AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
File Nos. 33-75764 and 811-8380
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 11
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 15
TOUCHSTONE SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
311 PIKE STREET, CINCINNATI, OHIO
45202
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, including Area Code: (513) 361-7900
ANDREW S. JOSEF
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET, BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
copies to:
Mark Longenecker, Esq. Jill T. McGruder
Karen McLaughlin, Esq. Touchstone Securities, Inc.
Frost & Jacobs LLP 311 Pike Street
2500 East 5th Street Cincinnati, Ohio 45202
P.O. Box 5715
Cincinnati, Ohio 45201-5715
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
================================================================================
<PAGE>
Touchstone Family Of Funds
PROSPECTUS
May 1, 1999
o Touchstone Emerging Growth Fund
o Touchstone International Equity Fund
o Touchstone Income Opportunity Fund
o Touchstone Value Plus Fund
o Touchstone Growth & Income Fund
o Touchstone Balanced Fund
o Touchstone Bond Fund
o Touchstone Standby Income Fund
Neither the Securities and Exchange Commission nor any state securities
commission has approved any Fund's shares as an investment or determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
<PAGE>
2
Touchstone Family of Funds
The Touchstone Family of Funds is a group of mutual funds. Each Fund has a
different investment goal and risk level and is a part of the Touchstone Series
Trust (the Trust).
<PAGE>
3
Table Of Contents
Table Of Contents
Page
Touchstone Emerging Growth Fund......................... 4
Touchstone International Equity Fund.................... 9
Touchstone Income Opportunity Fund...................... 13
Touchstone Value Plus Fund.............................. 17
Touchstone Growth & Income Fund......................... 20
Touchstone Balanced Fund................................ 24
Touchstone Bond Fund.................................... 28
Touchstone Standby Income Fund.......................... 32
Investment Strategies And Risks......................... 36
The Funds' Management................................... 42
Investing With Touchstone............................... 46
Distributions And Taxes................................. 58
Financial Highlights.................................... 59
For More Information.................................... 64
[ICON] Touchstone Family of Funds
<PAGE>
4
Touchstone Emerging Growth Fund
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.
As with any mutual fund, there is no guarantee that the Fund will achieve its
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.
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
o Other debt securities, including:
collateralized mortgage obligations (CMOs), stripped U.S.
government securities (Strips) and mortgage-related securities,
all of which will be rated investment grade
The Fund may also invest in:
o Securities of foreign companies traded mainly outside the U.S.
(up to 20%)
o American Depositary Receipts (ADRs) (up to 20%)
o Emerging market securities (up to 10%)
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. 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
[ICON] Touchstone Family of Funds
<PAGE>
5
Touchstone Emerging Growth Fund
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
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because CMOs, Strips and mortgage-related securities may lose
more value due to changes in interest rates than other debt
securities and are subject to prepayment
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 emerging market securities 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 emerging market securities than other foreign
securities
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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 many years from retirement and 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[ICON] Touchstone Family of Funds
<PAGE>
6
Touchstone Emerging Growth Fund
EMERGING GROWTH FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1995 22.56%
1996 10.56%
1997 32.20%
1998 2.57%
During the period shown in the bar chart, the highest quarterly return was
20.90% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -19.30% (for the quarter ended September 30, 1998).
The following table 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. 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
similar to that of the Emerging Growth Fund. The table shows the effect of the
Class A sales charge.
For the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past 12 Since
Months Fund Started
Emerging Growth Fund -- Class A -3.3% 14.5%
Emerging Growth Fund -- Class C 2.0% 15.1%
Russell 2000 Index -2.5% 14.1%
Wiesenberger Small Cap -- MF -0.4% 16.4%
[ICON] Touchstone Family of Funds
<PAGE>
7
Touchstone Emerging Growth Fund
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) Imposed on
Purchases (as a percentage of offering price) 5.75%1 None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%2
- --------------------------------------------------------------------------------
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 3.15% 3.15%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 4.20% 4.95%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(3) 2.70% 2.70%
- --------------------------------------------------------------------------------
Net Expenses 1.50% 2.25%
- --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. 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. There is also no initial sales charge on
certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified
retirement plan.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
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, 1999.
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.
[ICON] Touchstone Family of Funds
<PAGE>
8
Touchstone Emerging Growth Fund
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 $ 228
- --------------------------------------------------------------------------------
3 Years $1,545 $1,246
- --------------------------------------------------------------------------------
5 Years $2,384 $2,265
- --------------------------------------------------------------------------------
10 Years $4,542 $4,816
- --------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
9
Touchstone International Equity Fund
Touchstone International Equity Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The International Equity Fund seeks to increase the value of Fund shares over
the long-term.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
- --------------------------------------------------------------------------------
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. A large portion of those non-U.S. equity securities may be issued
by companies active in emerging market countries (up to 40% of total assets).
The 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.
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. The portfolio manager's investment process seeks to add value by making
good regional and country allocations as well as by selecting individual stocks
within a region.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. 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 emerging market securities 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 emerging market securities than other foreign
securities
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
o Because issuers of non-investment grade securities held by the
Fund are more likely to be unable to make timely payments of
interest or principal
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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.
[ICON] Touchstone Family of Funds
<PAGE>
10
Touchstone International Equity Fund
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 many years from retirement and 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 other classes of 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
BAR CHART
YEARS TOTAL RETURN
1995 5.29%
1996 11.61%
1997 15.57%
1998 19.94%
During the period shown in the bar chart, the highest quarterly return
was 16.83% (for the quarter ended March 31, 1998) and the lowest
quarterly return was -13.67 (for the quarter ended September 30, 1998).
[ICON] Touchstone Family of Funds
<PAGE>
11
Touchstone International Equity Fund
The table below 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 Class A sales charge.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
International Equity Fund -- Class A 13.0% 8.3%
- --------------------------------------------------------------------------------
International Equity Fund -- Class C 19.0% 9.0%
- --------------------------------------------------------------------------------
MSCI EAFE Index 20.3% 9.0%
- --------------------------------------------------------------------------------
Wiesenberger Non-US Equity -- MF 6.1% 3.9%
- --------------------------------------------------------------------------------
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) Imposed on
Purchases (as a percentage of offering price) 5.75%1 None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%2
- --------------------------------------------------------------------------------
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 2.63% 2.63%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 3.83% 4.58%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement3 2.23% 2.23%
- --------------------------------------------------------------------------------
Net Expenses 1.60% 2.35%
- --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. 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. There is also no initial sales charge on
certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified
retirement plan.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
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, 1999.
[ICON] Touchstone Family of Funds
<PAGE>
12
Touchstone International Equity Fund
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 $ 238
- --------------------------------------------------------------------------------
3 Years $1,484 $1,182
- --------------------------------------------------------------------------------
5 Years $2,257 $2,135
- --------------------------------------------------------------------------------
10 Years $4,270 $4,550
- --------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
13
Touchstone Income Opportunity Fund
Touchstone Income Opportunity Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Income Opportunity Fund seeks to achieve a high level of current income as
its main goal. The Fund may also seek to increase the value of Fund shares, if
consistent with its main goal.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
- --------------------------------------------------------------------------------
Its Principal Investment Strategies
The Fund invests primarily in debt securities. These debt securities will
generally be more risky non-investment grade corporate and government
securities (up to 100% of total assets). Non-investment grade debt securities
are often referred to as "junk bonds" and are considered speculative.
The Fund's investments may include:
o Securities of foreign companies (up to 100%), but only up to 30%
of its assets in securities of foreign companies that are
denominated in a currency other than the U.S. dollar
o Debt securities that are emerging market securities (up to 65%)
o Mortgage-related securities, loans and loan participations
o Currency futures and option contracts
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because issuers of non-investment grade securities held by the
Fund are more likely to be unable to make timely payments of
interest or principal
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 emerging market securities 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 emerging market securities than other foreign
securities
o Because mortgage-related securities may lose more value due to
changes in interest rates than other debt securities and are
subject to prepayments
o Because loans and loan participations may be more difficult to
sell than other investments and subject to the risk of borrower
default
o If the stock market as a whole goes down
[ICON] Touchstone Family of Funds
<PAGE>
14
Touchstone Income Opportunity Fund
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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 many years from retirement and are comfortable with wide
market fluctuations.
The Fund's Performance
The following bar chart indicates the risks of investing in the Income
Opportunity 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[ICON] Touchstone Family of Funds
<PAGE>
15
Touchstone Income Opportunity Fund
INCOME OPPORTUNITY FUND --
CLASS A PERFORMANCE
BAR CHART
YEARS TOTAL RETURN
1995 23.19%
1996 26.66%
1997 9.49%
1998 -13.77%
During the period shown in the bar chart, the highest quarterly return was
16.15% (for the quarter ended June 30, 1995) and the lowest quarterly
return was -16.50% (for the quarter ended September 30, 1998).
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Lehman Brothers Corporate Bond Index, the
Wiesenberger Corp -- High Yield -- MF, the Wiesenberger Global Income -- MF and
the Wiesenberger Emerging Market Income -- MF. The Lehman Brothers Corporate
Bond Index is based on all publicly issued intermediate fixed-rate,
non-convertible investment grade domestic corporate debt. The Wiesenberger Corp
- -- High Yield -- MF index, the Wiesenberger Global Income -- MF index and the
Wiesenberger Emerging Market Income -- MF index are composite indexes of the
annual returns of mutual funds that have an investment style similar to the
Income Opportunity Fund. The table shows the effect of the Class A sales charge.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
Income Opportunity Fund-- Class A -17.8% 6.4%
- --------------------------------------------------------------------------------
Income Opportunity Fund-- Class C -14.5% 6.8%
- --------------------------------------------------------------------------------
Lehman Brothers Corporate Bond Index 8.5% 10.3%
- --------------------------------------------------------------------------------
Wiesenberger Corp-- High Yield-- MF -0.7% 9.3%
- --------------------------------------------------------------------------------
Wiesenberger Global Income-- MF 4.8% 7.5%
- --------------------------------------------------------------------------------
Wiesenberger Emerging Market Income-- MF -22.8% 5.8%
- --------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
16
Touchstone Income Opportunity Fund
The Fund's Fees and Expenses
These tables describe 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) Imposed on
Purchases (as a percentage of offering price) 4.75%1 None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%2
- --------------------------------------------------------------------------------
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 2.43% 2.43%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 3.33% 4.08%
- --------------------------------------------------------------------------------
Fee Waiver And/or Expense Reimbursement3 2.13% 2.13%
- --------------------------------------------------------------------------------
Net Expenses 1.20% 1.95%
- --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. 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. There is also no initial sales charge on
certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified
retirement plan.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
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, 1999.
The following example should help you compare the cost of investing in the
Income Opportunity 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 $ 591 $ 198
- --------------------------------------------------------------------------------
3 Years $1,261 $1,047
- --------------------------------------------------------------------------------
5 Years $1,953 $1,911
- --------------------------------------------------------------------------------
10 Years $3,787 $4,142
- --------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
17
Touchstone Value Plus Fund
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.
As with any mutual fund, there is no guarantee that it will achieve its goal.
- --------------------------------------------------------------------------------
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.
The Fund may invest in:
o Preferred stocks
o Investment grade debt securities
o Convertible securities
In addition, the Fund may invest in (up to 10%):
o Cash equivalent investments
o Short-term debt securities
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. 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 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.
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.
[ICON] Touchstone Family of Funds
<PAGE>
18
Touchstone Value Plus Fund
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 many years from retirement and 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 Value Plus Fund started on May 1, 1998,
there is no performance information included in this Prospectus.
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) Imposed on
Purchases (as a percentage of offering price) 5.75%1 None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%2
- --------------------------------------------------------------------------------
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 1.14% 1.14%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.14% 2.89%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(3) 0.84% 0.84%
- --------------------------------------------------------------------------------
Net Expenses 1.30% 2.05%
- --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. 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. There is also no initial sales charge on
certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified
retirement plan.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
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, 1999.
[ICON] Touchstone Family of Funds
<PAGE>
19
Touchstone Value Plus Fund
The following examples 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 $ 208
- --------------------------------------------------------------------------------
3 Years $1,130 $ 816
- --------------------------------------------------------------------------------
5 Years $1,585 $1,449
- --------------------------------------------------------------------------------
10 Years $2,843 $3,154
- --------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
20
Touchstone Growth & Income Fund
Touchstone Growth & Income Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Growth & Income Fund seeks to increase the value of Fund shares over the
long-term, while receiving dividend income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
- --------------------------------------------------------------------------------
Its Principal Investment Strategies
The Fund invests primarily (at least 65% of total assets) in dividend-paying
common stocks, preferred stocks and convertible securities in a variety of
industries. The portfolio manager may choose to purchase securities which do not
pay dividends (up to 35%) but which are expected to increase in value or produce
high income payments in the future.
In choosing securities for the Fund, the portfolio manager will follow a value-
oriented style, generally buying securities with yields that are at least 20%
higher than the average yield of companies in the S&P 500. The portfolio manager
focuses on investing in companies that have a market capitalization of at least
$1 billion, but may invest in companies of any size.
The Fund may also invest up to 20% of its total assets in debt securities -- and
within this 20% limitation, the Fund may invest the full 20% in investment grade
non-convertible debt securities, the full 20% in convertible debt securities
rated as low as the highest level of non-investment grade or up to 5% in
non-convertible non-investment grade debt securities.
The Fund may also invest in:
o Securities of foreign companies including American Depository
Receipts (ADRs) (up to 20%)
o Real estate investment trusts (REITs) (up to 10%)
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o If any of the stocks in the Fund's portfolio do not increase in
value as expected
o If earnings of companies the Fund invests in are not achieved and
income available for interest or dividend payments is reduced
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
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 investments in REITs are more sensitive to changes in
interest rates and other factors that affect real estate values
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
[ICON] Touchstone Family of Funds
<PAGE>
21
Touchstone Growth & Income Fund
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 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 most appropriate for you if you are many years from retirement
and are comfortable with a moderate level of risk.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Growth &
Income 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
GROWTH & INCOME FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1995 35.14%
1996 16.95%
1997 20.70%
1998 6.87%
During the period shown in the bar chart, the highest quarterly return was
12.42% (for the quarter ended March 31, 1998) and the lowest quarterly
return was -12.72% (for the quarter ended September 30, 1998).
[ICON] Touchstone Family of Funds
<PAGE>
22
Touchstone Growth & Income Fund
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Standard & Poor's Composite Index of 500 Stocks
(S&P500) and the Wiesenberger Growth & Income -- MF Index. The S&P 500 Index is
a widely recognized unmanaged index of stock performance. The Wiesenberger
Growth & Income -- MF Index is a composite index of the annual returns of mutual
funds that have an investment style similar to the Growth & Income Fund. The
table shows the effect of the Class A sales charge.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
Growth & Income Fund -- Class A 0.7% 16.7%
- --------------------------------------------------------------------------------
Growth & Income Fund -- Class C 6.0% 17.5%
- --------------------------------------------------------------------------------
S&P 500 Index 28.6% 28.5%
- --------------------------------------------------------------------------------
Wiesenberger Growth & Income -- MF 15.3% 21.0%
- --------------------------------------------------------------------------------
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) Imposed on
Purchases (as a percentage of offering price) 5.75%1 None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%2
- --------------------------------------------------------------------------------
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 1.40% 1.40%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.45% 3.20%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(3) 1.15% 1.15%
- --------------------------------------------------------------------------------
Net Expenses 1.30% 2.05%
1 You may pay a reduced sales charge on very large purchases. 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. There is also no initial sales charge on
certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified
retirement plan.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
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, 1999.
[ICON] Touchstone Family of Funds
<PAGE>
23
Touchstone Growth & Income Fund
The following example should help you compare the cost of investing in the
Growth & Income 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 $ 228
- --------------------------------------------------------------------------------
3 Years $1,191 $ 879
- --------------------------------------------------------------------------------
5 Years $1,708 $1,574
- --------------------------------------------------------------------------------
10 Years $3,119 $3,424
- --------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
24
Touchstone Balanced Fund
Touchstone Balanced Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Balanced Fund seeks to achieve both an increase in the value of Fund shares
and current income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
- --------------------------------------------------------------------------------
Its Principal Investment Strategies
The Fund invests in both equity securities (generally about 60% of total assets)
and debt securities (generally about 40%, but at least 25%, of total assets).
The debt securities will be rated investment grade or at the two highest levels
of non-investment grade.
The Fund may invest in:
o Warrants
o Preferred stocks
o Convertible securities
The Fund may also invest up to one-third of its assets in securities of foreign
companies, and up to 15% in emerging market securities.
In choosing equity securities for the Fund, the portfolio manager will seek out
companies that are in a strong position within their industry, are owned in part
by management and are selling at a price lower than the company's intrinsic
value. Debt securities are also chosen using a value style. The portfolio
manager will focus on higher yielding securities, but will also consider
expected movements in interest rates and industry position.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the stocks in the Fund's portfolio do not increase in value as
expected
o If earnings of companies the Fund invests in are not achieved and
income available for interest or dividend payments is reduced sIf
interest rates go up, causing the value of any debt securities
held by the Fund to decline
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 emerging market securities 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 emerging market securities than other foreign
securities
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
[ICON] Touchstone Family of Funds
<PAGE>
25
Touchstone Balanced Fund
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 risk neutral or moderately
conservative investor. You may typically take a relatively low risk approach to
investing and may be comfortable with a low level of volatility in your
investments. While safety may be important to you, you may also value
appreciation of your investments. If you invest in this Fund, you should be
willing to accept some risk. This Fund's approach may be appropriate for you if
you are several years from retirement.
The Fund's Performance
The following bar chart indicates the risks of investing in the Balanced 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
BALANCED FUND -- CLASS A PERFORMANCE
BAR CHART
YEARS TOTAL RETURN
1995 23.24%
1996 16.86%
1997 19.25%
1998 3.98%
During the period shown in the bar chart, the highest quarterly return was
10.71% (for the quarter ended June 30, 1997) and the lowest quarterly
return was -10.39% (for the quarter ended September 30, 1998).
[ICON] Touchstone Family of Funds
<PAGE>
26
Touchstone Balanced Fund
The table which follows shows how the Fund's average annual returns for the
periods shown compare to those of the Standard & Poor's Composite Index
of 500 Stocks (S&P 500), the Lehman Brothers Aggregate Index, a blend made
up of 60% S&P 500 and 40% LB Aggregate and to the Wiesenberger Balanced Domestic
- -- MF index. The Lehman Brothers Aggregate Index is composed of 5,400 publicly
issued corporate and U.S. government debt rated Baa or better with at least one
year to maturity and at least $25 million par outstanding. The Wiesenberger
Balanced Domestic -- MF index is a composite index of the annual returns of
mutual funds that have an investment style similar to the Balanced Fund. The
table shows the effect of the Class A sales charge.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
Balanced Fund -- Class A -2.0% 13.1%
- --------------------------------------------------------------------------------
Balanced Fund -- Class C 3.3% 13.9%
- --------------------------------------------------------------------------------
S&P 500 Index 28.6% 28.5%
- --------------------------------------------------------------------------------
Lehman Brothers Aggregate Index 8.7% 9.5%
- --------------------------------------------------------------------------------
Blend -- 60% S&P 500, 40% LB Aggregate 21.0% 20.8%
- --------------------------------------------------------------------------------
Wiesenberger Balanced Domestic -- MF 12.9% 15.9%
- --------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
27
Touchstone Balanced Fund
The Fund's Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of a Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) Imposed On
Purchases (as a percentage of offering price) 5.75%1 None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%2
- --------------------------------------------------------------------------------
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 3.62% 3.62%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 4.67% 5.42%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(3) 3.32% 3.32%
- --------------------------------------------------------------------------------
Net Expenses 1.35% 2.10%
- --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. 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. There is also no initial sales charge on
certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified
retirement plan.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
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, 1999.
The following example should help you compare the cost of investing in the
Balanced 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 $ 705 $ 213
- --------------------------------------------------------------------------------
3 Years $1,620 $1,324
- --------------------------------------------------------------------------------
5 Years $2,541 $2,425
- --------------------------------------------------------------------------------
10 Years $4,872 $5,139
- --------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
28
Touchstone Bond Fund
Touchstone Bond Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Bond Fund seeks to provide a high level of current income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
- --------------------------------------------------------------------------------
Its Principal Investment Strategies
The Fund invests primarily in higher quality investment grade debt securities
(at least 65% of total assets). The Fund's investment in debt securities may be
determined by the direction in which interest rates are expected to move because
the value of these securities generally moves in the opposite direction from
interest rates. The Fund expects to have an average maturity between five and
fifteen years.
The Fund invests in:
o Mortgage-related securities (up to 60%)
o Asset-backed securities
o Preferred stocks
The Fund also invests in non-investment grade U.S. or foreign debt securities
and preferred stock which are rated as low as B (up to 35%).
In addition, the Fund may invest in:
o Debt securities denominated in foreign currencies (20% or less)
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
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 issuers of non-investment grade securities held by the
Fund are more likely to be unable to make timely payments of
interest or principal
o Because mortgage-related securities and asset-backed securities
may lose more value due to changes in interest rates than other
debt securities and are subject to prepayment
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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.
[ICON] Touchstone Family of Funds
<PAGE>
29
Touchstone Bond Fund
Who May Want to Invest
This Fund is most appropriate for you if you prefer to take a relatively low
risk approach to investing. Safety of your investment may be the most important
factor to you. You may be willing to accept potentially lower returns in order
to maintain a lower, more tolerable level of risk. This Fund's approach may be
most appropriate for you if you are nearing retirement.
The Fund's Performance
The following bar chart indicates the risks of investing in the Bond Fund. It
shows changes in the performance of the Fund's Class A shares from year to year
since the Fund's inception. 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
BOND FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1995 16.95%
1996 2.85%
1997 7.30%
1998 8.56%
During the period shown in the bar chart, the highest quarterly return was
5.21% (for the quarter ended December 31, 1997) and the lowest quarterly
return was -2.10% (for the quarter ended March 31, 1997).
[ICON] Touchstone Family of Funds
<PAGE>
30
Touchstone Bond Fund
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Lehman Brothers Aggregate Index and to the
Wiesenberger Corp -- Investment Grade -- MF index. The Lehman Brothers Aggregate
Index is comprised of approximately 6000 publicly traded bonds with an average
maturity of about 10 years. The Wiesenberger Corp -- Investment Grade -- MF
index is a composite index of the annual returns of mutual funds that have an
investment style similar to the Bond Fund. The table shows the effect of the
Class A sales charge.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
Bond Fund -- Class A 3.4% 7.1%
- --------------------------------------------------------------------------------
Bond Fund -- Class C 6.9% 7.3%
- --------------------------------------------------------------------------------
Lehman Brothers Aggregate Index 8.7% 9.5%
- --------------------------------------------------------------------------------
Wiesenberger Corp -- Investment Grade -- MF 7.2% 8.7%
- --------------------------------------------------------------------------------
The Fund's Fees and Expenses
These tables describe 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) Imposed On
Purchases (as a percentage of offering price) 4.75%1 None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%2
- --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00%
- --------------------------------------------------------------------------------
Other Expenses 1.49% 1.49%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.29% 3.04%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement3 1.39% 1.39%
- --------------------------------------------------------------------------------
Net Expenses 0.90% 1.65%
- --------------------------------------------------------------------------------
1 You may pay a reduced sales charge on very large purchases. 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. There is also no initial sales charge on
certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified
retirement plan.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
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, 1999.
