocks in the Fund's
portfolio which are not actively traded on a regional or national
stock exchange.
o If the stocks in the Fund's portfolio are not undervalued as expected
o If the companies in the Fund's portfolio do not grow earnings and/or
cash flow as expected
o Because the Fund may invest in the technology sector which at times
may be subject to greater market fluctuation than other sectors
o Because the Fund is non-diversified, it may hold a significant
percentage of its assets in the securities of one company and the
securities of that company may not increase in value as expected
o Because securities of small cap and medium cap companies may be more
thinly traded and may have more frequent and larger price changes than
securities of larger cap companies
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
You can find out more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies and Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
The Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. This Fund's approach may be appropriate
for you if you are comfortable with wide market fluctuations.
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Aggressive
Growth Fund. It shows changes in the performance of the Fund's Class A shares
from year to year since the Fund started. The chart does not reflect any sales
charges. Sales charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
37
<PAGE>
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class. As of
the date of this Prospectus, no Class C shares have been issued by the Fund.
AGGRESSIVE GROWTH FUND - CLASS A PERFORMANCE
YEARS TOTAL RETURN
1996 24.08%
1997 17.05%
1998 25.24%
1999 87.37%
During the period shown in the bar chart, the highest quarterly return was
61.81% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -17.13% (for the quarter ended December 31, 1997).
The year-to-date return for the Fund's Class A shares as of March 31, 2000
is 16%.
The following table indicates the risks of investing in the Aggressive Growth
Fund. It shows how the Fund's average annual returns for the periods shown
compare to that of the NASDAQ Composite Index. The NASDAQ Composite Index is an
unmanaged index of common stocks of companies traded over-the-counter and
offered through the National Association of Securities Dealers Automated
Quotations system. The table shows the effect of the applicable sales charge.
FOR THE PERIODS ENDED DECEMBER 31, 1999
Past 12 Since Fund
Months Started*
Aggressive Growth Fund-Class A 76.60% 31.42%
- - -------------------------------------- -------- --------
NASDAQ Composite Index 86.13% 38.16%
- - -------------------------------------- -------- --------
* The Fund started selling Class A shares on September 29, 1995.
38
<PAGE>
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 5.75% 2.25%
- - --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75%1 1.25%
- - --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or amount redeemed, whichever is less) * 1.00%2
- - --------------------------------------------------------------------------------
Redemption Fee ** **
- - --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 1.00% 1.00%
- - --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.16% 1.00%
- - --------------------------------------------------------------------------------
Other Expenses 0.84% 0.84%
- - --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.00% 2.84%
- - --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement 0.05%4 .14%
- - --------------------------------------------------------------------------------
Net Expenses 1.95% 2.70%3
- - --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. There is
also no initial sales charge on certain purchases in a Roth IRA, a
Roth Conversion IRA or a qualified retirement plan.
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
** You will be charged $8 for each wire redemption. This fee is subject
to change.
3 Based on estimated amounts for the current fiscal year.
4 Pursuant to a written contract between the Advisor and the Trust, the
Advisor has agreed to waive a portion of its advisory fee and/or
reimburse certain expenses of Class A shares in order to limit Total
Annual Fund Operating Expenses to 1.95%. The Advisor has agreed to
maintain these expense limitations through March 31, 2001.
39
<PAGE>
The following example should help you compare the cost of investing in the
Aggressive Growth Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $ 766 $ 395
------------------------------------------------------
3 Years $1,166 $ 981
------------------------------------------------------
5 Years $1,591 $1,593
------------------------------------------------------
10 Years $2,768 $3,242
------------------------------------------------------
40
<PAGE>
INVESTMENT STRATEGIES AND RISKS
- - -------------------------------
CAN A FUND DEPART FROM ITS NORMAL STRATEGIES?
Each Fund may depart from its investment strategies by taking temporary
defensive positions in response to adverse market, economic or political
conditions. During these times, a Fund may not achieve its investment goals.
DO THE FUNDS ENGAGE IN ACTIVE TRADING OF SECURITIES?
The Aggressive Growth Fund and the International Equity Fund may engage in
active trading to achieve their investment goals. This may cause the Funds to
realize higher capital gains which would be passed on to you. Higher capital
gains could increase your tax liability. Frequent trading also increases
transaction costs, which would lower a Fund's performance.
CAN A FUND CHANGE ITS INVESTMENT GOAL?
Each Fund (except the Growth/Value Fund and the Aggressive Growth Fund) may
change its investment goal(s) by a vote of the Board of Trustees without
shareholder approval. You would be notified at least 30 days before any such
change took effect.
DO THE FUNDS HAVE OTHER INVESTMENT STRATEGIES, IN ADDITION TO THEIR PRINCIPAL
INVESTMENT STRATEGIES?
EMERGING GROWTH FUND. When the portfolio managers believe the following
securities offer a good potential for capital growth or income, up to 35% of the
Fund's assets may be invested in:
o Larger company stocks
o Preferred stocks
o Convertible bonds
The Emerging Growth Fund may also invest in:
o Securities of foreign companies traded mainly outside the U.S. (up to
20%)
o American Depository Receipts (ADRs) (up to 20%)
o Securities of emerging market countries (up to 10%)
INTERNATIONAL EQUITY FUND. The International Equity Fund may also invest in
certain debt securities issued by U.S. and non-U.S. entities (up to 20%),
including non-investment grade debt securities rated as low as B.
41
<PAGE>
VALUE PLUS FUND. The Value Plus Fund may invest in:
o Preferred stocks
o Investment grade debt securities
o Convertible securities
In addition, the Value Plus Fund may invest in (up to 10%):
o Cash equivalent investments
o Short-term debt securities
THE FUNDS AT A GLANCE.
The following two tables can give you a quick basic understanding of the types
of securities a Fund tends to invest in and some of the risks associated with a
Fund's investments. You should read all of the information about a Fund and its
risks before deciding to invest.
42
<PAGE>
HOW CAN I TELL, AT A GLANCE, WHICH TYPES OF SECURITIES A FUND MIGHT INVEST IN?
The following table shows the main types of securities in which each Fund
generally will invest. Investments marked P are principal investments.
Investments marked 0 are other types of securities in which a Fund may invest to
a lesser extent. Some of the Funds' investments are described in detail below:
<TABLE>
<CAPTION>
Emerging International Value Enhanced Growth/ Aggressive
Growth Equity Plus 30 Equity Utility Value Growth
Fund Fund Fund Fund Fund Fund Fund Fund
FINANCIAL INSTRUMENTS
- - ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Invests in U.S. stocks P P P P P P P
- - ---------------------------------------------------------------------------------------------------------------------
Invests in foreign stocks 0 P
- - ---------------------------------------------------------------------------------------------------------------------
Invests in investment grade
debt securities 0 0 0
- - ---------------------------------------------------------------------------------------------------------------------
Invests in non-investment
grade debt securities O
- - ---------------------------------------------------------------------------------------------------------------------
Invests in foreign debt
securities 0
- - ---------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES
- - ---------------------
Emphasizes securities of
small cap companies P 0
- - ---------------------------------------------------------------------------------------------------------------------
Emphasizes securities of
mid cap companies 0 0
- - ---------------------------------------------------------------------------------------------------------------------
Emphasizes securities of
large cap companies 0 P P 0
- - ---------------------------------------------------------------------------------------------------------------------
Emphasizes undervalued
stocks 0 P 0 0 0 P 0
- - ---------------------------------------------------------------------------------------------------------------------
Invests in securities of
emerging market countries 0 0
- - ---------------------------------------------------------------------------------------------------------------------
Emphasizes securities of
public utilities P
- - ---------------------------------------------------------------------------------------------------------------------
Invests in technology
securities 0 0 0
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
FOREIGN COMPANIES. A foreign company is organized under the laws of a foreign
country and:
o Has the principal trading market for its stock in a foreign country
o Derives at least 50% of its revenues or profits from operations in
foreign countries or has at least 50% of its assets located in foreign
countries
INVESTMENT GRADE SECURITIES. Investment grade securities are generally rated BBB
or better by Standard & Poor's Rating Service (S&P) or Baa or better by Moody's
Investor Service, Inc. (Moody's).
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are higher
risk, lower quality securities, often referred to as "junk bonds", and are
considered speculative. They are rated by S&P as less than BBB or by Moody's as
less than Baa.
"LARGE CAP," "MID CAP" AND "SMALL CAP" COMPANIES. A large cap company has a
market capitalization of more than $5 billion. A mid cap company has a market
capitalization of between $1 billion and $5 billion. A small cap company has a
market capitalization of less than $1 billion.
EMERGING GROWTH COMPANIES. Emerging Growth companies are companies that have:
o A total market capitalization less than that of the average of the
companies in the Standard & Poor's Composite Index of 500 Stocks (S&P
500)
o Earnings that the portfolio managers believe may grow faster than the
U.S. economy in general due to new products, management changes at the
company or economic shocks such as high inflation or sudden increases
or decreases in interest rates
EMERGING MARKET COUNTRIES. Emerging Market Countries are countries other than
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Holland,
Italy, Japan, Luxembourg, New Zealand, Norway, Spain, Sweden, Switzerland, the
United Kingdom and the United States. When a Fund invests in securities of a
company in an emerging market country, it invests in securities issued by a
company that:
o Is organized under the laws of an emerging market country
o Has its principal trading market for its stock in an emerging market
country
o Derives at least 50% of its revenues or profits from operations within
emerging market countries or has at least 50% of its assets located in
emerging market countries
44
<PAGE>
UNDERVALUED STOCKS. A stock is considered undervalued if the portfolio manager
believes it should be trading at a higher price than it is at the time of
purchase. Factors considered are:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
STOCKS NOT ACTIVELY TRADED ON STOCK EXCHANGE. A stock is considered not actively
traded if the volume of shares of the stock bought and sold on a daily basis on
the regional and national stock exchanges is minimal or non-existent. Because of
the low volume of shares of such stocks that are bought and sold on a daily
basis, the Fund may have difficulty selling shares of stock of this type.
PUBLIC UTILITIES SECURITIES. Common stock, preferred stock, convertible
preferred stock and bonds of domestic companies involved in the production,
supply or distribution of electricity, natural gas, telecommunications
(including cable and wireless) and water.
HOW CAN I TELL, AT A GLANCE, A FUND'S KEY RISKS?
The following table shows some of the principal and other risks to which each
Fund is subject. Risks marked P are principal risks. Risks marked 0 are other
risks that may impact the Fund to a lesser extent. Each risk is described in
detail below:
45
<PAGE>
<TABLE>
<CAPTION>
Emerging International Value Enhanced Growth/ Aggressive
Growth Equity Plus 30 Equity Utility Value Growth
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET RISK P P P P P P P P
Emerging Growth Companies P
Public Utilities P
Stocks Not Actively Traded 0
Mid Cap and Small Cap P 0 0 0
Technology Securities 0 P P
INTEREST RATE RISK 0 0 0 0 0 0 0 0
CREDIT RISK 0 0 0 0 0 0 0 0
Non-Investment Grade Securities 0 0
FOREIGN INVESTING RISK 0 P
Emerging Market Risk 0 0
Political Risk 0
NON-DIVERSIFICATION RISK 0 0
</TABLE>
46
<PAGE>
RISKS OF INVESTING IN THE FUNDS
MARKET RISK. A Fund that invests in common stocks is subject to stock market
risk. Stock prices in general may decline over short or even extended periods,
regardless of the success or failure of a particular company's operations. Stock
markets tend to run in cycles, with periods when stock prices generally go up
and periods when they generally go down. Common stock prices tend to go up and
down more than those of bonds.
o Emerging Growth Companies. Investment in Emerging Growth companies is
subject to enhanced risks because such companies generally have
limited product lines, markets or financial resources and often
exhibit a lack of management depth. The securities of such companies
can be difficult to sell and are usually more volatile than securities
of larger, more established companies.
o Public Utilities. Investment in Public Utilities is subject to
enhanced risks because such companies may be the subject of rate
regulation by government agencies, which may make it difficult to
obtain adequate return on invested capital, pass on cost increases and
finance large construction projects. Public Utilities that provide
power or other energy related services are exposed to additional risks
such as, difficulties in obtaining fuel at reasonable prices,
shortages of fuel, energy conservation measures, restrictions on
operations and increased costs and delays from licensing and
environmental considerations and the special risks of constructing and
operating nuclear power generating facilities or other specialized
types of facilities. In addition, stocks of Public Utilities may be
more sensitive to changes in interest rates than other types of equity
investments.
o Stocks Not Actively Traded. Investment in Stocks Not Actively Traded
is subject to enhanced risks because the stocks are not actively
traded on the regional or national stock exchange. The stocks can be
difficult to sell because the Fund may not be able to locate a buyer
for the stock at the time the Fund desires to sell the stock. Also,
the Fund may not be able to obtain the best price when it desires to
sell the stock.
o Small Cap and Medium Cap Companies. Because small cap and medium cap
companies normally have fewer shares outstanding than larger
companies, it may be more difficult for the portfolio manager to buy
or sell significant amounts of these shares without an unfavorable
impact on prevailing prices. Small cap companies may have limited
product lines,
47
<PAGE>
markets or financial resources and may lack management depth. In
addition, small cap and medium cap companies are typically subject to
a greater degree of changes in earnings and business prospects than
are larger, more established companies. There is typically less
publicly available information concerning small cap and medium cap
companies than for larger, more established ones. Although investing
in securities of small and medium cap companies offers potential for
above-average returns if the companies are successful, the risk exists
that such companies will not succeed and the prices of their shares
could significantly decline in value.
o Technology Securities. The value of technology securities may
fluctuate dramatically and technology securities may be subject to
greater than average financial and market risk. Investments in the
high technology sector include the risk that certain products and
services may be subject to competitive pressures and aggressive
pricing and the risk that new products will not meet expectations or
even reach the marketplace.
INTEREST RATE RISK. A Fund that invests in debt securities is subject to the
risk that the market value of the debt securities will decline because of rising
interest rates. The prices of debt securities are generally linked to the
prevailing market interest rates. In general, when interest rates rise, the
prices of debt securities fall, and when interest rates fall, the prices of debt
securities rise. The price volatility of a debt security also depends on its
maturity. Generally, the longer the maturity of a debt security, the greater its
sensitivity to changes in interest rates. To compensate investors for this
higher risk, debt securities with longer maturities generally offer higher
yields than debt securities with shorter maturities.
CREDIT RISK. The debt securities in a Fund's portfolio are subject to credit
risk. Credit risk is the possibility that an issuer will fail to make timely
payments of interest or principal. Securities rated in the lowest category of
investment grade securities have some risky characteristics and changes in
economic conditions are more likely to cause issuers of these securities to be
unable to make payments.
o Non-Investment Grade Securities. Non-investment grade securities are
sometimes referred to as "junk bonds" and are very risky with respect
to their issuers' ability to make payments of interest and principal.
There is a high risk that a Fund which invests in non-investment grade
securities could suffer a loss caused by the default of an issuer of
such securities. Part of the reason for this high risk is that, in the
event of a default or bankruptcy, holders of non-investment grade
securities generally will not receive payments until the holders of
all other debt have been
48
<PAGE>
paid. In addition, the market for non-investment grade securities has,
in the past, had more frequent and larger price changes than the
markets for other securities. Non-investment grade securities can also
be more difficult to sell for good value.
FOREIGN INVESTING. Investing in foreign securities poses unique risks such as
fluctuation in currency exchange rates, market illiquidity, price volatility,
high trading costs, difficulties in settlement, regulations on stock exchanges,
limits on foreign ownership, less stringent accounting, reporting and disclosure
requirements, and other considerations. In the past, equity and debt instruments
of foreign markets have had more frequent and larger price changes than those of
U.S. markets.
o Emerging Market Countries. Investments in a country that is still
relatively underdeveloped involves exposure to economic structures
that are generally less diverse and mature than in the U.S. and to
political and legal systems which may be less stable. In the past,
markets of developing countries have had more frequent and larger
price changes than those of developed countries.
o Political Risk. Political risk includes a greater potential for
revolts, and the taking of assets by governments. For example, a Fund
may invest in Eastern Europe and former states of the Soviet Union.
These countries were under communist systems that took control of
private industry. This could occur again in this region or others in
which a Fund may invest, in which case the Fund may lose all or part
of its investment in that country's issuers.
NON-DIVERSIFICATION RISK. A non-diversified Fund may invest a significant
percentage of its assets in the securities of a single company. Because of the
Fund's ownership of securities may be concentrated in a single company, the Fund
may be more sensitive to any single economic, business, political or regulatory
occurrence than a diversified fund.
49
<PAGE>
THE FUNDS' MANAGEMENT
- - ---------------------
REORGANIZATION OF TOUCHSTONE SERIES TRUST
Under the terms of an Agreement and Plan of Reorganization, on May 1, 2000, each
of the Emerging Growth Fund, the International Equity Fund and the Value Plus
Fund will succeed to the assets and liabilities of another mutual fund of the
same name (the "Predecessor Fund"), which is a series of Touchstone Series
Trust. The investment goals and strategies of each Fund and its Predecessor Fund
are substantially identical.
INVESTMENT ADVISOR
Touchstone Advisors, Inc. (the "Advisor" or "Touchstone Advisors") located at
311 Pike Street, Cincinnati, Ohio 45202, is the investment advisor for the
Funds.
Touchstone Advisors has been registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the Advisers Act) since 1994. As of
December 31, 1999, Touchstone Advisors had approximately $532 million in assets
under management.
Touchstone Advisors is responsible for selecting Fund Sub-Advisors, subject to
review by the Board of Trustees. Touchstone Advisors selects a Fund Sub-Advisor
that has shown good investment performance in its areas of expertise. Touchstone
Advisors considers various factors in evaluating Fund Sub-Advisors, including:
o Level of knowledge and skill
o Performance as compared to its peers or benchmark
o Consistency of performance over five years or more
o Level of compliance with investment rules and strategies
o Employees, facilities and financial strength
o Quality of service
Touchstone Advisors will also continually monitor each Fund Sub-Advisor's
performance through various analyses and through in-person, telephone and
written consultations with the Fund Sub-Advisors.
Touchstone Advisors discusses its expectations for performance with each Fund
Sub-Advisor. Touchstone Advisors provides written evaluations and
recommendations to the Board of Trustees, including whether or not each Fund's
Sub-Advisor contract should be renewed, modified or terminated.
Touchstone Advisors is also responsible for running all of the operations of the
Funds, except for those that are subcontracted to the Fund Sub-Advisors,
custodian, transfer agent and administrator.
Two or more Fund Sub-Advisors may manage a Fund, with each managing a portion of
the Fund's assets. If a Fund has more than one Fund Sub-Advisor, Touchstone
Advisors allocates
50
<PAGE>
how much of a Fund's assets are managed by each Sub-Advisor. Touchstone Advisors
may change these allocations from time to time, often based upon the results of
the evaluations of the Fund Sub-Advisors.
Each Fund pays Touchstone Advisors a fee for its services. Out of this fee
Touchstone Advisors pays each Fund Sub-Advisor a fee for its services.
The fee paid to Touchstone Advisors by each Fund is shown in the table below:
<TABLE>
<CAPTION>
Fee to Touchstone Advisors
(as % of average daily net assets)
<S> <C>
Emerging Growth Fund 0.80%
--------------------------------------
International Equity Fund 0.95%
--------------------------------------
Value Plus Fund 0.75%
--------------------------------------
Enhanced 30 Fund 0.65%
--------------------------------------
Equity Fund and Utility Fund 0.75% of assets up to $200 million
0.70% of assets from $200 million to $500 million
0.50% of assets over $500 million
-----------------------------------------------------------------------------------
Growth/Value Fund and 1.00% of assets up to $50 million
Aggressive Growth Fund 0.90% of assets from $50 million to $100 million
0.80% of assets from $100 million to $200 million
0.75% of assets over $200 million
-----------------------------------------------------------------------------------
During the fiscal year ended March 31, 1999 the advisory fees paid by each of
the Equity Fund and the Utility Fund were 75% of average net assets and the
advisory fees paid by each of the Growth/Value Fund and the Aggressive Growth
Fund were 1% of average net assets.
</TABLE>
FUND SUB-ADVISORS
The Fund Sub-Advisors make the day-to-day decisions regarding buying and selling
specific securities for a Fund. Each Fund Sub-Advisor manages the investments
held by the Fund it serves according to the applicable investment goals and
strategies.
FUND SUB-ADVISORS TO THE EMERGING GROWTH FUND
DAVID L. BABSON & COMPANY, INC. (BABSON)
One Memorial Drive, Cambridge, MA 02142-1300
Babson has been registered as an investment advisor under the Advisers Act since
1940. Babson provides investment advisory services to individual and
institutional clients. As of December 31, 1999, Babson and affiliates had assets
under management of $ 18.9 billion. Babson has been managing the Emerging Growth
Fund since the Fund's inception.
Lance F. James has primary responsibility for the day-to-day management of
the Fund. Mr. James has been with the firm since 1986.
51
<PAGE>
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC. (WESTFIELD)
One Financial Center, Boston, MA 02111
Westfield has been registered as an investment advisor under the Advisers Act
since 1989. Westfield provides investment advisory services to individual and
institutional clients. As of December 31, 1999, Westfield had assets under
management of approximately $1.9 billion. Westfield has been managing the
Emerging Growth Fund since the Fund's inception.
William A. Muggia has managed the portion of the Emerging Growth Fund's assets
allocated to Westfield by the Advisor since April 1999. Mr. Muggia has been with
Westfield since 1994.
FUND SUB-ADVISOR TO THE INTERNATIONAL EQUITY FUND
CREDIT SUISSE ASSET MANAGEMENT LLC (CREDIT SUISSE)
One Citicorp Center, 153 East 53rd Street, New York, NY 10022
Credit Suisse has been registered as an investment advisor under the Advisers
Act since 1968. Credit Suisse provides investment advisory services to
individual and institutional clients. As of December 31, 1999, Credit Suisse had
assets under management of approximately $202.9 billion. Credit Suisse has been
managing the International Equity Fund since the Fund's inception.
The Fund is managed by the Credit Suisse International Equity Management Team.
The team consists of Larry Smith, Steven D. Bleiberg, Richard Watt, Alan Zlater,
Emily Alejos and Robert B. Hrabchak.
FUND SUB-ADVISOR TO THE VALUE PLUS FUND, THE EQUITY FUND AND THE UTILITY FUND
FORT WASHINGTON INVESTMENT ADVISORS, INC. (FORT WASHINGTON)
420 East Fourth Street, Cincinnati, OH 45202
Fort Washington has been registered as an investment advisor under the Advisers
Act since 1990. Fort Washington provides investment advisory services to
individual and institutional clients. As of December 31, 1999, Fort Washington
had assets under management of approximately $13 billion. Fort Washington has
been managing the Fund since its inception.
John C. Holden has managed the Value Plus Fund since May, 1998. Mr. Holden (CFA)
joined Fort Washington in 1997 and is Vice President and Senior Portfolio
Manager. From 1993 until 1997 he served as Vice President and Senior Portfolio
Manager with Mellon Private Asset Management in Pittsburgh Pennsylvania.
Charles E. Stutenroth IV and Charles A. Ulbricht are primarily responsible for
managing the Equity Fund and have been managing the Fund since November 1999.
Mr. Stutenroth has served as Vice President of Fort Washington since 1999. From
1996 until 1999, he was Senior Vice President of Bank of America Investment
Management, prior to which he was Vice
52
<PAGE>
President of National City Investment Management & Trust. Mr. Ulbricht has
served as a Senior Research Manager of Fort Washington since 1995. From 1984
until 1995, he was Vice President-Research of Cowgill-Haberer Investment
Counselors.
John C. Holden and William H. Bunn are primarily responsible for managing the
Utility Fund and have been managing the Fund since November 1999. Mr. Holden has
served as Vice President of Fort Washington since 1997. From 1993 until 1997, he
was Vice President of Mellon Private Asset Management. Mr. Bunn has been
employed by Fort Washington since 1994 as a securities analyst for the
telecommunications and utilities industries.
Fort Washington is an affiliate of Touchstone Advisors. Therefore, Touchstone
Advisors may have a conflict of interest when making decisions to keep Fort
Washington as a Fund Sub-Advisor. The Board of Trustees reviews all of
Touchstone Advisor's decisions to reduce the possibility of a conflict of
interest situation.
FUND SUB-ADVISOR TO THE ENHANCED 30 FUND
TODD INVESTMENT ADVISORS, INC. (TODD)
3160 NATIONAL CITY TOWER, LOUISVILLE, KY 40202
Todd has been registered as an investment advisor under the Advisers Act since
1979. Todd provides investment advisory services to individual and institutional
clients. As of December 31, 1999, Todd had assets under management of
approximately $ 3.3 billion.
Curtiss M. Scott, Jr., CFA has primary responsibility for the day-to-day
management of the Fund. Mr. Scott joined Todd in 1996. He currently manages both
small cap and large cap products for Todd. He has 15 years of experience as a
small cap portfolio manager and 20 years of industry experience. Prior to
joining Todd, Mr. Scott was a partner with Executive Investment Advisors. He has
also held portfolio management positions at Lazard Freres Asset Management and
Oppenheimer Management, both in New York.
Todd is an affiliate of Touchstone Advisors. Therefore, Touchstone Advisors may
have a conflict of interest when making decisions to keep Todd as the Fund's
Sub-Advisor. The Board of Trustees reviews all of Touchstone Advisor's decisions
to reduce the possibility of a conflict of interest situation.
FUND SUB-ADVISOR TO THE GROWTH/VALUE FUND AND THE AGGRESSIVE GROWTH FUND
MASTRAPASQUA & ASSOCIATES, INC. (MASTRAPASQUA)
814 CHURCH STREET, NASHVILLE, TENNESSEE 37203
Mastrapasqua has been registered as an investment advisor under the Advisers Act
since 1993. Mastrapasqua provides investment advisory services to individual and
institutional clients. As of December 31, 1999, Mastrapasqua had assets under
management of approximately $1.3 billion.
53
<PAGE>
Frank Mastrapasqua, Ph.D., Chairman and Chief Executive Officer of Mastrapasqua,
and Thomas A. Trantum, President of Mastrapasqua, are primarily responsible for
the day-to-day management of the Funds. Prior to founding Mastrapasqua in 1993,
Mr. Mastrapasqua was Director of Research and Chief Investment Strategist and a
partner at J.C. Bradford & Co. Mr. Trantum was a Senior Analyst and a partner at
J.C. Bradford & Co. until 1993.
INVESTING WITH TOUCHSTONE
- - -------------------------
CHOOSING THE APPROPRIATE INVESTMENTS TO MATCH YOUR GOALS. Investing well
requires a plan. We recommend that you meet with your financial advisor to plan
a strategy that will best meet your financial goals.
OPENING AN ACCOUNT
You can contact your financial advisor to purchase shares of the Funds. You may
also purchase shares of any Fund directly from Touchstone Securities, Inc.
("Touchstone"). In any event, you must complete the Investment Application
included in this Prospectus. You may also obtain an Investment Application from
Touchstone or your financial advisor.
o Investor Alert: Touchstone may choose to refuse any purchase order.
You should read this Prospectus carefully and then determine how much you want
to invest. Check below to find the minimum investment amount required to
purchase shares as well as to learn about the various ways you can purchase your
shares
Initial Additional
Investment Investment
---------- ----------
Regular Account $1,000 None
---------------
Retirement Plan Account or Custodial account under $ 250 None
a Uniform Gifts/Transfers to Minors Act ("UGTMA")
- - -------------------------------------------------
Investments through the Automatic Investment Plan $ 50 $ 50
- - -------------------------------------------------
o Investor Alert: Touchstone may change these initial and additional
investment minimums at any time.
54
<PAGE>
PRICING OF FUND SHARES
Each Fund's share price, also called net asset value (NAV), is determined as of
the close of trading (normally 4:00 p.m. Eastern time) every day the New York
Stock Exchange (NYSE) is open. Each Fund calculates its NAV per share, generally
using market prices, by dividing the total value of its net assets by the number
of shares outstanding. Shares are purchased or sold at the next offering price
determined after your purchase or sale order is received in proper form by
Touchstone. The offering price is the NAV plus a sales charge, if applicable.
The Funds' investments are valued based on market value or, if no market value
is available, based on fair value as determined by the Board of Trustees (or
under their direction). All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values. Some specific
pricing strategies follow:
o All short-term dollar-denominated investments that mature in 60 days
or less are valued on the basis of amortized cost which the Board of
Trustees has determined represents fair value.
o Securities mainly traded on a U.S. exchange are valued at the last
sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price.
o Securities mainly traded on a non-U.S. exchange are generally valued
according to the preceding closing values on that exchange. However,
if an event which may change the value of a security occurs after the
time that the closing value on the non-U.S. exchange was determined,
the Board of Trustees might decide to value the security based on fair
value. This may cause the value of the security on the books of the
Fund to be significantly different from the closing value on the
non-U.S. exchange and may affect the calculation of the NAV.
o Because portfolio securities that are primarily listed on a non-U.S.
exchange may trade on weekends or other days when a Fund does not
price its shares, a Fund's NAV may change on days when shareholders
will not be able to buy or sell shares.
CHOOSING A CLASS OF SHARES
Each Fund offers Class A shares and Class C shares. Each class of shares has
different sales charges and distribution fees. The amount of sales charges and
distribution fees you pay will depend on which class of shares you decide to
purchase.
CLASS A SHARES
The offering price of Class A shares of each Fund is equal to its NAV plus a
front-end sales charge that you pay when you buy your shares. The front-end
sales charge is generally deducted from the amount of your investment.
55
<PAGE>
The following table shows the amount of front-end sales charge you will pay on
purchases of Class A shares of each Fund as a percentage of (1) offering price
and (2) the net amount invested after the charge has been subtracted. Note that
the front-end sales charge gets lower as your investment amount gets larger.
Sales Charge as % of Sales Charge as % of
Amount of Your Investment Offering Price Net Amount Invested
- - ------------------------- -------------- -------------------
Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
There is no front-end sales charge if you invest $1 million or more in a Fund.
This includes large total purchases made through programs such as Aggregation,
Concurrent Purchases, Letters of Intent and Rights of Accumulation. These
programs are described more fully in the Statement of Additional Information
("SAI"). In addition, there is no front-end sales charge on purchases by certain
persons related to the Funds or its service providers and certain other persons
listed in the SAI.
If you redeem shares that you purchased as part of the $1 million purchase
within one year, you will pay a contingent deferred sales charge (a sales charge
you pay when you redeem your shares) of 1% on the shares redeemed.
Each Fund has adopted a distribution plan under Rule 12b-1 of the Investment
Company Act of 1940, as amended (the "1940 Act") for its Class A shares. This
plan allows each Fund to pay distribution fees for the sale and distribution of
its Class A shares. Under the plan, each Fund pays an annual fee of up to 0.25%
of its average daily net assets that are attributable to Class A shares. Because
these fees are paid out of a Fund's assets on an ongoing basis, these fees will
increase the cost of your investment and over time may cost you more than paying
other types of sales charges.
CLASS C SHARES
The offering price of Class C shares of the Funds is equal to its NAV plus a
1.25% front-end sales charge that you pay when you buy your shares. The
front-end sales charge is generally deducted from the amount of your investment.
A contingent deferred sales charge of 1% of the offering price will be charged
on Class C shares redeemed within one year after you purchased them.
No contingent deferred sales charge is applied if:
o The shares which you redeem were acquired through the reinvestment of
dividends or capital gains distributions
o The amount redeemed resulted from increases in the value of the
account above the amount of the total purchase payments
56
<PAGE>
When we determine whether a contingent deferred sales charge is payable on a
redemption, we assume that:
o The redemption is made first from amounts free of any contingent
deferred sales charge; then
o From the earliest purchase payment(s) that remain invested in the Fund
When we determine if amounts are available for redemption free of any contingent
deferred sales charge, we:
o Add together all of your original purchase payments
o Subtract any amounts previously withdrawn
o Check if there is any remaining amount free of any contingent deferred
sales charge that can be applied to the total of the current value of
the shares you have asked to redeem
The Fund has adopted a distribution plan under Rule 12b-1 of the 1940 Act for
its Class C shares. This plan allows each Fund to pay distribution and other
fees for the sale and distribution of its Class C shares and for services
provided to holders of Class C shares.
Under the plan, each Fund pays an annual fee of up to 1.00% of its average daily
net assets that are attributable to Class C shares. Because these fees are paid
out of the Funds' assets on an ongoing basis, these fees will increase the cost
of your investment and over time may cost you more than paying other types of
sales charges.
PURCHASING YOUR SHARES
For information about how to purchase shares, telephone Touchstone (Nationwide
call toll-free 800-543-0407; in Cincinnati call 629-2050).
You can invest in the Funds in the following ways:
OPENING AN ACCOUNT
o Please make your check (in U.S. dollars) payable to the
applicable Fund.
o Send your check with the completed account application to
Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354 Your
application will be processed subject to your check
clearing.
o You may also open an account through your financial advisor.
o We price direct purchases based upon the next determined
public offering price (NAV plus any applicable sales load)
after your order is received. Direct purchase orders
received by Touchstone by 4:00 p.m., Eastern time, are
processed at that day's public offering price. Direct
investments received by Touchstone after 4:00 p.m., Eastern
time, are processed at the public offering price next
determined on the following business day. Purchase orders
received from financial advisors before 4:00 p.m., Eastern
time, and transmitted to Touchstone by 5:00 p.m., Eastern
time, are processed at that day's public offering price.
Purchase
57
<PAGE>
orders received from financial advisors after 5:00 p.m.,
Eastern time, are processed at the public offering price
next determined on the following business day.
BY MAIL OR
THROUGH YOUR
FINANCIAL ADVISOR
- - --------------------------------------------------------------------------------
o You may exchange shares of the Funds for shares of the same
class of another Touchstone Fund at NAV. You may also
exchange shares of the Funds for shares of any Touchstone
money market fund.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in the Prospectus
relating to the exchanged-for shares carefully before making
an exchange of your Fund shares.
BY EXCHANGE
- - --------------------------------------------------------------------------------
o You may invest in the Funds through various retirement
plans. The Funds' shares are designed for use with certain
types of tax qualified retirement plans including defined
benefit and defined contribution plans.
o For further information about any of the plans, agreements,
applications and annual fees, contact Touchstone or your
financial advisor
THROUGH
RETIREMENT
PLANS
- - --------------------------------------------------------------------------------
ADDING TO YOUR ACCOUNT
o Complete the investment form provided at the bottom of a
recent account statement.
o Make your check payable to the applicable Fund.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form in the
envelope provided with your account statement; or (2) Mail
your check directly to your financial advisor at the address
printed on your account statement. Your financial advisor is
responsible for forwarding payment promptly to Touchstone.
BY CHECK
- - --------------------------------------------------------------------------------
o Specify your name and account number. If Touchstone receives
a properly executed wire by 4:00 p.m. Eastern time on a day
when the NYSE is open for regular trading, your order will
be processed at that day's public offering price.
BY WIRE
- - --------------------------------------------------------------------------------
o You may exchange your shares by calling Touchstone.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in the Prospectus
relating to the exchanged-for shares carefully before making
an exchange of your Fund shares.
BY EXCHANGE
- - --------------------------------------------------------------------------------
o You may add to your account in the Funds through various
retirement plans. For further information, contact
Touchstone or your financial advisor.
THROUGH
RETIREMENT
PLANS
- - --------------------------------------------------------------------------------
58
<PAGE>
INFORMATION ABOUT WIRE TRANSFERS.
You may make additional purchases in the Funds directly by wire transfers.
Contact your bank and ask it to wire federal funds to Touchstone. Banks may
charge a fee for handling wire transfers. You should contact Touchstone or your
financial advisor for further instructions.
ooo Special Tax
Consideration
- - --------------------------------------------------------------------------------
To determine which type of retirement plan is appropriate for you, please
contact your tax advisor.
MORE INFORMATION ABOUT RETIREMENT PLANS.
Retirement Plans may include the following:
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts (IRAs)
o Savings Incentive Match Plan for Employees (SIMPLE) IRAs
o Spousal IRAs
o Roth Individual Retirement Accounts (Roth IRAs)
o Education Individual Retirement Accounts (Education IRAs)
o Simplified Employee Pension Plans (SEP IRAs)
o 403(b) Tax Sheltered Accounts that employ as custodian a bank
acceptable to Touchstone
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401K plans, profit sharing plans
and money purchase plans)
o 457 plans
AUTOMATIC INVESTMENT OPTIONS
The various ways that you can invest in the Funds are outlined below. Touchstone
does not charge any fees for these services.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments of $50 or
more in a Fund to be processed electronically from a checking or savings
account. You will need to complete the appropriate section in the Investment
Application to do this. For further details about this service call Touchstone
at 1-800-543-0407; in Cincinnati, 629-2050.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be
automatically reinvested in the Fund that pays them or in another Fund within
the same class of shares without a fee or sales charge. Dividends and capital
gains
59
<PAGE>
will be reinvested in the Fund that pays them, unless you indicate otherwise on
your account application. You may also choose to have your dividends or capital
gains paid to you in cash.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security
checks, private payroll checks, pension pay outs or any other pre-authorized
government or private recurring payments in our Funds. This occurs on a monthly
basis and the minimum investment is $50.
DOLLAR COST AVERAGING. Our Dollar Cost Averaging program allows you to diversify
your investments by investing the same amount on a regular basis. You can set up
periodic automatic transfers of at least $50 from one Touchstone Fund to any
other. The applicable sales charge, if any, will be assessed.
PROCESSING ORGANIZATIONS. You may also purchase shares of the Funds through a
"processing organization," (e.g., a mutual fund supermarket) which is a
broker-dealer, bank or other financial institution that purchases shares for its
customers. Some of the Funds have authorized certain processing organizations to
receive purchase and sales orders on their behalf. Before investing in the Funds
through a processing organization, you should read any materials provided by the
processing organization in conjunction with this Prospectus.
When shares are purchased this way, there may be various differences. The
processing organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the
Funds' behalf
Touchstone considers a purchase or sales order as received when an authorized
processing organization, or its authorized designee, receives the order in
proper form. These orders will be priced based on the Fund's NAV next computed
after such order is received in proper form.
Shares held through a processing organization may be transferred into your name
following procedures established by your processing organization and Touchstone.
Certain processing organizations may receive compensation from the Funds,
Touchstone, the Advisor or their affiliates.
60
<PAGE>
SELLING YOUR SHARES
You may sell some or all of your Fund shares on any day that the Fund calculates
its NAV. If your request is received in proper form before the close of regular
trading on the NYSE, you will receive a price based on that day's NAV for the
shares you sell. Otherwise, the price you receive will be based on the NAV that
is next calculated.
o You can sell or exchange your shares over the telephone,
unless you have specifically declined this option. If you do
not wish to have this ability, you must mark the appropriate
section of the Investment Application. You may only sell
shares over the telephone if the amount is less than
$25,000.
o To sell your Fund shares by telephone, call Touchstone,
Nationwide at 800-543-0407; in Cincinnati, 629-2050.
o IRA accounts cannot be sold by telephone
BY TELEPHONE
- - --------------------------------------------------------------------------------
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your
Investment Application.
BY MAIL
- - --------------------------------------------------------------------------------
o Complete the appropriate information on the Investment
Application.
o If your proceeds are $1,000 or more, you may request that
Touchstone wire them to your bank account.
o You will be charged a wire redemption fee o Redemption
proceeds will only be wired to a commercial bank or
brokerage firm in the United States.
o Your redemption proceeds may be deposited without a charge
directly into your bank account through an ACH transaction.
Contact Touchstone for more information.
BY WIRE
- - --------------------------------------------------------------------------------
o You may also sell shares by contacting your financial
advisor, who may charge you a fee for this service. Shares
held in street name must be sold through your financial
advisor or, if applicable, the processing organization.
o Your financial advisor is responsible for making sure that
sale requests are transmitted to Touchstone in proper form
in a timely manner.
THROUGH
YOUR FINANCIAL
ADVISOR
- - --------------------------------------------------------------------------------
ooo Special Tax
Consideration
- - --------------------------------------------------------------------------------
Selling your shares may cause you to incur a taxable gain or loss.
o Investor Alert: Unless otherwise specified, proceeds will be sent to
the record owner at the address shown on Touchstone's records.
61
<PAGE>
SIGNATURE GUARANTEES. Some circumstances require that the request for the sale
of shares have a signature guarantee. A signature guarantee helps protect you
against fraud. You can obtain one from most banks or securities dealers, but not
from a notary public. Some circumstances requiring a signature guarantee
include:
o Proceeds from the sale of shares that exceed $25,000
o Proceeds to be paid when the name or the address on the account has
been changed within 30 days of your sale request.
TELEPHONE SALES. If we receive your share sale request before 4:00 p.m., Eastern
time on a day when the NYSE is open for regular trading, the sale of your shares
will be processed at the next determined NAV on that day. Otherwise it will
occur on the next business day.
Interruptions in telephone service could prevent you from selling your shares in
this manner when you want to. When you have difficulty making telephone sales,
you should mail (or send by overnight delivery) a written request for sale of
your shares to Touchstone.
In order to protect your investment assets, Touchstone will only follow
instructions received by telephone that it reasonably believes to be genuine.
However, there is no guarantee that the instructions relied upon will always be
genuine and Touchstone will not be liable, in those cases. Touchstone has
certain procedures to confirm that telephone instructions are genuine. If it
does not follow such procedures in a particular case it may be liable for any
losses due to unauthorized or fraudulent instructions. Some of these procedures
include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on
Touchstone's records
o Mailing checks only to the account address shown on Touchstone's
records
o Directing wires only to the bank account shown on Touchstone's records
o Providing written confirmation for transactions requested by telephone
o Tape recording instructions received by telephone
SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive or send to a third party
monthly or quarterly withdrawals of $50 or more if your account value is at
least $5,000. There is no special fee for this service and no minimum amount is
required for retirement plans.
62
<PAGE>
ooo Special Tax
Consideration
- - --------------------------------------------------------------------------------
If you exercise the Reinstatement Privilege, you should contact your tax
advisor.
ooo Special Tax
Consideration
- - --------------------------------------------------------------------------------
Involuntary sales may result in the sale of your Fund shares at a loss or may
result in taxable investment gains.
REINSTATEMENT PRIVILEGE. You may reinvest proceeds from a sale of Fund shares or
a dividend or capital gain distribution on Fund shares without a sales charge in
any of the Touchstone Funds. You may do so by sending a written request and a
check to Touchstone within 90 days after the date of the sale, dividend or
distribution. Reinvestment will be at the next NAV calculated after Touchstone
receives your request.
LOW ACCOUNT BALANCES
Touchstone may sell your Fund shares if your balance falls below the minimum
amount required for your account as a result of redemptions that you have made
(as opposed to a reduction from market changes). This involuntary sale does not
apply to retirement accounts or custodian accounts under the Uniform Gift to
Minors Act (UGTMA). Touchstone will notify you if your shares are about to be
sold and you will have 30 days to increase your account balance to the minimum
amount.
RECEIVING SALE PROCEEDS
Touchstone will forward the proceeds of your sale to you (or to your financial
advisor) within 7 days (normally within 3 business days) from the date of a
proper request.
PROCEEDS SENT TO FINANCIAL ADVISORS
Proceeds which are sent to your financial advisor will not usually be
re-invested for you unless you provide specific instructions to do so.
Therefore, the financial advisor may benefit from the use of your money.
63
<PAGE>
FUND SHARES PURCHASED BY CHECK
If you purchase Fund shares by personal check, the proceeds of a sale of those
shares will not be sent to you until the check has cleared, which may take up to
15 days. If you may need your money more quickly, you should purchase shares by
federal funds, bank wire, or with a certified or cashier's check.
It is possible that the payments of your sale proceeds could be postponed or
your right to sell your shares could be suspended during certain circumstances.
These circumstances can occur:
o When the NYSE is closed for other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes a Fund Sub-Advisor to not be
reasonably able to dispose of certain securities or to fairly
determine the value of its net assets
o During any other time when the SEC, by order, permits.
DISTRIBUTIONS AND TAXES
ooo Special Tax
Consideration
- - --------------------------------------------------------------------------------
You should consult with your tax advisor to address your own tax situation.
Each Fund intends to distribute to its shareholders substantially all of its
income and capital gains. The table below outlines when dividends are declared
and paid for each Fund:
Dividends Declared Dividends Paid
Enhanced 30 Fund
Equity Fund
Utility Fund
Value Plus Fund Quarterly Quarterly
---------------------------------------------------------------------------
Emerging Growth Fund
International Equity Fund
Growth/Value Fund
Aggressive Growth Fund Annually Annually
---------------------------------------------------------------------------
Distributions of any capital gains earned by a Fund will be made at least
annually.
TAX INFORMATION
DISTRIBUTIONS. Each Fund will make distributions that may be taxed as ordinary
income or capital gains (which may be taxed at different rates depending on the
length of time a Fund holds its assets). Each Fund's distributions may be
64
<PAGE>
subject to federal income tax whether you reinvest such dividends in additional
shares of a Fund or choose to receive cash.
ORDINARY INCOME. Income and short-term capital gains that are distributed to you
are taxable as ordinary income for federal income tax purposes regardless of how
long you have held your Fund shares.
LONG-TERM CAPITAL GAINS. Long-term capital gains distributed to you are taxable
as long-term capital gains for federal income tax purposes regardless of how
long you have held your Fund shares.
ooo Special Tax
Consideration
- - --------------------------------------------------------------------------------
For federal income tax purposes, an exchange of shares is treated as a sale of
the shares and a purchase of the shares you receive in exchange. Therefore, you
may incur a taxable gain or loss in connection with the exchange.
STATEMENTS AND NOTICES. You will receive an annual statement outlining the tax
status of your distributions. You will also receive written notices of certain
foreign taxes paid by the Funds and certain distributions paid by the Funds
during the prior taxable year.
65
<PAGE>
FINANCIAL HIGHLIGHTS
- - --------------------
The financial highlights table for the Equity Fund is intended to help you
understand the Fund's financial performance for the past five years. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). Information for the fiscal years ended March 31, 1995, 1996,
1997, 1998 and 1999 has been audited by Arthur Andersen LLP whose report, along
with the Fund's financial statements, is included in the SAI, which is available
upon request. Information for the period ended September 30, 1999 is unaudited.
<TABLE>
<CAPTION>
EQUITY FUND - CLASS A
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 22.12 $ 19.38 $ 13.76 $ 12.45 $ 9.84 $ 9.26
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.02) 0.04 0.09 0.12 0.13 0.15
Net realized and unrealized gains
(losses) on investments (0.51) 2.73 5.76 1.35 2.60 0.59
-------------------------------------------------------------------------------------------
Total from investment operations (0.53) 2.77 5.85 1.47 2.73 0.74
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income -- (0.03) (0.08) (0.12) (0.12) (0.16)
Distributions from net realized gains -- -- (0.15) (0.04) -- --
-------------------------------------------------------------------------------------------
Total distributions -- (0.03) (0.23) (0.16) (0.12) (0.16)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 21.59 $ 22.12 $ 19.38 $ 13.76 $ 12.45 $ 9.84
===========================================================================================
Total return(A) (2.40%) 14.30% 42.74% 11.82% 27.90% 8.07%
===========================================================================================
Net assets at end of period (000's) $ 60,517 $ 55,561 $ 38,336 $ 14,983 $ 8,502 $ 4,300
===========================================================================================
Ratio of net expenses
to average net assets(B) 1.29%(C) 1.31% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income (loss)
to average net assets (0.15%)(C) 0.18% 0.53% 0.91% 1.06% 1.57%
Portfolio turnover rate 2%(C) 10% 7% 38% 38% 159%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.43%, 2.02% and 1.94%
for the years ended March 31, 1997, 1996 and 1995, respectively.
(C) Annualized.
66
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS C
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 21.86 $ 19.34 $ 13.77 $ 12.46 $ 9.86 $ 9.26
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.14) (0.19) (0.03) 0.02 0.05 0.10
Net realized and unrealized gains
(losses) on investments (0.51) 2.71 5.75 1.35 2.60 0.57
-------------------------------------------------------------------------------------------
Total from investment operations (0.65) 2.52 5.72 1.37 2.65 0.67
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income -- -- -- (0.02) (0.05) (0.07)
Distributions from net realized gains -- -- (0.15) (0.04) -- --
-------------------------------------------------------------------------------------------
Total distributions -- -- (0.15) (0.06) (0.05) (0.07)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 21.21 $ 21.86 $ 19.34 $ 13.77 $ 12.46 $ 9.86
===========================================================================================
Total return(A) (2.97%) 13.03% 41.63% 11.01% 26.90% 7.32%
===========================================================================================
Net assets at end of period (000's) $ 3,244 $ 3,146 $ 3,862 $ 2,770 $ 2,436 $ 1,995
===========================================================================================
Ratio of net expenses
to average net assets(B) 2.39%(C) 2.41% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income (loss)
to average net assets (1.25%)(C) (0.92%) (0.18%) 0.15% 0.38% 0.68%
Portfolio turnover rate 2%(C) 10% 7% 38% 38% 159%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 2.14%, 2.70% and 2.50%
for the years ended March 31, 1997, 1996 and 1995, respectively.
(C) Annualized.
67
<PAGE>
The financial highlights table for the Utility Fund is intended to help you
understand the Fund's financial performance for the past five years. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). Information for the fiscal years ended March 31, 1995, 1996,
1997, 1998 and 1999 has been audited by Arthur Andersen LLP whose report, along
with the Fund's financial statements, is included in the SAI, which is available
upon request. Information for the period ended September 30, 1999 is unaudited.
<TABLE>
<CAPTION>
UTILITY FUND - CLASS A
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.42 $ 16.76 $ 12.44 $ 12.24 $ 10.47 $ 10.52
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.18 0.38 0.43 0.46 0.47 0.43
Net realized and unrealized gains
(losses) on investments 1.61 (1.16) 4.56 0.22 1.77 (0.05)
-------------------------------------------------------------------------------------------
Total from investment operations 1.79 (0.78) 4.99 0.68 2.24 0.38
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.18) (0.38) (0.43) (0.46) (0.47) (0.43)
Distributions from net realized gains -- (0.18) (0.24) (0.02) -- --
-------------------------------------------------------------------------------------------
Total distributions (0.18) (0.56) (0.67) (0.48) (0.47) (0.43)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 17.03 $ 15.42 $ 16.76 $ 12.44 $ 12.24 $ 10.47
===========================================================================================
Total return(A) 11.61% (4.79%) 40.92% 5.61% 21.65% 3.68%
===========================================================================================
Net assets at end of period (000's) $ 41,519 $ 38,391 $ 42,463 $ 36,087 $ 40,424 $ 40,012
===========================================================================================
Ratio of net expenses
to average net assets 1.33%(B) 1.33% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income
to average net assets 2.11%(B) 2.30% 3.03% 3.65% 3.97% 4.06%
Portfolio turnover rate 5%(B) 4% 0% 3% 11% 17%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Annualized.
68
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS C
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.40 $ 16.74 $ 12.43 $ 12.23 $ 10.46 $ 10.51
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.08 0.18 0.31 0.35 0.37 0.35
Net realized and unrealized gains
(losses) on investments 1.62 (1.16) 4.57 0.24 1.78 (0.04)
-------------------------------------------------------------------------------------------
Total from investment operations 1.70 (0.98) 4.88 0.59 2.15 0.31
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.08) (0.18) (0.33) (0.37) (0.38) (0.36)
Distributions from net realized gains -- (0.18) (0.24) (0.02) -- --
-------------------------------------------------------------------------------------------
Total distributions (0.08) (0.36) (0.57) (0.39) (0.38) (0.36)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 17.02 $ 15.40 $ 16.74 $ 12.43 $ 12.23 $ 10.46
===========================================================================================
Total return(A) 11.01% (5.92%) 39.91% 4.82% 20.78% 3.00%
===========================================================================================
Net assets at end of period (000's) $ 3,348 $ 3,215 $ 3,597 $ 3,099 $ 3,686 $ 3,599
===========================================================================================
Ratio of net expenses
to average net assets 2.50%(B) 2.50% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income
to average net assets 0.94%(B) 1.13% 2.28% 2.89% 3.19% 3.41%
Portfolio turnover rate 5%(B) 4% 0% 3% 11% 17%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Annualized.
69
<PAGE>
The financial highlights table for the Growth/Value Fund is intended to help you
understand the Fund's financial performance during its operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the periods ending August 31, 1997, March
31, 1998 and March 31, 1999 has been audited by Arthur Andersen LLP, whose
report, along with the Fund's financial statements, is included in the SAI,
which is available upon request. Information for the period ending August 31,
1996 was audited by other independent accountants. Information for the period
ending September 30, 1999 was unaudited.
<TABLE>
<CAPTION>
GROWTH/VALUE FUND - CLASS A
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR SEVEN MONTHS YEAR PERIOD
SEPT. 30, ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, AUGUST 31, AUGUST 31,
(UNAUDITED) 1999 1998(A) 1997 1996(B)
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 17.50 $ 16.30 $ 15.90 $ 11.18 $ 10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10) (0.17) (0.08) (0.13) (0.06)(C)
Net realized and unrealized
gains on investments 1.72 4.84 1.05 5.39 1.24
--------------------------------------------------------------------------------
Total from investment operations 1.62 4.67 0.97 5.26 1.18
--------------------------------------------------------------------------------
Distributions from net realized gains -- (3.47) (0.57) (0.54) --
--------------------------------------------------------------------------------
Net asset value at end of period $ 19.12 $ 17.50 $ 16.30 $ 15.90 $ 11.18
================================================================================
Total return(D) 9.26% 29.89% 6.43% 47.11% 11.80%
================================================================================
Net assets at end of period (000's) $ 24,692 $ 24,664 $ 28,649 $ 26,778 $ 15,108
================================================================================
Ratio of net expenses
to average net assets(E) 1.66%(F) 1.66% 1.66%(F) 1.95% 1.95%(F)
Ratio of net investment loss
to average net assets (1.11%)(F) (0.93%) (0.91%)(F) (1.03%) (0.62%)(F)
Portfolio turnover rate 36%(F) 59% 62%(F) 52% 21%
</TABLE>
(A) Effective as of the close of business on August 29, 1997, the Fund was
reorganized and its fiscal year-end, subsequent to August 31, 1997, was
changed to March 31.
(B) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratio of expenses to
average net assets would have been 2.83%(F) for the period ended August 31,
1996.
(F) Annualized.
70
<PAGE>
GROWTH/VALUE FUND - CLASS C
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- - --------------------------------------------------------------------------------
PERIOD
ENDED
SEPT. 30,
1999(A)
(UNAUDITED)
- - --------------------------------------------------------------------------------
Net asset value at beginning of period $ 18.65
----------
Income from investment operations:
Net investment loss (0.03)
Net realized and unrealized gains on investments 0.49
----------
Total from investment operations 0.46
----------
Net asset value at end of period $ 19.11
==========
Total return(B) 2.47%
==========
Net assets at end of period (000's) $ 443
==========
Ratio of net expenses to average net assets 2.41%(C)
Ratio of net investment loss to average net assets (2.03%)(C)
Portfolio turnover rate 36%(C)
(A) Represents the period from the initial public offering of Class C shares
(August 2, 1999) through September 30, 1999.
(B) Total return shown excludes the effect of applicable sales loads.
(C) Annualized.
71
<PAGE>
The financial highlights table for the Aggressive Growth Fund is intended to
help you understand the Fund's financial performance during its operations.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). Information for periods ending August 31, 1997, March 31, 1998
and March 31, 1999 has been audited by Arthur Andersen LLP, whose report, along
with the Fund's financial statements, is included in the SAI, which is available
upon request. Information for the period ending August 31, 1996 was audited by
other independent accountants. Information for the period ending September 30,
1999 was unaudited. The following information is for Class A shares only.
Information is not available for Class C shares since their public offering did
not begin until May 1, 2000.
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR SEVEN MONTHS YEAR PERIOD
SEPT. 30, ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, AUGUST 31, AUGUST 31,
(UNAUDITED) 1999 1998(A) 1997 1996(B)
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.73 $ 15.81 $ 16.29 $ 10.95 $ 10.00
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.14) (0.27) (0.15) (0.17) (0.11)(C)
Net realized and unrealized gains
(losses) on investments 2.43 2.67 (0.33) 5.54 1.06
--------------------------------------------------------------------------------
Total from investment operations 2.29 2.40 (0.48) 5.37 0.95
--------------------------------------------------------------------------------
Distributions from net realized gains -- (2.48) -- (0.03) --
--------------------------------------------------------------------------------
Net asset value at end of period $ 18.02 $ 15.73 $ 15.81 $ 16.29 $ 10.95
================================================================================
Total return(D) 14.56% 15.46% (2.95%) 49.09% 9.50%
================================================================================
Net assets at end of period (000's) $ 10,692 $ 11,402 $ 15,495 $ 13,984 $ 6,550
================================================================================
Ratio of net expenses
to average net assets(E) 1.95%(F) 1.95% 1.95%(F) 1.94% 1.95%(F)
Ratio of net investment loss
to average net assets (1.74%)(F) (1.52%) (1.66%)(F) (1.57%) (1.26%)(F)
Portfolio turnover rate 17%(F) 93% 40%(F) 51% 16%
Amount of debt outstanding at
end of period $ -- $ -- n/a n/a n/a
Average daily amount of debt
outstanding during the
period (000's) $ 550 $ 80 n/a n/a n/a
Average daily number of capital shares
outstanding during the
period (000's) 593 818 n/a n/a n/a
Average amount of debt per share
during the period $ 0.93 $ 0.10 n/a n/a n/a
</TABLE>
(A) Effective as of the close of business on August 29, 1997, the Fund was
reorganized and its fiscal year-end, subsequent to August 31, 1997, was
changed to March 31.
(B) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 2.86%(F), 2.00%, 2.62% and 5.05%(F) for
the periods ended September 30, 1999, March 31, 1999, August 31, 1997 and
August 31, 1996, respectively.
(F) Annualized.
72
<PAGE>
The financial highlights table for the Emerging Growth Fund is intended to help
you understand the Fund's financial performance for the past five years. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the period ending December 31, 1999 has been
audited by Ernst & Young LLP, whose report, along with the Fund's financial
statements is included in the SAI, which is available upon request. Information
for periods ending before December 31, 1999 was audited by other independent
accountants.
EMERGING GROWTH FUND - CLASS A
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- - ---------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 13.40 $ 13.85 $ 11.55 $ 11.52 $ 10.11
- - ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) .............. (0.09) (0.04) (0.03) 0.01 (0.01)
Net realized and unrealized gain (loss)
on investments ....................... 6.18 0.37 3.71 1.20 2.29
- - ---------------------------------------------------------------------------------------------------------------
Total from investment operations ....... 6.09 0.33 3.68 1.21 2.28
- - ---------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................. -- -- -- (0.01) (0.03)
Realized capital gains ................. (2.53) (0.78) (1.38) (1.17) (0.84)
Return of capital ...................... -- -- -- -- --
- - ---------------------------------------------------------------------------------------------------------------
Total dividends and distributions ......... (2.53) (0.78) (1.38) (1.18) (0.87)
- - ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period ............ $ 16.96 $ 13.40 $ 13.85 $ 11.55 $ 11.52
- - ---------------------------------------------------------------------------------------------------------------
Total return(a) ....................... 45.85% 2.57% 32.20% 10.56% 22.56%
RATIOS AND SUPPLEMENTAL DATA: ............. $ 10,743 $ 8,335 $ 4,949 $ 2,873 $ 2,520
Net assets at end of period (000s)
Ratios to average net assets:
Expenses (b) ........................ 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income (loss) ........ (0.66)% (0.41)% (0.30)% (0.12)% (0.05)%
Portfolio turnover ........................ 97% 78% 101% 117% 109%
- - ---------------------------------------------------------------------------------------------------------------
(a) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed
or waived during the period shown.
(b) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been
as follows:
3.29% 4.11% 5.94% 6.58% 7.09%
</TABLE>
73
<PAGE>
EMERGING GROWTH FUND - CLASS C
SELECTED DATA FOR A SHARE OUTSTANDING FOR THE YEAR ENDED DECEMBER 31, 1999(A)
- - -----------------------------------------------------------------------------
Net asset value, beginning of period ...... $ 13.04
- - -------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) .............. (0.19)
Net realized and unrealized gain (loss)
on investments ....................... 5.97
- - -------------------------------------------------------
Total from investment operations ....... 5.78
- - -------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................. --
Realized capital gains ................ (2.53)
Return of capital ...................... --
- - -------------------------------------------------------
Total dividends and distributions ......... (2.53)
- - -------------------------------------------------------
Net asset value, end of period ............ $ 16.29
- - -------------------------------------------------------
Total return (b) .................... 44.86%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) ........ $ 3,964
Ratios to average net assets(c)
Expenses ............................ 2.25%
Net investment income (loss) .............. (1.41)%
Portfolio turnover ........................ 97%
- - -------------------------------------------------------
(a) The Class commenced operations on January 1, 1999.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed
or waived during the period shown.
(c) If the waiver and reimbursement had not been in place for the period
listed, the ratios of expenses to average net assets would have been
4.03%.
74
<PAGE>
The financial highlights table for the International Equity Fund is intended to
help you understand the Fund's financial performance for the past five years.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the period ending December 31, 1999 has been
audited by Ernst & Young LLP, whose report, along with the Fund's financial
statements is included in the SAI, which is available upon request. Information
for the periods ending before December 31, 1999 was audited by other independent
accountants.
INTERNATIONAL EQUITY FUND - CLASS A
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- - -----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 12.89 $ 11.41 $ 10.63 $ 9.58 $ 9.12
- - -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) .............. 0.00 0.00(a) 0.02 0.05 0.21
Net realized and unrealized gain (loss)
on investments ....................... 5.06 2.27 1.64 1.06 0.47
- - -----------------------------------------------------------------------------------------------------------------
Total from investment operations ....... 5.06 2.27 1.66 1.11 0.68
- - -----------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................. (0.06) (0.05) (0.02) (0.06) (0.22)
Realized capital gains ................. (1.37) (0.74) (0.86) -- --
Return of capital ...................... -- -- -- -- --
- - -----------------------------------------------------------------------------------------------------------------
Total dividends and distributions ......... (1.43) (0.79) (0.88) (0.06) (0.22)
- - -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period ............ $ 16.52 $ 12.89 $ 11.41 $ 10.63 $ 9.58
=================================================================================================================
Total return(b) ........................... 39.50% 19.94% 15.57% 11.61% 5.29%
RATIOS AND SUPPLEMENTAL DATA: ............. $ 9,043 $ 6,876 $ 4,761 $ 3,449 $ 2,617
Net assets at end of period
(000s) ...............................
Ratios to average net assets:
Expenses (c) ........................ 1.60% 1.60% 1.60% 1.60% 1.60%
Net investment income (loss) ........ (0.08)% (0.03)% 0.17% 0.42% 0.11%
Portfolio turnover ........................ 155% 138% 151% 86% 90%
- - -----------------------------------------------------------------------------------------------------------------
(a) Amount rounds to less than $0.01.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed
or waived during the period shown.
(c) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been
as follows:
4.11% 5.18% 7.07% 6.63% 7.30%
</TABLE>
75
<PAGE>
INTERNATIONAL EQUITY FUND - CLASS C
SELECTED DATA FOR A SHARE OUTSTANDING FOR THE YEAR ENDED DECEMBER 31, 1999(A)
- - --------------------------------------------------------------------------------
Net asset value, beginning of period ...... $ 12.51
- - -------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) .............. (0.11)
Net realized and unrealized gain (loss)
on investments ....................... 4.89
- - -------------------------------------------------------
Total from investment operations ....... 4.78
- - -------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................. --
Realized capital gains ................ (1.37)
Return of capital ..................... --
- - -------------------------------------------------------
Total dividends and distributions ......... (1.37)
- - -------------------------------------------------------
Net asset value, end of period ............ $ 15.92
- - -------------------------------------------------------
Total return (b) .................... 38.44%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) ........ $ 6,475
Ratios to average net assets(c)
Expenses ............................ 2.35%
Net investment income (loss) .............. (0.81)%
Portfolio turnover ........................ 155%
- - -------------------------------------------------------
(a) The Class commenced operations on January 1, 1999.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed
or waived during the period shown.
(c) If the waiver and reimbursement had not been in place for the period
listed, the ratios of expenses to average net assets would have been
4.86%.
76
<PAGE>
The financial highlights table for the Value Plus Fund is intended to help you
understand the Fund's financial performance during its operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the period ending December 31, 1999 has been
audited by Ernst & Young LLP, whose report, along with the Fund's financial
statements is included in the SAI, which is available upon request. Information
for the periods ending before December 31, 1999 was audited by other independent
accountants.
VALUE PLUS FUND
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A SHARES CLASS C SHARES
PERIODS ENDED DECEMBER 31,
1999 1998(A) 1999(B)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ...... $ 10.41 $ 10.00 $ 10.26
- - -----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) .............. 0.01 0.02 (0.07)
Net realized and unrealized gain (loss)
on investments ....................... 1.60 0.41 1.53
- - -----------------------------------------------------------------------------------------
Total from investment operations ....... 1.61 0.43 1.46
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................. (0.01) (0.02) --
Realized capital gains ................ (0.24) -- (0.24)
Return of capital ...................... -- (0.00)(c) --
- - -----------------------------------------------------------------------------------------
Total dividends and distributions ......... (0.25) (0.02) (0.24)
- - -----------------------------------------------------------------------------------------
Net asset value, end of period ............ $ 11.77 $ 10.41 $ 11.48
- - -----------------------------------------------------------------------------------------
Total return (d) ....................... 15.51% 4.29% 14.24%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) ........ $ 31,808 $ 27,068 $ 548
Ratios to average net assets:
Expenses (e) ........................ 1.30% 1.30%(f) 2.05%
Net investment income (loss) ........ 0.08% 0.25%(f) (0.65)%
Portfolio turnover ........................ 60% 60% 34%
- - -----------------------------------------------------------------------------------------
(a) Class A Shares commenced operations on May 1, 1998.
(b) Class C Shares commenced operations on January 1, 1999.
(c) Amount rounds to less than $0.01.
(d) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed
or waived during the period shown.
(e) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been
as follows:
2.02% 2.25%(f) 2.76%
(f) Ratios are annualized.
</TABLE>
77
<PAGE>
FOR MORE INFORMATION
- - --------------------
For investors who want more information about the Funds, the following documents
are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is legally a part of this prospectus.
ANNUAL/SEMI-ANNUAL REPORTS: The Funds' annual and semi-annual reports provide
additional information about the Funds' investments. In each Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
You can get free copies of the SAI, the reports, other information and answers
to your questions about the Funds by contacting your financial advisor, or the
Funds at:
Touchstone Family of Funds
311 Pike Street
Cincinnati, Ohio 45202
800.543.0407
http://www.touchstonefunds.com
Information about the Funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's public reference room in Washington,
D.C. You can receive information about the operation of the public reference
room by calling the SEC at 1-202-942-8090.
Reports and other information about the Funds are available on the SEC's
internet site at http://www.sec.gov. For a fee, you can receive information
about the SEC's internet site by writing to: SEC, Public Reference Section,
Washington, D.C. 20549-0102, or by e-mailing a request to: [email protected].
Investment Company Act file no. 811-3651
78
<PAGE>
TOUCHSTONE STRATEGIC TRUST
o TOUCHSTONE EMERGING GROWTH FUND
o TOUCHSTONE INTERNATIONAL EQUITY FUND
o TOUCHSTONE VALUE PLUS FUND
o TOUCHSTONE ENHANCED 30 FUND
o TOUCHSTONE EQUITY FUND
o TOUCHSTONE UTILITY FUND
o TOUCHSTONE GROWTH/VALUE FUND
o TOUCHSTONE AGGRESSIVE GROWTH FUND
CLASS A AND CLASS C
SHARES ARE OFFERED BY
THIS PROSPECTUS
79
<PAGE>
TOUCHSTONE STRATEGIC TRUST
--------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
May 1, 2000
Emerging Growth Fund
International Equity Fund
Value Plus Fund
Enhanced 30 Fund
Utility Fund
Equity Fund
Growth/Value Fund
Aggressive Growth Fund
This Statement of Additional Information is not a prospectus. It should be read
together with the Funds' Prospectus dated May 1, 2000. A copy of the Funds'
Prospectus can be obtained by writing the Trust at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202-4094, or by calling the Trust nationwide toll-free
800-543-0407, or in Cincinnati 629-2050.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS PAGE
-----------------
THE TRUST................................................................
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS............................
INVESTMENT RESTRICTIONS..................................................
TRUSTEES AND OFFICERS....................................................
THE INVESTMENT ADVISOR AND SUB-ADVISORS..................................
THE DISTRIBUTOR..........................................................
DISTRIBUTION PLANS.......................................................
SECURITIES TRANSACTIONS..................................................
PORTFOLIO TURNOVER.......................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE.....................
CHOOSING A SHARE CLASS...................................................
OTHER PURCHASE INFORMATION...............................................
TAXES....................................................................
REDEMPTION IN KIND.......................................................
HISTORICAL PERFORMANCE INFORMATION.......................................
PRINCIPAL SECURITY HOLDERS...............................................
CUSTODIANS...............................................................
AUDITORS.................................................................
TRANSFER, ACCOUNTING AND ADMINISTRATIVE AGENTS...........................
ANNUAL REPORT............................................................
APPENDIX.................................................................
- 2 -
<PAGE>
THE TRUST
- - ---------
Touchstone Strategic Trust (the "Trust"), formerly Countrywide Strategic Trust,
an open-end, diversified management investment company, was organized as a
Massachusetts business trust on November 18, 1982. The Trust currently offers
eight series of shares to investors: the Utility Fund, the Equity Fund, the
Growth/Value Fund, the Aggressive Growth Fund, the Emerging Growth Fund, the
International Equity Fund, the Value Plus Fund and the Enhanced 30 Fund
(referred to individually as a "Fund" and collectively as the "Funds"). Each
Fund has its own investment goal(s) and policies.
Pursuant to an Agreement and Plan of Reorganization, on May 1, 2000, each of the
Emerging Growth Fund, the International Equity Fund and the Value Plus Fund
succeeded to the assets and liabilities of another mutual fund of the same name
which was an investment series of Touchstone Series Trust. The investment goals,
strategies, policies and restrictions of each Fund and its Predecessor Fund are
substantially identical. The financial data and information in this Statement of
Additional Information with respect to the Emerging Growth Fund, the
International Equity Fund and the Value Plus Fund are for the Predecessor Funds.
Pursuant to an Agreement and Plan of Reorganization dated May 31, 1997, the
Growth/Value Fund and the Aggressive Growth Fund, on August 29, 1997, succeeded
to the assets and liabilities of another mutual fund of the same name which was
an investment series of Trans Adviser Funds, Inc. The investment objective,
policies and restrictions of each Fund and its Predecessor Fund are
substantially identical. The financial data and information in this Statement of
Additional Information with respect to the Growth/Value Fund and the Aggressive
Growth Fund for periods ended prior to September 1, 1997 relate to the
Predecessor Funds.
Shares of each Fund have equal voting rights and liquidation rights. Each Fund
shall vote separately on matters submitted to a vote of the shareholders except
in matters where a vote of all series of the Trust in the aggregate is required
by the Investment Company Act of 1940 or otherwise. When matters are submitted
to shareholders for a vote, each shareholder is entitled to one vote for each
full share owned and fractional votes for fractional shares owned. The Trust
does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon the removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
Each share of a Fund represents an equal proportionate interest in the assets
and liabilities belonging to that Fund with each other share of that Fund and is
entitled to such dividends and distributions out of the income belonging to the
Fund as are declared by the Trust. The shares do not have cumulative voting
rights or any preemptive or conversion rights, and the Trustees have
- 3 -
<PAGE>
the authority from time to time to divide or combine the shares of any Fund into
a greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Both Class A shares and Class C shares of the Funds represent an interest in the
same assets of such Fund, have the same rights and are identical in all material
respects except that (i) Class C shares bear the expenses of higher distribution
fees; (ii) certain other class specific expenses will be borne solely by the
class to which such expenses are attributable, including transfer agent fees
attributable to a specific class of shares, printing and postage expenses
related to preparing and distributing materials to current shareholders of a
specific class, registration fees incurred by a specific class of shares, the
expenses of administrative personnel and services required to support the
shareholders of a specific class, litigation or other legal expenses relating to
a class of shares, Trustees' fees or expenses incurred as a result of issues
relating to a specific class of shares and accounting fees and expenses relating
to a specific class of shares; and (iii) each class has exclusive voting rights
with respect to matters relating to its own distribution arrangements. The Board
of Trustees may classify and reclassify the shares of a Fund into additional
classes of shares at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
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DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
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Each Fund has its own investment goals, strategies and related risks. There can
be no assurance that a Fund's investment goals will be met. The investment goals
and practices of each Fund (except the Growth/Value Fund and the Aggressive
Growth Fund) are nonfundamental policies which may be changed by the Board of
Trustees without shareholder approval, except in those instances where
shareholder approval is expressly required. If there is a change in a Fund's
investment goals, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs. The investment restrictions of the Funds are fundamental and can only be
changed by vote of a majority of the outstanding shares of the applicable Fund.
A more detailed discussion of some of the terms used and investment policies
described in the Prospectus (see "Additional Information About Fund
Investments") appears below:
FIXED-INCOME AND OTHER DEBT SECURITIES
Fixed-income and other debt instrument securities include all bonds, high yield
or "junk" bonds, municipal bonds, debentures, U.S. Government securities,
mortgage-related securities including government stripped mortgage-related
securities, zero coupon securities and custodial receipts. The market value of
fixed-income obligations of the Funds will be affected by general changes in
interest rates which will result in increases or decreases in the value of the
obligations held by the Funds. The market value of the obligations held by a
Fund can be expected to vary inversely to changes in prevailing interest rates.
As a result, shareholders should anticipate that the market value of the
obligations held by the Fund generally will increase when prevailing interest
rates are declining and generally will decrease when prevailing interest rates
are rising. Shareholders also should recognize that, in periods of declining
interest rates, a Fund's yield will tend to be somewhat higher than prevailing
market rates and, in periods of rising interest rates, a Fund's yield will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a Fund from the continuous sale of its shares will tend to be
invested in instruments producing lower yields than the balance of its
portfolio, thereby reducing the Fund's current yield. In periods of rising
interest rates, the opposite can be expected to occur. In addition, securities
in which a Fund may invest may not yield as high a level of current income as
might be achieved by investing in securities with less liquidity, less
creditworthiness or longer maturities.
Ratings made available by Standard & Poor's Rating Service ("S&P"), Moody's
Investor Service, Inc. ("Moody's"), Duff & Phelps Bond Ratings, Fitch Investors
Services, Inc. and Thomson BankWatch are relative and subjective and are not
absolute standards of quality. Although these ratings are initial criteria for
selection of portfolio investments, a Fund Sub-Advisor also will make its own
evaluation of these securities. Among the factors that will be considered are
the long-term ability of the issuers to pay principal and interest and general
economic trends.
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Fixed-income securities may be purchased on a when-issued or delayed-delivery
basis. See "When-Issued and Delayed-Delivery Securities" below.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts. For a description of commercial paper
ratings, see the Appendix.
MEDIUM AND LOWER RATED AND UNRATED SECURITIES. Securities rated in the fourth
highest category by a rating organization although considered investment grade,
may possess speculative characteristics, and changes in economic or other
conditions are more likely to impair the ability of issuers of these securities
to make interest and principal payments than is the case with respect to issuers
of higher grade bonds.
Generally, medium or lower-rated securities and unrated securities of comparable
quality, sometimes referred to as "junk bonds," offer a higher current yield
than is offered by higher rated securities, but also (i) will likely have some
quality and protective characteristics that, in the judgment of the rating
organizations, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (ii) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. The yield of junk bonds will fluctuate over time.
The market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher quality bonds. In addition, medium and lower rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by these issuers is significantly greater
because medium and lower-rated securities and unrated securities of comparable
quality generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. Since the risk of default is higher for lower
rated debt securities, the Fund Sub-Advisor's research and credit analysis are
an especially important part of managing securities of this type held by a Fund.
In light of these risks, the Board of Trustees of the Trust has instructed the
Fund Sub-Advisor, in evaluating the creditworthiness of an issue, whether rated
or unrated, to take various factors into consideration, which may include, as
applicable, the issuer's financial resources, its sensitivity to economic
conditions and trends, the operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters.
In addition, the market value of securities in lower-rated categories is more
volatile than that of higher quality securities, and the markets in which medium
and lower-rated or unrated securities are traded are more limited than those in
which higher rated securities are traded. The existence
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of limited markets may make it more difficult for the Funds to obtain accurate
market quotations for purposes of valuing their respective portfolios and
calculating their respective net asset values. Moreover, the lack of a liquid
trading market may restrict the availability of securities for the Funds to
purchase and may also have the effect of limiting the ability of a Fund to sell
securities at their fair value either to meet redemption requests or to respond
to changes in the economy or the financial markets.
Lower-rated debt obligations also present risks based on payment expectations.
If an issuer calls the obligation for redemption, a Fund may have to replace the
security with a lower yielding security, resulting in a decreased return for
shareholders. Also, as the principal value of bonds moves inversely with
movements in interest rates, in the event of rising interest rates the value of
the securities held by a Fund may decline relatively proportionately more than a
portfolio consisting of higher rated securities. If a Fund experiences
unexpected net redemptions, it may be forced to sell its higher rated bonds,
resulting in a decline in the overall credit quality of the securities held by
the Fund and increasing the exposure of the Fund to the risks of lower rated
securities. Investments in zero coupon bonds may be more speculative and subject
to greater fluctuations in value due to changes in interest rates than bonds
that pay interest currently.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of these securities by the Fund, but
the Fund Sub-Advisor will consider this event in its determination of whether
the Fund should continue to hold the securities.
While the market for high yield corporate debt securities has been in existence
for many years and has weathered previous economic downturns, the 1980's brought
a dramatic increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructuring. Past experience may not provide an
accurate indication of future performance of the high yield bond market,
especially during periods of economic recession. In fact, from 1989 to 1991, the
percentage of lower-rated debt securities that defaulted rose significantly
above prior levels.
The market for lower-rated debt securities may be thinner and less active than
that for higher rated debt securities, which can adversely affect the prices at
which the former are sold. If market quotations are not available, lower-rated
debt securities will be valued in accordance with procedures established by the
Board of Trustees, including the use of outside pricing services. Judgment plays
a greater role in valuing high yield corporate debt securities than is the case
for securities for which more external sources for quotations and last sale
information is available. Adverse publicity and changing investor perception may
affect the ability of outside pricing services to value lower-rated debt
securities and the ability to dispose of these securities.
In considering investments for a Fund, the Fund Sub-Advisor will attempt to
identify those issuers of high yielding debt securities whose financial
condition is adequate to meet future obligations, has improved or is expected to
improve in the future. The Fund Sub-Advisor's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset
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coverage, earnings prospects and the experience and managerial strength of the
issuer.
A Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interest of security holders if it determines this to be in the best
interest of the Fund.
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Investments in time deposits
maturing in more than seven days will be subject to each Fund's restrictions on
illiquid investments (see "Investment Limitations").
The Growth/Value Fund and the Aggressive Growth Fund may also invest in
certificates of deposit, bankers' acceptances and time deposits issued by
foreign branches of national banks. Eurodollar certificates of deposit are
negotiable U.S. dollar denominated certificates of deposit issued by foreign
branches of major U.S. commercial banks. Eurodollar bankers' acceptances are
U.S. dollar denominated bankers' acceptances "accepted" by foreign branches of
major U.S. commercial banks. Investments in the obligations of foreign branches
of U.S. commercial banks may be subject to special risks, including future
political and economic developments, imposition of withholding taxes on income,
establishment of exchange controls or other restrictions, less governmental
supervision and the lack of uniform accounting, auditing and financial reporting
standards that might affect an investment adversely.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations issued or
guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities. Some U.S. Government securities, such as U.S. Treasury bills,
Treasury notes and Treasury bonds, which differ only in their interest rates,
maturities and times of issuance, are supported by the full faith and credit of
the United States. Others are supported by: (i) the right of the issuer to
borrow from the U.S. Treasury, such as securities of the Federal Home Loan
Banks; (ii) the discretionary authority of the U.S. Government to purchase the
agency's obligations, such as securities of the FNMA; or (iii) only the credit
of the issuer, such as securities of the Student Loan Marketing Association. No
assurance can be given that the U.S. Government will provide financial support
in the future to U.S. Government agencies, authorities or instrumentalities that
are not supported by the full
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faith and credit of the United States.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities include: (i) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation interests in loans made to foreign
governments or other entities that are so guaranteed. The secondary market for
certain of these participation interests is limited and, therefore, may be
regarded as illiquid.
MORTGAGE-RELATED SECURITIES. There are several risks associated with
mortgage-related securities generally. One is that the monthly cash inflow from
the underlying loans may not be sufficient to meet the monthly payment
requirements of the mortgage-related security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten the
term of the underlying mortgage pool for a mortgage-related security. Early
returns of principal will affect the average life of the mortgage-related
securities remaining in a Fund. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage-related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Fund. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Fund will have to reinvest the proceeds of prepayments at lower
interest rates than those at which the assets were previously invested. If this
occurs, a Fund's yield will correspondingly decline. Thus, mortgage-related
securities may have less potential for capital appreciation in periods of
falling interest rates than other fixed-income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that a Fund
purchases mortgage-related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage-related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which a Fund invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities.