[ICON] Touchstone Family of Funds
<PAGE>
31
Touchstone Bond Fund
The following example should help you compare the cost of investing in the Bond
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 $ 562 $ 168
- -------------------------------------------------------------------------------
3 Years $1,029 $ 809
- -------------------------------------------------------------------------------
5 Years $1,521 $1,475
- -------------------------------------------------------------------------------
10 Years $2,873 $3,258
- -------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
32
Touchstone Standby Income Fund
Touchstone Standby Income Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Standby Income Fund seeks to provide a higher level of current income than a
money market fund, while also seeking to prevent large fluctuations in the value
of your initial investment. The Fund does not try to keep a constant $1.00 per
share net asset value.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
- --------------------------------------------------------------------------------
Its Principal Investment Strategies
The Fund invests mostly in various types of money market instruments. All
investments will be rated at least investment grade. On average, the securities
held by the Fund will mature in less than one year.
The Fund's investments may include:
o Short-term government securities
o Mortgage-related securities
o Asset-backed securities
o Repurchase agreements
The Fund may invest up to 50% of total assets in:
o Securities denominated in U.S. dollars and issued in the U.S. by
foreign issuers (known as Yankee bonds)
o Eurodollar Certificates of Deposit
In addition, the Fund may invest in:
o Debt securities denominated in foreign currencies (up to 20%)
o Corporate bonds, commercial paper, certificates of deposit, and
bankers' acceptances
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities
to decline
o Because mortgage-related securities and asset-backed securities
may lose more value due to changes in interest rates than other
debt securities and are subject to prepayment
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
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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.
[ICON] Touchstone Family of Funds
<PAGE>
33
Touchstone Standby Income Fund
Who May Want to Invest
This Fund is most appropriate for you if you take a relatively low risk approach
to investing. Safety of your investment is of key importance to you.
Additionally, you are willing to accept potentially lower returns in order to
maintain a lower, more tolerable level of risk. This Fund's approach may be most
appropriate for you if you are nearing retirement, or if you have a longer time
horizon, but nevertheless, have a lower risk tolerance. This Fund is also
appropriate for you if you want the added convenience of writing checks directly
from your account.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Standby Income
Fund. It shows changes in the performance of the Fund's shares from year to year
since the Fund's inception.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
STANDBY INCOME FUND PERFORMANCE
YEARS TOTAL RETURN
1995 5.71%
1996 4.80%
1997 5.21%
1998 5.49%
During the period shown in the bar chart, the highest quarterly return was
1.57% (for the quarter ended December 31, 1995) and the lowest quarterly
return was 1.07% (for the quarter ended March 31, 1996).
[ICON] Touchstone Family of Funds
<PAGE>
34
Touchstone Standby Income Fund
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Merrill Lynch 91-Day Treasury Index, to the 30-Day
Money Market Yield Index and to the Smith Barney 3-Month Treasury Bill Index.
The Merrill Lynch 91-Day Treasury Index consists of short-term U.S. Treasury
securities, maturing in 91 days. The 30-Day Money Market Yield Index is an index
of money market funds based on 30-day yields. The Smith Barney 3-Month Treasury
Bill Index consists of short-term U.S. Treasury securities, maturing in 90 days.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
Standby Income Fund 5.5% 5.3%
- -------------------------------------------------------------------------------
Merrill Lynch 91-day Treasury Index 5.2% 5.5%
- -------------------------------------------------------------------------------
30-day Money Market Yield Index 5.0% 5.1%
- -------------------------------------------------------------------------------
Smith Barney 3-Month Treasury Bill Index 5.1% 5.5%
- -------------------------------------------------------------------------------
The Fund's Fees and Expenses
These tables describe 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)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None
- --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.25%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 3.26%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 3.51%
- --------------------------------------------------------------------------------
Fee Waiver And/or Expense Reimbursement(1) 2.76%
- --------------------------------------------------------------------------------
Net Expenses 0.75%
- --------------------------------------------------------------------------------
1 Touchstone Advisors has contractually agreed to waive or reimburse
certain of the Total Annual Fund Operating Expenses of the Fund (the
"Sponsor Agreement"). The Sponsor Agreement will remain in place until
at least December 31, 1999.
[ICON] Touchstone Family of Funds
<PAGE>
35
Touchstone Standby Income Fund
The following example should help you compare the cost of investing in the
Standby Income 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:
- --------------------------------------------------------------------------------
1 Year $ 77
- --------------------------------------------------------------------------------
3 Years $ 819
- --------------------------------------------------------------------------------
5 Years $1,584
- --------------------------------------------------------------------------------
10 Years $3,599
- --------------------------------------------------------------------------------
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.
[ICON] Touchstone Family of Funds
<PAGE>
36
Investment Strategies And Risks
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 International Equity Fund, Income Opportunity Fund and Bond Fund may engage
in active trading to achieve their investment goals. This may cause the Fund 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 the Fund's performance.
Can a Fund Change its Investment Goal?
A Fund's investment goal(s) may be changed 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.
Year 2000 Risk
Touchstone has implemented steps intended to assure that its major computer
systems and processes are capable of Year 2000 processing. We are also examining
the third parties with whom we work to assess their readiness and are developing
contingency plans to assure that any problems in their systems will not
materially affect Touchstone's operations.
Companies or governmental entities in which Touchstone Funds invest could also
be affected by the Year 2000 issue, but at this time the Funds cannot predict
the degree of impact.
Computer systems failure of Touchstone, a Fund Sub-Advisor or that of any Fund
service provider could impair Fund services and have a negative impact on a
Fund's operations and returns.
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.
[ICON] Touchstone Family of Funds
<PAGE>
37
Investment Strategies And Risks
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. Some of the Funds' investments are described in detail
below:
<TABLE>
<CAPTION>
EmergingInternational Income Value Growth Standby
Growth Equity Opportunity Plus & Income Balanced Bond Income
Fund Fund Fund Fund Fund Fund Fund Fund
Financial Instruments
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Invests in U.S. stocks o o o o o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in foreign stocks o o o o
Invests in investment grade
debt securities o o o o o o o o
Invests in non-investment
grade debt securities o o o o o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in foreign debt securities o o o o o o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in futures contracts o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in forward currency
contracts o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in asset-backed securities o o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in mortgage-related
securities o o o o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in real estate
investment trusts (REITs) o
- -----------------------------------------------------------------------------------------------------------------------------
Investment Techniques
- -----------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of
small cap companies o
- -----------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of mid cap
companies o
- -----------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of
large cap companies o o o
- -----------------------------------------------------------------------------------------------------------------------------
Emphasizes undervalued stocks o o o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in securities of
emerging markets countries o o o o o
- -----------------------------------------------------------------------------------------------------------------------------
Emphasizes dividend-paying
common stocks o
- -----------------------------------------------------------------------------------------------------------------------------
Invests in short-term
debt securities o o
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
American Depository Receipts. American Depository Receipts (ADRs) are securities
that represent an ownership interest in a foreign security. They are generally
issued by a U.S. bank to U.S. buyers as a substitute for direct ownership of the
foreign security and are traded on U.S. exchanges.
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).
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38
Investment Strategies And Risks
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.
Asset-backed Securities. Asset-backed securities represent groups of other
assets, for example credit card receivables, that are combined or pooled for
sale to investors.
Mortgage-related Securities. Mortgage-related securities represent groups of
mortgage loans that are combined for sale to investors. The loans may be grouped
together by:
o The Government National Mortgage Association (GNMA)
o The Federal National Mortgage Association (FNMA)
o The Federal Home Loan Mortgage Corporation (FHLMC)
o Commercial banks
o Savings and loan institutions
o Mortgage bankers
o Private mortgage insurance companies
Real Estate Investment Trusts. Real estate investment trusts (REITs) pool
investors' money to invest primarily in income-producing real estate or real
estate-related loans or interests.
"Large cap" and "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.
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 Securities. Emerging Market Securities are issued by a company
that:
o Is organized under the laws of an emerging market country (any
country 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)
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
[ICON] Touchstone Family of Funds
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39
Investment Strategies And Risks
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
Repurchase Agreements. Repurchase Agreements are collateralized by obligations
issued or guaranteed as to both principal and interest by the U.S. Government,
its agencies, and instrumentalities. A repurchase agreement is a transaction in
which a security is purchased with a simultaneous commitment to sell it back to
the seller (a commercial bank or recognized securities dealer) at an agreed upon
price on an agreed upon date. This date is usually not more than seven days from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest, which is unrelated to the coupon rate or
maturity of the purchased security.
How Can I Tell, at a Glance, a Fund's Key Risks?
The following table shows some of the main risks to which each Fund is subject.
Each risk is described in detail below:
<TABLE>
<CAPTION>
EmergingInternational Income Growth Standby
Growth Equity Opportunity Value Plus & Income Balanced Bond Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Risk o o o o o
- -----------------------------------------------------------------------------------------------------------------------
Emerging Growth Companies o
- -----------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts o
- -----------------------------------------------------------------------------------------------------------------------
Interest Rate Risk o o o o o o o o
- -----------------------------------------------------------------------------------------------------------------------
Mortgage-Related Securities o o o o
- -----------------------------------------------------------------------------------------------------------------------
Credit Risk o o o o o o o o
- -----------------------------------------------------------------------------------------------------------------------
Non-Investment Grade Securities o o o o o
- -----------------------------------------------------------------------------------------------------------------------
Foreign Investing Risk o o o o o o o
- -----------------------------------------------------------------------------------------------------------------------
Emerging Market Risk o o o o o
- -----------------------------------------------------------------------------------------------------------------------
Political Risk o o
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
[ICON] Touchstone Family of Funds
<PAGE>
40
Investment Strategies And Risks
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 Real Estate Investment Trusts (REITs). Investment in REITs is
subject to risks similar to those associated with the direct
ownership of real estate (in addition to securities markets
risks). REITs are sensitive to factors such as changes in real
estate values and property taxes, interest rates, cash flow of
underlying real estate assets, supply and demand, and the
management skill and creditworthiness of the issuer. REITs may
also lose value due to changes in tax or other regulatory
requirements.
Interest Rat 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.
o Mortgage-Related Securities. Payments from the pool of loans
underlying a mortgage-related security may not be enough to meet
the monthly payments of the mortgage-related security. If this
occurs, the mortgage-related security will lose value. Also,
prepayments of mortgages or mortgage foreclosures will shorten
the life of the pool of mortgages underlying a mortgage-related
security and will affect the average life of the mortgage-related
securities held by a Fund. Mortgage prepayments vary based on
several factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and
other demographic conditions. In periods of falling interest
rates, there are usually more prepayments. The reinvestment of
cash received from prepayments will, therefore, usually be at a
lower interest rate than the original investment, lowering a
Fund's yield. Mortgage-related securities may be less likely to
increase in value during periods of falling interest rates than
other debt securities.
[ICON] Touchstone Family of Funds
<PAGE>
41
Investment Strategies And Risks
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
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 Markets Risk. 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.
[ICON] Touchstone Family of Funds
<PAGE>
42
The Funds' Management
The Funds' Management
Investment Advisor
Touchstone Advisors, Inc., (the Advisor or Touchstone Advisors) located at 311
Pike Street, Cincinnati, Ohio 45202, is the investment advisor of 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, 1998, Touchstone Advisors had approximately $422 million in assets
under management.
Touchstone Advisors is responsible for selecting Fund Sub-Advisors who have
shown good investment performance in their areas of expertise. The Board of
Trustees of the Trust reviews and must approve the Advisor's selections.
Touchstone 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 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 discusses its expectations for performance with each Fund
Sub-Advisor. Touchstone provides written evaluations and recommendations to the
Board of Trustees, including whether or not each Fund Sub-Advisor's contract
should be renewed, modified or terminated.
Touchstone 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
allocates how much of a Fund's assets are managed by each Sub-Advisor.
Touchstone 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 a fee for its services. Out of this fee Touchstone
pays each Fund Sub-Advisor a fee for its services.
[ICON] Touchstone Family of Funds
<PAGE>
43
The Funds' Management
The fee paid to Touchstone by each Fund is shown in the table below:
Fee to Touchstone
(as % of average
daily net assets)
Emerging Growth Fund 0.80%
- --------------------------------------------------------------------------------
International Equity Fund 0.95%
- --------------------------------------------------------------------------------
Income Opportunity Fund 0.65%
- --------------------------------------------------------------------------------
Value Plus Fund 0.75%
- --------------------------------------------------------------------------------
Growth & Income Fund 0.80%
- --------------------------------------------------------------------------------
Balanced Fund 0.80%
- --------------------------------------------------------------------------------
Bond Fund 0.55%
- --------------------------------------------------------------------------------
Standby Income Fund 0.25%
- --------------------------------------------------------------------------------
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, 1998, Babson and affiliates had assets
under management of $19.9 billion. Babson has been managing the Emerging Growth
Fund since the Fund's inception.
Dennis J. Scannell and Lance F. James have primary responsibility for the
day-to-day management of the Fund. Mr. Scannell has been with the firm since
1993, and Mr. James has been with the firm since 1986.
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, 1998, Westfield had assets under
management of $1.4 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.
[ICON] Touchstone Family of Funds
<PAGE>
44
The Funds' Management
Fund Sub-Advisor to the International Equity Fund
Credit Suisse Asset Management (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, 1998, Credit Suisse had
assets under management of $154.2 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 William Sterling, Richard Watt, Steven D. Bleiberg, Susan
Boland, Emily Alejos and Robert B. Hrabchak.
Fund Sub-Advisor to the Income Opportunity Fund
Alliance Capital Management L.P. (Alliance)
1345 Avenue of the Americas, New York, NY 10105
Alliance has been registered as an investment advisor under the Advisers Act
since 1971. Alliance provides investment advisory services to individual and
institutional clients. As of December 31, 1998, Alliance had assets under
management of $286.7 billion. Alliance has been managing the Income Opportunity
Fund since the Fund's inception.
Wayne Lyski and Vicki Fuller have primary responsibility for the day-to-day
management of the Fund. Mr. Lyski has been with Alliance since 1983. Ms. Fuller
(CPA) has been with Alliance, and its predecessors, since 1985.
Fund Sub-Advisor to the Value Plus Fund, Bond Fund,
and Standby Income 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, 1998, Fort Washington
had assets under management of $6.3 billion. Fort Washington has been managing
the Value Plus Fund, the Bond Fund and the Standby Income Fund since each Fund's
inception.
Value Plus Fund: 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. Mr. Holden previously served as senior portfolio manager with
Mellon Private Asset Management in Pittsburgh, senior portfolio manager and
investment analyst for Star Bank's Stellar Performance Group in Cincinnati, and
senior employee benefit portfolio manager for First Kentucky Trust Company in
Louisville.
Bond Fund: Roger Lanham and Brendan White have managed the Bond Fund since 1994.
Mr. Lanham is a CFA and has been with Fort Washington since 1980. Mr. White is a
CFA and has been with Fort Washington since 1993.
[ICON] Touchstone Family of Funds
<PAGE>
45
The Funds' Management
Standby Income Fund: Christopher J. Mahony has managed the Standby Income Fund
since 1994. Mr. Mahony joined Fort Washington in 1994 after eight years of
investment experience with Neuberger & Berman.
Fort Washington is an affiliate of Touchstone. Therefore, Touchstone 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's decisions to
reduce the possibility of a conflict of interest situation.
Fund Sub-Advisor to the Growth & Income Fund
Scudder Kemper Investments, Inc. (Scudder Kemper)
345 Park Avenue, New York, NY 10154
Scudder Kemper and its predecessors have provided investment advisory services
to mutual fund investors, retirement and pension plans, institutional and
corporate clients, insurance companies, and private family and individual
accounts since 1943. As of December 31, 1998, Scudder Kemper had assets under
management of $280 billion. Scudder Kemper has been managing the Growth & Income
Fund since June 1997.
Robert T. Hoffman, Lori Ensinger, Benjamin W. Thorndike and Kathleen T. Millard
have primary responsibility for the day-to-day management of the Fund. Mr.
Hoffman, Lead Product Manager, joined Scudder in 1990. He has 13 years of
experience in the investment industry, including several years of pension fund
management experience. Lori Ensinger, Lead Portfolio Manager, focuses on stock
selection and investment strategy. She has been a portfolio manager since 1983
and joined Scudder in 1993. Benjamin W. Thorndike, Portfolio Manager, is the
Fund's chief analyst and strategist for convertible securities. Mr. Thorndike,
who has 18 years of investment experience, joined Scudder in 1983. Kathleen T.
Millard, Portfolio Manager, has worked as a portfolio manager since 1986. Ms.
Millard, who joined Scudder in 1991, focuses on strategy and stock selection.
Fund Sub-Advisor to the Balanced Fund
OpCap Advisors (OpCap)
Oppenheimer Tower, One World Financial Center, New York, NY 10281
OpCap is a subsidiary of Oppenheimer Capital. Oppenheimer Capital has been
registered as an investment advisor under the Advisers Act since 1968 and its
employees perform all investment advisory services provided to the Fund. As of
December 31, 1998, Oppenheimer Capital and its subsidiaries had assets under
management of $63 billion. OpCap has been managing the Balanced Fund
since May of 1997.
Louis Goldstein has managed the equity portion of the Balanced Fund since April
1999. Robert J. Bluestone and Matthew Greenwald have managed the fixed-income
portion of the Balanced Fund since 1997. Mr. Goldstein joined Oppenheimer
Capital in 1991 and is an equity analyst and portfolio manager. Mr. Bluestone
joined Oppenheimer Capital in 1986 and is Managing Director. Mr. Greenwald
joined Oppenheimer Capital in 1989 and is Vice President.
[ICON] Touchstone Family of Funds
<PAGE>
46
Investing With Touchstone
Investing With Touchstone
Opening An Account
Choosing the Appropriate Funds 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.
You should read this Prospectus carefully and then determine how much you want
to invest. Check below to find the minimum investment amount required for each
class of shares as well as to learn about the various ways you can purchase your
shares:
<TABLE>
<CAPTION>
Class A Class C
Initial Additional Initial Additional
Investment Investment Investment Investment
<S> <C> <C> <C> <C>
Regular Account $500 $50 $1,000 $50
- ------------------------------------------------------------------------------------------------------------
Retirement Plan account or Custodial account under
a Uniform Gifts/Transfers to Minors Act ("UGTMA") $250 $50 $ 250 $50
- ------------------------------------------------------------------------------------------------------------
Investments through the Automatic Investment
Plan or through the Direct Deposit Plan $ 50 $50 $ 50 $50
- ------------------------------------------------------------------------------------------------------------
</TABLE>
o Investor Alert: Touchstone could change these initial and
additional investment minimums at any time.
Investing in the Funds
You can contact your financial advisor to purchase shares of the Funds.
You may also purchase shares of any Fund directly from Touchstone. In any event,
you must complete an Investment Application. You may obtain account applications
from Touchstone or your financial advisor.
o Investor Alert: Touchstone may choose to refuse any purchase
order.
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. The fund calculates the NAV per share, generally
using market prices, by dividing the total value of each class' net assets by
the number of the class shares outstanding. Shares are purchased 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.
[ICON] Touchstone Family of Funds
<PAGE>
47
Investing With Touchstone
The Fund's 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 of the Funds (other than the Standby Income Fund) offers Class A shares and
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 decide to purchase.
Each Fund also offers Class Y shares. Class Y shares are only available for
purchase by pension plans.
The Standby Income Fund does not have share classes and it does not charge sales
charges, distribution fees or service fees. The Standby Income Fund may be
purchased by all investors.
Class A Shares
The offering price of each Class A share of a 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.
The following tables show the amounts of the 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.
[ICON] Touchstone Family of Funds
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48
Investing With Touchstone
For Emerging Growth Fund, International Equity Fund, Value Plus Fund, Growth &
Income Fund and Balanced Fund
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 2.50% 2.56%
- ------------------------------------------------------------------------
$500,000 but less than $1 million 2.00% 2.04%
- ------------------------------------------------------------------------
$1 million or more 0.00% 0.00%
- ------------------------------------------------------------------------
For Income Opportunity Fund and Bond Fund
Sales Charge As % of Sales Charge As % of
Amount of Your Investment Offering Price Net Amount Invested
Under $25,000 4.75% 4.99%
- --------------------------------------------------------------------------------
$25,000 but less than $50,000 4.50% 4.71%
- --------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.17%
- --------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63%
- --------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56%
- --------------------------------------------------------------------------------
$500,000 but less than $1 million 2.00% 2.04%
- --------------------------------------------------------------------------------
$1 million or more 0.00% 0.00%
- --------------------------------------------------------------------------------
There is no front-end sales charge if you invest $1 million or more in the
Funds. 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 Fund or its service providers and certain
other persons listed in the Statement of Additional Information.
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 (other than the Standby Income Fund) has adopted a distribution and
service 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 and other fees for the sale and distribution of its Class A shares
and for services provided to holders of Class A shares.
[ICON] Touchstone Family of Funds
<PAGE>
49
Investing With Touchstone
Under the plan, each Fund pays an annual fee of up to 0.25% of the average daily
net assets of the Fund that are attributable to Class A shares. Because these
fees are paid out of the Fund's assets on an ongoing basis, these fees will
increase the cost of your investment.
Class C Shares
The offering price of each Class C share is equal to its NAV. No front-end sales
charge is applied at the time of purchase. All of your investment money goes to
work for you immediately. However, a contingent deferred sales charge of 1% of
the offering price will be charged on 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
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 payments(s) that remain invested in
the Funds
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
There is no contingent deferred sales charge on purchases by certain persons
related to the Fund or its service providers and certain other parties.
Each Fund (other than the Standby Income Fund) has adopted a distribution and
service 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 the average daily
net assets of the Fund that are attributable to Class C shares. Because these
fees are paid out of the 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.
[ICON] Touchstone Family of Funds
<PAGE>
50
Investing With Touchstone
Purchasing Your Shares
You can invest in the Fund shares in the following ways:
Opening an account
o Please make your check (in U.S. dollars) payable to the
Touchstone Family of Funds.
o Send your check with the completed account application to the
address shown on the application or to your financial advisor.
Your application will be processed subject to your check
BY CHECK clearing.
- --------------------------------------------------------------------------------
o First, telephone Touchstone at 800.669.2796 (press 1) between the
hours of 8:00 a.m. and 4:00 p.m. Eastern time on a day when the
NYSE is open for regular trading. When you call, you will receive
an account number.
o Instruct your bank to transfer funds by wire to Touchstone at the
following address: Touchstone Family of Funds, c/o State Street
Bank and Trust Company, P.O. Box 8518, Boston, Massachusetts
02266-8518, ABA Number 011000028, DDA Number 9905-036-1,
Attention: Mutual Funds Division.
o Specify in the wire: (1) the name of the Fund, (2) the account
number which Touchstone assigned to you, and (3) your name. If
Touchstone receives the federal funds before the close of regular
trading of the NYSE on a day the NYSE is open for regular
BY WIRE trading, you may purchase Fund shares as of that day.
- --------------------------------------------------------------------------------
o First, you should follow the procedures under "By Check" or "By
Wire" in order to get an account number for Fund(s) which you do
not currently own shares of, but which you desire to exchange
shares into.
o You may exchange your Fund shares for shares of the same Class of
another Fund (or of the Standby Income Fund) described in this
Prospectus at their respective NAVs.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in this Prospectus
relating to the exchanged-for shares carefully before making an
BY EXCHANGE exchange of your Fund shares.
- --------------------------------------------------------------------------------
o You can begin the process of purchasing shares by wire or arrange
for an exchange of shares by calling Touchstone In-Touch,
Touchstone's automated response system, at 800.669.2796 and
speaking to a customer service representative (press 1,1,3).
o Touchstone In-Touch can also provide you with other information
BY TELEPHONE about the Funds such as daily share prices.
- --------------------------------------------------------------------------------
o You may invest in each Fund 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.
THROUGH o For further information about any of the plans, agreements,
RETIREMENT applications and annual fees, contact Touchstone or your
PLANS financial advisor.
- --------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
51
Investing With Touchstone
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 Touchstone Family of Funds.
o Write your account number and asset allocation model number, if
applicable, 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
BY CHECK for forwarding payment promptly to Touchstone.
- --------------------------------------------------------------------------------
o Refer to wire instructions for opening an account.
o Specify in the wire: (1) the name of the Fund, (2) the account
number which Touchstone assigned to you, and (3) your name. If
Touchstone receives the federal funds before the close of regular
trading of the New York Stock Exchange (NYSE) on a day the NYSE
is open for regular trading, you may purchase Fund shares as of
BY WIRE that day.
- --------------------------------------------------------------------------------
o You may exchange your Fund shares for shares of the same Class of
another Fund (or of the Standby Income Fund) described in this
Prospectus at their respective NAVs.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in this Prospectus
relating to the exchanged-for shares carefully before making an
BY EXCHANGE exchange of your Fund shares.
- --------------------------------------------------------------------------------
o You can arrange for an exchange of shares by calling Touchstone
In-Touch, Touchstone's automated response system, at 800.669.2796
and speaking to a customer service representative (press 1,1,3).
Touchstone In-Touch can also provide you with other information
BY TELEPHONE about the Funds such as daily share prices.
- --------------------------------------------------------------------------------
THROUGH o You may add to your account in each Fund through various
RETIREMENT retirement plans. For further information, contact Touchstone or
PLANS your financial advisor.
- --------------------------------------------------------------------------------
More Information About Wire Transfers.
You may invest in the Funds directly by wire transfers. Contact your bank and
request 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.
[ICON] Touchstone Family of Funds
<PAGE>
52
Investing With Touchstone
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.
ooo Special Tax
Consideration
- --------------------------------------------------------------------------------
To determine which type of retirement plan is appropriate for you, please
contact your tax advisor.
More Information About Exchanges.
For exchanges from the Standby Income Fund, which has no sales charge associated
with it, the applicable sales charges on the Fund being purchased will apply.
The exception would be if those Standby Income Fund shares were acquired by an
exchange from a Fund which does have a sales charge or by reinvestment or
cross-reinvestment of dividends or capital gains distributions.
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 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 the Distributor
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 or quarterly
investments of $50 or more in each Fund to be processed electronically from a
checking or savings account. You will need to complete the appropriate forms to
do this. See the account application for further details about this service or
call Touchstone at 800.669.2796 (press 1).
Reinvestment/Cross Reinvestment. Dividends and capital gains can be
automatically reinvested in the Fund that pays them or another Fund within the
same class of shares without a fee or sales charge. Dividends and capital gains
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.
[ICON] Touchstone Family of Funds
<PAGE>
53
Investing With Touchstone
Direct Deposit Purchase Plan. You may automatically invest Social Security
checks, private payroll checks, pension payouts 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. Touchstone's 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.
[ICON] Touchstone Family of Funds
<PAGE>
54
Investing With Touchstone
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.
o To sell your Fund shares by telephone, call Touchstone at
800.669.2796 (press 1) or, from outside the United States,
617.483.5000 ext. 6518. You can also send a fax to us at
617.483.2354 between the hours of 8:00 a.m. and 4:00 p.m. Eastern
BY TELEPHONE time on a day when the NYSE is open for regular trading.
- --------------------------------------------------------------------------------
o Write to Touchstone.
o Specify the name of the Fund.
o Indicate the number of shares or dollar amount to be sold.
BY MAIL o Include your name and account number.
- --------------------------------------------------------------------------------
o Complete the appropriate information on the Investment
Application or fill out a Touchstone Wire Transfer Form.
o If your proceeds are $1,000 or more, you may request that the
Transfer Agent wire them to your bank account.
o You may also request wire transfer of your proceeds in writing.
Written requests should include the name, location and ABA or
bank routing number (if known) of your designated bank and your
BY WIRE account number.
- --------------------------------------------------------------------------------
o If a corporation, partnership, trust or fiduciary requests the
BY A sale of shares, Touchstone will require proof of their authority
THIRD PARTY before shares are sold.
- --------------------------------------------------------------------------------
THROUGH o You may also sell shares by contacting your financial advisor,
YOUR who may charge you a fee for this service. Shares held in street
FINANCIAL name must be sold through your financial advisor or, if
ADVISOR applicable, the processing organization.
- --------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
55
Investing With Touchstone
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.
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 $50,000
o Proceeds to be paid to a person other than the record owner
o Proceeds to be sent to an address other than the address on the
Transfer Agent's records
o Proceeds to be paid to a corporation, partnership, trust or
fiduciary
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 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 intends to 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 the Trust will not be liable for those cases. The Trust 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 the Trust's records
o Mailing checks only to the account address shown on the Trust's
records
o Directing wires only to the bank account shown on the Trust'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, quarterly or annual 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 value
is required for retirement plans.
[ICON] Touchstone Family of Funds
<PAGE>
56
Investing With Touchstone
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 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 account balance falls below $500 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
let you know that your shares are about to be sold and you will have 30 days to
increase your account balance to more than $500.
Receiving Sale Proceeds
Touchstone will forward the proceeds of your sale to you (or to your financial
advisor) within seven days.
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.
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.
[ICON] Touchstone Family of Funds
<PAGE>
57
Investing With Touchstone
Check-Writing -- Standby Income Fund Only
You may establish check-writing privileges from your investment in the Standby
Income Fund. To do so, complete the check-writing authorization section of the
Investment Application and pay the $5 fee per checkbook. You will then receive
checks that you may use to draw against your account. You will be charged $1 for
each check presented for payment.
Checks may be payable to anyone you designate in the amount of $500 or more.
Checks must be signed as indicated on your check-writing signature card
contained in the account application. You cannot write a check for an amount
larger than the value of your account (at the time the check is written), or
your check will be returned. You will continue to earn monthly dividends on the
funds until the check is presented for payment.
Checks cannot be presented in person to Touchstone. When a check is presented
for payment, Touchstone will sell a sufficient number of shares in your account
to cover the amount of the check. The check-writing option can provide you with
easy access to your money, but it is not meant to be used as a regular checking
account.
o Special Tax Consideration: Since the share price of the Standby
Income Fund may fluctuate daily, use of the check-writing
privilege can result in the sale of your shares at a profit or a
loss from the time of your purchase. These sales of your Fund
share may be considered a taxable event.
o Investor Alert: You should use the telephone or mail redemption
procedures, rather than a check, to close your account.
o Investor Alert: The check-writing privilege may be modified or
terminated at any time by the Trust or Transfer Agent upon notice
to shareholders.
[ICON] Touchstone Family of Funds
<PAGE>
58
Distributions And Taxes
ooo Special Tax
Consideration
- --------------------------------------------------------------------------------
You should consult with your tax advisor to address your own tax situation.
Distributions And Taxes
Each Touchstone 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
Standby Income Fund Daily Monthly
- --------------------------------------------------------------------------------
Income Opportunity Fund
and Bond Fund Monthly Monthly
- --------------------------------------------------------------------------------
Growth & Income Fund,
Value Plus Fund
and Balanced Fund Quarterly Quarterly
- --------------------------------------------------------------------------------
Emerging Growth Fund
and International Equity 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
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.
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.
[ICON] Touchstone Family of Funds
<PAGE>
59
Financial Highlights
Financial Highlights
These financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years or, if shorter, the period of a
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, are incorporated by reference in the Statement of Additional
Information, which is available upon request.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Emerging Growth Fund -- Class A
- --------------------------------------------------------------------------------
Period Ended 12/31/94(a) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.11 $11.52 $11.55 $13.85
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.16 (0.01) 0.01 (0.03) (0.04)
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments 0.11 2.29 1.20 3.71 0.37
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.27 2.28 1.21 3.68 0.33
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.15) (0.03) (0.01) -- --
- ------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains (0.01) (0.84) (1.17) (1.38) (0.78)
- ------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (0.16) (0.87) (1.18) (1.38) (0.78)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.11 $11.52 $11.55 $13.85 $13.40
- ------------------------------------------------------------------------------------------------------------------------
Total Return (c) 2.72% 22.56% 10.56% 32.20% 2.57%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000's) $1,038 $2,520 $2,873 $4,949 $8,335
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets (d):
Expenses 1.75%(f) 1.50% 1.50% 1.50% 1.50%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 6.10%(f) (0.05%) (0.12%) (0.30%) (0.41%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 150% 109% 117% 101% 78%
- ------------------------------------------------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
60
FINANCIAL HIGHLIGHTS
<CAPTION>
- --------------------------------------------------------------------------------
The International Equity Fund -- Class A
- --------------------------------------------------------------------------------
Period Ended 12/31/94(a) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.12 $ 9.58 $10.63 $11.41
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) -- 0.21 0.05 0.02 0.00(g)
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (0.88) 0.47 1.06 1.64 2.27
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.88) 0.68 1.11 1.66 2.27
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income -- (0.22) (0.06) (0.02) (0.05)
- ------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- -- -- (0.86) (0.74)
- ------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions -- (0.22) (0.06) (0.88) (0.79)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.12 $ 9.58 $10.63 $11.41 $12.89
- ------------------------------------------------------------------------------------------------------------------------
Total Return (c) (8.80%) 5.29% 11.61% 15.57% 19.94%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000's) $2,282 $2,617 $3,449 $4,761 $6,876
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets (d):
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.85%(f) 1.60% 1.60% 1.60% 1.60%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (0.36%)(f) 0.11% 0.42% 0.17% (0.03)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 7% 90% 86% 151% 138%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
The Income Opportunity Fund -- Class A
- --------------------------------------------------------------------------------
Period Ended 12/31/94(a) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.08 $ 9.83 $10.90 $ 9.89
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.22 1.19 1.12 1.24 0.90
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (0.94) 0.77 1.38 (0.23) (2.18)
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.72) 1.96 2.50 1.01 (1.28)
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.20) (1.21) (1.12) (1.22) (0.91)
- ------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- -- (0.31) (0.80) --
- ------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- (0.07)
- ------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (0.20) (1.21) (1.43) (2.02) (0.98)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.08 $ 9.83 $10.90 $ 9.89 $ 7.63
- ------------------------------------------------------------------------------------------------------------------------
Total Return (c) (7.20%) 23.19% 26.66% 9.49% (13.77)%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000's) $ 926 $1,369 $4,579 $7,009 $6,658
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets (d):
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.45%(f) 1.20% 1.20% 1.20% 1.20%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 8.60%(f) 12.42% 11.29% 11.19% 10.02%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 144% 120% 222% 270% 283%
- ------------------------------------------------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
61
FINANCIAL HIGHLIGHTS
<CAPTION>
- --------------------------------------------------------------------------------
The Value Plus Fund -- Class A
- --------------------------------------------------------------------------------
Period Ended 12/31/98(b)
Per Share Operating Performance
<S> <C>
Net Asset Value, Beginning of Period $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.02
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments 0.41
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.43
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.02)
- ------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains --
- ------------------------------------------------------------------------------------------------------------------------
Return of Capital (0.00)(g)
- ------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (0.02)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.41
- ------------------------------------------------------------------------------------------------------------------------
Total Return (c) 4.29%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000's) $27,068
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets (d):
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.30%(f)
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.25%(f)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
The Growth & Income Fund -- Class A
- --------------------------------------------------------------------------------
Period Ended 12/31/94(a) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.02 $13.14 $14.03 $15.06
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.86 0.05 0.12 0.09 0.19
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (0.84) 3.46 2.12 2.78 0.84(h)
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.02 3.51 2.24 2.87 1.03
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income -- (0.16) (0.12) (0.11) (0.20)
- ------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- (0.23) (1.23) (1.73) (0.40)
- ------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions -- (0.39) (1.35) (1.84) (0.62)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.02 $13.14 $14.03 $15.06 $15.47
- ------------------------------------------------------------------------------------------------------------------------
Total Return (c) 0.20% 35.14% 16.95% 20.70% 6.87%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 20 $1,500 $3,659 $5,980 $15,261
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets (d):
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.55%(f) 1.30% 1.30% 1.30% 1.30%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.56%(f) 0.56% 0.55% 0.67% 1.50%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 10% 102% 92% 170% 64%
- ------------------------------------------------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
62
FINANCIAL HIGHLIGHTS
<CAPTION>
- --------------------------------------------------------------------------------
The Balanced Fund -- Class A
- --------------------------------------------------------------------------------
Period Ended 12/31/94(a) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.97 $11.34 $12.48 $12.42
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.08 0.31 0.30 0.27 0.25
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (0.05) 1.99 1.59 2.09 0.23
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 2.30 1.89 2.36 0.48
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.06) (0.33) (0.30) (0.30) (0.30)
- ------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- (0.60) (0.45) (2.12) (0.51)
- ------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (0.06) (0.93) (0.75) (2.42) (0.81)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.97 $11.34 $12.48 $12.42 $12.09
- ------------------------------------------------------------------------------------------------------------------------
Total Return (c) (0.30%) 23.24% 16.86% 19.25% 3.98%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000's) $1,001 $1,502 $2,085 $3,316 $4,636
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets (d):
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.60%(f) 1.35% 1.35% 1.35% 1.35%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 2.75%(f) 2.39% 2.19% 2.07% 2.11%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 7% 121% 88% 120% 59%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
THE BOND FUND -- CLASS A
- --------------------------------------------------------------------------------
Period Ended 12/31/94(a) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.88 $10.61 $10.17 $10.22
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 1.15 0.56 0.71 0.61 0.55
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (1.12) 1.07 (0.43) 0.11 0.30
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 1.63 0.28 0.72 0.85
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.15) (0.86) (0.70) (0.66) (0.57)
- ------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- (0.04) (0.02) (0.01) (0.11)
- ------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (0.15) (0.90) (0.72) (0.67) (0.68)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.88 $10.61 $10.17 $10.22 $10.39
- ------------------------------------------------------------------------------------------------------------------------
Total Return (c) 0.28% 16.95% 2.85% 7.30% 8.56%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000's) $ 16 $ 523 $ 821 $1,685 $4,924
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets (d):
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.15%(f) 0.90% 0.90% 0.90% 0.90%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 5.58%(f) 6.21% 6.01% 6.08% 5.68%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 11% 78% 64% 88% 170%
- ------------------------------------------------------------------------------------------------------------------------
[ICON] Touchstone Family of Funds
<PAGE>
63
FINANCIAL HIGHLIGHTS
<CAPTION>
- --------------------------------------------------------------------------------
The Standby Income Fund
- --------------------------------------------------------------------------------
Period Ended 12/31/94(a) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.03 $10.01 $ 9.98 $ 9.97
- ------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.11 0.55 0.46 0.51 0.52
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss on Investments) 0.03 (0.02) 0.01 -- 0.01
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.14 0.53 0.47 0.51 0.53
- ------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.11) (0.55) (0.50) (0.52) (0.52)
- ------------------------------------------------------------------------------------------------------------------------
Net Realized Gain -- -- -- -- (0.00)(g)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.03 $10.01 $ 9.98 $ 9.97 $ 9.98
- ------------------------------------------------------------------------------------------------------------------------
Total Return (i) 1.40% 5.71% 4.80% 5.21% 5.49%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000's) $5,048 $5,910 $6,456 $8,603 $11,257
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------
Expenses (j) 1.00%(f) 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income 4.54%(f) 5.32% 4.88% 5.14% 5.17%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 0% 142% 20% 285% 683%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The outstanding shares of each series of Touchstone Series Trust
(formerly named Select Advisors Trust A), other than the Standby
Income Fund, were redesignated as Class A shares effective after the
close of business on December 31, 1998.
(a) The Fund commenced operations on October 3, 1994.
(b) The Fund commenced operations on May 1, 1998.
(c) Total 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 periods shown.
(d) Includes the Fund's proportionate share of the corresponding
Portfolio's expenses. 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 higher.
(e) Per share amounts have been calculated using the average share method.
(f) Ratios are annualized.
(g) Amount rounds to less than $0.01.
(h) 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.
(i) Total returns would have been lower had certain expenses not been
reimbursed or waived during the periods shown.
(j) 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
higher.
[ICON] Touchstone Family of Funds
<PAGE>
64
For More Information
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
800.669.2796 (Press 3)
http://www.touchstonefunds.com
You can view the Funds' SAI and the reports at the Public Reference Room of the
Securities and Exchange Commission.
For a fee, you can get text-only copies by writing to the Public Reference Room
of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549-6009. You can also
call 800.SEC.0330.
You can also view the SAI and the reports free from the SEC's Internet website
at http://www.sec.gov.
Investment Company Act file no. 811-8380
Touchstone Family of Funds
o Touchstone Emerging
Growth Fund
o Touchstone International
Equity Fund
o Touchstone Income
Opportunity Fund
o Touchstone Value Plus Fund
o Touchstone Growth &
Income Fund
o Touchstone Balanced Fund
o Touchstone Bond Fund
o Touchstone Standby
Income Fund
Class A and Class C
Shares are Offered by
this Prospectus
<PAGE>
TOUCHSTONE FAMILY OF FUNDS
Prospectus
May 1, 1999
o Touchstone Emerging Growth Fund
o Touchstone International Equity Fund
o Touchstone Income Opportunity Fund
o Touchstone Value Plus Fund
o Touchstone Growth & Income Fund
o Touchstone Balanced Fund
o Touchstone Bond Fund
o Touchstone Standby Income Fund
Neither the Securities and Exchange Commission nor any state
securities commission has approved any Fund's 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
The Touchstone Family of Funds is a group of mutual funds. Each Fund has a
different investment goal and risk level and is a part of Touchstone Series
Trust (the Trust).
2
<PAGE>
Table of Contents
Page
Touchstone Emerging Growth Fund .......................... 4
Touchstone International Equity Fund ..................... 8
Touchstone Income Opportunity Fund ....................... 11
Touchstone Value Plus Fund ............................... 15
Touchstone Growth & Income Fund .......................... 17
Touchstone Balanced Fund ................................. 20
Touchstone Bond Fund ..................................... 24
Touchstone Standby Income Fund ........................... 27
Investment Strategies and Risks .......................... 31
The Funds' Management .................................... 36
Investing With Touchstone ................................ 40
Distribution and Taxes ................................... 41
For More Information ..................................... 42
Touchstone Emerging Growth Fund
3
<PAGE>
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.
As with any mutual fund, there is no guarantee that the Fund will achieve its
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.
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
o Other debt securities, including:
collateralized mortgage obligations (CMOs), stripped U.S.
government securities (Strips) and mortgage-related
securities, all of which will be rated investment grade
The Fund may also invest in:
o Securities of foreign companies traded mainly outside the U.S.
(up to 20%) o American Depositary Receipts (ADRs) (up to 20%)
o Emerging markets securities (up to 10%).
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. 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.
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline.
o Because CMOs, Strips and mortgage-related securities may lose
more value due to changes in interest rates than other debt
securities and are subject to prepayment.
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 emerging market securities 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 emerging market securities than other foreign
securities.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
4
<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 many years from retirement and are comfortable with wide
market fluctuations.
The Fund's Performance
The bar chart shown below 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[BAR CHART]
Emerging Growth Fund - Class A Performance (1)
Years Return
---- ------
1995 22.56%
1996 10.56%
1997 32.20%
1998 2.57%
During the period shown in the Bar Chart, the highest quarterly return
was 20.90% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -19.30% (for the quarter ended September 30,
1998).
1 The returns shown are for Class A shares. Class A shares are not
offered in this Prospectus. Class Y shares would have substantially
similar annual returns because the shares are invested in the same
portfolio of securities. The annual returns would differ only to the
extent that the Classes do not have the same expenses.
The table below 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
5
<PAGE>
Cap - MF. 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 similar to that
of the Emerging Growth Fund. The table shows the effect of the Class A sales
charge.
<TABLE>
<CAPTION>
For the periods ended December 31, 1998
- ------------------------------------------ -------------------------------- -------------------------------
Past 12 Months Since Fund Started
- ------------------------------------------ -------------------------------- -------------------------------
<S> <C> <C>
Emerging Growth Fund -- Class A* -3.3% 14.5%
- ------------------------------------------ -------------------------------- -------------------------------
Russell 2000 Index -2.5% 14.1%
- ------------------------------------------ -------------------------------- -------------------------------
Wiesenberger Small Cap - MF -0.4% 16.4%
- ------------------------------------------ -------------------------------- -------------------------------
</TABLE>
* The table shows performance for the Fund's Class A shares because the Class Y
have not yet been in existence for a full calendar year.
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 Class Y Shares
your investment)
----------------------------------------------- ------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None
----------------------------------------------- ------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of amount redeemed) None
----------------------------------------------- ------------------------
Annual Fund Operating Expenses (expenses that
are deducted from fund assets)
----------------------------------------------- ------------------------
Management Fees 0.80%
----------------------------------------------- ------------------------
Distribution (12b-1) Fees None
----------------------------------------------- ------------------------
Other Expenses 3.15%
----------------------------------------------- ------------------------
Total Annual Fund Operating Expenses 3.95%
----------------------------------------------- ------------------------
Fee Waiver and/or Expense Reimbursement1 2.70%
----------------------------------------------- ------------------------
Net Expenses 1.25%
----------------------------------------------- ------------------------
1 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, 1999.
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:
6
<PAGE>
-------------------------- ---------------------------------
Class Y Shares
-------------------------- ---------------------------------
1 Year $ 127
-------------------------- ---------------------------------
3 Years $ 965
-------------------------- ---------------------------------
5 Years $ 1,801
-------------------------- ---------------------------------
10 Years $ 3,995
-------------------------- ---------------------------------
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>
Touchstone International Equity Fund
The Fund's Investment Goal
The International Equity Fund seeks to increase the value of Fund shares over
the long-term.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
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. A large portion of those non-U.S. equity securities may be issued
by companies active in emerging market countries (up to 40% of total assets).