Mortgage-related securities may not be readily marketable. To the extent any of
these securities are not readily marketable in the judgment of the Fund
Sub-Advisor, the investment restriction limiting a Fund's investment in illiquid
instruments to not more than 15% of the value of its net assets will apply.
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STRIPPED MORTGAGE-RELATED SECURITIES. These securities are either issued and
guaranteed, or privately-issued but collateralized by securities issued, by
GNMA, FNMA or FHLMC. These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-related certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the stripped
mortgage-related securities represent all or part of the beneficial interest in
pools of mortgage loans. A Fund will invest in stripped mortgage-related
securities in order to enhance yield or to benefit from anticipated appreciation
in value of the securities at times when its Fund Sub-Advisor believes that
interest rates will remain stable or increase. In periods of rising interest
rates, the expected increase in the value of stripped mortgage-related
securities may offset all or a portion of any decline in value of the securities
held by the Fund.
Investing in stripped mortgage-related securities involves the risks normally
associated with investing in mortgage-related securities. See "Mortgage-Related
Securities" above. In addition, the yields on stripped mortgage- related
securities are extremely sensitive to the prepayment experience on the mortgage
loans underlying the certificates collateralizing the securities. If a decline
in the level of prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will be
accelerated, thereby reducing the yield to maturity on interest-only stripped
mortgage-related securities and increasing the yield to maturity on
principal-only stripped mortgage-related securities. Sufficiently high
prepayment rates could result in a Fund not fully recovering its initial
investment in an interest-only stripped mortgage-related security. Under current
market conditions, the Fund expects that investments in stripped
mortgage-related securities will consist primarily of interest-only securities.
Stripped mortgage-related securities are currently traded in an over-the-counter
market maintained by several large investment banking firms. There can be no
assurance that the Fund will be able to effect a trade of a stripped
mortgage-related security at a time when it wishes to do so. The Fund will
acquire stripped mortgage-related securities only if a secondary market for the
securities exists at the time of acquisition. Except for stripped
mortgage-related securities based on fixed rate FNMA and FHLMC mortgage
certificates that meet certain liquidity criteria established by the Board of
Trustees, a Fund will treat government stripped mortgage-related securities and
privately-issued mortgage-related securities as illiquid and will limit its
investments in these securities, together with other illiquid investments, to
not more than 15% of net assets.
The Growth/Value Fund may also purchase Coupons Under Book Entry Safekeeping
("CUBES"), Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal. This
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both
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accounting and tax purposes. Because of these features, these securities may be
subject to greater interest rate volatility than interest-paying U.S. Treasury
obligations. The Growth/Value Fund will limit its investment in such instruments
to 20% of its total assets.
ZERO COUPON SECURITIES. Zero coupon U.S. Government securities are debt
obligations that are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the security will
accrue and compound over the period until maturity or the particular interest
payment date at a rate of interest reflecting the market rate of the security at
the time of issuance. Zero coupon securities do not require the periodic payment
of interest. These investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government securities
that make regular payments of interest. A Fund accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations, in which case the Fund will forego the purchase of
additional income producing assets with these funds. Zero coupon securities
include STRIPS, that is, securities underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities. They also include Coupons Under Book Entry
System ("CUBES"), which are component parts of U.S. Treasury bonds and represent
scheduled interest and principal payments on the bonds.
CUSTODIAL RECEIPTS. Custodial receipts or certificates, such as Certificates of
Accrual on Treasury Securities ("CATS"), Treasury Investors Growth Receipts
("TIGRs") and Financial Corporation certificates ("FICO Strips"), are securities
underwritten by securities dealers or banks that evidence ownership of future
interest payments, principal payments or both on certain notes or bonds issued
by the U.S. Government, its agencies, authorities or instrumentalities. The
underwriters of these certificates or receipts purchase a U.S. Government
security and deposit the security in an irrevocable trust or custodial account
with a custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the U.S. Government security. Custodial receipts evidencing specific
coupon or principal payments have the same general attributes as zero coupon
U.S. Government securities, described above. Although typically under the terms
of a custodial receipt a Fund is authorized to assert its rights directly
against the issuer of the underlying obligation, the Fund may be required to
assert through the custodian bank such rights as may exist against the
underlying issuer. Thus, if the underlying issuer fails to pay principal and/or
interest when due, a Fund may be subject to delays, expenses and risks that are
greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer. In addition, if the trust or custodial account
in which the underlying security has been deposited is determined to be an
association taxable as a corporation, instead of a non-taxable entity, the yield
on the underlying security would be reduced in respect of any taxes paid.
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LOANS AND OTHER DIRECT DEBT INSTRUMENTS. These are instruments in amounts owed
by a corporate, governmental or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables) or to other parties. Direct debt instruments purchased by a Fund
may have a maturity of any number of days or years, may be secured or unsecured,
and may be of any credit quality. Direct debt instruments involve the risk of
loss in the case of default or insolvency of the borrower. Direct debt
instruments may offer less legal protection to a Fund in the event of fraud or
misrepresentation. In addition, loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. Direct debt instruments
also may include standby financing commitments that obligate a Fund to supply
additional cash to the borrower on demand at a time when a Fund would not have
otherwise done so, even if the borrower's condition makes it unlikely that the
amount will ever be repaid.
These instruments will be considered illiquid securities and so will be limited
in accordance with a Fund's restrictions on illiquid securities.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as "private placements" or
"restricted securities" and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted securities or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and an investment company might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days. An investment
company might also have to register such restricted securities in order to
dispose of them, which would result in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale
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to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act on resales of certain securities to
qualified institutional buyers. The Advisor anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this regulation and the development of automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
A Fund Sub-Advisor will monitor the liquidity of Rule 144A securities in each
Fund's portfolio under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Fund Sub-Advisor will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (3) dealer undertakings to make a market in the security and (4)
the nature of the security and of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Each Fund (except the Utility Fund) may not invest more than 15% of its net
assets in securities which are illiquid or otherwise not readily marketable. The
Utility Fund may not invest more than 10% of its net assets in securities which
are illiquid or otherwise not readily marketable. The Trustees of the Trust have
adopted a policy that the International Equity Fund may not invest in illiquid
securities other than Rule 144A securities. If a security becomes illiquid after
purchase by the Fund, the Fund will normally sell the security unless it would
not be in the best interests of shareholders to do so.
A Fund may purchase securities in the United States that are not registered for
sale under federal securities laws but which can be resold to institutions under
SEC Rule 144A or under an exemption from such laws. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities or Rule 144A securities are treated as exempt from the Funds' limit
on illiquid securities. The Board of Trustees of the Trust, with advice and
information from the respective Fund Sub-Advisor, will determine the liquidity
of restricted securities or Rule 144A securities by looking at factors such as
trading activity and the availability of reliable price information and, through
reports from such Fund Sub-Advisor, the Board of Trustees of the Trust will
monitor trading activity in restricted securities. If institutional trading in
restricted securities or Rule 144A securities were to decline, a Fund's
illiquidity could be increased and the Fund could be adversely affected.
The Aggressive Growth Fund may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities laws and is generally sold to institutional investors who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Fund Sub-Advisor believes that Section
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4(2) commercial paper and possibly certain other restricted securities which
meet the criteria for liquidity established by the Trustees are quite liquid.
The Fund intends therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Trustees, including Section 4(2)
commercial paper, as determined by the Sub-Advisor, as liquid and not subject to
the investment limitation applicable to illiquid securities. In addition,
because Section 4(2) commercial paper is liquid, the Fund does not intend to
subject such paper to the limitation applicable to restricted securities.
No Fund will invest more than 10% of its total assets in restricted securities
(excluding Rule 144A securities).
FOREIGN SECURITIES
Investing in securities issued by foreign companies and governments involves
considerations and potential risks not typically associated with investing in
obligations issued by the U.S. Government and domestic corporations. Less
information may be available about foreign companies than about domestic
companies and foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies. The values of
foreign investments are affected by changes in currency rates or exchange
control regulations, restrictions or prohibitions on the repatriation of foreign
currencies, application of foreign tax laws, including withholding taxes,
changes in governmental administration or economic or monetary policy (in the
United States or abroad) or changed circumstances in dealings between nations.
Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions and custody fees are
generally higher than those charged in the United States, and foreign securities
markets may be less liquid, more volatile and less subject to governmental
supervision than in the United States. Investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards and potential difficulties in enforcing contractual obligations and
could be subject to extended clearance and settlement periods.
Each of the Utility Fund, the Growth/Value Fund and the Aggressive Growth Fund
may invest up to 10% of its total assets at the time of purchase in the
securities of foreign issuers. The Utility Fund may also invest in non-U.S.
dollar-denominated securities principally traded in financial markets outside
the United States. The Emerging Growth Fund may invest up to 20% of its total
assets in securities of foreign issuers
EMERGING MARKET COUNTRIES. Emerging Market Countries are countries other than
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Holland,
Italy, Japan, Luxembourg, New Zealand, Norway, Spain, Sweden, Switzerland, the
United Kingdom and the United States). When a Fund invests in securities of a
company in an emerging market country, it invests in securities issued by a
company that (i) has its principal trading market for its stock in
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an emerging market country, or (ii) derives at least 50% of its revenues or
profits from corporations within emerging market countries or has at least 50%
of its assets located in emerging market countries.
The Emerging Growth Fund may invest up to 10% of its total assets in Emerging
Market Countries and the International Equity Fund may invest up to 40% of its
total assets in Emerging Market Countries.
Investments in securities of issuers based in underdeveloped countries entail
all of the risks of investing in foreign issuers outlined in this section to a
heightened degree. These heightened risks include: (i) expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such securities and a low or
nonexistent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies which may restrict a Fund's
investment opportunities including restrictions on investing in issuers in
industries deemed sensitive to relevant national interests; and (iv) in the case
of Eastern Europe, the absence of developed capital markets and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events.
SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE. Investments in companies
domiciled in Eastern European countries may be subject to potentially greater
risks than those of other foreign issuers. These risks include: (i) potentially
less social, political and economic stability; (ii) the small current size of
the markets for such securities and the low volume of trading, which result in
less liquidity and in greater price volatility; (iii) certain national policies
which may restrict the Funds' investment opportunities, including restrictions
on investment in issuers or industries deemed sensitive to national interests;
(iv) foreign taxation; (v) the absence of developed legal structures governing
private or foreign investment or allowing for judicial redress for injury to
private property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the Commonwealth of Independent States (formerly the Union of
Soviet Socialist Republics).
So long as the Communist Party continues to exercise a significant or, in some
cases, dominant role in Eastern European countries, investments in such
countries will involve risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in many cases
without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such expropriation,
a Fund could lose a substantial portion of any investments it has made in the
affected countries. Further, no accounting standards exist in Eastern European
countries. Finally, even though certain Eastern European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial in
relation to the actual market values and may be adverse to the interests of a
Fund's shareholders.
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CURRENCY EXCHANGE RATES. A Fund's share value may change significantly when the
currencies, other than the U.S. dollar, in which the Fund's investments are
denominated strengthen or weaken against the U.S. dollar. Currency exchange
rates generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries
as seen from an international perspective. Currency exchange rates can also be
affected unpredictably by intervention by U.S. or foreign governments or central
banks or by currency controls or political developments in the United States or
abroad.
ADRS, EDRS AND CDRS. ADRs are U.S. dollar-denominated receipts typically issued
by domestic banks or trust companies that represent the deposit with those
entities of securities of a foreign issuer. ADRs are publicly traded on
exchanges or over-the-counter in the United States. European Depositary Receipts
("EDRs"), which are sometimes referred to as Continental Depositary Receipts
("CDRs"), may also be purchased by the Funds. EDRs and CDRs are generally issued
by foreign banks and evidence ownership of either foreign or domestic
securities. Certain institutions issuing ADRs or EDRs may not be sponsored by
the issuer of the underlying foreign securities. A non-sponsored depository may
not provide the same shareholder information that a sponsored depository is
required to provide under its contractual arrangements with the issuer of the
underlying foreign securities.
OPTIONS
A Fund may write (sell), to a limited extent, only covered call and put options
("covered options") in an attempt to increase income. However, the Fund may
forgo the benefits of appreciation on securities sold or may pay more than the
market price on securities acquired pursuant to call and put options written by
the Fund.
When a Fund writes a covered call option, it gives the purchaser of the option
the right to buy the underlying security at the price specified in the option
(the "exercise price") by exercising the option at any time during the option
period. If the option expires unexercised, the Fund will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price.
When a Fund writes a covered put option, it gives the purchaser of the option
the right to sell the underlying security to the Fund at the specified exercise
price at any time during the option period. If the option expires unexercised,
the Fund will realize income in the amount of the premium received for writing
the option. If the put option is exercised, a decision over which the Fund has
no control, the Fund must purchase the underlying security from the option
holder at
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the exercise price. By writing a covered put option, the Fund, in exchange for
the net premium received, accepts the risk of a decline in the market value of
the underlying security below the exercise price.
A Fund may terminate its obligation as the writer of a call or put option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." Where the Fund cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
When a Fund writes an option, an amount equal to the net premium received by the
Fund is included in the liability section of the Fund's Statement of Assets and
Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked to market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the option
was sold), and the deferred credit related to such option will be eliminated. If
a call option is exercised, the Fund will realize a gain or loss from the sale
of the underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written.
When a Fund writes a call option, it will "cover" its obligation by segregating
the underlying security on the books of the Fund's custodian or by placing
liquid securities in a segregated account at the Fund's custodian. When a Fund
writes a put option, it will "cover" its obligation by placing liquid securities
in a segregated account at the Fund's custodian.
A Fund may purchase call and put options on any securities in which it may
invest. The Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. The Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.
A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell a security, which
may or may not be held in the Fund's portfolio, at a specified price during the
option period. The purchase of protective puts is designed merely to offset or
hedge against a decline in the market value of the Fund's portfolio securities.
Put options also may be purchased
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by the Fund for the purpose of affirmatively benefiting from a decline in the
price of securities which the Fund does not own. The Fund would ordinarily
recognize a gain if the value of the securities decreased below the exercise
price sufficiently to cover the premium and would recognize a loss if the value
of the securities remained at or above the exercise price. Gains and losses on
the purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities.
The Funds have adopted certain other nonfundamental policies concerning option
transactions which are discussed below. A Fund's activities in options may also
be restricted by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
PURCHASING OPTIONS ON U.S. GOVERNMENT SECURITIES. The Utility Fund may purchase
put options on U.S. Government securities to protect against a risk that an
anticipated rise in interest rates would result in a decline in the value of the
Fund's portfolio securities. The Fund may purchase call options on U.S.
Government securities as a means of obtaining temporary exposure to market
appreciation when the Fund is not fully invested.
A put option is a short-term contract (having a duration of nine months or less)
which gives the purchaser of the option, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
A call option is a short-term contract which gives the purchaser of the call
option, in return for a premium, the right to buy the underlying security at a
specified price during the term of the option. The purchase of put and call
options on U.S. Government securities is analogous to the purchase of puts and
calls on stocks. The Fund will purchase options on U.S. Treasury Bonds, Notes
and Bills only.
There are special considerations applicable to options on U.S. Treasury Bonds
and Notes. Because trading interest in options written on U.S. Treasury Bonds
and Notes tends to center on the most recently auctioned issues, the Exchanges
will not continue indefinitely to introduce options with new expirations to
replace expiring options on particular issues. Instead, the expirations
introduced at the commencement of options trading on a particular issue will be
allowed to run their course with the possible addition of a limited number of
new expirations as the original ones expire. Options trading on each issue of
U.S. Treasury Bonds and Notes will thus be phased out as new options are listed
on more recent issues, and options representing a full range of expirations will
not ordinarily be available for every issue on which options are traded.
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<PAGE>
To terminate its rights with respect to put and call options which it has
purchased, the Fund may sell an option of the same series in a "closing sale
transaction." A profit or loss will be realized depending on whether the sale
price of the option plus transaction costs is more or less than the cost to the
Fund of establishing the position. If an option purchased by the Fund is not
exercised or sold, it will become worthless after its expiration date and the
Fund will experience a loss in the form of the premium and transaction costs
paid in establishing the option position.
The option positions may be closed out only on an exchange which provides a
secondary market for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The option
activities of the Fund may affect its turnover rate and the amount of brokerage
commissions paid by the Fund. The Fund pays a brokerage commission each time it
buys or sells a security in connection with the exercise of an option. Such
commissions may be higher than those which would apply to direct purchases or
sales of portfolio securities.
A Fund may engage in over-the-counter options transactions with broker-dealers
who make markets in these options. At present, approximately ten broker-dealers,
including several of the largest primary dealers in U.S. Government securities,
make these markets. The ability to terminate over-the-counter option positions
is more limited than with exchange-traded option positions because the
predominant market is the issuing broker rather than an exchange, and may
involve the risk that broker-dealers participating in such transactions will not
fulfill their obligations. To reduce this risk, a Fund will purchase such
options only from broker-dealers who are primary government securities dealers
recognized by the Federal Reserve Bank of New York and who agree to (and are
expected to be capable of) entering into closing transactions, although there
can be no guarantee that any such option will be liquidated at a favorable price
prior to expiration. The Fund Sub-Advisor will monitor the creditworthiness of
dealers with whom a Fund enters into such options transactions under the general
supervision of the Board of Trustees.
OPTIONS ON STOCKS. Each Fund which invests in equity securities may write or
purchase options on stocks. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying stock at the
exercise price at any time during the option period. Similarly, a put option
gives the purchaser of the option the right to sell, and obligates the writer to
buy the underlying stock at the exercise price at any time during the option
period. A covered call option with respect to which a Fund owns the underlying
stock sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying stock or to possible continued holding of a stock which might
otherwise have been sold to protect against depreciation in the market price of
the stock. A covered put option sold by a Fund exposes the Fund during the term
of the option to a decline in price of the underlying stock.
To close out a position when writing covered options, a Fund may make a "closing
purchase transaction" which involves purchasing an option on the same stock with
the same exercise price
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and expiration date as the option which it has previously written on the stock.
The Fund will realize a profit or loss for a closing purchase transaction if the
amount paid to purchase an option is less or more, as the case may be, than the
amount received from the sale thereof. To close out a position as a purchaser of
an option, the Fund may make a "closing sale transaction" which involves
liquidating the Fund's position by selling the option previously purchased.
The Utility Fund may write covered call options if, immediately thereafter, not
more than 30% of its net assets would be committed to such transactions. The
Aggressive Growth Fund may write covered call options if, immediately
thereafter, not more than 25% of its net assets would be committed to such
transactions. As long as the Securities and Exchange Commission continues to
take the position that unlisted options are illiquid securities, the Utility
Fund will not commit more than 10% of its net assets and the Aggressive Growth
Fund will not commit more than 15% of its net assets to unlisted covered call
transactions and other illiquid securities.
OPTIONS ON SECURITIES INDEXES. Such options give the holder the right to receive
a cash settlement during the term of the option based upon the difference
between the exercise price and the value of the index. Such options will be used
for the purposes described above under "Options on Securities" or, to the extent
allowed by law, as a substitute for investment in individual securities.
Options on securities indexes entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indexes is more likely to occur, although the Fund
generally will only purchase or write such an option if the Fund Sub-Advisor
believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase such options unless the Advisor
and the respective Fund Sub-Advisor each believe the market is sufficiently
developed such that the risk of trading in such options is no greater than the
risk of trading in options on securities.
Price movements in a Fund's portfolio may not correlate precisely with movements
in the level of an index and, therefore, the use of options on indexes cannot
serve as a complete hedge. Because options on securities indexes require
settlement in cash, the Fund Sub-Advisor may be forced to liquidate portfolio
securities to meet settlement obligations.
When a Fund writes a put or call option on a securities index it will cover the
position by placing liquid securities in a segregated asset account with the
Fund's custodian.
Options on securities indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of
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the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of the exercise,
multiplied by (b) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars or a foreign currency, as the case may be, times a
specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in securities
index options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular security, whether the Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in price of a particular security. Accordingly, successful use by
a Fund of options on security indexes will be subject to the Fund Sub-Advisor's
ability to predict correctly movement in the direction of that securities market
generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual securities.
RELATED INVESTMENT POLICIES. A Fund may purchase and write put and call options
on securities indexes listed on domestic and, in the case of those Funds which
may invest in foreign securities, on foreign exchanges. A securities index
fluctuates with changes in the market values of the securities included in the
index.
To the extent permitted by U.S. federal or state securities laws, the
International Equity Fund may invest in options on foreign stock indexes in lieu
of direct investment in foreign securities. The Fund may also use foreign stock
index options for hedging purposes.
PURCHASING OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Utility Fund may
purchase put and call options on interest rate futures contracts. The purchase
of put options on interest rate futures contracts hedges the Fund's portfolio
against the risk of rising interest rates. The purchase of call options on
futures contracts is a means of obtaining temporary exposure to market
appreciation at limited risk and is a hedge against a market advance when the
Fund is not fully invested. Assuming that any decline in the securities being
hedged is accompanied by a rise in interest rates, the purchase of options on
the futures contracts may generate gains which can partially offset any decline
in the value of the Fund's portfolio securities which have been hedged. However,
if after the Fund purchases an option on a futures contract, the value of the
securities being hedged moves in the opposite direction from that contemplated,
the Fund will tend to experience losses in the form of premiums on such options
which would partially offset gains the Fund would have.
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An interest rate futures contract is a contract to buy or sell specified debt
securities at a future time for a fixed price. The Fund may purchase put and
call options on interest rate futures which are traded on a national exchange or
board of trade and sell such options to terminate an existing position. The Fund
may not enter into interest rate futures contracts. Options on interest rate
futures are similar to options on stocks except that an option on an interest
rate future gives the purchaser the right, in return for the premium paid, to
assume a position in an interest rate futures contract (a long position if the
option is a call and a short position if the option is a put), rather than to
purchase or sell stock, at a specified exercise price at any time during the
period of the option.
As with options on stocks, the holder of an option on an interest rate futures
contract may terminate his position by selling an option of the same series.
There is no guarantee that such closing transactions can be effected. In
addition to the risks which apply to all options transactions, there are several
special risks relating to options on interest rate futures contracts. The
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Compared to the use of interest rate
futures, the purchase of options on interest rate futures involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options, plus transaction costs.
OPTIONS ON FOREIGN CURRENCIES. Options on foreign currencies are used for
hedging purposes in a manner similar to that in which futures contracts on
foreign currencies, or forward contracts, are utilized. For example, a decline
in the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their value
in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Fund may purchase put
options on the foreign currency. If the value of the currency does decline, a
Fund will have the right to sell such currency for a fixed amount in dollars and
will thereby offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund derived from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the benefits of
advantageous changes in such rates.
Options on foreign currencies may be written for the same types of hedging
purposes. For example, where a Fund anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates, it could, instead of purchasing a put
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option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of Options
on foreign currencies, the Fund also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Certain Funds intend to write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if the Fund has a call on the same foreign currency
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the Exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash and liquid securities in a
segregated account with its custodian.
Certain Funds also intend to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, the Fund collateralizes the option by maintaining in a segregated
account with its custodian, cash or liquid securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked to market
daily.
RELATED INVESTMENT POLICIES. Each Fund that may invest in foreign securities may
write covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
portfolio securities and against increases in the dollar cost of securities to
be acquired. The Fund may use options on currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different, but related currency. As with other types of
options, however, the writing of an option on foreign currency will constitute
only a partial hedge up to
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<PAGE>
the amount of the premium received, and the Fund could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may be used to hedge
against fluctuations in exchange rates although, in the event of exchange rate
movements adverse to the Fund's position, it may not forfeit the entire amount
of the premium plus related transaction costs. In addition, the Fund may
purchase call options on currency when the Fund Sub-Advisor anticipates that the
currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying currency or
dispose of assets held in a segregated account until the options expire.
Similarly, if the Fund is unable to effect a closing sale transaction with
respect to options it has purchased, it would have to exercise the options in
order to realize any profit and will incur transaction costs upon the purchase
or sale of underlying currency. The Fund pays brokerage commissions or spreads
in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Fund's ability to
terminate over-the-counter options ("OTC Options") will be more limited than the
exchange-traded options. It is also possible that broker-dealers participating
in OTC Options transactions will not fulfill their obligations. Until such time
as the staff of the SEC changes its position, the Fund will treat purchased OTC
Options and assets used to cover written OTC Options as illiquid securities.
With respect to options written with primary dealers in U.S. Government
securities pursuant to an agreement requiring a closing purchase transaction at
a formula price, the amount of illiquid securities may be calculated with
reference to the repurchase formula.
FORWARD CURRENCY CONTRACTS. Because, when investing in foreign securities, a
Fund buys and sells securities denominated in currencies other than the U.S.
dollar and receives interest, dividends and sale proceeds in currencies other
than the U.S. dollar, such Funds from time to time may enter into forward
currency transactions to convert to and from different foreign currencies and to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or uses forward currency contracts to
purchase or sell foreign currencies.
A forward currency contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract. Forward currency contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward currency contract generally has no deposit
requirement and is traded at a net price without commission. Each Fund maintains
with its custodian a segregated account of liquid securities in an amount at
least equal to its obligations under
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<PAGE>
each forward currency contract. Neither spot transactions nor forward currency
contracts eliminate fluctuations in the prices of the Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
A Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into a Fund Sub-Advisor's long-term
investment decisions, a Fund will not routinely enter into foreign currency
hedging transactions with respect to security transactions; however, the Fund
Sub-Advisors believe that it is important to have the flexibility to enter into
foreign currency hedging transactions when they determine that the transactions
would be in a Fund's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
currency contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of such
securities between the date the forward currency contract is entered into and
the date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward currency contracts. In such
event the Fund's ability to utilize forward currency contracts may be
restricted. Forward currency contracts may reduce the potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The use of forward currency contracts may not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return on a
Fund's foreign currency denominated portfolio securities and the use of such
techniques will subject a Fund to certain risks.
The matching of the increase in value of a forward currency contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, a Fund may not always be able to enter into forward currency contracts
at attractive prices and this will limit the Fund's ability to use such contract
to hedge or cross-hedge its assets. Also, with regard to a Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying a Fund's cross-hedges and
the movements in the exchange rates of the foreign currencies in which the
Fund's assets that are the subject of such cross-hedges are denominated.
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BORROWING AND LENDING
BORROWING. The Funds may borrow money from banks (including their custodian
bank) or from other lenders to the extent permitted under applicable law, for
temporary or emergency purposes and to meet redemptions and may pledge their
assets to secure such borrowings. The Investment Company Act of 1940 requires
the Funds to maintain asset coverage of at least 300% for all such borrowings,
and should such asset coverage at any time fall below 300%, the Funds would be
required to reduce their borrowings within three days to the extent necessary to
meet the requirements of the 1940 Act. To reduce their borrowings, the Funds
might be required to sell securities at a time when it would be disadvantageous
to do so. In addition, because interest on money borrowed is a Fund expense that
it would not otherwise incur, the Funds may have less net investment income
during periods when its borrowings are substantial. The interest paid by the
Funds on borrowings may be more or less than the yield on the securities
purchased with borrowed funds, depending on prevailing market conditions.
A Fund may be permitted to borrow for the purposes of leveraging. Borrowing for
investment increases both investment opportunity and investment risk. Such
borrowings in no way affect the federal tax status of the Fund or its dividends.
If the investment income on securities purchased with borrowed money exceeds the
interest paid on the borrowing, the net asset value of the Fund's shares will
rise faster than would otherwise be the case. On the other hand, if the
investment income fails to cover the Fund's costs, including the interest on
borrowings or if there are losses, the net asset value of such Fund's shares
will decrease faster than would otherwise be the case. This is the speculative
factor known as leverage
LENDING. By lending its securities, a Fund can increase its income by continuing
to receive interest on the loaned securities as well as by either investing the
cash collateral in short-term securities or obtaining yield in the form of
interest paid by the borrower when U.S. Government obligations are used as
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. Each Fund
will adhere to the following conditions whenever its securities are loaned: (i)
the Fund must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Fund must be able to terminate the
loan at any time; (iv) the Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities,
and any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities.
It is the present intention of the Equity Fund and the Utility Fund to limit the
amount of loans of portfolio securities to no more than 25% of a Fund's net
assets.
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<PAGE>
OTHER INVESTMENT POLICIES
SWAP AGREEMENTS. To help enhance the value of its portfolio or manage its
exposure to different types of investments, the Funds may enter into interest
rate, currency and mortgage swap agreements and may purchase and sell interest
rate "caps," "floors" and "collars."
In a typical interest rate swap agreement, one party agrees to make regular
payments equal to a floating interest rate on a specified amount (the "notional
principal amount") in return for payments equal to a fixed interest rate on the
same amount for a specified period. If a swap agreement provides for payment in
different currencies, the parties may also agree to exchange the notional
principal amount. Mortgage swap agreements are similar to interest rate swap
agreements, except that notional principal amount is tied to a reference pool of
mortgages.
In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on a Fund's performance.
Swap agreements involve risks depending upon the other party's creditworthiness
and ability to perform, as judged by the Fund Sub-Advisor, as well as the Fund's
ability to terminate its swap agreements or reduce its exposure through
offsetting transactions. All swap agreements are considered as illiquid
securities and, therefore, will be limited, along with all of a Fund's other
illiquid securities, to 15% of that Fund's net assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, a Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. A Fund will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by a Fund may
include securities purchased on a "when, as and if issued" basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring.
Securities purchased on a when-issued or delayed-delivery basis may expose a
Fund to risk because the securities may experience fluctuations in value prior
to their actual delivery. The Fund does not accrue income with respect to a
when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed-delivery basis can
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involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
REPURCHASE AGREEMENTS. Under the terms of a typical repurchase agreement, a Fund
would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. A Fund may enter into repurchase
agreements with respect to U.S. Government securities with member banks of the
Federal Reserve System and certain non-bank dealers approved by the Board of
Trustees. Under each repurchase agreement, the selling institution is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. The Fund Sub-Advisor, acting under the
supervision of the Advisor and the Board of Trustees, reviews on an ongoing
basis the value of the collateral and the creditworthiness of those non-bank
dealers with whom the Fund enters into repurchase agreements. In entering into a
repurchase agreement, a Fund bears a risk of loss in the event that the other
party to the transaction defaults on its obligations and the Fund is delayed or
prevented from exercising its rights to dispose of the underlying securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Fund seeks to assert its rights to
them, the risk of incurring expenses associated with asserting those rights and
the risk of losing all or a part of the income from the agreement. Repurchase
agreements are considered to be collateralized loans under the Investment
Company Act of 1940, as amended (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS. In a reverse
repurchase agreement a Fund agrees to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price. Forward roll transactions are equivalent to
reverse repurchase agreements but involve mortgage-backed securities and involve
a repurchase of a substantially similar security. At the time the Fund enters
into a reverse repurchase agreement or forward roll transaction it will place in
a segregated custodial account cash or liquid securities having a value equal to
the repurchase price, including accrued interest. Reverse repurchase agreements
and forward roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the repurchase price of the
securities. Reverse repurchase agreements and forward roll transactions are
considered to be borrowings by a Fund for purposes of the limitations described
in "Investment Restrictions" below.
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when the
Fund Sub-Advisor of a Fund believes, in consultation with the Advisor, that
pursuing the Fund's basic investment strategy may be inconsistent with the best
interests of its shareholders, a Fund may invest its assets without limit in the
following money market instruments: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (including those purchased in
the form of custodial receipts), repurchase agreements, certificates of deposit,
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master notes, time deposits and bankers' acceptances issued by banks or savings
and loan associations having assets of at least $500 million as of the end of
their most recent fiscal year and high quality commercial paper.
In addition, for the same purposes, the Sub-Advisor of the International Equity
Fund may invest without limit in obligations issued or guaranteed by foreign
governments or by any of their political subdivisions, authorities, agencies or
instrumentalities that are rated in the top two rating categories by a national
rating organization or, if unrated, are determined by the Fund Sub-Advisor to be
of equivalent quality.
A Fund also may hold a portion of its assets in money market instruments or cash
in amounts designed to pay expenses, to meet anticipated redemptions or pending
investments in accordance with its objectives and policies. Any temporary
investments may be purchased on a when-issued basis.
CONVERTIBLE SECURITIES. Convertible securities may offer higher income than the
common stocks into which they are convertible and include fixed-income or zero
coupon debt securities, which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
both non-convertible debt securities and equity securities.
While convertible securities generally offer lower yields than non-convertible
debt securities of similar quality, their prices may reflect changes in the
value of the underlying common stock. Convertible securities entail less credit
risk than the issuer's common stock.
ASSET COVERAGE. To assure that a Fund's use of futures and related options, as
well as when-issued and delayed-delivery transactions, forward currency
contracts and swap transactions, are not used to achieve investment leverage,
the Fund will cover such transactions, as required under applicable SEC
interpretations, either by owning the underlying securities or by establishing a
segregated account with the Trust's custodian containing liquid securities in an
amount at all times equal to or exceeding the Fund's commitment with respect to
these instruments or contracts.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at a
specified price and are valid for a specific time period. Rights are similar to
warrants, but normally have a short duration and are distributed by the issuer
to its shareholders. A Fund may purchase warrants and rights, provided that no
Fund presently intends to invest more than 5% of its net assets at the time of
purchase in warrants and rights other than those that have been acquired in
units or attached to other securities.
SHORT-TERM TRADING. The Aggressive Growth Fund may engage in the technique of
short-term trading. Such trading involves the selling of securities held for a
short time, ranging from several months to less than a day. The object of such
short-term trading is to increase the potential for
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<PAGE>
capital appreciation and/or income of the Aggressive Growth Fund in order to
take advantage of what the Adviser believes are changes in market, industry or
individual company conditions or outlook. Any such trading would increase the
turnover rate of the Aggressive Growth Fund and its transaction costs.
VARIABLE AND FLOATING RATE SECURITIES. The Growth/Value Fund and the Aggressive
Growth Fund may acquire variable and floating rate securities, subject to each
Fund's investment objective, policies and restrictions. A variable rate security
is one whose terms provide for the readjustment of its interest rate on set
dates and which, upon such readjustment, can reasonably be expected to have a
market value that approximates its par value. A floating rate security is one
whose terms provide for the readjustment of its interest rate whenever a
specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value.
DERIVATIVES. A Fund may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as certain mortgage-related and other
asset-backed securities are in many respects like any other investment, although
they may be more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many different ways
to use them. There is a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a Fund from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. A Fund Sub-Advisor
will use derivatives only in circumstances where the Fund Sub-Advisor believes
they offer the most economic means of improving the risk/reward profile of the
Fund. Derivatives will not be used to increase portfolio risk above the level
that could be achieved using only traditional investment securities or to
acquire exposure to changes in the value of assets or indexes that by themselves
would not be purchased for the Fund. The use of derivatives for non-hedging
purposes may be considered speculative.
RATING SERVICES
The ratings of nationally recognized statistical rating organizations represent
their opinions as to the quality of the securities that they undertake to rate.
It should be emphasized, however, that ratings are relative and subjective and
are not absolute standards of quality. Although these ratings are an initial
criterion for selection of portfolio investments, each Fund Sub-Advisor also
makes its own evaluation of these securities, subject to review by the Board of
Trustees of the Trust. After purchase by a Fund, an obligation may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event would require a Fund to
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eliminate the obligation from its portfolio, but a Fund Sub-Advisor will
consider such an event in its determination of whether a Fund should continue to
hold the obligation. A description of the ratings used herein and in the Funds'
Prospectus is set forth in the Appendix to this Statement of Additional
Information.
INVESTMENT RESTRICTIONS
- - -----------------------
The following investment restrictions are "fundamental policies" of each Fund
and may not be changed with respect to a Fund without the approval of a
"majority of the outstanding voting securities" of the Fund. "Majority of the
outstanding voting securities" under the 1940 Act, and as used in this Statement
of Additional Information and the Prospectus, means, the lesser of (i) 67% or
more of the outstanding voting securities of a Fund present at a meeting if the
holders of more than 50% of the outstanding voting securities of a Fund are
present or represented by proxy or (ii) more than 50% of the outstanding voting
securities of the Fund.
THE LIMITATIONS APPLICABLE TO THE EMERGING GROWTH FUND, THE INTERNATIONAL EQUITY
FUND, THE VALUE PLUS FUND AND THE ENHANCED 30 FUND ARE:
1. BORROWING MONEY. The Funds will not borrow money or mortgage or hypothecate
assets of the Fund, except that in an amount not to exceed 1/3 of the
current value of the Fund's net assets, it may borrow money (including
through reverse repurchase agreements, forward roll transactions involving
mortgage-backed securities or other investment techniques entered into for
the purpose of leverage), and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings,
provided that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and except
that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute; for additional related restrictions, see
clause (i) under the caption "Additional Restrictions" below;
2. UNDERWRITING SECURITIES. The Funds will not underwrite securities issued by
other persons except insofar as the Funds may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
3. LOANS. The Funds will not make loans to other persons except: (a) through
the lending of the Fund's portfolio securities and provided that any such
loans do not exceed 30% of the Fund's total assets (taken at market value);
(b) through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities
of types distributed publicly or privately;
4. REAL ESTATE, MINERAL LEASES AND COMMODITIES. The Funds will not purchase or
sell real estate (including limited partnership interests but excluding
securities secured by real estate or interests therein), interests in oil,
gas or mineral leases, commodities or commodity contracts
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(except futures and option contracts) in the ordinary course of business
(except that the Fund may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of securities);
5. CONCENTRATION OF INVESTMENTS. Each Fund will not concentrate its
investments in any particular industry (excluding U.S. Government
securities), but if it is deemed appropriate for the achievement of a
Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
6. SENIOR SECURITIES. A Fund will not issue any senior security (as that term
is defined in the 1940 Act) if such issuance is specifically prohibited by
the 1940 Act or the rules and regulations promulgated thereunder, provided
that collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered to be
the issuance of a senior security for purposes of this restriction; and
7. AMOUNTS INVESTED IN ONE ISSUER. With respect to 75% of its total assets
taken at market value, a Fund will not invest in assets other than cash and
cash items (including receivables), U.S. Government securities, securities
of other investment companies and other securities for purposes of this
calculation limited in respect of any one issuer to an amount not greater
in value than 5% of the value of the total assets of the Fund and to not
more than 10% of the outstanding voting securities of such issuer.
ADDITIONAL RESTRICTIONS. Each of the Emerging Growth Fund, the International
Equity Fund, the Value Plus Fund and the Enhanced 30 Fund (or the Trust, on
behalf of each Fund) have adopted the following additional restrictions as a
matter of "operating policy." These restrictions are changeable by the Board of
Trustees without a shareholder vote, except that no operating policy or
investment restriction shall prevent a Fund from investing all of its assets in
an open-end investment company with substantially the same investment
objectives):
1. BORROWING MONEY. A Fund will not borrow money (including through reverse
repurchase agreements or forward roll transactions involving
mortgage-backed securities or similar investment techniques entered into
for leveraging purposes), except that the Fund may borrow for temporary or
emergency purposes up to 10% of its total assets; provided, however, that
no Fund may purchase any security while outstanding borrowings exceed 5%;
2. PLEDGING. A Fund will not pledge, mortgage or hypothecate for any purpose
in excess of 10% of the Fund's total assets (taken at market value),
provided that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and reverse
repurchase agreements are not considered a pledge of assets for purposes of
this restriction;
3. MARGIN PURCHASES. A Fund will not purchase any security or evidence of
interest therein on margin, except that such short-term credit as may be
necessary for the clearance of purchases
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and sales of securities may be obtained and except that deposits of initial
deposit and variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
4. SELLING SECURITIES. A Fund will not sell any security which it does not own
unless by virtue of its ownership of other securities it has at the time of
sale a right to obtain securities, without payment of further
consideration, equivalent in kind and amount to the securities sold and
provided that if such right is conditional the sale is made upon the same
conditions;
5. INVESTING FOR CONTROL. A Fund will not invest for the purpose of exercising
control or management;
6. SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund will not purchase
securities issued by any investment company except by purchase in the open
market where no commission or profit to a sponsor or dealer results from
such purchase other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part of a plan of
merger or consolidation; provided, however, that securities of any
investment company will not be purchased for a Fund if such purchase at the
time thereof would cause: (a) more than 10% of the Fund's total assets
(taken at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Fund's total assets
(taken at the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Fund; provided further
that, except in the case of a merger or consolidation, the Fund shall not
purchase any securities of any open-end investment company unless the Fund
(1) waives the investment advisory fee, with respect to assets invested in
other open-end investment companies and (2) incurs no sales charge in
connection with the investment;
7. ILLIQUID SECURITIES. A Fund will not invest more than 15% of the Fund's net
assets (taken at the greater of cost or market value) in securities that
are illiquid or not readily marketable (defined as a security that cannot
be sold in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the security) not
including (a) Rule 144A securities that have been determined to be liquid
by the Board of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which is not traded flat or in default as to
interest or principal and either (i) is rated in one of the two highest
categories by at least two nationally recognized statistical rating
organizations and the Fund's Board of Trustees has determined the
commercial paper to be liquid; or (ii) is rated in one of the two highest
categories by one nationally recognized statistical rating agency and the
Fund's Board of Trustees has determined that the commercial paper is
equivalent quality and is liquid;
8. RESTRICTED SECURITIES. A Fund will not invest more than 10% of its total
assets in securities that are restricted from being sold to the public
without registration under the 1933 Act (other than Rule 44A Securities
deemed liquid by the Fund's Board of Trustees);
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<PAGE>
9. SECURITIES OF ONE ISSUER. A Fund will not purchase securities of any issuer
if such purchase at the time thereof would cause the Fund to hold more than
10% of any class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class, except that futures or
option contracts shall not be subject to this restriction;
10. SHORT SALES. A Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open it owns
an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities
of the same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Fund's net assets (taken at market value)
is represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Funds have no
current intention to engage in short selling);
11. PURCHASE OF PUTS AND CALLS. A Fund will not purchase puts, calls,
straddles, spreads and any combination thereof if by reason thereof the
value of the Fund's aggregate investment in such classes of securities will
exceed 5% of its total assets;
12. WRITING OF PUTS AND CALLS. A Fund will not write puts and calls on
securities unless each of the following conditions are met: (a) the
security underlying the put or call is within the investment policies of
the Fund and the option is issued by the OCC, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold shall
not exceed 50% of the Fund's net assets; (c) the securities subject to the
exercise of the call written by the Fund must be owned by the Fund at the
time the call is sold and must continue to be owned by the Fund until the
call has been exercised, has lapsed, or the Fund has purchased a closing
call, and such purchase has been confirmed, thereby extinguishing the
Fund's obligation to deliver securities pursuant to the call it has sold;
and (d) at the time a put is written, the Fund establishes a segregated
account with its custodian consisting of cash or liquid securities equal in
value to the amount the Fund will be obligated to pay upon exercise of the
put (this account must be maintained until the put is exercised, has
expired, or the Fund has purchased a closing put, which is a put of the
same series as the one previously written); and
13. PUTS AND CALLS ON FUTURES. A Fund will not buy and sell puts and calls on
securities, stock index futures or options on stock index futures, or
financial futures or options on financial futures unless such options are
written by other persons and: (a) the options or futures are offered
through the facilities of a national securities association or are listed
on a national securities or commodities exchange, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such options
which are held at any time do not exceed 20% of the Fund's total net
assets; and (c) the aggregate margin deposits required on all such futures
or options thereon held at any time do not exceed 5% of the Fund's total
assets.
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THE LIMITATIONS APPLICABLE TO THE UTILITY FUND ARE:
1. BORROWING MONEY. The Fund will not borrow money, except (a) from
a bank, provided that immediately after such borrowing there is asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets.
2. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. MARGIN PURCHASES. The Fund will not purchase any securities on "margin"
(except such short-term credits as are necessary for the clearance of
transactions or to the extent necessary to engage in transactions described in
the Statement of Additional Information which involve margin purchases).
4. SHORT SALES. The Fund will not make short sales of securities.
5. OPTIONS. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in the
Statement of Additional Information.
6. MINERAL LEASES. The Fund will not purchase oil, gas or other mineral
leases, rights or royalty contracts.
7. UNDERWRITING. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities, a Fund may be deemed an
underwriter under certain federal securities laws.
8. ILLIQUID INVESTMENTS. The Fund will not purchase securities which cannot
be readily resold to the public because of legal or contractual restrictions on
resale or for which no readily available market exists or engage in a repurchase
agreement maturing in more than seven days if, as a result thereof, more than
10% of the value of the net assets of the Fund would be invested in such
securities.
9. REAL ESTATE. The Fund will not purchase, hold or deal in real estate or
real estate mortgage loans, except that the Fund may purchase (a) securities of
companies (other than limited partnerships) which deal in real estate or (b)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
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10. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
marketable bonds, debentures, commercial paper or corporate notes, and similar
marketable evidences of indebtedness which are part of an issue for the public.
11. INVESTING FOR CONTROL. The Fund will not invest in companies for the
purpose of exercising control.
12. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 10% of
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company.
13. AMOUNT INVESTED IN ONE ISSUER. The Fund will not invest more than 5% of
its total assets in the securities of any issuer; provided, however, that there
is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
14. VOTING SECURITIES OF ANY ISSUER. The Fund will not purchase 5% or more
of the outstanding voting securities of any electric or gas utility company (as
defined in the Public Utility Holding Company Act of 1935), or purchase more
than 10% of the outstanding voting securities of any other issuer.
15. SECURITIES OWNED BY AFFILIATES. The Fund will not purchase or retain
the securities of any issuers if those officers and Trustees of the Trust or
officers, directors, or partners of its Adviser, owning individually more than
one-half of 1% of the securities of such issuer, own in the aggregate more than
5% of the securities of such issuer.
16. INDUSTRY CONCENTRATION. Under normal market conditions, the Fund will
invest more than 25% of its total assets in the public utilities industry. The
Fund will not invest more than 25% of its total assets in any particular
industry except the public utilities industry. For purposes of this limitation,
the public utilities industry includes companies that produce or supply electric
power, natural gas, water, sanitary services, telecommunications and other
communications services (but not radio or television broadcasters) for public
use or consumption.
17. SENIOR SECURITIES. The Fund will not issue or sell any senior security
as defined by the Investment Company Act of 1940 except insofar as any borrowing
that the Fund may engage in may be deemed to be an issuance of a senior
security.
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<PAGE>
THE LIMITATIONS APPLICABLE TO THE EQUITY FUND ARE:
1. BORROWING MONEY. The Fund will not borrow money, except (a) as a
temporary measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets. While the Fund's
borrowings are in excess of 5% of its total assets, the Fund will not purchase
any additional portfolio securities. The Fund will not pledge, mortgage or
hypothecate its assets except in connection with borrowings described in this
investment limitation.
2. MARGIN PURCHASES. The Fund will not purchase any securities on "margin"
(except such short-term credit as are necessary for the clearance of
transactions).
3. SHORT SALES. The Fund will not make short sales of securities.
4. OPTIONS. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures.
5. MINERAL LEASES. The Fund will not purchase oil, gas or other mineral
leases or exploration or development programs.
6. UNDERWRITING. The Fund will not act as underwriter of securities issued
by other persons, either directly or through a majority owned subsidiary. This
limitation is not applicable to the extent that, in connection with the
disposition of its portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal securities laws.
7. ILLIQUID INVESTMENTS. The Fund will not purchase securities which cannot
be readily resold to the public because of legal or contractual restrictions on
resale or for which no readily available market exists or engage in a repurchase
agreement maturing in more than seven days if, as a result thereof, more than
15% of the value of the Fund's net assets would be invested in such securities.
8. CONCENTRATION. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
9. REAL ESTATE. The Fund will not purchase, hold or deal in real estate,
including real estate limited partnerships.
10. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities if the borrower agrees to maintain collateral
marked to market daily in an amount at least equal to the market value of the
loaned securities, or (b) by engaging in repurchase agreements. For purposes of
this limitation, the term "loans" shall not include the purchase of marketable
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness which are part of an issue for the public.
- 37 -
<PAGE>
11. INVESTING FOR CONTROL. The Fund will not invest in companies for the
purpose of exercising control.
12. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 10% of
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company.
13. SECURITIES OF ONE ISSUER. The Fund will not purchase the securities of
any issuer if such purchase at the time thereof would cause more than 5% of the
value of its total assets to be invested in the securities of such issuer (the
foregoing limitation does not apply to investments in government securities as
defined in the Investment Company Act of 1940).
14. SECURITIES OF ONE CLASS. The Fund will not purchase the securities of
any issuer if such purchase at the time thereof would cause 10% of any class of
securities of such issuer to be held by the Fund, or acquire more than 10% of
the outstanding voting securities of such issuer. (All outstanding bonds and
other evidences of indebtedness shall be deemed to be a single class of
securities of the issuer).
15. SECURITIES OWNED BY AFFILIATES. The Fund will not purchase or retain
the securities of any issuers if those officers and Trustees of the Trust or
officers, directors, or partners of its Adviser, owning individually more than
one-half of 1% of the securities of such issuer, own in the aggregate more than
5% of the securities of such issuer.
16. SENIOR SECURITIES. The Fund will not issue or sell any senior security.
This limitation is not applicable to short-term credit obtained by the Fund for
the clearance of purchases and sales or redemptions of securities, or to
arrangements with respect to transactions involving forward foreign currency
exchange contracts, options, futures contracts, short sales and other similar
permitted investments and techniques.
THE LIMITATIONS APPLICABLE TO THE GROWTH/VALUE FUND AND THE AGGRESSIVE
GROWTH FUND ARE:
1. BORROWING MONEY. Each Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of a Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Growth/Value Fund's total assets. Each Fund
also will not make any borrowing which would cause outstanding borrowings to
exceed one-third of the value of its total assets.
2. PLEDGING. Each Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. Each Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
- 38 -
<PAGE>
3. OPTIONS. Each Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in this
Statement of Additional Information.
4. MINERAL LEASES. Each Fund will not purchase oil, gas or other mineral
leases, rights or royalty contracts.
5. UNDERWRITING. Each Fund will not act as underwriters of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of its portfolio securities, a Fund may be
deemed an underwriter under certain federal securities laws.
6. CONCENTRATION. Each Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
7. COMMODITIES. Each Fund will not purchase, hold or deal in commodities
and will not invest in oil, gas or other mineral explorative or development
programs.
8. REAL ESTATE. Each Fund will not purchase, hold or deal in real estate or
real estate mortgage loans, except it may purchase (a) U.S. Government
obligations, (b) securities of companies which deal in real estate, or (c)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
9. LOANS. Each Fund will not make loans to other persons if, as a result,
more than one-third of the value of its total assets would be subject to such
loans. This limitation does not apply to (a) the purchase of marketable bonds,
debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness which are part of an issue for the public or (b) entry
into repurchase agreements.
10. INVESTING FOR CONTROL. Each Fund will not invest in companies for the
purpose of exercising control.
11. SENIOR SECURITIES. Each Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by a
Fund for the clearance of purchases and sales or redemptions of securities, or
to arrangements with respect to transactions involving options, futures
contracts and other similar permitted investments and techniques.
THE FOLLOWING INVESTMENT LIMITATIONS FOR THE GROWTH/VALUE FUND AND THE
AGGRESSIVE GROWTH FUND ARE NONFUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER
APPROVAL:
1. ILLIQUID INVESTMENTS. Each Fund will not purchase securities for which
there are legal or contractual restrictions on resale or for which no readily
available market exists (or engage in a repurchase agreement maturing in more
than seven days) if, as a result thereof, more than 15% of the value of a Fund's
net assets would be invested in such securities.
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<PAGE>
2. MARGIN PURCHASES. Each Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by a Fund for the clearance of purchases and sales or redemption
of securities or to the extent necessary to engage in transactions described in
the Prospectus and Statement of Additional Information which involve margin
purchases.
3. SHORT SALES. Each Fund will not make short sales of securities.
4. OTHER INVESTMENT COMPANIES. Each Fund will not invest more than 5% of
its total assets in the securities of any investment company and will not invest
more than 10% of the value of its total assets in securities of other investment
companies.
With respect to the percentages adopted by the Trust as maximum limitations
on the Funds' investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money or investing in illiquid securities) will not be a violation of the policy
or restriction unless the excess results immediately and directly from the
acquisition of any security or the action taken.
The Utility Fund will limit its investments so that it will not be a public
utility holding company or acquire public utility company securities in
violation of the Public Utility Holding Company Act of 1935.
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the Trust,
their compensation from the Trust and their aggregate compensation from the
Touchstone Family of mutual funds for the fiscal year ended March 31, 1999.
Messrs. Coleman, Cox, Schwab and Stautberg did not receive any compensation from
the Trust during the fiscal year since they did not begin serving as Trustees
until October 1999.
Each Trustee who is an "interested person" of the Trust, as defined by the
Investment Company Act of 1940, is indicated by an asterisk. Each of the
Trustees is also a Trustee of Touchstone Tax-Free Trust and Touchstone
Investment Trust.
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<PAGE>
AGGREGATE
COMPENSATION
COMPENSATION FROM
POSITION FROM TOUCHSTONE
NAME HELD TRUST COMPLEX(1)
- - --------------------- ------ --------- ----------
William O. Coleman Trustee $ 0 $ 2,192
Phillip R. Cox Trustee 0 10,000
+H. Jerome Lerner Trustee 4,000 12,000
*Robert H. Leshner President/Trustee 0 0
*Jill T. McGruder Trustee 0 0
+Oscar P. Robertson Trustee 4,000 12,000
Nelson Schwab, Jr. Trustee 0 2,192
+Robert E. Stautberg Trustee 0 10,000
Joseph S. Stern, Jr. Trustee 0 8,000
Maryellen Peretzky Vice President 0 0
Tina D. Hosking Secretary 0 0
Theresa M. Samocki Treasurer 0 0
(i) The Western-Southern complex of mutual funds consists of eight series of
the Trust, six series of Touchstone Tax-Free Trust, six series of
Touchstone Investment Trust and eleven series of Touchstone Variable Series
Trust.
* Ms. McGruder, as President and a director of Touchstone Advisors, Inc., the
Trust's investment advisor and Touchstone Securities, Inc., the Trust's
distributor, and Mr. Leshner, as an employee of Fort Washington Investment
Advisors, Inc., a Fund Sub-Advisor, are each an "interested person" of the
Trust within the meaning of Section 2(a)(19) of the Investment Company Act
of 1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
WILLIAM O. COLEMAN, Age 70, 2 Noel Lane, Cincinnati, Ohio is a retired
General Sales Manager and Vice President of The Procter & Gamble Company and a
trustee of The Procter & Gamble Profit Sharing Plan and The Procter & Gamble
Employee Stock Ownership Plan. He is a director of LCA Vision (a laser vision
correction institute) and a trustee of Touchstone Variable Series Trust (a
registered investment company).
PHILLIP R. COX, Age 52, 105 East Fourth Street, Cincinnati, Ohio is
President and Chief Executive Officer of Cox Financial Corp. (a financial
services company). He is a director of the Federal Reserve Bank of Cleveland,
Cincinnati Bell Inc., PNC Bank N.A. and Cinergy Corporation. He is also a
trustee of Touchstone Variable Series Trust.
H. JEROME LERNER, Age 61, 7149 Knoll Road, Cincinnati, Ohio is a principal
of HJL Enterprises and is Chairman of Crane Electronics, Inc. (a manufacturer of
electronic connectors).
- 41 -
<PAGE>
He is also a director of Slush Puppy Inc. (a manufacturer of frozen beverages)
and Peerless Manufacturing (a manufacturer of bakery equipment).
ROBERT H. LESHNER, Age 60, 312 Walnut Street, Cincinnati, Ohio is President
and a Trustee of Countrywide Investment Trust and Countrywide Tax-Free Trust,
registered investment companies. He is also President and a director of
Countrywide Investments, Inc. (an investment adviser and principal underwriter).
Until 1999, he was President and a director of Countrywide Financial Services,
Inc. (a financial services company and parent of Countrywide Investments, Inc.,
Countrywide Fund Services, Inc. and CW Fund Distributors, Inc.), Countrywide
Fund Services, Inc. (a registered transfer agent) and CW Fund Distributors, Inc.
(a registered broker-dealer).
JILL T. McGRUDER, Age 44, 311 Pike Street, Cincinnati, Ohio is President,
Chief Executive Officer and a director of IFS Financial Services, Inc. (a
holding company), Touchstone Advisors, Inc. (the investment advisor to the
Trust) and Touchstone Securities, Inc. (the principal underwriter of the Trust).
She is a Senior Vice President of The Western-Southern Life Insurance Company
and a director of Capital Analysts Incorporated (a registered investment adviser
and broker-dealer), Countrywide Financial Services, Inc., Countrywide
Investments, Inc., CW Fund Distributors, Inc. and Countrywide Fund Services,
Inc. She is also President and a director of IFS Agency Services, Inc. and IFS
Insurance Agency, Inc. (insurance agencies). Until December 1996, she was
National Marketing Director of Metropolitan Life Insurance Co. From 1991 until
1996, she was Vice President of Touchstone Advisors, Inc. and IFS Financial
Services, Inc.
OSCAR P. ROBERTSON, Age 60, 4293 Muhlhauser Road, Fairfield, Ohio is
President of Orchem Corp., a chemical specialties distributor, and Orpack Stone
Corporation, a corrugated box manufacturer.
NELSON SCHWAB, JR., Age 81, 511 Walnut Street, Cincinnati, Ohio is Senior
Counsel of Graydon, Head & Ritchey (a law firm). He is a director of Rotex, Inc.
(a machine manufacturer), The Ralph J. Stolle Company and Security Rug Cleaning
Company. He is also a trustee of Touchstone Variable Series Trust.
ROBERT E. STAUTBERG, Age 65, 4815 Drake Road, Cincinnati, Ohio is a retired
partner and director of KPMG Peat Marwick LLP. He is a trustee of Good Samaritan
Hospital, Bethesda Hospital and Tri Health. He is also a trustee of Touchstone
Variable Series Trust.
JOSEPH S. STERN, JR., Age 81, 3 Grandin Place, Cincinnati, Ohio is a
retired Professor Emeritus of the University of Cincinnati College of Business.
He is also a Trustee of Touchstone Variable Series Trust.
TINA D. HOSKING, Age 31, 312 Walnut Street, Cincinnati, Ohio is Vice
President and Associate General Counsel of Countrywide Fund Services, Inc. and
CW Fund Distributors, Inc. She is also Secretary of Countrywide Tax-Free Trust
and Countrywide Investment Trust.
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<PAGE>
THERESA M. SAMOCKI, Age 30, 312 Walnut Street, Cincinnati, Ohio is Vice
President-Fund Accounting of Intrust Fund Solutions, Inc. and IFS Fund
Distributors, Inc. She is also Treasurer of Touchstone Tax-Free Trust and
Touchstone Investment Trust.
Each Trustee, except for Mr. Leshner and Ms. McGruder, receives a quarterly
retainer of $1,500 and a fee of $1,500 for each Board meeting attended. Such
fees are split equally among the Trust, Touchstone Tax-Free Trust and Touchstone
Investment Trust.
THE INVESTMENT ADVISOR AND SUB-ADVISORS
- - ---------------------------------------
THE INVESTMENT ADVISOR. Touchstone Advisors, Inc. (the "Advisor"), is the Funds'
investment manager. The Advisor is a wholly-owned subsidiary of IFS Financial
Services, Inc., which is a wholly-owned subsidiary of Western-Southern Life
Assurance Company. Western-Southern Life Assurance Company is a wholly-owned
subsidiary of The Western and Southern Life Insurance Company. Ms. McGruder may
be deemed to be an affiliate of the Advisor because of her position as President
and Director of the Advisor. Mr. Leshner may be deemed to be an affiliate of the
Advisor because of his employment with Fort Washington Investment Advisors,
Inc., an affiliate of the Advisor. Ms. McGruder and Mr. Leshner, by reason of
such affiliations may directly or indirectly receive benefits from the advisory
fees paid to the Advisor.
Under the terms of the investment advisory agreement between the Trust and the
Advisor, the Advisor appoints and supervises each Fund Sub-Advisor, reviews and
evaluates the performance of a Fund's Sub-Advisor and determines whether or not
the Fund's Sub-Advisor should be replaced. The Advisor furnishes at its own
expense all facilities and personnel necessary in connection with providing
these services. Each Fund pays the Advisor a fee computed and accrued daily and
paid monthly at an annual rate as shown below:
Emerging Growth Fund 0.80%
International Equity Fund 0.95%
Value Plus Fund 0.75%
Enhanced 30 Fund 0.65%
Equity Fund 0.75% on the first $200 million
Utility Fund 0.70% from $200 million to $500 million
0.50% thereafter
Growth/Value Fund 1.00% on the first $50 million
Aggressive Growth Fund .90% from $50 million to 100 million
.80% from $100 million to $200 million
.75% thereafter
Set forth below are the advisory fees incurred by the Emerging Growth Fund, the
International Equity Fund and the Value Plus Fund for the fiscal periods ended
December 31, 1999, 1998 and 1997. The Advisor has contractually agreed to waive
fees and reimburse certain expenses, as setforth in the footnote below:
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<PAGE>
1999 1998 1997
Emerging Growth Fund(1) $ 96,269 $ 76,428 $ 48,463
International Equity Fund(2) $117,039 $110,226 $ 73,217
Value Plus Fund(3) $224,988 $123,531 --
(1) The Advisor waived fees and reimbursed the Fund $420,137, $43,744 and
$84,098 for the fiscal years ended December 31, 1999, 1998 and 1997,
respectively.
(2) The Advisor waived fees and reimbursed the Fund $545,324, $126,131 and
$200,506 for the fiscal years ended December 31, 1999, 1998 and 1997,
respectively.
(3) The Advisor waived fees and reimbursed the Fund $609,862 and $48,591 for
the fiscal periods ended December 31, 1999 and 1998, respectively.
Prior to May 1, 2000, Countrywide Investments, Inc. ("Countrywide") was the
investment advisor for the Utility Fund, the Equity Fund, the Growth/Value Fund
and the Aggressive Growth Fund. Prior to August 29, 1997, the investment adviser
for the Growth/Value Fund and the Aggressive Growth Fund was Trans Financial
Bank, N.A. and their fiscal year end was August 31. Set forth below are the
advisory fees paid by the Utility Fund and the Equity Fund during the fiscal
periods ended March 31, 1999, 1998 and 1997 and the advisory fees paid by the
Growth/Value Fund and the Aggressive Growth Fund during the fiscal periods ended
March 31, 1999 and 1998 and August 31, 1997.
1999 1998 1997
Utility Fund $326,576 $303,151 $319,201
Equity Fund(1) 375,212 221,798 91,182
Growth/Value Fund 254,571 160,090 206,612
Aggressive Growth Fund(2) 125,575 85,703 30,082
(1) Countrywide voluntarily waived $21,000 of its fees for the fiscal year
ended March 31, 1997 and voluntarily reimbursed the Fund for $5,834 of
Class A expenses.
(2) Countrywide voluntarily waived $6,473 of its fees for the fiscal year ended
March 31, 1999. Trans Financial Bank voluntarily waived $64,077 of its fees
for the fiscal year ended August 31, 1997.
The Funds shall pay the expenses of their operation, including but not limited
to (i) charges and expenses for accounting, pricing and appraisal services and
related overhead, (ii) the charges and expenses of auditors; (iii) the charges
and expenses of any custodian, transfer agent, plan agent, dividend disbursing
agent and registrar appointed by the Trust with respect to the Funds; (iv)
brokers' commissions, and issue and transfer taxes chargeable to the Funds in
connection with securities transactions to which a Fund is a party; (v)
insurance premiums, interest charges, dues and fees for membership in trade
associations and all taxes and fees payable to federal, state or other
governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the Funds with the SEC, state or blue sky
securities agencies and foreign countries, including the preparation of
Prospectuses and Statements of Additional Information
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<PAGE>
for filing with the SEC; (vii) all expenses of meetings of Trustees and of
shareholders of the Trust and of preparing, printing and distributing
prospectuses, notices, proxy statements and all reports to shareholders and to
governmental agencies; (viii) charges and expenses of legal counsel to the
Trust; (ix) compensation of Trustees of the Trust; and (x) interest on borrowed
money, if any. The compensation and expenses of any officer, Trustee or employee
of the Trust who are affiliated persons of the Advisor are paid by the Advisor.
By its terms, the Funds' investment advisory agreement will remain in force
until May 1, 2002 and from year to year thereafter, subject to annual approval
by (a) the Board of Trustees or (b) a vote of the majority of a Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Funds' investment advisory agreement may be terminated at any
time, on sixty days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of a Fund's outstanding voting
securities, or by the Advisor. The investment advisory agreement automatically
terminates in the event of its assignment, as defined by the 1940 Act and the
rules thereunder.
THE SUB-ADVISORS. The Advisor has retained one or more sub-advisors ("the
Sub-Advisor") to serve as the discretionary portfolio manager of each Fund. The
Sub-Advisor selects the portfolio securities for investment by a Fund, purchases
and sells securities of a Fund and places orders for the execution of such
portfolio transactions, subject to the general supervision of the Board of
Trustees and the Advisor. The Sub-Advisor receives a fee from the Advisor which
is paid monthly at an annual rate of a Fund's average daily net assets as set
forth below.
EMERGING GROWTH FUND
David L. Babson & Company, Inc. 0.50%
Westfield Capital Management Company, Inc. 0.45% on the first $10 million,
0.40% on the next $40 million,
0.35% thereafter
INTERNATIONAL EQUITY FUND
Credit Suisse Asset Management 0.85% on the first $30 million,
0.80% on the next $20 million,
0.70% on the next $20 million,
0.60% thereafter
VALUE PLUS FUND, UTILITY FUND AND EQUITY FUND
Fort Washington Investment Advisors, Inc. 0.45%
ENHANCED 30 FUND
Todd Investment Advisors, Inc. 0.40%
GROWTH/VALUE FUND AND AGGRESSIVE GROWTH FUND
Mastrapasqua & Associates, Inc. 0.60% on the first $50 million,
0.50% on the next $50 million,
0.40% on the next $100 million,
0.35% thereafter
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<PAGE>
The services provided by the Sub-Advisors are paid for wholly by the Advisor.
The compensation of any officer, director or employee of the Sub-Advisor who is
rendering services to a Fund is paid by the Sub-Advisor.
The employment of each Sub-Advisor will remain in force until May 1, 2001 and
from year to year thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of the majority of a Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting such approval. The
employment of the Sub-Advisor may be terminated at any time, on sixty days'
written notice, without the payment of any penalty, by the Board of Trustees, by
a vote of a majority of a Fund's outstanding voting securities, by the Advisor,
or by the Sub-Advisor. Each Sub-Advisory Agreement will automatically terminate
in the event of its assignment, as defined by the 1940 Act and the rules
thereunder.
THE DISTRIBUTOR
- - ---------------
Touchstone Securities, Inc. (the "Distributor") is the principal underwriter of
the Trust and, as such, the exclusive agent for distribution of shares of the
Funds. The Distributor is an affiliate of the Advisor by reason of common
ownership. The Distributor is obligated to sell the shares on a best efforts
basis only against purchase orders for the shares. Shares of the Funds are
offered to the public on a continuous basis.
The Distributor currently allows concessions to dealers who sell shares of the
Funds. The Distributor receives that portion of the sales load which is not
reallowed to the dealers who sell shares of a Fund. The Distributor retains the
entire sales load on all direct initial investments in a Fund and on all
investments in accounts with no designated dealer of record.
Prior to May 1, 2000, Countrywide served as the distributor for the Utility
Fund, the Equity Fund, the Growth/Value Fund and the Aggressive Growth Fund. For
the fiscal year ended March 31, 1999, the aggregate underwriting commissions on
sales of the Trust's shares were $90,474 of which Countrywide paid $69,549 to
unaffiliated broker-dealers in the selling network, earned $12,602 as a
broker-dealer in the selling network and retained $8,323 in underwriting
commissions. For the fiscal year ended March 31, 1998, the aggregate
underwriting commissions on sales of the Trust's shares were $70,717 of which
Countrywide paid $51,599 to unaffiliated broker-dealers in the selling network,
earned $12,478 as a broker-dealer in the selling network and retained $6,640 in
underwriting commissions. For the fiscal year ended March 31, 1997, the
aggregate underwriting commissions on sales of the Trust's shares were $70,478
of which Countrywide paid $60,141 to unaffiliated broker-dealers in the selling
network, earned $3,617 as a broker-dealer in the selling network and retained
$6,720 in underwriting commissions.
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<PAGE>
The Distributor retains the contingent deferred sales load on redemptions of
shares of the Funds which are subject to a contingent deferred sales load. For
the fiscal year ended March 31, 1999, Countrywide collected $457 and $693 of
contingent deferred sales loads on redemptions of Class C shares of the Utility
Fund and the Equity Fund, respectively. For the fiscal year ended March 31,
1998, Countrywide collected $1,756 and $957 of contingent deferred sales loads
on redemptions of Class C shares of the Utility Fund and the Equity Fund,
respectively. For the fiscal year ended March 31, 1997, Countrywide collected
$1,141 and $505 of contingent deferred sales loads on redemptions of Class C
shares of the Utility Fund and the Equity Fund, respectively.
The Funds may compensate dealers, including the Distributor and its affiliates,
based on the average balance of all accounts in the Funds for which the dealer
is designated as the party responsible for the account. See "Distribution Plans"
below.
DISTRIBUTION PLANS
- - ------------------
CLASS A SHARES -- The Funds have adopted a plan of distribution (the "Class A
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 which
permits a Fund to pay for expenses incurred in the distribution and promotion of
its shares, including but not limited to, the printing of prospectuses,
statements of additional information and reports used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
promotion, marketing and sales expenses, and other distribution-related
expenses, including any distribution fees paid to securities dealers or other
firms who have executed a distribution or service agreement with the
Distributor. The Class A Plan expressly limits payment of the distribution
expenses listed above in any fiscal year to a maximum of .25% of the average
daily net assets of Class A shares of a Fund. Unreimbursed expenses will not be
carried over from year to year.
For the fiscal year ended March 31, 1999, the aggregate distribution-related
expenditures of the Utility Fund, the Equity Fund, the Growth/Value Fund and the
Aggressive Growth Fund under the Class A Plan were 92,176, $117,348, $57,474 and
$19,824, respectively. Amounts were spent as follows:
<TABLE>
<CAPTION>
Growth/ Aggresssive
Utility Equity Value Growth
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Printing and mailing of prospectuses
and reports to prospective shareholders.. $ 5,546 $ 6,175 $ 5,719 $ 2,878
Payments to broker-dealers and others
For the sale or retention of assets...... 87,170 111,173 51,755 16,946
------- -------- ------- -------
$92,716 $117,348 $57,474 $19,824
</TABLE>
For the fiscal year ended December 31, 1999, the aggregate distribution-related
expenditures of the Emerging Growth Fund, the International Equity Fund and the
Value Plus Fund under the Class A Plan were $21,608, $17,648 and $73,078,
respectively.
- 47 -
<PAGE>
CLASS C SHARES -- The Funds have also adopted a plan of distribution (the "Class
C Plan") with respect to the Class C shares of a Fund. The Class C Plan provides
for two categories of payments. First, the Class C Plan provides for the payment
to the Distributor of an account maintenance fee, in an amount equal to an
annual rate of .25% of the average daily net assets of the Class C shares, which
may be paid to other dealers based on the average value of Class C shares owned
by clients of such dealers. In addition, a Fund may pay up to an additional .75%
per annum of the daily net assets of the Class C shares for expenses incurred in
the distribution and promotion of the shares, including prospectus costs for
prospective shareholders, costs of responding to prospective shareholder
inquiries, payments to brokers and dealers for selling and assisting in the
distribution of Class C shares, costs of advertising and promotion and any other
expenses related to the distribution of the Class C shares. Unreimbursed
expenditures will not be carried over from year to year. The Funds may make
payments to dealers and other persons in an amount up to .75% per annum of the
average value of Class C shares owned by their clients, in addition to the .25%
account maintenance fee described above.
For the fiscal year ended March 31, 1999, the aggregate distribution-related
expenditures of the Utility Fund and the Equity Fund under the Class C Plan were
$31,159 and $30,890, respectively. Of these amounts, the Utility Fund spent
$30,870 on payments to broker-dealers and $289 on printing and mailing of
prospectuses and reports to prospective shareholders; and the Equity Fund spent
$30,606 on payments to broker-dealers and $284 on printing and mailing of
prospectuses and reports to prospective shareholders.
For the fiscal year ended December 31, 1999, the aggregate distribution-related
expenditures of the Emerging Growth Fund, the International Equity Fund and the
Value Plus Fund under the Class C Plan were $32,920, $51,644 and $5,161,
respectively.
GENERAL INFORMATION -- Agreements implementing the Plans (the "Implementation
Agreements"), including agreements with dealers wherein such dealers agree for a
fee to act as agents for the sale of the Funds' shares, are in writing and have
been approved by the Board of Trustees. All payments made pursuant to the Plans
are made in accordance with written agreements.
The continuance of the Plans and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plans or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. A Plan may be terminated at any time
by a vote of a majority of the Independent Trustees or by a vote of the holders
of a majority of the outstanding shares of a Fund or the applicable class of a
Fund. In the event a Plan is terminated in accordance with its terms, the
affected Fund (or class) will not be required to make any payments for expenses
incurred by the Distributor after the termination date. The Implementation
Agreement terminates automatically in the event of its assignment and may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of a Fund (or the
applicable class) on not more than 60 days' written notice to any other party to
the Implementation Agreement. The Plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval.
All material amendments to the Plans must be approved by a vote of the Trust's
Board of Trustees and by a vote of the Independent Trustees.
- 48 -
<PAGE>
In approving the Plans, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds which will benefit each Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plans will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plans. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Funds pursuant
to the Plans and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each class of shares bears to the sales of all the shares
of the Fund. In addition, the selection and nomination of those Trustees who are
not interested persons of the Trust are committed to the discretion of the
Independent Trustees during such period.
Jill T. McGruder and Robert H. Leshner, as interested persons of the Trust, may
be deemed to have a financial interest in the operation of the Plans and the
Implementation Agreements.
SECURITIES TRANSACTIONS
- - -----------------------
Decisions to buy and sell securities for the Funds and the placing of the Funds'
securities transactions and negotiation of commission rates where applicable are
made by the Sub-Advisors and are subject to review by the Advisor and the Board
of Trustees. In the purchase and sale of portfolio securities, the Sub-Advisor's
primary objective will be to obtain the most favorable price and execution for a
Fund, taking into account such factors as the overall direct net economic result
to the Fund (including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing competitive
range), the financial strength and stability of the broker, the efficiency with
which the transaction will be effected, the ability to effect the transaction at
all where a large block is involved and the availability of the broker or dealer
to stand ready to execute possibly difficult transactions in the future.
For the fiscal years ended March 31, 1999, 1998 and 1997, the Utility Fund paid
brokerage commissions of $10,031, $10,445 and $25,345, respectively. For the
fiscal years ended March 31, 1999, 1998 and 1997, the Equity Fund paid brokerage
commissions of $34,209, $36,486 and $34,257, respectively. For the fiscal
periods ended March 31, 1999 and 1998, the Growth/Value Fund paid brokerage
commissions of $51,665 and $20,459, respectively. For the fiscal periods ended
March 31, 1999 and 1998, the Aggressive Growth Fund paid brokerage commissions
of $36,619 and $8,388, respectively. The higher commissions paid by the
Aggressive Growth Fund during the fiscal year ended March 31, 1999 are due to
the Fund's higher portfolio turnover rate.
For the fiscal years ended December 31, 1999, 1998 and 1997, the Emerging Growth
Fund paid brokerage commissions of $ 24,912, $21,590 and $13,110, respectively.
For the fiscal years
- 49 -
<PAGE>
ended December 31, 1999, 1998 and 1997, the International Equity Fund paid
brokerage commission of $76,155, $64,980 and $57,618, respectively. For the
fiscal periods ended December 31, 1999 and 1998, the Value Plus Fund paid
brokerage commissions of $40,604 and $44,920, respectively.
Each Sub-Advisor is specifically authorized to pay a broker who provides
research services to the Sub-Advisor an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker would
have charged for effecting such transaction, in recognition of such additional
research services rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in relation to
the value of the brokerage and research services provided by such broker or
dealer viewed in terms of the particular transaction or the Sub-Advisor's
overall responsibilities with respect to discretionary accounts that it manages,
and that the Fund derives or will derive a reasonably significant benefit from
such research services.
During the fiscal year ended March 31, 1999, the amount of brokerage
transactions and related commissions for the Equity Fund directed to brokers due
to research services provided were $17,970,437 and $34,209, respectively. During
the fiscal year ended March 31, 1999, the amount of brokerage transactions and
related commissions for the Growth/Value Fund directed to brokers due to
research services provided were $19,690,373 and $30,666, respectively. During
the fiscal year ended March 31, 1999, the amount of brokerage transactions and
related commissions for the Aggressive Growth Fund directed to brokers due to
research services provided were $15,052,360 and $25,294, respectively.
Research services include securities and economic analyses, reports on issuers'
financial conditions and future business prospects, newsletters and opinions
relating to interest trends, general advice on the relative merits of possible
investment securities for the Funds and statistical services and information
with respect to the availability of securities or purchasers or sellers of
securities. Although this information is useful to the Funds and the
Sub-Advisors, it is not possible to place a dollar value on it. Research
services furnished by brokers through whom a Fund effects securities
transactions may be used by the Sub-Advisor in servicing all of its accounts and
not all such services may be used by the Sub-Advisor in connection with a Fund.
The Funds have no obligation to deal with any broker or dealer in the execution
of securities transactions. However, the Funds may effect securities
transactions which are executed on a national securities exchange or
transactions in the over-the-counter market conducted on an agency basis. A Fund
will not effect any brokerage transactions in its portfolio securities with an
affiliated broker if such transactions would be unfair or unreasonable to its
shareholders. Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers. Although the Funds do not
anticipate any ongoing arrangements with other brokerage firms, brokerage
business may be transacted from time to time with other firms. Affiliated
broker-dealers of the Trust will not receive reciprocal brokerage business as a
result of the brokerage business transacted by the Funds with other brokers.
- 50 -
<PAGE>
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and such other policies as the Board of Trustees may
determine, the Fund Sub-Advisors may consider sales of shares of the Trust as a
factor in the selection of broker-dealers to execute portfolio transactions. The
Fund Sub-Advisor will make such allocations if commissions are comparable to
those charged by nonaffiliated, qualified broker-dealers for similar services.
In certain instances there may be securities which are suitable for a Fund as
well as for one or more of the respective Fund Sub-Advisor's other clients.
Investment decisions for a Fund and for the Fund Sub-Advisor's other clients are
made with a view to achieving their respective investment objectives. It may
develop that a particular security is bought or sold for only one client even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment advisor, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as a Fund is concerned.
However, it is believed that the ability of a Fund to participate in volume
transactions will produce better executions for the Fund.
During the fiscal year ended March 31, 1999, the Trust entered into repurchase
transactions with the following of its regular broker-dealers as defined under
the Investment Company Act of 1940: Banc One Capital Markets, Inc., Bankers
Trust Company, Fifth Third Securities, Inc., Goldman, Sachs & Co., Lehman
Brothers Inc., Morgan Stanley Dean Witter, Inc. and Nesbitt-Burns Securities,
Inc.
CODE OF ETHICS. The Trust, the Advisor, the Sub-Advisors and the Distributor
have each adopted a Code of Ethics under Rule 17j-1 of the Investment Company
Act of 1940. The Code significantly restricts the personal investing activities
of all employees of the Advisor and the Sub-Advisor and, as described below,
imposes additional, more onerous, restrictions on investment personnel of the
Advisor and the Sub-Advisor. The Code requires that all employees of the Advisor
and the Sub-Advisor preclear any personal securities investment (with limited
exceptions, such as U.S. Government obligations). The preclearance requirement
and associated procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. In addition, no employee
may purchase or sell any security which at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is being considered
for purchase or sale, by a Fund. The substantive restrictions applicable to
investment personnel of the Advisor and the Sub-Advisor include a ban on
acquiring any securities in an initial public offering. Furthermore, the Code
provides for trading "blackout periods" which prohibit trading by investment
personnel of the Advisor and the Sub-Advisor within periods of trading by a Fund
in the same (or equivalent) security. The Code of Ethics
- 51 -
<PAGE>
adopted by the Trust, the Distributor, the Advisor and the Sub-Advisors is on
public file with, and is available from, the Securities and Exchange Commission.
PORTFOLIO TURNOVER
- - ------------------
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. High turnover may result in a Fund recognizing greater amounts of income
and capital gains, which would increase the amount of commissions. A 100%
turnover rate would occur if all of the Fund's portfolio securities were
replaced once within a one year period.
Generally each Fund (except the International Equity Fund, the Growth/Value Fund
and the Aggressive Growth Fund) intends to invest for long-term purposes.
However, the rate of portfolio turnover will depend upon market and other
conditions, and it will not be a limiting factor when the Sub-Advisor believes
that portfolio changes are appropriate.