The 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.
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. The portfolio manager's investment process seeks to add value by making
good regional and country allocations as well as by selecting individual stocks
within a region.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. 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
dur to changes in currency exchange rates and other factors.
o Because emerging market securities 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 emerging market securities than other foreign
securities.
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. o Because
issuers of non-investment grade securities held by the Fund are
more likely to be unable to make timely payments of interest or
principal.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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.
8
<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 many years from retirement and 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[BAR CHART]
International Equity Fund - Class A Performance (1)
Years Returns
----- -------
1995 5.29%
1996 11.631%
1997 15.57%
1998 19.94%
During the period shown in the Bar Chart, the highest quarterly return
was 16.83% (for the quarter ended March 31, 1998) and the lowest
quarterly return was -13.67% (for the quarter ended September 30,
1998).
1 The returns shown are for Class A shares. Class A shares are not
offered in this Prospectus. Class Y shares would have substantially
similar annual returns because the shares are invested in the same
portfolio of securities. The annual returns would differ only to the
extent that the Classes do not have the same expenses.
The table below 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 Class A sales charge.
9
<PAGE>
<TABLE>
<CAPTION>
For the periods ended December 31, 1998
- ------------------------------------------- ------------------------------- -------------------------------
Past 12 Months Since Fund Started
- ------------------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
International Equity Fund - Class A* 13.0% 8.3%
- ------------------------------------------- ------------------------------- -------------------------------
MSCI EAFE Index 20.3% 9.0%
- ------------------------------------------- ------------------------------- -------------------------------
Wiesenberger Non-US Equity - MF 6.1% 3.9%
- ------------------------------------------- ------------------------------- -------------------------------
</TABLE>
* The table shows performance for the Fund's Class A shares because the Class Y
have not yet been in existence for a full calendar year.
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 Class Y Shares
investment)
--------------------------------------------------- --------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
--------------------------------------------------- --------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of amount redeemed) None
--------------------------------------------------- --------------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)
--------------------------------------------------- --------------------------
Management Fees 0.95%
--------------------------------------------------- --------------------------
Distribution (12b-1) Fees None
--------------------------------------------------- --------------------------
Other Expenses 2.63%
--------------------------------------------------- --------------------------
Total Annual Fund Operating Expenses 3.58%
--------------------------------------------------- --------------------------
Fee Waiver and/or Expense Reimbursement1 2.23%
--------------------------------------------------- --------------------------
Net Expenses 1.35%
--------------------------------------------------- --------------------------
1 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, 1999.
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 Y Shares
----------------------- ----------------------------
1 Year $ 137
----------------------- ----------------------------
3 Years $ 890
----------------------- ----------------------------
5 Years $ 1,664
----------------------- ----------------------------
10 Years $ 3,698
----------------------- ----------------------------
>> 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.
10
<PAGE>
Touchstone Income Opportunity Fund
The Fund's Investment Goal
The Income Opportunity Fund seeks to achieve a high level of current income as
its main goal. The Fund may also seek to increase the value of Fund shares, if
consistent with its main goal.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily in debt securities. These debt securities will
generally be more risky non-investment grade corporate and government securities
(up to 100% of total assets) of both U.S. and foreign issuers. Non-investment
grade debt securities are often referred to as "junk bonds" and are considered
speculative.
The Fund's investments may include:
o Securities of foreign companies (up to 100%), but only up to 30%
of its assets in securities of foreign companies that are
denominated in a currency other than the U.S. dollar.
o Debt securities that are emerging market securities (up to 65%).
o Mortgage-related securities and other types of loans and loan
participations.
o Currency futures and option contracts.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund, or the Fund could return less than other investments:
o If interest rates go up, causing the value of any debt securities held by
the Fund to decline. o Because issuers of non-investment grade debt
securities held by the Fund are more likely to be unable to make timely payments
of interest or principal.
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 emerging market securities 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 emerging market securities than other foreign
securities.
o Because mortgage-related securities may lose more value due to
changes in interest rates than other debt securities and are
subject to prepayment.
o Because loans and loan participations may be more difficult to
sell than other investments and are subject to the risk of
borrower default.
o If the stock market as a whole goes down.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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.
11
<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 many years from retirement and are comfortable with wide
market fluctuations.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Income
Opportunity 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[BAR CHART]
Income Opportunity Fund - Class A Performance (1)
Years Return
----- ------
1995 23.19%
1996 26.66%
1997 9.49%
1998 -13.77%
During the period shown in the Bar Chart, the highest quarterly return
was 16.15% (for the quarter ended June 30, 1995) and the lowest
quarterly return was -16.50% (for the quarter ended September 30, 1998.
1 The returns shown are for Class A shares. Class A shares are not
offered in this Prospectus. Class Y shares would have substantially
similar annual returns because the shares are invested in the same
portfolio of securities. The annual returns would differ only to the
extent that the Classes do not have the same expenses.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Lehman Brothers Corporate Bond Index, the
Wiesenberger Corp - High Yield - MF, the Wiesenberger Global Income - MF and the
Wiesenberger Emerging Market Income - MF. The Lehman Brothers Corporate Bond
Index is based on all publicly issued intermediate fixed-rate, non-convertible
investment grade domestic corporate debt. The Wiesenberger Corp - High Yield -
MF index, the Wiesenberger Global Income - MF index and the Wiesenberger
Emerging Market Income - MF index are composite indexes of the annual returns of
mutual funds that have an investment style similar to the Income Opportunity
Fund. The table shows the effect of the Class A sales charge.
12
<PAGE>
<TABLE>
<CAPTION>
For the periods ended December 31, 1998
- --------------------------------------------- -------------------------- ---------------------------------
Past 12 Months Since Fund Started
- --------------------------------------------- -------------------------- ---------------------------------
<S> <C> <C>
Income Opportunity Fund - Class A* -17.8% 6.4%
- --------------------------------------------- -------------------------- ---------------------------------
Lehman Brothers Corporate Bond Index 8.5% 10.3%
- --------------------------------------------- -------------------------- ---------------------------------
Wiesenberger Corp - High Yield - MF -0.7% 9.3%
- --------------------------------------------- -------------------------- ---------------------------------
Wiesenberger Global Income - MF 4.8% 7.5%
- --------------------------------------------- -------------------------- ---------------------------------
Wiesenberger Emerging Market Income - MF -22.8% 5.8%
- --------------------------------------------- -------------------------- ---------------------------------
</TABLE>
* The table shows performance for the Fund's Class A shares because the Class Y
have not yet been in existence for a full calendar year.
The Fund's Fees and Expenses
These tables describe 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 Y Shares
-------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
-------------------------------------------------------------- ----------------
Maximum Deferred Sales Charge (Load) (as a percentage of
amount redeemed) None
-------------------------------------------------------------- ----------------
Annual Fund Operating Expenses (expenses that are deducted
from Fund assets)
-------------------------------------------------------------- ----------------
Management Fees 0.65%
-------------------------------------------------------------- ----------------
Distribution (12b-1) Fees None
-------------------------------------------------------------- ----------------
Other Expenses 2.43%
-------------------------------------------------------------- ----------------
Total Annual Fund Operating Expenses 3.08%
-------------------------------------------------------------- ----------------
Fee Waiver and/or Expense Reimbursement1 2.13%
-------------------------------------------------------------- ----------------
Net Expenses 0.95%
-------------------------------------------------------------- ----------------
1 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, 1999.
The following example should help you compare the cost of investing in the
Income Opportunity 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:
13
<PAGE>
------------------------------ ----------------------
Class Y Shares
------------------------------ ----------------------
1 Year $ 97
------------------------------ ----------------------
3 Years $ 750
------------------------------ ----------------------
5 Years $ 1,429
------------------------------ ----------------------
10 Years $ 3,243
------------------------------ ----------------------
>> 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.
14
<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.
As with any mutual fund, there is no guarantee that it will achieve its goal.
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.
The Fund may invest in:
o Preferred stocks
o Investment grade debt securities
o Convertible securities.
In addition, the Fund may invest in (up to 10%):
o Cash equivalent investments
o Short-term debt securities.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments
if:
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 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.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of the 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 many years from retirement and are comfortable with a moderate level of
risk.
15
<PAGE>
Performance Note
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Value Plus Fund started on May 1, 1998,
there is no performance information included in this Prospectus.
The Fund's Fees and Expenses
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
--------------------------------------------------------- --------------
Shareholder Fees (fees paid directly from your Class Y Shares
investment)
--------------------------------------------------------- --------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
--------------------------------------------------------- --------------
Maximum Deferred Sales Charge (Load) (as a percentage
of amount redeemed) None
--------------------------------------------------------- --------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)
--------------------------------------------------------- --------------
Management Fees 0.75%
--------------------------------------------------------- --------------
Distribution (12b-1) Fees None
--------------------------------------------------------- --------------
Other Expenses 1.14%
--------------------------------------------------------- --------------
Total Annual Fund Operating Expenses 1.89%
--------------------------------------------------------- --------------
Fee Waiver and/or Expense Reimbursement1 0.84%
--------------------------------------------------------- --------------
Net Expenses 1.05%
--------------------------------------------------------- --------------
1 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, 1999.
The following examples 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 Y Shares
------------------------------ ----------------------
1 Year $ 107
------------------------------ ----------------------
3 Years $ 512
------------------------------ ----------------------
5 Years $ 943
------------------------------ ----------------------
10 Years $ 2,143
------------------------------ ----------------------
>> 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.
16
<PAGE>
Touchstone Growth & Income Fund
The Fund's Investment Goal
The Growth & Income Fund seeks to increase the value of Fund shares over the
long-term, while receiving dividend income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily (at least 65% of total assets) in dividend-paying
common stocks, preferred stocks and convertible securities in a variety of
industries. The portfolio manager may choose to purchase securities which do not
pay dividends (up to 35%) but which are expected to increase in value or produce
high income payments in the future.
In choosing securities for the Fund, the portfolio manager will follow a value
oriented style, generally buying securities wiht yields that are at least 20%
higher than the average yield of companies in the S&P 500. The portfolio manager
focuses on investing in companies that have a market capitalization of at least
$1 billion, but may invest in companies of any size.
The Fund may also invest up to 20% of its total assets in debt securities - and
within this 20% limitation, the Fund may invest the full 20% in investment grade
non-convertible debt securities, the full 20% in convertible debt securities
rated as low as the highest level of non-investment grade or up to 5% in
non-convertible non-investment grade debt securities.
The Fund may also invest in:
o Securities of foreign companies including American Depository
Receipts (ADRs) (up to 20%).
o Real estate investment trusts (up to 10%).
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down.
o If any of the stocks in the Fund's portfolio do not increase in
value as expected.
o If earnings of companies the Fund invests in are not achieved and
income available for interest or dividend payments is reduced.
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline.
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 investments in REITs are more sensitive to changes in
interest rates and other factors that affect real estate values.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entitiy.
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.
17
<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 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 most appropriate for you if you are many years from retirement
and are comfortable with a moderate level of risk.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Growth &
Income 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[BAR CHART]
Growth & Income Fund - Class A Peformance(1)
Year Return
---- ------
1995 36.14%
1996 16.95%
1997 20.70%
1998 6.87%
During the period shown in the bar chart, the highest quarterly return
was 12.42% (for the quarter ended March 31, 1998) and the lowest
quarterly return was -12.72% (for the quarter ended September 30,
1998).
1 The returns shown are for Class A shares. Class A shares are not
offered in this Prospectus. Class Y shares would have substantially
similar annual returns because the shares are invested in the same
portfolio of securities. The annual returns would differ only to the
extent that the Classes do not have the same expenses.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Standard & Poor's Composite Index of 500 Stocks
(S&P 500) and the Wiesenberger Growth & Income - MF Index. The S&P 500 Index is
a widely recognized unmanaged index of stock performance. The Wiesenberger
Growth & Income - MF Index is a composite index of the annual returns of mutual
funds that have an investment style similar to the Growth & Income Fund. The
table shows the effect of the Class A sales charge.
18
<PAGE>
<TABLE>
<CAPTION>
For the periods ended December 31, 1998
- --------------------------------------------------- --------------------------- ---------------------------
Past 12 Months Since Fund Started
- --------------------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Growth & Income Fund -- Class A* 0.7% 16.7%
- --------------------------------------------------- --------------------------- ---------------------------
S&P 500 Index 28.6% 28.5%
- --------------------------------------------------- --------------------------- ---------------------------
Wiesenberger Growth & Income - MF 15.3% 21.0%
- --------------------------------------------------- --------------------------- ---------------------------
</TABLE>
* The table shows performance for the Fund's Class A shares because the Class Y
have not yet been in existence for a full calendar year.
The Fund's Fees and Expenses
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
----------------------------------------------------- ---------------
Shareholder Fees (fees paid directly from your Class Y Shares
investment)
----------------------------------------------------- ---------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
----------------------------------------------------- ---------------
Maximum Deferred Sales Charge (Load) (as a
percentage of amount redeemed) None
----------------------------------------------------- ---------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)
----------------------------------------------------- ---------------
Management Fees 0.80%
----------------------------------------------------- ---------------
Distribution (12b-1) Fees None
----------------------------------------------------- ---------------
Other Expenses 1.40%
----------------------------------------------------- ---------------
Total Annual Fund Operating Expenses 2.20%
----------------------------------------------------- ---------------
Fee Waiver and/or Expense Reimbursement1 1.15%
----------------------------------------------------- ---------------
Net Expenses 1.05%
----------------------------------------------------- ---------------
1 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, 1999.
The following example should help you compare the cost of investing in the
Growth & Income 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 Y Shares
----------------------------- ------------------------
1 Year $ 107
----------------------------- ------------------------
3 Years $ 577
----------------------------- ------------------------
5 Years $ 1,074
----------------------------- ------------------------
10 Years $ 2,444
----------------------------- ------------------------
>> 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.
19
<PAGE>
Touchstone Balanced Fund
The Fund's Investment Goal
The Balanced Fund seeks to achieve both an increase in the value of Fund shares
and current income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests in both equity securities (generally about 60% of total assets)
and debt securities (generally about 40%, but at least 25% of total assets). The
debt securities will be rated investment grade or at the highest level of
non-investment grade.
The Fund may invest in:
o Warrants
o Preferred stocks
o Convertible securities.
The Fund may also invest up to one-third of its assets in securities of foreign
companies, and up to 15% in emerging markets securities.
In choosing equity securities for the Fund,the portfolio manager will seek out
companies that are in a strong position within their industry, are owned in part
by management and are selling at a price lower than the company's intrinsic
value. Debt securities are also chosen using a value style. The portfolio
manager will focus on higher yielding securities, but will also consider
expected movements in interest rates and industry position.
The Key Risks
The Fund's share price could fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down.
o If the stocks in the Fund's portfolio do not increase in value as
expected.
o If earnings of companies the Fund invests in are not achieved and
income available for interest or dividend payments is reduced.
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline.
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 emerging market securities 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 emerging market securities than other foreign
securities.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
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.
20
<PAGE>
Who May Want to Invest
This Fund is most appropriate for you if you are a risk neutral or moderately
conservative investor. You may typically take a relatively low risk approach to
investing and may be comfortable with a low level of volatility in your
investments. While safety may be important to you, you may also value
appreciation of your investments. If you invest in this Fund, you should be
willing to accept some risk in order to realize moderate returns on your
investment. This Fund's approach may be appropriate for you if you are several
years from retirement.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Balanced 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[BAR CHART]
Balanced Fund - Class A Performance (1)
Year Return
---- ------
1995 23.24%
1996 16.86%
1997 19.25%
1998 3.98%
During the period shown in the bar chart, the highest quarterly return
was 10.71% (for the quarter ended June 30, 1997) and the lowest
quarterly return was -10.39% (for the quarter ended September 30,
1998).
1 The returns shown are for Class A shares. Class A shares are not
offered in this Prospectus. Class Y shares would have substantially
similar annual returns because the shares are invested in the same
portfolio of securities. The annual returns would differ only to the
extent that the Classes do not have the same expenses.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Standard & Poor's Composite Index of 500 Stocks
(S&P 500), the Lehman Brothers Aggregate Index, a blend made up of 60% S&P 500
and 40% LB Aggregate and to the Wiesenberger Balanced Domestic - MF index. The
Lehman Brothers Aggregate Index is composed of 5,400 publicly issued corporate
and U.S. government debt rated Baa or better with at least one year to maturity
and at least $25 million par outstanding. The Wiesenberger Balanced Domestic -
MF index is a composite index of the annual returns of mutual funds that have an
investment style similar to the Balanced Fund. The table shows the effect of the
Class A sales charge.
21
<PAGE>
<TABLE>
<CAPTION>
For the periods ended December 31, 1998
- ------------------------------------------------- -------------------------- ------------------------------
Past 12 Months Since Fund Started
- ------------------------------------------------- -------------------------- ------------------------------
<S> <C> <C>
Balanced Fund - Class A* -2.0% 13.1%
- ------------------------------------------------- -------------------------- ------------------------------
S&P 500 Index 28.6% 28.5%
- ------------------------------------------------- -------------------------- ------------------------------
Lehman Brothers Aggregate Index 8.7% 9.5%
- ------------------------------------------------- -------------------------- ------------------------------
Blend - 60% S&P 500, 40% LB Aggregate 21.0% 20.8%
- ------------------------------------------------- -------------------------- ------------------------------
Wiesenberger Balanced Domestic - MF 12.9% 15.9%
- ------------------------------------------------- -------------------------- ------------------------------
</TABLE>
* The table shows performance for the Fund's Class A shares because the Class Y
have not yet been in existence for a full calendar year.
The Fund's Fees and Expenses
These tables describe the fees and expenses that you may pay if you buy and hold
shares of a Fund.
----------------------------------------------------------- --------------
Shareholder Fees (fees paid directly from your investment) Class Y Shares
----------------------------------------------------------- --------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
----------------------------------------------------------- --------------
Maximum Deferred Sales Charge (Load) (as a percentage of
amount redeemed) None
----------------------------------------------------------- --------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)
----------------------------------------------------------- --------------
Management Fees 0.80%
----------------------------------------------------------- --------------
Distribution (12b-1) Fees None
----------------------------------------------------------- --------------
Other Expenses 3.62%
----------------------------------------------------------- --------------
Total Annual Fund Operating Expenses 4.42%
----------------------------------------------------------- --------------
Fee Waiver and/or Expense Reimbursement1 3.32%
----------------------------------------------------------- --------------
Net Expenses 1.10%
----------------------------------------------------------- --------------
1 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, 1999.
The following example should help you compare the cost of investing in the
Balanced 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 Y Shares
----------------------------- -------------------
1 Year $ 112
----------------------------- -------------------
3 Years $ 1,036
----------------------------- -------------------
22
<PAGE>
----------------------------- -------------------
5 Years $ 1,971
----------------------------- -------------------
10 Years $ 4,355
----------------------------- -------------------
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.
23
<PAGE>
Touchstone Bond Fund
The Fund's Investment Goal
The Bond Fund seeks to provide a high level of current income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily in higher quality investment grade debt securities
(at least 65% of total assets). The Fund's investment in debt securities may be
determined by the direction in which interest rates are expected to move because
the value of these securities generally moves in the opposite direction from
interest rates. The Fund expects to have an average maturity between five and
fifteen years.
The Fund invests in:
o Mortgage-related securities (up to 60%)
o Asset-backed securities
o Preferred stocks.
The Fund also invests in non-investment grade U.S. or foreign debt securities
and preferred stock which are rated as low as B (up to 35%).
In addition, the Fund may invest in :
o Debt securities denominated in foreign currencies (20% or less)
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline.
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 issuers of non-investment grade debt securities held by
the Fund are unable to make timely payments of interest or
principal.
o Because mortgage-related securities and asset-backed securities
may lose more value due to changes in interest rates than other
debt securities and are subject to prepayment.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other governmental entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risk under the heading Investment
Strategies and Risks later in this Prospectus.
24
<PAGE>
Who May Want to Invest
This Fund is most appropriate for you if you prefer to take a relatively low
risk approach to investing. Safety of your investment may be the most important
factor to you. You may be willing to accept potentially lower returns in order
to maintain a lower, more tolerable level of risk. This Fund's approach may be
most appropriate for you if you are nearing retirement.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Bond Fund. It
shows changes in the performance of the Fund's Class A shares from year to year
since the Fund's inception. 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 other classes of shares offered by the Fund will differ from the
Class A returns shown in the bar chart, depending on the expenses of that class.
[Bar Chart]
Bond Fund - Class A Performance (1)
Year Return
---- ------
1995 16.95%
1996 2.85%
1997 7.30%
1998 8.56%
During the period shown in the bar chart, the highest quarterly return
was 5.21% (for the quarter ended December 31, 1997) and the lowest
quarterly return was -2.10% (for the quarter ended March 31, 1997).
1 The returns shown are for Class A shares. Class A shares are not
offered in this Prospectus. Class Y shares would have substantially
similar annual returns because the shares are invested in the same
portfolio of securities. The annual returns would differ only to the
extent that the Classes do not have the same expenses.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Lehman Brothers Aggregate Index and to the
Wiesenberger Corp - Investment Grade - MF index. The Lehman Brothers Aggregate
Index is comprised of approximately 6000 publicly traded bonds with an average
maturity of about 10 years. The Wiesenberger Corp - Investment Grade - MF index
is a composite index of the annual returns of mutual funds that have an
investment style similar to the Bond Fund. The table shows the effect of the
Class A sales charge.
25
<PAGE>
<TABLE>
<CAPTION>
For the periods ended December 31, 1998
- ---------------------------------------------- ---------------------------- -------------------------------
Past 12 Months Since Fund Started
- ---------------------------------------------- ---------------------------- -------------------------------
<S> <C> <C>
Bond Fund - Class A* 3.4% 7.1%
- ---------------------------------------------- ---------------------------- -------------------------------
Lehman Brothers Aggregate Index 8.7% 9.5%
- ---------------------------------------------- ---------------------------- -------------------------------
Wiesenberger Corp - Investment Grade - MF 7.2% 8.7%
- ---------------------------------------------- ---------------------------- -------------------------------
</TABLE>
* The table shows performance for the Fund's Class A shares because the Class Y
have not yet been in existence for a full calendar year.
The Fund's Fees and Expenses
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
-------------------------------------------------------- --------------
Shareholder Fees (fees paid directly from your Class Y Shares
investment)
-------------------------------------------------------- --------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
-------------------------------------------------------- --------------
Maximum Deferred Sales Charge (Load) (as a percentage
of amount redeemed) None
-------------------------------------------------------- --------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)
-------------------------------------------------------- --------------
Management Fees 0.55%
-------------------------------------------------------- --------------
Distribution (12b-1) Fees None
-------------------------------------------------------- --------------
Other Expenses 1.49%
-------------------------------------------------------- --------------
Total Annual Fund Operating Expenses 2.04%
-------------------------------------------------------- --------------
Fee Waiver and/or Expense Reimbursement1 1.39%
-------------------------------------------------------- --------------
Net Expenses 0.65%
-------------------------------------------------------- --------------
1 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, 1999.