The International Equity Fund may engage in active trading to achieve its
investment goals. The Growth/Value Fund expects that the average holding period
of its equity securities will be between 18 and 36 months. If warranted by
market conditions, the Aggressive Growth Fund may engage in short-term trading
if the Sub-Advisor believes the transactions, net of costs, will result in
improving the income or the appreciation potential of the Fund's portfolio. As a
result, the International Equity Fund, the Growth/Value Fund and the Aggressive
Growth Fund each may have substantial portfolio turnover.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- - ----------------------------------------------------
The share price (net asset value) and the public offering price (net asset value
plus applicable sales load) of shares of the Funds are determined as of the
close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be open for business on other days in which there
is sufficient trading in a Fund's portfolio securities that its net asset value
might be materially affected. Securities held by a Fund may be primarily listed
on foreign exchanges or traded in foreign markets which are open on days (such
as Saturdays and U.S. holidays) when the New York Stock Exchange is not open for
business. As a result the net asset value of a Fund may be significantly
affected by trading on days when the Trust is not open for business. For a
description of the methods used to determine the share price and the public
offering price, see "Pricing of Fund Shares" in the Prospectus.
- 52 -
<PAGE>
CHOOSING A SHARE CLASS
- - ----------------------
Each Fund offers Class A and Class C shares. Each class represents an interest
in the same portfolio of investments and has the same rights, but differs
primarily in sales loads and distribution expense amounts. Before choosing a
class, you should consider the following factors, as well as any other relevant
facts and circumstances:
The decision as to which class of shares is more beneficial to you depends on
the amount of your investment, the intended length of your investment and the
quality and scope of the value-added services provided by financial advisors who
may work with a particular sales load structure as compensation for their
services. If you qualify for reduced sales loads or, in the case of purchases of
$1 million or more, no initial sales load, you may find Class A shares
attractive because similar sales load reductions are not available for Class C
shares. Moreover, Class A shares are subject to lower ongoing expenses than
Class C shares over the term of the investment. As an alternative, Class C
shares are sold with a lower initial sales load so more of the purchase price is
immediately invested in a Fund. If you do not plan to hold your shares in a Fund
for a long time (less than 5 years), it may be better to purchase Class C shares
so that more of your purchase is invested directly in the Fund, although you
will pay higher distribution fees. If you plan to hold your shares in a Fund for
more than 5 years, it may be better to purchase Class A shares, since after 5
years your accumulated distribution fees may be more than the sales load paid on
your purchase.
When determining which class of shares to purchase, you may want to consider the
services provided by your financial advisor and the compensation provided to
these financial advisors under each share class. The Distributor works with many
experienced and very qualified financial advisors throughout the country that
may provide valuable assistance to you through ongoing education, asset
allocation programs, personalized financial planning reviews or other services
vital to your long-term success. The Distributor believes that these value-added
services can greatly benefit you through market cycles and will work diligently
with your chosen financial advisor.
Below is a chart comparing the sales loads and 12b-1 fees applicable to each
class of shares:
- - --------------------------------------------------------------------------------
CLASS SALES LOAD 12b-1 FEE
- - --------------------------------------------------------------------------------
A Maximum of 5.75% initial sales load reduced 0.25%
for purchases of $50,000 and over;
shares sold without an initial sales load may be
subject to a 1.00% contingent deferred sales
load during first year if a commission was paid
to a dealer
C 1.25% initial sales load; 1.00% contingent 1.00%
deferred sales load during first year
- - --------------------------------------------------------------------------------
- 53 -
<PAGE>
If you are investing $1 million or more, it is generally more beneficial for you
to buy Class A shares because there is no front-end sales load and the annual
expenses are lower.
CLASS A SHARES
Class A shares are sold at net asset value ("NAV") plus an initial sales load.
In some cases, reduced initial sales loads for the purchase of Class A shares
may be available, as described below. Investments of $1 million or more are not
subject to a sales load at the time of purchase but may be subject to a
contingent deferred sales load of 1.00% on redemptions made within 1 year after
purchase if a commission was paid by the Distributor to a participating
unaffiliated dealer. Class A shares are also subject to an annual 12b-1
distribution fee of up to .25% of a Fund's average daily net assets allocable to
Class A shares.
The following table illustrates the current initial sales load breakpoints for
the purchase of Class A shares:
<TABLE>
<CAPTION>
Sales Sales Dealer
Charge as Charge as % Reallowance
% of Offering of Net Amount as % of Net
Price Invested Amount Invested
------------- ------------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.25 2.30 1.75
$1,000,000 or more None None
</TABLE>
The following table shows the initial sales load breakpoints for the purchase of
Class A shares of the Utility Fund, Equity Fund, Growth/Value Fund and
Aggressive Growth Fund for accounts opened before August 1, 1999:
<TABLE>
<CAPTION>
Sales Sales Dealer
Charge as Charge as % Reallowance
% of Offering of Net Amount as % of Net
Price Invested Amount Invested
------------- ------------- ---------------
<S> <C> <C> <C>
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None None
</TABLE>
- 54 -
<PAGE>
The following table shows the initial sales load breakpoints for the purchase of
Class A shares of the Emerging Growth Fund, the International Equity Fund and
the Value Plus Fund for accounts opened before May 1, 2000:
<TABLE>
<CAPTION>
Sales Sales Dealer
Charge as Charge as % Reallowance
% of Offering of Net Amount as % of Net
Price Invested Amount Invested
------------- ------------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
$1,000,000 or more None None
</TABLE>
Under certain circumstances, the Distributor may increase or decrease the
reallowance to selected dealers. In addition to the compensation otherwise paid
to securities dealers, the Distributor may from time to time pay from its own
resources additional cash bonuses or other incentives to selected dealers in
connection with the sale of shares of the Funds. On some occasions, such bonuses
or incentives may be conditioned upon the sale of a specified minimum dollar
amount of the shares of a Fund and/or other funds in the Western-Southern Family
of Funds during a specific period of time. Such bonuses or incentives may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and other dealer-sponsored programs or events.
For initial purchases of Class A shares of $1 million or more and subsequent
purchases further increasing the size of the account, participating unaffiliated
dealers will receive first year compensation of up to 1.00% of such purchases
from the Distributor. In determining a dealer's eligibility for such commission,
purchases of Class A shares of the Funds may be aggregated with concurrent
purchases of Class A shares of other funds in the Western-Southern Family of
Funds. Dealers should contact the Distributor for more information on the
calculation of the dealer's commission in the case of combined purchases.
An exchange from other Touchstone Funds will not qualify for payment of the
dealer's commission unless the exchange is from a Touchstone Fund with assets as
to which a dealer's commission or similar payment has not been previously paid.
No commission will be paid if the purchase represents the reinvestment of a
redemption from a Fund made during the previous twelve months. Redemptions of
Class A shares may result in the imposition of a contingent deferred sales load
if the dealer's commission described in this paragraph was paid in connection
with the purchase of such shares. See "Contingent Deferred Sales Load for
Certain Purchases of Class A Shares" below.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the cost or
current NAV (whichever is higher) of your existing Class A shares of any
Western-Southern Fund sold with a sales load with the amount of any current
purchases in order to take advantage of the reduced sales loads set forth in the
table above. Purchases made in any Western-Southern load fund under a Letter of
Intent may also be eligible for the reduced sales loads. The minimum
- 55 -
<PAGE>
initial investment under a Letter of Intent is $10,000. You should contact the
Transfer Agent for information about the Right of Accumulation and Letter of
Intent.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES. A
contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Funds (or shares into which such Class A shares were exchanged)
purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Distributor and the shares are
redeemed within one year from the date of purchase. The contingent deferred
sales load will be paid to the Distributor and will be equal to the commission
percentage paid at the time of purchase as applied to the lesser of (1) the NAV
at the time of purchase of the Class A shares being redeemed, or (2) the NAV of
such Class A shares at the time of redemption. If a purchase of Class A shares
is subject to the contingent deferred sales load, you will be notified on the
confirmation you receive for your purchase. Redemptions of such Class A shares
of the Funds held for at least one year will not be subject to the contingent
deferred sales load.
CLASS C SHARES
Class C shares are sold with an initial sales load of 1.25% and are subject to a
contingent deferred sales load of 1.00% on redemptions of Class C shares made
within one year of their purchase. The contingent deferred sales load will be a
percentage of the dollar amount of shares redeemed and will be assessed on an
amount equal to the lesser of (1) the NAV at the time of purchase of the Class C
shares being redeemed, or (2) the NAV of such Class C shares being redeemed. A
contingent deferred sales load will not be imposed upon redemptions of Class C
shares held for at least one year. Class C shares are subject to an annual 12b-1
fee of up to 1.00% of a Fund's average daily net assets allocable to Class C
shares. The Distributor intends to pay a commission of 2.00% of the purchase
amount to your broker at the time you purchase Class C shares.
ADDITIONAL INFORMATION ON THE CONTINGENT DEFERRED SALES LOAD. The contingent
deferred sales load is waived for any partial or complete redemption following
death or disability (as defined in the Internal Revenue Code) of a shareholder
(including one who owns the shares with his or her spouse as a joint tenant with
rights of survivorship) from an account in which the deceased or disabled is
named. The Distributor may require documentation prior to waiver of the load,
including death certificates, physicians' certificates, etc.
All sales loads imposed on redemptions are paid to the Distributor. In
determining whether the contingent deferred sales load is payable, it is assumed
that shares not subject to the contingent deferred sales load are the first
redeemed followed by other shares held for the longest period of time. The
contingent deferred sales load will not be imposed upon shares representing
reinvested dividends or capital gains distributions, or upon amounts
representing share appreciation.
The following example will illustrate the operation of the contingent deferred
sales load. Assume that you open an account and purchase 1,000 shares at $10 per
share and that six months later the NAV per share is $12 and, during such time,
you have acquired 50 additional shares
- 56 -
<PAGE>
through reinvestment of distributions. If at such time you should redeem 450
shares (proceeds of $5,400), 50 shares will not be subject to the load because
of dividend reinvestment. With respect to the remaining 400 shares, the load is
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, $4,000 of the $5,400 redemption
proceeds will be charged the load. At the rate of 1.00%, the contingent deferred
sales load would be $40. In determining whether an amount is available for
redemption without incurring a deferred sales load, the purchase payments made
for all Class C shares in your account are aggregated.
OTHER PURCHASE INFORMATION
- - --------------------------
Additional information with respect to certain types of purchases of Class A
shares of the Funds is set forth below.
AGGREGATION. Sales charge discounts are available for certain aggregated
investments. Investments which may be aggregated include those made by you, your
spouse and your children under the age of 21, if all parties are purchasing
shares for their own accounts, which may include purchases through employee
benefit plans such as an IRA, individual-type 403(b) plan or single-participant
Keogh-type plan or by a business solely controlled by these individuals (for
example, the individuals own the entire business) or by a trust (or other
fiduciary arrangement) solely for the benefit of these individuals. Individual
purchases by trustees or other fiduciaries may also be aggregated if the
investments are: (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above; (2) made for two or
more employee benefit plans of a single employer or of affiliated employers as
defined in the 1940 Act, other than employee benefit plans described above; or
(3) for a common trust fund or other pooled account not specifically formed for
the purpose of accumulating Fund shares. Purchases made for nominee or street
name accounts (securities held in the name of a Dealer or another nominee such
as a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES. To qualify for a reduced sales charge, you may combine
concurrent purchases of shares of two or more Funds (other than a money market
fund). For example, if you concurrently invest $25,000 in one Fund and $25,000
in another Fund, the sales charge would be reduced to reflect a $50,000
purchase.
RIGHT OF ACCUMULATION. A purchaser of shares of a Fund has the right to combine
the cost or current net asset value (whichever is higher) of his existing shares
of the load funds distributed by the Distributor with the amount of his current
purchases in order to take advantage of the reduced sales loads set forth in the
table in the Prospectus. The purchaser or his dealer must notify the Transfer
Agent that an investment qualifies for a reduced sales load. The reduced load
will be granted upon confirmation of the purchaser's holdings by the Transfer
Agent. A purchaser includes an individual and his immediate family members,
purchasing shares for his or their own
- 57 -
<PAGE>
account; or a trustee or other fiduciary purchasing shares for a single
fiduciary account although more than one beneficiary is involved; or employees
of a common employer, provided that economies of scale are realized through
remittances from a single source and quarterly confirmation of such purchases;
or an organized group, provided that the purchases are made through a central
administration, or a single dealer, or by other means which result in economy of
sales effort or expense (the "Purchaser").
LETTER OF INTENT. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any Purchaser of shares of a Fund who
submits a Letter of Intent to the Transfer Agent. The Letter must state an
intention to invest within a thirteen month period in any load fund distributed
by the Distributor a specified amount which, if made at one time, would qualify
for a reduced sales load. A Letter of Intent may be submitted with a purchase at
the beginning of the thirteen month period or within ninety days of the first
purchase under the Letter of Intent. Upon acceptance of this Letter, the
Purchaser becomes eligible for the reduced sales load applicable to the level of
investment covered by such Letter of Intent as if the entire amount were
invested in a single transaction.
The Letter of Intent is not a binding obligation on the Purchaser to purchase,
or the Trust to sell, the full amount indicated. During the term of a Letter of
Intent, shares representing 5% of the intended purchase will be held in escrow.
These shares will be released upon the completion of the intended investment. If
the Letter of Intent is not completed during the thirteen month period, the
applicable sales load will be adjusted by the redemption of sufficient shares
held in escrow, depending upon the amount actually purchased during the period.
The minimum initial investment under a Letter of Intent is $10,000.
A ninety-day backdating period can be used to include earlier purchases at the
Purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The Purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
WAIVER OF SALES CHARGE. Sales charges do not apply to shares of the Funds
purchased:
1. By registered representatives or other employees (and their immediate
family members) of broker/dealers, banks or other financial institutions
having agreements with the Distributor.
2. By any director, officer or other employee (and their immediate family
members) of The Western and Southern Life Insurance Company or any of its
affiliates or any portfolio advisor or service provider to the Trust.
3. By clients of any portfolio advisor who are referred to the Distributor by
a portfolio advisor.
4. In accounts as to which a broker-dealer charges an asset management fee,
provided the broker-dealer has an agreement with the Distributor.
5. As part of an employee benefit plan having more than 25 eligible employees
or a minimum of $250,000 invested in the Fund
- 58 -
<PAGE>
6. As part of an employee benefit plan which is provided administrative
services by a third-party administrator that has entered into a special
service arrangement with the Distributor.
7. As part of certain promotional programs established by the Fund and/or
Distributor.
8. By one or more members of a group of persons engaged in a common business,
profession, civic or charitable endeavor or other activity and retirees and
immediate family members of such persons pursuant to a marketing program
between the Distributor and such group.
9. By banks, bank trust departments, savings and loan associations and federal
and state credit unions.
10. Through Processing Organizations described in the Prospectuses.
There is no initial sales charge on your purchase of shares in a Roth IRA or
Roth Conversion IRA if (1) you purchase the shares with the proceeds of a
redemption made within the previous 180 days from another mutual fund complex
and (2) you paid an initial sales charge or a contingent deferred sales charge
on your investment in the other mutual fund complex.
Immediate family members are defined as the spouse, parents, siblings, natural
or adopted children, mother-in-law, father-in-law, brother-in-law and
sister-in-law of a director, officer or employee. The term "employee" is deemed
to include current and retired employees.
Exemptions must be qualified in advance by the Distributor. Your financial
advisor should call the Distributor for more information.
PURCHASES BY AFFILIATES OF COUNTRYWIDE CREDIT INDUSTRIES, INC. If you (or anyone
in your immediate family) are an employee, shareholder or customer of
Countrywide Credit Industries, Inc. or any of its affiliated companies, you may
open an account for $50. There are no minimum requirements for additional
investments. Affiliates of Countrywide Credit Industries, Inc. may also purchase
Class A shares of the Equity Fund, the Utility Fund, the Growth/Value Fund and
the Aggressive Growth Fund at net asset value.
OTHER INFORMATION. The Trust does not impose a front-end sales load or imposes a
reduced sales load in connection with purchases of shares of a Fund made under
the reinvestment privilege, purchases through exchanges and other purchases
which qualify for a reduced sales load as described herein because such
purchases require minimal sales effort by the Distributor. Purchases made at net
asset value may be made for investment only, and the shares may not be resold
except through redemption by or on behalf of the Trust.
- 59 -
<PAGE>
TAXES
- - -----
The Trust intends to qualify annually and to elect each Fund to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, each Fund must, among other
things: (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.
As a regulated investment company, each Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year; (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses, as prescribed by
the Code) for the one-year period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Each Fund shareholder will receive, if appropriate, various written notices at
the end of the calendar year as to the federal income status of his dividends
and distributions which were received from the Fund during the year.
Shareholders should consult their tax advisors as to any
- 60 -
<PAGE>
state and local taxes that may apply to these dividends and distributions. The
dollar amount of dividends excluded from federal income taxation and the dollar
amount subject to such income taxation, if any, will vary for each shareholder
depending upon the size and duration of each shareholder's investment in the
Fund. To the extent that the Fund earns taxable net investment income, the Fund
intends to designate as taxable dividends the same percentage of each dividend
as its taxable net investment income bears to its total net investment income
earned. Therefore, the percentage of each dividend designated as taxable, if
any, may vary.
FOREIGN TAXES. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to determine the effective
rate of foreign tax in advance since the amount of each applicable Fund's assets
to be invested in various countries will vary. If the Fund is liable for foreign
taxes, and if more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of stocks or securities of foreign corporations, it
may make an election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by shareholders of the entities, such as
the corresponding Fund, which have invested in the Fund. Pursuant to such
election, the amount of foreign taxes paid will be included in the income of the
corresponding Fund's shareholders, and such Fund shareholders (except tax-exempt
shareholders) may, subject to certain limitations, claim either a credit or
deduction for the taxes. Each such Fund shareholder will be notified after the
close of the Fund's taxable year whether the foreign taxes paid will "pass
through" for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid to each such country and (b) the
portion which represents income derived from sources within each such country.
The amount of foreign taxes for which a shareholder may claim a credit in any
year will generally be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Fund on the sale
of foreign securities will be treated as U.S.-source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable
income will be taxable to a U.S. shareholder as ordinary income. Distributions
of net capital gains, if any, designated as capital gain dividends are taxable
as long-term capital gains, regardless of how long the shareholder has held the
Fund's shares, and are not eligible for the dividends-received deduction.
Shareholders receiving distributions in the form of additional shares, rather
than cash, generally will have a cost basis in each such share equal to the net
asset value of a share of the Fund on the reinvestment date. Shareholders will
be notified annually as to the U.S. federal tax status of distributions.
SALE OF SHARES. Any gain or loss realized by a shareholder upon the sale or
other disposition of any shares of a Fund, or upon receipt of a distribution in
complete liquidation of a Fund, generally will be a capital gain or loss which
will be long-term or short-term, generally depending upon the shareholder's
holding period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days
- 61 -
<PAGE>
before and ending 30 days after disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to shareholders who fail
to provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal income tax
liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign shareholder of an
investment in a Fund may be different from those described herein. Foreign
shareholders are advised to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER TAXATION. Fund shareholders may be subject to state and local taxes on
their Fund distributions. Shareholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in a Fund.
REDEMPTION IN KIND
- - ------------------
Under unusual circumstances, when the Board of Trustees deems it in the best
interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. Should payment be made in securities, the redeeming shareholder
will generally incur brokerage costs in converting such securities to cash.
Portfolio securities which are issued in an in-kind redemption will be readily
marketable. The Trust has filed an irrevocable election with the SEC under Rule
18f-1 of the Investment Company Act of 1940 wherein the Funds are committed to
pay redemptions in cash, rather than in kind, to any shareholder of record of a
Fund who redeems during any ninety day period, the lesser of $250,000 or 1% of a
Fund's net assets at the beginning of such period.
HISTORICAL PERFORMANCE INFORMATION
- - ----------------------------------
From time to time, the Funds may advertise average annual total return. Average
annual total return quotations will be computed by finding the average annual
compounded rates of return over 1, 5 and 10 year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
- 62 -
<PAGE>
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and the deduction of the current maximum sales load
from the initial $1,000 payment. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated.
THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUNDS FOR THE PERIODS ENDED MARCH 31,
1999 ARE AS FOLLOWS:
Utility Fund (Class A)
- - ----------------------
1 Year -8.60%
5 Years 11.40%
Since inception (August 15, 1989) 10.46%
Utility Fund (Class C)
- - ----------------------
1 Year -5.92%
5 Years 11.41%
Since inception (August 2, 1993) 8.98%
Equity Fund (Class A)
- - ---------------------
1 Year 9.73%
5 Years 19.34%
Since inception (August 2, 1993) 16.35%
Equity Fund (Class C)
- - ---------------------
1 Year 13.03%
5 Years 19.34%
Since inception (June 7, 1993) 15.82%
- 63 -
<PAGE>
Growth/Value Fund (Class A)
- - ---------------------------
1 Year 24.69%
Since inception (September 29, 1995) 25.00%
Aggressive Growth Fund (Class A)
- - --------------------------------
1 Year 10.85%
Since inception (September 29, 1995) 17.46%
THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUNDS FOR THE PERIODS ENDED DECEMBER 31,
1999 ARE AS FOLLOWS:
Emerging Growth Fund (Class A)
- - ------------------------------
1 Year 37.50%
5 Years 20.40%
Since inception (October 3, 1994) 20.00%
Emerging Growth Fund (Class C)
- - ------------------------------
1 Year 44.90%
Since inception (January 1, 1999) 44.90%
International Equity Fund (Class A)
- - -----------------------------------
1 Year 31.40%
5 Years 16.40%
Since inception (October 3, 1994) 13.60%
International Equity Fund (Class C)
- - -----------------------------------
1 Year 38.40%
Since inception (January 1, 1999) 38.40%
Value Plus Fund (Class A)
- - -------------------------
1 Year 8.80%
Since inception (January 1, 1999) 7.90%
Value Plus Fund (Class C)
- - -------------------------
1 Year 14.20%
Since inception (January 1, 1999) 14.20%
Each Fund may also advertise total return (a "non-standardized quotation") which
is calculated differently from average annual total return. A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. This computation does not include the effect of
the applicable sales load which, if included, would reduce total return.
- 64 -
<PAGE>
The total returns of the Utility Fund, the Equity Fund, the Growth/Value Fund
and the Aggressive Growth Fund as calculated in this manner for each of the last
ten fiscal years (or since inception) are as follows:
<TABLE>
<CAPTION>
Growth/
Utility Utility Equity Equity Value Aggressive
Fund Fund Fund Fund Fund Growth
Class A Class C Class A Class C Class A Fund
------- ------- ------- ------- ------- ----
Period Ended
- - ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1990 + 5.37%(1)
March 31, 1991 + 9.23%
March 31, 1992 +11.84%
March 31, 1993 +20.64%
March 31, 1994 - 2.11% - 5.21%(2) - 2.63%(2) - 2.91%(3)
March 31, 1995 + 3.68% + 3.00% + 8.07% + 7.32%
March 31, 1996 +21.65% +20.78% +27.90% +26.90% +14.50%(4) +8.40%(4)
March 31, 1997 + 5.61% + 4.82% +11.82% +11.01% +12.77% +9.46%
March 31, 1998 +40.92% +39.91% +42.74% +41.63% +36.73% +33.53%
March 31, 1999 -4.79% -5.92% +14.30% +13.03% +29.89% +15.46%
</TABLE>
(1) From date of initial public offering on August 15, 1989
(2) From date of initial public offering on August 2, 1993
(3) From date of initial public offering on June 7, 1993
(4) From date of initial public offering on September 29, 1995
The total returns of the Emerging Growth Fund, the International Equity Fund and
the Value Plus Fund as calculated in this manner since inception are as follows:
<TABLE>
<CAPTION>
Emerging Growth International
Fund Equity Fund Value Plus Fund
Class A Class C Class A Class C Class A Class C
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 2.72%(1) -8.80%(1)
December 31, 1995 22.56% 5.29%
December 31, 1996 10.56% 11.61%
December 31, 1997 32.20% 15.57%
December 31, 1998 2.57% 19.94% 4.29%(2)
December 31, 1999 45.85% 44.86%(3) 39.50% 38.44%(3) 15.51% 14.24%(3)
</TABLE>
(1) Class A shares began operations on October 3, 1994
(2) Class A shares began operatons on May 1, 1998
(3) Class C shares began operations on January 1, 1999
A nonstandardized quotation may also indicate average annual compounded rates of
return without including the effect of the applicable sales load or over periods
other than those specified for average annual total return.
- 65 -
<PAGE>
THE AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE UTILITY FUND, THE EQUITY
FUND, THE GROWTH/VALUE FUND AND THE AGGRESSIVE GROWTH FUND (EXCLUDING SALES
LOADS) FOR THE PERIODS ENDED MARCH 31, 1999 ARE AS FOLLOWS:
Utility Fund (Class A)
- - ----------------------
1 Year -4.79%
3 Years +12.32%
5 Years +12.32%
Since inception (August 15, 1989) +10.93%
Utility Fund (Class C)
- - ----------------------
1 Year -5.92%
3 Years +11.33%
5 Years +11.41%
Since inception (August 2, 1993) +8.98%
Equity Fund (Class A)
- - ---------------------
1 Year +14.30%
3 Years +22.19%
5 Years +20.32%
Since inception (August 2, 1993) +17.19%
Equity Fund (Class C)
- - ---------------------
1 Year +13.03%
3 Years +21.13%
5 Years +19.34%
Since inception (June 7, 1993) +15.82%
Growth/Value Fund (Class A)
- - ---------------------------
1 Year +29.89%
3 Years +25.69%
Since inception (September 29, 1995) +26.46%
Aggressive Growth Fund
- - ----------------------
1 Year +15.46%
3 Years +19.06%
Since inception (September 29, 1995) +18.84%
- 66 -
<PAGE>
THE AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE EMERGING GROWTH FUND, THE
INTERNATIONAL EQUITY FUND AND THE VALUE PLUS FUND (EXCLUDING SALES LOADS) FOR
THE PERIODS ENDED DECEMBER 31, 1999 ARE AS FOLLOWS:
Emerging Growth Fund (Class A)
- - ------------------------------
1 Year +45.85%
5 Years +21.80%
Since inception (October 3, 1994) +21.31%
Emerging Growth Fund (Class C)
- - ------------------------------
1 Year +44.86%
Since inception (January 1, 1999) +44.86%
International Equity Fund (Class A)
- - -----------------------------------
1 Year +39.50%
5 Years +17.83%
Since inception (October 3, 1994) +14.90%
International Equity Fund (Class C)
- - -----------------------------------
1 Year +38.44%
Since inception (January 1, 1999) +38.44%
Value Plus Fund (Class A)
- - -------------------------
1 Year +15.51%
Since inception (May 1, 1998) +11.78%
Value Plus Fund (Class C)
- - -------------------------
1 Year +14.24%
Since inception (January 1, 1999) + 9.97%
A nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
From time to time, the Funds may advertise their yield. A yield quotation is
based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
Yield = 2[(a-b/cd +1) -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
- 67 -
<PAGE>
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
Performance quotations are based on historical earnings and are not intended to
indicate future performance. Average annual total return and yield are computed
separately for Class A and Class C shares of the Funds. The yield of Class A
shares is expected to be higher than the yield of Class C shares due to the
higher distribution fees imposed on Class C shares.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding a Fund may discuss various
measures of Fund performance, including current performance ratings and/or
rankings appearing in financial magazines, newspapers and publications which
track mutual fund performance. Advertisements may also compare Fund performance
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Funds may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and average
current yield for the mutual fund industry and ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars and ratings are effective for two
weeks.
In addition, a Fund may also use comparative performance information of relevant
indices, including the following:
The Dow Jones Industrial Average, which is a measurement of general market price
movement for 30 widely held stocks.
The S&P 500 Index is an unmanaged index of 500 stocks, the purpose of which is
to portray the pattern of common stock price movement.
The S&P Utility Index is an unamnaged index consisting of three utility groups
totaling 40
- 68 -
<PAGE>
companies -21 electric power companies, 11 natural gas distributors and
priplines and 8 telephone companies.
NASDAQ Composite Index is an unmanaged index of common stocks of companies
traded over-the-counter and offered through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system.
Russell 2000 Index is an umanaged index of small cap performance.
MSCI EAFE Index is a Morgan Stanley index that includes stocks traded on 16
exchanges in Europe, Australia and the Far East.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to a Fund's portfolios, that the averages are generally unmanaged
and that the items included in the calculations of such averages may not be
identical to the formula used by the Funds to calculate their performance. In
addition, there can be no assurance that a Fund will continue this performance
as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
- - --------------------------
As of April 7, 2000, Citizens Business Bank, Trustee FBO Countrywide Credit
Industries, Inc., P.O. Box 671, Pasadena, California owned of record 30.1% of
the outstanding Class A shares of the Equity Fund. Citizens Business Bank,
Trustee FBO Countrywide Credit Industries, Inc. may be deemed to control the
Class A shares of the Equity Fund by virtue of the fact that it owned of record
more than 25% of the outstanding shares of the class as of such date. As of
April 7, 2000, Charles Schwab & Co., Inc. Mutual Funds Special Custody Account
for the Exclusive Benefit of Its Customers, 101 Montgomery Street, San
Francisco, California owned of record 27.6% of the outstanding shares of the
Growth/Value Fund and 25.9% of the outstanding shares of the Aggressive Growth
Fund. Charles Schwab & Co., Inc. may be deemed to control the Growth/Value Fund
and the Aggressive Growth Fund by virtue of the fact that it owned of record
more than 25% of the outstanding shares of each Fund as of such date.
As of April 7, 2000, Band & Co. c/o Firstar Bank, P.O. Box 1787, Milwaukee,
Wisconson owned of record 8.5% of the outstanding shares of the Growth/Value
Fund and 5.1% of the outstanding shares of the Aggressive Growth Fund; Scudder
Trust Company FBO Countrywide Credit Industries, Inc. Tax Deferred Savings and
Supplemental Investment Plan-Attention Asset Reconciliation, P.O. Box 910208,
San Diego, California owned of record 8.0% of the outstanding shares of the
Growth/Value Fund and 21.8% of the outstanding shares of the Aggressive Growth
Fund; Merrill Lynch, Pierce, Fenner & Smith Incorporated, For the Sole Benefit
of its Customers, 4800 Deer Lake Drive East, Jacksonville, Florida owned of
record 5.8% of the outstanding Class A shares and 25.0% of the outstanding Class
C shares of the Utility Fund; Harold and Nancy Bergman, 2045 Lost Dauphin Road,
De Pere, Wisconsin owned of record 5.3% of the outstanding Class C shares of the
Utility Fund; Amalgamated Bank of New York, TWU-NYC PVT BL Pension Fund, Amivest
Corp. DIM, P.O. Box 370, New York, New York owned of record 11.6% of the
outstanding Class A shares of the Equity Fund, 6.0% of the outstanding Class A
shares of the Growth/Value Fund and 11.7%
- 69 -
<PAGE>
of the outstanding shares of the Aggressive Growth Fund; and Clifford G. Neill
Trust/Clifford G. Neill, DDS P.C. Profit Sharing Plan, 307 S. University,
Carbondale, Illinois owned of record 10.5% of the outstanding Class C shares of
the Equity Fund.
As of April 18, 2000, Western-Southern Life Assurance Company, 400 Broadway,
Cincinnati, Ohio owned of record 26.0% of the outstanding Class A shares of the
Emerging Growth Fund, 65.7% of the outstanding Class C shares of the Emerging
Growth Fund, 55.8% of the outstanding Class A shares of the International Equity
Fund, 77.2% of the outstanding Class C shares of the International Equity Fund,
94.4% of the outstanding Class A shares of the Value Plus Fund and 48.8% of the
outstanding Class C shares of the Value Plus Fund. The Western-Southern Life
Assurance Company may be deemed to control the Emerging Growth Fund, the
International Equity Fund and the Value Plus Fund by virtue of the fact that it
owned of record more than 25% of the outstanding shares of each Fund as of such
date.
As of April 18, 2000. Highlands Company of Delaware, c/o Karen L. Clark, Smith
Pought Bunker & Hume PC, 2301 Mitchell Park Drive, Petoskey, Michigan owned of
record 11.1% of the outstanding Class A shares of the Emerging Growth Fund, The
Fifth Third Bank, Agent for the Columbus Life Insurance Agents Non-Qualified
Deferred Compensation Plan, P.O. Box 630074, Cincinnati, Ohio owned of record
5.7% of the outstanding Class A shares of the Emerging Growth Fund and 5.7% of
the outstanding Class A shares of the International Equity Fund and NFSC FEBO
#TRG-011630, NFSC/FMTC IRA Rollover, FBO Richard Gum, 210 Gullard, Ocean City,
New Jersey owned of record 23.4% of the outstanding Class C shares of the Value
Plus Fund.
As of April 7, 2000, the Trustees and officers of the Trust as a group owned of
record or beneficially less than 1% of the outstanding shares of the Trust and
of each Fund (or class thereof).
CUSTODIANS
- - ----------
Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts is
the Custodian for the Emerging Growth Fund, the International Equity Fund and
the Value Plus Fund. The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati,
Ohio, is the Custodian for the Utility Fund, the Equity Fund and the Enhanced 30
Fund. Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio is the Custodian
for the Growth/Value and the Aggressive Growth Fund. Each Custodian acts as a
Fund's depository, safekeeps its portfolio securities, collects all income and
other payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties. As compensation, the Custodians receive
from the Funds a base fee equal to a percentage of that Fund's net assets plus a
charge for each security transaction, subject to a minimum annual fee.
AUDITORS
- - --------
The firm of Ernst & Young LLP has been selected as independent auditors for the
Utility Fund, the Equity Fund, the Growth/Value Fund, the Aggressive Growth Fund
and the Enhanced 30 Fund for its fiscal year ending March 31, 2000. Ernst &
Young LLP has also been selected as independent auditors for the Emerging Growth
Fund, the International Equity Fund and the
- 70 -
<PAGE>
Value Plus Fund for its fiscal year ending December 31, 2000. Ernst & Young LLP
will perform an annual audit of the Trust's financial statements and advise the
Trust as to certain accounting matters.
TRANSFER, ACCOUNTING AND ADMINISTRATIVE AGENTS
- - ----------------------------------------------
TRANSFER AGENT. The Trust's transfer agent, Integrated Fund Services, Inc.
("IFS"), maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Funds' shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. IFS is an affiliate of
the Advisor by reason of common ownership. IFS receives a fee for its services
as transfer agent payable monthly at an annual rate of $17 per account from each
Fund; provided, however, that the minimum fee is $1,000 per month for each class
of shares of a Fund. In addition, the Funds pay out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts, forms,
reports, record storage and communication lines.
ACCOUNTING AND PRICING AGENT. Investors Bank & Trust Company provides accounting
and pricing services to the Emerging Growth Fund, the International Equity Fund
and the Value Plus Fund. IFS provides accounting and pricing services to the
Enhanced 30 Fund, the Utility Fund, the Equity Fund, the Growth/Value Fund and
the Aggressive Growth Fund. These services include calculating daily net asset
value per share and maintaining all necessary books and records for the Funds.
IFS receives an accounting and pricing fee from each of the Enhanced 30 Fund,
the Utility Fund, the Equity Fund, the Growth/Value Fund and the Aggressive
Growth Fund in accordance with the following schedule:
Asset Size of Fund Monthly Fee
----------------------------- -----------
$ 0 - $ 50,000,000 $3,000
50,000,000 - 100,000,000 3,500
100,000,000 - 200,000,000 4,000
200,000,000 - 300,000,000 4,500
Over 300,000,000 5,500*
* Subject to an additional fee of .001% of average daily net assets in excess
of $300 million. In addition, the Funds pay all costs of external pricing
services.
ADMINISTRATIVE AGENT. Investors Bank & Trust Company provides administrative
services to the Emerging Growth Fund, the International Equity Fund and the
Value Plus Fund. IFS provides administrative services to the Enhanced 30 Fund,
the Utility Fund, the Equity Fund, the Growth/Value Fund and the Aggressive
Growth Fund. These administrative services include supplying non-investment
related statistical and research data, internal regulatory compliance services,
executive and administrative services, supervising the preparation of tax
returns, reports to shareholders of the Funds, reports to and filings with the
SEC and state securities commissions, and materials for meetings of the Board of
Trustees. For the performance of administrative services, IFS receives a fee
from the Advisor. The Advisor is solely responsible for the payment of these
administrative fees and IFS has agreed to seek payment of these fees solely from
the Advisor.
- 71 -
<PAGE>
SERVICE FEES PAID BY THE EMERGING GROWTH FUND, THE INTERNATIONAL EQUITY FUND AND
THE VALUE PLUS FUND. Set forth below are the custody, administration and fund
accounting fees paid during the fiscal periods ended December 31:
1999 1998 1997
Emerging Growth Fund(1) $ 87,024 $ 24,725 $ 15,324
International Equity Fund(2) $168,151 $ 30,559 $ 16,990
Value Plus Fund(3) $ 89,091 $ 16,667 --
ANNUAL REPORT
- - -------------
The financial statements as of December 31, 1999 for the Emerging Growth Fund,
the International Equity Fund and the Value Plus Fund appear in the annual
report for Touchstone Series Trust which is attached to this Statement of
Additional Information. Such financial statements were audited by Ernst &
Young LLP. The annual report also contains information on the Income
Opportunity Fund, the Balanced Fund and the Standby Income Fund which
have terminated operations. The annual report also contains information about
the Growth & Income Fund which merged into the Value Plus Fund and information
about the Bond Fund which reorganized as a series of Touchstone Investment
Trust.
The financial statements as of March 31, 1999 for the Utility Fund, the Equity
Fund, the Growth/Value Fund and the Aggressive Growth Fund appear in the Trust's
annual report which is attached to this Statement of Additional Information. The
Trust's annual report was audited by Arthur Andersen LLP. The financial
statements as of September 30, 1999 for the Utility Fund, the Equity Fund, the
Growth/Value Fund and the Aggressive Growth Fund appear in the Trust's
semiannual report which was unaudited.
<PAGE>
o Emerging Growth
o International Equity Annual Report
o Income Opportunity December 31, 1999
o Value Plus
o Growth & Income
o Balanced
o Bond
o Standby Income
TOUCHSTONE
FAMILY
OF
FUNDS
- 72 -
<PAGE>
Annual Report
December 31, 1999
o Emerging Growth
o International Equity
o Income Opportunity
o Value Plus
o Growth & Income
o Balanced
o Bond
o Standby Income
<PAGE>
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE EMERGING GROWTH FUND
During the annual period ended December 31, 1999, several factors affected the
Touchstone Emerging Growth Fund. After experiencing a difficult period during
the third quarter of 1999, the equity markets surged in the fourth quarter to
finish the year very strongly. In fact, small cap stocks led the surge,
increasing their value by 18% (as measured by the Russell 2000 Index) during the
fourth quarter, eclipsing the performance of large cap stocks (as measured by
the S&P 500 Index) which were up 15%. Indeed, 1999 marked the first full
calendar year that the Russell 2000, the benchmark of the Emerging Growth Fund,
outperformed the S&P 500 since 1993, albeit by a very narrow margin (21.3% for
the Russell 2000 versus 21.0% for the S&P 500). The Emerging Growth Fund had a
37.5% return in 1999.
As the growth-style manager of the Touchstone Emerging Growth Fund, Westfield
Capital Management found that good stock selection and an overweight position in
technology, telecommunications and select health care stocks drove performance
in 1999. The growth-style portion of the portfolio was underweight in the
consumer and financial sectors as many companies in those sectors did not meet
the Westfield's minimum earnings growth criteria.
Though the strict valuation discipline eliminated the traditional internet and
dot.com companies, the portfolio invested heavily in internet infrastructure
stocks. Westfield views business-to-business e-commerce as an attractive sector
with outstanding growth prospects. Traditional businesses are developing
e-business models and Westfield invested in chip, software, telecommunication
and wireless stocks to take advantage of this major shift. In health care,
Westfield focused on a select group of outstanding companies in medical devices,
biotechnology and genomics.
The value-style manager of the Fund, David L. Babson & Company, reported that
1999 was a very difficult year for those small cap managers with a value
discipline. For all of 1999, the Russell 2000 Growth Index was up a very
impressive 43%, while the Russell 2000 Value Index was down nearly 2% -- the
widest differential in performance ever.
The Value portion of the Touchstone Emerging Growth Fund was hurt by increased
weightings in the Materials & Processing and Financial Services sectors - two of
the worst performing sectors in the Russell 2000, due to investors' concerns of
rising interest rates.
Nevertheless, the Fund did benefit from several investments that delivered
strong performance during the year. CommScope, the global leader in
manufacturing coaxial cable, saw its stock increase 150% during 1999, and nearly
four-fold from our original investment a couple of years ago due to excitement
surrounding increased spending by AT&T and other cable companies to upgrade
their cable services. Nabors Industries, the leading operator of oil rigs in
North America, saw its stock increase 129% during the year due to increased
drilling activity by its customers seeking to capitalize on the recent
improvements in oil prices. Finally, Scitex, a leading maker of printing
equipment, saw its stock increase 43% during the second half of 1999 (+24% for
the full year), as the gradual global economic recovery is encouraging the
company's overseas customers to begin ordering new equipment again.
While 1999 was a challenging year for the value side of the small cap market,
the Touchstone Emerging Growth Fund delivered superior results, demonstrating
once again the benefits of having both a value and growth discipline in one
fund. Babson and Westfield look forward to continuing to deliver strong
performance.
<PAGE>
4
EMERGING GROWTH FUND
GROWTH OF A $10,000 INVESTMENT - Class A Shares
Touchstone
Emerging Russell 2000
Growth Index CDA/Wiesenberger
Fund A (Major Index) Small Cap - MF
- - --------------------------------------------------------------------------------
9/94 9425 10000 10000
12/94 9681 9813 9950
3/95 10093 10265 10512
6/95 10735 11227 11450
9/95 11733 12336 12785
12/95 11865 12603 13072
3/96 12391 13246 13917
6/96 12947 13909 15025
9/96 12599 13956 15319
12/96 13119 14682 15758
3/97 12585 13923 14745
6/97 14811 16180 17262
9/97 17253 18588 20184
12/97 17343 17965 19162
3/98 18946 19772 21254
6/98 18232 18850 20421
9/98 14714 15053 16072
12/98 17803 17508 19081
3/99 17285 16558 17905
6/99 20485 19132 20706
9/99 20471 17923 20121
12/99 25966 21172 24981
Average Annual Total Return
One Year Five Years Since
Ended Ended Inception
12/31/99 12/31/99 10/3/94
37.5% 20.4% 20.0%
Cumulative Total Return
Since Inception
10/3/94
159.7%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
GROWTH OF A $10,000 INVESTMENT - Class C Shares
Touchstone
Emerging Russell 2000
Growth Index CDA/Wiesenberger
Fund C (Major Index) Small Cap - MF
- - --------------------------------------------------------------------------------
1/99 10000 10000 10000
3/99 9701 9457 9384
6/99 11472 10928 10852
9/99 11442 10237 10545
12/99 14486 12093 13092
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
44.9% 44.9%
Cumulative Total Return
Since Inception
1/1/99
44.9%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
5
EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 97.2%
AUTOMOTIVE - 0.5%
9,700 Exide $ 80,631
- - --------------------------------------------------------
BANKING - 1.3%
6,000 Dime Bancorp 90,750
6,200 Golden State Bancorp* 106,950
- - --------------------------------------------------------
197,700
- - --------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 1.5%
14,400 DiMon 46,800
5,200 Ralcorp Holdings* 103,675
12,100 Vlasic Foods International* 68,819
- - --------------------------------------------------------
219,294
- - --------------------------------------------------------
BUILDING MATERIALS - 1.6%
12,100 Dal-Tile International* 122,513
2,600 Martin Marietta Materials 106,600
- - --------------------------------------------------------
229,113
- - --------------------------------------------------------
COMMERCIAL SERVICES - 18.1%
9,700 Administaff * 293,425
10,800 Applied Analytical Industries* 98,550
4,700 A.C. Nielson* 115,738
6,000 Career Education* 230,250
3,900 CDI* 94,088
8,000 DeVry* 149,000
8,850 Diamond Technology Partners* 760,541
4,500 Forrester Research* 309,938
2,400 PerkinElmer 100,050
9,700 Safety-Kleen* 109,731
12,000 Stericycle* 225,750
8,100 Unova* 105,300
5,400 Wallace Computer Services 89,775
- - --------------------------------------------------------
2,682,136
- - --------------------------------------------------------
COMMUNICATIONS - 12.2%
11,600 Advanced Fibre Communications* 518,375
8,000 AudioCodes* 736,000
3,200 Ditech Communications* 299,200
4,000 Powerwave Technologies* 233,500
- - --------------------------------------------------------
1,787,075
- - --------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 11.7%
8,500 CBT Group, ADR* 284,750
11,200 Mail.com* 210,000
12,600 Natural MicroSystems* 589,838
10,300 Perot Systems, Class A* 195,700
4,300 Policy Management System* 109,919
9,000 Scientific Learning* 328,500
- - --------------------------------------------------------
1,718,707
- - --------------------------------------------------------
COMPUTERS & INFORMATION - 1.4%
5,400 Gerber Scientific 118,463
5,600 Scitex* 81,550
- - --------------------------------------------------------
200,013
- - --------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.0%
9,100 Magnetek* 69,956
4,000 Ucar International* 71,250
- - --------------------------------------------------------
141,206
- - --------------------------------------------------------
Value
Shares (Note 1)
ELECTRONICS - 1.1%
4,100 Dionex* $ 168,869
- - --------------------------------------------------------
ENTERTAINMENT & LEISURE - 2.2%
7,000 Cinar, Class B* 171,500
4,350 SFX Entertainment, Class A* 157,416
- - --------------------------------------------------------
328,916
- - --------------------------------------------------------
FINANCIAL SERVICES - 1.2%
10,200 First Sierra Financial* 174,675
- - --------------------------------------------------------
FOOD RETAILERS - 0.7%
7,000 Pantry (The)* 98,875
- - --------------------------------------------------------
HEALTH CARE PROVIDERS - 1.4%
5,000 Syncor International* 145,625
9,800 Total Renal Care Holdings* 65,538
- - --------------------------------------------------------
211,163
- - --------------------------------------------------------
HEAVY CONSTRUCTION - 0.6%
9,300 Foster Wheeler 82,538
- - --------------------------------------------------------
HEAVY MACHINERY - 2.7%
8,900 Helix Technology 398,831
- - --------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 0.2%
2,000 LA-Z-Boy Chair 33,625
- - --------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.6%
3,300 Snap-on 87,656
- - --------------------------------------------------------
INSURANCE - 1.6%
8,800 HCC Insurance Holdings 116,050
3,400 HSB Group 114,963
- - --------------------------------------------------------
231,013
- - --------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 6.6%
8,000 American Tower Systems, Class A* 244,500
2,800 Central Newspapers, Class A 110,250
8,400 Hollinger International 108,675
13,500 Information Holdings* 392,344
3,600 Lee Enterprises 114,975
- - --------------------------------------------------------
970,744
- - --------------------------------------------------------
MEDICAL SUPPLIES - 4.2%
3,200 Arthocare* 195,200
5,500 Novoste* 90,750
3,000 Roper Industries 113,438
9,600 Varian* 216,000
- - --------------------------------------------------------
615,388
- - --------------------------------------------------------
METALS - 2.0%
4,100 Belden 86,100
3,400 Harsco 107,950
5,500 Ryerson Tull 106,906
- - --------------------------------------------------------
300,956
- - --------------------------------------------------------
OIL & GAS - 7.0%
2,700 Equitable Resources 90,113
3,306 Friede Goldman Halter* 22,935
6,900 Hanover Compressor* 260,475
7,100 Helmerich & Payne 154,869
3,700 Nabors Industries* 114,469
15,400 Santa Fe Snyder* 123,200
9,500 Stolt Comex Seaway* 105,094
22,400 Energy Services* 151,200
- - --------------------------------------------------------
1,022,355
- - --------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
6
EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS CONTINUED
Value
Shares (Note 1)
COMMON STOCKS - CONTINUED
PHARMACEUTICALS - 9.1%
6,200 Albany Molecular Research* $ 189,100
10,200 ILEX Oncology* 246,075
4,000 Millennium Pharmaceuticals* 488,000
11,200 Taro Pharmaceutical Industries* 162,400
13,300 Titan Pharmaceuticals* 252,700
- - --------------------------------------------------------
1,338,275
- - --------------------------------------------------------
REAL ESTATE - 0.6%
4,000 Prentiss Properties Trust, REIT 84,000
- - --------------------------------------------------------
RETAILERS - 3.0%
7,300 Enesco Group 80,756
10,000 Tweeter Home Entertainment Group* 355,000
- - --------------------------------------------------------
435,756
- - --------------------------------------------------------
TEXTILES, CLOTHING & FABRICS - 1.7%
5,439 Albany International 84,299
10,000 Stride Rite 65,000
8,200 Unifi* 100,963
- - --------------------------------------------------------
250,262
- - --------------------------------------------------------
TRANSPORTATION - 1.4%
9,400 Fritz Companies* 98,700
6,400 Yellow* 107,600
- - --------------------------------------------------------
206,300
- - --------------------------------------------------------
TOTAL COMMON STOCKS
(COST $10,753,698) $14,296,072
- - --------------------------------------------------------
Value
Shares (Note 1)
WARRANTS - 0.0%
BANKING - 0.0%
2,200 Golden State Bancorp* $ 1,925
- - --------------------------------------------------------
TOTAL WARRANTS
(COST $9,438) $ 1,925
- - --------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 97.2%
(COST $10,763,136) (A) $14,297,997
CASH AND OTHER ASSETS
NET OF LIABILITIES - 2.8% 409,704
- - --------------------------------------------------------
NET ASSETS - 100.0% $14,707,701
- - --------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$10,764,988 resulting in gross unrealized appreciation and depreciation of
$4,889,804 and $1,356,795, respectively, and net unrealized appreciation of
$3,533,009.
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE>
7
INTERNATIONAL EQUITY FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE INTERNATIONAL EQUITY FUND
The Touchstone International Equity Fund portfolio finished the year well ahead
of its benchmark, the MSCI EAFE Index. While the MSCI EAFE Index ended 1999 with
a 27.3% return, the International Equity Fund had a 31.4% return. According to
the manager of the Touchstone International Equity Fund, Credit Suisse Asset
Management, performance lagged in the first quarter because the Fund was
underweight in Japan and the manager was too defensive in investing in European
and Japanese stocks. Performance was strong in the second half of the year due
to the positive impact of regional allocations and stock selections.
In Japan, the economic recovery appeared to gather momentum in the second half
of 1999 and corporate restructuring activity remained strong. During this
period, Credit Suisse moved from a benchmark neutral weight to overweight. The
most prominent Japanese sector overweights were in consumer finance and
telecommunications as well as an exposure to smaller companies in consumer and
technology related businesses. These decisions helped performance.
In Continental Europe, Credit Suisse moved from a slight underweight to an over
weight position during the fourth quarter in the midst of a favorable economic
environment, strong mergers and acquisition activity and a benign inflation
outlook. The Fund's overweights in Finland and France proved especially
beneficial due to large holdings in technology/telecommunications names like
Nokia and ST Microelectronics.
Elsewhere, regional allocations and stock selection also boosted performance.
The Fund was underweight in the U.K. because Credit Suisse believed there was a
likelihood of further rate increases by the Bank of England. This underweight
had a positive impact on performance as did stock selection in the U.K. which
emphasized companies such as GEC Marconi, an old defense company in the process
of reinventing itself as a telecommunications equipment manufacturer, and BP
Amoco, the global oil and gas giant.
Finally, the Fund's modest allocation to the Emerging Markets also had a
positive impact on performance; particularly in Brazil, Mexico, Korea, and
Taiwan -- those countries poised to benefit most from a pick-up in global growth
and rebound in commodity prices.
<PAGE>
8
INTERNATIONAL EQUITY FUND
GROWTH OF A $10,000 INVESTMENT - Class A Shares
Touchstone MSCI CDA/Wiesenberger
International EAFE Non-US
Equity Fund A Index Equity - MF
- - --------------------------------------------------------------------------------
9/94 9425 10000 10000
12/94 8596 9905 9452
3/95 8256 10097 9153
6/95 8615 10178 9585
9/95 9001 10611 10007
12/95 9050 11049 10114
3/96 9598 11377 10648
6/96 9806 11565 11047
9/96 9731 11559 10952
12/96 10101 11752 11317
3/97 10253 11576 11455
6/97 11479 13087 12691
9/97 12011 13003 12549
12/97 11674 11994 11089
3/98 13638 13767 12443
6/98 14375 13923 11847
9/98 12411 11952 10061
12/98 14002 14432 11763
3/99 13763 14643 12085
6/99 14241 15025 13358
9/99 15088 15695 13705
12/99 19532 18372 17396
Average Annual Total Return
One Year Five Years Since
Ended Ended Inception
12/31/99 12/31/99 10/3/94
31.4% 16.4% 13.6%
Cumulative Total Return
Since Inception
10/3/94
95.3%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
GROWTH OF A $10,000 INVESTMENT - Class C Shares
Touchstone MSCI CDA/Wiesenberger
International EAFE Non-US
Equity Fund A Index Equity - MF
- - ------------------------------------------------------------------------------
1/99 10000 10000 10000
3/99 9808 10146 10273
6/99 10136 10411 11355
9/99 10711 10875 11651
12/99 13844 12730 14788
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
38.4% 38.4%
Cumulative Total Return
Since Inception
1/1/99
38.4%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
9
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 98.2%
AUSTRALIA - 0.0%
60 Southcorp $ 211
- - -------------------------------------------------------
BRAZIL - 1.6%
1,700 Petroleo Brasileiro, ADR 43,602
1,584 Telecomunicacoes Brasileiras
(Telebras), ADR 203,544
- - -------------------------------------------------------
247,146
- - -------------------------------------------------------
CHINA - 0.3%
525 China Steel, 144A, ADR 7,770
4,400 China Telecom* 27,509
100 China Telecom, ADR* 12,856
- - -------------------------------------------------------
48,135
- - -------------------------------------------------------
FINLAND - 3.8%
2,545 Nokia Oyj 461,834
3,113 UPM-Kymmene 125,535
- - -------------------------------------------------------
587,369
- - -------------------------------------------------------
FRANCE - 13.4%
1,037 Alcatel Alsthom 238,363
2,439 Alstom 81,389
5 Aventis 291
1,216 AXA 169,666
2,412 Banque Nationale de Paris 222,740
1,089 Carrefour Supermarche 201,021
3,651 Credit Lyonnais* 167,106
573 Groupe Danone 135,175
661 Pinault-Printemps-Redoute 174,593
2,458 Renault 118,599
1,800 Scor 79,483
2,202 Total Fina, Class B 294,143
2,125 Vivendi 192,059
- - -------------------------------------------------------
2,074,628
- - -------------------------------------------------------
GERMANY - 11.1%
504 Allianz Holdings 169,454
2,244 BASF 115,377
3,611 Deutsche Bank 305,250
1,667 Dresdner Bank 90,500
1,767 Mannesmann 426,646
569 Muenchener
Rueckversicherungs-Gasellschaft 144,442
2,364 Preussag 131,795
213 SAP 104,147
1,154 Siemens 146,938
1,791 Veba 87,120
- - -------------------------------------------------------
1,721,669
- - -------------------------------------------------------
GREAT BRITAIN - 9.5%
22,984 BP Amoco 231,661
4,566 British Aerospace 30,014
5,990 British Telecommunications 143,351
5,113 Glaxo Wellcome 145,011
11,460 J Sainsbury 65,707
17,600 Legal & General Group 47,936
8,880 Lloyds TSB Group 110,291
10,650 Marconi 188,942
4,330 Peninsular and Oriental
Steam Navigation 72,206
4,020 Reuters Group 55,837
Value
Shares (Note 1)
GREAT BRITAIN - CONTINUED
7,100 Shell Transport & Trading $ 59,200
11,013 SmithKline Beecham 140,340
2,238 South African Breweries 22,780
1 Unilever 7
33,740 Vodafone Group 166,222
- - -------------------------------------------------------
1,479,505
- - -------------------------------------------------------
GREECE - 0.2%
141 Alpha Credit Bank 11,050
140 Intracom 6,414
600 National Bank of Greece, GDR 8,438
- - -------------------------------------------------------
25,902
- - -------------------------------------------------------
HONG KONG - 0.0%
53 Hang Seng Bank 605
- - -------------------------------------------------------
INDIA - 0.4%
700 Larsen & Toubro, GDR 23,275
1,400 State Bank of India, GDR 14,461
1,000 Videsh Sanchar Nigam, GDR 20,785
- - -------------------------------------------------------
58,521
- - -------------------------------------------------------
ITALY - 4.0%
4,233 Assicurazione Generali 140,571
7,610 Concessioni e Costruzioni
Autostrade* 51,801
21,403 ENI 117,446
7,503 Istituto Bancario
San Paolo di Torino 101,768
23,500 Istituto Nazionale
delle Assicurazioni 62,593
39,197 Tecnost* 147,871
- - -------------------------------------------------------
622,050
- - -------------------------------------------------------
JAPAN - 34.1%
300 Advantest 79,233
2,000 Alps Electric 30,500
6,600 Bank of Tokyo 91,934
1,000 Bridgestone 22,009
1,000 Canon 39,714
4,000 Daikin Industries 54,387
6,000 Daiwa Securities 93,847
200 Don Quijote 31,302
1,200 Fanuc 152,714
10,000 Fuji Bank Limited (The) 97,134
620 Fuji Soft ABC 48,518
4 Fuji Television Network 54,778
1,000 Fujisawa Pharmaceutical 24,259
2,000 Fujitsu 91,167
4,000 Fukuyama Transporting 28,759
3,600 Hitachi Credit 73,071
1,000 Hitachi Maxell 29,443
3,000 House Foods 45,486
3,000 Industrial Bank of Japan 28,905
1,400 ITO Yokado 152,010
3,000 Kaneka 38,355
2,000 Kao 57,028
1,000 Kirin Brewery 10,516
20,000 Kubota 76,494
1,600 Kyocera 414,751
3,000 Matsushita Electric 83,048
3,000 Minebea 51,443
The accompanying notes are an integral part of the financial statements.
<PAGE>
10
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS CONTINUED
Value
Shares (Note 1)
COMMON STOCKS - CONTINUED
JAPAN - CONTINUED
7,000 Mitsubishi $ 54,025
8,900 Mitsui Chemicals 71,649
1,000 Mitsumi Electric 31,302
2,000 Mori Seiki 26,802
3,000 NEC 71,457
100 NIDEC 29,248
3,000 Nikko Securities Co. (The) 37,944
500 Nintendo 82,314
3,000 Nippon Meat Packers 38,883
17 Nippon Telegraph & Telephone 291,010
3,000 Nomura Securities 54,143
4 NTT Data 91,950
2 NTT Mobile Communication
Network 76,885
700 Orix 157,625
300 Rohm Company 123,251
17,000 Sakura Bank 98,445
5,000 Sanwa Bank (The) 60,794
1,000 Secom 110,046
4,000 Sekisui House 35,410
1,000 Seven-Eleven Japan 158,466
2,000 Sharp 51,159
2,000 Shin-Etsu Chemical 86,080
73 Softbank 69,837
875 Sony 259,342
3,000 Sumitomo Bank 41,054
8,000 Sumitomo Chemical 37,562
4,000 Sumitomo Marine & Fire
Insurance Co. (The) 24,650
7,000 Sumitomo Realty & Development 23,281
10,000 Sumitomo Trust & Banking 67,495
1,000 Taisho Pharmaceutical 29,346
1,000 Taiyo Yuden 59,278
1,000 Takeda Chemical Industries 49,398
500 TDK 69,011
4,000 Tokyo Broadcasting System 135,381
1,000 Tokyo Electron 136,946
2,000 Tostem 35,899
5,000 Toyota Motor 242,101
500 WORLD 61,137
1,000 Yamanouchi Pharmaceutical 34,921
2,000 Yamato Transport 77,472
- - -------------------------------------------------------
5,293,804
- - -------------------------------------------------------
MEXICO - 0.9%
830 Cemex SA de CV, ADR* 23,136
400 Grupo Televisa, GDR* 27,300
850 Telefonos de Mexico, Class L, ADR 95,625
- - -------------------------------------------------------
146,061
- - -------------------------------------------------------
NETHERLANDS - 7.3%
1,821 Akzo Nobel 91,425
1,402 Equant* 159,293
2,595 Fortis 93,527
2,950 ING Groep 178,264
Value
Shares (Note 1)
NETHERLANDS - CONTINUED
1,684 Koninklijke (Royal)
Philips Electronics $ 229,193
1,928 STMicroelectronics 296,999
1,580 Verenigde Nederlandse 83,116
- - -------------------------------------------------------
1,131,817
- - -------------------------------------------------------
PORTUGAL - 1.2%
16,560 Portugal Telecom 181,808
134 PT Multimedia - Servicos de
Telecomunicaceous e Multimedia
SGPS* 7,629
- - -------------------------------------------------------
189,437
- - -------------------------------------------------------
SOUTH AFRICA - 0.1%
4,200 Standard Bank Investment Corp. 17,449
- - -------------------------------------------------------
SOUTH KOREA - 0.8%
2,100 Korea Electric Power, ADR 35,175
700 Korea Telecom, ADR 52,325
657 Pohang Iron & Steel 22,995
74 Samsung Electronics, 144A, GDR 9,047
- - -------------------------------------------------------
119,542
- - -------------------------------------------------------
SPAIN - 3.2%
11,070 Banco Santander Central Hispano 125,441
14,554 Telefonica 363,881
- - -------------------------------------------------------
489,322
- - -------------------------------------------------------
SWEDEN - 1.4%
2,486 Ericsson 160,113
2,048 Skandia Forsakrings 61,973
- - -------------------------------------------------------
222,086
- - -------------------------------------------------------
SWITZERLAND - 4.3%
873 ABB 106,828
88 Novartis 129,277
14 Roche Holding 166,258
518 Union Bank of Switzerland 139,956
223 Zurich Allied 127,228
- - -------------------------------------------------------
669,547
- - -------------------------------------------------------
TAIWAN - 0.6%
2,164 Taiwan Semiconductor
Manufacturing, ADR 97,380
- - -------------------------------------------------------
TOTAL COMMON STOCKS
(COST $11,645,725) $15,242,186
- - -------------------------------------------------------
INVESTMENT TRUST - 0.2%
TAIWAN - 0.2%
190 Morgan Stanley Taiwan OPALS,
Series B, 144A (b) 27,509
- - -------------------------------------------------------
TOTAL INVESTMENT TRUST
(COST $23,708) $ 27,509
- - -------------------------------------------------------
PREFERRED STOCKS - 0.8%
GERMANY - 0.8%
202 SAP 121,780
- - -------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $84,148) $ 121,780
- - -------------------------------------------------------
WARRANTS - 0.0%
FRANCE - 0.0%
390 Banque Nationale de Paris 1,801
- - -------------------------------------------------------
TOTAL WARRANTS (COST $0) $ 1,801
- - -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
11
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS CONTINUED
Principal Interest Maturity Value
Amount Rate Date (Note 1)
CORPORATE BONDS - 0.0%
GREAT BRITAIN - 0.0%
$ 1,442 British Aerospace 7.45% 11/30/03 $ 23
- - -------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $32) $ 23
- - -------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 99.2%
(COST $11,753,613) (A) $15,393,299
CASH AND OTHER ASSETS
NET OF LIABILITIES - 0.8% 124,868
- - -------------------------------------------------------
NET ASSETS - 100.0% $15,518,167
- - -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$11,837,296, resulting in gross unrealized appreciation and depreciation of
$3,925,294 and $369,291, respectively, and net unrealized appreciation of
$3,556,003.
(b) Board valued security
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $44,326, or 0.3% of net assets.
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
OPALS - Optimised Portfolios As Listed Securities
Industry sector diversification of the International Equity Fund's investments
as a percentage of net assets as of December 31, 1999 was as follows:
Industry Percentage
Sector Net Assets
Banking 12.77%
Communications 9.60%
Electronics 8.58%
Telephone Systems 8.31%
Electrical Equipment 7.88%
Insurance 5.41%
Heavy Machinery 5.14%
Oil & Gas 4.81%
Pharmaceuticals 4.63%
Retailers 4.62%
Commercial Services 4.45%
Financial Services 3.60%
Chemicals 3.35%
Computer Software & Processing 2.46%
Transportation 2.33%
Automotive 2.32%
Media - Broadcasting & Publishing 1.94%
Beverages, Food & Tobacco 1.63%
Multiple Utilities 1.47%
Forest Products & Paper 0.81%
Entertainment & Leisure 0.53%
Metals 0.43%
Food Retailers 0.42%
Textiles, Clothing & Fabrics 0.39%
Construction 0.23%
Electric Utilities 0.23%
Aerospace & Defense 0.19%
Computers & Information 0.19%
Miscellaneous 0.18%
Real Estate 0.15%
Building Materials 0.15%
Containers & Packaging 0.00%
Other assets in excess of liabilities 0.80%
- - -----------------------------------------------------------
100.00%
- - -----------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
12
INCOME OPPORTUNITY FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE INCOME OPPORTUNITY FUND
For the twelve months ended December 31, 1999, the Touchstone Income Opportunity
Fund underperformed the index. The Fund's benchmark was the Lehman Brothers
Corporate Bond Index, which produced a return of (2.1%). The Income Opportunity
Fund had a (3.6%) return in 1999.
Emerging assets, however, closed the year on a very strong note with the JP
Morgan Emerging Market Bond Plus Mutual Fund Index returning 5.41% in December,
bringing the year-to-date gain to 25.97%. At the end of the year, the emerging
market percentage was 40% of the Fund. The manager of the Touchstone Income
Opportunity Fund, Alliance Capital Management, moved the emphasis of the
portfolio in 1999 from corporate assets to sovereign debt because they believe
that sovereign debt will outperform corporate debt due to its greater liquidity.
During the second half of the year, Alliance increased the weighting in Russia
by about 1.25%, which proved to be positive for the Fund. Russian debt was the
outperforming asset for both the month of December and the year, returning
14.84% and 165.70% respectively. The Income Opportunity Fund also continued to
hold a large position in Mexico, which was upgraded this year by Moody's to Ba1,
one notch below investment grade, and performed well, returning 15.30% for the
year.
Alliance reduced the position in emerging market corporates from about 10% to
roughly 5.7%. Two defaulted positions, FSW International and NTS Steel, were
sold. During the second half of the year, Alliance also elected to sell the
position in Paging Network Brazil. The company, located in Brazil, had been
negatively impacted by the devaluation of the Brazilian currency and the
decreasing demand for paging services due to the popularity of cellular phones.
The high yield market is completing its second straight year of low single-digit
returns. The Merrill Lynch High Yield Index returned 1.573% for the year. This
is the first occurrence in the history of the high yield market of sub-coupon
returns in a non-recessionary economic environment. Alliance believes this poor
performance is a function of significant spread widening brought about by
reduced liquidity following the global dislocation of 1998 (i.e., Asia, Russia,
Brazil) and a persistently rising high yield default rate. According to Moody's,
defaults are currently averaging about 6%. During the second half of the year,
Alliance began to actively reduce exposure to possible problem/restructuring
scenarios when credit fundamentals suggested that it was warranted and market
prices repre sented fair value. Alliance elected to sell several assets
including Aqua Chem, Eagle Geophysical, Orion Network and TVN Entertainment.
These securities were sold due to credit concerns and Alliance's belief that the
money could be invested in better performing assets. During the month of
December, two other assets posted large price declines due to poor operating
performance. These securities include Pen Tab and Republic Technologies. Pen Tab
was downgraded in early December to Caa2 by Moody's due to their weaker than
expected operating performance and heightened liquidity concerns. There has been
little support from the underwriter and the bonds moved down in price from the
mid 80s to $25.00.
Another security in the portfolio which posted a price decline was Republic
Technologies. The company missed earnings expectations and the bonds rapidly
declined in price from the low 90s to its year end price of $65.00.
Alliance has been in contact with both the company and sponsor, and continues to
hold the security, believing it will improve.
<PAGE>
13
INCOME OPPORTUNITY FUND
In general for the high yield market, primary activity slowed during 1999 from
1998 levels, although $94.7 billion in new issues came to market. Media and
telecommunications continued to be the dominant suppliers of new issuance,
accounting for 69.6% ($12.1 billion of $17.4 billion issued) of the supply in
the fourth quarter. One big change in the high yield market this year was the
lack of demand from mutual funds, which saw redemptions for most of the year.
This has left structured products, insurance, pension, and crossover accounts as
the major participants in the market, which has in turn led to lower trading
volumes and reduced demand for new issuance.
<TABLE>
<CAPTION>
Touchstone Lehman Brothers
Income Corporate CDA/Wiesenberger CDA/Wiesenberger
Opportunity Bond Index International Corporate High Yield
Fund A (Major Index) Bond Average - MF Average - MF
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9/94 9525 10000 10000 10000
12/94 8838 10043 9881 9155
3/95 8357 10638 10316 7945
6/95 9708 11429 10650 9305
9/95 10334 11699 11180 9834
12/95 10888 12277 11515 10643
3/96 11474 11960 11811 11072
6/96 12149 12014 12036 12215
9/96 13125 12254 12582 13736
12/96 13791 12681 13030 14770
3/97 14037 12553 13103 15060
6/97 14953 13070 13764 16479
9/97 15718 13582 14483 17368
12/97 15100 13978 14674 16421
3/98 15843 14193 15263 17217
6/98 15149 14548 15304 15861
9/98 12650 15077 14209 11357
12/98 13089 15168 14567 12685
3/99 13126 15028 14926 13268
6/99 13116 14790 14992 14032
9/99 12915 14846 14753 14069
12/99 13240 14843 15085 15789
</TABLE>
Average Annual Total Return
One Year Five Years Since
Ended Ended Inception
12/31/99 12/31/99 10/3/94
(3.6%) 7.4% 5.5%
Cumulative Total Return
Since Inception
10/3/94
32.4%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
14
INCOME OPPORTUNITY FUND
GROWTH OF A $10,000 INVESTMENT - Class C Shares
<TABLE>
<CAPTION>
Touchstone Lehman Brothers
Income Corporate CDA/Wiesenberger CDA/Wiesenberger
Opportunity Bond Index International Corporate High Yield
Fund A (Major Index) Bond Average - MF Average - MF
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1/99 10000 10000 10000 10000
3/99 10022 9951 10246 10460
6/99 9993 9794 10292 11062
9/99 9829 9831 10128 11091
12/99 10049 9829 10356 12447
</TABLE>
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
0.5% 0.5%
Cumulative Total Return
Since Inception
1/1/99
0.5%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
15
INCOME OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Principal Interest Maturity Value
Amount Rate Date (Note 1)
CORPORATE BONDS - 60.4%
AUTOMOTIVE - 5.9%
$250,000 Sonic Automotive,
Series B 11.00% 08/01/08 $ 247,500
250,000 Tenneco
Automotive,
144A 11.625% 10/15/09 255,000
- - -------------------------------------------------------
502,500
- - -------------------------------------------------------
COMMERCIAL SERVICES - 4.0%
250,000 Building One
Services 10.50% 05/01/09 240,000
200,000 Dialog, Series A,
Yankee Dollar 11.00% 11/15/07 96,000
- - -------------------------------------------------------
336,000
- - -------------------------------------------------------
COMMUNICATIONS - 14.7%
250,000 Netia Holdings,
Series B, 144A 13.125% 06/15/09 257,500
250,000 Nextel
Communications,
144A 9.375% 11/15/09 245,000
250,000 Northeast Optic
Network 12.75% 08/15/08 267,500
200,000 Turkcell, 144A 12.75% 08/01/05 207,250
United Pan-Europe
Communications,
144A 11.25% 11/01/09 256,563
- - -------------------------------------------------------
1,233,813
- - -------------------------------------------------------
ENTERTAINMENT & LEISURE - 3.0%
250,000 Bell Sports,
Series B 11.00% 08/15/08 250,000
- - -------------------------------------------------------
HEALTH CARE PROVIDERS - 3.1%
250,000 LifePoint Hospitals
Holdings,
Series B 10.75% 05/15/09 258,750
- - -------------------------------------------------------
HEAVY MACHINERY - 5.7%
250,000 Generac Portable
Products 11.25% 07/01/06 255,000
250,000 Pentacon,
Series B 12.25% 04/01/09 225,000
- - -------------------------------------------------------
480,000
- - -------------------------------------------------------
INDUSTRIAL - DIVERSIFIED - 0.7%
250,000 Pen-Tab Industries,
Series B 10.875% 02/01/07 62,500
- - -------------------------------------------------------
MEDICAL SUPPLIES - 3.7%
300,000 Kelso & Company,
144A 12.75% 10/01/09 310,500
- - -------------------------------------------------------
METALS - 2.0%
250,000 Republic Technologies
International,
144A 13.75% 07/15/09 165,000
- - -------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
OIL & GAS - 6.1%
$250,000 EOTT Energy
Partners 11.00% 10/01/09 $ 258,750
250,000 Western Gas
Resources 10.00% 06/15/09 256,250
- - -------------------------------------------------------
515,000
- - -------------------------------------------------------
TELEPHONE SYSTEMS - 11.5%
250,000 Exodus
Communications,
144A 10.75% 12/15/09 254,375
200,000 Global Crossing
Holdings, 144A 9.125% 11/15/06 197,750
250,000 Metromedia
Fiber Network 10.00% 12/15/09 256,250
250,000 Worldwide
Fiber, 144A 12.00% 08/01/09 257,500
- - -------------------------------------------------------
965,875
- - -------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $5,351,893) $5,079,938
- - -------------------------------------------------------
SOVEREIGN GOVERNMENT OBLIGATIONS - 34.9%
ARGENTINA - 1.9%
176,000 Republic of
Argentina,
Brady Bond (b) 6.813% 03/31/05 $ 159,157
- - -------------------------------------------------------
BRAZIL - 5.8%
300,000 Republic
of Brazil 11.625% 04/15/04 300,000
250,000 Republic of Brazil,
Brady Bond (b) 6.938% 04/15/24 189,688
- - -------------------------------------------------------
489,688
- - -------------------------------------------------------
BULGARIA - 3.3%
350,000 Government
of Bulgaria,
Brady Bond,
IAB, PDI (b) 6.50% 07/28/11 276,063
- - -------------------------------------------------------
COLOMBIA - 2.8%
250,000 Republic of
Colombia 9.75% 04/23/09 232,500
- - -------------------------------------------------------
MEXICO - 6.2%
500,000 United Mexican
States 10.375% 02/17/09 532,498
- - -------------------------------------------------------
MOROCCO - 2.7%
250,000 Kingdom of
Morocco,
Series A (b) 6.844% 01/01/09 225,625
- - -------------------------------------------------------
PERU - 1.8%
250,000 Republic of Peru,
Brady Bond,
FLIRB (b) 3.75% 03/07/17 154,688
- - -------------------------------------------------------
PHILIPPINE ISLANDS - 2.4%
200,000 Republic of
Philippines 9.875% 01/15/19 197,750
- - -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
16
INCOME OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS CONTINUED
Principal Interest Maturity Value
Amount Rate Date (Note 1)
SOVEREIGN GOVERNMENT OBLIGATIONS - CONTINUED
RUSSIA - 2.8%
$400,000 Russian Federation,
Euro-Dollar 8.75% 07/24/05 $ 237,000
- - -------------------------------------------------------
TURKEY - 3.2%
250,000 Republic of
Turkey 12.375% 06/15/09 268,125
- - -------------------------------------------------------
VENEZUELA - 2.0%
250,000 Venezuela 9.25% 09/15/27 165,000
- - -------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT OBLIGATIONS
(COST $2,711,508) $2,938,094
- - -------------------------------------------------------
Value
Units (Notes 1)
WARRANTS - 0.1%
COMMUNICATIONS - 0.0%
400 Paging do Brazil,
Class B, 144A* $ 0
- - -------------------------------------------------------
NIGERIA - 0.0%
250 Central Bank of Nigeria* 0
- - -------------------------------------------------------
TELEPHONE SYSTEMS - 0.1%
3,375 Conecel Holdings* 0
200 Primus Telecommunications* 5,000
- - -------------------------------------------------------
5,000
- - -------------------------------------------------------
TOTAL WARRANTS
(COST $0) $ 5,000
- - -------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 95.4%
(COST $8,063,401) (A) $8,023,032
CASH AND OTHER ASSETS
NET OF LIABILITIES - 4.6% 383,116
- - -------------------------------------------------------
NET ASSETS - 100.0% $8,406,148
- - -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$8,072,399, resulting in gross unrealized appreciation and depreciation of
$355,986 and $405,353 respectively, and net unrealized depreciation of
$49,367.
(b) Interest rate shown reflects current rate on instrument with variable or
floating rates.
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $2,406,438, or 28.6% of net assets.
Brady Bond - U.S. dollar denominated bonds of developing countries that
were exchanged, in a restructuring, for commercial bank loans in
default. The bonds are collateralized by U.S. Treasury zero-coupon
bonds to ensure principal.
Euro-Dollar - Bonds issued offshore that pay interest and principal in U.S.
dollars.
FLIRB - Front-Load Interest Reduction Bonds
IAB - Interest Arrears Bonds
PDI - Past Due Interest Bonds
Yankee Dollar - U.S. dollar denominated bonds issued by non-U.S. companies in
the U.S.
The accompanying notes are an integral part of the financial statements.
<PAGE>
17
VALUE PLUS FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE VALUE PLUS FUND
Fort Washington Investment Advisors, the manager of the Touchstone Value Plus
Fund, and a disciplined value manager, uses the S&P/Barra Value Index as their
style benchmark. The S&P Barra Value Index had a 12.0% return in 1999, compared
to 8.8% for the Value Plus Fund. Fort Washington states that they were in the
top-performing quartile of large value equity managers for 1999.
The U.S. stock market finished 1999 with a flourish to record another big year.
Despite the protestations of countless naysayers, stocks recorded their fifth
straight year of twenty plus percent returns, as measured by the S&P 500 Index.
Yet once again this performance was concentrated in a relative handful of large
capitalization, mostly technology stocks. The market's "underbelly" is very
soft; since April 1998, 70% of the roughly 6,000 U.S. common stocks are down in
price. In fact, over one half of the stocks in the S&P 500 Index had a negative
absolute return for 1999.
As most of the biggest gains in last year's stock market were in technology
stocks, the Touchstone Value Plus Fund, due to its diversification, had returns
less than those of the S&P 500 Index. Less than a quarter of the portfolio was
invested in computer-related and electronics stocks, so the Fund wasn't as
strongly impacted by the tremendous increase in technology stocks.
The best performing sectors in the portfolio for the last quarter were Consumer
Staples and Communication Services. Leading the performance in these sectors
were Sysco and Frontier Corp (now Global Crossings). Other notable performers in
the quarter were Nortel Networks and Amgen. Consumer Cyclicals was the worst
performing sector with Stewart Enterprises showing the worst underperformance.
GROWTH OF A $10,000 INVESTMENT - Class A Shares
<TABLE>
<CAPTION>
Touchstone S&P 500 S&P/Barra Wilshire Large
Value Plus Index Value Index Cap Value
Fund A (Major Index) (Minor Index) (Minor Index)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/98 9525 10000 10000 10000
6/98 9303 10227 9934 9968
9/98 8134 9210 8651 8853
12/98 9829 11171 10159 10075
3/99 10208 11571 10449 10073
6/99 11001 12347 11577 10862
9/99 10046 11538 10509 9771
12/99 11354 13216 11379 10433
</TABLE>
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 5/1/98
8.8% 7.9%
Cumulative Total Return
Since Inception
5/1/98
13.5%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
18
VALUE PLUS FUND
GROWTH OF A $10,000 INVESTMENT - Class C Shares
<TABLE>
<CAPTION>
Touchstone S&P 500 S&P/Barra Wilshire Large
Value Plus Index Value Index Cap Value
Fund C (Major Index) (Minor Index) (Minor Index)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1/99 10000 10000 10000 10000
3/99 10331 10500 10282 9998
6/99 11111 11240 11395 10781
9/99 10127 10537 10344 9698
12/99 11424 12105 11201 10355
</TABLE>
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
14.2% 14.2%
Cumulative Total Return
Since Inception
1/1/99
14.2%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
19
VALUE PLUS FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 96.7%
ADVERTISING - 2.2%
12,100 Interpublic Group of
Companies (The) $ 698,019
- - -------------------------------------------------------
AEROSPACE & DEFENSE - 2.1%
11,800 Honeywell International 680,713
- - -------------------------------------------------------
AUTOMOTIVE - 1.7%
13,000 Magna International, Class A 550,875
- - -------------------------------------------------------
BANKING - 3.2%
13,706 Bank One 439,449
4,000 Chase Manhattan 310,750
16,500 North Fork Bancorporation 288,750
- - -------------------------------------------------------
1,038,949
- - -------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 3.8%
15,800 McCormick & Company 470,050
21,200 Pepsico 747,300
- - -------------------------------------------------------
1,217,350
- - -------------------------------------------------------
COMMUNICATIONS - 3.5%
11,200 Nortel Networks 1,131,200
- - -------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 8.5%
29,500 Ceridian* 636,094
9,400 Computer Associates
International 657,413
32,100 Compuware* 1,195,716
5,400 First Data 266,288
- - -------------------------------------------------------
2,755,511
- - -------------------------------------------------------
COMPUTERS & INFORMATION - 9.2%
6,400 Hewlett-Packard 729,200
6,700 International Business Machines 723,600
10,200 Lexmark International Group,
Class A* 923,100
8,200 Sun Microsystems* 634,988
- - -------------------------------------------------------
3,010,888
- - -------------------------------------------------------
ELECTRIC UTILITIES - 1.6%
16,600 CMS Energy 517,713
- - -------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.7%
6,600 Thomas & Betts 210,375
- - -------------------------------------------------------
ELECTRONICS - 2.1%
8,200 Intel 674,963
- - -------------------------------------------------------
FINANCIAL SERVICES - 7.1%
14,550 Citigroup 808,434
5,600 Federal Home Loan Mortgage
Corporation 263,550
11,600 Federal National Mortgage
Association 724,275
11,500 SLM Holding 485,875
- - -------------------------------------------------------
2,282,134
- - -------------------------------------------------------
FOOD RETAILERS - 1.4%
13,860 Albertson's 446,985
- - -------------------------------------------------------
Value
Shares (Note 1)
FOREST PRODUCTS & PAPER - 5.4%
16,400 Kimberly-Clark $ 1,070,100
15,700 Mead 681,969
- - -------------------------------------------------------
1,752,069
- - -------------------------------------------------------
HEALTH CARE PROVIDERS - 1.3%
26,400 Manor Care* 422,400
- - -------------------------------------------------------
HEAVY MACHINERY - 2.9%
3,300 Applied Materials* 418,069
9,400 Ingersoll-Rand 517,588
- - -------------------------------------------------------
935,657
- - -------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 2.0%
4,200 General Electric 649,950
- - -------------------------------------------------------
INSURANCE - 4.6%
5,000 Aetna 279,063
18,600 AXA Financial 630,075
14,800 Reliastar Financial 579,975
- - -------------------------------------------------------
1,489,113
- - -------------------------------------------------------
MEDICAL SUPPLIES - 2.2%
4,500 Baxter International 282,656
16,300 Becton Dickinson & Company 436,025
- - -------------------------------------------------------
718,681
- - -------------------------------------------------------
METALS - 1.9%
24,000 Masco 609,000
- - -------------------------------------------------------
OIL & GAS - 7.8%
22,800 Conoco, Class A 564,300
7,857 Exxon Mobil 632,980
7,900 Schlumberger 444,375
17,300 Tosco 470,344
1,529 Transocean Sedco Forex 51,523
11,500 Williams Companies (The) 351,469
- - -------------------------------------------------------
2,514,991
- - -------------------------------------------------------
PHARMACEUTICALS - 7.1%
14,600 Abbott Laboratories 530,163
10,600 Amgen* 636,663
11,900 Cardinal Health 569,713
8,200 Merck 549,913
- - -------------------------------------------------------
2,286,452
- - -------------------------------------------------------
RETAILERS - 3.1%
8,500 Federated Department Stores* 429,781
51,000 Office Depot* 557,813
- - -------------------------------------------------------
987,594
- - -------------------------------------------------------
TELEPHONE SYSTEMS - 10.2%
9,600 Alltel 793,800
9,100 Bell Atlantic 560,219
13,810 Global Crossing* 690,500
10,800 MCI WorldCom* 573,075
14,900 SBC Communications 726,375
- - -------------------------------------------------------
3,343,969
- - -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
20
VALUE PLUS FUND
SCHEDULE OF INVESTMENTS CONTINUED
Value
Shares (Note 1)
COMMON STOCKS - CONTINUED
TRANSPORTATION - 1.1%
3,700 US Freightways $ 177,138
13,700 Wisconsin Central Transport* 184,094
- - -------------------------------------------------------
361,232
- - -------------------------------------------------------
TOTAL COMMON STOCKS
(COST $27,959,720) $31,286,783
- - -------------------------------------------------------
Value
(Note 1)
TOTAL INVESTMENTS AT VALUE - 96.7%
(COST $27,959,720) (A) $31,286,783
CASH AND OTHER ASSETS
NET OF LIABILITIES - 3.3% 1,069,218
- - -------------------------------------------------------
NET ASSETS - 100.0% $32,356,001
- - -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$27,966,854 resulting in gross unrealized appreciation and depreciation of
$6,266,546 and $2,946,617, respectively, and net unrealized appreciation of
$3,319,929.
The accompanying notes are an integral part of the financial statements.
<PAGE>
21
GROWTH & INCOME FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE GROWTH & INCOME FUND
The S&P 500 Index, the benchmark for the Growth & Income Fund, posted an
unprecedented fifth consecutive year of 20+% returns in 1999 to end a phenomenal
decade of U.S. equity market performance. 1999 was similar to 1998 in that the
overall market exceeded even the most optimistic predictions, a narrow group
of technology and growth stocks dominated market index returns, and the
dispersion of returns between growth and value styles has never been greater.
The Growth & Income Fund posted a (3.3)% return for 1999, compared to 21.1% for
the S&P 500 Index.
Despite three interest rate hikes by the Federal Reserve and record valuations
among technology stocks, the broad market posted solid returns in the first half
of the year, declined sharply in the third quarter and fully recovered by year
end to reach new highs. However, only a narrow group of stocks in the broad
market index participated in this record setting performance.
For the second consecutive year, growth managers fully participated in this
narrow market, while value managers generally remained on the sidelines. The
dominance of technology and the underperformance of the finance sector led to
the largest ever performance dispersion between the large cap style indices as
measured by the Russell 1000 Value Index (+7.4%) and the Russell 1000 Growth
Index (+33.2%). For the year, only 31% of the stocks in the S&P 500 outperformed
the index and 50% of the stocks had negative returns. The Russell 1000 Value
Index had similarly poor breadth, with only 35% of its stocks outperforming the
index, and 50% of its stocks declining. The majority of active large cap value
managers underperformed the value benchmark.
The manager of the Touchstone Growth & Income Fund, Scudder Kemper Investments,
observed that the Fund's performance relative to the benchmark and their peer
group suffered in the second half of the year. A number of portfolio holdings
declined sharply after posting negative revenue or earnings surprises. The
market, which typically is more forgiving of disappointments among low
price/earnings stocks, punished these underperformers nonetheless. A handful of
stocks including Xerox, Lockheed Martin, American Home Products, and First Union
were the most significant detractors from performance for the fourth quarter
and full year.
The most significant positive contributors to fourth quarter performance were
telecommunications and telecommunications equipment holdings, led by Corning
(the portfolio's largest position), which rallied 80% on continuing positive
news coming out of its fiber and photonics businesses. Global Crossing rose 83%
following its successful closure of the Frontier acquisition. Sprint received a
takeover bid from Worldcom and leapt 27% in the quarter. In the cyclical arena,
the portfolio benefited from its holdings in Georgia Pacific and Weyerhaeuser,
which both rallied 23% on news of a tight supply/demand balance in pulp and
container board. American Airlines (+21%) was the best performing of the major
airlines during the quarter, announcing the spin-off of Sabre Group earlier than
expected. In the technology sector, Philips Electronics posted a 30% gain, as it
benefited from the tight capacity in semiconductor contract manufacturing
(through its ownership of Taiwan Semiconductor). In the financial sector, the
Fund was rewarded by evidence of the turn in the property and casualty insurance
cycle, as Marsh & McLennan (+38%) and St. Paul (+22%) contributed most
significantly. Morgan Stanley Dean Witter (+58%) and Lehman Brothers (+45%) also
added value, as they both posted positive surprises on the heels of strong
investment banking results.
<PAGE>
22
GROWTH & INCOME FUND
As a disciplined value investor, Scudder will adhere to the value process that
they have historically followed. They believe that the portfolio is positioned
to ensure participation when the style shift occurs.
GROWTH OF A $10,000 INVESTMENT - Class A Shares
<TABLE>
<CAPTION>
Touchstone
Growth & S&P 500 CDA/Wiesenberger
Income Index Growth &
Fund A (Major Index) Income - MF
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9/94 9425 10000 10000
12/94 9444 9998 9837
3/95 10406 10972 10594
6/95 11160 12019 11428
9/95 12049 12974 12248
12/95 12763 13756 12823
3/96 13676 14494 13525
6/96 14114 15144 13969
9/96 14419 15612 14370
12/96 14927 16914 15415
3/97 14278 17367 15583
6/97 15959 20399 17768
9/97 17460 21927 19305
12/97 18016 22557 19484
3/98 20253 25703 21658
6/98 19780 26552 21739
9/98 17264 23911 19232
12/98 19253 29002 22466
3/99 19355 30452 22839
6/99 21497 32598 24815
9/99 19011 30561 22992
12/99 19740 35108 25305
</TABLE>
Average Annual Total Return
One Year Five Years Since
Ended Ended Inception
12/31/99 12/31/99 10/3/94
(3.3%) 14.5% 13.8%
Cumulative Total Return
Since Inception
10/3/94
97.4%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
23
GROWTH & INCOME FUND
GROWTH OF A $10,000 INVESTMENT - Class C Shares
Touchstone
Growth & S&P 500 CDA/Wiesenberger
Income Index Growth &
Fund C (Major Index) Income - MF
- - ------------------------------------------------------------------------------
1/99 10000 10000 10000
3/99 10038 10500 10166
6/99 11134 11240 11045
9/99 9820 10537 10234
12/99 10180 12105 11264
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
1.8% 1.8%
Cumulative Total Return
Since Inception
1/1/99
1.8%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
GROWTH OF A $10,000 INVESTMENT - Class Y Shares
Touchstone
Growth & S&P 500 CDA/Wiesenberger
Income Index Growth &
Fund Y (Major Index) Income - MF
- - -------------------------------------------------------------------------------
1/99 10000 10000 10000
3/99 10058 10500 10166
6/99 11185 11240 11045
9/99 9892 10537 10234
12/99 10271 12105 11264
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
2.7% 2.7%
Cumulative Total Return
Since Inception
1/1/99
2.7%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
24
GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 98.0%
AEROSPACE & DEFENSE - 2.8%
17,600 Lockheed Martin $ 385,000
5,500 Northrop Grumman 297,344
7,200 Rockwell International 344,700
- - -------------------------------------------------------
1,027,044
- - -------------------------------------------------------
AIRLINES - 0.6%
3,400 AMR* 227,800
- - -------------------------------------------------------
AUTOMOTIVE - 1.9%
7,200 Ford Motor 384,750
8,500 Meritor Automotive 164,688
3,500 Paccar 155,094
- - -------------------------------------------------------
704,532
- - -------------------------------------------------------
BANKING - 8.7%
12,000 Bank of America 602,250
9,500 Chase Manhattan 738,031
8,962 First Union 294,066
14,700 FleetBoston Financial 511,744
13,500 PNC Bank 600,750
17,300 US Bancorp 411,956
- - -------------------------------------------------------
3,158,797
- - -------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 3.5%
8,500 Heinz (H. J.) 338,406
19,500 Pepsico 687,375
10,500 Philip Morris 243,469
- - -------------------------------------------------------
1,269,250
- - -------------------------------------------------------
CHEMICALS - 1.3%
5,900 Air Products & Chemicals 198,019
1 Du Pont (E.I.) De Nemours 66
21,500 Lyondell Petro Chemical 274,125
- - -------------------------------------------------------
472,210
- - -------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 3.4%
8,900 Cadence Design Systems* 213,600
14,600 Computer Associates
International 1,021,088
- - -------------------------------------------------------
1,234,688
- - -------------------------------------------------------
COSMETICS & PERSONAL CARE - 1.2%
6,400 Colgate-Palmolive 416,000
- - -------------------------------------------------------
ELECTRIC UTILITIES - 2.8%
5,600 Cinergy 135,100
10,672 ScottishPower, ADR 298,816
17,000 Unicom 569,500
- - -------------------------------------------------------
1,003,416
- - -------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.9%
5,700 Emerson Electric 327,038
- - -------------------------------------------------------
ELECTRONICS - 2.5%
6,700 Koninklijke (Royal) Philips
Electronics (NY Reg.) 904,500
- - -------------------------------------------------------
FINANCIAL SERVICES - 9.6%
17,600 Citigroup 977,900
10,400 Federal National Mortgage
Association 649,350
3,000 J.P. Morgan 379,875
6,100 Lehman Brothers Holdings 516,594
4,000 Morgan Stanley Dean Witter 571,000
8,500 SLM Holding 359,125
- - -------------------------------------------------------
3,453,844
- - -------------------------------------------------------
Value
Shares (Note 1)
FOOD RETAILERS - 0.7%
7,963 Albertson's $ 256,807
- - -------------------------------------------------------
FOREST PRODUCTS & PAPER - 2.1%
4,900 Georgia-Pacific 248,675
7,100 Weyerhaeuser 509,869
- - -------------------------------------------------------
758,544
- - -------------------------------------------------------
HEAVY MACHINERY - 1.7%
11,700 Parker Hannifin 600,356
- - -------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES - 1.7%
3,900 General Electric 603,525
- - -------------------------------------------------------
HOUSEHOLD PRODUCTS - 5.5%
15,300 Corning 1,972,744
- - -------------------------------------------------------
INSURANCE - 7.9%
19,800 Allstate Corporation (The) 475,200
18,200 Lincoln National 728,000
5,800 Marsh & McLennan Companies 554,988
15,600 St. Paul Companies (The) 525,525
10,870 XL Capital, Class A 563,881
- - -------------------------------------------------------
2,847,594
- - -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 1.6%
9,500 McGraw-Hill Companies (The) 585,438
- - -------------------------------------------------------
METALS - 0.8%
9,050 Allegheny Technologies 203,059
10,200 Oregon Steel Mills 80,963
- - -------------------------------------------------------
284,022
- - -------------------------------------------------------
OIL & GAS - 11.4%
9,700 Burlington Resources 320,706
12,300 Conoco, Class A 304,425
11,546 Conoco, Class B 287,207
18,240 Exxon Mobil 1,469,453
7,000 Royal Dutch Petroleum 423,063
9,600 Texaco 521,400
8,233 Total Fina S.A., ADR 570,135
7,600 Williams Companies (The) 232,275
- - -------------------------------------------------------
4,128,664
- - -------------------------------------------------------
PHARMACEUTICALS - 3.8%
17,400 American Home Products 686,213
5,300 Bristol-Myers Squibb 340,194
6,400 Glaxo Wellcome, ADR 357,600
- - -------------------------------------------------------
1,384,007
- - -------------------------------------------------------
RETAILERS - 1.2%
6,000 Dayton Hudson 440,625
- - -------------------------------------------------------
TELEPHONE SYSTEMS - 17.6%
8,100 Alltel 669,769
16,300 AT&T 827,225
20,900 Bell Atlantic 1,286,656
22,600 BellSouth 1,057,963
6,540 Global Crossing* 327,000
7,600 GTE 536,275
21,332 SBC Communications 1,039,935
8,700 Sprint 585,619
- - -------------------------------------------------------
6,330,442
- - -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
25
GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS CONTINUED
Value
Shares (Note 1)
COMMON STOCKS - CONTINUED
TRANSPORTATION - 2.8%
11,200 Canadian National Railway $ 294,700
16,500 CSX 517,688
9,000 Norfolk Southern 184,500
- - -------------------------------------------------------
996,888
- - -------------------------------------------------------
TOTAL COMMON STOCKS
(COST $35,518,105) $35,388,775
- - -------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.5%
CHEMICALS - 0.5%
5,900 Monsanto, ACES $ 195,438
- - -------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $266,258) $ 195,438
- - -------------------------------------------------------
Value
(Note 1)
TOTAL INVESTMENTS AT VALUE - 98.5%
(COST $35,784,363) (A) $35,584,213
CASH AND OTHER ASSETS
NET OF LIABILITIES - 1.5% 546,605
- - -------------------------------------------------------
NET ASSETS - 100.0% $36,130,818
- - -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$35,785,695 resulting in gross unrealized appreciation and depreciation of
$4,489,147 and $4,690,629, respectively, and net unrealized depreciation of
$201,482.
ACES - Adjustable Conversion-Rate Equity Security
ADR - American Depository Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE>
26
BALANCED FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE BALANCED FUND
The U.S. stock market continued its strong performance in 1999, completing five
consecutive years of sharply rising prices. Meanwhile, it was a rough year for
bonds and, by some measures, it was the worst year ever. At year end, bonds and
fixed income securities represented 40% of the Balanced Fund's assets. The
Touchstone Balanced Fund had a return of 3.3% for 1999. Its benchmark, the
Lehman Brothers Aggregate Index, had a return of (0.8)%.
The U.S. economy remains strong and there are indications of excessive optimism
in the stock market. The three rate increases implemented by the Federal Reserve
since June of 1999 have been taken in stride, and even welcomed, by the stock
market. The stock market was characterized throughout 1999 -- and especially in
the fourth quarter -- by two extremely contradictory trends: the rapid
escalation of many technology stocks and only modest gains or even price
declines for stocks across most other industry sectors. Many technology stocks
did not generate any earnings, yet increased dramatically, driven by the
prospect of continued rapid growth for e-commerce and the Internet. On the other
hand, many "bricks and mortar" stocks with solid earnings and favorable business
prospects declined in price.
The manager of the Touchstone Balanced Fund, OpCap Advisors, observed that as
technology stocks soared, many non-tech issues were left behind. A full
one-third of NYSE stocks declined 20% or more in 1999. Even stocks of
traditional companies with excellent competitive positions and strong earnings
growth tended to fare poorly in this technology-focused market environment.
Performance disparities among industry sectors and types of stocks are hardly
new. Nonetheless, few such disparities have been as dramatic as that which
occurred during 1999 between the technology stocks and the rest of the market.
OpCap remained focused on generating excellent long-term results with
below-market risk by investing in companies with superior fundamentals and
inexpensive valuations.
Among the Fund's equity holdings, Oak Industries, a leading manufacturer of
cable TV and telecommunications infrastructure products, was a top contributor
to performance. In November, Corning agreed to acquire Oak for approximately
$75 per share, a 51% premium to market, confirming OpCap's assessment of the
inherent worth of Oak's valuable franchises. Another major contributor to
performance was Molex, the second largest electronics connector manufacturer in
the world. The company's stock appreciated significantly during the last few
months of the year, reflecting the recovery of Asian markets and the company's
strong position in cell phone components. Emmis, a major broadcasting company
focused on large media markets, continues to be rewarded by the market for
strong performance in radio and television.
The five largest equity holdings at December 31, 1999 were AMFM, a broadcasting
company, representing 2.9% of the Fund's net assets; Computer Associates, a
developer of software products, 2.0%; Federal Home Loan Mortgage Corp., 1.7% of
the Fund's net assets; Minnesota Mining & Manufacturing (3M), a diversified
manufacturer, 1.5% of net assets and Citigroup, a diversified financial services
company, 1.4% of net assets.
In addition to its holdings of common stocks, bonds and fixed income securities,
the Fund was invested in cash and cash equivalents. The fixed income portion of
the portfolio lagged along with the bond market at large.
<PAGE>
27
BALANCED FUND
GROWTH OF A $10,000 INVESTMENT - Class A Shares
<TABLE>
<CAPTION>
Lehman Blend 60% CDA/Wiesenberger
Touchstone S&P Brothers S&P 500, 40% Balanced
Balanced 500 Aggregate Index Lehman Brothers Domestic
Fund A Index (Major Index) Aggregate Average - MF
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/94 9425 10000 10000 10000 10000
12/94 9453 9998 10038 9973 9893
3/95 9965 10972 10544 10713 10501
6/95 10922 12019 11187 11539 11245
9/95 11582 12974 11406 12113 11849
12/95 11654 13756 11892 12734 12337
3/96 12065 14494 11681 13006 12656
6/96 12209 15144 11748 13339 12954
9/96 12606 15612 11965 13644 13300
12/96 13618 16914 12324 14446 13973
3/97 13575 17367 12256 14611 13964
6/97 15028 20399 12707 16290 15380
9/97 15929 21927 13131 17203 16397
12/97 16240 22557 13514 17666 16572
3/98 17364 25703 13723 19198 17828
6/98 17443 26552 14045 19717 18014
9/98 15631 23911 14638 18852 16835
12/98 16885 29002 14687 21182 18708
3/99 16968 30452 14613 21729 18858
6/99 18090 32598 14484 22525 19704
9/99 17225 30561 14583 21693 18840
12/99 18508 35108 14565 23543 20267
</TABLE>
Average Annual Total Return
One Year Five Years Since
Ended Ended Inception
12/31/99 12/31/99 10/3/94
3.3% 13.0% 12.5%
Cumulative Total Return
Since Inception
10/3/94
85.1%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
GROWTH OF A $10,000 INVESTMENT - Class C Shares
<TABLE>
<CAPTION>
Lehman Blend 60% CDA/Wiesenberger
Touchstone S&P Brothers S&P 500, 40% Balanced
Balanced 500 Aggregate Index Lehman Brothers Domestic
Fund C Index (Major Index) Aggregate Average - MF
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1/99 10000 10000 10000 10000 10000
3/99 10032 10500 9949 10258 10081
6/99 10673 11240 9861 10634 10533
9/99 10145 10537 9929 10241 10071
12/99 10878 12105 9917 11115 10834
</TABLE>
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
8.8% 8.8%
Cumulative Total Return
Since Inception
1/1/99
8.8%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
28
BALANCED FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Value
Shares (Note 1)
COMMON STOCKS - 54.1%
ADVERTISING - 2.2%
700 Lamar Advertising* $ 42,394
900 WPP Group 74,813
600 Young & Rubicam 42,450
- - -------------------------------------------------------
159,657
- - -------------------------------------------------------
AEROSPACE & DEFENSE - 0.9%
1,500 Boeing 62,344
- - -------------------------------------------------------
AIRLINES - 1.2%
1,300 AMR* 87,100
- - -------------------------------------------------------
BANKING - 4.0%
600 Chase Manhattan 46,613
2,221 FleetBoston Financial 77,319
1,800 Household International 67,050
2,500 Wells Fargo 101,094
- - -------------------------------------------------------
292,076
- - -------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 2.2%
2,255 Diageo, ADR 72,160
2,200 McDonald's 88,688
- - -------------------------------------------------------
160,848
- - -------------------------------------------------------
BUILDING MATERIALS - 0.1%
1,422 Huttig Building Products* 7,022
- - -------------------------------------------------------
CHEMICALS - 2.0%
1,500 Du Pont (E.I.) De Nemours 98,813
1,200 Monsanto 42,750
- - -------------------------------------------------------
141,563
- - -------------------------------------------------------
COMMERCIAL SERVICES - 1.6%
1,450 PerkinElmer 60,447
3,300 Waste Management 56,719
- - -------------------------------------------------------
117,166
- - -------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 2.0%
2,050 Computer Associates International 143,372
- - -------------------------------------------------------
COMPUTERS & INFORMATION - 0.9%
2,400 Compaq Computer 64,950
- - -------------------------------------------------------
CONTAINERS & PACKAGING - 0.4%
2,000 American National Can Group 26,000
- - -------------------------------------------------------
COSMETICS & PERSONAL CARE - 0.7%
1,600 Avon Products 52,800
- - -------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.2%
1,500 Emerson Electric 86,063
- - -------------------------------------------------------
ELECTRONICS - 2.2%
2,000 Arrow Electronics* 50,750
900 Avnet 54,450
900 Molex 51,019
- - -------------------------------------------------------
156,219
- - -------------------------------------------------------
FINANCIAL SERVICES - 3.5%
1,875 Citigroup 104,180
1,100 Countrywide Credit 27,775
2,600 Federal Home Loan
Mortgage Corporation 122,363
- - -------------------------------------------------------
254,318
- - -------------------------------------------------------
FOOD RETAILERS - 1.2%
4,700 Kroger Company (The)* 88,713
- - -------------------------------------------------------
Value
Shares (Note 1)
HEAVY MACHINERY - 4.5%
1,800 Applied Power, Class A $ 66,150
1,750 Caterpillar 82,359
1,500 Dover 68,063
1,600 Parker Hannifin 82,100
600 W.W. Grainger 28,688
- - -------------------------------------------------------
327,360
- - -------------------------------------------------------
INDUSTRIAL - DIVERSIFIED - 2.4%
1,900 Carlisle Companies 68,400
1,100 Minnesota Mining &
Manufacturing (3M) 107,663
- - -------------------------------------------------------
176,063
- - -------------------------------------------------------
INSURANCE - 3.7%
1,200 AFLAC 56,625
1,557 Conseco 27,831
1,800 Everest Reinsurance Holdings 40,163
1,000 PartnerRe 32,438
1,500 Protective Life 47,719
1,200 XL Capital, Class A 62,250
- - -------------------------------------------------------
267,026
- - -------------------------------------------------------
LODGING - 1.0%
35,400 Homestead Village* 75,217
- - -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 4.0%
2,700 AMFM* 211,275
600 Emmis Communications, Class A* 74,784
- - -------------------------------------------------------
286,059
- - -------------------------------------------------------
METALS - 1.8%
800 Alcoa 66,400
3,200 Crane 63,600
- - -------------------------------------------------------
130,000
- - -------------------------------------------------------
OIL & GAS - 0.8%
1,700 Anadarko Petroleum 58,013
- - -------------------------------------------------------
PHARMACEUTICALS - 2.2%
1,700 American Home Products 67,044
1,250 Teva Pharmaceutical Industries, ADR 89,609
- - -------------------------------------------------------
156,653
- - -------------------------------------------------------
REAL ESTATE - 1.0%
3,600 Prologis Trust, REIT 69,300
- - -------------------------------------------------------
RESTAURANTS - 0.4%
2,000 Bob Evans Farms 30,875
- - -------------------------------------------------------
RETAILERS - 1.1%
1,100 CVS 43,931
1,100 May Department Stores 35,475
- - -------------------------------------------------------
79,406
- - -------------------------------------------------------
TELEPHONE SYSTEMS - 3.0%
800 Bell Atlantic 49,250
1,425 MCI WorldCom* 75,614
1,350 Sprint 90,872
- - -------------------------------------------------------
215,736
- - -------------------------------------------------------
TRANSPORTATION - 1.9%
2,200 Air Express International 71,088
1,250 Sabre Group Holdings* 64,063
- - -------------------------------------------------------
135,151
- - -------------------------------------------------------
TOTAL COMMON STOCKS
(COST $3,808,179) $ 3,907,070
- - -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
29
BALANCED FUND
SCHEDULE OF INVESTMENTS CONTINUED
Value
Shares (Note 1)
PREFERRED STOCKS - 0.9%
ENTERTAINMENT & LEISURE - 0.9%
2,000 News Corporation Limited
(The), ADR $ 66,875
- - -------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $50,643) $ 66,875
- - -------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
ASSET-BACKED SECURITIES - 0.1%
FINANCIAL SERVICES - 0.1%
$ 4,111 Merrill Lynch
Mortgage Investors,
Series 1991-I,
Class A 7.65% 01/15/12 $ 4,113
- - -------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $4,211) $ 4,113
- - -------------------------------------------------------
CORPORATE BONDS - 20.4%
BANKING - 4.7%
150,000 Associates
Corporation of
North America 5.75% 11/01/03 142,819
100,000 BB&T 7.25% 06/15/07 96,789
100,000 Chase Manhattan 7.25% 06/01/07 98,043
308 Nykredit 6.00% 10/01/26 39
- - -------------------------------------------------------
337,690
- - -------------------------------------------------------
BEVERAGES, FOOD & TOBACCO - 0.8%
60,000 Coca-Cola Femsa 8.95% 11/01/06 60,150
- - -------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING - 1.3%
100,000 Computer Associates
International 6.375% 04/15/05 93,036
- - -------------------------------------------------------
ELECTRIC UTILITIES - 5.8%
95,000 Financiera
Energy 9.375% 06/15/06 80,257
200,000 Tennessee Valley
Authority 5.00% 12/18/03 187,556
150,000 Wisconsin Electric
Power 6.625% 12/01/02 148,686
- - -------------------------------------------------------
416,499
- - -------------------------------------------------------
FINANCIAL SERVICES - 4.4%
150,000 AT&T Capital 7.50% 11/15/00 150,734
100,000 GMAC 7.125% 05/01/01 100,177
69,000 Paine Webber
Group 7.00% 03/01/00 69,049
- - -------------------------------------------------------
319,960
- - -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 1.3%
100,000 CSC Holdings 7.625% 07/15/18 93,000
- - -------------------------------------------------------
METALS - 1.4%
100,000 AK Steel 9.125% 12/15/06 101,750
- - -------------------------------------------------------
OIL & GAS - 0.7%
50,000 Petroleos
Mexicanos 8.85% 09/15/07 47,875
- - -------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $1,540,369) $ 1,469,960
- - -------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
MORTGAGE-BACKED SECURITIES - 9.1%
$ 20,000 Federal Home
Loan Mortgage
Corporation 6.00% 03/15/08 $ 19,668
45,000 Federal National
Mortgage
Association 6.15% 10/25/07 44,375
150,000 Federal National
Mortgage
Association 6.00% 05/15/08 140,193
100,000 Federal National
Mortgage
Association 6.50% 04/29/09 93,694
139,159 Federal National
Mortgage
Association 6.00% 01/01/14 132,099
75,277 Federal National
Mortgage
Association 6.50% 07/18/28 70,016
40,000 General Electric
Capital Mortgage
Services, Series
1993-14, Class A7 6.50% 11/25/23 34,928
44,500 General Electric
Capital Mortgage
Services, Series
1994-10,
Class A10 6.50% 03/25/24 42,329
40,000 Merrill Lynch
Mortgage Investors,
Series 1995-C3,
Class A3 7.089% 12/26/25 39,333
50,000 Prudential Home
Mortgage Securities,
Series 1994-17,
Class A6 6.25% 04/25/24 41,609
- - -------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $697,092) $ 658,244
- - -------------------------------------------------------
MUNICIPAL BONDS - 1.9%
HOUSING - 1.4%
40,000 Baltimore Community
Development
Financing 8.20% 08/15/07 $ 41,504
4,092 Denver Colorado
City & County
Single Family 7.25% 12/01/10 3,949
30,000 New York State
Housing Finance
Agency Service 7.50% 09/15/03 30,197
25,000 Ohio Housing
Financial Agency 7.90% 10/01/14 25,526
- - -------------------------------------------------------
101,176
- - -------------------------------------------------------
TRANSPORTATION - 0.5%
30,000 Oklahoma City
Airport 9.40% 11/01/10 32,908
- - -------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $130,110) $ 134,084
- - -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
30
BALANCED FUND
SCHEDULE OF INVESTMENTS CONTINUED
Principal Interest Maturity Value
Amount Rate Date (Note 1)
SOVEREIGN GOVERNMENT OBLIGATIONS - 2.8%
SOUTH AFRICA - 1.7%
ZAR 774,000 Republic
of South
Africa 13.00% 08/31/10 $ 120,954
- - -------------------------------------------------------
UNITED KINGDOM - 1.1%
GBP 37,000 United
Kingdom
Treasury 8.00% 12/07/15 79,789
- - -------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT
OBLIGATIONS (COST $220,336) $ 200,743
- - -------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 4.1%
180,000 U.S. Treasury
Note 5.875% 02/15/04 $ 177,019
65,000 U.S. Treasury
Bond 6.25% 04/30/01 65,061
50,000 U.S. Treasury
Bond 7.25% 08/15/22 52,719
- - -------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $303,273) $ 294,799
- - -------------------------------------------------------
Value
(Note 1)
TOTAL INVESTMENTS AT VALUE - 93.4%
(COST $6,754,213) (A) $ 6,735,888
CASH AND OTHER ASSETS
NET OF LIABILITIES - 6.6% 473,725
- - -------------------------------------------------------
NET ASSETS - 100.0% $ 7,209,613
- - -------------------------------------------------------
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is $6,757,066
resulting in gross unrealized appreciation and depreciation of $679,190 and
$700,368, respectively, and net unrealized depreciation of $21,178.
ADR - American Depository Receipt
REIT - Real Estate Investment Trust
GBP - Great Britain Pound
ZAR - South African Rand
The accompanying notes are an integral part of the financial statements.
<PAGE>
31
BOND FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE BOND FUND
The bond market ended its final quarter of the century on a down note,
generating a negative return in December and locking in an equally poor return
for the quarter. The Federal Reserve induced sell-off continued and produced
only the second negative total return for bonds in a year since 1975. There are
few places to hide in the fixed income market when the Federal Reserve begins to
tighten the money supply. The benchmark for the Bond Fund, the Lehman Brothers
Aggregate Index, had a (0.8%) return in 1999. The Bond Fund return for the same
period was (6.4%).
This environment wasn't conducive to an outstanding bond portfolio performance.
While the Touchstone Bond Fund is structured to produce above market income as a
defensive measure, lower prices have offset this tactic causing returns to
closely track the index. Performance for the Fund gross of fees for the fourth
quarter and the year were -0.21% and -0.97% versus -0.12% and -0.83% for the
Lehman Brothers Aggregate Index.
Fixed income has not been the investment asset of choice for the past several
years when compared to the stellar returns in the equity market. The manager of
the Touchstone Bond Fund, Fort Washington Investment Advisors, believes that
there could continue to be rough sledding in the bond market.
GROWTH OF A $10,000 INVESTMENT - Class A Shares
Touchstone Lehman Brothers CDA/Wiesenberger
Bond Aggregate Index Corporate-Investment
Fund A (Major Index) Grade - MF
- - -------------------------------------------------------------------------------
9/94 9525 10000 10000
12/94 9551 10038 9985
3/95 10046 10544 10418
6/95 10571 11187 11104
9/95 10742 11406 11331
12/95 11172 11892 11867
3/96 10937 11681 11588
6/96 10982 11748 11629
9/96 11175 11965 11842
12/96 11490 12324 12223
3/97 11450 12256 12134
6/97 11818 12707 12571
9/97 12197 13131 12999
12/97 12329 13514 13302
3/98 12583 13723 13491
6/98 12853 14045 13788
9/98 13202 14638 14188
12/98 13384 14687 14257
3/99 13287 14613 14171
6/99 13162 14484 13976
9/99 13203 14583 14040
12/99 13160 14565 14015
Average Annual Total Return
One Year Five Years Since
Ended Ended Inception
12/31/99 12/31/99 10/3/94
(6.4%) 5.6% 5.4%
Cumulative Total Return
Since Inception
10/3/94
31.6%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
32
BOND FUND
GROWTH OF A $10,000 INVESTMENT - Class C Shares
Touchstone Lehman Brothers CDA/Wiesenberger
Bond Aggregate Index Corporate-Investment
Fund C (Major Index) Grade - MF
- - --------------------------------------------------------------------------------
1/99 10000 10000 10000
3/99 9910 9949 9940
6/99 9799 9861 9803
9/99 9810 9929 9847
12/99 9759 9917 9830
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
(2.4%) (2.4%)
Cumulative Total Return
Since Inception
1/1/99
(2.4%)
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
GROWTH OF A $10,000 INVESTMENT - Class Y Shares
Touchstone Lehman Brothers CDA/Wiesenberger
Bond Aggregate Index Corporate-Investment
Fund Y (Major Index) Grade - MF
- - --------------------------------------------------------------------------------
1/99 10000 10000 10000
3/99 9935 9949 9940
6/99 9848 9861 9803
9/99 9889 9929 9847
12/99 9856 9917 9830
Average Annual Total Return
One Year Since
Ended Inception
12/31/99 1/1/99
(1.4%) (1.4%)
Cumulative Total Return
Since Inception
1/1/99
(1.4%)
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
33
BOND FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Principal Interest Maturity Value
Amount Rate Date (Note 1)
AGENCY FOR INTERNATIONAL DEVELOPMENT BONDS - 3.4%
CENTRAL AMERICA - 2.1%
$ 120,000 Central America
International
Development,
Series F+ 10.00% 12/01/11 $ 132,586
120,000 Central America
International
Development,
Series G+ 10.00% 12/01/11 132,586
120,000 Central America
International
Development,
Series H+ 10.00% 12/01/11 132,586
- - -------------------------------------------------------
397,758
- - -------------------------------------------------------
HONDURAS - 1.3%
100,000 Republic of Honduras
International
Development,
Series C+ 13.00% 06/01/06 118,494
100,000 Republic of Honduras
International
Development,
Series D+ 13.00% 06/01/11 133,383
- - -------------------------------------------------------
251,877
- - -------------------------------------------------------
TOTAL AGENCY FOR INTERNATIONAL
DEVELOPMENT BONDS (COST $681,852) $ 649,635
- - -------------------------------------------------------
ASSET-BACKED SECURITIES - 6.8%
FINANCIAL SERVICES - 6.8%
28,690 Chase Manhattan
Grantor Trust,
Series 1996-A,
Class A 5.20% 02/15/02 $ 28,595
750,000 Chemical Credit
Card Master Trust,
Series 1996-2,
Class A 5.98% 09/15/08 712,838
72,833 Navistar Financial
Corp. Owner Trust,
Series 1996-A,
Class A2 6.35% 11/15/02 72,795
492,133 World Omni Auto
Lease, Series
1997-B, Class A3 6.18% 11/25/03 492,015
- - -------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $1,345,825) $1,306,243
- - -------------------------------------------------------
CORPORATE BONDS - 40.0%
BANKING - 3.1%
225,000 Credit Suisse First
Boston - London 7.90% 05/01/07 $ 214,078
350,000 First Union 6.55% 10/15/35 332,532
49,276 Mercantile Safe
Deposit+ 12.125% 01/02/01 49,399
- - -------------------------------------------------------
596,009
- - -------------------------------------------------------
Principal Interest Maturity Value
Amount Rate Date (Note 1)
BEVERAGES, FOOD & TOBACCO - 2.3%
$ 500,000 Pepsi Bottling,
144A 5.625% 02/17/09 $ 441,478
- - -------------------------------------------------------
CHEMICALS - 4.5%
900,000 Du Pont (E.I.)
De Nemours 6.875% 10/15/09 870,483
- - -------------------------------------------------------
COMMUNICATIONS - 2.6%
500,000 Harris Corporation
6.65% 08/01/06 497,730
- - -------------------------------------------------------
ELECTRIC UTILITIES - 2.4%
500,000 Consumers Energy,
Series B 6.50% 06/15/18 465,235
- - -------------------------------------------------------
ELECTRONICS - 4.9%
1,000,000 Raytheon 5.70% 11/01/03 938,371
- - -------------------------------------------------------
FINANCIAL SERVICES - 3.4%
750,000 Safeco Capital 8.072% 07/15/37 659,612
- - -------------------------------------------------------
FOREST PRODUCTS & PAPER - 1.4%
250,000 Georgia-Pacific 9.50% 05/15/22 264,531
- - -------------------------------------------------------
HEALTH CARE PROVIDERS - 3.1%
650,000 Columbia/HCA
Health 6.73% 07/15/45 604,937
- - -------------------------------------------------------
HOUSEHOLD PRODUCTS - 3.6%
750,000 Owens-Illinois 7.15% 05/15/05 696,290
- - -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 1.4%
250,000 News America
Holdings 10.125% 10/15/12 275,052
- - -------------------------------------------------------
OIL & GAS - 1.3%
250,000 Husky Oil 8.90% 08/15/28 249,649
- - -------------------------------------------------------
TELEPHONE SYSTEMS - 2.2%
400,000 MCI WorldCom 8.875% 01/15/06 417,948
- - -------------------------------------------------------
TRANSPORTATION - 3.8%
750,000 Norfolk Southern 7.35% 05/15/07 733,254
- - -------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $8,170,971) $7,710,579
- - -------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 28.8%
119,271 Federal Home
Loan Mortgage
Corporation 6.00% 05/01/09 $ 114,965
419,767 Federal Home
Loan Mortgage
Corporation 6.00% 08/01/10 403,376
35,889 Federal Home
Loan Mortgage
Corporation 6.00% 10/01/10 34,488
1,000,000 Federal National
Mortgage
Association 5.75% 04/15/03 970,904
1,223,815 Federal National
Mortgage
Association 6.50% 07/01/28 1,153,521
983,939 Federal National
Mortgage
Association 7.00% 08/01/29 951,614
The accompanying notes are an integral part of the financial statements.
<PAGE>
34
BOND FUND
SCHEDULE OF INVESTMENTS CONTINUED
Principal Interest Maturity Value
Amount Rate Date (Note 1)
MORTGAGE-BACKED SECURITIES - CONTINUED
$ 342,954 Government
National Mortgage
Association 7.00% 06/15/09 $ 341,999
227,027 Government
National Mortgage
Association 9.00% 08/15/19 238,338
279,577 Government
National Mortgage
Association 6.50% 01/15/24 265,224
72,037 Government
National Mortgage
Association 7.50% 12/15/27 71,287
803,018 Government
National Mortgage
Association 7.00% 05/15/28 775,999
242,869 Government
National Mortgage
Association 6.50% 09/15/28 228,145
- - -------------------------------------------------------
TOTAL-MORTGAGE BACKED
SECURITIES (COST $5,805,865) $5,549,860
- - -------------------------------------------------------
SOVEREIGN GOVERNMENT OBLIGATIONS - 5.2%
CANADA - 5.2%
1,000,000 Province of
Ontario 7.375% 01/27/03 $1,010,650
- - -------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT
OBLIGATIONS (COST $1,081,178) $1,010,650
- - -------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 5.2%
1,000,000 U.S. Treasury
Note 5.875% 10/31/01 $ 993,438
- - -------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $994,547) $ 993,438
- - -------------------------------------------------------
Shares Value
(Note 1)
PREFERRED STOCKS - 4.5%
ELECTRIC UTILITIES - 2.1%
9,600 Appalachian Power,
8.25% Cumulative $ 213,600
8,700 Ohio Power, Series A,
8.16% Cumulative 193,575
- - -------------------------------------------------------
407,175
- - -------------------------------------------------------
OIL & GAS - 2.4%
20,000 Transcanada Pipelines,
8.75% Cumulative 451,250
- - -------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $989,416) $ 858,425
- - -------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 93.9%
(COST $19,069,654) (A) $18,078,830
CASH AND OTHER ASSETS
NET OF LIABILITIES - 6.1% 1,177,309
- - -------------------------------------------------------
NET ASSETS - 100.0% $19,256,139
- - -------------------------------------------------------
Notes to the Schedule of Investments:
+ Restricted and Board valued security (Note 5).
(a) The aggregate identified cost for federal income tax purposes is
$19,069,654, resulting in gross unrealized appreciation and depreciation of
$8,172 and $998,996, respectively, and net unrealized depreciation of
$990,824.
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $441,478, or 2.3% of net assets.
The accompanying notes are an integral part of the financial statements.
<PAGE>
35
STANDBY INCOME FUND
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
TOUCHSTONE STANDBY INCOME FUND
The Touchstone Standby Income Fund continued to achieve success in 1999. Fort
Washington Investment Advisors, the manager of the Touchstone Standby Income
Fund, attributed this to their investment philosophy of sector rotation and
trend analysis. The Fund's benchmark, the Merrill Lynch 91-Day Treasury Index,
posted a 4.8% return for 1999. The Standby Income Fund achieved a 4.6% return
for the year.
Fort Washington began 1999 with a near balanced allocation to the Commercial
Paper, corporate bond and ABS markets and an index matched average maturity. As
the year concluded, the Fund had a significantly higher Commercial Paper
allocation, effectively unwinding the position that had helped them to achieve
success in 1998. ABS and corporate spreads, which had reached historically wide
levels in 1998, began to tighten adding to the Fund's total return. This,
coupled with the increasing likelihood that the Federal Reserve was becoming
more hostile to the bond market, caused Fort Washington to shorten duration and
seek the liquidity provided by the Commercial Paper market.
Fort Washington's defensive posture allowed the success to continue into 1999,
even as the bond market experienced its second worst year ever. The Fund's 4.6%
return again placed the Touchstone Standby Income Fund in the top quartile of
the Morningstar Ultra Short Index.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Merrill Lynch 30-Day
Touchstone 91-Day Money Market Smith Barney
Standby Income Treasury Index Yield Index 3-Month
Fund* (Major Index) (Minor Index) Treasury Bill
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9/94 10000 10000 10000 10000
12/94 10115 10133 10117 10130
3/95 10248 10285 10254 10272
6/95 10400 10439 10396 10422
9/95 10527 10588 10535 10569
12/95 10692 10744 10673 10713
3/96 10804 10876 10805 10851
6/96 10937 11016 10934 10988
9/96 11078 11168 11066 11132
12/96 11206 11314 11201 11276
3/97 11346 11458 11336 11419
6/97 11492 11614 11478 11566
9/97 11646 11769 11623 11716
12/97 11792 11917 11770 11868
3/98 11950 12072 11914 12021
6/98 12103 12227 12064 12173
9/98 12273 12401 12216 12327
12/98 12440 12540 12358 12468
3/99 12579 12673 12494 12485
6/99 12708 12822 12629 12622
9/99 12845 12984 12773 12766
12/99 13007 13146 12930 12926
</TABLE>
Average Annual Total Return
One Year Five Years Since
Ended Ended Inception
12/31/99 12/31/99 10/3/94
4.6% 5.2% 5.1%
Cumulative Total Return
Since Inception
10/3/94
30.1%
Total returns adjusted for maximum applicable sales charge.
Past performance is not indicative of future performance.
<PAGE>
36
STANDBY INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Principal Interest Maturity Value
Amount Rate Date (Note 1)
ASSET-BACKED SECURITIES - 12.9%
$ 252,317 Auto Finance Group
Receivables Trust,
Series 1997-A,
Class A 6.35% 10/15/02 $ 251,540
325,681 Auto Finance Group
Receivables Trust,
Series 1997-B,
Class A 6.20% 02/15/03 323,782
247,281 Capital Asset
Research Funding,
Series 1998-A,
Class A, 144A 5.905% 12/15/05 247,976
500,000 Chase Credit Card
Master Trust,
Series 1998-6,
Class B (a) 6.973% 09/15/04 501,175
540,000 Citibank Credit Card
Master Trust,
Series 1997-3,
Class A 6.839% 02/10/04 539,341
410,756 Mellon Auto
Grantor Trust,
Series 1999-1,
Class B 5.76% 10/17/05 405,527
18,832 Newcourt Equipment
Trust Securities,
Series 1998-1,
Class A2 5.17% 09/20/00 18,832
406,539 Onyx Acceptance
Auto Trust, Series
1998-1, Class A 5.95% 07/15/04 402,941
172,246 Summit Acceptance
Auto Trust,
Series 1996-A,
Class A1, 144A 7.01% 07/15/02 172,784
255,840 UCFC Home
Equity Loan,
Series 1998-D,
Class AF1 6.105% 04/15/13 254,878
- - -------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $3,134,708) $3,118,776
- - -------------------------------------------------------
COMMERCIAL PAPER - 63.3%
1,000,000 Centennial Energy
Holdings,
Sec. 4(2) 7.20% 01/21/00 $ 995,000
1,000,000 Consolidated
Natural Gas 7.05% 01/21/00 995,104
520,000 Consolidation
Coal 6.43% 01/21/00 515,170
7,550,000 Inter-American
Development
Bank 5.78% 7,530,603
1,000,000 Merrill Lynch 6.37% 01/31/00 993,807
1,000,000 PHH 7.15% 01/21/00 995,035
Principal Interest Maturity Value
Amount Rate Date (Note 1)
COMMERCIAL PAPER - CONTINUED
$ 570,000 Popular North
America 6.30% 01/24/00 $ 564,713
565,000 South Carolina
Electric & Gas 6.60% 02/01/00 560,857
600,000 Tandy 6.45% 02/08/00 595,378
1,000,000 Toyota Credit
(Puerto Rico) 6.55% 01/20/00 995,633
570,000 UOP, Sec. 4(2) 6.75% 01/28/00 564,443
- - -------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $15,305,743) $15,305,743
- - -------------------------------------------------------
CORPORATE BONDS - 14.8%
BANKING - 4.6%
570,000 MBNA, MTN (a) 6.58% 07/07/03 $ 564,784
540,000 Popular, Series 3,
MTN 6.40% 08/25/00 538,560
- - -------------------------------------------------------
1,103,344
- - -------------------------------------------------------
ELECTRIC UTILITIES - 2.1%
500,000 SCANA,
MTN (a) 6.813% 07/14/00 499,863
- - -------------------------------------------------------
FINANCIAL SERVICES - 2.1%
500,000 Potomac Capital
Investment,
144A 7.55% 11/19/01 501,257
- - -------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING - 0.6%
150,000 Cox
Communications 6.375% 06/15/00 150,148
- - -------------------------------------------------------
REAL ESTATE - 2.1%
500,000 Federal Realty
Investment Trust,
REIT 8.875% 01/15/00 500,253
- - -------------------------------------------------------
RESTAURANTS - 1.0%
239,000 ARA Services 10.625% 08/01/00 242,061
- - -------------------------------------------------------
RETAILERS - 2.3%
550,000 Dayton Hudson 10.00% 12/01/00 565,089
- - -------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $3,592,162) $ 3,562,015
- - -------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 4.5%
600,000 Federal Home
Loan Bank 5.73% 01/14/00 $ 597,326
500,000 Federal Home
Loan Mortgage
Corportation,
Series UB 6.00% 11/15/08 493,195
- - -------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (COST $1,100,764) $ 1,090,521
- - -------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 95.5%
(COST $23,133,377) (B) $23,077,055
CASH AND OTHER ASSETS
NET OF LIABILITIES - 4.5% 1,084,721
- - -------------------------------------------------------
NET ASSETS - 100.0% $24,161,776
- - -------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
37
STANDBY INCOME FUND
SCHEDULE OF INVESTMENTS CONTINUED
Notes to the Schedule of Investments:
(a) Interest rate shown reflects current rate on instrument with variable rate.
(b) The aggregate identified cost for federal income tax purposes is
$23,133,377, resulting in gross unrealized appreciation and depreciation of
$3,650 and $59,972, respectively, and net unrealized depreciation of
$56,322.
144A - Security exempt from registration under Rule 144A of Securities Act of
1933. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, these
securities were valued at $922,017, or 3.8% of net assets.
Sec. 4(2) - Securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Directors. At December
31, 1999, these securities were valued at $1,559,443, or 6.5% of net
assets.
MTN - Medium Term Note
REIT - Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE>
38
TOUCHSTONE SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
EMERGING INTERNATIONAL INCOME VALUE GROWTH & TOUCHSTONE TOUCHSTONE STANDBY
GROWTH EQUITY OPPORTUNITY PLUS INCOME BALANCED BOND INCOME
FUND FUND FUND FUND FUND FUND FUND FUND(E)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Note1)(a) $14,297,997 $15,393,299 $8,023,032 $31,286,783 $35,584,213 $6,735,888 $18,078,830 $23,077,055
Cash 332,115 -- 39,203 1,142,975 684,758 320,743 880,807 903,916
Foreign currency (b) -- -- -- -- -- 2,391 -- --
Receivables for:
Investments sold 22,738 142,567 -- -- -- -- -- --
Fund shares sold 1,416 2,455 324 43 780 624 6 --
Dividends 6,882 4,672 -- 33,720 63,622 1,625 17,590 --
Foreign tax reclaims -- 9,390 -- 367 3,455 -- 1,094 --
Interest 2,556 1,017 230,899 5,983 3,475 35,096 247,247 100,729
Unrealized appreciation
on foreign forward
currency contracts -- -- -- -- -- 326 -- --
Receivable from
Investment
Advisor (Note 6) 94,851 168,044 164,514 -- -- 152,264 120,542 111,499
- - ------------------------------------------------------------------------------------------------------------------------------
Total assets 14,758,555 15,721,444 8,457,972 32,469,871 36,340,303 7,248,957 19,346,116 24,193,199
- - ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Investments
purchased 1,730 142,185 -- -- -- -- -- --
Fund shares
redeemed 6,947 1,005 8,471 -- 2,342 2,185 500 2,059
Unrealized depreciation
on foreign forward
currency contracts -- 1,049 -- -- -- -- -- --
Payable to Investment
Advisor (Note 6) -- -- -- 68,346 96,816 -- -- --
Other accrued expenses 42,177 59,038 43,353 45,524 110,327 37,159 89,477 29,364
- - ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 50,854 203,277 51,824 113,870 209,485 39,344 89,977 31,423
- - ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS(C) $14,707,701 $15,518,167 $8,406,148 $32,356,001 $36,130,818 $7,209,613 $19,256,139 $24,161,776
- - ------------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE, REDEMPTION VALUE AND OFFERING PRICE PER SHARE:
Net assets
- Class A $10,743,308 $ 9,043,060 $5,329,689 $31,807,545 $12,573,988 $4,248,477 $ 4,309,853 $24,161,776
Shares outstanding
- Class A 633,546 547,386 778,365 2,702,538 871,043 356,241 455,338 2,445,173
Net asset value and
redemption price per
share -
Class A $ 16.96 $ 16.52 $ 6.85 $ 11.77 $ 14.44 $ 11.93 $ 9.47 $ 9.88
Offering price per share
- Class A (d) $ 17.99 $ 17.53 $ 7.19 $ 12.49 $ 15.32 $ 12.66 $ 9.94 $ 9.88
Net assets
- Class C $ 3,964,393 $6,475,107 $3,076,459 $ 548,456 $ 2,108,577 $2,961,136 $ 997,953 $ --
Shares outstanding
- Class C 243,392 406,736 463,383 47,763 159,131 257,042 109,081 --
Net asset value, offering
price and redemption
price per share
- Class C $ 16.29 $ 15.92 $ 6.64 $ 11.48 $ 13.25 $ 11.52 $ 9.15 $ --
Net assets
- Class Y $ -- $ -- $ -- $ -- $21,448,253 $ -- $13,948,333 $ --
Shares outstanding
- Class Y -- -- -- -- 1,074,730 -- 1,067,830 --
Net asset value, offering
price and redemption
price per share
- Class Y $ -- $ -- $ -- $ -- $ 19.96 $ -- $ 13.06 $ --
- - ------------------------------------------------------------------------------------------------------------------------------
(a) Cost of
investments
of: $10,763,136 $11,753,613 $8,063,401 $27,959,720 $35,784,363 $6,754,213 $19,069,654 $23,133,377
(b) Cost of foreign
currency of: $ -- $ -- $ -- $ -- $ -- $ 2,367 $ -- $ --
(c) See the Statement of Changes in Net Assets for components of net assets.
(d) The offering price per share is calculated as follows: Net Asset Value Per Share/(1-maximum sales load).
(e) The Fund does not offer classes of shares. All Fund information is shown in the spaces corresponding to Class A.
The accompanying notes are an integral part of the financial statements.
<PAGE>
39
TOUCHSTONE SERIES TRUST
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
EMERGING INTERNATIONAL INCOME VALUE GROWTH & TOUCHSTONE TOUCHSTONE STANDBY
GROWTH EQUITY OPPORTUNITY PLUS INCOME BALANCED BOND INCOME
FUND FUND FUND FUND FUND FUND FUND FUND
INVESTMENT INCOME
(NOTE 1):
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 29,477 $ 12,301 $1,108,296 $ 55,207 $ 25,966 $ 204,810 $1,261,883 $ 709,187
Dividend income(a) 70,954 175,337 -- 359,297 866,148 49,724 86,248 --
- - ------------------------------------------------------------------------------------------------------------------------------
Total investment
income 100,431 187,638 1,108,296 414,504 892,114 254,534 1,348,131 709,187
- - ------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory
fees (Note 3) 96,269 117,039 59,613 224,988 305,915 59,339 108,553 28,605
Sponsor fees (Note 3) 24,067 24,640 18,342 59,997 76,479 14,835 39,474 22,884
Custody, administration
and fund accounting
fees 87,024 168,151 88,315 89,091 122,537 83,985 104,707 69,820
Transfer agent fees 95,027 92,283 94,610 58,906 103,972 88,008 75,287 65,195
Registration fees 16,660 23,623 22,123 25,029 22,299 22,965 20,949 14,511
Professional fees 11,638 11,406 12,608 19,383 22,951 9,891 15,018 10,203
Printing fees 24,855 28,768 23,797 48,287 51,569 19,285 22,974 24,749
Trustee fees 978 956 1,259 1,938 3,077 890 1,635 1,170
Distribution fees
- Class A 21,608 17,648 14,568 73,078 34,869 10,887 11,783 --
Distribution fees
- Class C 32,920 51,644 32,752 5,161 24,394 30,290 10,142 --
Amortization of
organization costs 7,393 7,393 7,393 -- 7,393 7,393 7,393 9,789
Miscellaneous 1,698 1,773 1,536 4,004 2,641 1,169 887 1,631
- - ------------------------------------------------------------------------------------------------------------------------------
Total expenses 420,137 545,324 376,916 609,862 778,096 348,937 418,802 248,557
Reimbursement
or waiver from
Investment
Advisor
(Note 6) (215,188) (309,722) (242,471) (216,639) (317,320) (226,438) (268,587) (162,742)
- - -------------------------------------------------------------------------------------------------------------------------------
Net expenses 204,949 235,602 134,445 393,223 460,776 122,499 150,215 85,815
- - -------------------------------------------------------------------------------------------------------------------------------
Net investment
income (loss) (104,518) (47,964) 973,851 21,281 431,338 132,035 1,197,916 623,372
- - -------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 2,394,962 2,822,986 (3,040,680) 2,709,639 128,669 637,223 (347,955) (46,908)
Foreign currency
transactions -- (58,523) -- -- -- (7,726) -- --
- - -------------------------------------------------------------------------------------------------------------------------------
2,394,962 2,764,463 (3,040,680) 2,709,639 128,669 629,497 (347,955) (46,908)
- - -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 2,521,564 1,714,220 2,175,422 1,607,624 524,230 (106,165) (1,153,862) (58,658)
Foreign currency
translations -- (1,369) -- -- -- 563 -- --
- - -------------------------------------------------------------------------------------------------------------------------------
2,521,564 1,712,851 2,175,422 1,607,624 524,230 (105,602) (1,153,862) (58,658)
- - -------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED
GAIN (LOSS): 4,916,526 4,477,314 (865,258) 4,317,263 652,899 523,895 (1,501,817) (105,566)
- - -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS $4,812,008 $4,429,350 $ 108,593 $4,338,544 $1,084,237 $ 655,930 $ (303,901) $ 517,806
- - -------------------------------------------------------------------------------------------------------------------------------
(a) Net of foreign tax
withholding of: $ -- $ 17,180 $ -- $ 1,830 $ 2,936 $ 368 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
40
TOUCHSTONE SERIES TRUST
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
TOUCHSTONE EMERGING TOUCHSTONE INTERNATIONAL TOUCHSTONE INCOME
GROWTH FUND EQUITY FUND OPPORTUNITY FUND
--------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ (104,518) $ (27,765) $ (47,964) $ (1,691) $ 973,851 $ 714,488
Net realized gain (loss) 2,394,962 363,157 2,764,463 345,939 (3,040,680) (670,556)
Net change in unrealized appreciation
(depreciation) 2,521,564 (340,021) 1,712,851 643,481 2,175,422 (1,110,683)
- - -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 4,812,008 (4,629) 4,429,350 987,729 108,593 (1,066,751)
- - -------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A -- -- (16,101) (6,819) (634,236) (727,740)
Class C -- -- -- -- (341,850) --
Class Y -- -- -- -- -- --
Realized capital gains
Class A (1,429,950) (407,884) (690,064) (373,319) -- --
Class C (532,042) -- (511,346) -- -- --
Class Y -- -- -- -- -- --
Distributions in excess of net investment income
Class A -- -- (14,483) (20,277) (81,498) --
Class C -- -- -- -- (45,806) --
Class Y -- -- -- -- -- --
Distributions in excess of realized capital gains
Class A -- (50,275) -- -- -- --
Class C -- -- -- -- -- --
Class Y -- -- -- -- -- --
Return of capital distributions
Class A -- -- -- -- -- (56,290)
Class C -- -- -- -- -- --
Class Y -- -- -- -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1,961,992) (458,159) (1,231,994) (400,415) (1,103,390) (784,030)
- - -------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Capital Contribution - Class C (Note 7) 3,284,020 -- 5,226,105 -- 3,798,163 --
Capital Contribution - Class Y (Note 7) -- -- -- -- -- --
Proceeds from shares sold 1,738,718 5,012,537 1,242,946 1,630,252 1,334,627 3,476,133
Reinvestment of dividends and distributions 1,716,110 418,391 1,227,418 398,640 942,415 623,322
Cost of shares redeemed (3,216,309) (1,581,667) (2,251,174) (501,457) (3,332,584) (2,599,216)
- - -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share
transactions 3,522,539 3,849,261 5,445,295 1,527,435 2,742,621 1,500,239
- - -------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 6,372,555 3,386,473 8,642,651 2,114,749 1,747,824 (350,542)
- - -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 8,335,146 4,948,673 6,875,516 4,760,767 6,658,324 7,008,866
- - -------------------------------------------------------------------------------------------------------------------------------
End of period $14,707,701 $8,335,146 $15,518,167 $6,875,516 $ 8,406,148 $6,658,324
- - -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $10,901,854 $7,715,214 $10,442,829 $5,804,081 $13,013,011 $8,978,000
Undistributed (distributions in excess of)
net investment income -- -- 35,589 (32,893) (117,424) --
Accumulated net realized gain (loss) 270,986 (47,580) 1,400,906 27,664 (4,449,070) (909,681)
Net unrealized appreciation (depreciation) 3,534,861 667,512 3,638,843 1,076,664 (40,369) (1,409,995)
- - -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $14,707,701 $8,335,146 $15,518,167 $6,875,516 $ 8,406,148 $6,658,324
- - -------------------------------------------------------------------------------------------------------------------------------
(a) Commencement of operations: The Fund commenced operations on May 1, 1998.
(b) The Fund does not offer classes of shares. All Fund information is shown in the spaces corresponding to Class A.
The accompanying notes are an integral part of the financial statements.
<PAGE>
41
TOUCHSTONE SERIES TRUST
<CAPTION>
TOUCHSTONE VALUE TOUCHSTONE GROWTH TOUCHSTONE
PLUS FUND & INCOME FUND BALANCED FUND
-----------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED(A) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER
1999 1998 1999 1998 1999 31, 1998
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 21,281 $ 40,182 $ 431,338 $ 181,174 $ 132,035 $ 88,739
Net realized gain (loss) 2,709,639 (608,840) 128,669 220,365 629,497 225,430
Net change in unrealized appreciation
(depreciation) 1,607,624 1,699,825 524,230 (338,911) (105,602) (183,060)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 4,338,544 1,131,167 1,084,237 62,628 655,930 131,109
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (33,255) (40,182) (165,297) (183,340) (105,330) (93,863)
Class C -- -- (7,313) -- (36,471) --
Class Y -- -- (261,137) -- -- --
Realized capital gains
Class A (638,617) -- (24,828) (304,181) (324,326) (185,895)
Class C (11,183) -- (4,407) -- (232,046) --
Class Y -- -- (30,551) -- -- --
Distributions in excess of net investment income
Class A -- -- (2,012) (6,836) -- (11,391)
Class C -- -- (89) -- -- --
Class Y -- -- (3,179) -- -- --
Distributions in excess of realized capital gains
Class A -- -- -- (70,773) -- --
Class C -- -- -- -- -- --
Class Y -- -- -- -- -- --
Return of capital distributions
Class A -- (3,702) (969,080) (13,429) -- --
Class C -- -- (171,468) -- -- --
Class Y -- -- (1,193,905) -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (683,055) (43,884) (2,833,266) (578,559) (698,173) (291,149)
- - ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Capital Contribution - Class C (Note 7) 318,185 -- 2,753,186 -- 3,339,459 --
Capital Contribution - Class Y (Note 7) -- -- 20,868,632 -- -- --
Proceeds from shares sold 1,447,308 25,939,165 1,928,120 13,903,526 765,540 2,065,886
Reinvestment of dividends and distributions 674,160 43,452 2,824,251 569,460 695,607 286,919
Cost of shares redeemed (806,675) (2,366) (5,755,291) (4,676,332) (2,184,837) (872,443)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 1,632,978 25,980,251 22,618,898 9,796,654 2,615,769 1,480,362
- - ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 5,288,467 27,067,534 20,869,869 9,280,723 2,573,526 1,320,322
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period $27,067,534 $ -- $15,260,949 $ 5,980,226 $4,636,087 $3,315,765
- - ------------------------------------------------------------------------------------------------------------------------------------
End of period $32,356,001 $27,067,534 $36,130,818 $15,260,949 $7,209,613 $4,636,087
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF: $27,595,607 $25,976,551 $36,332,300 $15,278,502 $7,083,151 $4,521,372
Paid-in capital
Undistributed (distributions in excess of)
net investment income -- -- 1,598 -- (3,313) 1,963
Accumulated net realized gain (loss) 1,433,331 (608,842) (2,930) (66,551) 149,136 74,357
Net unrealized appreciation (depreciation) 3,327,063 1,699,825 (200,150) 48,998 (19,361) 38,395
- - ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $32,356,001 $27,067,534 $36,130,818 $15,260,949 $7,209,613 $4,636,087
<CAPTION>
TOUCHSTONE TOUCHSTONE STANDBY
BOND FUND INCOME FUND(B)
----------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ 1,197,916 $ 218,403 $ 623,372 $ 536,968
Net realized gain (loss) (347,955) 66,845 (46,908) 15,437
Net change in unrealized appreciation
(depreciation) (1,153,862) 37,207 (58,658) 2,467
- - ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (303,901) 322,455 517,806 554,872
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (314,128) (219,500) (626,405) (541,711)
Class C (63,775) -- -- --
Class Y (832,231) -- -- --
Realized capital gains
Class A (31) (53,127) -- (2,087)
Class C (7) -- -- --
Class Y (73) -- -- --
Distributions in excess of net investment income
Class A (1,716) (4,091) -- --
Class C (348) -- -- --
Class Y (4,547) -- -- --
Distributions in excess of realized capital gain
Class A -- -- -- --
Class C -- -- -- --
Class Y -- -- -- --
Return of capital distributions
Class A (33,705) -- -- --
Class C (8,180) -- -- --
Class Y (78,615) -- -- --
- - ----------------------------------------------------------------------------------------------------
Total dividends and distributions (1,337,356) (276,718) (626,405) (543,798)
- - ----------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Capital Contribution - Class C (Note 7) 1,139,586 -- -- --
Capital Contribution - Class Y (Note 7) 14,150,014 -- -- --
Proceeds from shares sold 1,713,920 4,527,950 15,760,941 8,443,462
Reinvestment of dividends and distributions 1,327,271 271,637 623,651 543,405
Cost of shares redeemed (2,356,902) (1,606,439) (3,371,225) (6,343,864)
- - ----------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 15,973,889 3,193,148 13,013,367 2,643,003
- - ----------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 14,332,632 3,238,885 12,904,768 2,654,077
- - ----------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period $ 4,923,507 $1,684,622 $11,257,008 $ 8,602,931
- - ----------------------------------------------------------------------------------------------------
End of period $19,256,139 $4,923,507 $24,161,776 $11,257,008
- - ----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF: $20,599,903 $4,840,284 $24,249,371 $11,238,577
Paid-in capital
Undistributed (distributions in excess of)
net investment income -- 3,657 16,536 7,490
Accumulated net realized gain (loss) (352,940) 10,547 (47,809) 8,605
Net unrealized appreciation (depreciation) (990,824) 69,019 (56,322) 2,336
- - ----------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $19,256,139 $4,923,507 $24,161,776 $11,257,008
</TABLE>
<PAGE>
42
FINANCIAL HIGHLIGHTS
TOUCHSTONE SERIES TRUST
CLASS A
SELECTED DATA FOR A SHARE OUTSTANDING:
<TABLE>
<CAPTION>
TOUCHSTONE EMERGING GROWTH FUND
-------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.40 $13.85 $11.55 $11.52 $10.11
- - ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.09) (0.04) (0.03) 0.01 (0.01)
Net realized and unrealized gain (loss) on investments 6.18 0.37 3.71 1.20 2.29
- - ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.09 0.33 3.68 1.21 2.28
- - ----------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- (0.01) (0.03)
Realized capital gains (2.53) (0.78) (1.38) (1.17) (0.84)
Return of capital -- -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (2.53) (0.78) (1.38) (1.18) (0.87)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.96 $13.40 $13.85 $11.55 $11.52
- - ----------------------------------------------------------------------------------------------------------------------------------
Total return(a) 45.85% 2.57% 32.20% 10.56% 22.56%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 10,743 $8,335 $4,949 $2,873 $2,520
Ratios to average net assets:
Expenses (b) 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income (loss) (0.66)% (0.41)% (0.30)% (0.12)% (0.05)%
Portfolio turnover 97% 78% 101% 117% 109%
- - ----------------------------------------------------------------------------------------------------------------------------------
(a) The return is calculated without the effects of a sales charge. Total returns would have been lower had certain expenses not
been reimbursed or waived during the period shown. (Note 6)
(b) If the waiver and reimbursement had not been in place for the periods listed, the ratios of expenses to average net assets
would have been as follows:
3.29% 4.11% 5.94% 6.58% 7.09%
(c) Amount rounds to less than $0.01.
The accompanying notes are an integral part of the financial statements.
<PAGE>
43
TOUCHSTONE SERIES TRUST
<CAPTION>
TOUCHSTONE INTERNATIONAL EQUITY FUND
-------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <S> <C> <C> <C> <C>
Net asset value, beginning of period $12.89 $11.41 $10.63 $ 9.58 $ 9.12
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.00(c) 0.00(c) 0.02 0.05 0.21
Net realized and unrealized gain (loss) on investments 5.06 2.27 1.64 1.06 0.47
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.06 2.27 1.66 1.11 0.68
- - ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.06) (0.05) (0.02) (0.06) (0.22)
Realized capital gains (1.37) (0.74) (0.86) -- --
Return of capital -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.43) (0.79) (0.88) (0.06) (0.22)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.52 $12.89 $11.41 $10.63 $ 9.58
- - ------------------------------------------------------------------------------------------------------------------------------------
Total return(a) 39.50% 19.94% 15.57% 11.61% 5.29%
RATIOS AND SUPPLEMENTAL DATA: -------------------------------------------------------------
Net assets at end of period (000s) $9,043 $6,876 $4,761 $3,449 $ 2,617
Ratios to average net assets:
Expenses (b) 1.60% 1.60% 1.60% 1.60% 1.60%
Net investment income (loss) (0.08)% (0.03)% 0.17% 0.42% 0.11%
Portfolio turnover 155% 138% 151% 86% 90%
- - ------------------------------------------------------------------------------------------------------------------------------------
(a) The return is calculated without the effects of a sales charge. Total returns would have been lower had certain expenses not
been reimbursed or waived during the period shown. (Note 6)
(b) If the waiver and reimbursement had not been in place for the periods listed, the ratios of expenses to average net assets
assets would have been as follows:
4.11% 5.18% 7.07% 6.63% 7.30%
(c) Amount rounds to less than $0.01.
<CAPTION>
TOUCHSTONE INCOME OPPORTUNITY FUND
----------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.63 $ 9.89 $10.90 $ 9.83 $ 9.08
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.80 0.90 1.24 1.12 1.19
Net realized and unrealized gain (loss) on investments (0.68) (2.18) (0.23) 1.38 0.77
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.12 (1.28) 1.01 2.50 1.96
- - ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.90) (0.91) (1.22) (1.12) (1.21)
Realized capital gains -- -- (0.80) (0.31) --
Return of capital -- (0.07) -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.90) (0.98) (2.02) (1.43) (1.21)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.85 $ 7.63 $ 9.89 $10.90 $ 9.83
- - ------------------------------------------------------------------------------------------------------------------------------------
Total return(a) 1.16% (13.77)% 9.49% 26.66% 23.19%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $5,330 $6,658 $7,009 $4,579 $1,369
Ratios to average net assets:
Expenses (b) 1.20% 1.20% 1.20% 1.20% 1.20%
Net investment income (loss) 10.90% 10.02% 11.19% 11.29% 12.42%
Portfolio turnover 227% 283% 270% 222% 120%
- - ------------------------------------------------------------------------------------------------------------------------------------
(a) The return is calculated without the effects of a sales charge. Total returns would have been lower had certain expenses not
been reimbursed or waived during the period shown. (Note 6)
(b) If the waiver and reimbursement had not been in place for the periods listed, the ratios of expenses to average net assets
assets would have been as follows:
3.84% 3.77% 4.07% 6.74% 11.03%
(c) Amount rounds to less than $0.01.
</TABLE>
<PAGE>
44
TOUCHSTONE SERIES TRUST
FINANCIAL HIGHLIGHTS
CLASS A - CONTINUED
SELECTED DATA FOR A SHARE OUTSTANDING:
<TABLE>
<CAPTION>
TOUCHSTONE VALUE PLUS FUND(A)
----------------------------
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
12/31/99 12/31/98
<S> <C> <C>
Net asset value, beginning of period $ 10.41 $ 10.00
- - ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.01 0.02
Net realized and unrealized gain (loss) on investments 1.60 0.41
- - ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.61 0.43
- - ---------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.01) (0.02)
Realized capital gains (0.24) --
Return of capital -- 0.00(e)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.25) (0.02)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.77 $ 10.41
- - ---------------------------------------------------------------------------------------------------------------------------------
Total return(b) 15.51% 4.29%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $31,808 $27,068
Ratios to average net assets:
Expenses(c) 1.30% 1.30%(d)
Net investment income (loss) 0.08% 0.25%(d)
Portfolio turnover 60% 34%
- - ---------------------------------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on May 1, 1998.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed or
waived during the period shown. (Note 6)
(c) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been as
follows:
2.02% 2.25%(d)
(d) Ratios are annualized.
(e) Amount rounds to less than $0.01.
(f) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
The accompanying notes are an integral part of the financial statements.
<PAGE>
45
TOUCHSTONE SERIES TRUST
<CAPTION>
TOUCHSTONE GROWTH & INCOME FUND
----------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <S> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.47 $ 15.06 $14.03 $13.14 $10.02
- - --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.17 0.19 0.09 0.12 0.05
Net realized and unrealized gain (loss) on investments 0.21 0.84(f) 2.78 2.12 3.46
- - --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.38 1.03 2.87 2.24 3.51
- - --------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.20) (0.20) (0.11) (0.12) (0.16)
Realized capital gains (0.03) (0.40) (1.73) (1.23) (0.23)
Return of capital (1.18) (0.02) -- -- --
- - --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.41) (0.62) (1.84) (1.35) (0.39)
- - --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.44 $ 15.47 $15.06 $14.03 $13.14
- - --------------------------------------------------------------------------------------------------------------------------
Total return(b) 2.53% 6.87% 20.70% 16.95% 35.14%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $12,574 $15,261 $5,980 $3,659 $1,500
Ratios to average net assets:
Expenses(c) 1.30% 1.30% 1.30% 1.30% 1.30%
Net investment income (loss) 1.04% 1.50% 0.67% 0.55% 0.56%
Portfolio turnover 66% 64% 170% 92% 102%
- - --------------------------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on May 1, 1998.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed or
waived during the period shown. (Note 6)
(c) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been as
follows:
2.13% 2.70% 4.34% 5.31% 16.35%
(d) Ratios are annualized.
(e) Amount rounds to less than $0.01.
(f) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
<CAPTION>
TOUCHSTONE BALANCED FUND
------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.09 $12.42 $12.48 $11.34 $ 9.97
- - ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.27 0.25 0.27 0.30 0.31
Net realized and unrealized gain (loss) on investments 0.76 0.23 2.09 1.59 1.99
- - ------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.03 0.48 2.36 1.89 2.30
- - ------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.31) (0.30) (0.30) (0.30) (0.33)
Realized capital gains (0.88) (0.51) (2.12) (0.45) (0.60)
Return of capital -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.19) (0.81) (2.42) (0.75) (0.93)
- - ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.93 $12.09 $12.42 $12.48 $11.34
- - ------------------------------------------------------------------------------------------------------------------
Total return(b) 9.61% 3.98% 19.25% 16.86% 23.24%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $4,248 $4,636 $3,316 $2,085 $1,502
Ratios to average net assets:
Expenses(c) 1.35% 1.35% 1.35% 1.35% 1.35%
Net investment income (loss) 2.09% 2.11% 2.07% 2.19% 2.39%
Portfolio turnover 70% 59% 120% 88% 121%
- - ------------------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on May 1, 1998.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed or
waived during the period shown. (Note 6)
(c) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been as
follows:
4.40% 4.93% 7.53% 8.52% 9.83%
(d) Ratios are annualized.
(e) Amount rounds to less than $0.01.
(f) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
</TABLE>
<PAGE>
46
TOUCHSTONE SERIES TRUST
FINANCIAL HIGHLIGHTS
CLASS A - CONTINUED
SELECTED DATA FOR A SHARE OUTSTANDING:
<TABLE>
<CAPTION>
TOUCHSTONE BOND FUND
------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.39 $10.22 $10.17 $10.61 $ 9.88
- - ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.59 0.55 0.61 0.71 0.56
Net realized and unrealized gain (loss) on investments (0.76) 0.30 0.11 (0.43) 1.07
- - ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.17) 0.85 0.72 0.28 1.63
- - ----------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.68) (0.57) (0.66) (0.70) (0.86)
Realized capital gains -- (0.11) (0.01) (0.02) (0.04)
Return of capital (0.07) -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.75) (0.68) (0.67) (0.72) (0.90)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.47 $10.39 $10.22 $10.17 $10.61
- - ----------------------------------------------------------------------------------------------------------------------------------
Total return(a) (1.68)% 8.56% 7.30% 2.85% 16.95%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $4,310 $4,924 $1,685 $ 821 $ 523
Ratios to average net assets:
Expenses(b) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income (loss) 5.92% 5.68% 6.08% 6.01% 6.21%
Portfolio turnover 57% 170% 88% 64% 78%
- - ----------------------------------------------------------------------------------------------------------------------------------
(a) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed or
waived during the period shown. (Note 6)
(b) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been as
follows:
2.26% 4.13% 7.13% 13.61% 29.29%
(c) Amount rounds to less than $0.01.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
47
TOUCHSTONE SERIES TRUST
<TABLE>
<CAPTION>
TOUCHSTONE STANDBY INCOME FUND
-----------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.98 $ 9.97 $ 9.98 $10.01 $10.03
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.54 0.52 0.51 0.46 0.55
Net realized and unrealized gain (loss) on investments (0.10) 0.01 -- 0.01 (0.02)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.44 0.53 0.51 0.47 0.53
- - ------------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.54) (0.52) (0.52) (0.50) (0.55)
Realized capital gains -- (0.00)(c) -- -- --
Return of capital -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.54) (0.52) (0.52) (0.50) (0.55)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.88 $ 9.98 $ 9.97 $ 9.98 $10.01
- - ------------------------------------------------------------------------------------------------------------------------------------
Total return(a) 4.56% 5.49% 5.21% 4.80% 5.71%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $24,162 $11,257 $8,603 $6,456 $5,910
Ratios to average net assets:
Expenses(b) 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income (loss) 5.46% 5.17% 5.14% 4.88% 5.32%
Portfolio turnover 65% 683% 285% 20% 142%
- - ------------------------------------------------------------------------------------------------------------------------------------
(a) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed or
waived during the period shown. (Note 6)
(b) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been as
follows:
2.17% 2.37% 3.51% 2.80% 2.80%
(c) Amount rounds to less than $0.01.
</TABLE>
<PAGE>
48
TOUCHSTONE SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CLASS C (A)
SELECTED DATA FOR A SHARE OUTSTANDING:
TOUCHSTONE TOUCHSTONE
EMERGING TOUCHSTONE INCOME TOUCHSTONE TOUCHSTONE TOUCHSTONE
GROWTH INTERNATIONAL OPPORTUNITY VALUE PLUS GROWTH & BALANCE TOUCHSTONE
FUND EQUITY FUND FUND FUND INCOME FUND FUND BOND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $13.04 $12.51 $ 7.42 $10.26 $14.26 $11.65 $10.08
- - ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (0.19) (0.11) 0.72 (0.07) 0.04 0.17 0.51
Net realized and unrealized
gain (loss) on investments 5.97 4.89 (0.66) 1.53 0.21 0.73 (0.75)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.78 4.78 0.06 1.46 0.25 0.90 (0.24)
- - ---------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income -- -- (0.84) -- (0.05) (0.15) (0.62)
Realized capital gains (2.53) (1.37) -- (0.24) (0.03) (0.88) --
Return of capital -- -- -- -- (1.18) -- (0.07)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (2.53) (1.37) (0.84) (0.24) (1.26) (1.03) (0.69)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.29 $15.92 $ 6.64 $11.48 $13.25 $11.52 $ 9.15
- - ---------------------------------------------------------------------------------------------------------------------------------
Total return(b) 44.86% 38.44% 0.49% 14.24% 1.80% 8.78% (2.41)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $3,964 $6,475 $3,076 $ 548 $2,109 $2,961 $ 998
Ratios to average net assets(c)
Expenses 2.25% 2.35% 1.95% 2.05% 2.05% 2.10% 1.65%
Net investment income (loss) (1.41)% (0.81)% 10.14% (0.65) % 0.30% 1.33% 5.18%
Portfolio turnover 97% 155% 227% 60% 99% 70% 120%
- - ---------------------------------------------------------------------------------------------------------------------------------
(a) The Class commenced operations on January 1, 1999.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed or
waived during the period shown. (Note 6)
(c) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been as
follows:
4.03% 4.86% 4.59% 2.76% 2.87% 5.15% 3.01%
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
49
TOUCHSTONE SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 1999
CLASS Y (A)
SELECTED DATA FOR A SHARE OUTSTANDING:
<TABLE>
<CAPTION>
TOUCHSTONE GROWTH TOUCHSTONE
& INCOME FUND BOND FUND
-------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 20.87 $ 14.15
- - ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.23 0.64
Net realized and unrealized gain (loss) on investments 0.34 (0.84)
- - ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.57 (0.20)
- - ------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.26) (0.82)
Realized capital gains (0.03) --
Return of capital (1.19) (0.07)
- - ------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.48) (0.89)
- - ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.96 $ 13.06
- - ------------------------------------------------------------------------------------------------------------------------
Total return (b) 2.71% (1.44)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000s) $ 21,448 $ 13,948
Ratios to average net assets (c)
Expenses 1.05% 0.65%
Net investment income (loss) 1.28% 6.18%
Portfolio turnover 99% 120%
- - ------------------------------------------------------------------------------------------------------------------------
(a) The Class commenced operations on January 1, 1999.