The following example should help you compare the cost of investing in the Bond
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 Y Shares
-------------------------------- ---------------------
1 Year $ 66
-------------------------------- ---------------------
3 Years $ 505
-------------------------------- ---------------------
5 Years $ 970
-------------------------------- ---------------------
10 Years $2,257
-------------------------------- ---------------------
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.
26
<PAGE>
Touchstone Standby Income Fund
The Fund's Investment Goal
The Standby Income Fund seeks to provide a higher level of current income than a
money market fund, while seeking to prevent large fluctuations in the value of
your initial investment. The Fund does not try to keep a constant $1.00 per
share net asset value.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests mostly in various types of money market instruments. All
investments will be rated at least investment grade. On average, the securities
held by the Fund will mature in less than one year.
The Fund's investments may include:
o Short-term government securities
o Mortgage-related securities o Asset-backed securities
o Repurchase agreements.
The Fund may invest up to 50% of total assets in:
o Securities denominated in U.S. dollars and issued in the U.S. by
foreign issuers (known as Yankee bonds),
o Eurodollar Certificates of Deposit.
In addition, the Fund may invest in:
o Debt securities denominated in foreign currencies (up to 20%).
o Corporate bonds, commercial paper, certificates of deposit, and
bankers' acceptances.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities to decline.
o Because mortgage-related securities and asset-backed securities
may lose more value due to changes in interest rates than other
debt securities and are subject to prepayment. 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.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other governmental entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description
Who May Want to Invest
This Fund is most appropriate for you if you take a relatively low risk approach
to investing. Safety of your investment is of key importance to you.
Additionally, you are willing to accept potentially lower returns in order to
27
<PAGE>
maintain a lower, more tolerable level of risk. This Fund's approach may be most
appropriate for you if you are nearing retirement, or if you have a longer time
horizon, but nevertheless, have a lower risk tolerance. This Fund is also
appropriate for you if you want the added convenience of writing checks directly
from your account.
28
<PAGE>
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Standby Income
Fund. It shows changes in the performance of the Fund's shares from year to year
since the Fund's inception.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
[Bar Chart]
Standby Income Fund - Performance
Year Return
---- ------
1995 5.71%
1996 4.80%
1997 5.21%
1998 5.49%
During the period shown in the bar chart, the highest quarterly return
was 1.57% (for the quarter ended December 31, 1995) and the lowest
quarterly return was 1.07% (for the quarter ended March 31, 1996).
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Merrill Lynch 91-Day Treasury Index, to the 30-Day
Money Market Yield Index and to the Smith Barney 3-Month Treasury Bill Index.
The Merrill Lynch 91-Day Treasury Index consists of short-term U.S. Treasury
securities, maturing in 91 days. The 30-Day Money Market Yield Index is an index
of money market funds based on 30-day yields. The Smith Barney 3-Month Treasury
Bill Index consists of short-term U.S. Treasury Securities, maturing in 90 days.
<TABLE>
<CAPTION>
For the periods ended December 31, 1998
- --------------------------------------------------- ---------------------------- ---------------------------
Past 12 Months Since Fund Started
- --------------------------------------------------- ---------------------------- ---------------------------
<S> <C> <C>
Standby Income Fund 5.5% 5.3%
- --------------------------------------------------- ---------------------------- ---------------------------
Merrill Lynch 91-Day Treasury Index 5.2% 5.5%
- --------------------------------------------------- ---------------------------- ---------------------------
30-Day Money Market Yield Index 5.0% 5.1%
- --------------------------------------------------- ---------------------------- ---------------------------
Smith Barney 3-Month Treasury Bill Index 5.1% 5.5%
- --------------------------------------------------- ---------------------------- ---------------------------
</TABLE>
29
<PAGE>
The Fund's Fees and Expenses
These tables describe 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)
- ------------------------------------------------------------ -----------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
- ------------------------------------------------------------ -----------------
Maximum Deferred Sales Charge (Load) (as a percentage of
amount redeemed) None
- ------------------------------------------------------------ -----------------
Annual Fund Operating Expenses (expenses that are deducted
from Fund assets)
- ------------------------------------------------------------ -----------------
Management Fees 0.25%
- ------------------------------------------------------------ -----------------
Distribution (12b-1) Fees None
- ------------------------------------------------------------ -----------------
Other Expenses 3.26%
- ------------------------------------------------------------ -----------------
Total Annual Fund Operating Expenses 3.51%
- ------------------------------------------------------------ -----------------
Fee Waiver and/or Expense Reimbursement1 2.76%
- ------------------------------------------------------------ -----------------
Net Expenses 0.75%
- ------------------------------------------------------------ -----------------
1 Touchstone Advisors has contractually agreed to waive or reimburse certain of
the Total Annual Fund Operating Expenses of the Fund (the "Sponsor
Agreement"). The Sponsor Agreement will remain in place until at least
December 31, 1999.
The following example should help you compare the cost of investing in the
Standby Income 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:
------------------------------------ ----------------------
1 Year $ 77
------------------------------------ ----------------------
3 Years $ 819
------------------------------------ ----------------------
5 Years $ 1,584
------------------------------------ ----------------------
10 Years $ 3,599
------------------------------------ ----------------------
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.
30
<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 International Equity Fund, Income Opportunity Fund and Bond Fund may engage
in active trading to achieve their investment goals. This may cause the Fund to
realize higher capital gains which would be passed on to you. Higher capital
gains could increase your tax liability. Frequent trading also increases
transactions costs, which would lower the Fund's performance.
Can a Fund Change Its Investment Goal?
A Fund's investment goal(s) may be changed 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.
Year 2000 Risk
Touchstone has implemented steps intended to assure that its major computer
systems and processes are capable of Year 2000 processing. We are also examining
the third parties with whom we work to assess their readiness and are developing
contingency plans to assure that any problems in their systems will not
materially affect Touchstone's operations.
Companies or governmental entities in which Touchstone Funds invest could also
be affected by the Year 2000 issue, but at this time the Funds cannot predict
the degree of impact.
Computer systems failure of Touchstone, a Fund Sub-Advisor or that of any Fund
service provider could impair Fund services and have a negative impact on a
Fund's operations and returns.
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.
31
<PAGE>
How Can I Tell, at a Glance, Which Types of Securities a Fund Might Invest in?
The following table show the main types of securities in which each Fund
generally will invest. Some of the Funds' investments are described in detail
below:
<TABLE>
<CAPTION>
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Emerging InternationalIncome Value Growth Balanced Bond Fund Standby
Growth Equity Fund Opportunity Plus & Fund Income
Fund Fund Fund Income Fund
Fund
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Financial Instruments
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Invests in U.S. stocks o o o o o
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in foreign stocks o o o o
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in investment grade o o o o o o o o
debt securities
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in non-investment o o o o o
grade debt securities
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in foreign debt o o o o o o
securities
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in futures contracts o
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in forward currency o
contracts
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in asset-backed o o
securities
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in mortgage-related o o o o
securities
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in real estate o
investment trusts (REITs)
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Investment Techniques
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Emphasizes securities of o
small cap companies
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Emphasizes securities of mid o
cap companies
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Emphasizes securities of o o o
large cap companies
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Emphasizes undervalued stocks o o o
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in securities of o o o o o
emerging markets countries
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Emphasizes dividend-paying o
common stocks
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
Invests in short-term debt o o
securities
- ------------------------------------ --------- ------------ ------------- ------- --------- ------------- ---------- ----------
</TABLE>
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
ADRs. ADRs are securities that represent an ownership interest in a foreign
security. They are generally issued by a U.S. bank to U.S. buyers as a
substitute for direct ownership of a foreign security and are traded on U.S.
exchanges.
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.
32
<PAGE>
Asset-Backed Securities. Asset-backed securities represent groups of other
assets, for example credit card receivables, that are combined or pooled for
sale to investors.
Mortgage-Related Securities. Mortgage-related securities represent groups of
mortgage loans that are combined for sale to investors. The loans may be grouped
together by:
o the Government National Mortgage Association (GNMA) o the Federal
National Mortgage Association (FNMA) o the Federal Home Loan
Mortgage Corporation (FHLMC) o commercial banks o savings and
loan institutions o mortgage bankers
Real Estate Investment Trusts. Real estate investment trusts (REITs) pool
investors' money to invest primarily in income-producing real estate or real
estate-related loans or interests.
"Large cap" and "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.
Emerging Growth Companies. Emerging Growth Companies are companies that have:
o A total market capitalization less than that of the average
company in the Standard & Poor's 500 Composite Stock Price Index
(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 Securities. Emerging Markets Securities are issued by a company
that:
o Is organized under the laws of an emerging market country (any
country 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)
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
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
Repurchase Agreements. Repurchase Agreements are collateralized by obligations
issued or guaranteed as to both principal and interest by the U.S. Government,
its agencies, and instrumentalities. A repurchase agreement is a transaction in
which a security is purchased with a simultaneous commitment to sell it back to
the seller (a commercial bank or recognized securities dealer) at an agreed upon
price on an agreed upon date. This date is usually not more than seven days from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest, which is unrelated to the coupon rate or
maturity of the purchased security.
33
<PAGE>
How Can I Tell, at a Glance, a Fund's Key Risks?
The following table shows some of the main risks to which each Fund is subject.
Each risk is described in detail below.
<TABLE>
<CAPTION>
- ------------------------ ---------- ------------ ------------ -------- --------- --------- ------- ----------
Emerging InternationalIncome Value Growth Balanced Bond Standby
Growth Equity Fund Opportunity Plus & Fund Fund Income
Fund Fund Fund Income Fund
Fund
- ------------------------ ---------- ------------ ------------ -------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Risk o o o o o
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Emerging Growth o
Companies
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Real Estate o
Investment Trusts
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Interest Rate Risk o o o o o o o o
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Mortgage-Related o o o o
Securities
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Credit Risk o o o o o o o o
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Non-Investment Grade o o o o o
Securities
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Foreign Investing Risk o o o o o o o
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Emerging Market Risk o o o o o
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
Political Risk o o
- ------------------------- --------- ------------ ------------ -------- ------- ----------- ------- ----------
</TABLE>
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 Real Estate Investment Trusts (REITs). Investment in REITs is
subject to risks similar to those associated with the direct
ownership of real estate (in addition to securities markets
risks). REITs are sensitive to factors such as changes in real
estate values and property taxes, interest rates, cash flow of
underlying real estate assets, supply and demand, and the
management skill and creditworthiness of the issuer. REITs may
also lose value due to changes in tax or other regulatory
requirements.
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.
34
<PAGE>
o Mortgage-Related Securities. Payments from the pool of loans
underlying a Mortgage- Related Security may not be enough to meet
the monthly payments of the Mortgage-Related Security. If this
occurs the Mortgage-Related Security will lose value. Also,
prepayments of mortgages or mortgage foreclosures will shorten
the life of the pool of mortgages underlying a Mortgage-Related
Security and will affect the average life of the Mortgage-Related
Securities held by a Fund. Mortgage prepayments vary based on
several factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and
other demographic conditions. In periods of falling interest
rates, there are usually more prepayments. The reinvestment of
cash received from prepayments will, therefore, usually be at a
lower interest rate than the original investment, lowering a
Fund's yield. Mortgage- Related Securities may be less likely to
increase in value during periods of falling interest rates than
other debt securities.
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
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 Markets Risk. 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.
35
<PAGE>
The Funds' Management
Investment Advisor
Touchstone Advisors, Inc. (the Advisor or Touchstone Advisors), located at 311
Pike Street, Cincinnati, Ohio 45202 is the investment advisor of 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, 1998, Touchstone Advisors had approximately $422 million in assets
under management.
Touchstone Advisors is responsible for selecting Fund Sub-Advisors who have
shown good investment performance in their areas of expertise. The Board of
Trustees of the Trust reviews and must approve the Advisor's selections.
Touchstone 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 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 discusses its expectations for performance with each Fund
Sub-Advisor. Touchstone provides written evaluations and recommendations to the
Board of Trustees, including whether or not each Fund Sub-Advisor's contract
should be renewed, modified or terminated.
Touchstone 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
allocates how much of a Fund's assets are managed by each Sub-Advisor.
Touchstone 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 a fee for its services. Out of this fee Touchstone
pays each Fund Sub-Advisor a fee for its services.
36
<PAGE>
The fee paid to Touchstone by each Fund is shown in the table below.
--------------------------------- --------------------------------
Fund Fee to Touchstone
(as % of average daily net
assets)
--------------------------------- --------------------------------
Emerging Growth Fund 0.80%
--------------------------------- --------------------------------
International Equity Fund 0.95%
--------------------------------- --------------------------------
Income Opportunity Fund 0.65%
--------------------------------- --------------------------------
Value Plus Fund 0.75%
--------------------------------- --------------------------------
Growth & Income Fund 0.80%
--------------------------------- --------------------------------
Balanced Fund 0.80%
--------------------------------- --------------------------------
Bond Fund 0.55%
--------------------------------- --------------------------------
Standby Income Fund 0.25%
--------------------------------- --------------------------------
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.
David L. Babson & Company, Inc. (Babson)
One Memorial Drive, Cambridge, Massachusetts 02142-1300
Fund Sub-Advisor to the Emerging Growth Fund
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, 1998, Babson and affiliates had assets
under management of $19.9 billion. Babson has been managing the Emerging
Growth Fund since the Fund's inception.
Dennis J. Scannell and Lance F. James have primary responsibility for the
day-to-day management of the Fund. Mr. Scannell has been with the firm since
1993, and Mr. James has been with the firm since 1986.
Westfield Capital Management Company, Inc. (Westfield)
One Financial Center, Boston, Massachusetts 02111
Fund Sub-Advisor to the Emerging Growth Fund
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, 1998, Westfield had assets under
management of $1.4 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.
Credit Suisse Asset Management (Credit Suisse)
One Citicorp Center, 153 East 53rd Street, New York, New York 10022
Fund Sub-Advisor to the International Equity Fund
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, 1998, Credit Suisse had
assets under management of $154.2 billion.
Credit Suisse has been managing the International Equity Fund since the Fund's
inception.
37
<PAGE>
The Fund is managed by the Credit Suisse International Equity Management Team.
The team consists of William Sterling, Richard Watt, Steven D. Bleiberg, Susan
Boland, Emily Alejos and Robert B. Hrabchak.
Alliance Capital Management L.P. (Alliance)
1345 Avenue of the Americas, New York, New York 10105
Fund Sub-Advisor to the Income Opportunity Fund
Alliance has been registered as an investment advisor under the Advisers Act
since 1971. Alliance provides investment advisory services to individual and
institutional clients. As of December 31, 1998, Alliance had assets under
management of $286.7 billion. Alliance has been managing the Income Opportunity
Fund since the Fund's inception.
Wayne Lyski and Vicki Fuller have primary responsibility for the day-to-day
management of the Fund. Mr. Lyski has been with Alliance since 1983. Ms. Fuller
(CPA) has been with Alliance, and its predecessors, since 1985.
Fort Washington Investment Advisors, Inc. (Fort Washington)
420 East Fourth Street, Cincinnati, Ohio 45202
Fund Sub-Advisor to the Value Plus Fund, Bond Fund, and Standby Income Fund
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, 1998, Fort Washington
had assets under management of $13 billion. Fort Washington has been managing
the Value Plus Fund, the Bond Fund and the Standby Income Fund since each Fund's
inception.
Value Plus Fund: 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. Mr. Holden previously served as senior portfolio manager with
Mellon Private Asset Management in Pittsburgh, senior portfolio manager and
investment analyst for Star Bank's Stellar Performance Group in Cincinnati, and
senior employee benefit portfolio manager for First Kentucky Trust Company in
Louisville.
Bond Fund: Roger Lanham and Brendan White have managed the Bond Fund since 1994.
Mr. Lanham is a CFA and has been with Fort Washington since 1980. Mr. White is a
CFA and has been with Fort Washington since 1993.
Standby Income Fund: Christopher J. Mahony has managed the Standby Income Fund
since 1994. Mr. Mahony joined Fort Washington in 1994 after eight years of
investment experience with Neuberger & Berman.
Fort Washington is an affiliate of Touchstone. Therefore, Touchstone 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's decisions to
reduce the possibility of a conflict of interest situation.
38
<PAGE>
Scudder Kemper Investments, Inc. (Scudder Kemper)
345 Park Avenue, New York, New York
Fund Sub-Advisor to the Growth & Income Fund
Scudder Kemper and its predecessors have provided investment advisory services
to mutual fund investors, retirement and pension plans, institutional and
corporate clients, insurance companies, and private family and individual
accounts since 1943. As of December 31, 1998, Scudder Kemper had assets under
management of $280 billion. Scudder Kemper has been managing the Growth & Income
Fund since June 1997.
Robert T. Hoffman, Lori Ensinger, Benjamin W. Thorndike and Kathleen T. Millard
have primary responsibility for the day-to-day management of the Fund. Mr.
Hoffman, Lead Product Manager, joined Scudder in 1990. He has 13 years of
experience in the investment industry, including several years of pension fund
management experience. Lori Ensinger, Lead Portfolio Manager, focuses on stock
selection and investment strategy. She has been a portfolio manager since 1983
and joined Scudder in 1993. Benjamin W. Thorndike, Portfolio Manager, is the
Fund's chief analyst and strategist for convertible securities. Mr. Thorndike
has 18 years of investment experience, joined Scudder in 1983. Kathleen T.
Millard, Portfolio Manager and has worked as a portfolio manager since 1986. Ms.
Millard, who joined Scudder in 1991, focuses on strategy and stock selection.
OpCap Advisors (OpCap)
Oppenheimer Tower, One World Financial Center, New York, NY 10281
Fund Sub-Advisor to the Balanced Fund
OpCap is a subsidiary of Oppenheimer Capital. Oppenheimer Capital has been
registered as an investment advisor under the Advisers Act since 1968 and its
employees perform all investment advisory services provided to the Fund. As of
December 31, 1998, Oppenheimer Capital and its subsidiaries had assets under
management of $63 billion. OpCap has been managing the Balanced Fund since May
1997.
Louis Goldstein has managed the equity portion of the Balanced Fund since April,
1999. Robert J. Bluestone and Matthew Greenwald have managed the fixed-income
portion of the Balanced Fund since 1997. Mr. Goldstein joined Oppenheimer
Capital in 1991 and is an equity analyst and Portfolio Manager. Mr. Bluestone
joined Oppenheimer Capital in 1986 and is Managing Director. Mr. Greenwald
joined Oppenheimer Capital in 1989 and is Vice President.
Investing with Touchstone
Investing in the Funds
Class Y shares of each Fund are currently offered only to The Western and
Southern Life Insurance Company Separate Account A.
o Investor Alert: Touchstone may choose to refuse any purchase
order.
39
<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. The fund calculates the NAV per share, generally
using market prices, by dividing the total value of each class' net assets by
the number of the class shares outstanding. Shares are purchased at the next
offering price determined after your purchase or sale order is received and
accepted by Touchstone. The offering price is the NAV plus a sales charge, if
applicable.
The Fund's 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 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 of the Funds (other than the Standby Income Fund) offers three classes of
shares - Class A shares, Class C shares and Class Y shares. This Prospectus only
offers Class Y 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 decide to purchase.
Class Y shares are only available for purchase by pension plans.
The Standby Income Fund does not have share classes and it does not charge sales
charges, distribution fees or service fees. The Standby Income Fund may be
purchased by all investors.
40
<PAGE>
Class Y Shares
The offering price of each Class Y share is equal to its NAV. No sales charge is
applied at any time.
No distribution or service fees are charged on Class Y Shares.
Distributions and Taxes
Distributions
Each Touchstone 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.
<TABLE>
<CAPTION>
- --------------------------------------------- --------------------------- -----------------------------------
Fund Dividends Declared Dividends Paid
- --------------------------------------------- --------------------------- -----------------------------------
<S> <C> <C>
Standby Income Fund Daily Monthly
- --------------------------------------------- --------------------------- -----------------------------------
Income Opportunity Fund and Bond Fund Monthly Monthly
- --------------------------------------------- --------------------------- -----------------------------------
Growth & Income Fund, Value Plus Fund and Quarterly Quarterly
Balanced Fund
- --------------------------------------------- --------------------------- -----------------------------------
Emerging Growth Fund and International Annually Annually
Equity Fund
- --------------------------------------------- --------------------------- -----------------------------------
</TABLE>
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
subject to federal income tax whether reinvested in additional shares or
received in cash.
o Special tax consideration: Selling your shares may cause you to
incur a taxable gain or loss.
41
<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) 669-2796 (Press 3)
http://www.touchstonefunds.com
You can view the Funds' SAI and the reports at the Public Reference Room of the
Securities and Exchange Commission.
For a fee, you can get text-only copies by writing to the Public Reference Room
of the Commission, Washington, D.C. 20549-6009. You can also call
1-800-SEC-0330.
You can also view the SAI and the reports free from the Commission's Internet
website at http://www.sec.gov.
Investment Company Act file no. 811-8380
Touchstone Family of Funds
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
Class Y Shares are Offered by this Prospectus
42
<PAGE>
The Touchstone Funds
Touchstone Series Trust
(formerly Select Advisors Trust A)
Class A, Class C and Class Y shares
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
Statement of Additional Information
May 1, 1999
This Statement of Additional Information is not a Prospectus, but it relates to
the Prospectuses of Touchstone Series Trust dated May 1, 1999.
Financial statements are incorporated by reference into this Statement of
Additional Information from the Funds' most recent annual and semi-annual
reports.
You can get a free copy of the Prospectuses of Touchstone Series Trust or the
Funds' most recent annual and semi-annual reports, request other information and
discuss your questions about the Funds by contacting your financial advisor or
Touchstone at: Touchstone Family of Funds 311 Pike Street Cincinnati, Ohio 45202
(800) 669-2796 http://www.touchstonefunds.com
You can view the Funds' Prospectuses as well as other reports at the Public
Reference Room of the Securities and Exchange Commission.
You can get text-only copies:
For a fee by writing to or calling the Public Reference Room of the Commission,
Washington, D.C. 20549-6009. Telephone: 1-800-SEC-0330.
Free from the Commission's Internet website at http://www.sec.gov.
<PAGE>
Table of Contents
PAGE
The Trust and the
Funds........................................................... 3
Description of the Funds and Their Investments and Risks........ 4
Fund
Policies........................................................ 23
Management of the
Trust........................................................... 26
Investment Advisory and Other Services.......................... 29
Brokerage Allocation and Other Practices........................ 34
Capital Stock and Other Securities.............................. 36
Purchase, Redemption and Pricing of Shares...................... 38
Taxation of the
Funds........................................................... 42
Performance
Information..................................................... 44
Financial
Statements...................................................... 47
Appendix
................................................................ A-1
<PAGE>
The Trust and the Funds
Touchstone Series Trust (the "Trust") is composed of eight funds:
Touchstone Emerging Growth Fund, Touchstone International Equity Fund,
Touchstone Income Opportunity Fund, Touchstone Value Plus Fund, Touchstone
Growth & Income Fund, Touchstone Balanced Fund, Touchstone Bond Fund and
Touchstone Standby Income Fund (the "Standby Income Fund") (each, a "Fund" and
collectively, the "Funds").