(b) The return is calculated without the effects of a sales charge. Total
returns would have been lower had certain expenses not been reimbursed or
waived during the period shown. (Note 6)
(c) If the waiver and reimbursement had not been in place for the periods
listed, the ratios of expenses to average net assets would have been as
follows:
1.88% 2.01%
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
50
TOUCHSTONE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Touchstone Series Trust (the "Trust"), formerly Select Advisors Trust A, was
organized as a Massachusetts business trust on February 7, 1994 and is
registered under the Investment Company Act of 1940, as amended ("the Act"), as
an open-end management investment company. The Trust consists of eight Funds,
each having distinct investment objectives and policies: Touchstone Emerging
Growth Fund ("Emerging Growth Fund"), Touchstone International Equity Fund
("International Equity Fund"), Touchstone Income Opportunity Fund ("Income
Opportunity Fund"), Touchstone Value Plus Fund ("Value Plus Fund"), Touchstone
Growth & Income Fund ("Growth & Income Fund"), Touchstone Balanced Fund
("Balanced Fund"), Touchstone Bond Fund ("Bond Fund") and Touchstone Standby
Income Fund ("Standby Income Fund") (each a "Fund" and collectively, the
"Funds").
Each Fund, other than the Growth & Income Fund, Bond Fund and Standby Income
Fund, is divided into two classes of shares: class A shares ("Class A Shares")
and class C shares ("Class C Shares"). Each class of shares charges different
sales charges and distribution or service fees. The amount of sales charges and
other fees you pay will depend on which class of shares you own. The Growth &
Income Fund and the Bond Fund also offer class Y shares ("Class Y Shares"),
which are not available for sale to the public. The Standby Income Fund does not
offer classes of shares and it does not charge sales charges, distribution fees
or service fees.
As of December 31, 1999, Touchstone Advisors, Inc., an indirect subsidiary of
the Western-Southern Life Assurance Company ("Western-Southern"), and
Western-Southern together owned 20.6%, 4.8%, 6.8%, 1.5%, 48.6%, 7.0% and 40.6%
of the outstanding Class A Shares and 0.1%, 0.1%, 0.1%, 0%, 0.2%, 0%, and 0% of
the outstanding Class C Shares of the Emerging Growth Fund, the International
Equity Fund, the Income Opportunity Fund, the Value Plus Fund, the Growth &
Income Fund, the Balanced Fund, and the Bond Fund, respectively. Touchstone
Advisors, Inc. and Western-Southern owned 6.3% of the outstanding shares of the
Standby Income Fund as of December 31, 1999.
The accounting policies are in conformity with generally accepted accounting
principles ("GAAP") for investment companies. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the related amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies of the Funds.
INVESTMENT VALUATION. Securities for which market quotations are readily
available are valued at the last sale price on a national securities exchange,
or, in the absence of recorded sales, at the readily available closing bid price
in the over-the-counter market. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Debt securities are
valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
Securities or other assets for which market quotations are not readily available
are valued at fair value in good faith under consistently applied procedures in
accordance with procedures established by the Trustees of the Trust. Such
procedures include the use of independent pricing services, which use prices
based upon yields or prices of securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. All portfolio securities with a remaining maturity of less than 60
days are valued at amortized cost, which approximates market.
<PAGE>
51
TOUCHSTONE SERIES TRUST
FOREIGN CURRENCY VALUE TRANSLATION. The accounting records of the Funds are
maintained in U.S. dollars. The market value of investment securities, other
assets and liabilities and forward contracts denominated in foreign currencies
are translated into U.S. dollars at the prevailing exchange rates at the end of
the period. Purchases and sales of securities, income receipts, and expense
payments are translated at the exchange rate prevailing on the respective dates
of such transactions. Reported net realized gains and losses on foreign currency
transactions represent net gains and losses from sales and maturities of forward
currency contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions and
the difference between the amount of net investment income accrued and the U.S.
dollar amount actually received.
The effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statement of Operations from the effects of
changes in market prices of these securities, but are included with net realized
and unrealized gain or loss on investments.
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date except
that certain dividends from foreign securities where the ex-dividend date has
passed are recorded as soon as the Trust is informed of the ex-dividend date.
Interest income, which includes the amortization of premium and accretion of
discount, if any, is recorded on an accrual basis. Dividend and interest income
is recorded net of foreign taxes where recovery of such taxes is not assured.
DIVIDENDS AND DISTRIBUTIONS. Substantially all of the net investment income of
the Income Opportunity Fund and the Bond Fund is declared as dividends and paid
monthly. Substantially all of the net investment income of the Value Plus Fund
and the Balanced Fund is declared as dividends and paid quarterly. Substantially
all of the net investment income of the Growth & Income Fund is currently
declared as dividends and paid quarterly. For the months of January 1999 through
March 1999, the Growth & Income Fund declared and paid dividends monthly.
Substantially all of the net investment income of the Emerging Growth Fund and
the International Equity Fund is declared as dividends and paid annually. It is
the policy of the Standby Income Fund to record income dividends daily and
distribute them monthly. Distributions to shareholders of net realized capital
gains, if any, are declared and paid annually. Dividends and distributions are
recorded on the ex-dividend date and are reinvested at net asset value.
Income and realized capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to non-deductible organization costs,
passive foreign investment companies, foreign currency transactions, losses
deferred due to wash sales, and excise tax regulations.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid-in capital. Undistributed net
investment income and accumulated net realized gain or loss from the Funds may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
ORGANIZATION EXPENSE. Organization expenses attributable to the Funds were
deferred and are being amortized by each Fund on a straight-line basis over a
five-year period from commencement of operations. The amount paid by the Trust
on any redemption by Touchstone Advisors, Inc. or any other then-current holder
<PAGE>
52
TOUCHSTONE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS CONTINUED
of the organizational seed capital shares ("Initial Shares") of the Fund will be
reduced by a portion of any unamortized organization expenses of the Fund,
determined by the proportion of the number of the Initial Shares of the Fund
redeemed to the number of the Initial Shares of the Fund then outstanding after
taking into account any prior redemptions of the Initial Shares of the Fund. The
amount of such reduction in excess of the unamortized organization expenses of
the Fund, if any, shall be contributed by the Fund.
FEDERAL TAXES. Each Fund of the Trust is treated as a separate entity for
federal income tax purposes. Each Fund's policy is to comply with the provisions
of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income, and net
realized capital gains, if any, within the prescribed time periods. Therefore,
no provision has been made for federal income taxes. It is intended that each
Fund's assets will be managed in such a way that an investor in the Fund will be
able to satisfy the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended.
WRITTEN OPTIONS. Each Fund may enter into written option agreements. The premium
received for a written option is recorded as an asset with an equivalent
liability. The liability is marked-to-market based on the option's quoted daily
settlement price. When an option expires or the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security
and the liability related to such option is eliminated. When a written call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the Fund
purchased.
FORWARD FOREIGN CURRENCY AND SPOT CONTRACTS. Each Fund may enter into forward
foreign currency and spot contracts to protect securities and related
receivables and payables against fluctuations in foreign currency rates. A
forward contract is an agreement to buy or sell currencies of different
countries on a specified future date at a specified rate.
Risks associated with such contracts include the movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. The market value of the contract will fluctuate with changes in
currency exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Trustees of the Trust
and the change in the market value is recorded by the Funds as unrealized
appreciation and depreciation of forward foreign currency contracts. As of
December 31, 1999, the following Funds had the following open forward foreign
currency and spot contracts:
<TABLE>
<CAPTION>
Unrealized
Contracts to Appreciation/
Portfolio Name Maturity Date Deliver/Receive In Exchange For Value (Depreciation)
Balanced Fund:
<S> <C> <C> <C> <C> <C>
Sales 02/01/2000 GBP 41,520 $ 68,124 $ 67,069 $ 1,055
03/13/2000 ZAR 565,000 91,141 91,870 (729)
- - -----------------------------------------------------------------------------------------------------------------
$ 326
- - -----------------------------------------------------------------------------------------------------------------
GBP Great Britain Pound
ZAR South African Rand
<PAGE>
53
TOUCHSTONE SERIES TRUST
<CAPTION>
Unrealized
Contracts to Appreciation/
Portfolio Name Maturity Date Deliver/Receive In Exchange For Value (Depreciation)
International Equity Fund:
<S> <C> <C> <C> <C> <C>
Sales 01/04/2000 EUR 141,036 $143,222 $142,229 $ (993)
01/04/2000 GBP 88,271 142,514 142,570 (56)
01/04/2000 ZAR 893 145 145 --
- - -----------------------------------------------------------------------------------------------------------------
$(1,049)
- - -----------------------------------------------------------------------------------------------------------------
EUR European Monetary Unit (Euro)
GBP Great Britain Pound
ZAR South African Rand
</TABLE>
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, which are
agreements pursuant to which securities are acquired by the Fund from a third
party with the commitment that they will be repurchased by the seller at a fixed
price on an agreed upon date. Each Fund may enter into repurchase agreements
with banks or lenders meeting the creditworthiness standards established by the
Trustees of the Fund Trust. The Fund, through its custodian, receives as
collateral, delivery of the underlying securities, whose market value is
required to be at least 100% of the resale price at the time of purchase. The
resale price reflects the purchase price plus an agreed upon rate of interest.
In the event of counterparty default, the Fund has the right to use the
collateral to offset losses incurred.
SECURITY TRANSACTIONS. Securities transactions are recorded on a trade date
basis. For financial and tax reporting purposes, realized gains and losses are
determined on the basis of specific lot identification.
EXPENSES. Expenses incurred by the Trust with respect to any two or more Funds
in the Trust are prorated to each Fund in the Trust, except where allocations of
direct expenses to each Fund can otherwise be made fairly. Expenses directly
attributable to a Fund are charged to that Fund. Expenses directly attributable
to a class are charged to that class. Other expenses of each Fund are further
allocated to each class of shares based on their relative net asset values.
2. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS
Some of the Funds may invest in securities of foreign issuers. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in domestic
investments. For example, there is generally less publicly available information
about foreign companies, particularly those not subject to the disclosure and
reporting requirements of the U.S. securities laws. Foreign issuers are
generally not bound by uniform accounting, auditing, and financial reporting
requirements and standards of practice comparable to those applicable to
domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds or
other assets of the Fund, political or financial instability or diplomatic and
other developments which could affect such investments. Foreign stock markets,
while growing in volume and sophistication, are generally not as developed as
those in the United States, and securities of some foreign issuers (particularly
those located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies. In general, there is less overall
governmental supervision and regulation of foreign securities markets,
broker-dealers, and issuers than in the U.S.
<PAGE>
54
TOUCHSTONE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS CONTINUED
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISOR. The Trust has an investment advisory agreement with
Touchstone Advisors, Inc. (the "Advisor"), an indirect subsidiary of
Western-Southern Life Assurance Company ("Western-Southern"). Under the terms of
the investment advisory agreement, each Fund pays an investment advisory fee
that is computed daily and paid monthly. For the year ended December 31, 1999,
each Fund incurred the following investment advisory fees equal on an annual
basis to the following percentages of the average daily net assets of the Fund.
<TABLE>
<CAPTION>
Emerging International Income Value Growth & Standby
Growth Equity Opportunity Plus Income Balanced Bond Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.65% 0.75% 0.80% 0.80% 0.55% 0.25%
- - -------------------------------------------------------------------------------------------------------
</TABLE>
Subject to review and approval by the Board of Trustees, the Advisor has entered
into certain sub-advisory agreements for the investment advisory services in
connection with the management of each of the Funds. The Advisor pays each
sub-advisor a fee for services provided using an annual rate, as specified
below, that is computed daily and paid monthly based on average daily net
assets. As of December 31, 1999, the following sub-advisory agreements were in
place:
EMERGING GROWTH FUND
David L. Babson & Company, Inc. 0.50%
Westfield Capital Management Company, Inc. 0.45% on the first $10 million
0.40% on the next $40 million
0.35% thereafter
INTERNATIONAL EQUITY FUND
Credit Suisse Asset Management 0.85% on the first $30 million
0.80% on the next $20 million
0.70% on the next $20 million
0.60% thereafter
INCOME OPPORTUNITY FUND
Alliance Capital Management L.P. 0.40% on the first $50 million
0.35% on the next $20 million
0.30% on the next $20 million
0.25% thereafter
VALUE PLUS FUND
Fort Washington Investment Advisors, Inc. 0.45%
GROWTH & INCOME FUND
Scudder Kemper Investments, Inc. 0.50% on the first $150 million
0.45% thereafter
BALANCED FUND
OpCap Advisors, Inc. 0.60% on the first $20 million*
0.50% on the next $30 million*
0.40% thereafter*
BOND FUND
Fort Washington Investment Advisors, Inc. 0.30%
STANDBY INCOME FUND
Fort Washington Investment Advisors, Inc. 0.15%
* Includes assets of the Balanced Fund of the Trust and the Balanced Fund of
the Touchstone Variable Series Trust (for which OpCap Advisors, Inc. also
acts in a sub-advisory capacity).
Fort Washington Investment Advisors, Inc., is an affiliate of the Advisor.
<PAGE>
55
TOUCHSTONE SERIES TRUST
DISTRIBUTION AND SERVICE PLAN. Under the Trust's Distribution and Service Plan
in accordance with Rule 12b-1 under the Act, the Trust retains Touchstone
Securities, Inc. ("Distributor"), an indirect subsidiary of Western-Southern, as
a service agent of the Trust and as the principal underwriter of the shares of
each Fund. Under the Distribution Plan, Class C Shares of each Fund pay a fee to
the Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of the Fund to finance activity that is principally intended to
result in the sale of Class C Shares of the Fund. Under the Service Plan, Class
A Shares and Class C Shares of each Fund pay a fee to the Distributor in an
amount computed at an annual rate of 0.25% of the average daily net assets of
the Fund for the provision of certain services to the holders of Class A Shares
and Class C Shares.
SPONSOR. The Trust, on behalf of each Fund, has entered into a Sponsor Agreement
with the Advisor. The Advisor provides oversight of the various service
providers to the Trust, including the Trust's administrator, custodian and
transfer agent. The Advisor receives a fee from each Fund equal on an annual
basis to 0.20% of the average daily net assets of that Fund. The Advisor waived
all fees under the Sponsor Agreement through December 31, 1999. In the last
amendment to the Sponsor Agreement, the Advisor also agreed to continue to waive
all fees until April 30, 2000. The Sponsor Agreement may be terminated by the
Sponsor or by the Trust on not less than 30 days prior written notice.
TRUSTEES. Each Trustee who is not an "interested person" (as defined in the Act)
of the Trust receives an aggregate of $5,000 annually plus $1,000 per meeting
attended, as well as reimbursement for reasonable out-of-pocket expenses from
the Trust and from Touchstone Variable Series Trust which is included in a
separate annual report. For the year ended December 31, 1999 the Trust incurred
$11,903 in Trustee fees which was prorated to each Fund.
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
Investment transactions (excluding purchases and sales of U.S. government agency
obligations and excluding short-term investments) for the year ended December
31, 1999 were as follows:
Cost of Purchases Proceeds from Sales
Emerging Growth Fund $10,881,802 $12,034,258
International Equity Fund 18,436,152 18,763,995
Income Opportunity Fund 19,695,435 21,307,289
Value Plus Fund 17,640,821 17,077,526
Growth & Income Fund 24,461,076 28,062,562
Balanced Fund 4,405,934 5,713,658
Bond Fund 4,177,018 3,033,546
Standby Income Fund 9,405,343 4,215,180
The following Funds had transactions in U.S. government and U.S. government
agency obligations:
Cost of Purchases Proceeds from Sales
Growth & Income Fund $ 520,576 $ 384,660
Balanced Fund 536,732 445,979
Bond Fund 6,855,778 7,675,939
Standby Income Fund 1,117,792 1,165,442
<PAGE>
56
TOUCHSTONE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS CONTINUED
5. RESTRICTED SECURITIES
Restricted securities may be difficult to dispose of and involve time-consuming
negotiation and expense. Prompt sale of these securities may involve the seller
taking a discount to the security's stated market value. As of December 31,
1999, the Bond Fund held restricted securities valued by the trustees of the
Trust at $699,034, representing 3.63% of net assets. Acquisition date and cost
of each are as follows:
Acquisition Date Cost
Mercantile Safe Deposit 3/28/85 $ 49,459
Central America, Series F 8/1/86 139,864
Central America, Series G 8/1/86 139,864
Central America, Series H 8/1/86 139,864
Republic of Honduras, Series C 5/1/88 122,571
Republic of Honduras, Series D 5/1/88 139,689
The Bond Fund received these securities from The Western & Southern Life
Insurance Company Separate Account A on October 4, 1994, in exchange for a
proportionate interest in the Bond Portfolio. As part of a subsequent
reorganization, these securities were redeemed in kind and acquired by the Bond
Fund. (Note 7)
6. EXPENSE REIMBURSEMENTS
The Sponsor has agreed to reimburse each Fund so that, following such
reimbursement, the aggregate total operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) of each Fund are not
greater, on an annual basis, than the percentage of average daily net assets of
the Fund listed below for the year ended December 31, 2000.
<TABLE>
<CAPTION>
Emerging International Income Value Growth & Standby
Growth Equity Opportunity Plus Income Balanced Bond Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Voluntary Expense Limit -
Class A 1.50% 1.60% 1.20% 1.30% 1.30% 1.35% 0.90% 0.75%
Voluntary Expense Limit -
Class C 2.25% 2.35% 1.95% 2.05% 2.05% 2.10% 1.65% --
Voluntary Expense Limit -
Class Y -- -- -- -- 1.05% -- 0.65% --
Aggregate Amount of
Reimbursement to Fund $215,188 $309,722 $242,471 $216,639 $317,320 $226,438 $268,587 $162,742
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
7. CAPITAL CONTRIBUTION
Effective immediately after the close of business on December 31, 1998, each
series of Select Advisors Trust C and each series of Select Advisors Trust A
withdrew its assets (net of liabilities) from the corresponding series of Select
Advisors Portfolios. Each Select Advisors Trust A Fund then acquired all of the
assets (net of the liabilities) of the corresponding Select Advisors Trust C
Fund in a tax-free exchange for Class C shares of such Select Advisors Trust A
Fund. In addition, where applicable, The Western & Southern Life Insurance
Company Separate Account A, in a taxable exchange, withdrew its assets from each
Portfolio of Select Advisors Portfolios in which it invested and reinvested such
assets in Class Y shares of the corresponding Select Advisors Trust A Fund.
Select Advisors Trust A was renamed Touchstone Series Trust at the time of these
transactions. Thus, an initial capital contribution to each Fund of Touchstone
Series Trust equal to the amount of the respective Select Advisors Trust C
Fundand The Western & Southern Life Insurance Company Separate Account A's net
assets was made at that time.
<PAGE>
57
TOUCHSTONE SERIES TRUST
The following is a summary by Fund of unrealized appreciation (depreciation)
acquired from each series of Select Advisors Trust C as of the acquisition date,
as well as the number of shares issued from each class from the transaction:
Touchstone Unrealized Class C Class Y
Series Trust Fund Appreciation/ Shares Shares
(Survivor Fund) (Depreciation) Issued Issued
- - -------------- ------------ ------------ -------------
Emerging Growth $345,785 $251,885
International Equity 849,328 417,774 --
Income Opportunity (805,796) 511,577 --
Value Plus 19,614 31,018 --
Growth & Income 91,423 193,065 1,000,000
Balanced 47,846 286,552 --
Bond 20,632 113,070 1,000,000
As of January 1, 1999, the Income Opportunity Fund had a capital loss carryover
of $495,541. There is an annual limitation of $178,514 on this capital loss
carry-forward.
8. CAPITAL SHARE TRANSACTIONS
Transactions in capital stock were as follows for the following periods and
classes of each Fund:
TOUCHSTONE EMERGING GROWTH FUND
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding (Class A):
Shares sold 97,013 $ 1,411,794 343,695 $5,012,537
Reinvestment of dividends and
distributions 71,583 1,184,076 32,355 418,391
- - -------------------------------------------------------------------------------------------------------
168,596 2,595,870 376,050 5,430,928
Shares redeemed (157,019) (2,291,937) (111,410) (1,581,667)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) 11,577 $ 303,933 264,640 $3,849,261
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class C):
Shares sold 23,001 $ 326,924 -- $ --
Reinvestment of dividends and
distributions 33,503 532,034 -- --
- - -------------------------------------------------------------------------------------------------------
56,504 858,958 -- --
Shares redeemed (64,997) (924,372) -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (8,493) $ (65,414) -- $ --
- - -------------------------------------------------------------------------------------------------------
TOUCHSTONE INTERNATIONAL EQUITY FUND
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding (Class A):
Shares sold 70,684 $ 940,653 123,496 $1,630,252
Reinvestment of dividends and
distributions 44,305 716,077 30,828 398,640
- - -------------------------------------------------------------------------------------------------------
114,989 1,656,730 154,324 2,028,892
Shares redeemed (100,888) (1,381,046) (38,129) (501,457)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) 14,101 $ 275,684 116,195 $1,527,435
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class C):
Shares sold 23,528 $ 302,293 -- $ --
Reinvestment of dividends and
distributions 32,842 511,341 -- --
- - -------------------------------------------------------------------------------------------------------
56,370 813,634 -- --
Shares redeemed (67,408) (870,128) -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (11,038) $ (56,494) -- $ --
- - -------------------------------------------------------------------------------------------------------
<PAGE>
58
TOUCHSTONE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS CONTINUED
<CAPTION>
TOUCHSTONE INCOME OPPORTUNITY FUND
Year Ended Year Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding (Class A):
Shares sold 134,505 $ 986,761 374,781 $ 3,476,133
Reinvestment of dividends and
distributions 86,330 618,750 71,619 623,322
- - -------------------------------------------------------------------------------------------------------
220,835 1,605,511 446,400 4,099,455
Shares redeemed (314,603) (2,302,822) (283,285) (2,599,216)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (93,768) $ (697,311) 163,115 $ 1,500,239
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class C):
Shares sold 48,569 $ 347,865 -- $ --
Reinvestment of dividends and
distributions 46,506 323,665 -- --
- - -------------------------------------------------------------------------------------------------------
95,075 671,530 -- --
Shares redeemed (143,269) (1,029,761) -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (48,194) $ (358,231) -- $ --
- - -------------------------------------------------------------------------------------------------------
TOUCHSTONE VALUE PLUS FUND
<CAPTION>
Year Ended Period Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding (Class A):
Shares sold 88,299 $ 988,307 2,605,472 $25,939,165
Reinvestment of dividends and
distributions 56,984 663,608 4,677 43,452
- - -------------------------------------------------------------------------------------------------------
145,283 1,651,915 2,610,149 25,982,617
Shares redeemed (43,587) (508,020) (9,307) (2,366)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) 101,696 $ 1,143,895 2,600,842 $25,980,251
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class C):
Shares sold 43,709 $ 459,000 -- $ --
Reinvestment of dividends and
distributions 928 10,553 -- --
- - -------------------------------------------------------------------------------------------------------
44,637 469,553 -- --
Shares redeemed (27,892) (298,655) -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) 16,745 $ 170,898 -- $ --
- - -------------------------------------------------------------------------------------------------------
TOUCHSTONE GROWTH & INCOME FUND
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding (Class A):
Shares sold 86,582 $ 1,384,357 840,694 $13,903,526
Reinvestment of dividends and
distributions 80,184 1,155,576 36,887 569,460
- - -------------------------------------------------------------------------------------------------------
166,766 2,539,933 877,581 14,472,986
Shares redeemed (282,426) (4,495,609) (287,905) (4,676,332)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (115,660) $(1,955,676) 589,676 $ 9,796,654
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class C):
Shares sold 36,922 $ 543,763 -- $ --
Reinvestment of dividends and
distributions 13,727 179,904 -- --
- - -------------------------------------------------------------------------------------------------------
50,649 723,667 -- --
Shares redeemed (84,583) (1,259,682) -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (33,934) $ (536,015) -- $ --
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class Y):
Shares sold -- $ -- -- $ --
Reinvestment of dividends and
distributions 74,730 1,488,771 -- --
- - -------------------------------------------------------------------------------------------------------
74,730 1,488,771 -- --
Shares redeemed -- -- -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) 74,730 $ 1,488,771 -- $ --
- - -------------------------------------------------------------------------------------------------------
<PAGE>
59
TOUCHSTONE SERIES TRUST
TOUCHSTONE BALANCED FUND
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding (Class A):
Shares sold 41,173 $ 513,685 161,051 $2,065,886
Reinvestment of dividends and
distributions 35,999 427,794 23,854 286,919
- - -------------------------------------------------------------------------------------------------------
77,172 941,479 184,905 2,352,805
Shares redeemed (104,320) (1,306,240) (68,591) (872,443)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (27,148) $ (364,761) 116,314 $1,480,362
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class C):
Shares sold 20,873 $ 251,855 -- $
distributions 23,421 267,813 -- --
- - -------------------------------------------------------------------------------------------------------
44,294 519,668 -- --
Shares redeemed (73,804) (878,597) -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (29,510) $ (358,929) -- $ --
- - -------------------------------------------------------------------------------------------------------
TOUCHSTONE BOND FUND
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding (Class A):
Shares sold 137,197 $ 1,368,199 436,841 $4,527,950
Reinvestment of dividends and
distributions 34,756 341,765 26,120 271,637
- - -------------------------------------------------------------------------------------------------------
171,953 1,709,964 462,961 4,799,587
Shares redeemed (190,712) (1,898,035) (153,703) (1,606,439)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (18,759) $ (188,071) 309,258 $3,193,148
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class C):
Shares sold 35,660 $ 345,721 -- $ --
Reinvestment of dividends and
distributions 7,353 70,040 -- --
- - -------------------------------------------------------------------------------------------------------
43,013 415,761 -- --
Shares redeemed (47,002) (458,867) -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) (3,989) $ (43,106) -- $ --
- - -------------------------------------------------------------------------------------------------------
Shares Outstanding (Class Y):
Shares sold -- $ -- -- $ --
Reinvestment of dividends and
distributions 67,830 915,466 -- --
- - -------------------------------------------------------------------------------------------------------
67,830 -- --
Shares redeemed -- -- -- --
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) 67,830 915,466 -- $ --
- - -------------------------------------------------------------------------------------------------------
TOUCHSTONE STANDBY INCOME FUND
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Outstanding:
Shares sold 1,593,735 $15,760,608 846,688 $8,443,462
Reinvestment of dividends and
distributions 62,866 623,984 54,478 543,405
- - -------------------------------------------------------------------------------------------------------
1,656,601 16,384,592 901,166 8,986,867
Shares redeemed (339,513) (3,371,225) (635,946) (6,343,864)
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,317,088 $13,013,367 265,220 $2,643,003
- - -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
60
TOUCHSTONE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS CONTINUED
9. SUBSEQUENT EVENT
On February 15, 2000, the Board of Trustees of Touchstone Series Trust (the
"Trust") approved an Agreement and Plan of Reorganization (the "CST Agreement")
between the Trust and Countrywide Strategic Trust (the "Strategic Trust").
Pursuant to the CST Agreement, Touchstone Emerging Growth Fund and Touchstone
International Equity Fund will be merged into separate new series of Strategic
Trust. In addition, Touchstone Value Plus Fund and Touchstone Growth & Income
Fund will be merged into one new series of Strategic Trust. On the same date,
the Trust's Board of Trustees approved an Agreement and Plan of Reorganization
(the "CIT Agreement") between the Trust and Countrywide Investment Trust
("Investment Trust"). Pursuant to the CIT Agreement, Touchstone Bond Fund will
be merged into Intermediate Bond Fund of Investment Trust. Each merger is
subject to approval by the shareholders of the relevant Touchstone Fund.
As of the effective time of the reorganization, each of the Touchstone Funds
that has received shareholder approval (each an "Acquired Fund") will transfer
all of its assets, subject to liabilities, to the corresponding Countrywide Fund
(each an "Acquiring Fund") in exchange solely for shares of the Acquiring Fund.
As soon as practicable after the Closing Date, each Acquired Fund will
distribute pro rata to its shareholders of record the shares of the Acquiring
Fund received in the exchange. After the reorganization, a shareholder of an
Acquired Fund will own shares of the corresponding class of the Acquiring Fund
equal in value to the shares of the Acquired Fund owned by the shareholder
before the reorganization.
The mergers are part of the consolidation of the Touchstone and Countrywide
mutual fund complexes resulting from the acquisition by Fort Washington
Investment Advisors, Inc., an affiliate of the Advisor, of all of the
outstanding stock of the parent of Countrywide Investments, Inc. which serves as
the investment advisor to each fund in the Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide Tax-Free Trust. In connection with
this consolidation, it is anticipated that the following Touchstone Funds will
be terminated: Touchstone Income Opportunity Fund, Touchstone Balanced Fund and
Touchstone Standby Income Fund. When the consolidation is completed and all
assets of the Trust have been transferred in a merger or distributed to
shareholders, the Trust will be terminated.
FEDERAL TAX INFORMATION (UNAUDITED)
At December 31, 1999, the following Funds had available, for Federal income tax
purposes, unused capital losses which may be applied against any realized net
taxable gains of each succeeding year until fully utilized or until the
expiration date noted:
Amount Expiration Date
-------- --------------
Income Opportunity Fund $1,324,985* 12/31/2006
2,842,233 12/31/2007
Bond Fund 286,914 12/31/2007
Standby Income Fund 45,214 12/31/2007
* $495,541 of which the Fund is limited to using no more than $178,514 per year.
<PAGE>
61
TOUCHSTONE SERIES TRUST
>From November 1, 1999 to December 31, 1999, the following Funds incurred the
following net realized losses. The Funds intend to elect to defer these losses
and treat them arising on January 1, 2000:
Amount
--------
International Equity Fund $ 13,062
Income Opportunity Fund 272,855
Balanced Fund 2,301
Bond Fund 66,026
Standby Income Fund 2,595
For corporate shareholders, a portion of the ordinary dividends paid during the
Funds' year ended December 31, 1999 qualified for the dividends received
deduction, as follows:
Amount
--------
Value Plus Fund 100%
Growth & Income Fund 100%
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the
following as capital gain dividends for the year ended December 31, 1999, of
which 100% represents 20% rate gains:
Capital Gains Dividend
----------------------
Emerging Growth Fund $287,366
International Equity Fund 747,674
Value Plus Fund 515,377
Growth & Income Fund 59,785
Balanced Fund 518,705
Bond Fund 111
The Touchstone International Equity Fund paid foreign taxes of $17,180, or $0.02
per share, and the Fund recognized $189,795, or $0.20 per share, of foreign
source income during the year ended December 31, 1999.
<PAGE>
62
TOUCHSTONE SERIES TRUST
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS TOUCHSTONE SERIES TRUST
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of the Touchstone Series Trust (comprised of
Emerging Growth Fund, International Equity Fund, Income Opportunity Fund, Value
Plus Fund, Growth & Income Fund, Balanced Fund, Bond Fund, and Standby Income
Fund) (the Funds) as of December 31, 1999, and the related statements of
operations, the statements of changes in net assets, and the financial
highlights presented herein for the year ended December 31, 1999. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
statements of changes in net assets presented herein for the years or periods
ended December 31, 1998 and the financial highlights presented herein for each
of the respective years or periods ended December 31, 1998 were audited by other
auditors whose report dated February 18, 1999 expressed an unqualified opinion.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the Touchstone Series Trust as of December
31, 1999, the results of their operations, the changes in their net assets and
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Cincinnati, Ohio
February 16, 2000
<PAGE>
63
TOUCHSTONE SERIES TRUST
- - --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
A special meeting of the shareholders of Touchstone Growth & Income Fund (the
"Fund") of Touchstone Series Trust was held on January 28, 1999. At the meeting,
the shareholders of the Fund voted on a proposal to approve a new sub-advisory
agreement between Touchstone Advisors, Inc., the investment advisor to the Fund
(the "Advisor"), and Scudder Kemper Investments, Inc. ("Scudder Kemper"),
pursuant to which Scudder Kemper would act as sub-advisor with respect to the
assets of the Fund. The result of the votes taken among shareholders on the
proposal is listed below:
695,166.656 shares were represented in person or by proxy, or 62.06% of the
outstanding shares of the Fund.
# of Shares Voted % of Shares Voted
Affirmative 691,843.016 99.52%
Against 614.369 0.09%
Abstain 2,709.271 0.39%
TOTAL 695,166.656 100.00%
The new agreement replaced the portfolio advisory agreement dated September 7,
1998 and is identical in all substantive respects to that portfolio advisory
agreement, except for different effective and termination dates.
<PAGE>
Capital Appreciation
Income
ANNUAL REPORT
MARCH 31, 1999
--------------
UTILITY
FUND
--------
EQUITY
FUND
-------
GROWTH/VALUE
FUND
-------------
AGGRESSIVE GROWTH
FUND
.
.
.
.
.
.
Countrywide
-----------
Investments
<PAGE>
UTILITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
The Utility Fund seeks a high level of total return by investing primarily
in securities of public utilities. Capital appreciation is a secondary
objective. The Fund's total returns for the fiscal year ended March 31, 1999
(excluding the impact of applicable sales loads) were -4.79% and -5.92% for
Class A and Class C shares, respectively.
During fiscal 1999, the markets again enjoyed strong domestic growth with
minimal inflationary threats. Record low unemployment, high consumer confidence
and gains in real wages contributed to higher levels of consumer spending,
providing a boost to Gross Domestic Product (GDP). Despite the favorable
domestic economic conditions, stock market gains were very narrow, with
investors preferring higher growth industries such as technology,
pharmaceuticals and communications. The movement toward higher growth names came
largely at the expense of the utility, basic materials and energy sectors, which
are deemed to be more value-oriented areas. The rotation from value to growth
was magnified by rising interest rates during the second half of the fiscal
year. After bottoming out at 4.71% in early October, the yield on the 30-year
U.S. Treasury bond rose to 5.60% at the end of March. Since many investors
consider utility stocks to be an alternative to bonds, utilities fell along with
the bond market. As a result, the S&P Utility Index returned -1.51% for the
fiscal year, compared to the 13.19% return of the Dow Jones Industrial Average
and the 18.47% return of the S&P 500 Index.
Once again, the best performing sector within the Fund was telecommunications.
Our holdings in Bell Atlantic, AT&T and Lucent Technologies performed very well
as the power of data and Internet communications became available to a record
number of individuals and businesses. Almost all of the traditional electric
utilities in the Fund performed below expectations due to the overall industry
sell-off. As has been the case over the last few years, utility funds again did
not participate in the record amounts of new money flowing into the equity
markets. As a result, very few new names were added to the portfolio and
portfolio turnover again was minimal.
Our outlook for the utility sector remains optimistic. We expect the backup in
interest rates to be temporary, thus providing a more positive environment for
utility stocks. Deregulation and consolidation should continue to be positive
for the industry. The demand for telecommunications should continue to boom as
the Internet grows and high speed access to the world wide web becomes more
commonplace and affordable. The Fund will continue to concentrate on owning
those companies that can provide attractive total returns, and are well
positioned to increase their revenues and earnings in the upcoming period of
deregulation.
Chart:
Comparison of the Change in Value of a $10,000 Investment in the
Utility Fund - Class A* and the Standard & Poor's Utility Index
Utility Fund
Average Annual Total Returns
1 Year 5 Years Since Inception*
Class A (8.60%) 11.40% 10.47%
Class C (5.92%) 11.41% 8.98%
Standard & Poor's Utility Index Utility Fund - Class A
10000 9600
10243 9671
11412 10320
3/90 10562 10115
10618 10144
10140 9854
11120 10562
3/91 11367 11049
10889 11115
11749 12144
12746 12960
3/92 11556 12356
12457 12905
13438 13398
13777 13953
3/93 15264 14906
15548 15130
16589 15556
15634 15073
3/94 14305 14591
14304 14469
14369 14660
14355 14769
3/95 15349 15128
16491 15890
18350 16986
20409 18677
3/96 19434 18404
20408 19283
19732 18651
21038 19755
3/97 20326 19437
21524 20784
22573 21626
26248 25266
3/98 27729 27390
28066 25933
29371 26862
30128 29724
3/99 27297 26079
Past performance is not predictive of future performance.
*The chart above represents performance of Class A shares only, which will
vary from the performance of Class C shares based on the difference in loads and
fees paid by shareholders in the different classes. The initial public offering
of Class A shares commenced on August 15, 1989, and the initial public offering
of Class C shares commenced on August 2, 1993.
3
<PAGE>
EQUITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
The Equity Fund seeks long-term capital appreciation by investing primarily in
common stocks of companies that offer attractive total returns through potential
growth of both share price and dividends. The Fund's total returns for the
fiscal year ended March 31, 1999 (excluding the impact of applicable sales
loads) were 14.30% and 13.03% for Class A and Class C shares, respectively.
During the fiscal year, the continued strength in the U.S. economy combined with
low inflation to push the major large-cap stock indices to new highs. Record low
unemployment, high consumer confidence and gains in real wages contributed to
higher levels of consumer spending, providing a larger than expected boost to
Gross Domestic Product (GDP). Stability in much of Asia toward the end of the
fiscal year allowed corporate profits to post their largest gains in almost two
years.
Market gains were very narrow in the latest fiscal year, with investors
preferring to own those very few large-cap growth-oriented names that were
responsible for most of the gains in the market. Toward the end of the fiscal
year, value and cyclical stocks began to rally on the expectations of continued
strong U.S. economic growth, low inflation and recoveries in the economies of
many emerging markets. Although returns were down from the unsustainable levels
seen in fiscal year 1998, most indices still managed to post double-digit
increases as evidenced by the 18.47% return of the S&P 500 Index, the 13.19%
gain in the Dow Jones Industrial Average and the 34.09% rise in the NASDAQ
Composite Index. Mid-cap stocks managed to post a gain of only 0.46% and
small-cap stocks lost 17.28% during the same time period.
The Fund remained well-diversified throughout the fiscal year. Holdings in the
technology, healthcare and communications sectors enjoyed very strong
performance. Technology stocks benefited from the growth of the Internet, the
demand for personal computers and the continued move to networking of computer
systems. Healthcare stocks enjoyed the positive fundamentals brought on by an
aging population, advances in drug therapies and the introduction of new
treatments that showed success in battling some of the most widespread diseases.
Communications stocks were the beneficiaries of increased need for high speed
Internet access and the boom in data communications.
Management continues to focus on those companies that are leaders in their
industries and can offer growth in revenues, cash flows and earnings. We remain
optimistic on the longer term fundamentals facing the market -- low inflation,
an expectation for lower interest rates and continued economic growth. We will
continue to seek to own companies that have a competitive advantage and have the
capability to expand their profit margins.
Chart:
Comparison of the Change in Value of a $10,000 Investment in the
Equity Fund - Class C* and the Standard & Poor's 500 Index
Equity Fund
Average Annual Total Returns
1 Year 5 Years Since Inception*
Class A 9.73% 19.34% 16.36%
Class C 13.03% 19.34% 15.83%
Standard & Poor's 500 Index Equity Fund - Class C
10000 10000
10078 10010
10338 10130
10578 9994
3/94 10177 9709
10220 9317
10718 9787
10716 9751
3/95 11760 10419
12883 11095
13907 11893
14744 12776
3/96 15535 13222
16232 13797
16734 14105
18129 14491
3/97 18615 14678
21865 16746
23503 17801
24178 18603
3/98 27550 20788
28460 20938
25629 18724
31087 22454
3/99 32636 23497
Past performance is not predictive of future performance.
*The chart above represents performance of Class C shares only, which will
vary from the performance of Class A shares based on the differences in loads
and fees paid by shareholders in the different classes. The initial public
offering of Class C shares commenced on June 7, 1993, and the initial public
offering of Class A shares commenced on August 2, 1993.
4
<PAGE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not yet reflect the
prospects for accelerated earnings/cash flow growth. For the fiscal year ended
March 31, 1999, the Fund's total return (excluding the impact of applicable
sales loads) was 29.89%, as compared to 18.47% for the S&P 500 Index.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments in companies of various sizes. For the fiscal year
ended March 31, 1999, the Fund's total return (excluding the impact of
applicable sales loads) was 15.46%, as compared to the 34.09% return for the
NASDAQ Composite Index.
Volatility has once again intensified within the equity market over the past
year. Growth stocks, after having dominated the bull market since the October
lows of last year, have recently retreated somewhat as lagging cyclical sectors
regained some investor interest. Although a "corrective phase" can be
unsettling, as evidenced most vividly in the Internet stocks, the broadening of
market participation is a positive development for the longevity of the bull
market.
Maintaining a focus on long-term secular developments that are impacting the
investment landscape should provide investor comfort that an exciting period of
innovation, technological creativity and revolutionary healthcare products and
therapies lie before us.
Despite Wall Street's preoccupation with short-term trading strategies, sector
rotation and rearview analysis, strong secular dynamics are still unfolding that
should provide a thrust to equity prices for some time. For example,
preoccupation with Y2K's potential short-term effect on PC demand can cause
investors to lose sight of the explosive demand for productivity enhancing
software and hardware in the year 2000 as new technologies enter the scene.
As corporate earnings of the market leading technology stocks are reported, the
robust condition of their industry and the overall economy have significantly
increased investor comfort with the earnings prospects of these companies.
Corporate earnings growth has not been limited to the technology sector. Based
on the companies in the S&P 500 Index that have reported earnings for the
quarter ended March 31, 1999, operating earnings per share are up substantially
versus last year's decline of 1.6% and are above most analysts' expectations.
The fundamentals of the U.S. economy continue to support a positive
long-term outlook for the equity market and continue to benefit from low
inflation, low unemployment and a favorable interest rate environment. As a
result, U.S. consumers, the main drivers behind the demand for U.S. goods and
services, are participating in the rewards of a healthy and growing U.S.
economy. Going on the ninth consecutive year of an economic expansion, we remain
positive on 1999 Gross Domestic Product (GDP) growth.
In addition to the continuing strong domestic consumer spending trends, the
international economy appears to be improving. Based on many U.S. companies'
observations, demand is increasing in Asia for U.S. goods and services. This
incremental factor, which is helping to drive the U.S. economy, has eased
investor fears of moderating U.S. GDP growth. The recent recovery of cyclical
stocks is evidence of the improving outlook for international economies,
especially in Asia. In addition to creating an impetus for higher demand and
profitability for the large U.S. multinational conglomerates, it should also
lead to additional cash flow available for technology spending.
With early signs of recovery emerging in Asia and a need to encourage growth in
Europe, the balance of economic policy worldwide cannot risk undoing the
delicate recovery underway. Consequently, we remain encouraged that the policy
background should be supportive to growth and liquidity, the foundation of
higher market valuations.
Our concentrated sectors each have distinct characteristics supporting long-term
growth. Health care is bolstered by the aging population and productivity gains
stemming from enlightened government reforms. Technology continues to alter
fundamental production and service delivery systems that increase productivity
significantly.
5
<PAGE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
================================================================================
We attempt to position the Growth/Value Fund to participate in bull markets and
simultaneously limit the risk profile in such a way as to minimize relative
market losses during downturns. The Aggressive Growth Fund also emphasizes
buying growth at value, but the average capitalization size is much smaller than
that of the Growth/Value Fund. The smaller, and usually younger, aggressive
growth companies add somewhat to the risk/return profile of the Aggressive
Growth Fund.
Chart:
Comparison of the Change in Value of a $10,000 Investment in the
Growth/Value Fund and the Standard & Poor's 500 Index
Growth/Value Fund
Average Annual Total Returns
1 Year Since Inception*
24.69% 25.02%
Standard & Poor's 500 Index Growth/Value Fund
10000 9600
10576 10099
3/96 11143 10992
11643 11098
12003 11290
13004 12185
3/97 13352 12291
15684 14437
16858 16335
17342 15083
3/98 19762 16805
20414 17104
18383 15650
22299 20975
3/99 23410 21828
Past performance is not predictive of future performance.
*Fund inception was September 29, 1995.
Comparison of the Change in Value of a $10,000 Investment in the
Aggressive Growth Fund and the NASDAQ Composite Index*
Aggressive Growth Fund
Average Annual Total Returns
1 Year Since Inception*
10.85% 17.48%
NASDAQ Composite Index Aggressive Growth Fund
10000 9600
10064 9552
3/96 10545 10406
11353 10762
11761 10982
12382 11853
3/97 11723 11391
13860 13440
16216 16740
15125 13873
3/98 17700 15210
18287 14373
16365 12911
21206 17375
3/99 23823 17562
Past performance is not predictive of future performance.
Fund inception was September 29, 1995.
6
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1999
=============================================================================================================
Utility Equity
Fund Fund
- - -------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost................................................... $ 27,869,108 $ 34,520,209
============== ===============
At amortized cost..................................................... $ 27,852,815 $ 34,520,209
============== ===============
At market value (Note 2).............................................. $ 41,623,274 $ 53,815,963
Repurchase agreements (Note 2)........................................... -- 5,420,000
Cash..................................................................... 2,991 78
Dividends and interest receivable........................................ 122,963 27,875
Receivable for capital shares sold ...................................... 17,314 39,210
Other assets............................................................. 13,098 27,036
-------------- ---------------
TOTAL ASSETS.......................................................... 41,779,640 59,330,162
-------------- ---------------
LIABILITIES
Dividends payable........................................................ 24,844 --
Payable for capital shares redeemed...................................... 87,747 533,072
Payable to affiliates (Note 4)........................................... 34,333 57,193
Other accrued expenses and liabilities .................................. 26,890 33,658
-------------- ---------------
TOTAL LIABILITIES..................................................... 173,814 623,923
-------------- ---------------
NET ASSETS .............................................................. $ 41,605,826 $ 58,706,239
-------------- ---------------
Net assets consist of:
Paid-in capital.......................................................... $ 26,304,587 $ 39,337,704
Accumulated net realized gains from security transactions................ 1,530,780 72,781
Net unrealized appreciation on investments .............................. 13,770,459 19,295,754
-------------- ---------------
Net assets .............................................................. $ 41,605,826 $ 58,706,239
============== ===============
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ............................... $ 38,390,936 $ 55,560,703
============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5).......................... 2,488,896 2,511,439
============== ===============
Net asset value and redemption price per share (Note 2).................. $ 15.42 $ 22.12
============== ===============
Maximum offering price per share (Note 2)................................ $ 16.06 $ 23.04
============== ===============
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ............................... $ 3,214,890 $ 3,145,536
============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5).......................... 208,694 143,890
============== ===============
Net asset value, offering price and redemption price per share (Note 2).. $ 15.40 $ 21.86
============== ===============
See accompanying notes to financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1999
=============================================================================================================
Growth/ Aggressive
Value Growth
Fund Fund
- - -------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost................................................... $ 15,111,560 $ 8,087,571
============== ===============
At amortized cost..................................................... $ 15,111,808 $ 8,087,609
============== ===============
At market value (Note 2).............................................. $ 24,662,044 $ 11,406,341
Cash..................................................................... 20,191 6,509
Dividends receivable..................................................... 6,641 800
Receivable for capital shares sold....................................... 9,087 6,708
Organization costs, net (Note 2)......................................... 9,521 9,521
Other assets............................................................. 9,571 8,361
-------------- ---------------
TOTAL ASSETS.......................................................... 24,717,055 11,438,240
-------------- --------------
LIABILITIES
Payable for capital shares redeemed...................................... 5,564 14,166
Payable to affiliates (Note 4)........................................... 29,120 8,470
Other accrued expenses and liabilities................................... 18,644 13,494
-------------- ---------------
TOTAL LIABILITIES..................................................... 53,328 36,130
-------------- ---------------
NET ASSETS .............................................................. $ 24,663,727 $ 11,402,110
============== ===============
Net assets consist of:
Paid-in capital.......................................................... $ 15,113,491 $ 8,083,378
Net unrealized appreciation on investments............................... 9,550,236 3,318,732
-------------- ---------------
Net assets............................................................... $ 24,663,727 $ 11,402,110
============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5).......................... 1,409,641 724,665
============== ===============
Net asset value and redemption price per share (Note 2).................. $ 17.50 $ 15.73
============== ===============
Maximum offering price per share (Note 2)................................ $ 18.23 $ 16.39
============== ===============
See accompanying notes to financial statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1999
=============================================================================================================
Utility Equity
Fund Fund
- - -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends ............................................................ $ 1,364,429 $ 455,841
Interest ............................................................. 215,761 290,044
-------------- ---------------
TOTAL INVESTMENT INCOME ............................................ 1,580,190 745,885
-------------- ---------------
EXPENSES
Investment advisory fees (Note 4) .................................... 326,576 375,212
Distribution expenses, Class A (Note 4)............................... 92,716 117,348
Distribution expenses, Class C (Note 4) .............................. 31,159 30,890
Transfer agent fees, Class A (Note 4)................................. 33,695 24,679
Transfer agent fees, Class C (Note 4)................................. 12,000 12,000
Accounting services fees (Note 4) .................................... 36,000 39,000
Postage and supplies.................................................. 24,800 20,140
Professional fees .................................................... 17,721 22,721
Registration fees, Common ............................................ 2,174 2,064
Registration fees, Class A ........................................... 6,023 6,213
Registration fees, Class C ........................................... 5,611 5,336
Trustees' fees and expenses .......................................... 10,309 10,309
Custodian fees ....................................................... 6,671 7,679
Reports to shareholders .............................................. 5,253 4,159
Insurance expense .................................................... 3,995 3,295
Other expenses ....................................................... 3,945 8,244
-------------- ---------------
TOTAL EXPENSES ..................................................... 618,648 689,289
-------------- ---------------
NET INVESTMENT INCOME ................................................... 961,542 56,596
-------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions ........................ 2,008,632 72,685
Net change in unrealized appreciation/depreciation on investments..... (5,229,709) 6,891,335
-------------- ---------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ............... (3,221,077) 6,964,020
-------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .................. $ (2,259,535) $ 7,020,616
============== ===============
See accompanying notes to financial statements.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1999
=============================================================================================================
Growth/ Aggressive
Value Growth
Fund Fund
- - -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends............................................................. $ 163,717 $ 41,149
Interest.............................................................. 23,256 13,153
-------------- ---------------
TOTAL INVESTMENT INCOME............................................. 186,973 54,302
-------------- ---------------
EXPENSES
Investment advisory fees (Note 4)..................................... 254,571 125,575
Distribution expenses (Note 4)........................................ 57,474 19,824
Accounting services fees (Note 4)..................................... 24,000 24,000
Professional fees..................................................... 16,540 12,940
Transfer agent fees (Note 4).......................................... 12,491 12,250
Trustees' fees and expenses........................................... 11,241 11,241
Postage and supplies.................................................. 11,098 10,405
Registration fees..................................................... 8,889 8,678
Custodian fees........................................................ 8,923 5,926
Amortization of organization costs (Note 2)........................... 6,355 6,355
Insurance expense..................................................... 3,135 2,085
Reports to shareholders............................................... 2,347 2,293
Other expenses........................................................ 5,674 9,769
-------------- ---------------
TOTAL EXPENSES...................................................... 422,738 251,341
Expenses reimbursed by the Adviser (Note 6)........................... -- (6,473)
-------------- ---------------
NET EXPENSES ....................................................... 422,738 244,868
-------------- ---------------
NET INVESTMENT LOSS ..................................................... (235,765) (190,566)
-------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions ........................ 3,987,680 1,735,380
Net change in unrealized appreciation/depreciation on investments .... 1,438,007 (936,684)
-------------- ---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........................ 5,425,687 798,696
-------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................. $ 5,189,922 $ 608,130
-------------- ---------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended March 31, 1999 and 1998
=============================================================================================================
Utility Equity
Fund Fund
Year Year Year Year
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
- - -------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income....................... $ 961,542 $ 1,203,757 $ 56,596 $ 134,298
Net realized gains from
security transactions..................... 2,008,632 396,431 72,685 131,522
Net change in unrealized appreciation/depreciation
on investments............................ (5,229,709) 12,365,467 6,891,335 9,717,678
------------ -------------- ------------- -------------
Net increase (decrease) in net
assets from operations...................... (2,259,535) 13,965,655 7,020,616 9,983,498
------------ -------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A......... (923,626) (1,131,462) (56,596) (134,305)
From net investment income, Class C......... (37,916) (72,537) -- --
Return of capital, Class A.................. -- -- (7,701) --
From net realized gains on security
transactions, Class A..................... (441,346) (598,344) -- (266,654)
From net realized gains on security
transactions, Class C..................... (36,559) (49,575) -- (29,203)
------------ -------------- ------------- -------------
Decrease in net assets from distributions
to shareholders............................. (1,439,447) (1,851,918) (64,297) (430,162)
------------ -------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold................... 4,525,134 6,395,680 16,146,962 27,157,778
Net asset value of shares issued in
reinvestment of distributions
to shareholders........................... 1,225,189 1,560,076 63,426 393,608
Payments for shares redeemed................ (6,425,371) (12,764,160) (5,648,244) (12,645,062)
------------ -------------- ------------- -------------
Net increase (decrease) in net assets from
Class A share transactions.................. (675,048) (4,808,404) 10,562,144 14,906,324
------------ -------------- ------------- -------------
CLASS C
Proceeds from shares sold................... 424,245 343,251 566,536 386,194
Net asset value of shares issued in
reinvestment of distributions
to shareholders........................... 69,533 112,220 -- 29,105
Payments for shares redeemed................ (573,313) (887,840) (1,576,756) (429,754)
------------ -------------- ------------- -------------
Net decrease in net assets from Class C
share transactions.......................... (79,535) (432,369) (1,010,220) (14,455)
------------ -------------- ------------- -------------
Net increase (decrease) in net assets from
capital share transaction................... (754,583) (5,240,773) 9,551,924 14,891,869
------------ -------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... (4,453,565) 6,872,964 16,508,243 24,445,205
NET ASSETS:
Beginning of year........................... 46,059,391 39,186,427 42,197,996 17,752,791
------------ -------------- ------------- -------------
End of year................................. $ 41,605,826 $ 46,059,391 $58,706,239 $42,197,996
============ ============== ============= =============
See accompanying notes to financial statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended March 31,1999 and 1998
and August 31, 1997
====================================================================================================================
Growth/Value Fund Aggressive Growth Fund
Year Seven Months Year Year Seven Months Year
Ended Ended Ended Ended Ended Ended
March 31, March 31, August 31, March 31, March 31, August 31,
1999 1998(A) 1997 1999 1998(A) 1997
- - --------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment loss..................... $(235,765) $(146,022) $(214,624) $(190,566) $(142,331) $(148,879)
Net realized gains (losses) from
security transactions................. 3,987,680 1,566,803 894,909 1,735,380 241,580 (356,478)
Net change in unrealized
appreciation/depreciation
on investments........................ 1,438,007 437,753 7,431,395 (936,684) (458,321) 4,653,168
---------- ---------- --------- --------- --------- ---------
Net increase (decrease) in net assets
from operations.......................... 5,189,922 1,858,534 8,111,680 608,130 (359,072) 4,147,811
---------- ---------- --------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains on
security transactions................ (4,390,836) (1,021,333) (888,542) (1,620,482) -- (16,180)
---------- ---------- --------- --------- --------- ---------
FROM CAPITAL SHARE TRANSACTIONS (Note 5):
Proceeds from shares sold .............. 4,555,639 6,013,814 9,367,824 3,396,790 4,724,918 5,211,479
Net asset value of shares issued in
reinvestment of distributions to
shareholders.......................... 2,552,347 348,462 260,810 978,542 -- 4,532
Payments for shares redeemed............ (11,892,598) (5,328,293) (5,181,368) (7,456,234) (2,854,217) (1,913,821)
---------- ---------- --------- --------- --------- ---------
Net increase (decrease) in net assets from
capital share transactions.............. (4,784,612) 1,033,983 4,447,266 (3,080,902) 1,870,701 3,302,190
---------- ---------- --------- --------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. (3,985,526) 1,871,184 11,670,404 (4,093,254) 1,511,629 7,433,821
NET ASSETS:
Beginning of period..................... 28,649,253 26,778,069 15,107,665 15,495,364 13,983,735 6,549,914
---------- ---------- --------- --------- --------- ---------
End of period........................... $24,663,727 $28,649,253 $26,778,069 $11,402,110 $15,495,364 $13,983,735
=========== =========== =========== =========== =========== ===========
(A) Effective as of the close of business on August 29, 1997, the Growth/Value Fund and Aggressive Growth Fund were
reorganized and the fiscal year-end of each Fund, subsequent to August 31, 1997, was changed to March 31 (Note 6).
See accompanying notes to financial statements.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
FINANCIAL HIGHLIGHTS - CLASS A
===============================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
===============================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 16.76 $ 12.44 $ 12.24 $ 10.47 $ 10.52
---------- --------- ---------- --------- ----------
Income (loss) from investment operations:
Net investment income........................ 0.38 0.43 0.46 0.47 0.43
Net realized and unrealized gains (losses)
on investments............................ (1.16) 4.56 0.22 1.77 (0.05)
---------- --------- ---------- --------- ----------
Total from investment operations................ (0.78) 4.99 0.68 2.24 0.38
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.38) (0.43) (0.46) (0.47) (0.43)
Distributions from net realized gains........ (0.18) (0.24) (0.02) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.56) (0.67) (0.48) (0.47) (0.43)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 15.42 $ 16.76 $ 12.44 $ 12.24 $ 10.47
========== ========= ========== ========= ==========
Total return(A) ................................ (4.79) % 40.92% 5.61% 21.65% 3.68%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 38,391 $ 42,463 $ 36,087 $ 40,424 $40,012
========== ========= ========== ========= ==========
Ratio of expenses to average net assets......... 1.33% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net assets.................................. 2.30% 3.03% 3.65% 3.97% 4.06%
Portfolio turnover rate ........................ 4% 0% 3% 11% 17%
- - --------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
FINANCIAL HIGHLIGHTS - CLASS C
=================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
=================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 16.74 $ 12.43 $ 12.23 $ 10.46 $ 10.51
---------- --------- ---------- --------- ----------
Income (loss) from investment operations:
Net investment income........................ 0.18 0.31 0.35 0.37 0.35
Net realized and unrealized gains (losses)
on investments............................. (1.16) 4.57 0.24 1.78 (0.04)
---------- --------- ---------- --------- ----------
Total from investment operations................ (0.98) 4.88 0.59 2.15 0.31
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.18) (0.33) (0.37) (0.38) (0.36)
Distributions from net realized gains........ (0.18) (0.24) (0.02) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.36) (0.57) (0.39) (0.38) (0.36)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 15.40 $ 16.74 $ 12.43 $ 12.23 $ 10.46
========== ========= ========== ========= ==========
Total return(A) ................................ (5.92)% 39.91% 4.82% 20.78% 3.00%
---------- --------- ---------- --------- ----------
Net assets at end of year (000's)............... $ 3,215 $ 3,597 $ 3,099 $ 3,686 $ 3,599
========== ========= ========== ========= ==========
Ratio of expenses to average net assets ........ 2.50% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income to average
net assets.................................. 1.13% 2.28% 2.89% 3.19% 3.41%
Portfolio turnover rate......................... 4% 0% 3% 11% 17%
- - ------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS A
==================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
==================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 19.38 $ 13.76 $ 12.45 $ 9.84 $ 9.26
---------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income........................ 0.04 0.09 0.12 0.13 0.15
Net realized and unrealized gains
on investments............................. 2.73 5.76 1.35 2.60 0.59
---------- --------- ---------- --------- ----------
Total from investment operations................ 2.77 5.85 1.47 2.73 0.74
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.03) (0.08) (0.12) (0.12) (0.16)
Distributions from net realized gains........ -- (0.15) (0.04) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.03) (0.23) (0.16) (0.12) (0.16)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 22.12 $ 19.38 $ 13.76 $ 12.45 $ 9.84
========== ========= ========== ========= ==========
Total return(A) ................................ 14.30% 42.74% 11.82% 27.90% 8.07%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 55,561 $ 38,336 $ 14,983 $ 8,502 $ 4,300
========== ========= ========== ========= ==========
Ratio of net expenses to average net
assets(B).................................... 1.31% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net asset.................................... 0.18% 0.53% 0.91% 1.06% 1.57%
Portfolio turnover rate......................... 10% 7% 38% 38% 159%
- - --------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios of expenses to average net assets
would have been 1.43%, 2.02% and 1.94% for the years ended March 31, 1997, 1996 and 1995, respectively.
See accompanying notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS C
======================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
======================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 19.34 $ 13.77 $ 12.46 $ 9.86 $ 9.26
---------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income (loss)................. (0.19) (0.03) 0.02 0.05 0.10
Net realized and unrealized gains
on investments............................ 2.71 5.75 1.35 2.60 0.57
---------- --------- ---------- --------- ----------
Total from investment operations................ 2.52 5.72 1.37 2.65 0.67
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... -- -- (0.02) (0.05) (0.07)
Distributions from net realized gains........ -- (0.15) (0.04) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. -- (0.15) (0.06) (0.05) (0.07)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 21.86 $ 19.34 $ 13.77 $ 12.46 $ 9.86
========== ========= ========== ========= ==========
Total return(A) ................................ 13.03% 41.63% 11.01% 26.90% 7.32%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 3,146 $ 3,862 $ 2,770 $ 2,436 $ 1,995
========== ========= ========== ========= ==========
Ratio of net expenses to average net
assets(B).................................... 2.41% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income (loss) to
average net assets........................... (0.92)% (0.18)% 0.15% 0.38% 0.68%
Portfolio turnover rate......................... 10% 7% 38% 38% 159%
- - ---------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios of expenses to average net assets
would have been 2.14%, 2.70% and 2.50% for the years ended March 31, 1997, 1996 and 1995, respectively.
See accompanying notes to financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
FINANCIAL HIGHLIGHTS
======================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
======================================================================================================================
Year Seven Months Year Period
Ended Ended Ended Ended
March 31, March 31, August 31, August 31,
1999 1998(A) 1997 1996(B)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 16.30 $ 15.90 $ 11.18 $ 10.00
------------ -------------- ------------- -------------
Income from investment operations:
Net investment loss......................... (0.17) (0.08) (0.13) (0.06)(C)
Net realized and unrealized gains
on investments............................ 4.84 1.05 5.39 1.24
------------ -------------- ------------- -------------
Total from investment operations............... 4.67 0.97 5.26 1.18
------------ -------------- ------------- -------------
Less distributions:
Distributions from net realized gains....... (3.47) (0.57) (0.54) --
------------ -------------- ------------- -------------
Net asset value at end of period............... $ 17.50 $ 16.30 $ 15.90 $ 11.18
============ ============== ============= =============
Total return(D) ............................... 29.89% 6.43% 47.11% 11.80%
============ ============== ============= =============
Net assets at end of period (000's)............ $ 24,664 $ 28,649 $ 26,778 $ 15,108
============ ============== ============= =============
Ratio of net expenses to average net
assets(E)................................... 1.66% 1.66%(F) 1.95% 1.95%(F)
Ratio of net investment loss to average
net assets(F)............................... (0.93)% (0.91)%(F) (1.03)% (0.62)%
Portfolio turnover rate........................ 59% 62%(F) 52% 21%
- - ---------------------------------------------------------------------------------------------------------------------
(A) Effective as of the close of business on August 29, 1997, the Fund was reorganized and its fiscal year-end,
subsequent to August 31, 1997, was changed to March 31 (Note 7).
(B) Represents the period from the commencement of operations (September 29, 1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratio of expenses to average net assets would have been
2.83%(F) for the period ended August 31, 1996.
(F) Annualized.
See accompanying notes to financial statements.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
=====================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
=====================================================================================================================
Year Seven Months Year Period
Ended Ended Ended Ended
March 31, March 31, August 31, August 31,
1999 1998(A) 1997 1996(B)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 15.81 $ 16.29 $ 10.95 $ 10.00
------------ -------------- ------------- -------------
Income (loss) from investment operations:
Net investment loss......................... (0.27) (0.15) (0.17) (0.11)(C)
Net realized and unrealized gains (losses)
on investments................................ 2.67 (0.33) 5.54 1.06
------------ -------------- ------------- -------------
Total from investment operations............... 2.40 (0.48) 5.37 0.95
------------ -------------- ------------- -------------
Less distributions:
Distributions from net realized gains....... (2.48) -- (0.03) --
------------ -------------- ------------- -------------
Net asset value at end of period............... $ 15.73 $ 15.81 $ 16.29 $ 10.95
============ ============== ============= =============
Total return(D) ............................... 15.46% (2.95)% 49.09% 9.50%
============ ============== ============= =============
Net assets at end of period (000's)............ $ 11,402 $ 15,495 $ 13,984 $ 6,550
============ ============== ============= =============
Ratio of net expenses to average net
assets(E)................................... 1.95% 1.95%(F) 1.94% 1.95%(F)
Ratio of net investment loss to average
net assets(F)............................... (1.52)% (1.66)%(F) (1.57)% (1.26)%
Portfolio turnover rate........................ 93% 40%(F) 51% 16%
Amount of debt outstanding at end of period.... $ -- n/a n/a n/a
Average daily amount of debt outstanding during
the period (000's).......................... $ 80 n/a n/a n/a
Average daily number of capital shares outstanding
during the period (000's)................... 818 n/a n/a n/a
Average amount of debt per share during
the period.................................. $ 0.10 n/a n/a n/a
- - -----------------------------------------------------------------------------------------------------------------
(A) Effective as of the close of business on August 29, 1997, the Fund was reorganized and its fiscal year-end,
subsequent to August 31, 1997, was changed to March 31 (Note 7).
(B) Represents the period from the commencement of operations (September 29, 1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratios of expenses to average net assets would have
been 2.00%, 2.62% and 5.05%(F) for the periods ended March 31, 1999, August 31, 1997 and August 31, 1996,
respectively (Note 6).
(F) Annualized.
See accompanying notes to financial statements.
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================
1. ORGANIZATION
The Utility Fund, Equity Fund, Growth/Value Fund and Aggressive Growth Fund
(collectively, the Funds) are each a series of Countrywide Strategic Trust (the
Trust). The Trust is registered under the Investment Company Act of 1940 as an
open-end management investment company. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November 18,
1982. The Declaration of Trust, as amended, permits the Trustees to issue an
unlimited number of shares of each Fund. The Growth/Value Fund and Aggressive
Growth Fund were originally organized as series of Trans Adviser Funds, Inc.
(Note 7).
The Utility Fund seeks a high level of current income. Capital appreciation is a
secondary objective. The Fund invests primarily in common, preferred and
convertible preferred stocks of public utilities that currently pay dividends.
The Fund also invests in investment grade bonds of public utilities. The public
utilities industry includes companies that produce or supply electric power,
natural gas, water, sanitary services, telecommunications and other
communications services (but not radio or television broadcasters) for public
use or consumption.
The Equity Fund seeks long-term growth of capital, current income and growth of
income by investing primarily in dividend-paying common stocks. The Fund's
investment adviser, in selecting securities for purchase, employs a quantitative
screening strategy, searching for securities believed to offer above market
growth at below market pricing.
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not reflect the prospect
for accelerating earnings/cash flow growth. The Fund seeks to achieve its
objective by investing primarily in common stocks but also in preferred stocks,
convertible bonds and warrants of companies which, in the opinion of the Fund's
investment adviser, are expected to achieve growth of investment principal over
time. Investments are largely made in companies of greater than $750 million
capitalization.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund seeks growth opportunities among companies
of various sizes. The Fund seeks to achieve its objective by investing primarily
in common stocks, but also in preferred stocks, convertible bonds, options and
warrants of companies which, in the opinion of the Fund's investment adviser,
are expected to achieve growth of investment principal over time. Many of these
companies are in the small to medium-sized category (companies with market
capitalizations of less than $750 million at the time of purchase).
The Utility Fund and Equity Fund each offer two classes of shares: Class A
shares (sold subject to a maximum front-end sales load of 4% and a distribution
fee of up to 0.25% of average daily net assets) and Class C shares (sold subject
to a maximum contingent deferred sales load of 1% if redeemed within a one-year
period from purchase and a distribution fee of up to 1% of average daily net
assets). Each Class A and Class C share of a Fund represents identical interests
in the investment portfolio of such Fund and has the same rights, except that
(i) Class C shares bear the expenses of higher distribution fees, which is
expected to cause Class C shares to have a higher expense ratio and to pay lower
dividends than Class A shares; (ii) certain other class specific expenses will
be borne solely by the class to which such expenses are attributable; and (iii)
each class has exclusive voting rights with respect to matters relating to its
own distribution arrangements.
19
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). Portfolio securities traded on stock exchanges and
securities traded in the over-the-counter market are valued at their last sales
price as of the close of the regular session of trading on the day the
securities are being valued. Securities not traded on a particular day, or for
which the last sale price is not readily available, are valued at their last
broker-quoted bid prices as obtained from one or more of the major market makers
for such securities by an independent pricing service. Securities for which
market quotations are not readily available are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' custodian, at the Federal
Reserve Bank of Cleveland. At the time each Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement.
Share valuation -- The net asset value per share of each class of shares of the
Utility Fund and Equity Fund is calculated daily by dividing the total value of
the Fund's assets attributable to that class, less liabilities attributable to
that class, by the number of shares of that class outstanding. The maximum
offering price per share of Class A shares of each Fund is equal to the net
asset value per share plus a sales load equal to 4.17% of the net asset value
(or 4% of the offering price). The offering price of Class C shares of each Fund
is equal to the net asset value per share. The net asset value per share of the
Growth/Value Fund and Aggressive Growth Fund is calculated daily by dividing the
total value of each Fund's assets, less liabilities, by the number of shares
outstanding. The maximum offering price per share of the Growth/Value Fund and
Aggressive Growth Fund is equal to the net asset value per share plus a sales
load equal to 4.17% of the net asset value (or 4% of the offering price).
The redemption price per share of each Fund, including each class of shares with
respect to the Utility Fund and Equity Fund, is equal to the net asset value per
share. However, Class C shares of the Utility Fund and Equity Fund are subject
to a contingent deferred sales load of 1% of the original purchase price if
redeemed within a one-year period from the date of purchase.
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are amortized in accordance with income tax regulations which approximate
generally accepted accounting principles.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid quarterly to shareholders of the Utility Fund and
Equity Fund and annually to shareholders of the Growth/Value Fund and Aggressive
Growth Fund. With respect to each Fund, net realized short-term capital gains,
if any, may be distributed throughout the year and net realized long-term
capital gains, if any, are distributed at least once each year. Income dividends
and capital gain distributions are determined in accordance with income tax
regulations.
Allocations between classes -- Investment income earned, realized capital gains
and losses, and unrealized appreciation and depreciation for the Utility Fund
and Equity 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 its proportionate share of total net assets of the Fund.
20
<PAGE>
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Organization costs -- Costs incurred by the Growth/Value Fund and Aggressive
Growth Fund in connection with their organization and registration of shares,
net of certain expenses, have been capitalized and are being amortized on a
straight-line basis over a five year period beginning with each Fund's
commencement of operations.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of 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.
Federal income tax -- It is each Fund's policy 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 taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
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 as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ending October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments (excluding repurchase agreements) as of March 31, 1999:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Growth/ Aggressive
Utility Equity Value Growth
Fund Fund Fund Fund
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation.................. $ 14,044,227 $ 21,522,301 $ 9,754,046 $ 3,705,151
Gross unrealized depreciation.................. (273,768) (2,226,547) (203,810) (386,419)
------------ -------------- ------------- -------------
Net unrealized appreciation.................... $ 13,770,459 $ 19,295,754 $ 9,550,236 $ 3,318,732
------------ -------------- ------------- -------------
Federal income tax cost........................ $ 27,852,815 $ 34,520,209 $15,111,808 $ 8,087,608
------------ -------------- ------------- -------------
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
Reclassification of capital accounts -- For the year ended March 31, 1999, the
Growth/Value Fund and Aggressive Growth Fund reclassified net investment losses
of $235,765 and $190,566, respectively, against paid-in capital on the
Statements of Assets and Liabilities. The Equity Fund reclassified $7,701 of
overdistributed net investment income against paid-in capital. Such
reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements, have no effect on each Fund's
net assets or net asset value per share.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the year ended March 31, 1999:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive
Utility Equity Value Growth
Fund Fund Fund Fund
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of investment securities............. $ 1,721,320 $ 14,471,647 $14,983,235 $11,641,423
============ ============== ============= =============
Proceeds from sales and maturities of
investment securities....................... $ 3,409,806 $ 4,355,481 $26,159,764 $16,642,244
============ ============== ============= =============
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
4. TRANSACTIONS WITH AFFILIATES
The Chairman, President and certain other officers of the Trust are also
officers of Countrywide Financial Services, Inc., or its subsidiaries which
include Countrywide Investments, Inc. (the Adviser), the Trust's investment
adviser and principal underwriter, and Countrywide Fund Services, Inc. (CFS),
the Trust's transfer agent, shareholder service agent and accounting services
agent. Countrywide Financial Services, Inc. is a wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending.
MANAGEMENT AGREEMENTS
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. Under the Management Agreement, the Utility Fund and
Equity Fund each pay the Adviser a fee, which is computed and accrued daily and
paid monthly, at an annual rate of 0.75% of its respective average daily net
assets up to $200 million; 0.70% of such net assets from $200 million to $500
million; and 0.50% of such net assets in excess of $500 million. The
Growth/Value Fund and Aggressive Growth Fund each pay the Adviser a fee, which
is computed and accrued daily and paid monthly, at an annual rate of 1.00% of
its respective average daily net assets up to $50 million; 0.90% of such net
assets from $50 million to $100 million; 0.80% of such net assets from $100
million to $200 million; and 0.75% of such net assets in excess of $200 million.
Mastrapasqua and Associates, Inc. (Mastrapasqua) has been retained by the
Adviser to manage the investments of the Growth/Value Fund and Aggressive Growth
Fund. The Adviser (not the Funds) pays Mastrapasqua a fee, which is computed and
accrued daily and paid monthly, at an annual rate of 0.60% of each Fund's
respective average daily net assets up to $50 million; 0.50% of such net assets
from $50 million to $100 million; 0.40% of such net assets from $100 million to
$200 million; and 0.35% of such net assets in excess of $200 million.
The Adviser has agreed, until at least August 31, 1999, to waive fees and
reimburse expenses to the extent necessary to limit total operating expenses of
the Growth/Value Fund and Aggressive Growth Fund to 1.95% of each Fund's average
daily net assets.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and CFS, CFS 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, CFS receives a monthly fee at an annual
rate of $17 per shareholder account from each Fund, subject to a $1,000 minimum
monthly fee for each Fund, or for each class of shares of a Fund, as applicable.
In addition, each Fund pays CFS out-of-pocket expenses including, but not
limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, CFS receives a monthly fee,
based on current asset levels, of $3,000 from each of the Utility Fund and
Equity Fund and $2,000 from each of the Growth/Value Fund and Aggressive Growth
Fund. In addition, each Fund pays certain out-of-pocket expenses incurred by CFS
in obtaining valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as the
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Adviser, the Adviser earned
$5,789, $4,158, $3,390 and $7,588 from underwriting and broker commissions on
the sale of shares of the Utility Fund, Equity Fund, Growth/Value Fund and
Aggressive Growth Fund, respectively, for the year ended March 31, 1999. In
addition, the Adviser collected $457 and $693 of contingent deferred sales loads
on the redemption of Class C shares of the Utility Fund and Equity Fund,
respectively.
22
<PAGE>
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is 0.25% of average daily net
assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of each Fund having two classes of shares may directly incur or reimburse
the Adviser for expenses related to the distribution and promotion of shares.
The annual limitation for payment of such expenses under the Class C Plan is 1%
of average daily net assets attributable to Class C shares.
CUSTODIAN AGREEMENTS
Firstar Bank, N.A., which serves as the custodian for the Growth/Value Fund and
Aggressive Growth Fund, was a significant shareholder of record of each Fund as
of March 31, 1999. Under the terms of its Custodian Agreements, Firstar Bank
receives from each Fund an asset-based fee plus certain transaction charges.
5. Capital Share Transactions
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
Utility Equity
Fund Fund
Year Year Year Year
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
- - ----------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold.................................... 275,492 441,718 818,011 1,675,833
Shares issued in reinvestment of distributions
to shareholders............................. 75,229 105,777 3,351 22,496
Shares redeemed................................ (395,304) (914,263) (287,992) (808,858)
------------ -------------- ------------- -------------
Net increase (decrease) in shares outstanding.. (44,583) (366,768) 533,370 889,471
Shares outstanding, beginning of year.......... 2,533,479 2,900,247 1,978,069 1,088,598
------------ -------------- ------------- -------------
Shares outstanding, end of year................ 2,488,896 2,533,479 2,511,439 1,978,069
============ ============== ============= =============
CLASS C
Shares sold.................................... 25,825 23,316 28,644 23,254
Shares issued in reinvestment of distributions
to shareholders............................. 4,271 7,595 -- 1,642
Shares redeemed................................ (36,290) (65,381) (84,439) (26,402)
------------ -------------- ------------- -------------
Net decrease in shares outstanding............. (6,194) (34,470) (55,795) (1,506)
Shares outstanding, beginning of year.......... 214,888 249,358 199,685 201,191
------------ -------------- ------------- -------------
Shares outstanding, end of year................ 208,694 214,888 143,890 199,685
============ ============== ============= =============
- - ----------------------------------------------------------------------------------------------------------------
23
<PAGE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
Growth/Value Aggressive Growth
Fund Fund
Year Seven Months Year Year Seven Months Year
Ended Ended Ended Ended Ended Ended
March 31, March 31, Aug. 31, March 31, March 31, Aug. 31,
1999 1998 1997 1999 1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................ 263,603 392,494 751,684 216,290 304,821 418,585
Shares issued in reinvestment of distributions
to shareholders......................... 150,161 23,529 16,584 63,418 -- 376
Shares redeemed............................ (761,516) (343,315) (434,401) (535,148) (183,404) (158,580)
---------- ---------- --------- --------- --------- ---------
Net increase (decrease) in shares
outstanding............................. (347,752) 72,708 333,867 (255,440) 121,417 260,381
Shares outstanding, beginning of period.... 1,757,393 1,684,685 1,350,818 980,105 858,688 598,307
---------- ---------- --------- --------- --------- ---------
Shares outstanding, end of period.......... 1,409,641 1,757,393 1,684,685 724,665 980,105 858,688
---------- ---------- --------- --------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
6. BORROWINGS
The Growth/Value Fund and Aggressive Growth Fund each have a Loan Agreement with
Firstar Bank, N.A., to be used for temporary or emergency purposes, including
the financing of capital share redemption requests that might otherwise require
the untimely disposition of securities. The Loan Agreements permit borrowings up
to a maximum principal amount outstanding not to exceed the lesser of $1,500,000
for the Growth/Value Fund and $3,000,000 for the Aggressive Growth Fund or
certain other amounts which are calculated based upon the amounts and
composition of assets in each Fund as defined in the Loan Agreement. Each Fund
agrees to pay interest on any unpaid principal balance at prevailing market
rates as defined in the Loan Agreement.
As of March 31, 1999, neither Fund had outstanding borrowings under the Loan
Agreement. The maximum amount outstanding during the year for the Aggressive
Growth Fund was $1,400,000 at a weighted average interest rate of 7.75%. For the
year ended March 31, 1999, the Aggressive Growth Fund incurred, and the Adviser
reimbursed, $6,473 of interest expense on such borrowings.
7. AGREEMENT AND PLAN OF REORGANIZATION
The Growth/Value Fund and Aggressive Growth Fund were originally organized as
series of Trans Adviser Funds, Inc. (Trans Adviser), an open-end management
investment company incorporated under the laws of the State of Maryland.
Pursuant to an Agreement and Plan of Reorganization dated May 31, 1997, each
Fund, on August 29, 1997, succeeded to the assets and liabilities of a series of
Trans Adviser with the same name (the Predecessor Fund). The investment
objective, policies and restrictions of each Fund and its Predecessor Fund are
substantially identical.
For federal income tax purposes, the reorganization of the Growth/Value Fund and
Aggressive Growth Fund qualified as a tax-free reorganization with no tax
consequences to either Fund, its Predecessor Fund or their shareholders. In
connection with the reorganization, the fiscal year-end of each Fund, subsequent
to August 31, 1997, has been changed from August 31 to March 31.
8. FEDERAL TAX INFORMATION (UNAUDITED)
In accordance with federal tax requirements, the following provides shareholders
with information concerning distributions from net realized gains, if any, made
by the Funds during the year ended March 31, 1999. On October 30, 1998, the
Utility Fund declared and paid a long-term capital gain distribution of $0.1820
per share. On November 16, 1998 and March 19, 1999, the Growth/Value Fund
declared and paid long-term capital gain distributions of $0.5450 and $2.9234
per share, respectively. On March 19, 1999, the Aggressive Growth Fund declared
and paid a long-term capital gain distribution of $2.4768 per share. As required
by federal regulations, shareholders will receive notification of their portion
of a Fund's taxable capital gain distribution, if any, paid during the 1999
calendar year early in 2000.
24
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
============================================================================================================
Market
COMMON STOCKS -- 91.2% Shares Value
- - ------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 42.0%
<S> <C> <C>
AES Corp.*............................................................... 45,000 $ 1,676,250
Baltimore Gas & Electric Co.............................................. 50,050 1,270,019
Cinergy Corp............................................................. 50,000 1,375,000
Cleco Corp............................................................... 30,000 885,000
CMS Energy Corp.......................................................... 60,000 2,403,750
DPL, Inc................................................................. 75,000 1,237,500
Duke Power Co............................................................ 42,000 2,294,250
FPL Group, Inc........................................................... 45,000 2,396,250
Kansas City Power & Light Co............................................. 50,000 1,231,250
Northern States Power Co................................................. 60,000 1,391,250
Scana Corp............................................................... 60,000 1,301,250
---------------
$ 17,461,769
---------------
TELECOMMUNICATIONS -- 37.7%
Ameritech Corp........................................................... 50,000 $ 2,893,750
AT&T Corp................................................................ 30,000 2,394,375
Bell Atlantic Corp....................................................... 50,000 2,584,375
BellSouth Corp........................................................... 75,000 3,004,687
GTE Corp................................................................. 45,000 2,722,500
Lucent Technologies, Inc................................................. 19,444 2,095,091
---------------
$ 15,694,778
---------------
GAS COMPANIES -- 6.6%
MCN Corp................................................................. 70,000 $ 1,124,375
Oneok, Inc............................................................... 25,000 618,750
Wicor, Inc............................................................... 50,000 1,012,500
---------------
$ 2,755,625
---------------
WATER COMPANIES -- 4.9%
American Water Works, Inc................................................ 70,000 $ 2,034,375
---------------
TOTAL COMMON STOCKS (Cost $24,267,526)................................... $ 37,946,547
---------------
<CAPTION>
=============================================================================================================
Par Market
CORPORATE BONDS -- 5.2% Value Value
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dayton Power & Light Co., 8.40%, 12/01/22................................ $ 1,000,000 $ 1,056,165
New York Telephone Co., 9.375%, 7/15/31.................................. 1,000,000 1,120,562
-------------- ---------------
TOTAL CORPORATE BONDS (Amortized Cost $2,085,289)........................ $ 2,000,000 $ 2,176,727
============== ---------------
25
<PAGE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
=============================================================================================================
Par Market
COMMERCIAL PAPER -- 3.6% Value Value
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BP America, 4/01/99 (Amortized Cost $1,500,000).......................... $ 1,500,000 $ 1,500,000
============== ---------------
TOTAL INVESTMENT SECURITIES-- 100.0% (Amortized Cost $27,852,815)........ $ 41,623,274
LIABILITIES IN EXCESS OF OTHER ASSETS-- 0.0% ............................ (17,448)
---------------
NET ASSETS-- 100.0% ..................................................... $ 41,605,826
===============
* Non-income producing security.
See accompanying notes to financial statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
=============================================================================================================
Market
COMMON STOCKS -- 91.7% Shares Value
- - -------------------------------------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL -- 28.5%
<S> <C> <C>
Abbott Laboratories...................................................... 30,000 $ 1,404,375
Albertson's, Inc......................................................... 15,000 814,687
American Home Products Corp.............................................. 20,000 1,305,000
Johnson & Johnson........................................................ 22,000 2,061,125
Merck & Co., Inc......................................................... 20,000 1,603,750
Newell Rubbermaid, Inc................................................... 30,000 1,425,000
PepsiCo, Inc............................................................. 35,000 1,371,563
Pfizer, Inc.............................................................. 20,000 2,775,000
Procter & Gamble Co...................................................... 25,000 2,448,438
Sara Lee Corp............................................................ 34,000 841,500
Schering-Plough Corp..................................................... 12,000 663,750
---------------
$ 16,714,188
---------------
TECHNOLOGY -- 20.3%
Compaq Computer Corp. ................................................... 40,000 $ 1,267,500
Hewlett-Packard Co....................................................... 17,500 1,186,719
Intel Corp............................................................... 20,000 2,382,500
Lucent Technologies, Inc................................................. 3,888 418,932
MCI Worldcom*............................................................ 22,000 1,948,375
Motorola, Inc............................................................ 9,000 659,250
Northern Telecom Limited................................................. 15,000 931,875
Sun Microsystems, Inc.*.................................................. 25,000 3,123,437
---------------
$ 11,918,588
---------------
FINANCIAL SERVICES -- 17.1%
AFLAC, Inc............................................................... 40,000 $ 2,177,500
American International Group............................................. 16,500 1,990,312
Bank of New York Co., Inc................................................ 60,000 2,156,250
Freddie Mac.............................................................. 30,000 1,713,750
Horace Mann Educators Corp............................................... 40,000 927,500
Wells Fargo Co........................................................... 30,000 1,051,875
---------------
$ 10,017,187
---------------
CONSUMER, CYCLICAL -- 13.1%
Gap, Inc................................................................. 45,000 $ 3,029,063
Mattel, Inc.............................................................. 55,000 1,368,125
McDonald's Corp.......................................................... 46,000 2,084,375
The Walt Disney Co....................................................... 39,000 1,213,875
---------------
$ 7,695,438
---------------
ENERGY -- 4.3%
Apache Corp.............................................................. 35,000 $ 912,187
Enron Corp............................................................... 25,000 1,606,250
---------------
$ 2,518,437
---------------
CONGLOMERATES -- 3.2%
General Electric Co...................................................... 17,000 $ 1,880,625
---------------
INDUSTRIAL -- 2.7%
Diebold, Inc............................................................. 30,000 $ 720,000
Emerson Electric Co...................................................... 17,000 899,937
---------------
$ 1,619,937
---------------
27
<PAGE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
================================================================================================================
Market
COMMON STOCKS -- 91.7% Shares Value
- - ----------------------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 2.5%
<S> <C> <C>
duPont (E.I.) de Nemours & Co............................................ 25,000 $ 1,451,563
---------------
TOTAL COMMON STOCKS (Cost $34,520,209)................................... $ 53,815,963
---------------
================================================================================================================
Face Market
REPURCHASE AGREEMENTS (1)-- 9.2% Value Value
- - ----------------------------------------------------------------------------------------------------------------
Bank One, N.A., 4.95%, dated 3/31/99, due 4/01/99,
repurchase proceeds $5,420,745......................................... $ 5,420,000 $ 5,420,000
-------------- ---------------
TOTAL COMMON STOCKS AND REPURCHASE AGREEMENTS-- 100.9% .................. $ 59,235,963
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.9%) ......................... (529,724)
---------------
NET ASSETS-- 100.0% ..................................................... $ 58,706,239
===============
* Non-income producing security.
(1)Repurchase agreements are fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
================================================================================================================
Market
COMMON STOCKS -- 92.4% Shares Value
- - ----------------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 52.9%
<S> <C> <C>
Applied Materials, Inc.*................................................. 21,000 $ 1,295,438
Compuware Corp.*......................................................... 20,000 477,500
EMC Corp.*............................................................... 11,000 1,405,250
Intel Corp............................................................... 11,000 1,310,375
International Business Machines Corp..................................... 7,000 1,240,750
Lexmark International Group, Inc. - Class A*............................. 9,500 1,061,625
Novell, Inc.*............................................................ 89,000 2,241,688
Oracle Corp.*............................................................ 57,750 1,523,156
Sun Microsystems, Inc.*.................................................. 20,000 2,498,750
---------------
$ 13,054,532
---------------
HEALTH CARE -- 20.2%
Amgen, Inc.*............................................................. 10,000 $ 748,750
Baxter International, Inc................................................ 11,000 726,000
Becton, Dickinson and Co................................................. 10,000 383,125
Bristol-Myers Squibb Co.................................................. 16,000 1,029,000
Pharmacia & Upjohn, Inc.................................................. 16,000 998,000
Schering-Plough Corp..................................................... 20,000 1,106,250
---------------
$ 4,991,125
---------------
ENTERTAINMENT -- 6.3%
Carnival Corp. - Class A................................................. 25,000 $ 1,214,062
Marriott International, Inc. - Class A................................... 10,000 336,250
---------------
$ 1,550,312
---------------
RETAIL -- 4.0%
CVS Corp................................................................. 15,000 $ 712,500
Walgreen Co.............................................................. 9,200 259,900
---------------
$ 972,400
---------------
FINANCIAL SERVICES -- 3.3%
Concord EFS, Inc.*....................................................... 29,700 $ 818,606
---------------
AEROSPACE/DEFENSE -- 2.9%
General Dynamics Corp.................................................... 11,200 $ 719,600
---------------
TRANSPORTATION -- 2.8%
AMR Corp.*............................................................... 7,500 $ 439,219
MotivePower Industries, Inc.*............................................ 10,000 251,250
---------------
$ 690,469
---------------
TOTAL COMMON STOCKS (Cost $13,246,808)................................... $ 22,797,044
---------------
29
<PAGE>
<CAPTION>
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
===================================================================================================================
Par Market
U. S. GOVERNMENT AGENCY ISSUES-- 7.6% Value Value
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Agricultural Mortgage Corp. Discount Note, 4/01/99
(Amortized Cost $1,865,000)........................................... $ 1,865,000 $ 1,865,000
-------------- ---------------
TOTAL INVESTMENT SECURITIES-- 100.0% (Amortized Cost $15,111,808) ....... $ 24,662,044
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.0% ............................ 1,683
---------------
NET ASSETS-- 100.0% ..................................................... $ 24,663,727
---------------
* Non-income producing security.
See accompanying notes to financial statements.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
================================================================================================================
Market
COMMON STOCKS -- 97.6% Shares Value
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 52.3%
Compuware Corp.*......................................................... 25,000 $ 596,875
EMC Corp.*............................................................... 5,000 638,750
Intel Corp............................................................... 4,500 536,063
Lexmark International Group, Inc. - Class A*............................. 4,500 502,875
Novell, Inc.*............................................................ 50,000 1,259,375
Oracle Corp.*............................................................ 16,875 445,078
Seagate Technology, Inc.*................................................ 18,000 532,125
SMART Modular Technologies, Inc.*........................................ 30,000 448,125
Sun Microsystems, Inc.*.................................................. 5,000 624,688
Teradyne, Inc.*.......................................................... 7,000 381,937
---------------
$ 5,965,891
---------------
HEALTH CARE -- 24.0%
Alternative Living Services, Inc.*....................................... 10,000 $ 200,000
Amgen, Inc.*............................................................. 6,000 449,250
Biogen, Inc.*............................................................ 4,000 457,250
Capital Senior Living Corp.*............................................. 14,800 104,525
Chiron Corp.*............................................................ 13,000 285,188
Elan Corp. plc - ADR*.................................................... 3,000 209,250
Pharmacia & Upjohn, Inc.................................................. 9,000 561,375
Sunrise Assisted Living, Inc.*........................................... 6,000 273,375
Watson Pharmaceuticals, Inc.*............................................ 4,400 194,150
---------------
$ 2,734,363
---------------
RETAIL -- 8.2%
CVS Corp................................................................. 5,500 $ 261,250
Shop At Home, Inc.*...................................................... 20,000 251,250
Walgreen Co.............................................................. 14,800 418,100
---------------
$ 930,600
---------------
ENTERTAINMENT -- 4.3%
Carnival Corp. - Class A................................................. 10,000 $ 485,625
---------------
TRANSPORTATION -- 3.5%
MotivePower Industries, Inc.*............................................ 5,000 $ 125,625
Southwest Airlines Co.................................................... 9,000 272,250
---------------
$ 397,875
---------------
TELECOMMUNICATIONS -- 2.9%
Uniphase Corp.*.......................................................... 2,900 $ 333,862
---------------
FINANCIAL SERVICES -- 2.4%
Viad Corp................................................................ 10,000 $ 278,125
---------------
TOTAL COMMON STOCKS (Cost $7,807,609) ................................... $ 11,126,341
---------------
31
<PAGE>
<CAPTION>
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
================================================================================================================
Par Market
U.S. GOVERNMENT AGENCY ISSUES-- 2.4% Value Value
- - ----------------------------------------------------------------------------------------------------------------
<S> <S> <S>
Federal Agricultural Mortgage Corp. Discount Note, 4/01/99
(Amortized Cost $280,000)............................................. $ 280,000 $ 280,000
-------------- ---------------
TOTAL INVESTMENT SECURITIES-- 100.0% (Amortized Cost $8,087,609) ........ $ 11,406,341
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.0%) .......................... (4,231)
---------------
NET ASSETS-- 100.0% ..................................................... $ 11,402,110
---------------
* Non-income producing security.
ADR - American depositary receipt.
See accompanying notes to financial statements.
</TABLE>
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
Logo ARTHUR ANDERSEN LLP
To the Shareholders and Board of Trustees of Countrywide Strategic Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of Countrywide Strategic Trust (comprising,
respectively, the Utility Fund, Equity Fund, Growth/Value Fund and Aggressive
Growth Fund) as of March 31, 1999, and (i) for the Utility Fund and Equity Fund
the related statements of operations, statements of changes in net assets and
the financial highlights for the periods indicated thereon and (ii) for the
Growth/Value Fund and Aggressive Growth Fund the related statements of
operations, statements of changes in net assets and the financial highlights for
the year ended March 31, 1999, the seven-month period ended March 31, 1998 and
the year ended August 31, 1997. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of the Growth/Value Fund and
Aggressive Growth Fund for the period ended August 31, 1996 were audited by
other auditors whose report dated October 18, 1996, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights audited by us
and referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Countrywide Strategic
Trust as of March 31, 1999, the results of their operations for the year then
ended, the changes in their net assets, and their financial highlights for the
periods referred to above, in conformity with generally accepted accounting
principles.
/s/ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
April 30, 1999
33
<PAGE>
Countrywide Investments
- - ------------------------
COUNTRYWIDE STRATEGIC TRUST
312 Walnut St., 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll Free) 800-543-8721
Cincinnati: 629-2000
Rate Line: 579-0999
SHAREHOLDER SERVICES
Nationwide: (Toll Free) 800-543-0407
Cincinnati: 629-2050
BOARD OF TRUSTEES
Angelo R. Mozilo, Chairman
Robert H. Leshner, President
Donald L. Bogdon, M.D.
H. Jerome Lerner
Howard J. Levine
Fred A. Rappoport
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
INVESTMENT ADVISER
Countrywide Investments, Inc.
312 Walnut St., 21st Floor
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
This report is authorized for distribution only when it is accompanied or
preceded by a current prospectus of Countrywide Strategic Trust.
<PAGE>
CAPITAL APPRECIATION Countrywide Investments
INCOME
SEMI-ANNUAL
REPORT
September 30, 1999
(Unaudited)
Utility Fund
Equity Fund
Growth/Value Fund
Aggressive Growth Fund
LOGO: COUNTRYWIDE INVESTMENTS
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1999 (Unaudited)
- - ------------------------------------------------------------------------------------
UTILITY EQUITY
(000's) FUND FUND
- - ------------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost $ 27,337 $ 40,058
=============================
At amortized cost $ 27,318 $ 40,058
=============================
At market value (Note 2) $ 44,887 $ 57,358
Repurchase agreements (Note 2) -- 6,410
Cash 1 4
Dividends and interest receivable 123 29
Receivable for capital shares sold 13 14
Other assets 13 27
-----------------------------
TOTAL ASSETS 45,037 63,842
-----------------------------
LIABILITIES
Dividends payable 26 --
Payable for capital shares redeemed 97 6
Payable to affiliates (Note 4) 35 57
Other accrued expenses and liabilities 12 18
-----------------------------
TOTAL LIABILITIES 170 81
-----------------------------
NET ASSETS $ 44,867 $ 63,761
=============================
NET ASSETS CONSIST OF:
Paid-in capital $ 25,153 $ 45,949
Accumulated net investment loss -- (64)
Accumulated net realized gains
from security transactions 2,145 576
Net unrealized appreciation on investments 17,569 17,300
-----------------------------
NET ASSETS $ 44,867 $ 63,761
=============================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares $ 41,519 $ 60,517
=============================
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value)
(Note 5) 2,437 2,803
=============================
Net asset value and redemption
price per share (Note 2) $ 17.03 $ 21.59
=============================
Maximum offering price per share (Note 2) $ 18.07 $ 22.91
=============================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares $ 3,348 $ 3,244
=============================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) 197 153
=============================
Net asset value and redemption
price per share (Note 2) $ 17.02 $ 21.21
=============================
Maximum offering price per share (Note 2) $ 17.24 $ 21.48
=============================
</TABLE>
See accompanying notes to financial statements.
4 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1999 (Unaudited)
- - -------------------------------------------------------------------------------------
GROWTH/ AGGRESSIVE
VALUE GROWTH
(000's) FUND FUND
- - -------------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost $ 14,742 $ 6,108
=============================
At amortized cost $ 14,742 $ 6,108
=============================
At market value (Note 2) $ 25,241 $ 10,793
Dividends receivable 4 --
Receivable for capital shares sold 129 9
Organization costs, net (Note 2) 6 6
Other assets 8 8
-----------------------------
TOTAL ASSETS 25,388 10,816
-----------------------------
LIABILITIES
Bank overdraft 212 108
Payable for capital shares redeemed 12 --
Payable to affiliates (Note 4) 17 6
Other accrued expenses and liabilities 12 10
-----------------------------
TOTAL LIABILITIES 253 124
-----------------------------
NET ASSETS $ 25,135 $ 10,692
=============================
NET ASSETS CONSIST OF:
Paid-in capital $ 13,504 $ 6,029
Accumulated net investment loss (129) (91)
Accumulated net realized gains from
security transactions 1,261 69
Net unrealized appreciation on investments 10,499 4,685
-----------------------------
NET ASSETS $ 25,135 $ 10,692
=============================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares $ 24,692 $ 10,692
=============================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) 1,291 593
=============================
Net asset value and redemption
price per share (Note 2) $ 19.12 $ 18.02
=============================
Maximum offering price per share (Note 2) $ 20.29 $ 19.12
=============================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares $ 443
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) 23
============
Net asset value and redemption
price per share (Note 2) $ 19.11
============
Maximum offering price per share (Note 2) $ 19.35
============
</TABLE>
See accompanying notes to financial statements.
Countrywide Investments - 5
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1999 (Unaudited)
- - ------------------------------------------------------------------------------------
UTILITY EQUITY
(000's) FUND FUND
- - ------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends $ 709 $ 264
Interest 81 89
-----------------------------
TOTAL INVESTMENT INCOME 790 353
-----------------------------
EXPENSES
Investment advisory fees (Note 4) 172 231
Distribution expenses, Class A (Note 4) 47 73
Distribution expenses, Class C (Note 4) 15 16
Transfer agent fees, Class A (Note 4) 18 16
Transfer agent fees, Class C (Note 4) 6 6
Accounting services fees (Note 4) 18 21
Professional fees 11 14
Registration fees, Common 2 2
Registration fees, Class A 5 5
Registration fees, Class C 5 5
Custodian fees 7 8
Postage and supplies 7 7
Trustees' fees and expenses 6 6
Reports to shareholders 4 4
Other expenses 3 3
-----------------------------
TOTAL EXPENSES 326 417
-----------------------------
NET INVESTMENT INCOME (LOSS) 464 ( 64)
-----------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions 614 504
Net change in unrealized appreciation/
depreciation on investments 3,799 (1,996)
-----------------------------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS 4,413 (1,492)
-----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 4,877 $ (1,556)
=============================
</TABLE>
See accompanying notes to financial statements.
6 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1999 (Unaudited)
- - ------------------------------------------------------------------------------------
GROWTH/ AGGRESSIVE
VALUE GROWTH
(000's) FUND FUND
- - ------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends $ 43 $ 3
Interest 20 1
-----------------------------
TOTAL INVESTMENT INCOME 63 4
-----------------------------
EXPENSES
Investment advisory fees (Note 4) 115 48
Custodian fees 10 18
Accounting services fees (Note 4) 14 12
Interest expense (Note 6) -- 20
Professional fees 10 8
Registration fees, Common 9 8
Transfer agent fees, Class A (Note 4) 9 6
Transfer agent fees, Class C (Note 4) 2 --
Trustees' fees and expenses 6 6
Postage and supplies 5 4
Distribution expenses, Class A (Note 4) 4 2
Amortization of organization costs (Note 2) 3 3
Reports to shareholders 2 2
Other expenses 3 2
-----------------------------
TOTAL EXPENSES 192 139
Fees waived and expenses reimbursed
by the Adviser (Notes 4, 6) -- (44)
-----------------------------
NET EXPENSES 192 95
-----------------------------
NET INVESTMENT LOSS (129) (91)
-----------------------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 1,261 69
Net change in unrealized appreciation/
depreciation on investments 949 1,366
-----------------------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 2,210 1,435
-----------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 2,081 $ 1,344
=============================
</TABLE>
See accompanying notes to financial statements.
Countrywide Investments - 7
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- - -------------------------------------------------------------------------------------
UTILITY FUND EQUITY FUND
- - -------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
SEPT. 30, ENDED SEPT. 30, ENDED
1999 MARCH 31, 1999 MARCH 31,
(000's) (UNAUDITED) 1999 (UNAUDITED) 1999
- - -------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C> <C>
Net investment income (loss) $ 464 $ 961 $ (64) $ 57
Net realized gains from
security transactions 614 2,009 504 73
Net change in unrealized appreciation/
depreciation on investments 3,799 (5,230) (1,996) 6,891
---------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS FROM OPERATIONS 4,877 (2,260) (1,556) 7,021
---------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
>From net investment income, Class A (449) (923) -- (57)
>From net investment income, Class C (15) (38) -- --
Return of capital, Class A -- -- -- (8)
>From net realized gains on security
transactions, Class A -- (441) -- --
>From net realized gains on security
transactions, Class C -- (37) -- --
---------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (464) (1,439) -- (65)
---------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
CLASS A
Proceeds from shares sold 2,483 4,525 9,089 16,147
Reinvested distributions 398 1,225 -- 63
Payments for shares redeemed (3,808) (6,425) (2,679) (5,648)
---------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM CLASS A SHARE
TRANSACTIONS (927) (675) 6,410 10,562
---------------------------------------------------
CLASS C
Proceeds from shares sold 250 424 305 567
Reinvested distributions 14 70 -- --
Payments for shares redeemed (489) (573) (104) (1,577)
---------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM CLASS C SHARE
TRANSACTIONS (225) (79) 201 (1,010)
---------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 3,261 (4,453) 5,055 16,508
---------------------------------------------------
NET ASSETS
Beginning of period 41,606 46,059 58,706 42,198
---------------------------------------------------
End of period $ 44,867 $ 41,606 $ 63,761 $ 58,706
===================================================
</TABLE>
See accompanying notes to financial statements.
8 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- - ------------------------------------------------------------------------------------
GROWTH/VALUE FUND AGGRESSIVE GROWTH FUND
- - ------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
SEPT. 30, ENDED SEPT. 30, ENDED
1999 MARCH 31, 1999 MARCH 31,
(000's) (UNAUDITED) 1999 (UNAUDITED) 1999
- - ------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C> <C>
Net investment loss $ (129) $ (236) $ (91) $ (190)
Net realized gains from
security transactions 1,261 3,988 69 1,735
Net change in unrealized appreciation/
depreciation on investments 949 1,438 1,366 ( 937)
---------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 2,081 5,190 1,344 608
---------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
>From net realized gains on security
transactions, Class A -- (4,391) -- (1,620)
---------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
CLASS A
Proceeds from shares sold 5,456 4,556 1,826 3,397
Reinvested distributions -- 2,552 -- 978
Payments for shares redeemed (7,517) (11,892) (3,880) (7,456)
---------------------------------------------------
NET DECREASE IN NET ASSETS FROM
CLASS A SHARE TRANSACTIONS (2,061) (4,784) (2,054) (3,081)
---------------------------------------------------
CLASS C
Proceeds from shares sold 460 --
Reinvested distributions -- --
Payments for shares redeemed (9) --
-----------------------
NET INCREASE IN NET ASSETS FROM
CLASS C SHARE TRANSACTIONS 451 --
-----------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 471 (3,985) (710) (4,093)
---------------------------------------------------
NET ASSETS
Beginning of period 24,664 28,649 11,402 15,495
---------------------------------------------------
End of period $ 25,135 $ 24,664 $ 10,692 $ 11,402
===================================================
</TABLE>
See accompanying notes to financial statements.
Countrywide Investments - 9
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
FINANCIAL HIGHLIGHTS - CLASS A
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.42 $ 16.76 $ 12.44 $ 12.24 $ 10.47 $ 10.52
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.18 0.38 0.43 0.46 0.47 0.43
Net realized and unrealized gains
(losses) on investments 1.61 (1.16) 4.56 0.22 1.77 (0.05)
-------------------------------------------------------------------------------------------
Total from investment operations 1.79 (0.78) 4.99 0.68 2.24 0.38
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.18) (0.38) (0.43) (0.46) (0.47) (0.43)
Distributions from net realized gains -- (0.18) (0.24) (0.02) -- --
-------------------------------------------------------------------------------------------
Total distributions (0.18) (0.56) (0.67) (0.48) (0.47) (0.43)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 17.03 $ 15.42 $ 16.76 $ 12.44 $ 12.24 $ 10.47
===========================================================================================
Total return(A) 11.61% (4.79%) 40.92% 5.61% 21.65% 3.68%
===========================================================================================
Net assets at end of period (000's) $ 41,519 $ 38,391 $ 42,463 $ 36,087 $ 40,424 $ 40,012
===========================================================================================
Ratio of net expenses
to average net assets 1.33%(B) 1.33% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income
to average net assets 2.11%(B) 2.30% 3.03% 3.65% 3.97% 4.06%
Portfolio turnover rate 5%(B) 4% 0% 3% 11% 17%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Annualized.
See accompanying notes to financial statements.
10 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
FINANCIAL HIGHLIGHTS - CLASS C
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.40 $ 16.74 $ 12.43 $ 12.23 $ 10.46 $ 10.51
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.08 0.18 0.31 0.35 0.37 0.35
Net realized and unrealized gains
(losses) on investments 1.62 (1.16) 4.57 0.24 1.78 (0.04)
-------------------------------------------------------------------------------------------
Total from investment operations 1.70 (0.98) 4.88 0.59 2.15 0.31
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.08) (0.18) (0.33) (0.37) (0.38) (0.36)
Distributions from net realized gains -- (0.18) (0.24) (0.02) -- --
-------------------------------------------------------------------------------------------
Total distributions (0.08) (0.36) (0.57) (0.39) (0.38) (0.36)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 17.02 $ 15.40 $ 16.74 $ 12.43 $ 12.23 $ 10.46
===========================================================================================
Total return(A) 11.01% (5.92%) 39.91% 4.82% 20.78% 3.00%
===========================================================================================
Net assets at end of period (000's) $ 3,348 $ 3,215 $ 3,597 $ 3,099 $ 3,686 $ 3,599
===========================================================================================
Ratio of net expenses
to average net assets 2.50%(B) 2.50% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income
to average net assets 0.94%(B) 1.13% 2.28% 2.89% 3.19% 3.41%
Portfolio turnover rate 5%(B) 4% 0% 3% 11% 17%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Annualized.
See accompanying notes to financial statements.
Countrywide Investments - 11
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS A
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 22.12 $ 19.38 $ 13.76 $ 12.45 $ 9.84 $ 9.26
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.02) 0.04 0.09 0.12 0.13 0.15
Net realized and unrealized gains
(losses) on investments (0.51) 2.73 5.76 1.35 2.60 0.59
-------------------------------------------------------------------------------------------
Total from investment operations (0.53) 2.77 5.85 1.47 2.73 0.74
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income -- (0.03) (0.08) (0.12) (0.12) (0.16)
Distributions from net realized gains -- -- (0.15) (0.04) -- --
-------------------------------------------------------------------------------------------
Total distributions -- (0.03) (0.23) (0.16) (0.12) (0.16)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 21.59 $ 22.12 $ 19.38 $ 13.76 $ 12.45 $ 9.84
===========================================================================================
Total return(A) (2.40%) 14.30% 42.74% 11.82% 27.90% 8.07%
===========================================================================================
Net assets at end of period (000's) $ 60,517 $ 55,561 $ 38,336 $ 14,983 $ 8,502 $ 4,300
===========================================================================================
Ratio of net expenses
to average net assets(B) 1.29%(C) 1.31% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income (loss)
to average net assets (0.15%)(C) 0.18% 0.53% 0.91% 1.06% 1.57%
Portfolio turnover rate 2%(C) 10% 7% 38% 38% 159%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.43%, 2.02% and 1.94%
for the years ended March 31, 1997, 1996 and 1995, respectively.
(C) Annualized.
See accompanying notes to financial statements.
12 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS C
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPT. 30, YEARS ENDED MARCH 31,
1999 -------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 21.86 $ 19.34 $ 13.77 $ 12.46 $ 9.86 $ 9.26
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.14) (0.19) (0.03) 0.02 0.05 0.10
Net realized and unrealized gains
(losses) on investments (0.51) 2.71 5.75 1.35 2.60 0.57
-------------------------------------------------------------------------------------------
Total from investment operations (0.65) 2.52 5.72 1.37 2.65 0.67
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income -- -- -- (0.02) (0.05) (0.07)
Distributions from net realized gains -- -- (0.15) (0.04) -- --
-------------------------------------------------------------------------------------------
Total distributions -- -- (0.15) (0.06) (0.05) (0.07)
-------------------------------------------------------------------------------------------
Net asset value at end of period $ 21.21 $ 21.86 $ 19.34 $ 13.77 $ 12.46 $ 9.86
===========================================================================================
Total return(A) (2.97%) 13.03% 41.63% 11.01% 26.90% 7.32%
===========================================================================================
Net assets at end of period (000's) $ 3,244 $ 3,146 $ 3,862 $ 2,770 $ 2,436 $ 1,995
===========================================================================================
Ratio of net expenses
to average net assets(B) 2.39%(C) 2.41% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income (loss)
to average net assets (1.25%)(C) (0.92%) (0.18%) 0.15% 0.38% 0.68%
Portfolio turnover rate 2%(C) 10% 7% 38% 38% 159%
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 2.14%, 2.70% and 2.50%
for the years ended March 31, 1997, 1996 and 1995, respectively.
(C) Annualized.
See accompanying notes to financial statements.
Countrywide Investments - 13
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
FINANCIAL HIGHLIGHTS - CLASS A
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR SEVEN MONTHS YEAR PERIOD
SEPT. 30, ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, AUGUST 31, AUGUST 31,
(UNAUDITED) 1999 1998(A) 1997 1996(B)
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 17.50 $ 16.30 $ 15.90 $ 11.18 $ 10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10) (0.17) (0.08) (0.13) (0.06)(C)
Net realized and unrealized
gains on investments 1.72 4.84 1.05 5.39 1.24
--------------------------------------------------------------------------------
Total from investment operations 1.62 4.67 0.97 5.26 1.18
--------------------------------------------------------------------------------
Distributions from net realized gains -- (3.47) (0.57) (0.54) --
--------------------------------------------------------------------------------
Net asset value at end of period $ 19.12 $ 17.50 $ 16.30 $ 15.90 $ 11.18
================================================================================
Total return(D) 9.26% 29.89% 6.43% 47.11% 11.80%
================================================================================
Net assets at end of period (000's) $ 24,692 $ 24,664 $ 28,649 $ 26,778 $ 15,108
================================================================================
Ratio of net expenses
to average net assets(E) 1.66%(F) 1.66% 1.66%(F) 1.95% 1.95%(F)
Ratio of net investment loss
to average net assets (1.11%)(F) (0.93%) (0.91%)(F) (1.03%) (0.62%)(F)
Portfolio turnover rate 36%(F) 59% 62%(F) 52% 21%
</TABLE>
(A) Effective as of the close of business on August 29, 1997, the Fund was
reorganized and its fiscal year-end, subsequent to August 31, 1997, was
changed to March 31.
(B) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratio of expenses to
average net assets would have been 2.83%(F) for the period ended August 31,
1996.
(F) Annualized.
See accompanying notes to financial statements.
14 - Countrywide Investments
<PAGE>
GROWTH/VALUE FUND
FINANCIAL HIGHLIGHTS - CLASS C
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- - --------------------------------------------------------------------------------
PERIOD
ENDED
SEPT. 30,
1999(A)
(UNAUDITED)
- - --------------------------------------------------------------------------------
Net asset value at beginning of period $ 18.65
----------
Income from investment operations:
Net investment loss (0.03)
Net realized and unrealized gains on investments 0.49
----------
Total from investment operations 0.46
----------
Net asset value at end of period $ 19.11
==========
Total return(B) 2.47%
==========
Net assets at end of period (000's) $ 443
==========
Ratio of net expenses to average net assets 2.41%(C)
Ratio of net investment loss to average net assets (2.03%)(C)
Portfolio turnover rate 36%(C)
(A) Represents the period from the initial public offering of Class C shares
(August 2, 1999) through September 30, 1999.
(B) Total return shown excludes the effect of applicable sales loads.
(C) Annualized.
See accompanying notes to financial statements.
Countrywide Investments - 15
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- - --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR SEVEN MONTHS YEAR PERIOD
SEPT. 30, ENDED ENDED ENDED ENDED
1999 MARCH 31, MARCH 31, AUGUST 31, AUGUST 31,
(UNAUDITED) 1999 1998(A) 1997 1996(B)
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.73 $ 15.81 $ 16.29 $ 10.95 $ 10.00
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.14) (0.27) (0.15) (0.17) (0.11)(C)
Net realized and unrealized gains
(losses) on investments 2.43 2.67 (0.33) 5.54 1.06
--------------------------------------------------------------------------------
Total from investment operations 2.29 2.40 (0.48) 5.37 0.95
--------------------------------------------------------------------------------
Distributions from net realized gains -- (2.48) -- (0.03) --
--------------------------------------------------------------------------------
Net asset value at end of period $ 18.02 $ 15.73 $ 15.81 $ 16.29 $ 10.95
================================================================================
Total return(D) 14.56% 15.46% (2.95%) 49.09% 9.50%
================================================================================
Net assets at end of period (000's) $ 10,692 $ 11,402 $ 15,495 $ 13,984 $ 6,550
================================================================================
Ratio of net expenses
to average net assets(E) 1.95%(F) 1.95% 1.95%(F) 1.94% 1.95%(F)
Ratio of net investment loss
to average net assets (1.74%)(F) (1.52%) (1.66%)(F) (1.57%) (1.26%)(F)
Portfolio turnover rate 17%(F) 93% 40%(F) 51% 16%
Amount of debt outstanding at
end of period $ -- $ -- n/a n/a n/a
Average daily amount of debt
outstanding during the
period (000's) $ 550 $ 80 n/a n/a n/a
Average daily number of capital shares
outstanding during the
period (000's) 593 818 n/a n/a n/a
Average amount of debt per share
during the period $ 0.93 $ 0.10 n/a n/a n/a
</TABLE>
(A) Effective as of the close of business on August 29, 1997, the Fund was
reorganized and its fiscal year-end, subsequent to August 31, 1997, was
changed to March 31.
(B) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 2.86%(F), 2.00%, 2.62% and 5.05%(F) for
the periods ended September 30, 1999, March 31, 1999, August 31, 1997 and
August 31, 1996, respectively (Note 6).
(F) Annualized.
See accompanying notes to financial statements.
16 - Countrywide Investments
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (UNAUDITED)
- - --------------------------------------------------------------------------------
1. ORGANIZATION
The Utility Fund, Equity Fund, Growth/Value Fund and Aggressive Growth Fund
(individually, a Fund, and collectively, the Funds) are each a series of
Countrywide Strategic Trust (the Trust). The Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company. The
Trust was established as a Massachusetts business trust under a Declaration of
Trust dated November 18, 1982. The Declaration of Trust, as amended, permits the
Trustees to issue an unlimited number of shares of each Fund.
The Utility Fund seeks current income and capital appreciation by investing
primarily in common stocks of public utilities. The Fund invests in a
diversified portfolio of common, preferred and convertible preferred stocks of
domestic public utilities that currently pay dividends and which have been
operating for at least three years. Public utilities are those companies that
are involved in the production, supply or distribution of electricity, natural
gas, telecommunications and water.
The Equity Fund seeks long-term growth of capital, current income and growth of
income by investing primarily in dividend-paying common stocks. The Fund invests
in a diversified portfolio of dividend-paying common stocks of mid and large
capitalization domestic companies having at least three years operating history.
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not yet reflect the
prospects for accelerated earnings/cash flow growth. The Fund invests primarily
in domestic stocks of large-cap growth companies which are believed to have a
demonstrated record of achievement with excellent prospects for earnings and/or
cash flow growth over a three to five year period.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund seeks growth opportunities among companies
of various sizes whose valuation may not yet reflect the prospects for
accelerated earnings/cash flow growth. The Fund invests primarily in common
stocks of domestic companies which are likely to benefit from new or innovative
products, services or processes.
The Utility Fund, Equity Fund and, effective August 1, 1999, Growth/Value Fund
each offer two classes of shares: Class A shares (currently sold subject to a
maximum front-end sales load of 5.75% and a distribution fee of up to 0.25% of
average daily net assets) and Class C shares (currently sold subject to a 1.25%
front-end sales load, a 1% contingent deferred sales load for a one-year period
and a distribution fee of up to 1% of average daily net assets). Each Class A
and Class C share of a Fund represents identical interests in the investment
portfolio of such Fund and has the same rights, except that (i) Class C shares
bear the expenses of higher distribution fees, which is expected to cause Class
C shares to have a higher expense ratio and to pay lower dividends than Class A
shares; (ii) certain other class specific expenses will be borne solely by the
class to which such expenses are attributable; and (iii) each class has
exclusive voting rights with respect to matters relating to its own distribution
arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). Portfolio securities traded on stock exchanges and
securities traded in the over-the-counter market are valued at their last sales
price as of the close of the regular session of trading on the day the
securities are being valued. Securities not traded on a particular day, or for
which the last sale price is not readily available, are valued at their last
broker-quoted bid prices as obtained from one or more of the major market makers
for such securities by an independent pricing service. Securities for which
market quotations are not readily available are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Countrywide Investments - 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' custodian, at the Federal
Reserve Bank of Cleveland. At the time each Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement.
Share valuation -- The net asset value per share of each class of shares of the
Utility Fund, Equity Fund and Growth/Value 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 shares of that class outstanding.
The net asset value per share of the Aggressive Growth Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding.
Effective August 1, 1999, the maximum offering price per share of Class A shares
of the Utility Fund, Equity Fund and Growth/Value Fund and shares of the
Aggressive Growth Fund is equal to the net asset value per share plus a sales
load equal to 6.10% of the net asset value (or 5.75% of the offering price). The
maximum offering price per share of Class C shares of the Utility Fund, Equity
Fund and Growth/Value Fund is equal to the net asset value per share plus a
sales load equal to 1.27% of the net asset value (or 1.25% of the offering
price).
Prior to August 1, 1999, the maximum offering price per share of Class A shares
of the Utility Fund and Equity Fund and shares of the Growth/Value Fund and
Aggressive Growth Fund was equal to the net asset value per share plus a sales
load equal to 4.17% of the net asset value (or 4% of the offering price). The
offering price of Class C shares of the Utility Fund and Equity Fund was equal
to the net asset value per share.
The redemption price per share of a Fund, or of each class of shares of a Fund,
is equal to the net asset value per share. However, Class C shares of the
Utility Fund, Equity Fund and Growth/Value Fund are subject to a contingent
deferred sales load of 1% of the original purchase price if redeemed within a
one-year period from the date of purchase.
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are amortized in accordance with income tax regulations which approximate
generally accepted accounting principles.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid to shareholders quarterly for the Utility Fund and
Equity Fund and annually for the Growth/Value Fund and Aggressive Growth Fund.
With respect to each Fund, net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Income dividends and capital gain
distributions are determined in accordance with income tax regulations.
Allocations between classes -- Investment income earned, realized capital gains
and losses, and unrealized appreciation and depreciation for the Utility Fund,
Equity Fund and Growth/Value 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 its proportionate share of total net
assets of the Fund.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Organization costs -- Costs incurred by the Growth/Value Fund and Aggressive
Growth Fund in connection with their organization and registration of shares,
net of certain expenses, have been capitalized and are being amortized on a
straight-line basis over a five year period beginning with each Fund's
commencement of operations.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of 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.
18 - Countrywide Investments
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
Federal income tax -- It is each Fund's policy 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 taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
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 as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ending October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments (excluding repurchase agreements) as of September 30, 1999:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
GROWTH/ AGGRESSIVE
UTILITY EQUITY VALUE GROWTH
FUND FUND FUND FUND
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation $ 17,684 $ 20,760 $ 10,931 $ 4,908
Gross unrealized depreciation (115) (3,460) (432) (223)
---------------------------------------------------
Net unrealized appreciation $ 17,569 $ 17,300 $ 10,499 $ 4,685
===================================================
Federal income tax cost $ 27,318 $ 40,058 $ 14,742 $ 6,108
===================================================
- - -------------------------------------------------------------------------------------
</TABLE>
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the six months ended September 30, 1999:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
GROWTH/ AGGRESSIVE
UTILITY EQUITY VALUE GROWTH
FUND FUND FUND FUND
- - -------------------------------------------------------------------------------------
Purchases of investment
<S> <C> <C> <C> <C>
securities $ 1,017 $ 5,638 $ 3,982 $ 822
===================================================
Proceeds from sales and
maturities of investment
securities $ 1,775 $ 603 $ 4,408 $ 2,592
===================================================
- - -------------------------------------------------------------------------------------
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
The President and certain other officers of the Trust are also officers of
Countrywide Financial Services, Inc., or its subsidiaries which include
Countrywide Investments, Inc. (CII), the Trust's investment adviser or manager
and principal underwriter, and Countrywide Fund Services, Inc. (CFS), the
Trust's administrator, transfer agent and accounting services agent. Countrywide
Financial Services, Inc. is a wholly-owned subsidiary of Fort Washington
Investment Advisors, Inc., which is a wholly-owned subsidiary of The Western and
Southern Life Insurance Company.
MANAGEMENT AGREEMENTS
CII manages the investments of the Utility Fund and Equity Fund and provides
general investment supervisory services for the Growth/Value Fund and Aggressive
Growth Fund under the terms of separate Management Agreements. Under the
Management Agreements, the Utility Fund and Equity Fund each pay CII a fee,
which is computed and accrued daily and paid monthly, at an annual rate of 0.75%
of its respective average daily net assets up to $200 million; 0.70% of such net
assets from $200 million to $500 million; and 0.50% of such net assets in excess
of $500 million. The Growth/Value Fund and Aggressive Growth Fund each pay CII a
fee, which is computed and accrued daily and paid monthly, at an annual rate of
1.00% of its respective average daily net assets up to $50 million; 0.90% of
such net assets from $50 million to $100 million; 0.80% of such net assets from
$100 million to $200 million; and 0.75% of such net assets in excess of $200
million.
Countrywide Investments - 19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
Mastrapasqua and Associates, Inc. (Mastrapasqua) has been retained by CII to
manage the investments of the Growth/Value Fund and Aggressive Growth Fund. CII
(not the Funds) pays Mastrapasqua a fee for these services.
In order to voluntarily reduce operating expenses of the Aggressive Growth Fund,
CII waived $24,155 of its investment advisory fees during the six months ended
September 30, 1999.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and CFS, CFS 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, CFS receives a monthly fee at an annual
rate of $17 per shareholder account from each Fund, subject to a $1,000 minimum
monthly fee for each Fund, or for each class of shares of a Fund, as applicable.
In addition, each Fund pays CFS out-of-pocket expenses including, but not
limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, CFS receives a monthly fee,
based on current net asset levels, of $3,000 from each of the Utility Fund and
Growth/Value Fund, $3,500 from the Equity Fund and $2,000 from the Aggressive
Growth Fund. In addition, each Fund pays CFS certain out-of-pocket expenses
incurred by CFS in obtaining valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
CII is the Funds' principal underwriter and, as such, acts as the exclusive
agent for distribution of the Funds' shares. Under the terms of the Underwriting
Agreement between the Trust and CII, CII earned $4,721, $2,640, $3,654 and $581
from underwriting and broker commissions on the sale of shares of the Utility
Fund, Equity Fund, Growth/Value Fund and Aggressive Growth Fund, respectively,
during the six months ended September 30, 1999. In addition, CII collected $159
and $150 of contingent deferred sales loads on the redemption of Class C shares
of the Utility Fund and Equity Fund, respectively.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse CII for expenses related to
the distribution and promotion of shares. The annual limitation for payment of
such expenses under the Class A Plan is 0.25% of average daily net assets
attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of each Fund having two classes of shares may directly incur or reimburse
CII for expenses related to the distribution and promotion of shares. The annual
limitation for payment of such expenses under the Class C Plan is 1% of average
daily net assets attributable to Class C shares.
CUSTODIAN AGREEMENTS
Firstar Bank, N.A., which serves as the custodian for the Growth/Value Fund and
Aggressive Growth Fund, was a significant shareholder of record of each Fund as
of September 30, 1999. Under the terms of its Custodian Agreements, Firstar Bank
receives from each Fund an asset-based fee plus certain transaction charges.
20 - Countrywide Investments
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
UTILITY FUND EQUITY FUND
- - --------------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
SEPT. 30, MARCH 31, SEPT. 30, MARCH 31,
1999 1999 1999 1999
- - --------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold 144 276 411 818
Shares reinvested 23 75 -- 3
Shares redeemed (219) (395) (119) (288)
---------------------------------------------------
Net increase (decrease) in shares
outstanding (52) (44) 292 533
Shares outstanding, beginning
of period 2,489 2,533 2,511 1,978
===================================================
Shares outstanding, end
of period 2,437 2,489 2,803 2,511
===================================================
CLASS C
Shares sold 15 26 14 29
Shares reinvested 1 4 -- --
Shares redeemed (28) (36) (5) (85)
---------------------------------------------------
Net increase (decrease) in shares
outstanding (12) (6) 9 (56)
Shares outstanding, beginning
of period 209 215 144 200
---------------------------------------------------
Shares outstanding, end of period 197 209 153 144
===================================================
- - --------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------
GROWTH/VALUE FUND AGGRESSIVE GROWTH FUND
- - --------------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
SEPT. 30, MARCH 31, SEPT. 30, MARCH 31,
1999 1999 1999 1999
- - --------------------------------------------------------------------------------------
CLASS A
Shares sold 296 264 112 216
Shares reinvested -- 150 -- 64
Shares redeemed (415) (761) (244) (535)
---------------------------------------------------
Net decrease in shares
outstanding (119) (347) (132) (255)
Shares outstanding, beginning
of period 1,410 1,757 725 980
---------------------------------------------------
Shares outstanding, end of period 1,291 1,410 593 725
===================================================
CLASS C
Shares sold 24 --
Shares reinvested -- --
Shares redeemed (1) --
------------------------
Net increase in shares outstanding 23 --
Shares outstanding, beginning
of period -- --
------------------------
Shares outstanding, end of period 23 --
========================
- - ------------------------------------------------------------------------------------
</TABLE>
Countrywide Investments - 21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
6. BORROWINGS
The Growth/Value Fund and Aggressive Growth Fund each have a Loan Agreement with
Firstar Bank, N.A., to be used for temporary or emergency purposes, including
the financing of capital share redemption requests that might otherwise require
the untimely disposition of securities. The Loan Agreements permit borrowings up
to a maximum principal amount outstanding not to exceed the lesser of $1,500,000
for the Growth/Value Fund and $3,000,000 for the Aggressive Growth Fund or
certain other amounts which are calculated based upon the amounts and
composition of assets in each Fund as defined in the Loan Agreement. Each Fund
agrees to pay interest on any unpaid principal balance at prevailing market
rates as defined in the Loan Agreement.
As of September 30, 1999, neither Fund had outstanding borrowings under the Loan
Agreement. The maximum amount outstanding during the six months ended September
30, 1999 for the Aggressive Growth Fund was $1,400,000 at a weighted average
interest rate of 7.82%. For the six months ended September 30, 1999, the
Aggressive Growth Fund incurred, and CII reimbursed, $19,835 of interest expense
on such borrowings.
22 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999 (UNAUDITED)
- - ---------------------------------------------------------------------------------------
MARKET
VALUE
COMMON STOCKS -- 95.1% SHARES (000's)
- - ---------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS -- 42.1%
Ameritech Corp. 40,000 $ 2,687
AT&T Corp. 45,000 1,958
Bell Atlantic Corp. 50,000 3,366
BellSouth Corp. 75,000 3,375
GTE Corp. 45,000 3,459
Lucent Technologies, Inc. 38,888 2,523
Nortel Networks Corp. 30,000 1,530
----------
$ 18,898
----------
ELECTRIC UTILITIES -- 40.9%
AES Corp.* 45,000 $ 2,655
Cinergy Corp. 50,000 1,416
Cleco Corp. 30,000 973
CMS Energy Corp. 60,000 2,036
Constellation Energy Group 50,050 1,408
DPL, Inc. 75,000 1,322
Duke Power Co. 42,000 2,315
FPL Group, Inc. 45,000 2,267
Kansas City Power & Light Co. 50,000 1,209
Northern States Power Co. 60,000 1,294
Scana Corp. 60,000 1,451
----------
$ 18,346
----------
GAS COMPANIES -- 7.6%
MCN Corp. 70,000 $ 1,203
Oneok, Inc. 25,000 758
Wicor, Inc. 50,000 1,453
----------
$ 3,414
----------
WATER COMPANIES -- 4.5%
American Water Works, Inc. 70,000 $ 2,025
----------
Total Common Stocks (Cost $25,121) $ 42,683
----------
- - ---------------------------------------------------------------------------------------
PAR MARKET
VALUE VALUE
CORPORATE BONDS -- 2.4% (000's) (000's)
- - ---------------------------------------------------------------------------------------
New York Telephone Co., 9.375%, 7/15/31
(Amortized Cost $1,087) $ 1,000 $ 1,094
========== ----------
</TABLE>
Countrywide Investments - 23
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND (CONTINUED)
- - ---------------------------------------------------------------------------------------
PAR MARKET
VALUE VALUE
COMMERCIAL PAPER -- 2.5% (000's) (000's)
- - ---------------------------------------------------------------------------------------
<S> <C> <C>
BP America, 10/01/99 (Amortized Cost $1,110) $ 1,110 $ 1,110
========== ----------
TOTAL INVESTMENT SECURITIES-- 100.0% (Amortized Cost $27,318) $ 44,887
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.0%) (20)
----------
NET ASSETS-- 100.0% $ 44,867
==========
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements.
24 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999 (UNAUDITED)
- - ---------------------------------------------------------------------------------------
MARKET
VALUE
COMMON STOCKS -- 89.9% SHARES (000's)
- - ---------------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL -- 25.6%
<S> <C> <C>
Abbott Laboratories 45,000 $ 1,654
Albertson's, Inc. 30,000 1,187
American Home Products Corp. 20,000 830
Johnson & Johnson 22,000 2,021
Medtronic, Inc. 60,000 2,130
Merck & Co., Inc. 20,000 1,296
Newell Rubbermaid, Inc. 30,000 857
PepsiCo, Inc. 35,000 1,059
Pfizer, Inc. 60,000 2,156
Procter & Gamble Co. 25,000 2,344
Sara Lee Corp. 34,000 797
----------
$ 16,331
----------
TECHNOLOGY -- 24.4%
Compaq Computer Corp. 40,000 $ 918
Hewlett-Packard Co. 17,500 1,610
Intel Corp. 40,000 2,973
Lucent Technologies, Inc. 7,776 504
MCI WorldCom, Inc.* 22,000 1,581
Motorola, Inc. 9,000 792
Nortel Networks Corp. 50,000 2,550
Sun Microsystems, Inc.* 50,000 4,650
----------
$ 15,578
----------
FINANCIAL SERVICES -- 14.5%
AFLAC, Inc. 40,000 $ 1,675
American International Group 20,625 1,793
Bank of New York Co., Inc. 60,000 2,006
Freddie Mac 30,000 1,560
Horace Mann Educators Corp. 40,000 1,032
Wells Fargo Co. 30,000 1,189
----------
$ 9,255
----------
CONSUMER, CYCLICAL -- 11.5%
Gap, Inc. 67,500 $ 2,160
Mattel, Inc. 55,000 1,045
McDonald's Corp. 46,000 1,978
The TJX Companies, Inc. 40,000 1,123
The Walt Disney Co. 39,000 1,009
----------
$ 7,315
----------
ENERGY -- 5.6%
Apache Corp. 35,000 $ 1,512
Enron Corp. 50,000 2,062
----------
$ 3,574
----------
CONGLOMERATES -- 3.1%
General Electric Co. 17,000 $ 2,015
----------
</TABLE>
Countrywide Investments - 25
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND (CONTINUED)
- - ---------------------------------------------------------------------------------------
MARKET
VALUE
COMMON STOCKS -- 89.9% (CONTINUED) SHARES (000's)
- - ---------------------------------------------------------------------------------------
INDUSTRIAL -- 2.8%
<S> <C> <C>
Diebold, Inc. 30,000 $ 694
Emerson Electric Co. 17,000 1,074
----------
$ 1,768
----------
BASIC MATERIALS -- 2.4%
duPont (E.I.) de Nemours & Co. 25,000 $ 1,522
----------
TOTAL COMMON STOCKS (Cost $40,058) $ 57,358
----------
- - ---------------------------------------------------------------------------------------
FACE MARKET
VALUE VALUE
REPURCHASE AGREEMENTS(1) -- 10.1% (000's) (000's)
- - ---------------------------------------------------------------------------------------
Nesbitt Burns Securities, Inc., 5.05%, dated 9/30/99,
due 10/01/99, repurchase proceeds $6,411 (Cost $6,410) $ 6,410 $ 6,410
========== ----------
TOTAL COMMON STOCKS AND REPURCHASE AGREEMENTS-- 100.0% $ 63,768
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.0%) (7)
----------
NET ASSETS-- 100.0% $ 63,761
==========
</TABLE>
* Non-income producing security.
(1) Repurchase agreements are fully collateralized by U.S. Government
obligations.
See accompanying notes to financial statements.
26 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999 (UNAUDITED)
- - ---------------------------------------------------------------------------------------
MARKET
VALUE
COMMON STOCKS -- 97.8% SHARES (000's)
- - ---------------------------------------------------------------------------------------
TECHNOLOGY -- 57.9%
<S> <C> <C>
Applied Materials, Inc.* 21,000 $ 1,635
Compuware Corp.* 20,000 521
EMC Corp.* 22,000 1,572
Intel Corp. 12,000 892
International Business Machines Corp. (IBM) 7,000 850
Novell, Inc.* 89,000 1,841
Oracle Corp.* 57,750 2,628
Sun Microsystems, Inc.* 40,000 3,720
Teradyne, Inc.* 11,600 409
Texas Instruments, Inc. 6,000 494
----------
$ 14,562
----------
HEALTH CARE -- 20.6%
Amgen, Inc.* 10,000 $ 815
Bristol-Myers Squibb Co. 16,000 1,080
IDEC Pharmaceuticals Corp.* 4,700 442
Merck & Co., Inc. 7,000 454
PE Corp. - PE Biosystems Group 10,000 722
Pharmacia & Upjohn, Inc. 16,000 794
Schering-Plough Corp. 20,000 873
----------
$ 5,180
----------
AEROSPACE/DEFENSE -- 4.8%
General Dynamics Corp. 11,200 $ 699
Northrop Grumman Corp. 8,000 509
----------
$ 1,208
----------
ENTERTAINMENT -- 4.3%
Carnival Corp. - Class A 25,000 $ 1,087
----------
FINANCIAL SERVICES -- 3.7%
Concord EFS, Inc.* 44,550 $ 919
----------
RETAIL -- 2.4%
CVS Corp. 15,000 $ 612
----------
UTILITIES -- 1.8%
Montana Power Co. 15,000 $ 456
----------
TELECOMMUNICATIONS -- 1.6%
Broadcom Corp. - Class A* 3,600 $ 392
----------
TRANSPORTATION -- 0.7%
MotivePower Industries, Inc.* 15,000 $ 165
----------
TOTAL COMMON STOCKS (Cost $14,082) $ 24,581
----------
</TABLE>
Countrywide Investments - 27
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND (CONTINUED)
- - ---------------------------------------------------------------------------------------
PAR MARKET
VALUE VALUE
U. S. GOVERNMENT AGENCY ISSUES-- 2.6% (000's) (000's)
- - ---------------------------------------------------------------------------------------
<S> <C> <C>
FNMA Discount Note, 10/01/99 (Amortized Cost $660) $ 660 $ 660
========== ----------
TOTAL INVESTMENT SECURITIES-- 100.4% (Amortized Cost $14,742) $ 25,241
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.4%) (106)
----------
NET ASSETS-- 100.0% $ 25,135
==========
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements.
28 - Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999 (UNAUDITED)
- - ---------------------------------------------------------------------------------------
MARKET
VALUE
COMMON STOCKS -- 100.9% SHARES (000's)
- - ---------------------------------------------------------------------------------------
TECHNOLOGY -- 58.7%
<S> <C> <C>
Compuware Corp.* 25,000 $ 652
EMC Corp.* 10,000 714
Intel Corp. 9,000 669
Novell, Inc.* 50,000 1,034
Oracle Corp.* 16,875 768
SMART Modular Technologies, Inc.* 30,000 1,022
Sun Microsystems, Inc.* 10,000 930
Teradyne, Inc.* 14,000 493
----------
$ 6,282
----------
HEALTH CARE -- 25.5%
Amgen, Inc.* 6,000 $ 489
Biogen, Inc.* 8,000 631
Elan Corp. plc - ADR* 6,000 201
Genentech, Inc.* 3,500 512
IDEC Pharmaceuticals Corp.* 1,800 169
PE Corp. - PE Biosystems Group 3,800 275
Pharmacia & Upjohn, Inc. 9,000 447
----------
$ 2,724
----------
TELECOMMUNICATIONS -- 6.2%
JDS Uniphase Corp.* 5,800 $ 660
----------
ENTERTAINMENT -- 4.0%
Carnival Corp. - Class A 10,000 $ 435
----------
RETAIL -- 3.8%
CVS Corp. 5,500 $ 224
Shop at Home, Inc.* 20,000 180
----------
$ 404
----------
TRANSPORTATION -- 2.7%
MotivePower Industries, Inc.* 7,500 $ 83
Southwest Airlines Co. 13,500 205
----------
$ 288
----------
TOTAL COMMON STOCKS-- 100.9% (COST $6,108) $ 10,793
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.9%) (101)
----------
NET ASSETS-- 100.0% $ 10,692
==========
</TABLE>
* Non-income producing security.
ADR - American depository receipt.
See accompanying notes to financial statements.
Countrywide Investments - 29
<PAGE>
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 27, 1999
- - --------------------------------------------------------------------------------
On October 27, 1999, a Special Meeting of Shareholders of Countrywide Strategic
Trust (the Trust) was held (1) to approve or disapprove new investment advisory
agreements with Countrywide Investments, Inc., (2) to approve or disapprove new
subadvisory agreements with Mastrapasqua & Associates, Inc. with respect to the
Growth/Value Fund and Aggressive Growth Fund, (3) to elect nine trustees and (4)
to ratify or reject the selection of Arthur Andersen LLP as the Trust's
independent public accountants for the fiscal year ending March 31, 2000. The
total number of shares of the Trust present by proxy represented 68.0% of the
shares entitled to vote at the meeting. Each of the matters submitted to
shareholders was approved.
The results of the voting for or against the approval of the new investment
advisory agreements by each Fund was as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
NUMBER OF SHARES
---------------------------------------------------
FOR AGAINST ABSTAIN
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Utility Fund 1,419,359.227 10,442.268 31,261.879
Equity Fund 2,024,821.656 2,420.277 27,228.625
Growth/Value Fund 974,237.511 1,312.205 6,067.362
Aggressive Growth Fund 459,393.774 599.476 335.120
- - ------------------------------------------------------------------------------------
</TABLE>
The results of the voting for or against the approval of the new subadvisory
agreements by the Growth/Value Fund and Aggressive Growth Fund was as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
NUMBER OF SHARES
---------------------------------------------------
FOR AGAINST ABSTAIN
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth/Value Fund 973,087.560 2,386.459 6,143.059
Aggressive Growth Fund 459,313.695 599.476 415.199
- - ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The results of the voting for the election of trustees was as follows:
- - ------------------------------------------------------------------------------------
WITHHOLD
NOMINEES FOR ELECTION AUTHORITY STATUS
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
William O. Coleman 4,916,862.312 40,617.068 New Trustee
Phillip R. Cox 4,916,658.805 40,820.575 New Trustee
H. Jerome Lerner 4,916,063.001 41,416.379 Incumbent
Robert H. Leshner 4,916,862.312 40,617.068 Incumbent
Jill T. McGruder 4,916,648.817 40,830.563 New Trustee
Oscar P. Robertson 4,907,373.918 50,105.462 Incumbent
Nelson Schwab, Jr. 4,915,206.854 42,272.526 New Trustee
Robert E. Stautberg 4,916,862.312 40,617.068 New Trustee
Joseph S. Stern, Jr. 4,907,945.634 49,533.746 New Trustee
- - ------------------------------------------------------------------------------------
</TABLE>
The results of the voting for or against the ratification of Arthur Andersen LLP
as independent public accountants by each Fund was as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
NUMBER OF SHARES
FOR AGAINST ABSTAIN
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Utility Fund 1,430,679.854 2,814.237 27,569.283
Equity Fund 2,029,342.815 1,044.546 24,083.197
Growth/Value Fund 975,459.363 3,725.603 2,432.112
Aggressive Growth Fund 457,754.758 2,176.928 396.684
- - ------------------------------------------------------------------------------------
</TABLE>
30 - Countrywide Investments
<PAGE>
This Page Intentionally Left Blank.
Countrywide Investments - 31
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
- - --------------------------------------------------------------------------------
312 Walnut St., 21st Floor
Cincinnati, Ohio 45202-4094
www.countrywideinvestments.com
Nationwide: (Toll Free) 800-543-8721
Cincinnati: 629-2000
Rate Line: 579-0999
SHAREHOLDER SERVICES
- - --------------------------------------------------------------------------------
Nationwide: (Toll Free) 800-543-0407
Cincinnati: 629-2050
BOARD OF TRUSTEES
- - --------------------------------------------------------------------------------
William O. Coleman
Phillip R. Cox
H. Jerome Lerner
Robert H. Leshner
Jill T. McGruder
Oscar P. Robertson
Nelson Schwab, Jr.
Robert E. Stautberg
Joseph S. Stern, Jr.
INVESTNEMT ADVISER/MANAGER
- - --------------------------------------------------------------------------------
Countrywide Investments, Inc.
312 Walnut St., 21st Floor
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
- - --------------------------------------------------------------------------------
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
This report is authorized for distribution only when it is accompanied or
preceded by a current prospectus of Countrywide Strategic Trust.
<PAGE>
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's and S&P, which
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality.
MOODY'S BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
A-1
<PAGE>
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
S&P'S BOND RATINGS
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from higher rated issues only in a small degree.
A. Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the highest
rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB, B, CCC, CC and C. Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is being
paid.
D. Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-2
<PAGE>
DUFF AND PHELPS' BOND RATINGS:
AAA - "Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt."
AA - "High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions."
A - "Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress."
BBB - "Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles."
BB - "Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category."
B - "Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade."
CCC - "Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments."
DD - "Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments."
FITCH INVESTORS SERVICE'S BOND RATINGS:
AAA - "AAA ratings denote the lowest expectation of credit risk. They are
assigned only in cases of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events."
AA - "AA ratings denote a very low expectation of credit risk. They
indicate strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events."
A - "A ratings denote a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings."
A-3
<PAGE>
BBB - "BBB ratings indicate that there is currently a low expectation of
credit risk. Capacity for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest investment grade
category."
BB - "BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade."
B - "B ratings indicate that significant credit risk is present, but a
limited margin of safety remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a sustained,
favorable business and economic environment."
CCC, CC, C - "Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favorable business or economic
developments. A 'CC' rating indicates that default of some kind appears
probable. 'C' ratings signal imminent default."
DDD, DD and D - "Securities are not meeting current obligations and are
extremely speculative. 'DDD' designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, 'DD' indicates expected recovery of 50%-90% of such outstanding, and
'D' the lowest recovery potential, i.e. below 50%."
THOMSON BANKWATCH'S BOND RATINGS
AAA - "Indicates that the ability to repay principal and interest on a
timely basis is extremely high."
AA - "Indicates a very strong ability to repay principal and interest on a
timely basis, with limited incremental risk compared to issues rated in the
highest category."
A - "Indicates the ability to repay principal and interest is strong.
Issues rated A could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings."
BBB - "The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. BBB issues are more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings."
BB - "While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations."
B - "Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely
basis."
A-4
<PAGE>
CCC - "Issues rated CCC clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances."
CC - "CC is applied to issues that are subordinate to other obligations
rated CCC and are afforded less protection in the event of bankruptcy or
reorganization."
D - "Default."
UNRATED. Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effect of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1, Ba-1 and B-1.
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within it's A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be
A-5
<PAGE>
evidenced by the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; well-established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
MOODY'S CORPORATE NOTE RATINGS
MIG-1 "Notes which are rated MIG-1 are judged to be of the best quality. There
is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing."
MIG-2 "Notes which are rated MIG-2 are judged to be of high quality. Margins of
protection are ample although not so large as in the preceding group."
S&P'S CORPORATE NOTE RATINGS
SP-1 "Debt rated SP-1 has very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation."
SP-2 "Debt rated SP-2 has satisfactory capacity to pay principal and interest."
A-6
<PAGE>
ART C. OTHER INFORMATION
- - ------ -----------------
Item 23. Exhibits
- - ------- --------
(a) ARTICLES OF INCORPORATION
Registrant's Restated Agreement and
Declaration of Trust with Amendment No. 1,
dated May 24, 1994, Amendment No. 2, dated
February 28, 1997 and Amendment No. 3, dated
August 11, 1997, which were filed as Exhibits
to Registrant's Post-Effective Amendment No. 36,
are hereby incorporated by reference.
(b) BYLAWS
Registrant's Bylaws with Amendments
adopted July 17, 1984 and April 5, 1989, which were
filed as Exhibits to Registrant's Post-Effective
Amendment No. 36, are hereby incorporated by
reference.
(c) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Article IV Of Registrant's Restated Agreement and
Declaration of Trust provides the following rights for
security holders:
LIQUIDATION. In event of the liquidation or
dissolution of the Trust, the Shareholders of each
Series that has been established and designated shall
be entitled to receive, as a Series, when and as
declared by the Trustees, the excess of the assets
belonging to that Series over the liabilities belonging
to that Series. The assets so distributable to the
Shareholders of any particular Series shall be
distributed among such Shareholders in proportion to
the number of Shares of that Series held by them and
recorded on the books of the Trust.
VOTING. All shares of all Series shall have "equal
voting rights" as such term is defined in the Investment
Company Act of 1940 and except as otherwise provided by
that Act or rules, regulations or orders promulgated
thereunder. On each matter submitted to a vote of the
Shareholders, all shares of each Series shall vote as a
single class except as to any matter with respect to
which a vote of all Series voting as a single series is
required by the 1940 Act or rules and regulations
promulgated thereunder, or would be required under the
Massachusetts Business Corporation Law if the Trust were
a Massachusetts business corporation. As to any matter
which does not affect the interest of a particular Series,
only the holders of Shares of the one or more affected
Series shall be entitled to vote.
<PAGE>
REDEMPTION BY SHAREHOLDER. Each holder of Shares of a
particular Series shall have the right at such times as
may be permitted by the Trust, but no less frequently
than once each week, to require the Trust to redeem all
or any part of his Shares of that Series at a
redemption price equal to the net asset value per Share
of that Series next determined in accordance with
subsection (h) of this Section 4.2 after the Shares are
properly tendered for redemption.
Notwithstanding the foregoing, the Trust may postpone
payment of the redemption price and may suspend the right
of the holders of Shares of any Series to require the Trust
to redeem Shares of that Series during any period or at any
time when and to the extent permissible under the 1940 Act,
and such redemption is conditioned upon the Trust having
funds or property legally available therefor.
TRANSFER. All Shares of each particular Series shall
be transferable, but transfers of Shares of a
particular Series will be recorded on the Share
transfer records of the Trust applicable to that Series
only at such times as Shareholders shall have the right
to require the Trust to redeem Shares of that Series
and at such other times as may be permitted by the
Trustees.
Article V of Registrant's Restated Agreement and
Declaration of Trust provides the following rights
for security holders:
VOTING POWERS. The Shareholders shall have power
to vote only (i) for the election or removal of
Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as
provided in Section 3.3 as to which Shareholder approval is
required by the 1940 Act, (iii) with respect to any
termination or reorganization of the Trust or any Series
to the extent and as provided in Sections 7.1 and 7.2,
(iv) with respect to any amendment of this Declaration
of Trust to the extent and as provided in Section 7.3,
(v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not
be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders, and
(vi) with respect to such additional matters relating to
the Trust as may be required by the 1940 Act, this
Declaration of Trust, the Bylaws or any registration of
the Trust with the Commission (or any successor agency)
in any state, or as the Trustees may consider necessary
or desirable. There shall be no cumulative voting in the
election of any Trustee or Trustees. Shares may be voted
in person or by proxy.
<PAGE>
(d) INVESTMENT ADVISORY CONTRACTS
(i) Form of Advisory Agreement with Touchstone Advisors, Inc.,
which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 39, is hereby incorporated by
reference.
(ii) Form of Subadvisory Agreement between Touchstone Advisors,
Inc. and Mastrapasqua & Associates, Inc. for the Growth/
Value Fund and the Aggressive Growth Fund is filed herewith.
(iii) Form of Subadvisory Agreement for the Emerging Growth Fund,
the International Equity Fund, the Value Plus Fund, the
Enhanced 30 Fund, the Utility Fund and the Equity Fund, which
was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 39, is hereby incorporated by reference.
(e) UNDERWRITING CONTRACTS
(i) Form of Distribution Agreement with Touchstone Securities,
Inc., which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 39 is hereby incorporated by
reference.
(f) BONUS OR PROFIT SHARING CONTRACTS
None.
(g) CUSTODIAN AGREEMENTS
(i) Custody Agreement with The Fifth Third Bank, the Custodian
for the Utility Fund, the Equity Fund and the Value Plus Fund
which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 31, is hereby incorporated by reference.
(ii) Custody Agreement with Firstar Bank (formerly Star Bank), the
Custodian for the Growth/Value Fund and the Aggressive Growth
Fund, which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 35, is hereby incorporated by
reference.
(iii) Custody Agreement with Investors Bank and Trust Company, the
Custodian for the Emerging Growth Fund, the Value Plus Fund
and the International Equity Fund, which was filed as an
Exhibit to the Post-Effective Amendment of Touchstone Series
Trust, is hereby incorporated by reference.
(h) OTHER MATERIAL CONTRACTS
(i) Registrant's Accounting and Pricing Services Agreement with
Integrated Fund Services, Inc., which was filed as an
Exhibit to Registrant's Post-Effective Amendement No. 38 is
hereby incorporated by reference.
(ii) Accounting and Pricing Services Agreement with Investors
Bank and Trust Company for the Emerging Growth Fund, the
Value Plus Fund and the International Equity Fund, which
was filed as an Exhibit to the Post-Effective Amendment for
Touchstone Series Trust, is hereby incorporated by reference.
(ii) Registrant's Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement with Integrated Fund
Services, Inc., which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 34, is hereby incorporated by
reference.
(i) LEGAL OPINION
Opinion and Consent of Counsel, which was filed as an Exhibit
to Registrant's Pre-Effective Amendment No. 1, is hereby
incorporated by reference.
(j) OTHER OPINIONS
(i) Consent of Ernst & Young LLP is filed herewith.
(ii) Consent of Arthur Andersen LLP is filed herewith.
(iii) Consent of PricewaterhouseCoopersLLP
(k) OMITTED FINANCIAL STATEMENTS
None.
(l) INITIAL CAPITAL AGREEMENTS
Copy of Letter of Initial Stockholder, which was filed as an
Exhibit to Registrant's Pre-Effective Amendment No. 1, is
hereby incorporated by reference.
(m) RULE 12B-1 PLAN
(i) Registrant's Plans of Distribution Pursuant to Rule 12b-1,
which were filed as Exhibits to Registrant's Post-Effective
Amendment No. 32, are hereby incorporated by reference.
(ii) Form of Administration Agreement which was filed as an Exhibit
to Registrant's Post-Effective Amendment No. 35, is hereby
incorporated by reference.
(n) FINANCIAL DATA SCHEDULE
Financial Data Schedules which were filed as Exhibits to
Form N-SAR for Registrant and Touchstone Series Trust, are
hereby incorporated by reference.
(o) RULE 18f-3 PLAN
Amended Rule 18f-3 Plan Adopted with Respect to the Multiple
Class Distribution System, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 33, is hereby
incorporated by reference.
(p) CODE OF ETHICS
(i) Registrant's Code of Ethics, which was filed as an Exhibit to
Post-Effective Amendment No. 39, is hereby incorporated by
reference.
(ii) Code of Ethics for Touchstone Securities, Inc. is filed
herewith.
(iii) Code of Ethics for Touchstone Advisors, Inc. is filed
herewith.
(iv) Code of Ethics for Ft. Washington Investment Advisors, Inc.
is filed herewith.
(v) Code of Ethics for David L. Babson & Company, Inc. is
filed herewith.
(vi) Code of Ethics for Westfield Capital Management, Inc. is
filed herewith.
(vii) Code of Ethics for Credit Suisse Asset Management LLC is
filed herewith.
(viii) Code of Ethics for Todd Investment Advisors, Inc. is filed
herewith.
(ix) Code of Ethics for Mastrapasqua & Associates, Inc. is filed
herewith.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the
- - ------- Registrant
-------------------------------------------------------
None
Item 25. INDEMNIFICATION
- - ------- ---------------
(a) Article VI of the Registrant's Restated Agreement and
Declaration of Trust provides for indemnification of officers
and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers, etc.
----------- ------------------------------------------
The Trust shall indemnify each of its Trustees and officers,
including persons who serve at the Trust's request as
directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise (hereinafter referred to as a "Covered Person")
against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants'
and counsel fees, incurred by any Covered Person in connection
with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being
or having been such a Trustee or officer, director or trustee,
and except that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to which such
Covered Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's
office ("disabling conduct"). Anything herein contained to the
contrary notwithstanding, no Covered Person shall be
indemnified for any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject unless
(1) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of disabling
conduct or, (2) in the absence of such a decision, a
reasonable determination is made, based upon a review of the
facts, that the Covered Person was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum
of Trustees who are neither "interested persons" of the
Company as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a written
opinion.
<PAGE>
Section 6.5 Advances of Expenses.
----------- --------------------
The Trust shall advance attorneys' fees or other expenses
incurred by a Covered Person in defending a proceeding, upon
the undertaking by or on behalf of the Covered Person to repay
the advance unless it is ultimately determined that such
Covered Person is entitled to indemnification, so long as one
of the following conditions is met: (i) the Covered Person
shall provide security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of any
lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found
entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
----------- -----------------------------------
The right of indemnification provided by this Article VI shall
not be exclusive of or affect any other rights to which any
such Covered Person may be entitled. As used in this Article
VI, "Covered Person" shall include such person's heirs,
executors and administrators, an "interested Covered Person"
is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the
same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against
whom none of such actions, suits or other proceedings or
another action, suit or other proceeding on the same or
similar grounds is then or has been pending or threatened.
Nothing contained in this article shall affect any
rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be
entitled by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on
behalf of any such person.
(b) The Registrant maintains a mutual fund and investment
advisory professional and directors and officers liability
policy. The policy provides coverage to the Registrant, its
trustees and officers and Touchstone Advisors, Inc.
(the "Adviser") in its capacity as investment advisers.
Coverage under the policy includes losses by reason of any act
error, omission, misstatement, misleading statement, neglect
or breach of duty. The Registrant may not pay for insurance
which protects the Trustees and officers against liabilities
rising from action involving willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved
in the conduct of their offices.
<PAGE>
The Advisory Agreements and the Subadvisory Agreements provide
that the Adviser (or Subadvisor) shall not be liable for any
error of judgment or mistake of law or for any loss suffered
by the Registrant in connection with the matters to which the
Agreements relate, except a loss resulting from willful
misfeasance, bad faith or gross negligence of the Adviser (or
Subadvisor) in the performance of its duties or from the
reckless disregard by the Adviser (or Subadvisor) of its
obligations under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by the Adviser (or
Subadvisor) in defending a proceeding, upon the undertaking by
or on behalf of the Adviser (or Subadvisor) to repay the
advance unless it is ultimately determined that the Adviser is
entitled to indemnification.
The Underwriting Agreement provides that the Distributor
its directors, officers, employees, shareholders and
control persons shall not be liable for any error of judgment
or mistake of law or for any loss suffered by Registrant in
connection with the matters to which the Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of any of such persons in the
performance of the Adviser's duties or from the reckless
disregard by any of such persons of the Adviser's obligations
and duties under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by any such person
in defending a proceeding, upon the undertaking by or on
behalf of such person to repay the advance if it is ultimately
determined that such person is not entitled to
indemnification.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT
ADVISERS
------------------------------------------------
A. TOUCHSTONE ADVISORS, INC. ("Touchstone") is a registered
investment adviser which provides investment advisory
services to the Funds. Touchstone also serves as the
investment adviser to Touchstone Variable Series Trust, a
variable annuity.
The following list sets forth the business and other
connections of the directors and executive officers of
Touchstone. Unless otherwise noted with an asterisk(*), the
address of the corporations listed below is 311 Pike
Street, Cincinnati, Ohio 45202.
(1) Jill T. McGruder, President and a Director of
Touchstone.
(a) A Director of Ft. Washington Brokerage Services,
Inc., Integrated Fund Services, Inc., IFS Fund
Distributors, Inc., Capital Analysts Incorporated,
3 Radnor Corporate Center, Radnor, PA, an
investment adviser and broker-dealer.
(b) President, Chief Executive Officer and a Director
of IFS Financial Services, Inc.*, a holding
company, Touchstone Advisors, Inc.*, an investment
adviser and Touchstone Securities, Inc.*, a
broker-dealer.
(c) President and a Director of IFS Agency Services,
Inc.*, an insurance agency, IFS Insurance Agency,
Inc.*, an insurance agency and IFS Systems, Inc.*,
an information systems provider.
(d) Senior Vice President of The Western-Southern
Life Insurance Company, 400 Broadway, Cincinnati,
Ohio, an insurance company.
(e) A Trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide
Tax-Free Trust.
(2) Teresa A. Siegel, Vice President and Chief Financial Officer
of Touchstone.
(a) Chief Financial Officer of IFS Financial Services, Inc.
(3) Patricia J. Wilson, Chief Compliance Officer of Touchstone
(a) Chief Compliance Officer of Touchstone Securities, Inc.
(b) Director of Compliance of IFS Financial Services, Inc.
(4) Donald J. Wuebbling, a Director of Touchstone
(a) Director of Touchstone Securities, Inc.
(b) Vice President and General Counsel of The Western and
Southern Life Insurance Company
(5) James N. Clark, a Director of Touchstone
(a) Director of Touchstone Securities, Inc.
(b) Executive Vice President and Director of The Western
and Southern Life Insurance Company
(6) William F. Ledwin, a Director of Touchstone
(a) A Director of Ft. Washington Brokerage Services,
Inc., Integrated Fund Services, Inc., IFS
Fund Distributors, Inc., Touchstone Advisors,
Inc.*, IFS Agency Services, Inc.*, Capital
Analysts Incorporated, 3 Radnor Corporate Center,
Radnor, PA., IFS Insurance Agency, Inc.*,
Touchstone Securities, Inc.*, IFS Financial
Services, Inc.*, IFS Systems, Inc.* and Eagle
Realty Group, Inc., 421 East Fourth Street, a real
estate brokerage and management service provider.
(b) President and a Director of Fort Washington
Investment Advisors, Inc., 420 E. Fourth Street,
Cincinnati, OH., an investment adviser.
(c) Vice President and Chief Investment Officer of
Columbus Life Insurance Company, 400 East Fourth
Street, Cincinnati, OH., a life insurance
company.
(d) Senior Vice President and Chief Investment Officer
of The Western-Southern Life Insurance Company.
C. FORT WASHINGTON INVESTMENT ADVISORS, INC.("Ft. Washington")
is a registered investment adviser which provides
sub-advisory services to the Value Plus Fund. Ft.
Washington also serves as the Sub-Advisor to series of
Touchstone Variable Series Trust and provides investment
advice to institutional and individual clients.
The following list sets forth the business and other
connections of the directors and executive officers of Ft.
Washington.
(1) William J. Williams, Chairman and a director of Ft.