Each Fund, other than the Standby Income Fund, is divided into three
classes of shares: class A shares ("Class A Shares"), class C shares ("Class C
Shares"), and class Y shares ("Class Y Shares"). Throughout this Statement of
Additional Information (the "SAI"), unless otherwise specified, the term Fund or
Funds refers to all applicable classes of such Fund or Funds.
Each Fund is an open-end management investment company. The Trust was
formed as a Massachusetts business trust on November 9, 1994.
Shares of the Funds are sold by Touchstone Securities, Inc.
("Touchstone Securities" or the "Distributor"), the Trust's distributor.
Touchstone Advisors, Inc. ("Touchstone" or the "Advisor") is the investment
advisor of each Fund and the Standby Income Fund. The specific investments of
each Fund are managed on a day-to-day basis by their respective sub-advisors
(collectively, the "Fund Sub-Advisors"). Investors Bank & Trust Company
("Investors Bank" or the "Administrator") serves as administrator, custodian and
fund accounting agent to each Fund.
The Prospectuses, dated May 1, 1999, provide the basic information
investors should know before investing, and may be obtained without charge by
calling the Trust at the telephone number listed on the cover. This Statement of
Additional Information, which is not a prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Prospectuses. This Statement of
Additional Information is not an offer of any Fund for which an investor has not
received a Prospectus.
3
<PAGE>
Description of the Funds and Their Investments and Risks
Investment Goals
The investment goal(s) of each Fund is described in the Prospectuses.
There can be no assurance that any Fund will achieve its investment goal(s).
Investment Strategies and Risks
The following provides additional information about the investment
policies and types of securities which may be invested in by one or more Funds.
Fixed-Income and Other Debt Instrument 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") and
Moody's Investor Service, Inc. ("Moody's") 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.
Fixed-income securities may be purchased on a when-issued or
delayed-delivery basis. See "Additional Risks and Investment Techniques --
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.
4
<PAGE>
Medium and Lower Rated and Unrated Securities
Securities rated in the fourth highest category by S&P or Moody's, BBB
and Baa, respectively, 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 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.
5
<PAGE>
Lower-Rated Debt 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 the 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
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.
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 resulting 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.
6
<PAGE>
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 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.
Each 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).
Related Investment Policies
No Fund may invest more than 15% 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 to do so
would not be in the best interests of shareholders.
Each 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
Fund's 15% 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.
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
7
<PAGE>
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.
Emerging Market Securities
Emerging Market Securities are securities that are issued by a company
that (i) is organized under the laws of an emerging market country (any country
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), (ii) has its principal
trading market for its stock in an emerging market country, or (iii) 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 following Funds may invest in Emerging Market Securities:
Emerging Growth Fund - up to 10% of total assets,
International Equity Fund - up to 40% of total assets,
Income Opportunity Fund - up to 65% of total assets,
Growth & Income Fund - up to 5% of total assets, and Balanced
Fund - up to 15% of total assets.
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
8
<PAGE>
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.
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.
Options
Options on Securities
The respective Funds 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 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.
9
<PAGE>
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 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.
Each Fund has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The 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.
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
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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, the
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.
Related Investment Policies
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 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.
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 believes 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
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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 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
Each 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.
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,
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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 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 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
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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 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 it determines that the transactions
would be in a Fund's best interest. Although these transactions tend to minimize
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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 in the
manner set forth in the Prospectuses 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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Futures Contracts and Options on Futures Contracts
The successful use of such instruments draws upon the Fund
Sub-Advisor's skill and experience with respect to such instruments and usually
depends on the Fund Sub-Advisor's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
Futures Contracts
A Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or contracts based on
financial indexes including any index of U.S. Government securities, foreign
government securities or corporate debt securities. U.S. futures contracts have
been designed by exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange. A
Fund may enter into futures contracts which are based on debt securities that
are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association ("GNMA") modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. A Fund may also enter into futures contracts
which are based on bonds issued by entities other than the U.S. Government.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of a Fund which holds or intends to acquire fixed-income securities, is to
attempt to protect the Fund from fluctuations in interest or foreign exchange
rates without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the debt
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securities owned by the Fund. If interest rates did increase, the value of the
debt security in the Fund would decline, but the value of the futures contracts
to the Fund would increase at approximately the same rate, thereby keeping the
net asset value of the Fund from declining as much as it otherwise would have.
The Fund could accomplish similar results by selling debt securities and
investing in bonds with short maturities when interest rates are expected to
increase. However, since the futures market is more liquid than the cash market,
the use of futures contracts as an investment technique allows the Fund to
maintain a defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Fund could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could then buy debt securities on the
cash market.
When a Fund enters into a futures contract for any purpose, the Fund
will establish a segregated account with the Fund's custodian to collateralize
or "cover" the Fund's obligation consisting of cash or liquid securities from
its portfolio in an amount equal to the difference between the fluctuating
market value of such futures contracts and the aggregate value of the initial
and variation margin payments made by the Fund with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Fund Sub-Advisor may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although each applicable
Fund Sub-Advisor believes that use of such contracts will benefit the respective
Fund, if the Fund Sub-Advisor's investment judgment about the general direction
of interest rates is incorrect, a Fund's overall performance would be poorer
than if it had not entered into any such contract. For example, if a Fund has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its portfolio and interest
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of its debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Fund has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Options on Futures Contracts
Each Fund may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is similar
in some respects to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
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contract or underlying debt securities. As with the purchase of futures
contracts, when a Fund is not fully invested it may purchase a call option on a
futures contract to hedge against a market advance due to declining interest
rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk a Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Fund will not enter into any futures contracts or options on
futures contracts if immediately thereafter the amount of margin deposits on all
the futures contracts of the Fund and premiums paid on outstanding options on
futures contracts owned by the Fund would exceed 5% of the market value of the
total assets of the Fund.
Additional Risks of Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies
Unlike transactions entered into by a Fund in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option writer and a
trader of forward contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
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all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
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. A
Fund's ability to terminate over-the-counter options will be more limited than
with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Fund will treat purchased over-the-counter options and assets used to cover
written over-the-counter 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.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Futures Contracts and Related Options
Each Fund may enter into futures contracts and purchase and write
(sell) options on these contracts, including but not limited to interest rate,
securities index and foreign currency futures contracts and put and call options
on these futures contracts. These contracts will be entered into only upon the
agreement of the Fund Sub-Advisor that such contracts are necessary or
appropriate in the management of the Fund's assets. These contracts will be
entered into on exchanges designated by the Commodity Futures Trading Commission
("CFTC") or, consistent with CFTC regulations, on foreign exchanges. These
transactions may be entered into for bona fide hedging and other permissible
risk management purposes including protecting against anticipated changes in the
value of securities a Fund intends to purchase.
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No Fund will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition, no
Fund will buy futures or write puts whose underlying value exceeds 25% of its
total assets, and no Fund will buy calls with a value exceeding 5% of its total
assets.
A Fund will not enter into futures contracts and related options for
which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Fund's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Fund may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the Fund's
futures and options positions may not prove to be perfectly or even highly
correlated with changes in the value of its portfolio securities. Successful use
of futures and related options is subject to a Fund Sub-Advisor's ability to
predict correctly movements in the direction of the securities markets
generally, which ability may require different skills and techniques than
predicting changes in the prices of individual securities. Moreover, futures and
options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Fund may realize a
loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Fund may not be
able to close a futures or options position without incurring a loss in the
event of adverse price movements.
Certificates of Deposit and Bankers' Acceptances
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.
Lending of Fund Securities
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.
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Derivatives
The Funds 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. A description of the derivatives that
the Funds may use and some of their associated risks is found below.
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.
U.S. Government Securities
Each Fund may invest in U.S. Government securities, which 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 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.
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Mortgage-Related Securities
Each Fund may invest in 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.
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. The 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.
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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, the Funds
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.
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.
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
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borrower on demand at the 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, along with a Fund's other illiquid securities, to not more than 15% of
the Fund's net assets.
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.
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
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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.
When-Issued and Delayed-Delivery Securities
To secure prices deemed advantageous at a particular time, each 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 the 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 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
Each of the Funds may engage in repurchase agreement transactions.
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
The Funds may enter into reverse repurchase agreements and forward roll
transactions. In a reverse repurchase agreement the 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
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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 "Fund Policies" 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, the 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,
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 Fund 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 at least AA by S&P or
Aa by Moody's or, if unrated, are determined by the Fund Sub-Advisor to be of
equivalent quality. Each 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.
Real Estate Investment Trusts
The Growth & Income Fund may invest in REITs, which can generally be
classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which
invest the majority of their assets directly in real property, derive their
income primarily from rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs, which invest
the majority of their assets in real estate mortgages, derive their income
primarily from interest payments on real estate mortgages in which they are
invested. Hybrid REITs combine the characteristics of both equity REITs and
mortgage REITs.
Investment in REITs is subject to risks similar to those associated
with the direct ownership of real estate (in addition to securities markets
risks). REITs are sensitive to factors such as changes in real estate values and
property taxes, interest rates, cash flow of underlying real estate assets,
supply and demand, and the management skill and creditworthiness of the issuer.
REITs may also be affected by tax and regulatory requirements.
Standard & Poor's Depositary Receipts ("SPDRs")
The Growth & Income Fund may invest up to 5% of its total assets in
SPDRs. SPDRs typically trade like a share of common stock and provide investment
results that generally correspond to the price and yield performance of the
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component common stocks of the S&P 500 Index. There can be no assurance that
this can be accomplished as it may not be possible for the portfolio to
replicate and maintain exactly the composition and relative weightings of the
S&P 500 Index securities. SPDRs are subject to the risks of an investment in a
broadly based portfolio of common stocks, including the risk that the general
level of stock prices may decline, thereby adversely affecting the value of such
investment.
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.
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 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'
Prospectuses is set forth in the Appendix to the Prospectuses.
Fund Policies
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 Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in this Statement of Additional
Information and the Prospectuses, means, the lesser of (i) 67% or more of the
outstanding voting securities of the Fund present at a meeting if the holders of
more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy or (ii) more than 50% of the outstanding voting securities
of the Fund.
As a matter of fundamental policy, no Fund may (except that no
investment restriction of a Fund shall prevent a Fund from investing all of its
Assets in an open-end investment company with substantially the same investment
objectives):
(1) 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) 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) make loans to other persons except: (a) through the lending of
the Fund's portfolio securities and provided that any such loans
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;
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(4)(a)(all Funds except the Growth & Income Fund) 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 (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);
(4)(b)(Growth & Income Fund only)
(i) purchase or sell real estate (except that (a) the Fund may
invest in (i) securities of entities that invest or deal in
real estate, mortgages, or interests therein and (ii)
securities secured by real estate or interests therein and
(b) the Fund may hold and sell real estate acquired as a
result of the Fund's ownership of securities;
(ii) purchase or sell interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and
options contracts) in the ordinary course or business.
(5) 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) 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) with respect to 75% of its total assets taken at market value,
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 Fund (or the Trust, on behalf of each Fund) will not, as a matter
of "operating policy" (changeable by the Board of Trustees without a shareholder
vote) (except that no operating policy shall prevent a Fund from investing all
of its Assets in an open-end investment company with substantially the same
investment objectives):
(i) 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%;
(ii) 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;
(iii) 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 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;
29
<PAGE>
(iv) 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;
(v) invest for the purpose of exercising control or management;
(vi) 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 the 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;
(vii) 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 have 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 have
determined that the commercial paper is equivalent quality
and is liquid;
(viii) invest more than 10% of the Fund's total assets in
securities that are restricted from being sold to the public
without registration under the 1933 Act (other than Rule
144A Securities deemed liquid by the Fund's Board of
Trustees);
(ix) 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;
(x) 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);
(xi) 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;
(xii) 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
29
<PAGE>
(xiii) 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.
Management of the Trust
Board of Trustees
Overall responsibility for management and supervision of the Trust
rests with the Board of Trustees. The Trustees approve all significant
agreements between the Trust and the persons and companies that furnish services
to the Trust.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Trust. Unless otherwise indicated,
the address of each Trustee and officer is 311 Pike Street, Cincinnati, Ohio
45202. The Trustees and officers of the Trust also serve in the same positions
with the Touchstone Variable Series Trust (formerly named the Select Advisors
Variable Insurance Trust).
Trustees of the Trust
*JILL T. MCGRUDER (Born: 7/9/55) - Chairman of the Board of Trustees,
President and chief Executive Officer; Director, President and Chief Executive
Officer, Touchstone Advisors, Inc. and Touchstone Securities, Inc. (since
February, 1999); Senior Vice President, Western-Southern Life Insurance Company
(since December, 1996); National Marketing Director, Metropolitan Life Insurance
Co. (February, 1996 - December, 1996); Executive Vice President, Touchstone
Advisors, Inc. and Touchstone Securities, Inc. (1991 - 1996).
*WILLIAM J. WILLIAMS (Born: 12/19/15) - Trustee; Chairman of the Board
of Directors, The Western and Southern Life Insurance Company (since March,
1984); Chief Executive Officer, The Western and Southern Life Insurance Company
(from March, 1984 to March, 1994). His address is 400 Broadway, Cincinnati, OH
45202.
JOSEPH S. STERN, JR. (Born: 3/31/18) - Trustee; Retired Professor
Emeritus, College of Business, University of Cincinnati. His address is 3
Grandin Place, Cincinnati, OH 45208.
PHILLIP R. COX (Born: 11/24/47) - Trustee; President and Chief
Executive Officer, Cox Financial Corp. (since 1972); Director, Federal Reserve
Bank of Cleveland; Director, Cincinnati Bell, Inc.; Director, PNC Bank;
Director, Cinergy Corporation. His address is 105 East Fourth Street,
Cincinnati, OH 45202.
ROBERT E. STAUTBERG (Born: 9/6/34) - Trustee; Retired Partner and
Director, KPMG Peat Marwick; Chairman of the Board of Trustees, Good Samaritan
Hospital. His address is 4815 Drake Road, Cincinnati, OH 45243.
Officers of the Trust
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Fund.
JAMES J. VANCE (Born: 7/12/61) - Treasurer; Treasurer Western-Southern
Life Insurance Company (since January, 1994). His address is 400 Broadway,
Cincinnati, OH 45202.
30
<PAGE>
EDWARD S. HEENAN (Born: 12/18/43) - Controller; Vice President and
Controller, Touchstone Advisors, Inc. (since December, 1993); Director,
Controller, Touchstone Securities, Inc. (since October, 1991); Vice President
and Comptroller, The Western and Southern Life Insurance Company (since 1987).
His address is 400 Broadway, Cincinnati, OH 45202.
DAVID DENNISON (Born: 2/20/62) - Assistant Treasurer; Vice President of
Administration, IFS Financial Services and Touchstone Securities, Inc. (since
August, 1994); Director of Strategic Marketing, Providian Capital Management
(January, 1993 to July, 1994)
ANDREW S. JOSEF (Born: 2/25/64) - Secretary; Director, Legal
Administration, Investors Bank & Trust Company ("Investors Bank") (since May,
1997); Senior Associate, Sullivan & Worcester LLP (November, 1995 to May, 1997);
Associate, Goodwin, Proctor & Hoar (January, 1993 to November, 1995); Associate,
Simpson Thacher & Bartlett (prior to 1993). His address is 200 Clarendon Street,
Boston, Massachusetts 02116.
SUSAN C. MOSHER (Born: 1/29/55) - Assistant Secretary; Director, Legal
Administration, Investors Bank (since August, 1995); Associate Counsel, 440
Financial Group of Worcester, Inc. (January, 1993 to August, 1995). Her address
is 200 Clarendon Street, Boston, Massachusetts 02116.
TIMOTHY F. OSBORNE (Born: 12/3/66) - Assistant Treasurer; Director,
Mutual Fund Administration, Investors Bank (since May, 1995); Account
Supervisor, Mutual Fund Administration, Chase Global Funds Services Company
(prior to May, 1995).
Ms. Mosher and Messrs. Josef and Osborne also hold similar positions
for Touchstone Variable Series Trust and certain unaffiliated investment
companies for which Investors Bank serves as administrator.
No director, officer or employee of the Advisor, the Fund Sub-Advisors,
the Distributor, the Administrator or any of their affiliates will receive any
compensation from the Trust for serving as an officer or Trustee of the Trust.
The Trust and Touchstone Variable Series Trust (together, the "Fund Complex")
pay in the aggregate, to each Trustee who is not a director, officer or employee
of the Advisor, the Fund Sub-Advisors, the Distributor, the Administrator or any
of their affiliates, an annual fee of $5,000, respectively, plus $1,000,
respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses. The following table reflects Trustee fees paid for the
year ended December 31, 1998.
31
<PAGE>
<TABLE>
<CAPTION>
Trustee Compensation Table
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Name of Person and Position Aggregate Compensation from Aggregate Compensation from Total Compensation from
the Trust with respect to the Trust with respect to Trust and Fund Complex Paid
Class A Shares of the Funds Class C Shares of the Funds to Trustees
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
<S> <C> <C> <C>
Joseph S. Stern, Jr. $ 1,166.43 $ 365.49 $ 8,000.00
Trustee of Trust
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Phillip R. Cox $ 1,451.17 $ 459.27 $10,000.00
Trustee of Trust
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Robert E. Stautberg $ 1,451.17 $ 459.27 $10,000.00
Trustee of Trust
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
David Pollak $ 1,451.17 $ 459.27 $10,000.00
Trustee of Trust
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
</TABLE>
Control Persons and Principal Holders of Securities: Class A Shares of the Funds
As of April 2, 1999, Trustees and officers of the Trust owned in the
aggregate less than 1% of the Class A Shares of any Fund or the Trust (all
series taken together).
As of April 2, 1999,
(i) Western-Southern Life Assurance Company ("Western-
Southern"), 400 Broadway, Cincinnati, Ohio 45202, which was
organized under the laws of the State of Ohio and which is a
wholly owned subsidiary of The Western and Southern Life
Insurance Company ("Western and Southern"), 400 Broadway,
Cincinnati, Ohio 45202, which was organized under the laws
of the State of Ohio, was the record owner of 54.47% and
22.29% of the outstanding shares of the International Equity
Fund - Class A and Income Opportunity Fund Class A,
respectively;
(ii) Western-Southern, Highlands Company of Delaware, c/o Karen
Clark, Smith Fought Bunker & Hume PC, 2301 Mitchell Park
Drive, Petoskey, MI 49770-9600, and Western Southern
Deferred Compensation, FBO 1, 85B&86-89 Attn: M Scott, 400
Broadway, Cincinnati, OH 45202-3341 ("FBO 1"), were the
record owners of 23.26%, 8.37% and 7.56%, respectively, of
the Emerging Growth Fund - Class A;
(iii) FBO 1, Western Southern Deferred Compensation, FBO 6,
82-88, Attn: M Scott, 400 Broadway, Cincinnati, OH 45202,
Western and Southern were the record owners of 12.88%,
11.22% and 11.20%, respectively, of the outstanding shares
of the Growth & Income Fund - Class A;
(iv) Western and Southern; Western Southern Deferred
Compensation, FBO 2, Lump Sum, Attn: M Scott, 400 Broadway,
Cincinnati, OH 45202; Western Southern Deferred
Compensation, FBO 2, 94, Attn: M Scott, 400 Broadway,
Cincinnati, OH 45202; and Richard J. Mullenax, Mildred
Mullenax JT WROS, Rt 3 Box 225, Bridgeport, WV 26330-9430
were the record owners of 9.78%, 6.54%, 6.26% and 5.75%,
respectively, of the outstanding shares of the Bond Fund -
Class A;
(v) Western-Southern, and NFSC FEBO #EBN-543152, Charles R.
Hosche TTEE, The Hosch Grit II Tr, FBO Charles R. Hosche,
P.O. Box 7569, Marietta, GA 30065-1569, were the record
owners of 39.19%, and 8.03%, respectively, of the
outstanding shares of the Balanced Fund Class A; and
(vi) Western and Southern was the record owner of 95.77% of the
outstanding shares of the Value Plus Fund - Class A.
Each of the above-named entities owning over 50% of the outstanding
shares of any of the above-named Funds may take actions requiring a majority
vote without the approval of any other investor in such Fund.
32
<PAGE>
Control Persons and Principal Holders of Securities: Class C Shares of
the Funds
As of April 2, 1999, the Trustees and officers of the Trust owned in
the aggregate less than 1% of the Class C shares of any Fund or the Trust (all
series taken together).
As of April 2, 1999,
(i) Western-Southern was the record owner of 56.19%, 69.58%,
56.57%, 37.80%, 7.87% and 13.06% of the outstanding shares
of the Emerging Growth Fund - Class C, International Equity
Fund - Class C, Balanced Fund - Class C, Income Opportunity
Fund - Class C, Growth & Income Fund - Class C and Bond Fund
- Class C, respectively; and
(ii) Western and Southern and NFSC FZEBO # TRG-011630, NFSC/FMTC
IRA Rollover, FBO Richard Gum, 210 Gull Road, Ocean City, NJ
08226-4529 were the record owners of 59.69% and 23.35%, of
the outstanding shares of the Value Plus Fund - Class C,
respectively.
Because Western-Southern owns more than 50% of the outstanding shares
of certain of the above-named Funds, it may take actions requiring a majority
vote without the approval of any other investor in such Fund.
Control Persons and Principal Holders of Securities: Class Y Shares of
the Funds
As of April 2, 1999, Trustees and officers of the Trust owned in the
aggregate less than 1% of the Class Y Shares of the Growth & Inocme Fund or the
Bond Fund or the Trust (all series taken together).
As of April 2, 1999, The Western and Southern Life Insurance Company
("Western and Southern"), was the record owner of 100% of the outstanding shares
of each of the Growth & Inocme Fund and the Bond Fund.
Control Persons and Principal Holders of Securities: Standby Income Fund
As of April 2, 1999, Western-Southern; Western and Southern; and Leslie
V. Craig, 9904 Misty Morn Lane, Cincinnati, Ohio 45242 were the record owners of
28.64%, 28.64% and 5.09%, respectively, of the outstanding shares of the Standby
Income Fund.