Washington
(a) Chairman of the Board of The Western and Southern Life
Insurance Company
(2) William F. Ledwin, President and a director of Ft.
Washington
See biography above
(3) James J. Vance, Vice President and Treasurer of Ft.
Washington
(a) Vice President and Treasurer of The Western and Southern
Life Insurance Company
(5) Rance G. Duke, Vice President and Senior Portfolio Manager
of Ft. Washington
(a) Second Vice President and Senior Portfolio Manager of
The Western and Southern Life Insurance Company
(6) John C. Holden, Vice President and Senior Portfolio Manager
of Ft. Washington
See biography above
(7) Charles E. Stutenroth IV, Vice President and Senior
Portfolio Manager pf Ft. Washington
See biography above
(8) Brendan M. White, Vice President and Senior Portfolio
Manager of Ft. Washington
C. Mastrapasqua & Associates, Inc. ("Mastrapasqua")
is a registered investment adviser providing
investment advisory services to institutions and
individuals as well as the Growth/Value Fund and
the Aggressive Growth Fund. The address of
Mastrapasqua and its officers and directors is 814
Church Street, Suite 600, Nashville, Tennessee.
The following are officers and directors of
Mastrapasqua:
(1) Frank Mastrapasqua - Chairman and Chief Executive
Officer
(a) Chairman of Management Plus Associates, Inc., a
sports agency.
(2) Thomas A. Trantum - President
D. David L. Babson & Company, Inc. ("Babson") is a registered
investment adviser providing sub-advisory services to the
Emerging Growth Fund. The address of Babson is One
Memorial Drive, Cambridge, Massachusetts 02142.
F. Westfield Capital Management Company, Inc. ("Westfield") is
a registered adviser providing sub-advisory services to the
Emerging Growth Fund. The address of Westfield is One
Financial Center, Boston, MA 02111.
G. Credit Suisse Asset Management is a registered adviser
providing sub-advisory services to the International
Equity Fund. The address of Credit Suisse is One Citicorp
Center, 153 East 53rd Street, New York, NY 10022.
H. Todd Investment Advisors, Inc. is a registered adviser
providing sub-advisory services to the Enhanced 30 Fund.
The address of Todd is 3160 National City Tower,
Louisville, KY 40202.
Item 27 Principal Underwriters
- - ------- ----------------------
Touchstone Securities, Inc., 311 Pike Street, Cincinnati,
Ohio 45202, acts as the principal underwriter for the Funds.
POSITION POSITION
WITH WITH
(b) NAME UNDERWRITER REGISTRANT
----- ----------- ----------
Jill T. McGruder President/Director Trustee
William F. Ledwin Director None
Patricia J. Wilson Chief Compliance None
Officer
Teresa A. Siegel Vice President & None
Chief Financial
Officer
James J. Vance Vice President None
& Treasurer
Edward S. Heenan Controller/Director None
Donald J. Wuebbling Director None
James N. Clark Director None
Robert F. Morand Secretary None
Richard K. Taulbee Vice President None
(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
- - ------- --------------------------------
Accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder will
be maintained by the Registrant.
Item 29. MANAGEMENT SERVICES NOT DISCUSSED IN PART A OR PART B
- - ------- -----------------------------------------------------
None.
<PAGE>
Item 30. UNDERTAKINGS
- - ------- ------------
(a) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant pursuant to the provisions of Massachusetts
law and the Agreement and Declaration of Trust of the
Registrant or the Bylaws of the Registrant, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant
of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(b) Within five business days after receipt of a written
application by shareholders holding in the aggregate at
least 1% of the shares then outstanding or shares then
having a net asset value of $25,000, whichever is less,
each of whom shall have been a shareholder for at least
six months prior to the date of application
(hereinafter the "Petitioning Shareholders"),
requesting to communicate with other shareholders with
a view to obtaining signatures to a request for a
meeting for the purpose of voting upon removal of any
Trustee of the Registrant, which application shall be
accompanied by a form of communication and request
which such Petitioning Shareholders wish to transmit,
Registrant will:
(i) provide such Petitioning Shareholders with
access to a list of the names and addresses of all
shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the
approximate number of shareholders and the estimated
costs of mailing such communication, and to undertake
such mailing promptly after tender by such
Petitioning Shareholders to the Registrant of the
material to be mailed and the reasonable expenses of
such mailing.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) and has
duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Cincinnati, State of Ohio, on the
1st day of May, 2000.
TOUCHSTONE STRATEGIC TRUST
/s/ Robert H. Leshner
By:---------------------------
Robert H. Leshner
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the 1st day of May, 2000
/s/ Robert H. Leshner
- - --------------------- President
ROBERT H. LESHNER and Trustee
/s/ Theresa M. Samocki
- - ---------------------- Treasurer
THERESA M. SAMOCKI
* WILLIAM O. COLEMAN Trustee
- - -----------------------
* PHILLIP R. COX Trustee
- - ----------------------
* H. JEROME LERNER Trustee
- - ----------------------
* JILL T. MCGRUDER Trustee
- - ----------------------
* OSCAR P. ROBERTSON Trustee
- - -----------------------
* NELSON SCHWAB, JR. Trustee
- - -----------------------
* ROBERT E. STAUTBERG Trustee
- - ------------------------
* JOSEPH S. STERN, JR. Trustee
- - ------------------------
By /s/ Tina D. Hosking
--------------------
Tina D. Hosking
*Attorney-in-Fact
May 1, 2000
EXHIBIT INDEX
1. Form of Sub-Advisory Agreement with Mastrapasqua & Associates, Inc. for the
Growth/Value Fund and the Emerging Growth Fund
2. Consent of Ernst & Young LLP
3. Consent of Arthur Andersen LLP
4. Consent of Pricewaterhouse Coopers LLP
5. Code of Ethics for Touchstone Securities, Inc.
6. Code of Ethics for Touchstone Advisors, Inc.
7. Code of Ethics for Ft. Washington Investment Advisors, Inc.
8. Code of Ethics for David L. Babson & Company, Inc.
9. Code of Ethics for Westfield Capital Management, Inc.
10. Code of Ethics for Credit Suisse Asset Management LLC
11. Code of Ethics for Todd Investment Advisors, Inc.
12. Code of Ethics for Mastrapasqua & Associates, Inc.
FORM OF SUBADVISORY AGREEMENT
GROWTH/VALUE FUND AND AGGRESSIVE GROWTH FUND
Mastrapasqua & Associates, Inc.
814 Church Street
Nashville, TN 37203
Gentlemen:
Touchstone Strategic Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "Act"), and subject to the rules and regulations
promulgated thereunder. The Trust's shares of beneficial interest are divided
into separate series or funds. Each such share of a fund represents an undivided
interest in the assets, subject to the liabilities, allocated to that fund. Each
fund has separate investment objectives and policies. The _________________ Fund
(the "Fund") has been established as a series of the Trust.
Touchstone Advisors, Inc. (the "Manager") acts as the investment
manager for the Fund pursuant to the terms of an Investment Advisory Agreement.
The Manager is responsible for the coordination of investment of the Fund's
assets in portfolio securities. However, specific portfolio purchases and sales
for the investment portfolio of the Fund are to be made by advisory
organizations recommended by the Manager and approved by the Board of Trustees
of the Trust.
1. APPOINTMENT AS AN ADVISOR. The Trust being duly authorized hereby
appoints and employs Mastrapasqua & Associates, Inc. (the "Advisor") as the
discretionary portfolio manager of the Fund, on the terms and conditions set
forth herein.
<PAGE>
2. ACCEPTANCE OF APPOINTMENT; STANDARD OF PERFORMANCE. The Advisor
accepts the appointment as the discretionary portfolio manager and agrees to use
its best professional judgment to make timely investment decisions for the Fund
in accordance with the provisions of this Agreement.
3. PORTFOLIO MANAGEMENT SERVICES OF ADVISOR. The Advisor is hereby
employed and authorized to select portfolio securities for investment by the
Fund, to purchase and sell securities of the Fund, and upon making any purchase
or sale decision, to place orders for the execution of such portfolio
transactions in accordance with paragraphs 5 and 6 hereof. In providing
portfolio management services to the Fund, the Advisor shall be subject to such
investment restrictions as are set forth in the Act and the rules thereunder,
the Internal Revenue Code, applicable state securities laws, the supervision and
control of the Board of Trustees of the Trust, such specific instructions as the
Board of Trustees may adopt and communicate to the Advisor, the investment
objectives, policies and restrictions of the Fund furnished pursuant to
paragraph 4, the provisions of Schedule A hereto and instructions from the
Manager. The Advisor is not authorized by the Fund to take any action, including
the purchase or sale of securities for the Fund, in contravention of any
restriction, limitation, objective, policy or instruction described in the
previous sentence. The Advisor shall maintain on behalf of the Fund the records
listed in Schedule A hereto (as amended from time to time). At the Trust's
reasonable request, the Advisor will consult with the Manager with respect to
any decision made by it with respect to the investments of the Fund.
4. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Trust will
provide the Advisor with the statement of investment objectives, policies and
restrictions applicable to the Fund as contained in the Trust's registration
statement under the Act and the Securities Act of 1933, and any instructions
<PAGE>
adopted by the Board of Trustees supplemental thereto. The Trust will provide
the Advisor with such further information concerning the investment objectives,
policies and restrictions applicable thereto as the Advisor may from time to
time reasonably request. The Trust retains the right, on written notice to the
Advisor from the Trust or the Manager, to modify any such objectives, policies
or restrictions in any manner at any time.
5. TRANSACTION PROCEDURES. All transactions will be consummated by
payment to or delivery by the Custodian, or such depositories or agents as may
be designated by the Custodian in writing, as custodian for the Fund, of all
cash and/or securities due to or from the Fund, and the Advisor shall not have
possession or custody thereof. If the Manager has authorized the Advisor to
place orders for portfolio transactions of the Fund, the Advisor shall advise
the Custodian and confirm in writing to the Trust and to the Manager all
investment orders for the Fund placed by it with brokers and dealers. The
Advisor shall issue to the Custodian such instructions as may be appropriate in
connection with the settlement of any transaction initiated by the Advisor. It
shall be the responsibility of the Advisor to take appropriate action if the
Custodian fails to confirm in writing proper execution of the instructions.
6. ALLOCATION OF BROKERAGE. When so authorized by the Manager, the
Advisor shall have the authority and discretion to select brokers and dealers to
execute portfolio transactions initiated by the Advisor, and for the selection
of the markets on or in which the transactions will be executed.
A. In doing so, the Advisor will give primary consideration to
securing the best qualitative execution, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
<PAGE>
or dealer and the brokerage and research services provided by the broker or
dealer. Consistent with this policy, the Advisor may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) to the other accounts over
which it exercises investment discretion. It is understood that neither the
Trust, the Manager nor the Advisor have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Manager and/or the Advisor have access to
supplemental investment and market research and security and economic analyses
provided by certain brokers who may execute brokerage transactions at a higher
commission to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the lowest commission. Therefore, if so
authorized by the Manager, the Advisor is authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers, subject
to review by the Trust's Board of Trustees from time to time with respect to the
extent and continuation of this practice, provided that the Manager determines
in good faith that the amount of the commission is reasonable in relation to the
value of the brokerage and research services provided by the executing broker or
dealer. The determination may be viewed in terms of either a particular
transaction or the Manager's overall responsibilities with respect to the Fund
and to the other accounts over which it exercises investment discretion. It is
understood that although the information may be useful to the Trust, the Manager
and the Advisor, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution, the
Manager may give consideration to sales of shares of the Fund as a factor in the
selection of brokers and dealers to execute portfolio transactions of the Fund.
<PAGE>
On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Advisor, if
so authorized by the Manager and to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as expenses incurred in the
transaction, will be made by the Advisor in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Fund with
respect to the Fund and to such other clients.
For each fiscal quarter of the Fund, the Advisor shall prepare and
render reports to the Manager and the Trust's Board of Trustees of the total
brokerage business placed by the Advisor and the manner in which the allocation
has been accomplished. Such reports shall set forth at a minimum the information
required to be maintained by Rule 31a-1(b)(9) under the Act.
B. Advisor agrees that it will not execute any portfolio
transactions for the Fund's account with a broker or dealer which is an
"affiliated person" (as defined in the Act) of the Trust, the Manager or the
Advisor without the prior approval of the Manager. The Manager agrees that it
will provide the Advisor with a list of brokers and dealers which are
"affiliated persons" of the Trust, the Manager or the Advisor.
7. PROXIES. The Trust will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Fund may be invested
from time to time. At the Fund's request, the Advisor shall provide the Trust
with its recommendations as to the voting of such proxies.
<PAGE>
8. REPORTS TO THE ADVISOR. The Trust will provide the Advisor with such
periodic reports concerning the status of the Fund as the Advisor may reasonably
request.
9. FEES FOR SERVICES. For the services provided to the Fund, the
Manager shall pay the Advisor a fee equal to the annual rate of 60/100 of 1% of
the average value of the daily net assets of the Fund up to and including
$50,000,000, 50/100 of 1% of the next $50 million of such assets, 40/100 of 1%
of the next $100 million of such assets, and 35/100 of 1% of such assets in
excess of $200,000,000.
The Advisor's fees shall be payable monthly within ten days following
the end of each month. Pursuant to the provisions of the Investment Advisory
Agreement between the Trust and the Manager, the Manager is solely responsible
for the payment of fees to the Advisor, and the
Trust shall not be obligated to the Advisor with respect to its compensation.
10. OTHER INVESTMENT ACTIVITIES OF THE ADVISOR. The Trust acknowledges
that the Advisor or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Advisor, its
affiliates or any of its or their directors, officers, agents or employees may
buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the
Trust agrees that the Advisor or its affiliates may give advice or exercise
investment responsibility and take such other action with respect to other
Affiliated Accounts which may differ from the advice given or the timing or
nature of action taken with respect to the Fund, provided that the Advisor acts
in good faith, and provided further, that it is the Advisor's policy to
allocate, within its reasonable discretion, investment opportunities to the Fund
over a period of time on a fair and equitable basis relative to the Affiliated
Accounts, taking into account the investment objectives and policies of the Fund
and any specific investment restrictions applicable thereto. The Trust
<PAGE>
acknowledges that one or more of the Affiliated Accounts may at any time hold,
acquire, increase, decrease, dispose of or otherwise deal with positions in
investments in which the Fund may have an interest from time to time, whether in
transactions which involve the Fund or otherwise. The Advisor shall have no
obligation to acquire for the Fund a position in any investment which any
Affiliated Account may acquire, and the Trust shall have no first refusal,
co-investment or other rights in respect of any such investment, either for the
Fund or otherwise.
11. CERTIFICATE OF AUTHORITY. The Trust, the Manager and the Advisor
shall furnish to each other from time to time certified copies of the
resolutions of their Board of Trustees or Board of Directors or executive
committees, as the case may be, evidencing the authority of officers and
employees who are authorized to act on behalf of the Trust, the Fund, the
Manager and/or the Advisor.
12. LIMITATION OF LIABILITY. The Advisor (including its directors,
officers, shareholders, employees, control persons and affiliates of any
thereof) shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Advisor in the performance of its duties
or from the reckless disregard by the Advisor of its obligations and duties
under this Agreement ("disabling conduct"). However, the Advisor will not be
indemnified for any liability unless (1) a final decision is made on the merits
by a court or other body before whom the proceeding was brought that the Advisor
was not liable by reason of disabling conduct, or (2) in the absence of such a
decision, a reasonable determination is made, based upon a review of the facts,
that the Advisor was not liable by reason of disabling conduct, by (a) the vote
of a majority of a quorum of trustees who are neither "interested persons" of
the Trust as defined in the Act nor parties to the proceeding ("disinterested,
non-party trustees"), or (b) an independent legal counsel in a written opinion.
<PAGE>
The Fund will advance attorneys' fees or other expenses incurred by the Advisor
in defending a proceeding, upon the undertaking by or on behalf of the Advisor
to repay the advance unless it is ultimately determined that the Advisor is
entitled to indemnification, so long as the Advisor meets at least one of the
following as a condition to the advance: (1) the Advisor shall provide a
security for its undertaking, (2) the Fund shall be insured against losses
arising by reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party trustees of the Trust, or an independent legal counsel
in a written opinion, shall determine, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason to believe
that the Advisor ultimately will be found entitled to indemnification. Any
person employed by the Advisor who may also be or become an employee of the
Trust shall be deemed, when acting within the scope of his employment by the
Trust, to be acting in such employment solely for the Trust and not as the
Advisor's employee or agent.
13. CONFIDENTIALITY. Subject to the duty of the Advisor and the Trust
to comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Fund and the actions of the Advisor and the
Trust in respect thereof.
14. ASSIGNMENT. No assignment of this Agreement shall be made by the
Advisor, and this Agreement shall terminate automatically in the event of such
assignment. The Advisor shall notify the Trust in writing sufficiently in
advance of any proposed change of control, as defined in Section 2(a)(9) of the
Act, as will enable the Trust to consider whether an assignment will occur, and
to take the steps necessary to enter into a new contract with the Advisor.
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE TRUST. The
Trust represents, warrants and agrees that:
<PAGE>
A. The Advisor has been duly appointed by the Board of Trustees
of the Trust to provide investment services to the Fund as contemplated hereby.
B. The Trust will deliver to the Advisor a true and complete
copy of its then current prospectus and statement of additional information as
effective from time to time and such other documents or instruments governing
the investments of the Fund and such other information as is necessary for the
Advisor to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all times
comply with the requirements imposed upon the Fund by applicable laws and
regulations.
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ADVISOR. The
Advisor represents, warrants and agrees that:
A. The Advisor is registered as an "investment advisor" under
the Investment Advisors Act of 1940.
B. The Advisor will maintain, keep current and preserve on
behalf of the Fund, in the manner and for the time periods required or
permitted by the Act, the records identified in Schedule A. The Advisor agrees
that such records (unless otherwise indicated on Schedule A) are the property
of the Trust, and will be surrendered to the Trust promptly upon request.
C. The Advisor will complete such reports concerning purchases
or sales of securities on behalf of the Fund as the Manager or the Trust may
from time to time require to ensure compliance with the Act, the Internal
Revenue Code and applicable state securities laws.
D. The Advisor will adopt a written code of ethics complying
with the requirements of Rule 17j-1 under the Act and will provide the Trust
with a copy of the code of ethics and evidence of its adoption. Within
forty-five (45) days of the end of the last calendar quarter of each year while
this Agreement is in effect, the president or a vice president of the Advisor
shall certify to the Trust that the Advisor has complied with the requirements
of Rule 17j-1 during the previous year and that there have been no violations of
the Advisor's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the written
request of the Trust, the Advisor shall submit to the Trust the reports required
to be made to the Advisor by Rule 17j-1(c)(1).
<PAGE>
E. The Advisor will promptly after filing with the Securities
and Exchange Commission an amendment to its Form ADV furnish a copy of such
amendment to the Trust and to the Manager.
F. Upon request of the Trust, the Advisor will provide
assistance to the Custodian in the collection of income due or payable to the
Fund. With respect to income from foreign sources, the Advisor will undertake
any reasonable procedural steps required to reduce, eliminate or reclaim
non-U.S. withholding taxes under the terms of applicable United States income
tax treaties.
G. The Advisor will immediately notify the Trust and the
Manager of the occurrence of any event which would disqualify the Advisor from
serving as an investment advisor of an investment company pursuant to Section
9(a) of the Act or otherwise.
17. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement between the Advisor and the Trust, which amendment, other than
amendments to Schedule A, is subject to the approval of the Board of Trustees
and the shareholders of the Fund in the manner required by the Act and the rules
thereunder, subject to any applicable exemptive order of the Securities and
Exchange Commission modifying the provisions of the Act with respect to approval
of amendments to this Agreement.
<PAGE>
18. EFFECTIVE DATE; TERM. This Agreement shall become effective on the
date of its execution and shall remain in force until _________, 2001 and from
year to year thereafter but only so long as such continuance is specifically
approved at least annually by the vote of a majority of the Trustees who are not
interested persons of the Trust, the Manager or the Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and by a vote of the
Board of Trustees or of a majority of the outstanding voting securities of the
Fund. The aforesaid requirement that this Agreement may be continued "annually"
shall be construed in a manner consistent with the Act and the rules and
regulations thereunder.
19. TERMINATION. This Agreement may be terminated by either party
hereto, without the payment of any penalty, immediately upon written notice to
the other in the event of a breach of any provision thereof by the party so
notified, or otherwise upon sixty (60) days' written notice to the other, but
any such termination shall not affect the status, obligations or liabilities of
any party hereto to the other.
20. SHAREHOLDER LIABILITY. The Advisor is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Trust and agrees that obligations assumed by the
Trust pursuant to this Agreement shall be limited in all cases to the Fund and
its assets. The Advisor agrees that it shall not seek satisfaction of any such
obligations from the shareholders or any individual shareholder of the Fund, nor
from the Trustees or any individual Trustee of the Trust.
21. DEFINITIONS. As used in paragraphs 14 and 18 of this Agreement, the
terms "assignment," interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
<PAGE>
22. APPLICABLE LAW. To the extent that state law is not preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
TOUCHSTONE ADVISORS, INC. TOUCHSTONE STRATEGIC TRUST
By:_______________________________ By:__________________________
Title: President Title: President
Date: __________, 2000 Date: _____________, 2000
ACCEPTANCE
The foregoing Agreement is hereby accepted.
MASTRAPASQUA & ASSOCIATES, INC.
By:______________________________
Title:
Date: _______________, 2000
<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE ADVISOR
----------------------------------------
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases and sales, given by the Advisor on behalf of
the Fund for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modification
or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the
Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected,
and the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or dealers.
(ii) The supplying of services or benefits by brokers or
dealers to:
(a) The Trust;
(b) the Manager;
(c) the Advisor;
(d) any other portfolio advisor of the Trust; and
(e) any person affiliated with the foregoing persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as such.
<PAGE>
B. Shall show the nature of the services or benefits made
available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is
made by a committee or group, a record shall be kept of the names of
its members who participate in the authorization. There shall be
retained as part of this record: any memorandum, recommendation or
instruction supporting or authorizing the purchase or sale of portfolio
securities and such other information as is appropriate to support the
authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are
required to be maintained by registered investment advisors
by rules adopted under Section 204 of the Investment Advisors Act of
1940, to the extent such records are necessary or appropriate to record
the Advisor's transactions with respect to the Fund.
- - -----------------
*Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal reports
or portfolio advisor reviews.
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" and "Annual Report" in the
Statement of Additional Information, both included in Post-Effective
Amendment No 41 to the Registration Statement (Form N-1A, No.2-80859) of
Touchstone Strategic Trust and to the use of our report on Touchstone Series
Trust dated February 16, 2000, incorporated therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Cincinnati, Ohio
April 27, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated April 30, 1999 and to all references to our Firm included in or made a
part of this Post-Effective Amendment No. 41
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
April 28, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Post-Effective Amendment No. 41 to the
registration statement on Form N-1A ("Registration Statement") of our report
dated February 18, 1999, relating to the financial statements and financial
highlights of the Touchstone Emerging Growth Fund A, Touchstone International
Equity Fund A and Touchstone Value Plus Fund A, each a series of the Touchstone
Select Advisors Trust A, currently known as the Touchstone Series Trust, which
appear in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Pricewaterhouse Coopers LLP
Boston, Massachusetts
April 27, 2000
CODE OF ETHICS
Touchstone Securities, Inc.
Touchstone Securities, Inc. ("Underwriter") has determined to adopt this
Code of Ethics (the "Code") as of October 3, 1994 to specify and prohibit
certain types of personal securities transactions deemed to create a conflict of
interest and to establish reporting requirements and preventive procedures
pursuant to the provisions of Rule 17j-1(b)(1) under the Investment Company Act
of 1940 (the "1940 Act").
I. RULES APPLICABLE TO ACCESS PERSONS OF THE UNDERWRITER
A. Definitions
-----------
1 An "Access Person" means any director or officer of the Underwriter
who in the ordinary course of his or her business makes, participates in or
obtains information regarding the purchase or sale of securities by an
Investment Company or whose functions or duties as part of the ordinary course
of his or her business relate to the making of any recommendations with respect
to such purchases or sales.
2 "Beneficiary Ownership" shall be interpreted subject to the
provisions of Rule 16a-l(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
3 "Control" shall have the same meanina as set forth in Section
2(a)(19) of the 1940 Act.
4 "Investment Company" means a company registered as such under the
1940 Act and for which the Underwriter is the principal underwriter.
5 "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security or the purchase or sale of a
future or index on a security or option thereon.
6 "Security" shall have the meaning as set forth in Section 2(a)(36)
of the 1940 Act (in effect, all securities), except that it shall not include
securities issued by the U.S. Government (or any other "government security" as
that term is defined in the 1940 Act), bankers' acceptances, bank certificates
of deposit, commercial paper, such other money market instruments as may be
designated by the Underwriter, and shares of registered open-end investment
companies.
7 A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
<PAGE>
B. Avoiding Conflicts of Interest
------------------------------
NO ACCESS PERSON SHALL ENTER INTO OR ENGAGE IN A SECURITY TRANSACTION
OR BUSINESS ACTIVITY OR RELATIONSHIP WHICH MAY RESULT IN ANY FINANCIAL OR OTHER
CONFLICT OF INTEREST BETWEEN SUCH PERSON AND AN INVESTMENT COMPANY AND EACH SUCH
PERSON SHALL AT ALL TIMES AND IN ALL MATTERS ENDEAVOR TO PLACE THE INTERESTS OF
THE INVESTMENT COMPANY BEFORE HIS OR HER PERSONAL INTERESTS.
C. Prohibited Purchases and Sales
------------------------------
NO ACCESS PERSON SHALL PURCHASE OR SELL, DIRECTLY OR INDIRECTLY, ANY
SECURITY IN WHICH HE OR SHE HAS, OR BY REASON OF SUCH TRANSACTION ACQUIRES, ANY
DIRECT OR INDIRECT BENEFICIAL OWNERSHIP AND WHICH HE OR SHE KNOWS OR SHOULD HAVE
KNOWN AT THE TIME OF SUCH PURCHASE OR SALE:
1 IS BEING CONSIDERED FOR PURCHASE OR SALE BY AN INVESTMENT COMPANY;
OR
2 IS BEING PURCHASED OR SOLD BY AN INVESTMENT COMPANY.
D. Exempted Transactions-
----------------------
The prohibition of Section I-C above shall not apply to:
1 purchases or sales effected in any account over which such person
has no direct or indirect influence or control;
2 purchases or sales which are nonvolitional on the part of the person
or the Investment Company;
3 purchases which are part of an automatic dividend reinvestment plan;
4 purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales or such rights so acquired; and
5 purchases and sales which receive prior approval in writing by any
designated review officer or the Treasurer, Secretary, Assistant Treasurer or
Assistant Secretary of the Underwriter (the "Review Officer") (a) as only
remotely potentially harmful to the Investment Company because they would be
very unlikely to affect a highly institutional market or because they clearly
are not economically related to the securities to be purchased or sold or held
by the Investment Company or (b) as not representing any danger of the abuses
prescribed by Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is aware which
are potentially relevant to a conflict of
-2-
<PAGE>
interest analysis, including the existence of any substantial economic
relationship between his or her transaction and securities held or to be held by
the Investment Company.
II. REPORTING
A. Coverage: Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information required in Section
II-B of this Code with respect to all transactions during the preceding quarter
in any securities in which such person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership, provided that no Access
Person shall be required to report transactions effected for any account over
which such Access Person has no direct or indirect influence or control (except
that such an Access Person must file a written certification stating that he or
she has no direct or indirect influence or control over the account in
question).
B. Filings: Every report shall be made no later than 10 days after the end
of the calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
1 the date of the transaction, the title and the number of shares and
the principal amount of each security involved;
2 the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
3 the price at which the transaction was effected; and
4 the name of the broker, dealer or bank with or through whom the
transaction was effected.
C. Any report may contain a statement that it shall not be construed as an
admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
III. REVIEW
In reviewing transactions, the Review Officer shall take into account the
exemptions allowed under Section I-D. Before making a determination that a
violation has been committed by a director, the Review Officer shall give such
person an opportunity to supply additional information regarding the transaction
in question.
IV. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, the Underwriter may impose such sanctions as it deems appropriate,
including, inter alia, a letter of censure or suspension or termination of the
employment of the violator. All material violations of the Code and any
sanctions imposed as a result thereto shall be reported periodically to the
board of directors of the Investment Company with respect to whose securities
the violation occurred.
-3-
<PAGE>
V. MISCELLANEOUS
A. Access Persons
--------------
The Secretary or Assistant Secretary of the Underwriter will identify
all Access Persons who are under a duty to make reports to the Underwriter and
will inform such persons of such duty. Any failure by the Secretary or Assistant
Secretary to notify any person of his or her duties under this Code shall not
relieve such person of his or her obligations hereunder.
B. Records
-------
The Underwriter shall maintain records in the manner and to the extent
set forth below, which records may be maintained on microfilm under the
conditions described in Rule 3la-2(f) under the 1940 Act, and shall be available
for examination by representatives of the Securities and Exchange Commission
("SEC"):
1 a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in an easily
accessible place;
2 a record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible place for a
period of not less than five years following the end of the fiscal year in which
the violation occurs;
3 a copy of each report made pursuant to this Code shall be preserved
for a period of not less than five years from the end of the fiscal year in
which it is made, the first two years in an easily accessible place; and
4 a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
---------------
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential.
D. Interpretation of Provisions
----------------------------
The Board of Directors of the Underwriter may from time to time adopt
such interpretations of this Code as it deems appropriate.
-4-
CODE OF ETHICS
Touchstone Advisors, Inc.
Touchstone Advisors, Inc. ("Adviser") has determined to adopt this Code of
Ethics (the "Code") as of October 3, 1994 to specify and prohibit certain types
of personal securities transactions deemed to create a conflict of interest and
to establish reporting requirements and preventive procedures pursuant to the
provisions of Rule 17j-l(b)(1) under the Investment Company Act of 1940 (the
"1940 Act").
I. RULES APPLICABLE TO ACCESS PERSONS OF THE ADVISER
A. Definitions
-----------
1 An "Access Person" means any director, officer or advisory person
(as defined below) of the Adviser.
2 An "Advisory Person" means any employee of the Adviser (or of any
company in a control relationship to the Adviser) who, in connection with his or
her regular functions or duties, makes, participates in or obtains information
regarding the purchase or sale of securities by an Investment Company or whose
functions relate to any recommendations with respect to such purchases or sales
and any natural person in a control relationship with the Adviser who obtains
information regarding the purchase or sale of securities.
3 "Beneficiary Ownership" shall be interpreted subject to the
provisions of Rule 16a-l(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
4 "Control" shall have the same meaning as set forth in Section
2(a)(19) of the 1940 Act.
5 "Investment Company" means a company registered as such under the
1940 Act and for which the Adviser is the investment adviser.
6 "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security or the purchase or sale of a
future or index on a security or option thereon.
7 "Security" shall have the meaning as set forth in Section 2(a)(36)
of the 1940 Act (in effect, all securities), except that it shall not include
securities issued by the U.S. Government (or any other "government security" as
that term is defined in the 1940 Act), bankers' acceptances, bank certificates
of deposit, commercial paper, such other money market instruments as may be
designated by the Adviser, and shares of registered open-end investment
companies.
8 A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
<PAGE>
B. Avoiding Conflicts of Interest
------------------------------
NO ACCESS PERSON SHALL ENTER INTO OR ENGAGE IN A SECURITY TRANSACTION
OR BUSINESS ACTIVITY OR RELATIONSHIP WHICH, MAY RESULT IN ANY FINANCIAL OR OTHER
CONFLICT OF INTEREST BETWEEN SUCH PERSON AND AN INVESTMENT COMPANY AND EACH SUCH
PERSON SHALL AT ALL TIMES AND IN ALL MATTERS ENDEAVOR TO PLACE THE INTERESTS OF
THE INVESTMENT COMPANY BEFORE HIS OR HER PERSONAL INTERESTS.
C. Prohibited Purchases and Sales
------------------------------
NO ACCESS PERSON SHALL PURCHASE OR SELL, DIRECTLY OR INDIRECTLY, ANY
SECURITY IN WHICH HE OR SHE HAS, OR BY REASON OF SUCH TRANSACTION ACQUIRES, ANY
DIRECT OR INDIRECT BENEFICIAL OWNERSHIP AND WHICH HE OR SHE KNOWS OR SHOULD HAVE
KNOWN AT THE TIME OF SUCH PURCHASE OR SALE:
1 IS BEING CONSIDERED FOR PURCHASE OR SALE BY AN INVESTMENT COMPANY;
OR
2 IS BEING PURCHASED OR SOLD BY AN INVESTMENT COMPANY.
D. Exempted Transactions
---------------------
The prohibition of Section I-C above shall not apply to:
1 purchases or sales effected in any account over which such person
has no direct or indirect influence or control;
2 purchases or sales which are nonvolitional on the part of the person
or the Investment Company;
3 purchases which are part of an automatic dividend reinvestment plan;
4 purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales or such rights so acquired; and
5 purchases and sales which receive prior approval in writing by any
designated review officer or the Treasurer, Secretary, Assistant Treasurer or
Assistant Secretary of the Adviser (the "Review Officer") (a) as only remotely
potentially harmful to the Investment Company because they would be very
unlikely to affect a highly institutional market or because they clearly are not
economically related to the securities to be purchased or sold or held by the
Investment Company or (b) as not representing any danger of the abuses
prescribed by Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is aware which
are potentially relevant to a conflict of interest
-2-
<PAGE>
analysis, including the existence of any substantial economic relationship
between his or her transaction and securities held or to be held by the
Investment Company.
II. REPORTING
A. Coverage: Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information required in Section
II-A (2) of this Code with respect to all transactions during the preceding
quarter in any securities in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership, provided that
(i) no Access Person shall be required to report transactions effected for any
account over which such Access Person has no direct or indirect influence or
control (except that such an Access Person must file a written certification
stating that he or she has no direct or indirect influence or control over the
account in question and (H) an Access Person need not make a report where the
report would duplicate information recorded pursuant to Rules 2042(a)(12) or
204-2(a)(13) of the Investment Advisers Act of 1940.
B. Filings: Every report shall be made no later than 10 days after the end
of the calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
1 the date of the transaction, the title and the number of shares and
the principal amount of each security involved;
2 the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
3 the price at which the transaction was effected; and
4 the name of the broker, dealer or bank with or through whom the
transaction was effected.
C. Any report may contain a statement that it shall not be construed as an
admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
III. REVIEW
In reviewing transactions, the Review Officer shall take into account the
exemptions allowed under Section I-D. Before making a determination that a
violation has been committed by a director, the Review Officer shall give such
person an opportunity to supply additional information regarding the transaction
in question.
IV. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, the Adviser may impose such sanctions as it deems appropriate,
including, inter alia, a letter of censure or suspension or termination of the
employment of the violator. All material violations of the Code
-3-
<PAGE>
and any sanctions imposed as a result thereto shall be reported periodically to
the board of directors of the Investment Company with respect to whose
securities the violation occurred.
V. MISCELLANEOUS
A. Access Persons
--------------
The Secretary or Assistant Secretary of the Adviser will identify all
Access Persons who are under a duty to make reports to the Adviser and will
inform such persons of such duty. Any failure by the Secretary or Assistant
Secretary to notify any person of his or her duties under this Code shall not
relieve such person of his or her obligations hereunder.
B. Records
-------
The Adviser shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 3la-2(f) under the 1940 Act, and shall be available for
examination by representatives of the Securities and Exchange Commission
("SEC"):
1 a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in an easily
accessible place;
2 a record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible place for a
period of not less than five years following the end of the fiscal year in which
the violation occurs;
3 a copy of each report made pursuant to this Code shall be preserved
for a period of not less than five years from the end of the fiscal year in
which it is made, the first two years in an easily accessible place; and
4 a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
---------------
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential.
D. Interpretation of Provision
---------------------------
The Board of Directors of the Adviser may from time to time adopt such
interpretations of this Code as it deems appropriate.
-4-
CODE OF ETHICS
FORT WASHINGTON INVESTMENT ADVISORS, INC.
Fort Washington Investment Advisors, Inc. ("Fort Washington" or the
"Advisor") has adopted this Code of Ethics (the "Code") effective as of March
29, 1995, to specify and prohibit certain types of personal securities
transactions deemed to create a conflict of interest and to establish reporting
requirements and preventive procedures pursuant to the provisions of Rule
17j-1(b)(1) under the Investment Company Act of 1940 (the "1940 Act").
I. GENERAL STANDARDS OF ETHICAL CONDUCT
Directors, officers and other access persons (as hereinafter defined) shall
have the duty at all times to place the interests of the investment companies
and other clients for which Fort Washington acts as investment manager or
advisor ahead of their own interests. All personal securities transactions of
such individuals and certain other types of actions shall be conducted
consistently with this Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of such individual's position of
trust and responsibility to the Advisor and its clients. All activities of
personnel associated with the Advisor shall be conducted in accordance with the
fundamental standard that they shall not take any inappropriate advantage of
their positions with the Advisor.
II. RULES APPLICABLE TO DIRECTORS, OFFICERS AND OTHER ACCESS PERSONS OF THE
ADVISOR
A. Definitions
-----------
1. "Access Person" means any owner, director, officer, principal or
Advisory Person (as defined below) of the Advisor.
2. "Advisory Person" means any employee of the Advisor (or of any
entity in a control relationship to the Advisor) who, in connection with
his or her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of securities by a Client or
whose functions relate to any recommendations with respect to such
purchases or sales, and any natural person in a control relationship with
the Advisor who obtains information regarding the purchase or sale of
securities.
3. "Beneficial Ownership" shall be interpreted in accordance with the
provisions of Rule 16a-1(a) (exclusive of Section (a) (1) of such Rule)
promulgated under the Securities Exchange Act of 1934.
4. "Client" means any person or entity, including an investment
company, for which Fort Washington serves as investment manager or advisor.
<PAGE>
5. "Control" shall have the same meaning as set forth in Section
2(a)(9) of the 1940 Act.
6. "Portfolio Manager" means an Advisory Person who has or shares
principal responsibility for managing the portfolio of any Client.
7. "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security or the purchase or sale
of a future or index on a security or option thereon.
8. "Review Officer" means any designated review officer of the Advisor
or, in the absence of any such designation, the Secretary of the Advisor.
9. "Security" shall have the meaning set forth in Section 2(a)(36) of
the 1940 Act (in effect, all securities); provided, however, that except as
used in Section III hereof (under which transactions in all securities
shall be reported), the term shall not include securities issued by the
U.S. Government (or any other "government security" as that term is defined
in the 1940 Act), bankers' acceptances, bank certificates of deposit,
commercial paper, such other money market instruments as may be designated
by the Review Officer, and shares of registered open-end investment
companies ("Exempt Securities").
10. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and
communicated and, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
B. Prohibited Purchases and Sales
------------------------------
1. No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership on a day during which
the Advisor, on behalf of any Client, has a pending "buy" or "sell" order
in that same security (until the order is executed or withdrawn), if such
person knows or should have known of such pending order at the time of such
person's purchase or sale.
2. No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which he or she
knows or should have known, at the time of such purchase or sale, is being
considered for purchase or sale for any Client.
3. No Advisory Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership within seven calendar
days before or after the execution of a trade in the same securities by the
Advisor on behalf of any Client for which such person acts as Portfolio
Manager.
2
<PAGE>
4. No Advisory Person may profit from the purchase and sale, or sale
and purchase, of the same or equivalent securities within sixty calendar
days ("short-term trade"). This restriction does not apply to short-term
trades:
a) involving Exempt Securities,
b) for which express prior approval has been received from the
Review Officer,
c) involving DE MINIMIS shares (which in any event shall mean
shares having a value of $5,000 or less at the time of both
their purchase and their sale),
d) involving any account over which the Advisory Person has no
direct or indirect influence or control,
e) that are nonvolitional on the part of the Advisory Person,
or
f) that result from an automatic dividend reinvestment plan or
an automatic withdrawal plan.
If any Advisory Person engages in any trading in violation of this
subsection 4, any profits realized on such trades is required to be
disgorged to a charitable organization selected by the Board of Directors
of the Company.
5. No Advisory Person may acquire any securities in an initial public
offering without express prior approval from the Review Officer.
6. No Advisory Person may acquire any security of any issuer in a
private placement without express prior approval from the Review Officer.
Such individual must disclose his or her investment in such security if he
or she takes part in any subsequent decision to invest in any security of
that issuer.
C. Exempted Transactions
---------------------
The prohibitions of Section II.B.1., 2. and 3 above and of Section II
F shall not apply to:
1. purchases or sales effected in any account over which the person
has no direct or indirect influence or control;
2. purchases or sales which are nonvolitional on the part of the
person;
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3. purchases which are part of an automatic dividend reinvestment plan
or an automatic withdrawal plan;
4. purchases effected upon the exercise of rights issued by an issuer
PRO RATA to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired; and
5. purchases and sales which receive prior approval in writing by the
Review Officer (a) as only remotely potentially harmful to any Client
because they would be very unlikely to affect a highly institutional market
or because they clearly are not economically related to the securities to
be purchased or sold or held by the Advisor for any Client or (b) as not
representing any danger of the abuses proscribed by Rule 17j-1, but only if
in each case the prospective purchaser has identified to the Review Officer
all factors of which he or she is aware which are potentially relevant to a
conflict of interest analysis, including the existence of any substantial
economic relationship between his or her transaction and securities held or
to be held by any Client.
D. Restrictions on Serving on Boards of Directors
----------------------------------------------
No Advisory Person may serve on the board of directors of a
publicly-traded company without prior approval from the Review Officer.
E. Restrictions Involving Gifts
----------------------------
No Advisory Person shall accept in any calendar year gifts with a
value of more than $100 from any person that does business with the
Advisor, directly or on behalf of any Client; PROVIDED, HOWEVER, that this
prohibition shall not apply to the following:
(i) an occasional breakfast, luncheon, dinner or reception, ticket to
a sporting event or the theater, or comparable entertainment that is
not so frequent, so costly nor so extensive as to raise any question
of impropriety;
(ii) a breakfast, luncheon, dinner, reception or cocktail party in
conjunction with a bona fide business meeting; and
(iii) a gift approved in writing by the Review Officer as not being of
such character or value as would raise any question of impropriety.
F. Preclearance of Securities Transactions
---------------------------------------
Each Access Person who is required to file reports with the Review
Officer pursuant to Section III hereof must obtain approval from the Review
Officer prior to purchasing or selling any securities in a Pre-Clearance
Transaction. "Pre-Clearance Transaction" means any of the following: (i) a
transaction in a given security which, when combined with all previous
transactions by the Access Person in such security during the
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preceding three months, would represent a total transaction value exceeding
$15,000, (ii) a transaction in a security that is neither listed on a
national securities exchange nor acquired by such Access Person in an
offering made pursuant to a then-effective registration statement under the
Securities Act of 1933, or (iii) any transaction in the security of a
company whose total market capitalization is less than $200 million. Any
approval given by the Review Officer shall be valid for a period of five
trading days.
III. REPORTING
A. Requirements for all Directors, Officers and Other Access Persons
-----------------------------------------------------------------
1. Coverage: Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information required in
Section III.A.2. of this Code with respect to all transactions during the
preceding quarter in any securities in which such person has, or by reason
of such transaction acquires, any direct or indirect beneficial ownership,
PROVIDED that no Access Persons shall be required to report transactions
effected for any account over which such Access Person has no direct or
indirect influence or control (except that such an Access Person must file
a written certification stating that he or she has no direct or indirect
influence or control over the account in question). All Access Persons
shall file reports; if no transactions have been effected by an Access
Person during the relevant period, that person shall represent in the
report that no transactions subject to reporting requirements were
effected.
2. Filings: Every report shall be made no later than 10 days after the
end of the calendar quarter in which the transaction to which the report
relates was effected, and shall contain the following information:
a) the date of the transaction, the title and the number of
shares and the principal amount of each security involved;
b) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c) the price at which the transaction was effected; and
d) the name of the broker, dealer or bank with or through whom
the transaction was effected;
and a certification by such Access Person that he or she has complied,
during such calendar quarter, with the requirements of Sections II B, II D,
II E, and II F of this Code.
3. Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she has any
direct or indirect beneficial ownership in the security to which the report
relates.
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4. Each Advisory Person shall file with the Review Officer a
confidential annual report containing information as of the end of the
fiscal year identifying the title, the number of shares and the principal
amount of each security held. Such report shall be filed no later than 30
days after the end of the fiscal year to which the report relates. A report
containing similar information must be furnished by each Advisory Person
upon the commencement of employment.
5. Each Access Person must arrange for duplicate copies of trade
confirmations and periodic statements of his or her brokerage accounts to
be sent to the Review Officer.
B. Certification
-------------
All Access Persons shall certify annually that they have read and
understand the Code and recognize that they are subject to its
requirements. All Access Persons further are required to certify that they
have complied with the requirements of the Code and that they have
disclosed or reported all personal securities transactions that are
required to be disclosed or reported pursuant to the requirements of the
Code. Such certification shall be furnished to the Review Officer no later
than 30 days after the end of the fiscal year.
IV. REVIEW
In reviewing transactions, the Review Officer shall take into account the
exemptions allowed under Section II.C. Before making a determination that a
violation has been committed, the Review Officer shall give such person an
opportunity to supply additional information regarding the transaction in
question.
V. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Directors, which may impose
such sanctions as it deems appropriate, including, INTER ALIA, disgorgement of
any profits realized by the violator as a result of the violation, or a letter
of censure or suspension, or a termination of the employment of the violator.
VI. MISCELLANEOUS
A. Access Persons
--------------
The Review Officer will identify all Access Persons who are under a
duty to make reports to the Advisor and will inform such persons of such
duty. Any failure by the Review Officer to notify any person of his or her
duties under this Code shall not relieve such person of his or her
obligations hereunder.
B. Records
-------
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The Advisor shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f) under the 1940 Act, and shall be
available for examination by representatives of the Securities and Exchange
Commission ("SEC"):
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in an
easily accessible place;
2. a record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible place
for a period of not less than five years following the end of the fiscal
year in which the violation occurs;
3. a copy of each report made pursuant to this Code shall be preserved
for a period of not less than five years from the end of the fiscal year in
which it is made, the first two years in an easily accessible place; and
4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
---------------
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential.
D. Interpretation of Provisions
----------------------------
The Board of Directors of the Advisor may from time to time adopt such
interpretations of this Code as it deems appropriate.
7
INSIDE INFORMATION STATEMENT
AND
CODE OF ETHICS RELATING TO PERSONAL SECURITIES TRANSACTIONS
PART ONE - INTRODUCTION
This Inside Information Statement and Code of Ethics Relating to Personal
Securities Transactions (the "Code") establishes policies and procedures that
are reasonably necessary to detect and prevent insider trading and activities
that are, or might be, an abuse of fiduciary duties or create conflicts of
interest. Any person having questions as to the meaning or applicability of
these policies and procedures should contact the designated Compliance Director.
This Code of Ethics applies to:
1. all employees, officers, directors, general partners and trustees
("Associates") of (a) David L. Babson and Company Incorporated, Babson
Securities Corporation and any additional subsidiaries which may be
subsequently organized and that adopt this Code (collectively, "DLB"); and
(b) The DLB Fund Group.
2. all employees, officers, directors, and general partners of any DLB
affiliate (together with Associates, "DLB Associates") to the extent that
such individuals participate in the selection of, regularly obtain or have
ready access to information regarding, the Securities being purchased, sold
or considered for purchase or sale by DLB or by DLB investment clients,
including, without limitation, the DLB Fund Group ("Advisory Clients").
This Code of Ethics shall not apply to the extent that any such affiliate
has adopted policies that are substantially similar to this Code of Ethics,
as determined by the Compliance Director .
DLB expects all of those associated with it to conduct business in accordance
with the highest ethical standards and in full accordance with the letter and
spirit of all applicable laws and regulations.
Capitalized terms used in this Code that are not otherwise defined have the
meanings contained in PART FIVE, ARTICLE V: DEFINITIONS.
- - ----------------------------
1 As of this printing, no subsidiaries have been determined to be exempt from
maintaining this or a substantially similar Code.
Effective January 1, 2000 Page 1
<PAGE>
PART TWO - INSIDE INFORMATION STATEMENT
ARTICLE I: GENERAL POLICIES ON THE USE OF INSIDE INFORMATION
From time-to-time DLB Associates may, either on or off the job, come into
possession of Inside Information. It is important for all DLB Associates to
understand that anytime they come into possession of Inside Information, that
same information may become attributable to DLB as a whole. The mere possession
of Inside Information is not illegal, unethical or against DLB policy; however,
misuse of it is against the law and this Code. The following procedures and
guidelines apply to all DLB Associates.
A. NO TRADING
Except as (1) permitted below, or (2) with prior written approval from the
Compliance Director, no DLB Associate, may directly or indirectly trade
Securities either for his or her personal account or for DLB and/or
Advisory Client accounts while:
o they are in possession of Inside Information regarding the issuer
of such Securities; or
o the issuer of such Securities appears on the Restricted List.
Notwithstanding the above, a DLB Associate, on behalf of DLB and/or its
Advisory Clients, may purchase private placement Securities of an issuer
even if the issuer has provided DLB and/or its Advisory Clients with Inside
Information as part of DLB and/or its Advisory Client's consideration as to
whether it will invest in such Securities.
B. NO COMMUNICATION OF INSIDE INFORMATION
No DLB Associate may communicate Inside Information or the content of the
Restricted List to others who do not have a clear need to know. Any DLB
Associate having Inside Information as the result of a fiduciary
relationship they might have by reason of a position as an officer or
director of another corporation or entity, should not disclose such
information to anyone, including the Compliance Director.
Effective January 1, 2000 Page 2
<PAGE>
ARTICLE II: GUIDELINES FOR IDENTIFYING INSIDE INFORMATION
The following guidelines have been established to assist DLB Associates in
avoiding illegal Insider Trading and to aid DLB in preventing, detecting and
imposing sanctions against Insider Trading.
A. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or for others (including DLB and its Advisory
Clients) in the Securities of a company about which you may have Inside
Information, you should ask yourself the following questions:
1. IS THE INFORMATION MATERIAL INFORMATION? "Material Information" in
this context means information for which there is a substantial
likelihood that a reasonable investor would consider it important in
making an investment decision, or information that is reasonably
certain to have a significant effect on the price of a company's
Securities. Information that officers, directors and employees should
consider material includes, but is not limited to: dividend changes,
earnings estimates, changes in previously released earnings estimates,
merger, acquisition or divestiture proposals or agreements, major
litigation, liquidity problems, significant management developments,
expansion or curtailment of operations, significant increases or
decreases in purchase orders, new products or discoveries,
extraordinary borrowing, purchase or sale of substantial assets,
fraud, accounting errors and irregularities, and capital restructuring
(including issue of rights, warrants or convertible Securities).
Material Information about a company does not have to originate from
such company. For example, information about the contents of a
forthcoming newspaper column or "leaks" from an insider of the issuer
that may be expected to affect the market price of a Security can be
considered material information.
2. IS THE INFORMATION NON-PUBLIC INFORMATION? Non-Public Information in
this context means information that has not been effectively
communicated to the market place. In order for information to be
considered "public", one must be able to point to some fact to show
that the information is generally available to the public and the
Securities markets have had a reasonable time to respond. For example,
the following information would be considered public information: (a)
information found in a public filing with the SEC or a stock exchange;
(b) information disseminated by the issuer or Securities analysts to
the investment community through written reports or public meetings;
or (c) information appearing in BLOOMBERG, DOW JONES NEWS SERVICE,
REUTERS ECONOMIC SERVICES, THE WALL STREET JOURNAL or other
publications of general circulation.
Effective January 1, 2000 Page 3
<PAGE>
Information has not been effectively communicated to the public if
there has been: (a) selective disclosure to DLB or other institutional
investors or to select groups of analysts or brokers; (b) partial
disclosure as long as a material component of the Inside Information
remains undisclosed; or (c) insufficient time for the relevant
Securities market(s) to trade on the information.
B. ACTION TO TAKE
No simple tests exist to determine if information is Material Information
or Non-Public Information. If after consideration of the above, you believe
that there is any possibility that the information is Material Information
and Non-Public Information or if you have any questions whatsoever as to
whether the information is Inside Information:
1. Report the matter immediately to the Compliance Director;
2. Do not purchase or sell the Securities on behalf of yourself or
others, including Advisory Clients;
3. Do not communicate the information inside or outside DLB, other than
to the Compliance Director or legal counsel;
4. After the Compliance Director has reviewed the issue, you will be
instructed to continue the prohibitions against trading and
communication, or you will be allowed to trade and communicate the
information; and
5. Keep such information secure. For example, files containing Inside
Information should be locked in filing cabinets or desks and access to
computer files containing Inside Information should be restricted.
C. RESPONSIBILITY TO UPDATE RESTRICTED LIST
Each analyst, trader or portfolio manager is individually responsible for
ensuring that all issuers, (1) about or whom they have Inside Information or (2)
that are Being Considered For Purchase or Sale, are reflected on the Restricted
List. A publicly traded equity Security is deemed to be under Consideration for
Purchase or Sale when a recommendation has been conveyed by an analyst to a
portfolio manager and should be placed on the Restricted List at that time. The
restriction will remain in place for the lesser of 48 hours or until a trade in
the Security is executed or canceled.
Effective January 1, 2000 Page 4
<PAGE>
ARTICLE III: "FIREWALL" PROCEDURES
Certain members of the DLB Organization have established "Firewalls" between
their respective organizations. The Firewalls exist so that, to the extent
practicable, Inside Information that DLB Associates have will not be passed or
imputed from one member of the DLB Organization to another member without clear
need to know. The Firewalls also exist to ensure, to the extent practicable,
that the voting and investment powers over Securities held by a member of the
DLB Organization are exercised independently from the other members. Each member
of the DLB Organization may adopt additional or amend existing Firewalls. The
primary guidelines for such policies and procedures are as follows:
A. CONFIDENTIALITY
DLB Associates shall make every effort to maintain the confidentiality of
information entrusted to them.
B. MEETINGS
DLB Associates should avoid placing themselves in a position where they
might receive Inside Information from another DLB Associate or officer,
unless they have a legitimate need to know. When meetings occur with
associates representing different members of the DLB Organization to
discuss investment related matters or to make presentations to the same
client or prospective client, the respective individuals shall determine if
Inside Information is likely to be disclosed at the meeting. Where
appropriate they should take steps, in consultation with the Compliance
Director, to ensure that Inside Information does not "pass over" a
Firewall. This may require alteration of the presentation or separate
meetings or presentations. Additionally, someone familiar with compliance
and the federal securities laws, such as the Compliance Director or an
attorney familiar with the laws governing the use of Inside Information,
could attend these meetings to ensure that there are no inadvertent
violations of the securities laws.
C. DUAL FUNCTION EMPLOYEES, OFFICERS, AND DIRECTORS
The roles of individuals who perform dual functions for members of the DLB
Organization should be limited to the extent reasonably practicable to
reduce the likelihood of potential violations of Firewalls. Generally, DLB
Associates who serve as officers or directors of more than one member of
the DLB Organization should not be involved in the other member's
investment or proxy voting decision making process or otherwise be made
aware of currently existing, specific securities positions held by such
other member that are not publicly available.
Effective January 1, 2000 Page 5
<PAGE>
D. DUTY TO DISCLOSE BREACHES OF FIREWALL(S)
Any DLB Associate should inform the Compliance Director whenever they
become aware of a breach in said Firewalls(s) including any instance
whereby a DLB Associate becomes involved in the exercise of another
member's investment or voting decision making process (or otherwise was
made aware of specific securities positions held by such other member that
are not publicly available).
ARTICLE IV: CONFIDENTIALITY OF ADVISORY CLIENTS' TRANSACTIONS
Until disclosed in a public report to shareholders or public filing to the SEC,
all information concerning Securities Being Considered for Purchase or Sale by
or on behalf of DLB and/or any of its Advisory Clients shall be kept
confidential and disclosed by DLB Associates only on a need to know basis in
accordance with practices and policies developed and periodically reviewed for
their continuing appropriateness by the Compliance Director.
ARTICLE V: SUPERVISORY PROCEDURES AND PERSONAL LIABILITY
All supervisory personnel are responsible for the reasonable supervision of
their staff to prevent and detect violations of this Code. Failure to supervise
adequately can result in the supervisor being held personally liable for
violations of the securities laws and this Code. Supervisors shall ensure that
employees and/or consultants joining their departments are reported to the
Compliance Department.
Effective January 1, 2000 Page 6
<PAGE>
PART THREE - CODE OF ETHICS RELATING TO
PERSONAL SECURITIES TRANSACTIONS
ARTICLE I: GENERAL POLICIES
A. PERSONAL INVESTMENT ACTIVITIES
In addition to the previously discussed duty to avoid illegal Insider
Trading, the principles that govern personal investment activities for DLB
Associates, EXCEPT FOR DISINTERESTED TRUSTEES, include:
1. The duty at all times to place the interests of DLB and/or its
Advisory Clients first;
2. The requirement that all personal securities transactions be
consistent with this Code so as to avoid any actual or potential
conflict of interest or any abuse of an individual's position of trust
and responsibility; and
3. The fundamental standard that individuals should not take
inappropriate advantage of their positions.
The fiduciary principles that govern personal investment activities for
DISINTERESTED TRUSTEES include:
1. The duty at all times to place the interests of The DLB Fund Group
first;
2. The requirement that all personal securities transactions be
consistent with this Code of Ethics so as to avoid any actual or
potential conflict of interest or any abuse of an individual's
position of trust and responsibility; and
3. The fundamental standard that individuals should not take
inappropriate advantage of their positions.
B. GENERAL PROHIBITIONS
In connection with the purchase, sale or disposition of a Security Held Or
To Be Acquired By DLB and/or its Advisory Clients no person, and, in
connection with the purchase, sale or disposition of a Security Held Or To
Be Acquired By The DLB Fund Group, no Disinterested Trustee, may directly
or indirectly:
1. Use information concerning the investment intentions of or influence
the investment decision making process of DLB and/or its Advisory
Clients for personal gain or in a manner detrimental to the interests
of DLB and/or its Advisory Clients;
2. Employ any device, scheme or artifice to defraud DLB and/or its
Advisory Clients;
Effective January 1, 2000 Page 7
<PAGE>
3. Make an untrue statement of a material fact;
4. Omit to state a material fact necessary in order to make any statement
made to DLB and/or its Advisory Clients, in light of the circumstances
under which they are made, not misleading;
5. Engage in any act, practice, or course of business that operates or
would operate as fraud, deceit or breach of trust upon, or by, DLB
and/or its Advisory Clients; or
6. Engage in any manipulative practice with respect to DLB and/or its
Advisory Clients.
ARTICLE II: SPECIFIC POLICIES FOR
ACCESS PERSONS, INVESTMENT PERSONS AND PORTFOLIO MANAGERS
While this Code applies to all DLB Associates, there are specific policies that
govern the personal investment activities of Access Persons, Investment Persons
and Portfolio Managers.
A. ACCESS PERSONS
Access Persons are the directors, trustees and officers of DLB and The DLB
Fund Group and any other DLB Associate who in connection with his or her
regular functions or duties, makes, participates in the selection of, or
has ready access to information regarding the Securities Being Considered
for Purchase or Sale by DLB or any Advisory Client, or whose functions
relate to the making of any recommendations with respect to the purchases
or sales. ACCESS PERSONS INCLUDE INVESTMENT PERSONS AND PORTFOLIO MANAGERS.
Access Persons are subject to the following restrictions:
1. PURCHASE, SALE OR OTHER DISPOSITION OF SECURITIES
No Access Person shall purchase, sell or otherwise dispose of any
Security if that same Security is being purchased or sold or being
considered for purchase or sale by or on behalf of DLB and/or its
Advisory Clients, provided however, that this prohibition does not
apply if the disposition involves Securities that are donated to a
tax-exempt organization or if given to a member of the Access Person's
Immediate Family.
2. SERVING ON BOARDS OF TRUSTEES OR DIRECTORS
No Access Person may serve on the Board of Directors or Trustees of a
business entity without prior written approval from the President of
the DLB Organization of which the Access Person is an employee or
officer or in the case of a request by the President of DLB, its Board
of Directors. All Access Persons that wish to serve on a Board of
Directors or Trustees shall submit a written request to the Compliance
Director.
Prior approval is not required for an Access Person who is a
Disinterested Trustee of the DLB Fund Group, although the existence of
any new affiliation should be immediately disclosed to the Compliance
Director.
Effective January 1, 2000 Page 8
<PAGE>
3. DUTY TO DISCLOSE POSSIBLE CONFLICTS OF INTEREST
(a) To the extent that any Access Person has a Beneficial Interest in
or Control of Securities of an issuer which is Being Considered
for Purchase or Sale by DLB, he or she shall disclose that actual
or potential conflict of interest in writing to his or her
manager with a copy to the Compliance Director;
(b) Such disclosure must be made prior to the execution of the
Securities transactions;
(c) Transactions where Access Persons are known to have investments
or interests deemed to be material by a Portfolio Manager or the
Compliance Director must be brought to the President of DLB or
his or her designee on a Required Approval basis; and
(d) No Access Person having a Beneficial Interest or Control of
Securities of an issuer shall unilaterally approve such a
transaction involving the Securities of such issuer.
4. INVESTMENT CLUBS
Participation by Access Persons in Investment Clubs is prohibited.
Access Persons who were participating in Investment Clubs prior to
January 1, 2000 are exempted from this restriction ("grandfathered").
However, those qualifying under the "grandfather" provision are
prohibited from joining additional investment clubs. If a
"grandfathered" Access Person makes a recommendation to an investment
club, such Security must be precleared by the Compliance Director
prior to trade execution. Additionally, Access Persons relying on the
"grandfather" provision must disclose their participation and related
holdings annually.
5. SHORT SALES INVOLVING DLB ADVISED OR SUB-ADVISED ENTITIES
No Access Person shall sell short a Security issued by an entity for
which DLB is an investment adviser or sub-adviser. (For example,
MassMutual Corporate Investors and MassMutual Participation
Investors.)
Effective January 1, 2000 Page 9
<PAGE>
6. BUSINESS COURTESIES, GIFTS
No DLB Associate may receive any gift or other thing of more than $100
in value from any person or entity that does business with or on
behalf of DLB or an Advisory Client. The exchange of business
courtesies, such as reasonable entertainment and gifts of nominal
value, is generally permissible. The common practices of the business
world are acceptable but care should be taken to stay within the scope
of reasonable value, standard business practices, and professional
association or regulatory guidelines. This will help ensure that no
special indebtedness or conflict of interest arises.
Occasionally, a DLB Associate may be offered entertainment, such as
tickets for cultural or sporting events. A DLB Associate may accept
such offers but only if the offer meets the criteria above and is
associated with the business transactions between DLB and the other
party. Accepting entertainment that is primarily intended to gain
favor or influence is to be strictly avoided.
While a DLB Associate may give gifts of nominal value ($100), such as
promotional items, Access Persons may not directly or indirectly give
or accept bribes, kickbacks, special privileges, personal favors or
unusual or expensive hospitality. A DLB Associate dealing with any
U.S. Government or state agency must notify DLB's legal counsel prior
to the exchange of any business courtesies.
Whether a DLB Associate is engaged in purchasing, selling or providing
service on the behalf of DLB or not, monetary gratuities should not be
accepted.
When the business courtesy involves a gift of travel expenses or
accommodations, it must be authorized in advance by a designated
member of the DLB Board of Directors and proper trip documentation
must be completed.
B. INVESTMENT PERSONS
Investment Persons are any Access Persons who provide information and/or
advice to Portfolio Managers or who help execute a Portfolio Manager's
decisions. INVESTMENT PERSONS INCLUDE PORTFOLIO MANAGERS. In addition to
the provisions of PART THREE, ARTICLE II(A) ACCESS PERSONS, Investment
Persons are subject to the following restrictions:
1. BAN ON SHORT TERM PROFITS
No Investment Person may profit from the purchase and sale, or sale
and purchase, within any 60-day period, of any Security, except for
those Securities types listed in PART THREE, ARTICLE III (A)(2)(a).
Any profits realized on such trades will be disgorged pursuant to
instructions from the Compliance Director.
2. PRIVATE PLACEMENTS
Effective January 1, 2000 Page 10
<PAGE>
No Investment Person may acquire any Security in a private placement
without the express prior written approval of the Compliance Director.
3. INITIAL PUBLIC OFFERINGS
No Investment Person or Portfolio Manager may purchase any Security in
an Initial Public Offering except purchases of shares of a savings
association, insurance company, or similar institution, under an
existing right as a policyholder or depositor, that have been approved
and precleared in advance by the Compliance Director.
C. PORTFOLIO MANAGERS
Portfolio Managers are Investment Persons who have direct responsibility
and authority to make investment decisions affecting a particular DLB
investment portfolio or an Advisory Client account. In addition to the
provisions of PART THREE, ARTICLE II(A) & (B), PORTFOLIO MANAGERS ARE
SUBJECT TO THE FOLLOWING RESTRICTIONS:
1. SEVEN-DAY "BLACKOUT" PERIOD
No Portfolio Manager may purchase, sell or dispose of any Security
within seven (7) calendar days before or after the purchase or sale of
that Security by DLB or an Advisory Client for which he or she is a
Portfolio Manager. Any profits realized with respect to such purchase
or sale shall be disgorged pursuant to instructions from the
Compliance Director. Exempt from this provision are those Securities
and transactions enumerated in PART THREE, ARTICLE III (A)(2)(a)-(e),
(Please note items (f) and (g) from PART THREE, ARTICLE III (A)(2) are
not exempt from this provision.)
2. CONTRA TRADING RULE
No Portfolio Manager shall, without preclearance, sell out of his or
her personal account or the account of any member of his or her
Immediate Family any Security or related Security held by DLB and/or
on behalf of its Advisory Client, for which he or she is a Portfolio
Manager. Any profits realized with respect to such purchase or sale
shall be disgorged pursuant to instructions from the Compliance
Director
Exempt from this provision are those Securities and transactions
enumerated in PART THREE, ARTICLE III (A)(2)(a)-(e), (Please note
items (f) and (g) from PART THREE, ARTICLE III(A)(2) are not exempt
from these provisions.)
D. DISINTERESTED TRUSTEES
Effective January 1, 2000 Page 11
<PAGE>
1. PURCHASE, SALE OR OTHER DISPOSITION OF SECURITIES
No Disinterested Trustee shall purchase, sell or otherwise dispose of
any Security if the Disinterested Trustee has actual knowledge that
such Security is "Being Considered for Purchase or Sale" by or on
behalf of The DLB Fund Group.
ARTICLE III: PRECLEARANCE, DUPLICATE CONFIRMATIONS AND
REPORTING PROCEDURES APPLICABLE TO DLB ASSOCIATES AND DISINTERESTED TRUSTEES
There are preclearance and a number of reporting requirements that apply to
Access Persons, Investment Persons, Portfolio Managers and Disinterested
Trustees. The Compliance Director will make every effort to inform any
individual that he or she qualifies as an Access Person, Investment Person
and/or Portfolio Manager.
A. ACCESS PERSONS (INCLUDES INVESTMENT PERSONS AND PORTFOLIO MANAGERS)
1. PRECLEARANCE
No Access Person may purchase, sell or otherwise acquire or dispose of
any Security in which he or she has, or as a result of such
transaction will establish, a Beneficial Interest or Control without
the prior written approval of the Compliance Director. Preclearance is
not required if Securities are donated to a tax-exempt organization or
given as a gift between members of the Access Person's Immediate
Family. PRECLEARANCE IS VALID ONLY FOR THE DAY IT IS OBTAINED.
HOW TO OBTAIN PRECLEARANCE.
For preclearance, call the Compliance Hot-line [(413) 744-6973
"NYSE"]. The DLB Compliance Department will typically be available for
preclearance during NYSE trading hours except on days on which DLB
and/or its Advisory Clients has an emergency closing, snow day
cancellation, etc. In such cases the Preclearance fax line (413)
744-6972 will be unavailable and a message will be left on the
Compliance Hot-line [(413) 744-6973 "NYSE"] voice mail which will
instruct the caller as to what number to dial in order to obtain such
preclearance, or in extreme cases, that preclearance is not available.
Preclearance communications may be recorded for the protection of DLB
and its Associates.
2. PRECLEARANCE EXEMPTIONS
Effective January 1, 2000 Page 12
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Certain transactions do not need to be precleared.
(a) EXEMPT SECURITIES AND FUNDS
Purchases, sales or dispositions of the following types of
Securities: direct obligations of the government of the United
States, bankers' acceptances, bank certificates of deposit,
commercial paper, shares of registered Open-End Investment
Companies (closed-end mutual funds are not exempt from
preclearance), and high quality short- term debt instruments,
including repurchase agreements. High quality short-term debt
instrument means any instrument that has a maturity at issuance
of less than 366 days and that is rated in one of the two highest
rating categories by a nationally recognized rating organization.
(b) NO DIRECT OR INDIRECT CONTROL OVER ACCOUNT
Purchases, sales or dispositions of securities for an account
over which an Access Person has no direct or indirect control,
typically known as a "blind trust".
(c) INVOLUNTARY PURCHASES OR SALES
Involuntary purchases or sales made by a Access Person or by or
on behalf of an Advisory Client, such as spin-offs of shares of
an issuer to existing shareholders or a call of a debt Security
by the issuer.
(d) DIVIDEND REINVESTMENT PLAN (DRIPS)
Purchases which are part of an automatic dividend reinvestment
plan.
(e) PRO RATA DISTRIBUTIONS
Purchases resulting from the exercise of rights acquired from an
issuer as part of a pro rata distribution to all holders of a
class of Securities of such issuer (and the sale of such rights).
(f) OTHER SECURITIES
Purchases or sales of the following types of Securities:
municipal general obligations, Securities held by a Trust
established to fund the employee's retirement benefit plans such
as a 401(k) plan, interests in Securities that are related to
broad-based equity indices, and interest rate or commodity
futures. Approval from the Compliance Director is required for
these exemptions to be granted.
(g) DE MINIMIS S&P 500 PRECLEARANCE EXEMPTION
Effective January 1, 2000 Page 13
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Except as provided in the following paragraph, preclearance is
not required for any acquisitions or dispositions of shares of
stock and bonds issued by a company included in the Standard &
Poor's 500 Index (the "S&P 500") if the total of such purchases,
sales and dispositions does not exceed 1,000 shares of stock or
$10,000 par value of bonds of a single issuer in any given
calendar quarter.
The De Minimis S&P 500 preclearance exemption may not be used in
connection with transactions in warrants, options and futures.
A listing of the S&P 500 is available in the DLB Compliance
Department.
3. DUPLICATE CONFIRMATIONS
All Access Persons shall arrange for copies of confirmations of all
personal Securities transactions involving a Securities account in
which the Access Person has a Beneficial Interest or Control to be
sent promptly by the Access Person's broker(s) directly to the
Compliance Director. Accounts which may only hold Open-End Investment
Companies are exempt from this reporting requirement.
4. INITIAL HOLDINGS REPORT
New Access Persons must file a report disclosing the title, number of
shares, and principal amount of all Securities in which they have any
direct or indirect beneficial ownership when the Access Person became
an Access Person and the name of any broker, dealer, or bank with whom
the Access Person maintained an account in which any Securities were
held for the direct or indirect benefit of the Access Person as of the
date when the person became an Access Person, and the date that the
report is submitted by the Access Person. This Initial Holding Report
is due within ten days after the person became an Access Person.
5. QUARTERLY REPORTS
(a) THE SEC REQUIRES that all Access Persons, within ten (10)
calendar days after the end of each calendar quarter, make a
written report (the "Quarterly Report") certifying to the
Compliance Director that the Quarterly Report lists all Security
transactions in which the Access Person has a Beneficial Interest
or over which the Access Person exercises Control. Copies of
broker prepared periodic securities account statements ("Account
Statement") may be attached to the Quarterly Report in lieu of
listing each of the transactions detailed in the Account
Statement on the Quarterly Report so long as all information
required in the Quarterly Report is contained in the Account
Statement. The Quarterly Report form will be sent out to
Associates at the end of the quarter. Late filers are in
technical violation of the law and will be subject to
disciplinary action.
(b) Each Quarterly Report must contain: (i) with respect to each
reportable transaction for the quarter, the date of the
transaction, the title, the interest rate and maturity date (if
applicable), the number of shares, and the principal amount of
each Security
Effective January 1, 2000 Page 14
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involved, the nature of the transaction (e.g. purchase or sale),
the price at which the transaction was effected; and the name of
the broker, dealer, or bank with or through which the transaction
was affected; (ii) with respect to any account established by the
Access Person in which any Securities were held during the
quarter for the direct or indirect benefit of the Access Person:
the name of the broker, dealer or bank with whom the Access
Person established the account and the date the account was
established; and (iii) the date that the report is submitted by
the Access Person.
(c) All Security transactions are reportable, even those exempt from
the preclearance requirements except those exempt Securities
described in;
o PART THREE, Article III (A)(2)(a) and (b)
Notwithstanding the above, any transaction involving shares of an
Open-End Investment Company that is advised by DLB MUST be
reported in the Quarterly Report.
6. ANNUAL CERTIFICATION OF UNDERSTANDING AND COMPLIANCE
All Access Persons shall within 10 days of employment and at least
annually thereafter, certify to the Compliance Director that they have
read and understand this Code, recognize that they are subject to it,
have complied with its requirements and have disclosed or reported all
required personal Securities transactions and holdings.
B. ACCESS PERSONS - ANNUAL DISCLOSURE OF PERSONAL SECURITIES HOLDINGS
All Access Persons shall, at least annually, disclose all Securities,
except as indicated in PART THREE, ARTICLE III(A)(2)(a) and (b), to the
Compliance Director in an Annual Disclosure of Personal Securities Holdings
Report, (i) all Securities (title, number of shares and principal amount)
in which he or she has a Beneficial Interest or Control, and (ii) the name
of any broker, dealer or bank with whom the Access Person maintains an
account in which any Securities are held for the direct or indirect benefit
of the Access Person; and (iii) the date the report is submitted by the
Access Person. Only Securities described in PART THREE, Article
III(A)(2)(a) and Securities in accounts described in (b) are exempt from
the Annual Disclosure Requirement. The information contained in the report
must be current as of a date no more than 30 days before the report is
submitted. Any Open-End Investment Company managed by DLB must be
disclosed.
C. DISINTERESTED TRUSTEES
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Within thirty (30) calendar days after the end of each calendar year, each
Disinterested Trustee shall submit a written statement to the Compliance
Director, that he or she has complied with the requirements of this Code of
Ethics applicable to Disinterested Trustees.
Disinterested Trustees need not file (a) an initial or annual holdings
report or (b) a quarterly transaction report except where the Disinterested
Trustee knew or, in the ordinary course of fulfilling his or her official
duties as a fund trustee, should have known that during the 15-day period
immediately before and after the Disinterested Trustee's transaction in a
Security such Security is or was purchased or sold by a fund in the DLB
Fund Group or a fund in the DLB Fund Group or its investment advisor
considered purchasing such Security.
Effective January 1, 2000 Page 16
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PART FOUR - COMPLIANCE DIRECTOR
ARTICLE I: COMPLIANCE DIRECTOR
The role of the Compliance Director is critical to the implementation and
maintenance of this Code.
A. APPOINTMENT
Each DLB entity's President shall designate a Compliance Director who shall
have the authority and responsibility to administer this Code as it applies
to the operations of that DLB entity and/or its Advisory Clients.
B. PREVENTION OF VIOLATIONS
The Compliance Director shall be, or shall become, familiar with investment
compliance practices and policies and shall report any material inadequacy
to the President and the Chief Legal Officer of David L. Babson Company
Incorporated.
The Compliance Director shall:
1. Furnish all Access Persons with a copy of this Code and periodically
inform them of their duties and obligations thereunder;
2. Obtain signed certifications from each Access Person stating that: (a)
such Access Person has received a copy of the Code; (b) has read it;
(c) understands it; and (d) is either in compliance with all of its
provisions or has disclosed in writing to the Compliance Director any
instance of actual or possible violation of the Code;
3. Conduct periodic educational programs to explain the terms of this
Code and applicable securities laws, regulations and cases;
4. Answer questions regarding this Code, and keep abreast of changes in
applicable laws and regulations;
5. Interpret this Code consistent with the objectives of applicable laws,
regulations and industry practices;
6. Consistent with this Code and applicable SEC rules, promptly review,
and in writing either approve or disapprove, each request of DLB
Associates for clearance to trade in specified Securities for or on
behalf of DLB, one or more Advisory Clients, or for their personal
account;
Effective January 1, 2000 Page 17
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7. Conduct audits, inspections and investigations as necessary or
appropriate to prevent or detect possible violations of this Code.
Report, with his or her recommendations, any apparent and material
violations of this Code to the President and the Chief Legal Officer
of DLB. Report, where appropriate, to the directors of DLB, or any
Committee appointed by them to deal with such information;
8. Develop and maintain one or more Restricted Lists.
9. Determine whether particular Securities transactions qualify for the
De Minimis S&P 500 Exception from preclearance as set forth in PART
THREE, ARTICLE III(A)(2)(g) DE MINIMIS S&P 500 EXCEPTION.
10. Grant exceptions or exemptions on a transaction, an individual or a
class basis, to any of the provisions of PART III, ARTICLE III:
PRECLEARANCE, DUPLICATE CONFIRMATIONS AND REPORTING PROCEDURES
APPLICABLE TO DLB ASSOCIATES AND DISINTERESTED TRUSTEES, provided that
such exceptions or exemptions are consistent with the spirit of the
principles on which this Code is premised.
11. Periodic reviews of all personal Securities transactions effected by
Access Persons, the scope and frequency of such review to be
determined by the Compliance Director.
12. Oversee the manner of disposition of any profits required to be
disgorged in conformance with company guidelines.
13. Designate one or more persons to have the authority and responsibility
to act on behalf of the Compliance Director when necessary or
appropriate;
14. Maintain confidential information regarding personal Securities
transactions and holdings and only disclose such information to
persons with a clear need to know, including state and federal
regulators when required or deemed necessary or appropriate by the
Compliance Director in conformance with the provisions of the Code;
15. Develop policies and procedures designed to implement, maintain and
enforce this Code;
16. Resolve issues of whether information received by an officer, director
or employee of the DLB Organization constitutes Inside Information;
17. Confirm that there are department supervisors implementing this Code;
18. Develop, implement, review, and revise specific firewall procedures
consistent with SEC rules and this Code; and
19. Review this Code on a regular basis and recommend to the President and
the DLB Board of Directors amendments, as are necessary or
appropriate.
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C. DETECTION OF VIOLATIONS
To prevent and detect Insider Trading, the Compliance Director shall:
1. Review the trading activity and Holdings reports filed by each Access
Person;
2. Review duplicate brokerage confirmations required of each Access
Person.
3. Review the trading activity of DLB and its Advisory Clients; and
4. Coordinate the review of such reports with other appropriate officers,
directors or employees of the DLB Organization.
D. REPORTS AND RECORDS
1. REPORTS
The Compliance Director shall:
(a) Prepare a quarterly report containing a description of any
material violation requiring significant remedial action during
the past quarter and any other significant information concerning
the application of this Code. The Compliance Director shall
submit the report to DLB's President, Chief Legal Officer and the
Board of Trustees of each mutual fund potentially affected.
(b) Prepare written reports at least annually summarizing any
exceptions or exemptions concerning personal investing made
during the past year; listing any violations requiring
significant remedial action; identifying any recommended changes
to the Code or the procedures thereunder. The report should
include any violations that are material, any sanctions imposed
to such material violations and report any significant conflicts
of interest that arose involving the personal investment policies
of the organization, even if the conflicts have not resulted in a
violation of the Code. The Compliance Director shall submit the
Report to DLB's President, DLB's Chief Legal Officer, the Board
of Directors of DLB and the Board of Trustees of each mutual
fund. The report to the Board of Trustees shall certify that DLB
and the DLB Fund Group have adopted procedures reasonably
necessary to prevent Access Persons from violating the Code.
More frequent reports may be appropriate in certain
circumstances, such as when there have been significant
violations of a code or procedures, or significant conflicts of
interest arising under the code or procedures.
2. RECORDS
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The Compliance Director shall maintain or cause to be maintained, the
following records:
(a) A copy of this Code or any other Code of Ethics which has been in
effect during the most recent 5-year period;
(b) A record of any violation of any such Code and of any action
taken as a result of such violation in the 5-year period
following the end of the fiscal year in which the violation took
place;
(c) A copy of each report made by the Compliance Director for a
period of 5 years from the end of the fiscal year of DLB and of
the DLB Fund Group, as applicable, in which such report is made
or issued;
(d) A list of all persons currently or within the most recent 5-year
period who are or were required to make reports pursuant to this,
or a predecessor Code, or who are or were responsible for
reviewing these reports; along with a copy of all Initial
Holdings Reports, Quarterly Reports, Annual Reports, Preclearance
Forms and Duplicate Confirmations filed during that same period;
(e) An up-to-date list of all Access Persons, Investment Persons and
Portfolio Managers with an appropriate description of their title
or employment; and
(f) A record of the approval of, and rationale supporting, the
acquisition of Securities in IPO's and private placements for at
least five years after the end of the fiscal year in which the
approval is granted.
The aforementioned records shall be maintained in an easily accessible
place for the time period required by applicable SEC rules.
Effective January 1, 2000 Page 20
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PART FIVE - GENERAL INFORMATION
ARTICLE I: NO DLB LIABILITY FOR LOSSES
DLB and/or its Advisory Clients shall not be liable for any losses incurred or
profits avoided by any DLB Associate resulting from the implementation or
enforcement of this Code. DLB Associates should understand that their ability to
buy and sell Securities is limited by this Code and that trading activity by DLB
and/or its Advisory Clients may affect the timing of when an Access Person can
buy or sell a particular Security.
ARTICLE II: REPORTING VIOLATIONS
Any DLB Associate who knows or has reason to believe that this Code has been or
may be violated shall bring such actual or potential violation to the immediate
attention of the Compliance Director.
ARTICLE III: PENALTIES FOR VIOLATIONS
Individuals who trade on or inappropriately communicate Inside Information are
not only violating this Code but are also involved in unlawful conduct.
Penalties for trading on or communicating Inside Information can be severe, both
for the individuals involved in such unlawful conduct and their employers. A
person can be subject to penalties even if they do not personally benefit from
the violation. Penalties may include civil injunctions, payment of profits made
or losses avoided ("disgorgement"), jail sentences, fines for the person
committing the violation of up to three times the profit gained or loss avoided,
and fines for the employer or other controlling person of up to the greater of
$1,000,000 or three times the amount of the profit gained or loss avoided.
In addition, any violation of this Code shall be subject to the imposition of
such sanctions by DLB as may be deemed appropriate under the circumstances to
achieve the purposes of applicable SEC rules and this Code. Such sanctions could
include, without limitation, bans on personal trading, reductions in salary
increases, the forfeiture of incentive compensation benefits, disgorgement of
trading profits, transfer to another position at DLB, suspension of employment
and termination of employment. Sanctions for violation of this Code by a
Disinterested Trustee of The DLB Fund Group shall be determined by a majority
vote of the fund's other Disinterested Trustees.
ARTICLE IV: AMENDMENTS
This Code may not be amended as to any entity that adopts it except in a written
form approved by a vote of such entity's Board of Trustees/Directors.
Effective January 1, 2000 Page 21
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ARTICLE V: DEFINITIONS
ACCESS As defined in Part Three, Article II: Specific Policies for
PERSONS Access Persons, Investment Persons and Portfolio Mangers.
ADVISORY means any person who has an investment advisory services
CLIENT agreement with DLB.
ASSOCIATES As defined in Part One - Introduction
BEING A Security is deemed as "Being Considered for Purchase or
CONSIDERED FOR Sale" when a recommendation to purchase or sell such
PURCHASE OR SALE Security has been made and communicated to a portfolio
manager, and, with respect to the person making the
recommendation, when such person seriously considers making
such a recommendation.
BENEFICIAL means any interest by which: (a) an Access Person exercises
INTEREST OR direct or indirect control over the purchase, sale or other
CONTROL disposition of a Security; or (b) an Access Person or any
member of his or her Immediate Family can directly or
indirectly derive a monetary/financial interest from the
purchase, sale, disposition or ownership of a Security.
Examples of indirect monetary/financial interests include:
(a) interests in partnerships and trusts that hold
Securities but does not include Securities held by a blind
trust or by a Trust established to fund employee retirement
benefit plans such as 401(k) plans; (b) a
performance-related fee received by the Access Person for
providing investment advisory services; and (c) a person's
rights to acquire Securities through the exercise or
conversion of any derivative instrument.
CLOSED-END means a mutual fund with a set number of shares issued and
INVESTMENT distributed to investors in a public offering, identical to
COMPANY the way corporate Securities reach public hands. A
Closed-End Investment Company's capitalization is basically
fixed (unless an additional public offering is made). After
the public offering stock is distributed, anyone who wants
to buy or sell shares does so in the secondary market
(either on an exchange or over the counter). Also, see
definition of Open-End Investment Company.
COMPLIANCE means the person designated by each DLB entity's President
DIRECTOR to be principally responsible for the prevention and
detection of violations of this Code and related laws and
regulations.
Effective January 1, 2000 Page 22
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DISINTERESTED means a Trustee of The DLB Fund Group who is not an
TRUSTEE "interested person" of DLB within the meaning of Section
2(a)(19) of the Investment Company Act of 1940.
DLB means David L. Babson and Company Incorporated, the DLB
ORGANIZATION Funds and all persons controlled by, controlling or under
common control except to the extent that any such person has
adopted policies and procedures to detect and prevent
insider trading that are substantially similar to this Code.
IMMEDIATE means related by blood or marriage AND living in the same
FAMILY household includes: any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, "significant
other", sibling, mother-, father-, son-, daughter-, brother
or sister-in-law, and any adoptive relationships. The
Compliance Director, after reviewing all the pertinent facts
and circumstances, may determine that an indirect Beneficial
Interest in Securities held by members of the Access
Person's Immediate Family does not exist.
INSIDER means, in most cases, employees, officers and directors of a
company. In addition, a person may become a "temporary
insider" if he or she enters into a special confidential
relationship in the conduct of another company's affairs and
as a result is given access to information solely for DLB
and/or its Advisory Client's purposes. A temporary insider
could include a company's attorneys, accountants, bank
lending officers and printers. A DLB Associate, such as a
securities analyst, may become a temporary insider of
another company if the other company expects such person to
keep the disclosed non-public information confidential and
the relationship at least implies such a duty.
INSIDE means Material Information that is Non-Public Information.
INFORMATION
Effective January 1, 2000 Page 23
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INSIDER TRADING means trading in Securities (whether or not one is an
"Insider") while having Inside Information, or to
communicating Inside Information to others. While the law
concerning insider trading is not static, it is generally
understood to prohibit:
1. trading by an Insider, while in possession of Inside
Information; or
2. trading by a non-insider, while in possession of Inside
Information, where the information either was disclosed to
the non-insider in violation of an Insider's duty to keep it
confidential or was misappropriated; or
3. communicating Inside Information to others by either an
Insider or a non-insider prohibited from trading by Part II
of this Code.
INVESTMENT CLUB means a group of people who pool their assets in order to
make joint decisions (typically a vote) on which Securities
to buy, hold or sell.
INVESTMENT means any Access Person who provides information and/or
PERSON advice to Portfolio Managers or who helps execute a
Portfolio Manager's decisions (e.g., traders, analysts).
MATERIAL means information for which there is a substantial
INFORMATION likelihood that a reasonable investor would consider it
important in making an investment decision, or information
that is reasonably certain to have a significant effect on
the price of a company's Securities. Information that
officers, directors and employees should consider material
includes, but is not limited to: dividend changes, earnings
estimates, changes in previously released earnings
estimates, merger, acquisition or divestiture proposals or
agreements, information relating to a tender offer, major
litigation, liquidity problems, significant management
developments, expansion or curtailment of operations,
significant increases or decreases in purchase orders, new
products or discoveries, adverse test results of new
products, extraordinary borrowing, purchase or sale of
substantial assets, and capital restructuring (including
issue of rights, warrants or convertible securities).
Material Information does not have to relate to a company's
business. For example, information about the contents of a
forthcoming newspaper column that may be expected to affect
the market price of a Security can be considered material
information.
NO SIMPLE TEST EXISTS TO DETERMINE WHEN INFORMATION IS
MATERIAL. FOR THIS REASON, YOU SHOULD DIRECT ANY QUESTIONS
WHATEVER ABOUT WHETHER INFORMATION IS MATERIAL TO THE
COMPLIANCE DIRECTOR.
Effective January 1, 2000 Page 24
<PAGE>
NON-PUBLIC means information that has not been effectively communicated
INFORMATION to the market place. In order for information to be
considered "public", one must be able to point to some fact
to show that the information is generally available to the
public and the securities markets have had a reasonable time
to respond. For example, the following information would be
considered public information: (a) information found in a
public filing with the SEC or a stock exchange; (b)
information disseminated by the issuer or securities
analysts to the investment community through written reports
or public meetings; or (c) information appearing in
BLOOMBERG, DOW JONES NEWS SERVICE, REUTERS ECONOMIC
SERVICES, THE WALL STREET JOURNAL or other publications of
general circulation.
Information has not been effectively communicated to the
public if there has been: (a) selective disclosure to DLB or
other institutional investors or to select groups of
analysts or brokers; (b) partial disclosure as long as a
material component of the Inside Information remains
undisclosed; or (c) insufficient time for a relevant
securities market(s) to trade on the information.
OPEN-END means a mutual fund that issues its shares in open-ended
INVESTMENT offerings. New shares are continuously created as investors
COMPANY buy them. Investors who want to sell shares sell them back
to the company (which redeems them) rather than to another
investor. The capitalization of such a mutual fund is
open-ended; as more investors buy mutual fund shares, the
fund's capital expands. By the same token when investors
liquidate their holdings, the fund's capital shrinks. Also,
see definition of Closed-End Investment Company.
PORTFOLIO means an Investment Person who has the direct responsibility
MANAGER and authority to make investment decisions affecting a
particular DLB and/or Advisory Client's account or
portfolio.
Effective January 1, 2000 Page 25
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RESTRICTED LIST means a list(s) maintained by a DLB entity that includes the
names of the Securities of which are being actively traded,
Being Considered for Purchase or Sale by DLB and/or its
Advisory Clients or, when appropriate, its subadvisers, and
the names of any issuer about whom DLB has Inside
Information or on whose board of directors DLB Associates
serve. An issuer, or Security, as applicable, will be
removed from the Restricted List when what had been Inside
Information becomes available to the public, when the
interlocking directorate no longer exists or when what had
been a Security Being Considered for Purchase or Sale is no
longer under such consideration. Each analyst and trader is
responsible for ensuring that all issuers with whom they
have worked are properly reflected in the Restricted List in
accordance with provisions of this Code.
The content of the Restricted List is confidential and will
be distributed only to those that have a need to know the
identity of the issuers in the context of performing their
job responsibilities;
SECURITY means any stock or transferable share; note, bond, debenture
or other evidence of indebtedness, investment contract, any
warrant or option to acquire or sell a Security, any
financial futures contract, put, call, straddle, option, or
any interest in any group or index of Securities, or in
general, any interest or instrument commonly known as a
"Security."
SECURITY HELD means any Security which, within the most recent 15 days,
OR TO BE (i) is or has been held by DLB and/or an Advisory Client or
ACQUIRED (ii) is being or has been considered by DLB for itself
and/or its Advisory Clients. This includes any option on a
Security that is convertible into or exchangeable for, any
Security that is held or to be acquired. The Compliance
Director may amend this definition to the extent necessary
to comply with Rule 17j-1 of the Investment Company Act of
1940.
SUB-ADVISER means an investment adviser that has entered into an
investment sub- advisory contract with DLB to provide
investment advisory services to a portfolio or fund for
which DLB is the ultimate investment adviser.
Effective January 1, 2000 Page 26
<PAGE>
INSIDE INFORMATION STATEMENT
AND
CODE OF ETHICS RELATING TO PERSONAL
SECURITIES TRANSACTIONS
DAVID L. BABSON & COMPANY, INC.
BABSON SECURITIES CORPORATION
THE DLB FUND GROUP
JANUARY 1, 2000
Effective January 1, 2000 Page 27
<PAGE>
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC.
CODE OF ETHICS
STATEMENT OF GENERAL PRINCIPLES
As investment adviser to individuals, employee benefit plans, trust accounts,
charitable institutions, foundations, endowments, partnerships and investment
companies (collectively, "Funds"), it is the policy of Westfield Capital
Management Company, Inc. ("Westfield") that Portfolio Managers, Investment
Personnel and Access Persons1 should (1) at all times place the interests of
Funds first; (2) conduct all personal securities transactions in a manner that
is consistent with this Code of Ethics and in such a manner as to avoid any
actual or potential conflict of interest or any abuse of the individual's
position of trust and responsibility; and (3) adhere to the fundamental standard
that Westfield personnel should not take inappropriate advantage of their
positions.
GOVERNING STANDARDS
This Code of Ethics shall be governed by Rule 17j-1 under the Investment Company
Act of 1940 and the Investment Company Institute's Guidelines on Personal
Investing.
Portfolio Managers, Investment Personnel or Access Persons shall not, in
connection with the purchase or sale by such persons of a security "held or to
be acquired" by any Fund:
(1) Employ a device, scheme or artifice to defraud the Fund;
(2) Make to the Fund any untrue statement of a material fact or omit to
state to the Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
(3) Engage in any act, practice or course of business which operates or
would operate as a fraud or deceit upon the Fund; or
(4) Engage in any manipulative practice with respect to the Fund.
- - ----------
1 Portfolio Managers have the responsibility and authority to make
decisions about Fund investments, while Investment Personnel include the
analysts and traders who provide information and advice to a portfolio manager
or who help execute the portfolio manager's decisions. Access Persons are (A)
any directors, officers or employees of Westfield (1) who, in connection with
their duties, make, participate in or obtain information regarding the purchase
or sale of a security by a Fund, or (2) whose functions relate to the making of
any recommendations with respect to such purchases and sales, or (3) who, in
connection with their duties, obtain any information concerning securities
recommendations being made by Westfield to a Fund, and (B) any natural person in
a control relationship to Westfield or a Fund who obtains information concerning
recommendations made to a Fund with regard to the purchase or sale of a
security.
<PAGE>
A security is "held or to be acquired" by a Fund if within the most recent 15
days it (1) is or has been held by the Fund, or (2) is being or has been
considered by the Fund, or by Westfield, for purchase by the Fund. A purchase or
sale includes, inter alia, the writing of an option to purchase or sell.
SUBSTANTIVE RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
1. Initial Public Offerings
Portfolio Managers and Investment Personnel are prohibited from acquiring
any securities in an initial public offering.
2. Private Placements
Portfolio Managers and Investment Personnel shall, when purchasing
securities in a private placement:
a. Obtain the PRIOR WRITTEN APPROVAL of Karen DiGravio or, in her
absence, Arthur J. Bauernfeind (such prior approval will be valid only
on the day executed by Ms. DiGravio or Mr. Hazard and will take into
account, among other factors, whether the investment opportunity
should be reserved for an investment company and its shareholders, and
whether the opportunity is being offered to an individual by virtue of
his or her position with Westfield or connection with a Fund);
b. When they are involved in any subsequent decision to invest in the
issuer on behalf of a Fund, disclose their investment to Karen
DiGravio or, in her absence, Arthur J. Bauernfeind and refer the
decision to purchase securities of the issuer for the Fund to Karen
DiGravio or, in her absence, Arthur J. Bauernfeind.
3. Blackout Periods
a. SAME DAY
Portfolio Managers, Investment Personnel and Access Persons are
prohibited from executing a securities transaction on a day when a
Fund has a pending "buy" or "sell" order in the same security until
that order is executed or withdrawn. Any profits realized on trades
within the proscribed periods must be disgorged to the Fund by the
Portfolio Manager, Investment Personnel or Access Person.
<PAGE>
b. SEVEN DAY
Portfolio Managers are prohibited from buying or selling a security
within seven (7) calendar days before the Fund he or she manages
trades in that security. Any profits realized on trades within the
proscribed period must be disgorged by the Portfolio Manager to the
Fund.
4. Gifts
Portfolio Managers and Investment Personnel are prohibited from receiving
any gift or other thing of more than $100 in value from any person or
entity that does business with or on behalf of a Fund.
5. Service as a Director.
Portfolio Managers and Investment Personnel are prohibited from serving on
the board of directors of publicly traded companies, without prior
authorization from Westfield's Board of Directors and the Funds' Board of
Directors.
PRECLEARANCE; BROKER CONFIRMATIONS AND STATEMENTS
1. Preclearance
Portfolio Managers, Investment Personnel and Access Persons are required to
obtain written preclearance of all transactions in any securities other
than shares of registered open-end investment companies in which the person
has, or by reason of the transaction acquires, any direct or indirect
beneficial ownership2 ("Personal Securities") with Karen DiGravio or, in
her absence, Arthur J. Bauernfeind or the day of such transaction.
2. Records of Securities Transactions
Portfolio Managers, Investment Personnel and Access Persons are required to
direct their brokers to provide Karen DiGravio or, in her absence, Arthur
J. Bauernfeind, on a timely basis, duplicate copies of confirmations of all
Personal Securities transactions and copies of periodic statements for all
securities accounts maintained by or for such persons by such brokers.
- - ----------
2 Beneficial ownership of a security is determined in the same manner as
it would be for the purposes of Section 16 of the Securities Exchange Act of
1934, except that such determination shall apply to all securities that a person
has or acquires. Generally, a person should consider himself the beneficial
owner of securities held by his spouse, his minor children, a relative who
shares his home, or other persons if by reason of any contact, understanding,
relationship, agreement or other arrangement, he obtains from such securities
benefits substantially similar to those of ownership. He should also consider
himself the beneficial owner of securities if he can vest or revest title in
himself now or in the future.
<PAGE>
COMPLIANCE PROCEDURES
In order to provide Westfield with information to enable it to determine with
reasonable assurance whether the provisions of this Code of Ethics are being
observed by Portfolio Managers, Investment Personnel and Access Persons:
1. Karen DiGravio shall notify all Portfolio Managers, Investment
Personnel and Access Persons of the reporting requirements of this
Code of Ethics and shall deliver a copy of this Code to each person.
2. All Portfolio Managers, Investment Personnel and Access Persons shall
submit to Karen DiGravio, on an annual basis, an Annual Certification
of Compliance with the Code of Ethics as prescribed in Exhibit A. The
annual certification shall be filed with Karen DiGravio within thirty
(30) calendar days after calendar year-end.
3. All Portfolio Managers and Investment Personnel shall submit to Karen
DiGravio, upon commencement of employment, and thereafter on an annual
basis, personal securities holdings reports in the form prescribed in
Exhibit B. The annual report shall be filed with Karen DiGravio within
thirty (30) calendar days after calendar year-end.
4. All Portfolio Managers, Investment Personnel and Access Persons shall
submit to Karen DiGravio, on a quarterly basis, personal securities
transactions reports. Each report shall include the name of the
security, nature of the transaction, date of the transaction,
quantity, price and broker-dealer through which the transaction was
effected. Such quarterly reports shall be filed with Karen DiGravio
within ten (10) calendar days after the end of each calendar quarter.
Such reports need not include any transactions disclosed on
confirmations or account statements previously furnished to Westfield
by any broker, or any transactions in (1) securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities; (2) bankers acceptances; (3) certificates of
deposit; (4) commercial paper; (5) and shares of registered open-end
investment companies. The requirements of this Section 4 may be
satisfied by sending duplicate confirmations of such trades to Karen
DiGravio.
<PAGE>
5. All Portfolio Managers, Investment Personnel and Access Persons shall
submit to Karen DiGravio, or, in her absence, Arthur J. Bauernfeind, a
request for preclearance in the form prescribed in Exhibit C for all
proposed securities transactions requiring preclearance pursuant to
the requirements of this Code of Ethics. All decisions regarding the
preclearance of all securities transactions for Portfolio Managers,
Investment Personnel and Access Persons shall be made by Karen
DiGravio or, in her absence, Arthur J. Bauernfeind.
6. Karen DiGravio shall report to Westfield's Board of Directors:
(a) at the next meeting following the deadline for receipt of annual
reports of holdings or quarterly reports of securities
transactions, the results of his review of such reports, and
(b) any apparent violation of the reporting requirements.
7. Westfield's Board of Directors shall consider reports made to it and
shall determine whether the policies established in this Code of
Ethics have been violated, and what sanctions, if any, should be
imposed. The Board shall review the operation of this Code of Ethics
at least annually or as dictated by changes in applicable law or
regulation.
8. This Code of Ethics, a copy of each Personal Securities Holdings
Report and each transactions report by the parties covered in the
Code, any written report prepared by Karen DiGravio or, in her
absence, Arthur J. Bauernfeind and lists of all persons required to
make reports hereunder shall be preserved with Westfield for the
period required by Rule 17j-1 under the Investment Company Act of
1940.
Adopted March 27, 1995; Revised September 15, 1995, April 1, 1997 and as of
December 31, 1999.
Exhibit A
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC.
CODE OF ETHICS
ANNUAL CERTIFICATION OF COMPLIANCE
Underlined terms have the meaning assigned to them in Westfield Capital
Management Company, Inc.'s Code of Ethics, as amended from time to time.
As a PORTFOLIO MANAGER, INVESTMENT PERSONNEL or ACCESS PERSON I certify that I
have read and understand the Code of Ethics. I further certify that I have
complied with the requirements of the Code and that I have disclosed or reported
all PERSONAL SECURITIES holdings and/or transactions required to be reported by
the Code.
__________________________________
Signature
__________________________________
Print name
Dated: ___________________________
<PAGE>
Exhibit B
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC.
CODE OF ETHICS
PERSONAL SECURITIES HOLDINGS REPORT
FOR THE CALENDAR YEAR ENDING 12/31/___
Underlined terms have the meaning assigned to them in Westfield Capital
Management Company, Inc. Code of Ethics dated March 27, 1995.
To Karen DiGravio and/or Arthur J. Bauernfeind:
As PORTFOLIO MANAGER or INVESTMENT PERSONNEL, I am disclosing the following
information regarding my PERSONAL SECURITIES holdings to comply with the Code of
Ethics.
Check Box 1 or 2, as applicable.
1. [ ] I certify that I have no PERSONAL SECURITIES holdings that require
reporting for the year ending 12/31/____.
2. [ ] I certify that the following PERSONAL SECURITIES holdings which
require reporting by me are accurate and complete for the year ending
__/__ /__.
Broker or Bank
Date of Nature of Security No. of Shares/ Utilized to
Transaction Transaction Name Par Amount Acquire Holding
----------- ----------- ---- ---------- ---------------
__________________________________
Signature
__________________________________
Print name
Dated: ___________________________
<PAGE>
Exhibit C
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC.
CODE OF ETHICS
PRECLEARANCE OF SECURITIES TRANSACTION FORM
PLEASE NOTE THAT THIS PRECLEARANCE IS VALID ONLY FOR THE DATE SET FORTH UNDER
THE AUTHORIZATION BLOCK ON PAGE 3.
(1) Name of employee requesting
authorization: ____________________________
(2) If different from #1, name of the
account where the trade will occur: ____________________________
(3) Relationship of (2) to (1): ____________________________
(4) Name of the firm at which the account is ____________________________
held:
(5) Name of Security: ____________________________
(6) Maximum number of shares or units to be
purchased or sold or amount of bond: ____________________________
(7) Check those that are applicable:
___Purchase ___Sale ___Market Order ___Limit Order (Price of Limit Order:____)
If the answer to any of the following questions is made by checking the answer
in Column I, the Compliance Officer may have to reject the proposed transaction:
COLUMN I COLUMN II
(8) Do you possess material nonpublic information
regarding the security or the issuer of the
security?1 _____ Yes _____ No
(9) To your knowledge, are the securities or
"equivalent securities" (i.e., securities
issued by the same entity as the issuer of a
security, and all derivative instruments, such
as options and warrants) held by any investment
companies or other accounts managed by
Westfield Capital Management Company, Inc. (the
"Company") _____ Yes _____ No
(10) To your knowledge, are there any outstanding purchase or sell orders for
this security or any equivalent security by any Company client, including
but not limited to any investment
company managed by the Company? _____ Yes _____ No
- - ----------
1 Please note that employees generally are not permitted to acquire or sell
securities when they possess material nonpublic information regarding the
security or the issuers of the security.
<PAGE>
COLUMN I COLUMN II
(11) To your knowledge, are the securities or
equivalent securities being considered for
purchase or sale by one or more investment
companies or other accounts managed by the
Company? _____ Yes _____ No
(12) Are the securities being acquired in an initial
public offering?2 _____ Yes _____ No
(13) Are the securities being acquired in a private
placement?3 _____ Yes _____ No
(14) If you are a Portfolio Manager4, has any
account you manage purchased or sold these
securities or equivalent securities within the
past seven calendar days or do you expect the
account to purchase or sell these securities or
equivalent securities within seven calendar
days of your purchase or sale? _____ Yes _____ No
- - ----------
2 Please note that Portfolio Managers and Investment Personnel (as defined
in the Company's Code of Ethics) are not permitted to acquire securities in an
initial public offering for their own or related accounts.
3 Please note that generally acquisitions of securities in a private
placement are discouraged and may be denied.
4 Please see your Compliance Officer if you are not sure whether or not you
are a Portfolio Manager.
<PAGE>
I have read Westfield Capital Management Company, Inc.'s Code of Ethics and
Policy and Procedures Designed to Detect and Prevent Insider Trading within the
prior 12 months and believe that the proposed trade fully complies with the
requirements of each. I acknowledge that the authorization granted pursuant to
this form is valid only on the date on which the authorization is granted (as
set forth immediately below, the "Authorized by" signature block).
__________________________________
Employee Signature
__________________________________
Print Name
__________________________________
Date Submitted
Authorized by: _____________________
Date: _____________________
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS/CSAM CLOSED-END FUNDS
CODE OF ETHICS
I. APPLICABILITY
-------------
This Code of Ethics establishes rules of conduct for "Access Persons" (as
defined below) of Credit Suisse Asset Management, LLC, its subsidiaries and
Credit Suisse Asset Management Securities, Inc. (collectively referred to as
"CSAM") and each U.S. registered investment company that adopts this Code
("Covered Fund") (CSAM and the Covered Funds are collectively referred to as the
"Covered Companies"). For purposes of this Code, "Access Person" shall mean:
o any "Advisory Person" -- any employee or officer of CSAM and any
natural person in a control relationship to a Covered Company (except
for a natural person who, but for his or her holdings in a Covered
Fund, would not be considered an Advisory Person, unless he or she
obtains information concerning recommendations made to the Covered
Fund with regard to the purchase or sale of securities by the Covered
Fund, in which case such person shall be considered an Advisory Person
only with respect to the Covered Fund); or
o any director, trustee or officer of a Covered Fund, whether or not
such person is an Advisory Person, in which case such person shall be
considered an Access Person only with respect to the Covered Fund.
For purposes of this Code:
o the term "security" shall include any option to purchase or sell, any
security that is convertible or exchangeable for, and any other
derivative interest relating to the security; o
o the terms "purchase" and "sale" of a security shall include, among
other things, the writing of an option to purchase or sell a security;
and
o all other terms shall have the same meanings as under the Investment
Company Act of 1940 ("1940 Act"), unless indicated otherwise.
II. STATEMENT OF GENERAL PRINCIPLES
-------------------------------
In conducting personal investment activities, all Access Persons are required to
act consistent with the following general fiduciary principles:
o the interests of CSAM clients, including Covered Funds, must always be
placed first, provided, however, that persons who are Access Persons
only with respect to certain Covered Funds shall place the interests
of such Covered Funds first;
o all personal securities transactions must be conducted in such a
manner as to avoid any actual or potential conflict of interest or any
abuse of an individual's position of trust and responsibility; and
<PAGE>
o Access Persons must not take inappropriate advantage of their
positions.
CSAM has a separate policy and procedures designed to detect and prevent insider
trading, which should be read together with this Code. Nothing contained in this
Code should be interpreted as relieving any Access Person from the obligation to
act in accordance with any applicable law, rule or regulation or any other
statement of policy or procedure adopted by any Covered Company.
III. PROHIBITIONS
------------
The following prohibitions and related requirements apply to Advisory Persons
and/or Access Persons (as stated) and accounts in which they have "Beneficial
Ownership" (as defined in Exhibit 1).
A. SHORT TERM TRADING. CSAM discourages Advisory Persons from short-term trading
(i.e., purchases and sales within a 60 day period), as such activity could be
viewed as being in conflict with CSAM's general fiduciary principles. In no
event, however, may an Advisory Person make a purchase and sale (or sale and
purchase) of a security, including shares of Covered Funds and other U.S.
registered investment companies (other than money market funds), within five
"Business Days" (meaning days on which the New York Stock Exchange is open for
trading). CSAM reserves the right to extend this prohibition period for the
short-term trading activities of any or all Advisory Persons if CSAM determines
that such activities are being conducted in a manner that may be perceived to be
in conflict with CSAM's general fiduciary principles.
B. SIDE-BY-SIDE TRADING. No Access Person may purchase or sell (directly or
indirectly) any security for which there is a "buy" or "sell" order pending for
a CSAM client (except that this restriction does not apply to any Access Person
who is neither an Advisory Person nor an officer of a Covered Fund, unless he or
she knows, or in the ordinary course of fulfilling official duties with a
Covered Fund should know, that there is a "buy" or "sell" order pending with
respect to such security for a CSAM client), or that such Access Person knows
(or should know) at the time of such purchase or sale:
o is being considered for purchase or sale by or for any CSAM client; or
o is being purchased or sold by or for any CSAM client.
C. BLACKOUT PERIODS. No Advisory Person may execute a securities transaction
within five Business Days before and one Business Day after a transaction in
that security for a CSAM client.
D. PUBLIC OFFERINGS. No Advisory Person may directly or indirectly acquire
Beneficial Ownership in any security in a public offering in the primary
securities market.
E. PRIVATE PLACEMENTS. No Advisory Person may directly or indirectly acquire or
dispose of any Beneficial Ownership in any privately placed security without the
express prior written approval of a supervisory person designated in Section IX
of this Code ("Designated Supervisory Person"). Approval will take into account,
among other factors, whether the investment opportunity should be reserved for a
CSAM client, whether the opportunity is being offered to the Advisory Person
2
<PAGE>
because of his or her position with CSAM or as a reward for past transactions
and whether the investment creates or may in the future create a conflict of
interest.
F. SHORT SELLING. Advisory Persons are only permitted to engage in short selling
for hedging purposes. No Advisory Person may engage in any transaction that has
the effect of creating any net "short exposure" in an individual security.
G. FUTURES CONTRACTS. No Advisory Person may invest in futures contracts, except
through the purchase of options on futures contracts.
H. OPTIONS. No Advisory Person may write (i.e., sell) any options except for
hedging purposes and only if the option is fully covered.
I. TRADING, HEDGING AND SPECULATION IN CREDIT SUISSE GROUP SECURITIES.
Transactions by employees, officers and directors of CSAM in securities of
Credit Suisse Group ("CSG") are prohibited for each period beginning 15 calendar
days before announcement of CSG yearly or half-yearly results and ending two
Business Days after the announcement. Employees, officers and directors of CSAM
may only hedge vested positions in CSG stock through short sales or derivative
instruments. Uncovered short exposure, through short sales or otherwise, is not
permitted without the express prior written approval of a Designated Supervisory
Person.
J. INVESTMENT CLUBS. No Advisory Person may participate in an "investment club"
or similar activity.
K. DISCLOSURE OF INTEREST. No Advisory Person may recommend to or effect for any
CSAM client any securities transaction without having disclosed his or her
personal interest (actual or potential), if any, in the issuer of the
securities, including without limitation:
o any ownership or contemplated ownership of any privately placed
securities of the issuer or any of its affiliates;
o any employment, management or official position with the issuer or any
of its affiliates;
o any present or proposed business relationship between the Advisory
Person and the issuer or any of its affiliates; and
o any additional factors that may be relevant to a conflict of interest
analysis.
Where the Advisory Person has a personal interest in an issuer, a decision to
purchase or sell securities of the issuer or any of its affiliates by or for a
CSAM client shall be subject to an independent review by a Designated
Supervisory Person.
L. GIFTS. No Advisory Person may seek or accept any gift of more than a de
minimis value (approximately $250 per year) from any person or entity that does
business with or on behalf of a CSAM client, other than reasonable,
business-related meals and tickets to sporting events, theater and similar
activities. If any Advisory Person is unsure of the appropriateness of any gift,
a Designated Supervisory Person should be consulted.
3
<PAGE>
M. DIRECTORSHIPS AND OTHER OUTSIDE BUSINESS ACTIVITIES. No Advisory Person may
serve on the board of directors/trustees of any issuer without the express prior
written approval of a Designated Supervisory Person. Approval will be based upon
a determination that the board service would be consistent with the interests of
CSAM clients. Where board service is authorized, Advisory Persons serving as
directors will be isolated from those making investment decisions regarding the
securities of that issuer through "informational barrier" or other procedures
specified by a Designated Supervisory Person.
No Advisory Person may be employed (either for compensation or in a voluntary
capacity) outside his or her regular position with CSAM or its affiliated
companies without the written approval of a Designated Supervisory Person.
IV. EXEMPT TRANSACTIONS
-------------------
A. EXEMPTIONS FROM PROHIBITIONS.
1. Purchases and sales of securities issued or guaranteed by the U.S.
government or any agencies or instrumentalities of the U.S. government,
municipal securities, and other non-convertible fixed income securities,
which are in each case rated investment grade, are exempt from the
prohibitions described in paragraphs C and D of Section III if such
transactions are made in compliance with the preclearance requirements of
Section V(B) below.
2. Any securities transaction, or series of related transactions,
involving 500 shares or less of an issuer having a market capitalization
(outstanding shares multiplied by the current market price per share)
greater than $2.5 billion is exempt from the prohibition described in
paragraph C of Section III if such transaction is made in compliance with
the preclearance requirements of Section V(B) below.
B. EXEMPTIONS FROM PROHIBITIONS AND PRECLEARANCE. The prohibitions described
in paragraphs B through E of Section III and the preclearance requirements of
Section V(B) shall not apply to:
o purchases and sales of securities that are direct obligations of the
U.S. government;
o purchases and sales of securities of U.S. registered open-end
investment companies;
o purchases and sales of bankers' acceptances, bank certificates of
deposit, and commercial paper;
o purchases that are part of an automatic dividend reinvestment plan;
o purchases and sales that are non-volitional on the part of either the
Access Person or the CSAM client;
o purchases and sales in any account maintained with a party that has no
affiliation with the Covered Companies and over which no Advisory
Person has, in the judgment of a Designated Supervisory Person after
reviewing the terms and circumstances, direct or indirect influence or
control over the investment or trading of the account; and
4
<PAGE>
o purchases by the exercise of rights offered by an issuer pro rata to
all holders of a class of its securities, to the extent that such
rights were acquired from the issuer.
C. FURTHER EXEMPTIONS. Express prior written approval may be granted by a
Designated Supervisory Person if a purchase or sale of securities or other
outside activity is consistent with the purposes of this Code and Section 17(j)
of the 1940 Act and rules thereunder (attached as Attachment A is a form to
request such approval). For example, a purchase or sale may be considered
consistent with those purposes if the purchase or sale is not harmful to a CSAM
client because such purchase or sale would be unlikely to affect a highly
institutional market, or because such purchase or sale is clearly not related
economically to the securities held, purchased or sold by the CSAM client.
V. TRADING, PRECLEARANCE, REPORTING AND OTHER COMPLIANCE PROCEDURES
----------------------------------------------------------------
A. TRADING THROUGH CSAM. No Advisory Person shall purchase or sell securities
for an account in which he or she has Beneficial Ownership other than through
the CSAM trading desk persons designated by a Designated Supervisory Person,
unless express prior written approval is granted by a Designated Supervisory
Person.
B. PRECLEARANCE. Except as provided in Section IV, before any Advisory Person
purchases or sells any security for any account in which he or she has
Beneficial Ownership, preclearance shall be obtained in writing from a
Designated Supervisory Person (attached as Attachment B is a form to request
such approval). If clearance is given for a purchase or sale and the transaction
is not effected on that Business Day, a new preclearance request must be made.
C. REPORTING.
1. INITIAL CERTIFICATION. Within 10 days after the commencement of his or her
employment with CSAM or his or her affiliation with any Covered Fund, each
Access Person shall submit to a Designated Supervisory Person an initial
certification in the form of Attachment C to certify that:
o he or she has read and understood this Code of Ethics and recognizes
that he or she is subject to its requirements; and
o he or she has disclosed or reported all personal securities holdings
in which he or she has any direct or indirect Beneficial Ownership and
all accounts in which any securities are held for his or her direct or
indirect benefit.
2. ANNUAL CERTIFICATION. In addition, each Access Person shall submit to a
Designated Supervisory Person an annual certification in the form of Attachment
D to certify that:
o he or she has read and understood this Code of Ethics and recognizes
that he or she is subject to its requirements;
o he or she has complied with all requirements of this Code of Ethics;
and
5
<PAGE>
o he or she has disclosed or reported (a) all personal securities
transactions for the previous year and (b) all personal securities
holdings in which he or she has any direct or indirect Beneficial
Ownership and accounts in which any securities are held for his or her
direct or indirect benefit as of a date no more than 30 days before
the annual certification is submitted.
Access Persons may comply with the initial and annual reporting requirements by
submitting account statements and/or Attachment E to a Designated Supervisory
Person within the prescribed periods. An Access Person who is not an Advisory
Person is not required to submit initial or annual certifications, unless such
Access Person is an officer of a Covered Fund.
Each Advisory Person shall annually disclose all directorships and outside
business activities (attached as Attachment F is a form for such disclosure).
3. QUARTERLY REPORTING. All Advisory Persons and each Access Person who is an
officer of a Covered Fund shall also supply a Designated Supervisory Person, on
a timely basis, with duplicate copies of confirmations of all personal
securities transactions and copies of periodic statements for all securities
accounts, including confirmations and statements for transactions and accounts
described in Section IV(B) above (exempt from prohibitions and preclearance).
This information must be supplied at least once per calendar quarter, within 10
days after the end of the calendar quarter.
Each Access Person who is neither an Advisory Person nor an officer of a Covered
Fund is required to report a transaction only if he or she, at the time of that
transaction, knew (or in the ordinary course of fulfilling official duties with
a Covered Fund should have known) that during the 15-day period immediately
before or after the date of the transaction the security such person purchased
or sold was purchased or sold by the Covered Fund or was being considered for
purchase or sale by the Covered Fund.
VI. COMPLIANCE MONITORING AND SUPERVISORY REVIEW
--------------------------------------------
A Designated Supervisory Person will periodically review reports from the CSAM
trading desk (or, if applicable, confirmations from brokers) to assure that all
transactions effected by Access Persons for accounts in which they have
Beneficial Ownership are in compliance with this Code and Rule 17j-1 under the
1940 Act.
Material violations of this Code and any sanctions imposed shall be reported not
less frequently than quarterly to the board of directors of each relevant
Covered Fund and to the senior management of CSAM. At least annually, each
Covered Company shall prepare a written report to the board of
directors/trustees of each Covered Fund, and to the senior management of CSAM,
that:
o describes issues that have arisen under the Code since the last
report, including, but not limited to, material violations of the Code
or procedures that implement the Code and any sanctions imposed in
response to those violations; and
o certifies that each Covered Company has adopted procedures reasonably
necessary to prevent Access Persons from violating the Code.
6
<PAGE>
Material changes to this Code of Ethics must be approved by the Board of
Directors of each Covered Fund no later than six months after the change is
adopted. That approval must be based on a determination that the changes are
reasonably necessary to prevent Access Persons from engaging in any conduct
prohibited by the Code and Rule 17j-1 under the 1940 Act. Board approval must
include a separate vote of a majority of the independent directors.
VII. SANCTIONS
---------
Upon discovering that an Access Person has not complied with the requirements of
this Code, the senior management of the relevant Covered Company may impose on
that person whatever sanctions are deemed appropriate, including censure; fine;
reversal of transactions and disgorgement of profits; suspension; or termination
of employment.
VIII. CONFIDENTIALITY
---------------
All information obtained from any Access Person under this Code shall be kept in
strict confidence, except that reports of transactions will be made available to
the Securities and Exchange Commission or any other regulatory or
self-regulatory organization to the extent required by law or regulation.
IX. FURTHER INFORMATION
-------------------
The Designated Supervisory Persons are Hal Liebes and James W. Bernaiche or
their designees in CSAM's legal and compliance department. Any questions
regarding the Code of Ethics should be directed to a Designated Supervisory
Person.
Dated: March 1, 2000
<PAGE>
EXHIBIT 1
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS
CODE OF ETHICS
DEFINITION OF BENEFICIAL OWNERSHIP
The term "Beneficial Ownership" as used in the attached Code of Ethics is to be
interpreted by reference to Rule 16a-1(a)(2) under the Securities Exchange Act
of 1934 ("Rule"). Under the Rule, a person is generally deemed to have
Beneficial Ownership of securities if the person (directly or indirectly),
through any contract, arrangement, understanding, relationship or otherwise, has
or shares a direct or indirect pecuniary interest in the securities.
The term "pecuniary interest" is generally defined in the Rule to mean the
opportunity (directly or indirectly) to profit or share in any profit derived
from a transaction in the securities. A person is deemed to have an "indirect
pecuniary interest" within the meaning of the Rule:
o in any securities held by members of the person's immediate family sharing
the same household; the term "immediate family" includes any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law
or sister-in-law, as well as adoptive relationships;
o a general partner's proportionate interest in the portfolio securities held
by a general or limited partnership;
o a person's right to dividends that is separated or separable from the
underlying securities;
o a person's interest in certain trusts; and
o a person's right to acquire equity securities through the exercise or
conversion of any derivative security, whether or not presently
exercisable.1
For purposes of the Rule, a person who is a shareholder of a corporation or
similar entity is not deemed to have a pecuniary interest in portfolio
securities held by the corporation or entity, so long as the shareholder is not
a controlling shareholder of the corporation or the entity and does not have or
share investment control over the corporation's or the entity's portfolio. The
term "control" means the power to exercise a controlling influence over
management or policies, unless the power is solely the result of an official
position with the company.
- - ----------
1 The term "derivative security" is defined as any option, warrant, convertible
security, stock appreciation right or similar right with an exercise or
conversion privilege at a price related to an equity security (or similar
securities) with a value derived from the value of an equity security.
<PAGE>
ATTACHMENT A
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS/CSAM CLOSED-END FUNDS
CODE OF ETHICS -- SPECIAL APPROVAL FORM
1. The following is a private placement of securities or other investment
requiring special approval in which I want to acquire or dispose of
Beneficial Ownership:
NAME OF PRIVATE
- - ---------------
SECURITY OR DATE TO BE AMOUNT TO RECORD PURCHASE HOW ACQUIRED
------------ ---------- --------- ------ -------- ------------
OTHER INVESTMENT ACQUIRED BE HELD OWNER PRICE (BROKER/ISSUER)
- - ---------------- -------- ------- ----- ----- ---------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Would this investment opportunity be appropriate for a CSAM client?
___ Yes ___ No
2. I want to engage in the following outside business activity:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
3. I want special approval to place personal securities trades other than
through the CSAM trading desk (please describe):
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
I certify, as applicable, that I (a) am not aware of any non-public information
about the issuer, (b) have made all disclosures required by the Code of Ethics
and (c) will comply with all reporting requirements of the Code.
- - -------------------------------- -------------------------------
Signature Date
- - --------------------------------
Print Name
___ Approved
___ Not Approved
- - ------------------------------- ------------------------------
Designated Supervisory Person Date
<PAGE>
ATTACHMENT B
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS/CSAM CLOSED-END FUNDS
CODE OF ETHICS -- PERSONAL TRADING PRECLEARANCE FORM
This form should be filled out completely to expedite approval.
1. Security: ________________________________________
Ticker: __________________________________________
____ Purchase ____ Sale
2. Number of shares/bonds/units/contracts: ___________________________________
3. Account Name/Shortname: ___________________________________________________
4. Brokerage Firm AND Account Number: ________________________________________
5. Why do you want to purchase or sell? Is this an opportunity appropriate for
CSAM clients?
___________________________________________________________________________
6. Are you aware of a CSAM Advisory Person who is buying or selling or who
plans to buy or sell this security for his or her personal accounts or CSAM
clients?
___ Yes ___ No
If yes, who?
___________________________________________________________________________
7. If the amount is less than 500 shares, is the issuer market capitalization
greater than $2.5 billion?
___ Yes ___ No
I certify that I (a) am not aware of any non-public information about the
issuer, (b) have made all disclosures required by the Code of Ethics and this
trade otherwise complies with the Code, including the prohibition on investments
in initial public offerings, and (c) will comply with all reporting requirements
of the Code.
- - ---------------------------------- ------------------------------------
Signature of Advisory Person Date
- - ----------------------------------
Print Name
___ Approved
___ Not Approved
- - ---------------------------------- ------------------------------------
Designated Supervisory Person Date - VALID THIS BUSINESS DAY ONLY.
<PAGE>
ATTACHMENT C
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS/CSAM CLOSED-END FUNDS
CODE OF ETHICS
INITIAL CERTIFICATION
I certify that I:
o have read and understood the Code of Ethics for Credit Suisse Asset
Management, LLC, the Warburg Pincus Funds and the CSAM Closed-End Funds and
recognize that I am subject to its requirements; and
o have disclosed or reported all personal securities holdings in which I had
any direct or indirect Beneficial Ownership and accounts in which any
securities were held for my direct or indirect benefit as of the date I
commenced employment with CSAM or the date I became affiliated with a
Covered Fund.
- - -------------------------------- -------------------------------
Signature of Access Person Date
- - --------------------------------
Print Name
<PAGE>
ATTACHMENT D
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS/CSAM CLOSED-END FUNDS
CODE OF ETHICS
ANNUAL CERTIFICATION
I certify that I:
o have read and understood the Code of Ethics for Credit Suisse Asset
Management, LLC, the Warburg Pincus Funds and the CSAM Closed-End Funds and
recognize that I am subject to its requirements;
o have complied with all requirements of the Code of Ethics and Policy and
Procedures Designed to Detect and Prevent Insider Trading in effect during
the year ended December 31, 1999; and
o have disclosed or reported all personal securities transactions for the
year ended December 31, 1999 and all personal securities holdings in which
I had any direct or indirect Beneficial Ownership and all accounts in which
any securities were held for my direct or indirect benefit as of December
31, 1999.
- - -------------------------------- -------------------------------
Signature of Access Person Date
- - --------------------------------
Print Name
<PAGE>
ATTACHMENT E
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS/CSAM CLOSED-END FUNDS
CODE OF ETHICS - PERSONAL SECURITIES ACCOUNT DECLARATION
ALL ACCESS PERSONS MUST COMPLETE EACH APPLICABLE ITEM (1, 2, 3 OR 4) AND SIGN
BELOW.
1. The following is a list of securities/commodities accounts in which I have
Beneficial Ownership:
BROKER/DEALER ACCOUNT TITLE AND NUMBER
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
2. The following is a list of securities/commodities accounts in which I had
Beneficial Ownership that have been opened or closed in the past year:
BROKER/DEALER ACCOUNT TITLE AND NUMBER
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
3. The following is a list of any other securities or other investment
holdings in which I have Beneficial Ownership (for securities held in
accounts other than those disclosed in response to items 1 and 2):
NAME OF PRIVATE
- - ---------------
SECURITY OR
-----------
OTHER DATE AMOUNT HELD RECORD PURCHASE HOW ACQUIRED
----- ---- ----------- ------ -------- ------------
INVESTMENT ACQUIRED OWNER PRICE (BROKER/ISSUER)
---------- -------- ----- ----- ---------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
4. I do not have Beneficial Ownership in any securities/commodities accounts
or otherwise have Beneficial Ownership of any securities or other
instruments subject to the Code of Ethics. (Please initial.)
-------------
Initials
I declare that the information given above is true and accurate:
- - -------------------------------- -------------------------------
Signature of Access Person Date
- - -------------------------------
Print Name
<PAGE>
ATTACHMENT F
CREDIT SUISSE ASSET MANAGEMENT, LLC
WARBURG PINCUS FUNDS/CSAM CLOSED-END FUNDS
CODE OF ETHICS
OUTSIDE BUSINESS ACTIVITIES
Outside business activities include, but are not limited to, the following:
o self-employment;
o receiving compensation from another person or company;
o serving as an officer, director, partner, or consultant of another business
organization (including a family owned company); and
o becoming a general or limited partner in a partnership or owning any stock
in a business, unless the stock is publicly traded and no control
relationship exists.
Outside business activities include serving with a governmental (federal, state
or local) or charitable organization whether or not for compensation.
ALL ADVISORY PERSONS MUST COMPLETE AT LEAST ONE CHOICE (1 OR 2) AND SIGN BELOW.
1. The following are my outside business activities:
APPROVED BY DESIGNATED
OUTSIDE BUSINESS DESCRIPTION OF SUPERVISORY PERSON (YES/NO)
ACTIVITY ACTIVITY
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
2. I am not involved in any outside business activities. (Please initial)
------------
Initials
I declare that the information given above is true and accurate:
- - -------------------------------- -------------------------------
Signature of Advisory Person Date
- - --------------------------------
Print Name
CODE OF ETHICS REGARDING PERSONAL
SECURITIES TRANSACTIONS
-----------------------
I. INTRODUCTION
------------
It is expected that all officers, directors, and employees will observe the
highest possible standards of ethics and will so conduct their personal affairs
to avoid any conflict, or appearance of conflict, with their duties for Todd
Investment Advisors, Inc. In any situation where the potential for conflict
exists, transactions for clients must take precedence over personal
transactions. Recommendations to clients that have been made, or are under
consideration, are confidential. In addition, the officers, directors, and
employees of Todd Investment Advisors, Inc. must not use, or appear to use,
their position as such to obtain any personal benefit from brokers or others
seeking to do business with Todd Investment Advisors, Inc. Should any situation
arise not specifically governed by this Code of Ethics, the general principles
stated in this paragraph shall govern the resolution of the matter.
Rules set forth herein are applicable to all officers, directors, and
employees of Todd Investment Advisors, Inc., except that the requirements under
the heading "Special Rules for Persons in Certain Sensitive Positions" apply
only to the persons designated in that section.
All rules apply to transactions in such person's own accounts and in
accounts that such person "beneficially owns." A person is deemed to
"beneficially own" accounts from which he or she derives economic benefit,
including accounts of his or her spouse, minor children, family members sharing
such person's home, and all other accounts over which such person exercises
investment discretion or control, such as accounts that he or she is a trustee,
custodian, or guardian.
Violation of the Code of Ethics may result in civil and criminal liability,
or both, under the federal security laws. In addition, any transaction that is
considered to have been improper, or that appears improper in light of
subsequent developments, even though proper when made, is subject to reversal.
Compliance with the Code of Ethics is a condition of employment, and willful
violation of this Code may be cause for termination of employment. Questions
regarding this Code of Ethics, other than questions concerning particular
personal transactions, should be directed to the President of Todd Investment
Advisors, Inc. Questions concerning particular personal transactions should be
directed as follows.
This Code of Ethics must be read, acknowledged, and returned to the
President of Todd Investment Advisors, Inc., by each officer, director, and
employee of Todd Investment Advisors, Inc., and any other individuals covered
hereby. A duplicate copy is included and should be retained for your reference.
<PAGE>
II. GENERAL RULES
-------------
Transactions and reporting requirements apply to all publicly traded equity
related securities, such as common stocks, convertible or participating
debentures, and preferred stocks and options - except for shares in registered
open-end investment companies. Reporting is also required with respect to
transactions in bonds and transactions in commodity interests. The transaction
and reporting requirements do not apply to U.S. government obligations, bankers'
acceptances, banks' certificates of deposit, commercial paper, or options of
futures on bond or stock market indices.
"Hot New Issues" - Persons subject to this Code of Ethics may not purchase
on the initial underwriting of new issues of securities for which the demand
exceeds supply.
Persons subject to this Code of Ethics may not purchase or hold, at any
time, any security or other interest in any privately owned broker or dealer in
securities. In addition, no person will be allowed to own more than 1% of any
publicly traded broker or dealer in securities.
Trading on "inside information" of any sort, whether obtained in the course
of research activities, through a client relationship, or otherwise, is
prohibited. (This would include trading in a security with respect to which
either Todd Investment Advisors, Inc., or the person subject to the Code of
Ethics who is trading has inside information.)
Affiliation with investment clubs is prohibited.
III. TRANSACTION RULES
-----------------
A. APPLICABLE TO ALL STOCKS (AND RELATED CONVERTIBLES AND OPTIONS):
Purchases or sales for Company personnel will be approved only if
there are no conflicting orders pending for client accounts. A
conflicting order is deemed to be any order for the same security or
an option thereon that has not been fully executed.
B. APPLICABLE TO TODD INVESTMENT ADVISORS, INC., EQUITY MODEL PORTFOLIO
STOCKS.
1. No purchase of a stock added to the Todd Investment Advisors,
Inc., equity model portfolio will be allowed for ten (10)
business days following the addition.
2. No sale of a Todd Investment Advisors, Inc., equity model
portfolio stock down-rated to the point where it is intended to
be sold promptly by a client's account will normally be allowed
for ten (10) business days following the down-rating. (Exceptions
may be allowed on a
-2-
<PAGE>
case-by-case basis in the event that client and fund sales have
been completed prior to the expiration of the ten-day period.)
IV. SPECIAL RULES FOR PERSONS IN SENSITIVE POSITIONS
------------------------------------------------
In addition to the results stated above, certain additional restrictions
are applicable to all employees who are in a position to recommend and/or
approve the purchase of a security by a client.
Each such person owning a stock that he or she has recommended or approved
for purchase by a client, or having an option position in such stock, must
disclose the fact of his or her ownership or position to the President of Todd
Investment Advisors, Inc. The President may require additional information as to
any such ownership or position and may, in consultation with members of the
Investment Committee, require sale of the stock or closure of the option
position by such person to avoid the appearance of any impropriety. The Company
shall maintain a written record of such disclosures and any actions taken in
response to them.
V. PRE-CLEARANCE REQUIREMENT
-------------------------
Prior to executing personal transactions, each employee must get clearance
from the trading department.
The trading department will maintain a list of securities that have been
added to or down-rated on the Todd Investment Advisors, Inc., equity model
portfolio within the last ten (10) business days. The equity portfolio managers
are responsible for prompt revision of the list to reflect changes as they
occur. Personal securities transactions of each trader must be cleared with
another member of the trading department. Persons engaging in securities
transactions shall keep a personal record of the person pre-clearing each
transaction, the date of such pre-clearance, the time, and nature of such
transaction.
VI. REPORTING
---------
All securities transactions must be reported to the President quarterly,
based upon the following schedule:
First Quarter - April 10
Second Quarter - July 10
Third Quarter - October 10
Fourth Quarter - January 10
-3-
<PAGE>
Each report shall be in the form of the quarterly securities report
(attached) and must be received by the president by the date indicated above. A
report must be filed for each quarter, regardless of whether any security
transactions have occurred. The reporting person must sign the report, which
must include all transactions and accounts that such reporting persons
"beneficially own." The reporting person may seek to disclaim beneficial
ownership in a particular transaction on the report, stating in the report the
reason for such disclaimer.
In addition, all reporting persons are required to file, with the
President, an initial ownership report in the form of the statement of ownership
report attached to the Code of Ethics. This report shall be a statement of the
issuer and title of securities owned by the employee (and the nature of such
ownership) as of May 1, 1990, and must be filed with the President no later than
May 30, 1990. Each new officer, director, employee of Todd Investment Advisors,
Inc., hereinafter shall be required to file such statement of ownership report
upon employment with the Company as of the date of such employment.
VII. ACKNOWLEDGEMENT
---------------
I acknowledge that I have read and understand this Code of Ethics, and I
agree to comply with its requirements.
- - --------------------------------------- ----------------------------
Signature Date
-4-
<PAGE>
SUPPLEMENT TO OUR CODE OF ETHICS
--------------------------------
November 30, 1999
I. MUTUAL FUNDS
------------
CODE OF ETHICS REGARDING TODD INVESTMENT ADVISORS ROLE AS A SUB-ADVISOR TO THE
- - ------------------------------------------------------------------------------
INVESTMENT ADVISOR OF A MUTUAL FUND
- - -----------------------------------
As a sub-advisor to one or more investment advisors of mutual funds, we at Todd
Investment Advisors are regulated in the same manner as advisory relationships
directly between a fund and its primary investment advisor. Thus, we are
included in the definition of "Investment Advisor" under Section 2(a) (20)(b) of
the 1940 Act.
Under Section 15(a) of the Act, any advisory agreement we have must describe all
compensation to be paid to us as sub-advisor. The agreement must also provide it
will continue for more than two years after its initial execution only if such
continuance is proved annually by the Fund's Board. The contract must also
provide that the Fund's Board or its shareholders may terminate it at anytime,
without penalty on 60 days written notice to the advisor. Finally, the contact
must provide for its automatic termination in the event of an assignment of the
contract.
Under Section 36(a) of the Act, we, as sub-advisor, are deemed to have a
fiduciary relationship with respect to the Fund and its shareholders.
As a sub-advisor, we are also considered an "affiliated person" with respect to
transaction restrictions.
It is important that any agreement we have as sub-advisor clearly set forth the
responsibilities we have with respect to the particular mutual fund. For
example, the agreement should state that we will manage the portfolio in
compliance with the restrictions set forth in the Fund's prospectus; any
instructions received from the primary advisor; the requirements of applicable
laws; and the terms of any forms of regulatory relief on which the Fund is
relying. The agreement should also state that we have a responsibility to
maintain certain records under the 1940 Act. In the agreement, we as
sub-advisors should also agree to make periodic reports to the advisor regarding
compliance and performance issues. We should also agree to cooperate with the
Fund's auditors and also with preparation and execution of any SEC filings.
It is important that, as a sub-advisor, we should be very familiar with
investment policies and restrictions of the particular Fund, as well as
applicable provisions of
<PAGE>
the Federal Securities Laws that may affect the manner in which we can manage
the Fund assets. Where possible, whenever we act as sub-advisor, we should try
to make sure that an in-person presentation will be periodically made to the
Fund's Board, at which time we as sub-advisor would discuss our investment
methodology and our experience in advising other clients, including any other
registered funds. This meeting should also provide the Fund' Board with
opportunity to ask us about our compliance capabilities.
While it is not necessary for us as sub-advisor to follow the same Code of
Ethics used by the primary advisor, henceforth, we will seek approval of the
Code followed by us as sub-advisor, by the Fund's Board and material personal
trading issues should be reported to the primary Advisor and the Fund's Board on
an on-going basis. This should include a statement furnished by us to the
primary advisor that there has been no "front running" by any employees of Todd
in any securities held by the Fund.
We should also make sure that scheduled periodic meetings take place between our
investment people and those employed by the primary advisor to review the
responsibility of each of us and discuss operational issues that may have
arisen. It is vital that we keep open lines of communication between us.
In most circumstances, it is advisable for us to fill out, each month, a
compliance checklist (See Exhibit A), which indicates whether or not the Fund's
investment objectives, or any of its investment restrictions and policies were
violated in the preceding months. It should also note the steps that were taken
in response to such violations. The checklist should also include
representations that we as a sub-advisor have not caused the Fund to violate
applicable provisions of the 1940 Act and other Federal Securities Laws. When a
violation of a Fund's policy or applicable has occurred as a result of an
investment that we have made, we should describe the violation and the measures
that have been taken to reasonably ensure that such a violation does not occur
again. These checklists should be provided to the Fund's Board at its quarterly
meetings.
We should make sure that the compliance department of the primary advisor
clearly understands their role in overseeing the day-to-day operation of us as
sub-advisor, as such operations relate to our management of their Fund. It is
essential that open lines of communication be established and maintained between
the primary advisor and us. These policies are necessary to ensure compliance
with the Securities Laws related to mutual funds. It is particularly important
because of the fact that the primary advisor will invariably be located in a
distant city.
2
<PAGE>
II. PERSONAL TRANSACTIONS
---------------------
SUPPLEMENT TO TODD INVESTMENT ADVISORS CODE OF ETHICS REGARDING PERSONAL
- - --------------------------------------------------------------------------------
SECURITIES TRANSACTIONS (NOVEMBER 30, 1999)
- - -------------------------------------------
The following is a supplement to our original Code of Ethics on this subject,
which was prepared in May, 1990.
The SEC, in August 1999, issued a regulation that further restricts personal
trading by mutual fund portfolio managers and investment advisors. Since we have
recently become sub-advisor of several such mutual funds, these rules apply to
us. The SEC stated: "These amendments will help ensure that the personal trading
of mutual fund insiders does not compromise the interest of mutual fund
shareholders. If we, nonetheless discover abusive trading, it can be expected
that the Commission will take enforcement actions where necessary to protect
investors."
ALL TODD EMPLOYEES AFFECTED
- - ---------------------------
The new amendments to the personal trading rule apply to all employees of Todd
Investment Advisors forthwith and cover the following four areas.
FOUR AREAS COVERED
- - ------------------
INCREASED OVERSIGHT BY FUND BOARD OF DIRECTORS - Henceforth, the Fund's board of
directors must (1) approve the fund's code of ethics, as well as the codes of
any investment adviser or principal underwriter to the fund, and (2) review
annual reports from the fund, and any investment adviser or principal
underwriter to the fund, regarding issues that have arisen under the codes
during the past year.
IMPROVED REPORTING REQUIREMENTS - "Access persons" must provide an initial
report of their securities holdings to their employers when they become access
persons and annual reports thereafter (in addition to the transaction reports
currently required.)
PRE-CLEARANCE REQUIRED FOR AND PRIVATE PLACEMENTS - Portfolio managers and
others who participate in the fund's investment decisions must obtain advance
approval for any investment in private placement.
PUBLIC DISCLOSURE - Funds must disclose, as part of their registration
statements: (1) the fund's policy on employees' personal investment activities,
as well as the policies of any investment adviser or principal underwriter to
the fund; and (2) a copy of the fund's code of ethics and the codes of any
investment adviser or principal underwriter to the fund.
3
<PAGE>
INITIAL PUBLIC OFFERINGS
- - ------------------------
Historically, we have stated that Todd Investment Advisors personnel may not
purchase IPOs for which demand exceeds supply ("hot issues"). Todd Investment
Advisors hereby modifies this restriction to state that no Todd employee can
purchase any security in an Initial Public Offering, in order to preclude any
possibility of their profiting improperly from their positions with an advisor.
The rare exception to this restriction would be circumstances whereby Todd
personnel cannot profit improperly from their position, such as depositor in a
savings and loan association, which is converting from a mutual to a stock form
of ownership. In those circumstances, such a transaction requires prior written
approval of the CEO of Todd.
PRIVATE PLACEMENTS
- - ------------------
Todd hereby requires prior written approval of the CEO of any acquisition of
securities by Todd personnel in a private placement. Such prior approval will
take into account, among other factors, whether the investment opportunity
should be reserved for clients, and whether the opportunity is being offered to
an individual by virtue of his or her position with the advisor. Todd personnel
who have been authorized to acquire securities in a private placement are
required to disclose that investment when they play a part in any client's
subsequent consideration of an investment in the issuer. In such circumstances,
the decision to purchase securities of the issuer for the client is subject to
an independent review and written approval by senior personnel of Todd, who have
no personal interest in the issuer.
BLACKOUT PERIODS
- - ----------------
In the past, purchases or sales for Todd personnel have been approved only if
there are no conflicting orders pending for client accounts. This rule is hereby
tightened up to specify that no Todd personnel can execute personal transactions
for a security within 24 hours in which any client has a pending "buy" or "sale"
order in that same security until that order is executed or withdrawn. At this
time, we do not consider it necessary to install a more lengthy blackout period
(a prescribed number of calendar days before and after client trades). At some
future point, we may decide to install a longer blackout period if the growth or
administrative complexity of the firm makes the limitations of the current rule
difficult to administer without benefit of a lengthy blackout.
TRANSACTION REPORTING
- - ---------------------
In the past, all security transactions and pre-clearance statements have been
required from all employees to the President quarterly by the 10th of the month
following quarter end. Henceforth, such transaction reports should instead be
submitted monthly by the 10th of the following month, commencing January 1,
4
<PAGE>
2000. Any employee who fails to return the transaction report by the 10th of the
month following the month in question will be required to pay a $50 late fee.
RECORDS OF SECURITIES TRANSACTIONS
- - ----------------------------------
In addition to the securities report, we now require the following each month:
All employees will submit by the 20th of the month following the month in
question, to Jennifer Doss, duplicate copies of confirmations of all
personal securities transactions and copies of periodic statements for all
securities accounts. Those who fail to supply these statements by the 20th
of the month will be charged a $50 late fee. The asset statement can
instead be furnished quarterly in those instances where the Todd employee
does not receive such statements monthly.
RESTRICTIONS ON POLITICAL CONTRIBUTIONS
- - ---------------------------------------
Todd Investment Advisors condemns "pay-to-play" practices and therefore, neither
Todd Investment Advisors nor any of its employees or family members are to make
political contributions to candidates for political office who could influence
the selection of investment advisors by public funds. In August, 1999, the SEC
proposed a rule that would prohibit an advisor from providing his services to a
government client for two years after contributions are made to State and Local
officials (and candidates for their positions) who are able to influence the
selection of an advisor. We concur with the De minimis exception which states
that the two-year timeout does not apply to contributions of $250 or less made
to a candidate for whom the person making the contribution can vote. Todd
employees are also prohibited from soliciting campaign contributions for those
elected officials able to influence the selection of an advisor.
All employees of Todd are required to keep records of their political
contributions and to submit this information monthly to Jennie Doss, Compliance
Officer.
COMPLIANCE OFFICER
- - ------------------
Jennifer Doss, as Compliance Officer, is responsible for receiving the required
reports monthly from each Todd employee. She is expected to report such
compliance to the CEO of Todd by the 30th of the month.
5
<PAGE>
III. MISCELLANEOUS
-------------
GIFTS
- - -----
All investment personnel of Todd are prohibited from accepting any gifts or
other thing of more than de minimis value from any person or entity that does
business with or on behalf of Todd.
SERVICES AS A DIRECTOR
- - ----------------------
Because of the high potential for conflict of interest and insider trading
problems, Board membership by Todd personnel should be carefully scrutinized and
subject to prior approval. In a relatively small number of instances in which
Board service is authorized, investment personnel serving as Directors are
prohibited from making recommendations for purchase or sale of that security for
clients or for Todd personnel. No opinion as to the attraction, or lack there
of, of that security should be given; in other words, a "Chinese Wall" should
exist.
PROHIBITION AGAINST USE OF MATERIAL NON-PUBLIC INFORMATION
- - ----------------------------------------------------------
No employee, nor any member of his/her family is allowed to trade in a security
while in possession of, nor communicate, material non-public information. Such a
practice is a serious violation of the rules of AIMR, the CFA, and Rule 10(b) of
the Securities and Exchange Commission.
IV. ANNUAL CERTIFICATION
--------------------
CERTIFICATION OF COMPLIANCE WITH CODES OF ETHICS:
- - -------------------------------------------------
Access persons, namely all Todd personnel, should annually certify that they
have read, understood, and complied with the Code of Ethics. This statement
should be submitted to the Compliance Officer in writing by the 10th of January
each year.
ACKNOWLEDGEMENT
- - ---------------
I acknowledge that I have read and understand this Supplement to Our Code
of Ethics, and I agree to comply with its requirements.
- - ---------------------------------- ------------------------------
Signature Date
MASTRAPASQUA & ASSOCIATES
CODE OF ETHICS
I. INTRODUCTION
This Code of Ethics has been adopted by Mastrapasqua & Associates
("Mastrapasqua") for the purpose of instructing all employees, officers,
directors and trustees of the investment adviser in its ethical obligations and
to provide rules for its personal securities transactions. All such employees,
officers, directors and trustees owe a fiduciary duty to the Client Accounts
they manage and their shareholders. A fiduciary duty means a duty of loyalty,
fairness and good faith towards the Client Accounts and its shareholders, and
the obligation to adhere not only to the specific provisions of this Code but to
the general principles that guide the Code.
II. STATEMENT OF GENERAL PRINCIPLES
(i) The duty at all times to place the interests of the Client Accounts and
their shareholders first;
(ii) The requirement that all personal securities transactions be conducted
in a manner consistent with the Code of Ethics and in such a manner as to
avoid any actual or potential conflict of interest or any abuse of any
individual's position of trust and responsibility; and
(iii) The fundamental standard that such employees, officers, directors and
trustees should not take inappropriate advantage of their positions, or of
their relationship with the Client Accounts or their shareholders.
It is imperative that the personal trading activities of the employees,
officers, directors and trustees of Mastrapasqua be conducted with the highest
regard for these general principles in order to avoid any possible conflict of
interest, any appearance of a conflict, or activities that could lead to
disciplinary action. This includes executing transactions through or for the
benefit of a third party when the transaction is not in keeping with the general
principles of this Code.
All personal securities transactions must also comply with Mastrapasqua's
Insider Trading Policy and Procedures and the Securities and Exchange
Commission's Rule 17J-1. Under this rule, no Employee may:
(i) employ any device, scheme or artifice to defraud the Client Accounts or
any of their shareholders;
(ii) make to the Client Accounts or any of its shareholders any untrue
statement of a material fact or omit to state to such client a material
fact necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
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(iii) engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Client Accounts or any of their
shareholders; or
(iv) engage in any manipulative practice with respect to the Client
Accounts or any of their shareholders.
III. DEFINITIONS
A. Advisory Employees
------------------
Employees who participate in or make recommendations with respect to the
purchase or sale of securities including fund portfolio mangers and assistant
fund portfolio managers. The Compliance Officer, ________________, will maintain
a current list of all Advisory Employees.
B. Beneficial Interest
-------------------
Ownership or any benefits of ownership, including the opportunity to directly or
indirectly profit or otherwise obtain financial benefits form any interest in a
security.
C. Client Account
--------------
Any securities account or portfolio managed or directed by Mastrapasqua
including, without limitation, any investment company portfolio.
D. Compliance Officer
------------------
_______________ or, in his/her absence, the alternate Compliance Officer,
___________, or their successors in such positions.
E. Employee Account
----------------
Each account in which an Employee or a member of his or her family has any
direct or indirect Beneficial Interest or over which such person exercises
control or influence, including, but not limited to, any joint account,
partnership, corporation, trust or estate. An Employee's family members include
the Employee's spouse, minor children, any person living in the home of the
Employee, and any relative of the Employee (including in-laws) to whose support
an Employee directly or indirectly contributes.
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F. Employees
---------
The employees, officers, and trustees of the Client Accounts and the employees,
officers and directors of Mastrapasqua, including Advisory Employees. The
Compliance Officer will maintain a current list of all Employees.
G. Exempt Transactions
-------------------
Transactions which are (1) effected in an amount or in a manner over which the
Employee has no direct or indirect influence or control; (2) pursuant to a
systematic dividend reinvestment plan, systematic cash purchase plan or
systematic withdrawal plan; (3) in connection with the exercise or sale of
rights to purchase additional securities from an issuer and granted by such
issuer pro-rata to all holders of a class of its securities; (4) in connection
with the call by the issuer of a preferred stock or bond; (5) pursuant to the
exercise by a second party of a put or call option; (6) closing transactions no
more than five business days prior to the expiration of a related put or call
option; or (7) with respect to any affiliated or unaffiliated registered
open-end investment company.
H. Recommended List
----------------
The list of those Securities which the Advisory Employees currently are
recommending for purchase or sale on behalf of the Client Accounts.
I. Related Securities
------------------
Securities issued by the same issuer or issuer under common control, or when
either security gives the holder any contractual rights with respect to the
other security, including options, warrants or other convertible securities.
J. Securities
----------
Any note, stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, pre-organization certificate or subscription,
transferable share, investment contract, voting-trust certificate, certificate
of deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, or, in general, any interest or instrument commonly known as a
"security," or any certificate or interest or participation in temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase (including options) any of the foregoing; except for
the following: (1) securities issued by the government of the United States; (2)
bankers' acceptances; (3) bank certificates of deposit; (4) commercial paper;
(5) debt securities, provided that (a) the security has a credit rating of Aa or
Aaa from Moody's Investor Services, AA or AAA from Standard & Poor's Ratings
Group, or an equivalent rating from another rating service, or is unrated but
comparably creditworthy, (b) the security matures within twelve months of
purchase, (c) the market is very broad so that a large volume of transactions on
a given day will have relatively little effect on yields, and (d) the market for
the instrument
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features highly efficient machinery permitting quick and convenient trading in
virtually any volume; and 6) shares of registered open-end investment companies.
K. Securities Transaction
----------------------
The purchase or sale, or any action to accomplish the purchase or sale, of a
Security for an Employee Account.
IV. PERSONAL INVESTMENT GUIDELINES
A. Personal Accounts and Pre-Clearance
-----------------------------------
1. Employees must obtain prior written permission from the Compliance Officer
to open or maintain a margin account, or a joint or partnership account with
persons other than the Employee's spouse, parent, or child (including custodial
accounts).
2. No Employee may execute a Securities Transaction without first obtaining
Pre-Clearance from the Compliance Officer. Prior to execution, the Employee must
submit the Pre-Clearance form to the Compliance Officer, or in the case of a
Pre-Clearance request by the Compliance Officer, to the alternate Compliance
Officer. An Employee may not submit a Pre-Clearance request if, to the
Employee's knowledge at the time of the request, the same Security or a Related
Security is being actively considered for purchase or sale, or is being
purchased or sold, by a Client Account.
Advisory Employees may not execute a Securities Transaction while at the same
time recommending contrary action to a Client Account.
Settlement of Securities Transactions must be made on or before settlement date.
Extensions and pre-payments are not permitted.
The Personal Investment Guidelines in this Section III do not apply to Exempt
Transactions. Employees must remember that regardless of the transaction's
status as exempt or not exempt, the Employee's fiduciary obligations remain
unchanged.
B. Limitations on Pre-Clearance
----------------------------
1. After receiving a Pre-Clearance request, the Compliance Officer will
promptly review the request and will deny the request if the Securities
Transaction will violate this Code.
2. Employees may not execute a Securities Transaction on a day during which a
purchase or sell order in that same Security or a Related Security is pending
for, or is being actively considered on behalf of, a Client Account. In order to
determine whether a Security is being actively considered on behalf of a Client
Account, the Compliance Officer will consult the current Recommended List and,
in the case of non-equity Securities, consult each Advisory Employee responsible
for investing in non-equity Securities for any Client Account. Securities
Transactions executed in violation of this prohibition shall be unwound or, if
not possible or
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practical, the Employee must disgorge to the appropriate Client Account(s) the
value received by the Employee due to any favorable price differential received
by the Employee. For example, if the Employee buys 100 shares at $10 per share,
and a Client Account buys 1000 shares at $11 per share, the Employee will pay
$100 (100 shares x $1 differential) to the Client Account.
3. An Advisory Employee may not execute a Securities Transaction within seven
(7) calendar days after a transaction in the same Security or a Related Security
has been executed on behalf of a Client Account unless the Client Account's
entire position in the Security has been sold prior to the Advisory Employee's
Securities Transaction and the Advisory Employee is also selling the Security.
If the Compliance Officer determines that a transaction has violated this
prohibition, the transaction shall be unwound or, if not possible or practical,
the Advisory Employee must disgorge to the appropriate Client Account(s) the
value received by the Advisory Employee due to any favorable price differential
received by the Advisory Employee.
4. Pre-Clearance requests involving a Securities Transaction by an Employee
within fifteen calendar days after any Client Account has traded in the same
Security or a Related Security will be evaluated by the Compliance Officer to
ensure that the proposed transaction by the Employee is consistent with this
Code and that all contemplated Client Account activity in the Security has been
completed. It is wholly within the Compliance Officer's discretion to determine
when Pre-Clearance will or will not be given to an employee if the proposed
transaction falls within the fifteen-day period.
5. Employees are not permitted to purchase and sell, or sell and purchase, the
same Securities or Related Securities within sixty calendar days. Profits made
in violation of this prohibition must be disgorged by the Employee to the
appropriate Client Account, as determined by the Compliance Officer or, if
disgorgement to a Client Account is inappropriate, to a charity chosen by the
Compliance Officer.
6. Pre-Clearance procedures apply to any Securities Transactions in a private
placement. In connection with a private placement acquisition, the Compliance
Officer will take into account, among other factors, whether the investment
opportunity should be reserved for a Client Account, and whether the opportunity
is being offered to the Employee by virtue of the Employee's position with
Mastrapasqua. Employees who have been authorized to acquire securities in a
private placement will, in connection therewith, be required to disclose that
investment if and when the Employee takes part in any subsequent investment in
the same issuer. In such circumstances, the determination to purchase Securities
of that issuer on behalf of a Client Account will be subject to an independent
review by the Compliance Officer or someone else with no personal interest in
the issuer.
7. Employees are prohibited from acquiring any Securities in an initial public
offering. This restriction is imposed in order to preclude any possibility of an
Employee profiting improperly from the Employee's position with Mastrapasqua,
and applies only to the Securities offered for sale by the issuer, either
directly or through an underwriter, and not to Securities purchased on a
securities exchange or in connection with a secondary distribution.
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8. Employees are prohibited from acquiring low priced over-the-counter equity
securities (or "penny stock") as defined in Section 3(a) of the Securities
Exchange Act of 1934.
C. Other Restrictions
------------------
1. If a Securities Transaction is executed on behalf of a Client Account
within seven (7) calendar days after an Advisory Employee executed a transaction
in the same Security or a Related Security, the Compliance Officer will review
the Advisory Employee's and the Client Account's transactions to determine
whether the Advisory Employee did not meet his or her fiduciary duties to the
Client Account and its shareholders in violation of this Code. If the Compliance
Officer determines that the Advisory Employee's transaction violated this Code,
the transaction shall be unwound or, if not possible or practical, the Advisory
Employee must disgorge to the appropriate Client Account(s) the value received
by the Advisory Employee due to any favorable price differential received by the
Advisory Employee.
2. Employees are prohibited from serving on the boards of directors of
publicly traded companies, absent prior authorization in accord with the general
procedures of this Code. The consideration of prior authorization will be based
upon a determination that the board service will be consistent with the
interests of the trust and its shareholders. In the event that board service is
authorized, Employees serving as directors will be isolated from other Employees
making investment decisions with respect to the securities of the company in
question.
3. No Employee may accept from a customer or vendor an amount in excess of
$100 per year in the form of gifts or gratuities, or as compensation for
services. If there is a question regarding receipt of a gift, gratuity or
compensation, it is to be reviewed by the Compliance Officer.
V. COMPLIANCE PROCEDURES
A. Employees Disclosure and Certification
--------------------------------------
1. At the commencement of employment with Mastrapasqua, each Employee must
certify that he or she has read and understands this Code and recognized that he
or she is subject to it, and must disclose all personal Securities holdings.
2. The above disclosure and certification is also required annually, along
with an additional certification that the Employee has complied with the
requirements of this Code and has disclosed or reported all personal Securities
Transactions required to be disclosed or reported pursuant to the requirements
of this Code.
B. Pre-Clearance
-------------
1. Advisory Employees will maintain an accurate and current Recommended List
at all times, updating the list as necessary. The Advisory Employees will submit
all Recommended Lists to the Compliance Officer as they are generated, and the
Compliance Officer will retain the Recommended Lists for use when reviewing
Employee compliance with this Code. Upon
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<PAGE>
receiving a Pre-Clearance request, the Compliance Officer will contact the
trading desk and all Advisory Employees to determine whether the Security the
Employee intends to purchase or sell is or was owned within the past fifteen
(15) days by a Client Account, and whether there are any pending purchase or
sell orders for the Security. The Compliance Officer will determine whether the
Employee's request violates any prohibitions or restrictions set out in this
Code.
2. If authorized, the Pre-Clearance is valid for orders placed by the close of
business on the second trading day after the authorization is granted. If during
the two-day period the Employee becomes aware that the trade does not comply
with this Code or that the statements made on the request form are no longer
true, the Employee must immediately notify the Compliance Officer of that
information and the Pre-Clearance may be terminated. If, during the two-day
period, the trading desk is notified that a purchase or sell order for the same
Security or Related Security is pending or is being considered on behalf of a
Client Account, the trading desk will not execute the Employee Transaction and
will notify the Employee and the Compliance Officer that the Pre-Clearance is
terminated.
C. Compliance
----------
1. All Employees must direct their broker, dealer or bank to send duplicate
copies of all confirmations and periodic account statements directly to the
Compliance Officer. Each Employee must report, no later than ten (10) days after
the close of each calendar quarter, on the Securities Transaction Report form
provided by the Mastrapasqua, all transactions in which the Employee acquired
any direct or indirect Beneficial Interest in a Security, including Exempt
Transactions, and certify that he or she has reported all transactions required
to be disclosed pursuant to the requirements of this Code.
2. The Compliance Officer will spot check the trading confirmations provided
by brokers to verify that the Employee obtained any necessary Pre-Clearance for
the transaction. On a quarterly basis, the Compliance Officer will compare all
confirmations with the Pre-Clearance records, to determine, among other things,
whether any Client Account owned the Securities at the time of the transaction
or purchased or sold the security within fifteen (15) days of the transaction.
The Employee's annual disclosure of Securities holdings will be reviewed by the
Compliance Officer for compliance with this Code, including transactions that
reveal a pattern of trading inconsistent with this Code.
3. If an Employee violates this Code, the Compliance Officer will report the
violation to management personnel of Mastrapasqua for appropriate remedial
action which, in addition to the actions specifically delineated in other
sections of this Code, may include a reprimand of the Employee, or suspension or
termination of the Employee's relationship with Mastrapasqua.
4. The management personnel of Mastrapasqua will prepare an annual report to
the Board of Trustees for any Client Account that summarizes existing
procedures and any changes in the procedures made during the past year. The
report will identify any violations of this Code, any significant remedial
action during the past year and any instances when a Securities Transaction was
executed on behalf of any registered investment company portfolio within seven
(7) calendar days after an Advisory Employee executed a transaction but to
remedial action was
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<PAGE>
taken. The report will also identify any recommended procedural or substantive
changes to this Code based on management's experience under this Code, evolving
industry practices, or legal developments.
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