Investment Advisory and Other Services
Advisor
Touchstone Advisors provides service to each Fund pursuant to
Investment Advisory Agreements with the Trust (the "Advisory Agreements"). The
services provided by the Advisor consist of directing and supervising each Fund
Sub-Advisor, reviewing and evaluating the performance of each Fund Sub-Advisor
and determining whether or not any Fund Sub-Advisor should be replaced. The
Advisor furnishes at its own expense all facilities and personnel necessary in
connection with providing these services. Each respective Advisory Agreement
will continue in effect if such continuance is specifically approved at least
annually by the respective Board of Trustees and by a majority of the respective
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
Each Advisory Agreement is terminable, with respect to a Fund or
Standby Income Fund, without penalty on not more than 60 days' nor less than 30
days' written notice by (1) the Trust, when authorized either by (a) in the case
of a Fund or the Standby Income Fund, a majority vote of the shareholders of the
Fund (with the vote of each shareholder being in proportion to the amount of
their investment), or (b) a vote of a majority of the respective Board of
Trustees or (2) the Advisor. Each Advisory Agreement will automatically
terminate in the event of its assignment. Each Advisory Agreement provides that
neither the Advisor nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in its services to the Funds, except for willful misfeasance, bad
faith or gross negligence or reckless disregard of its or their obligations and
duties under the Advisory Agreement.
33
<PAGE>
The Trust's Prospectuses contain a description of fees payable to the
Advisor for services under the Advisory Agreements.
For the periods indicated, the Portfolio of Select Advisors Portfolios
in which each Fund (other than the Standby Income Fund) invested all of its
assets and the Standby Income Fund incurred the following investment advisory
fees equal on an annual basis to the following percentages of the average daily
net assets of the Portfolio and the Standby Income Fund, respectively.
<TABLE>
<CAPTION>
Emerging International Income Value Plus Growth & Balanced Bond Standby
Growth Fund Equity Fund Opportunity Fund Income Fund Fund Fund Income 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%
5/1/98** to
12/31/98 N/A N/A N/A $123,531 N/A N/A N/A N/A
For the Year
Ended 12/31/98
$76,428 $100,226 $71,387 N/A $278,037 $56,349 $100,011 $25,969
For the Year
Ended 12/31/97
For the Year $48,463 $73,217 $66,313 N/A $181,803 $38,823 $82,976 $18,755
Ended 12/31/96
$35,755 $55,448 $28,495 N/A $138,167 $24,065 $70,808 $15,675
</TABLE>
+ Prior to September, 1997 the rate was 0.75%.
* Prior to May, 1997, the rate was 0.70%.
** Commencement of operations.
The Advisor has contractually agreed to reimburse each Fund for certain
of its fees and expenses as described in the Prospectuses. For the periods
indicated, the Advisor reimbursed the Portfolios and the Standby Income Fund the
following amounts:
<TABLE>
<CAPTION>
Emerging International Income Value Plus Growth & Balanced Bond Standby
Growth Fund Equity Fund Opportunity Fund Income Fund Fund Fund Income Fund
Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/1/98** to
12/31/98 N/A N/A N/A $48,591 N/A N/A N/A N/A
For the Year
Ended 12/31/98
$43,744 $126,131 $57,832 N/A $5,311 $68,910 $50,678 $147,725
For the Year
Ended 12/31/97
For the Year $84,098 $200,506 $62,571 N/A $39,190 $82,721 $96,974 $192,319
Ended 12/31/96
$59,720 $84,640 $62,865 N/A $62,911 $64,645 $60,817 $114,416
** Commencement of operations.
</TABLE>
34
<PAGE>
Fund Sub-Advisors
The Advisor has, in turn, entered into a portfolio advisory agreement
(each a "Fund Agreement") with each Fund Sub-Advisor selected by the Advisor for
a Fund or Standby Income Fund. Under the direction of the Advisor and,
ultimately, of the Board of Trustees of the Trust, each Fund Sub-Advisor is
responsible for making all of the day-to-day investment decisions for the
respective Fund (or portion of a Fund).
Each Fund Sub-Advisor furnishes at its own expense all facilities and
personnel necessary in connection with providing these services. Each Fund
Agreement contains provisions similar to those described above with respect to
the Advisory Agreements.
The Advisor pays each Fund Sub-Advisor a fee for its services provided
to the Fund that is computed daily and paid monthly at an annual rate equal to
the percentage specified below of the value of the average daily net assets of
the Fund:
<TABLE>
<CAPTION>
- -------------------------------------------------------- -----------------------------------
Emerging Growth Fund
- -------------------------------------------------------- -----------------------------------
<S> <C>
David L. Babson & Company, Inc. 0.50%
- -------------------------------------------------------- -----------------------------------
Westfield Capital Management 0.45% on the first $10 million
Company, Inc. 0.40% on the next $40 million
0.35% thereafter
- -------------------------------------------------------- -----------------------------------
International Equity Fund
- -------------------------------------------------------- -----------------------------------
BEA Associates 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 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%
- -------------------------------------------------------- -----------------------------------
35
</TABLE>
Administrator, Custodian and Transfer Agent
Pursuant to Administration and Fund Accounting Agreements, Investors
Bank supervises the overall administration of the Trust, including but not
limited to, accounting, clerical and bookkeeping services; daily calculation of
net asset values; preparation and filing of all documents required for
compliance by the Trust with applicable laws and regulations. Investors Bank
also provides persons to serve as officers of the Trust. As custodian, Investors
Bank holds cash, securities and other assets of the Trust.
The Trust's Prospectuses contain a description of fees payable to
Investors Bank for its services as administrator, fund accounting agent and
custodian.
Prior to December 1, 1996, Signature Financial Services, Inc.
("Signature") served as administrator and fund accounting agent to the Trust.
The Class A Shares of the Funds and the Standby Income Fund incurred
the following administration and fund accounting fees for the periods indicated:
<TABLE>
<CAPTION>
Emerging International Income Value Plus Growth & Balanced Fund Bond Fund Standby
Growth Equity Fund Opportunity Fund - Income Fund - Class A - Class A Income Fund
Fund - - Class A Fund - Class A Class A - Class A
Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/1/98* to
12/31/99 N/A N/A N/A $16,667 N/A N/A N/A N/A
For the Year
Ended 12/31/98
$24,725 $30,559 $26,001 N/A $30,475 $20,146 $30,475 $82,695
For the Year
Ended 12/31/97
For the Year $15,324 $16,990 $15,399 N/A $16,552 $15,324 $16,836 $68,412
Ended
12/31/96**
$61,789 $64,008 $61,674 N/A $61,966 $64,985 $61,716 $24,289
- -----------
</TABLE>
* Commencement of operations.
** Amounts represent fees paid by the master portfolio in which all of the
Class A assets were invested at the time. Includes administrative and fund
accounting fees paid to Signature Financial Services, Inc. and Investors Bank
& Trust Company.
Each of the Administration, Fund Accounting and Custodian Agreements
(collectively, the "Agreements") provide that neither Investors Bank nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission, except for willful misfeasance, bad faith or negligence (gross
negligence in respect of the Custodian Agreement) in the performance of its or
their duties or by reason of disregard (reckless disregard in respect of the
Custodian Agreement) of its or their obligations and duties under the
Agreements.
Each Agreement may not be assigned without the consent of the
non-assigning party, and may be terminated after its Initial Term, with respect
to a Fund, without penalty by majority vote of the shareholders of the Fund or
by either party on not more than 60 days' written notice.
State Street Bank and Trust Company ("State Street") serves as transfer
agent of the Trust pursuant to a transfer agency agreement. Under its transfer
agency agreement with the Trust, State Street maintains the shareholder account
records for each Fund, handles certain communications between shareholders and
the Trust and causes to be distributed any dividends and distributions payable
by the Trust. State Street may be reimbursed by the Trust for its out-of-pocket
expenses.
36
<PAGE>
Distributor
The Trustees of the Trust have adopted a Distribution and Services Plan
(the "Distribution Plan") with respect to Class A and Class C shares of each
Fund (except the Standby Income Fund) after having concluded that there was a
reasonable likelihood that the Distribution Plan would benefit each Class of
each such Fund and its shareholders. The Distribution Plan is designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the expense ratio to the extent the Fund's fixed costs are spread
over a larger net asset base. In addition, an increase in net assets may lessen
the adverse effects that could result were the Fund required to liquidate
portfolio securities to meet redemptions. Of course, there is no assurance that
the net assets of the Fund will increase or that the other benefits referred to
above will be realized.
The Class A Distribution Plan provides that the Trust may pay the
Distributor a fee not to exceed 0.25% per annum of each Fund's average daily net
assets attributable to its class A shares in anticipation of, or as
reimbursement for, expenses incurred in connection with the sale of shares of
the Trust, such as payments to broker-dealers who advise shareholders regarding
the purchase, sale or retention of shares of the Trust, payments to employees of
the Distributor, advertising expenses and the expenses of printing and
distributing prospectuses and reports used for sales purposes, expenses of
preparing and printing sales literature and other distribution-related expenses.
The Class C Distribution Plan provides that the Trust may pay the
Distributor a fee not to exceed 0.75% per annum of each Fund's average daily net
assets attributable to its class C shares in anticipation of, or as
reimbursement for, expenses incurred in connection with the sale of shares of
the Trust, such as payments to broker-dealers who advise shareholders regarding
the purchase, sale or retention of shares of the Trust, payments to employees of
the Distributor, advertising expenses and the expenses of printing and
distributing prospectuses and reports used for sales purposes, expenses of
preparing and printing sales literature and other distribution-related expenses.
No Fund is obligated under a Distribution Plan to pay any distribution
or shareholder service expense in excess of the fees described above. Expenses
incurred by the Distributor in one fiscal year in excess of the fees received
from a Fund in that fiscal year do not give rise to any obligation on the part
of a Fund to the Distributor with respect to any future fiscal year. Thus, if a
Distribution Plan were terminated or not continued, no amounts (other than
current amounts accrued but not yet paid) would be owed by a Fund to the
Distributor. Under arrangements with Dealers and others, the Distributor may pay
compensation upon the sale of Fund shares. To finance such payments, the
Distributor may utilize funds obtained from the Advisor which, in turn, may
borrow funds from affiliated or unaffiliated parties. Such borrowings may be
repaid or secured by an assignment of fees payable pursuant to the Distribution
Plan.
Each Distribution Plan will continue in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
majority of the Trust's Trustees and a majority of the Trust's Trustees who are
not "interested persons of the Trust" and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in any agreement
related to such Plan ("Qualified Trustees"). The Distributor will provide to the
Trustees of the Trust a quarterly written report of amounts expended by it under
each Distribution Plan and the purposes for which such expenditures were made.
The Distribution Plans further provide that the selection and nomination of the
Trust's disinterested Trustees shall be committed to the discretion of the
disinterested Trustees of the Trust. A Distribution Plan may be terminated at
any time by a vote of a majority of the Trust's Qualified Trustees or by a vote
of the shareholders of the Class. The Distribution Plan may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of shareholders and may not be materially amended in any case without a
vote of the majority of both the Trust's Trustees and the Trust's Qualified
Trustees. No disinterested Trustee has any financial interest in the
Distribution Plan or in any related agreement. The Distributor will preserve
copies of any plan, agreement or report made pursuant to the Distribution Plans
for a period of not less than six years from the date of the Distribution Plan,
and for the first two years the Distributor will preserve such copies in an
easily accessible place.
The Trust paid the following fees pursuant to the Class A Distribution
Plan for the periods indicated with respect to Class A Shares of each Fund:
37
<TABLE>
<CAPTION>
Distribution Emerging International Income Value Plus Growth & Balanced Bond Fund
Fee Growth Equity Fund Opportunity Fund - Income Fund Fund - - Class A
Fund - - Fund - Class A Class A - Class A Class A
Class A Class A
<S> <C> <C> <C> <C> <C> <C> <C>
5/1/98**
to 12/31/99 N/A N/A N/A $40,779 N/A N/A N/A
For the Year Ended
12/31/98 $17,105 $15,073 $17,824 N/A $30,065 $10,468 $9,589
For the Year Ended
12/31/97 $9,801 $10,363 $17,453 N/A $11,516 $6,637 $4,764
For the Year Ended
12/31/96 $7,651 $7,551 $5,849 N/A $6,288 $4,477 $3,038
** Commencement of operations.
</TABLE>
The Trust has entered into a Distribution Agreement with the
Distributor. Under the Distribution Agreement, the Distributor acts as the agent
of the Trust in connection with the offering of shares of the Trust.
Counsel and Independent Accountants
Frost & Jacobs LLP, 2500 PNC Center, 201 East 5th Street, Cincinnati,
Ohio 45201-5715, serves as counsel to the Trust and each Fund.
PricewaterhouseCoopers LLP, One Post Office Square, Boston, Massachusetts 02109,
acts as independent accountants of the Funds, providing audit services, tax
return review and assistance and consultation in connection with the review of
filings with the SEC.
Brokerage Allocation and Other Practices
Brokerage Transactions
The Fund Sub-Advisors are responsible for decisions to buy and sell
securities, futures contracts and options on such securities and futures for
each Fund, the selection of brokers, dealers and futures commission merchants to
effect transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, the Advisor, the Fund
Sub-Advisors or their subsidiaries or affiliates. Purchases and sales of certain
portfolio securities on behalf of a Fund are frequently placed by the Fund
Sub-Advisor with the issuer or a primary or secondary market-maker for these
securities on a net basis, without any brokerage commission being paid by the
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as market-makers reflect the spread between the bid and asked
prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Fund Sub-Advisors seek to evaluate the overall reasonableness of
the brokerage commissions paid through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. In placing orders for the purchase and sale
of securities for a Fund, the Fund Sub-Advisors take into account such factors
as price, commission (if any, negotiable in the case of national securities
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker-dealer. The Fund Sub-Advisors review on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Fund Sub-Advisors are authorized, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Fund with a broker to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. A Fund Sub-Advisor may use this research
information in managing a Fund's assets, as well as the assets of other clients.
38
<PAGE>
Consistent with the policy stated above, 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.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Fund and to the corresponding Fund
Sub-Advisor, it is the opinion of the management of the Funds that such
information is only supplementary to the Fund Sub-Advisor's own research effort,
since the information must still be analyzed, weighed and reviewed by the Fund
Sub-Advisor's staff. Such information may be useful to the Fund Sub-Advisor in
providing services to clients other than the Funds, and not all such information
is used by the Fund Sub-Advisor in connection with the Funds. Conversely, such
information provided to the Fund Sub-Advisor by brokers and dealers through whom
other clients of the Fund Sub-Advisor effect securities transactions may be
useful to the Fund Sub-Advisor in providing services to the Funds.
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.
39
<PAGE>
Commissions
The Portfolios of Select Advisors Portfolios in which each Fund (other
than Standby Income Fund) invested and Standby Income Fund paid the following
brokerage commissions for the periods indicated:
<TABLE>
<CAPTION>
Emerging International Income Value Growth & Balanced Bond Fund Standby
Aggregate Growth Equity Fund Opportunity Plus Income Fund Fund - - Class A Income
Commission Fund - - Fund - Class A Fund - Class A Class A Fund
Class A Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/1/98*
to 12/31/99 N/A N/A N/A $44,920 N/A N/A N/A
For the Year
Ended 12/31/98 $21,590 $64,980 $0 N/A $45,667 $9,730 $60 $0
For the Year
Ended 12/31/97 $13,110 $57,618 $0 N/A $94,360 $12,476 $0 $0
For the Year
Ended 12/31/96 $11,550 $27,326 $0 N/A $45,100 $4,379 $0 $0
* Commencement of operations.
</TABLE>
Capital Stock and Other Securities
Capital Stock
The Trust's Amended Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest (par
value $0.00001 per share). The Trust currently consists of eight series (each a
"Fund" and collectively, the "Funds") of shares. The shares of each series
participate equally in the earnings, dividends and assets of the particular
series. The Trust may create and issue additional series of shares. The Trust's
Declaration of Trust permits the Trustees to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in a series. Each share represents an equal proportionate
interest in a series with each other share. Shares have no pre-emptive or
conversion rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each share held.
Each Fund, other than the Standby Income Fund, is divided into three
classes of shares: Class A Shares, Class C Shares and Class Y Shares. The
following discussion applies to all classes of shares.
The Trust is not required to hold annual meetings of shareholders but
the Trust will hold special meetings of shareholders when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder vote.
Shareholders have, under certain circumstances, the right to communicate with
other shareholders for the purpose of removing one or more Trustees. Upon
liquidation of a Fund, shareholders of that Fund would be entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders.
The Trust was organized on February 7, 1994 as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations. However, the Trust's Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of this
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or a Trustee. The Declaration of Trust provides for
indemnification from the Trust's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations, a possibility that the Trust believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in a manner so
as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
40
<PAGE>
Each investor in a Fund may add to or reduce its investment in the Fund
on each day the Fund determines its net asset value. At the close of each such
business day, the value of each investor's beneficial interest in the Fund will
be determined by multiplying the net asset value of the Fund by the percentage,
effective for that day, which represents that investor's share of the aggregate
beneficial interests in the Fund. Any additions or withdrawals which are to be
effected as of the close of business on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Fund will
then be re-computed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Fund as of the close of
business on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Fund effected
as of the close of business on such day, and (ii) the denominator of which is
the aggregate net asset value of the Fund as of the close of business on such
day plus or minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in the Fund by all investors in the
Fund. The percentage so determined will then be applied to determine the value
of the investor's interest in the Fund as of the close of business on the
following business day.
When matters are submitted for shareholder vote or when shareholders
are asked to provide voting instructions, shareholders of each Fund will have
one vote for each full share held and a proportionate, fractional vote for
fractional shares held. The separate vote of a Fund is required on any matter
affecting the Fund unless the interests of each Fund in the matter are identical
or the matter does not affect any interest of the Fund. Shareholders of a Fund
are not entitled to vote or to provide voting instructions on matters that do
not affect the Fund and do not require a separate vote of the Fund. Shareholders
of all Funds will vote together to elect trustees and for certain other matters.
Under certain circumstances the shareholders of one or more Funds could control
the outcome of these votes.
There normally will be no meeting of shareholders for the purpose of
electing Trustees of the Trust unless and until such time as less than a
majority of the Trust's Trustees holding office have been elected by
shareholders, at which time the Trust's Trustees then in office will call a
shareholders meeting for the election of Trustees. Any Trustee of the Trust may
be removed from office upon the vote of shareholders holding at least two-thirds
of the Trust's outstanding shares at a meeting called for that purpose. The
Trustees are required to call such a meeting upon the written request of
shareholders holding at least 10% of the Trust's outstanding shares. The Trust
will also assist shareholders in communicating with one another as provided for
in the 1940 Act.
The Trust sends to each shareholder a semi-annual report and an audited
annual report, each of which includes a list of the investment securities held
by the Funds.
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
41
<PAGE>
Purchase, Redemption and Pricing of Shares
Offering Price
Shares of the Funds are offered at NAV (as defined in the
Prospectuses), plus any applicable sales charges.
Valuation of Securities
The value of each security for which readily available market
quotations exists is based on a decision as to the broadest and most
representative market for such security. The value of such security is based
either on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on such
exchanges, or at the quoted bid price in the over-the-counter market. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market. 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 accordance with procedures
established by 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.
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 problems inherent in making a good faith determination of the value
of restricted securities are recognized in the codification effected by SEC
Financial Reporting Release No. 1 ("FRR 1" (formerly Accounting Series Release
No. 113)) which concludes that there is "no automatic formula" for calculating
the value of restricted securities. It recommends that the best method simply is
to consider all relevant factors before making any calculation. According to FRR
1 such factors would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the Fund
Sub-Advisor will value such securities based upon all relevant factors as
outlined in FRR 1.
Redemption in Kind
Each Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Trust, or the Fund, as the case may be, and valued as they are for purposes
of computing the Fund's net asset value, as the case may be (a redemption in
kind). If payment is made in securities, an investor, including the Fund, may
incur transaction expenses in converting these securities into cash. The Trust,
on behalf of each Fund, has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which each Fund is obligated to redeem shares or
beneficial interests, as the case may be, with respect to any one investor
during any 90-day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of the period.
42
<PAGE>
Class A Sales Charges
Shares are sold at the public offering price next determined after a
purchase order is received as discussed above. Each Fund, except the Standby
Income Fund, imposes a sales charge in accordance with the following schedules:
Value Plus Fund, Emerging Growth Fund, International Equity Fund,
Growth & Income Fund and Balanced Fund
<TABLE>
<CAPTION>
Amount of Investment Sales Charge as % Sales Charge as Dealer Distributor
of Offering Price % of Net Asset Concession Retention
Value
<S> <C> <C> <C> <C> <C>
Under $50,000........................................ 5.75% 6.10% 5.00% 0.75%
$50,000 but less than $100,000....................... 4.50% 4.71% 3.75% 0.75%
$100,000 but less than $250,000...................... 3.50% 3.63% 2.75% 0.75%
$250,000 but less than $500,000...................... 2.50% 2.56% 2.00% 0.50%
$500,000 but less than $1 million.................... 2.00% 2.04% 1.60% 0.40%
$1 million or more*.................................. 0.00% 0.00% 0.00% 0.00%
Income Opportunity Fund and Bond Fund
Amount of Investment Sales Charge as % Sales Charge as Dealer Distributor
of Offering Price % of Net Asset Concession Retention
Value
Under $25,000........................................ 4.75% 4.99% 4.00% 0.75%
$25,000 but less than $50,000........................ 4.50% 4.71% 3.75% 0.75%
$50,000 but less than $100,000....................... 4.00% 4.17% 3.25% 0.75%
$100,000 but less than $250,000...................... 3.50% 3.63% 2.75% 0.75%
$250,000 but less than $500,000...................... 2.50% 2.56% 2.00% 0.50%
$500,000 but less than $1 million.................... 2.00% 2.04% 1.60% 0.40%
$1 million or more*.................................. 0.00% 0.00% 0.00 % 0.00%
----------
</TABLE>
* There is no initial sales charge on purchases of $1 million or more,
including purchases involving a Letter of Intent, Right of
Accumulation, Aggregation or Concurrent Purchases (as described below).
However, a contingent deferred sales charge ("CDSC") of 1% is imposed
on such purchases if liquidated within the first year after purchase,
except for exchanges or certain qualified retirement plans. See
"Reduced Sales Charges" for information as to ways in which initial
sales charges may be reduced.
On sales at net asset value, Dealers may be paid referral fees by the
Distributor directly; such fees will not be borne by the investor.
From time to time, the Distributor may reallow to Dealers the full
amount of the sales charge.
Class C Contingent Deferred Sales Charge ("CDSC")
Class C Shares of any Fund may be purchased without an initial sales
charge. However, (with the exception of Standby Income Fund) you will bear your
proportionate share of payments made pursuant to the Trust's distribution and
service plan described hereunder under the caption "Distribution and Service
Plan." Such payments will affect the net asset value of shares in each Fund. In
addition, with the exception of Standby Income Fund, a CDSC of 1.0% applies to
redemptions of shares made within one year after the date of their purchase. No
such charge is imposed if the shares redeemed have been acquired through the
reinvestment of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account above the amount
of the purchase payments. In determining whether a CDSC is payable, it is
assumed that the redemption is made from the earliest purchase payments(s) that
remain invested in the Funds. To determine if amounts are available for
redemption free of any CDSC, all of your purchase payments (reduced by any
amounts previously withdrawn) are aggregated, and the current value of all
shares to be redeemed is aggregated. All CDSC's are paid to the Distributor.
43
<PAGE>
The CDSC is waived for redemptions of shares by: (1) current or retired
directors, trustees, partners, officers and employees of a Trust, the Portfolio
Trust, the Distributor, the Advisor or any Portfolio Advisor, certain family
members of the above persons, and trusts or plans primarily for such persons;
(2) trustees or other fiduciaries purchasing shares for certain retirement plans
and (3) participants in certain pension, profit-sharing or employee benefit
plans that are sponsored by the Distributor and its affiliates.
The CDSC is also waived for exchanges of shares (except if shares
acquired by exchange are then redeemed within 12 months of the initial
purchase); for redemptions in connection with mergers, acquisitions and exchange
offers; for distributions from qualified retirement plans and other employee
benefit plans; for distributions from custodial accounts under Section 403(b)(7)
of the Internal Revenue Code of 1986, as amended (the "Code"), or IRAs due to
death, disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; and for any partial or complete redemptions following the
death or disability of a shareholder, provided the redemption is made within one
year of death or initial determination of disability.
Reduced Initial Sales Charges For Class A Shares
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 the Standby Income 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
Reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase shares of a Fund at the
offering price applicable to the total of (a) the dollar amount then being
purchased plus (b) an amount equal to the then current net asset value of the
purchaser's combined holdings. For any such right of accumulation to be made
available, the Transfer Agent must be provided at the time of purchase, by the
purchaser or the purchaser's securities dealer, with sufficient information to
permit confirmation of qualification. Acceptance of the purchase order is
subject to such confirmation. The right of accumulation may be amended or
terminated at any time.
44
<PAGE>
Letter of Intent
Reduced sales charges are applicable to purchases aggregating a minimum
of $25,000 for the Income Opportunity Fund, the Bond Fund, and the Standby
Income Fund and $50,000 for each other Touchstone Fund, of the shares of the
Fund made within a 24 month period starting with the first purchase pursuant to
a Letter of Intent. The Letter of Intent is not a binding obligation to purchase
any amount of shares; however, its execution will result in the purchaser paying
a lower sales charge at the appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intent may be included under a
subsequent Letter of Intent executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. The
value of shares of the Fund presently held on the date of the first purchase
under the Letter of Intent, may be included as a credit toward the completion of
such Letter, but the reduced sales charge applicable to the amount covered by
such Letter will be applied only to new purchases. If the total amount of shares
does not equal the amount stated in the Letter of Intent, the investor will be
notified and must pay, within 20 days of the expiration of such Letter, the
difference between the sales charge on the shares purchased at the reduced rate
and the sales charge applicable to the shares actually purchased through the
Letter. Shares equal to 5% of the intended amount will be held in escrow during
the 24 month period (while remaining registered in the name of the purchaser)
for this purpose. The first purchase under the Letter of Intent must be 5% of
the dollar amount of such Letter. If, during the term of such Letter, a purchase
brings the total amount invested to an amount equal to or in excess of the
amount indicated in the Letter, the purchaser will be entitled on that purchase
and subsequent purchases to the reduced percentage sales charge which would be
applicable to a single purchase equal to the total dollar value of the shares
then being purchased under such Letter, but there will not be a retroactive
reduction of the sales charges on any previous purchase. The value of any shares
redeemed or otherwise disposed of by the purchaser prior to termination or
completion of the Letter of Intent will be deducted from the total purchases
made under such Letter.
You must advise your financial advisor if you qualify for a reduction
in sales charge using one or any combination of the methods described above.
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 (A) The Western and Southern Life
Insurance Company or any of its affiliates, (B) any Portfolio Advisor; (C)
RogersCasey; (D) Investors Bank & Trust Company; (E) the Transfer Agent; and (F)
those firms that provide legal, accounting, public relations or other services
to the Distributor or Advisor; (3) by clients of any Portfolio Advisor or of
RogersCasey who are referred to the Distributor by a Portfolio Advisor or
RogersCasey; (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; (6) as part of
certain promotional programs established by the Fund and/or Distributor; (7) 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; (8) by bank trust departments; and (9) 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.
45
<PAGE>
Taxation of the Funds
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 after the close of the Fund's prior taxable year as to the federal
income status of his dividends and distributions which were received from the
Fund during the Fund's prior taxable year. Shareholders should consult their tax
advisors as to any 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
46
<PAGE>
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 Class of 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 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.
47
<PAGE>
Other Taxation
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
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.
Performance Information
From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Yield:
Yields for a Fund used in advertising are computed by dividing the
Fund's interest and dividend income for a given 30-day or one-month period, net
of expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is calculated
for purposes of yield quotations in accordance with standardized methods
applicable to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the purpose of
yield calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from the calculation.
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements. For the 30-day period ended
December 31, 1998, the Funds' yields were as follows:
<TABLE>
<CAPTION>
Balanced Bond
Fund - Class A Balanced Income Opportunity Income Fund - Class A Bond Fund - Standby
Fund - Fund - Class A Opportunity Class C Income
Class C Fund - Class C Fund
<S> <C> <C> <C> <C> <C> <C>
2.31% 1.66% 17.45% 17.21% 5.41% 4.30% 5.04%
For the 7-day period ended December 31, 1998, the Standby Income Fund's
yield was 5.07%.
</TABLE>
Total return - Class A Shares
A Fund's standardized average annual total return is calculated for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (with all
distributions reinvested) to reach the value of that investment at the end of
the periods. A Fund may also calculate non-standardized total return figures
which represent aggregate (not annualized) performance over any period or
year-by-year performance, such as the following.
48
<PAGE>
<TABLE>
<CAPTION>
Average Annual Emerging International Income Value Plus Growth & Balanced Bond Standby
Total Return Growth Equity Fund Opportunity Fund - Income Fund - Fund - Fund - Income
(Including Sales Fund - Fund - Class A Class A Class A Class A Fund**
Charge) - Class Class A Class A
A
For the Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/1/98* to 12/31/98 N/A N/A N/A -1.71% N/A N/A N/A N/A
For the Year Ended
12/31/98 -3.29% 13.01% -17.84% N/A .71% -2.02 3.40% 5.49%
For the Period
10/3/94* to 12/31/98
14.53% 8.25% 6.41% N/A 16.68% 13.13% 7.11% 5.28%
Average Annual
Total Return
(Without Sales
Charge)
For the Period
5/1/98* to 12/31/98 N/A N/A N/A 4.29% N/A N/A N/A N/A
For the Year Ended
12/31/98 2.57% 19.94% -13.77% N/A 6.87% 3.98% 8.56% 5.49
For the Period
10/3/94 * to 16.14% 9.77% 7.64% N/A 18.32% 14.72% 8.34% 5.28%
12/31/98
Aggregate
Total Return
(Including Sales
Charge)
For the Period
5/1/98* to 12/31/98 N/A N/A N/A -1.71% N/A N/A N/A N/A
For the Year Ended -3.29% 13.01% -17.84% N/A .71% -2.02% 3.40% 5.49%
12/31/98
For the Period
10/3/94 * to 77.90% 40.02% 30.21% N/A 92.53% 68.85% 33.84% 24.40%
12/31/98
Aggregate
Total Return
(Without Sales
Charge)
For the Period
5/1/98* to 12/31/98 N/A N/A N/A 4.29% N/A N/A N/A N/A
For the Year Ended 2.57% 19.94% -13.77% N/A 6.87% 3.98% 8.56% 5.49%
12/31/98
For the Period
10/3/94 * to 88.89% 48.56% 36.72% N/A 104.28% 79.15% 40.54% 24.40%
12/31/98
- ------------
* Commencement of operations
**Standby Income Fund may be purchased and redeemed at net asset value.
</TABLE>
49
<PAGE>
Total return - Class C Shares
A Fund's standardized average annual total return is calculated for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (with all
distributions reinvested) to reach the value of that investment at the end of
the periods. A Fund may also calculate non-standardized total return figures
which represent aggregate (not annualized) performance over any period or
year-by-year performance, such as the following
<TABLE>
<CAPTION>
Average Emerging International Income Value Plus Growth & Balanced Bond
Annual Total Return Growth Equity Fund - Opportunity Fund - Income Fund - Fund - Fund -
Fund - Class C Fund - Class C Class C Class C Class C Class C
Class C
For Period 5/1/98*
<S> <C> <C> <C> <C> <C> <C> <C>
to 12/31/98 N/A N/A N/A 2.60% N/A N/A N/A
For the Year Ended
12/31/98 1.95% 18.99% -14.52% N/A 5.97% 3.31% 6.90%
For the Period
10/3/94* to
12/31/98 15.07% 8.95% 6.80% N/A 17.50% 13.88% 7.34%
Aggregate
Total Return
For Period 5/1/98*
to 12/31/98 N/A N/A N/A 2.60% N/A N/A N/A
For the Year Ended
12/31/98 1.95% 18.99% -14.52% N/A 5.97% 3.31% 6.90%
For the Period
10/3/94* to
12/31/98 81.48% 43.89% 32.21% N/A 98.33% 73.67% 35.10%
- ------------------------
* Commencement of operations
</TABLE>
Any total return quotation provided for a Fund should not be considered
as representative of the performance of the Fund in the future since the net
asset value and public offering price of shares of the Fund will vary based not
only on the type, quality and maturities of the securities held in the
corresponding Fund, but also on changes in the current value of such securities
and on changes in the expenses of the Fund and the corresponding Fund. These
factors and possible differences in the methods used to calculate total return
should be considered when comparing the total return of a Fund to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services, to the
performance of various indices and investments for which reliable performance
data is available. The performance figures of unmanaged indices may assume
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs. The performance of the Funds may also be
compared to averages, performance ratings, or other information prepared by
recognized mutual fund statistical services. Evaluations of a Fund's performance
made by independent sources may also be used in advertisements concerning the
Fund. Sources for a Fund's performance information could include Asian Wall
Street Journal, Barron's, Business Week, Changing Times, The Kiplinger Magazine,
Consumer Digest, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund
Performance Analysis, Money, The New York Times, Personal Investing News,
Personal Investor, Success, U.S. News and World Report, The Wall Street Journal
and CDA/Weisenberger Investment Companies Services.
50
<PAGE>
Financial Statements
The following financial statements for the Trust and the Standby Income
Fund at and for the fiscal periods indicated are incorporated herein by
reference from their current reports to shareholders filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. A copy of each such
report will be provided, without charge, to each person receiving this Statement
of Additional Information.
TOUCHSTONE SERIES TRUST - Class A* (other than the Standby Income Fund)
Schedule of Investments, December 31, 1998 Statement of Assets and
Liabilities, December 31, 1998 Statement of Operations, for the year
ended December 31, 1998
Statement of Changes in Net Assets for the years ended December 31,
1998 and December 31, 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
STANDBY INCOME FUND
Schedule of Investments, December 31, 1998 Statement of Assets and
Liabilities, December 31, 1998 Statement of Operations, for the year
ended December 31, 1998
Statement of Changes in Net Assets for the years ended December 31,
1998 and December 31, 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
* The outstanding shares of each series of Touchstone Series Trust (formerly
Select Advisors Trust A), other than the Standby Income Fund, were redesignated
as Class A shares, effective after the close of business on December 31, 1998.
51
<PAGE>
A-1
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.
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.
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.
A-1
<PAGE>
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 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.
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 its 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.
A-2
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 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.
A-3
<PAGE>
Distributor
Touchstone Securities, Inc. Touchstone Series Trust
311 Pike Street
Cincinnati, Ohio 45202 Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Investment Advisor of each Fund Touchstone Balanced Fund
Touchstone Bond Fund A
Touchstone Advisors, Inc. Touchstone Bond Fund
311 Pike Street Touchstone Standby Income Fund
Cincinnati, Ohio 45202
Class A, Class C and Class Y Shares
Transfer Agent
State Street Bank and Trust Company
P.O. Box 8518
Boston, Massachusetts 02266-8518
Administrator, Custodian and
Fund Accounting Agent
Investors Bank & Trust Company Statement of Additional Information
200 Clarendon Street May 1, 1999
Boston, Massachusetts 02116
Independent Accountants
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
Legal Counsel
Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
<PAGE>
PART C
ITEM 23. EXHIBITS:
(a1) Amended Declaration of Trust of the Trust.(1)
(a2) Amendment to Amended Declaration of Trust of the Trust.(3)
(a3) Amendment No. 5 to Amended Declaration of Trust of the Trust.(8)
(b) Amended By-Laws of the Trust.(1)
(c) Inapplicable.
(d1) Form of Amended Investment Advisory Agreement between the
Registrant and Touchstone Advisors, Inc. ("Touchstone").(7)
(d2) Amended and Restated Investment Sub-Advisory Agreement between
Touchstone and David L. Babson and Company with respect to
Emerging Growth Fund.(9)
(d3) Investment Sub-Advisory Agreement between Touchstone and
Westfield Capital Management Company with respect to Emerging
Growth Fund.(9)
(d4) Investment Sub-Advisory Agreement between Touchstone Credit
Suisse Asset Management with respect to International Equity
Fund.(9)
(d5) Investment Sub-Advisory Agreement between Touchstone and Scudder
Kemper Investments, Inc. with respect to Growth & Income Fund.(9)
(d6) Investment Sub-Advisory Agreement between Touchstone and Fort
Washington Investment Advisors, Inc. with respect to Value Plus
Fund.(9)
(d7) Investment Sub-Advisory Agreement between Touchstone and Alliance
Capital Management, L.P. with respect to Income Opportunity
Fund.(9)
(d8) Investment Sub-Advisory Agreement between Touchstone and OpCap
Advisors with respect to Balanced Fund.(9)
(d9) Investment Sub-Advisory Agreement between Touchstone and Fort
Washington Investment Advisors, Inc. with respect to Bond
Fund.(9)
(d10) Investment Sub-Advisory Agreement between Touchstone and Fort
Washington Investment Advisors, Inc., with respect to Touchstone
Standby Income Fund.(9)
(e1) Amended and Restated Distribution Agreement for Class A.(8)
(e2) Distribution Agreement for Class C.(8)
<PAGE>
(f) Inapplicable.
(g) Amended and Restated Custodian Agreement.(9)
(h1) Administration Agreement.(2)
(h2) Amendment to the Administration Agreement. (9)
(h3) Transfer Agency Agreement.(5)
(h4) Sponsor Agreement.(5)
(h5) Amendment No. 3 to the Sponsor Agreement.(9)
(h6) Fund Accounting Agreement.(2)
(i1) Opinion of counsel.(5)
(i2) Opinion of Bingham Dana LLP.(8)
(j) Consent of independent accountants.(9)
(k) Inapplicable.
(l) Investment letter of initial shareholders.(5)
(m1) Class A Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940
Act").(8)
(m2) Class C Distribution and Service Plan pursuant to Rule 12b-1
under the 1940 Act.(8)
(n) Financial Data Schedules.(9)
(o) Rule 18f-3 Multiclass Allocation Plan.(8)
(1) Incorporated herein by reference from post-effective amendment No. 2 to
the Registration Statement as filed with the SEC on April 29, 1996.
(2) Incorporated herein by reference from post-effective amendment No. 3 to
the Registration Statement as filed with the SEC on February 28, 1997.
(3) Incorporated herein by reference from post-effective amendment No. 5 to
the Registration Statement as filed with the SEC on February 13, 1998.
(4) Incorporated herein by reference from post-effective amendment No. 6 to
the Registration Statement as filed with the SEC on April 28, 1998.
(5) Incorporated by reference from Post-Effective Amendment No. 7 to the
Registration Statement as filed with the SEC on July 30, 1998.
<PAGE>
(6) Incorporated by reference from Post-Effective Amendment No. 8 to the
Registration Statement as filed with the SEC on November 3, 1998.
(7) Incorporated by reference from Post-Effective Amendment No. 9 to the
Registration Statement as filed with the SEC on December 31, 1998.
(8) Incorporated by reference from Post-Effective Amendment No. 10 to the
Registration Statement as filed with the SEC on January 12, 1999.
(9) Filed herein.
(10) To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Inapplicable.
ITEM 25. INDEMNIFICATION.
Under Article V, Section 5.3 of the Trust's Declaration of Trust, (a)
subject to the exceptions and limitations contained in paragraph (b) below: (i)
every person who is or has been a Trustee or officer of the Trust shall be
indemnified by the Trust, to the fullest extent permitted by law (including the
1940 Act) as currently in effect or as hereinafter amended, against all
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof; (ii) the words "claim", "action", "suit", or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities. (b) No
indemnification shall be provided hereunder to a Trustee or officer: (i) against
any liability to the Trust or the Shareholders by reason of a final adjudication
by the court or other body before which the proceeding was brought that he
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office; (ii) with respect
to any matter as to which he shall have been finally adjudicated not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the Trust; or (iii) in the event of a settlement involving a payment
by a Trustee or officer or other disposition not involving a final adjudication
as provided in paragraph (b)(i) or (b)(ii) above resulting in a payment by a
Trustee or officer, unless there has been either a determination that such
Trustee or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office by the court or other body approving the settlement or other disposition
or by a reasonable determination, based upon a review of readily available facts
(as opposed to a full trial-type inquiry) that he did not engage in such
conduct: (A) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter); or (B) by written opinion of independent legal counsel. (c)
Subject to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, its present or
<PAGE>
former Shareholders,
Trustees, officers, employees, independent contractors and agents in such amount
as the Trustees shall deem adequate to cover possible tort liability (whether or
not the Trust would have the power to indemnify such Persons against such
liability), and such other insurance as the Trustees in their sole judgment
shall deem advisable. (d) The rights of indemnification herein provided shall be
severable, shall not affect any other rights to which any Trustee or officer may
now or hereafter be entitled, shall continue as to a Person who has ceased to be
such a Trustee or officer and shall inure to the benefit of the heirs, executors
and administrators of such Person. Nothing contained herein shall affect any
rights to indemnification to which personnel other than Trustees and officers
may be entitled by contract or otherwise under law. (e) Expenses of preparation
and presentation of a defense to any claim, action, suit, or proceeding of the
character described in paragraph (a) of this Section 5.3 shall be advanced by
the Trust prior to final disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under this Section 5.3,
provided that either: (i) such undertaking is secured by a surety bond or some
other appropriate security or the Trust shall be insured against losses arising
out of any such advances; or (ii) a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification. As used in this
Section 5.3 a "Disinterested Trustee" is one (i) who is not an "Interested
Person" of the Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the Commission), and
(ii) 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 had
been pending. As used in this Section 5.3, the term "independent legal counsel"
means an attorney who is independent in all respects from the Trust and from the
person or persons who seek indemnification hereunder and in any event means an
attorney who has not been retained by or performed services for the Trust or any
person to be so indemnified within the five years prior to the Initial request
for indemnification pursuant hereto.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers
and controlling persons of the Trust pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Trust of expenses incurred or
paid by a Trustee, officer or controlling person of the Trust 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
Trust 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 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Touchstone Advisors, Inc. ("Touchstone Advisors") serves as investment
advisor to each series of the Trust.
<PAGE>
Set forth below are the names, principal business addresses and
positions of each director and officer of Touchstone Advisors. Unless otherwise
noted, the principal business address of these individuals is Touchstone
Advisors, Inc., 311 Pike Street, Cincinnati, Ohio 45202. Unless otherwise
specified, none of the officers and directors of Touchstone Advisors serve as
officers and Trustees of the Trust.
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES POSITION AND OFFICES
WITH TOUCHSTONE ADVISORS WITH THE REGISTRANT
<S> <C> <C>
James N. Clark* Director none
Jill T. McGruder Director, President and Chief Trustee, President, Chairman of the
Executive Officer Board and Chief Executive Officer
William F. Ledwin* Director none
Donald J. Wuebbling* Director, Secretary and Chief Legal none
Officer
James J. Vance* Treasurer Treasurer
Edward S. Heenan* Vice President and Controller Controller
J. Thomas Lancaster* Vice President none
Richard K. Taulbee* Vice President none
Patricia Wilson Chief Compliance Officer none
Robert F. Morand* Assistant Secretary none
Robert A. Dressman* Assistant Treasurer none
Timothy D. Speed* Assistant Treasurer none
*Principal business address is 400 Broadway, Cincinnati, Ohio 45202
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Touchstone Securities, Inc. ("Touchstone"), the distributor of the
Shares of the Trust, also serves as principal underwriter for other
investment companies.
(b) Set forth below are the names, principal business addresses and
positions of each director and officer of Touchstone. Unless otherwise
noted, the principal business address of these individuals is Touchstone
Securities, Inc., 311 Pike Street, Cincinnati, Ohio 45202. Unless
otherwise specified, none of the officers and directors of Touchstone
serve as officers and Trustees of the Trust.
<PAGE>
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES POSITION AND OFFICES
WITH TOUCHSTONE SECURITIES WITH THE REGISTRANT
<S> <C> <C>
James N. Clark* Director none
Jill T. McGruder Director, President and Chief Trustee, President, Chairman of the
Executive Officer Board and Chief Executive Officer
William F. Ledwin* Director none
Donald J. Wuebbling* Director none
James J. Vance* Treasurer Treasurer
Edward S. Heenan* Controller Controller
J. Thomas Lancaster* Vice President none
Richard K. Taulbee* Vice President none
Patricia Wilson Chief Compliance Officer none
Robert F. Morand* Secretary none
Carl A. Ramsey** Vice President none
E. Duane Clay** Vice President none
* Principal business address is 400 Broadway, Cincinnati, Ohio 45202 **
Principal Business address is 8901 Indian Hills Drive, Omaha, Nebraska 68114.
</TABLE>
(c) Inapplicable.
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Touchstone Series Trust
311 Pike Street
Cincinnati, OH 45202
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, OH 45202
(investment advisor)
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(administrator, custodian and fund accounting agent)
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, OH 45202
(distributor)
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston and the Commonwealth
of Massachusetts on the 26th day of April, 1999.
TOUCHSTONE SERIES TRUST
By: /S/ Andrew S. Josef
----------------------------------
Andrew S. Josef, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on April 26, 1999.
SIGNATURE TITLE
/S/ Jill T. McGruder President and Trustee (Principal
- - ------------------------------- Executive Officer)
Jill T. McGruder
/S/ William J. Williams Trustee
- - -------------------------------
William J. Williams
/S/ Joseph S. Stern, Jr. Trustee
- - -------------------------------
Joseph S. Stern, Jr.
/S/ Phillip R. Cox Trustee
- ---------------------------------
Phillip R. Cox
/S/ Robert E. Stautberg Trustee
- - -------------------------------
Robert E. Stautberg
/S/ James J. Vance Treasurer (Principal Financial
- - ------------------------------- Officer and Principal Accounting
James J. Vance Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(d2) Amended and Restated Investment Sub-Advisory Agreement between
Touchstone and David L. Babson and Company with respect to
Emerging Growth Fund.
(d3) Investment Sub-Advisory Agreement between Touchstone and
Westfield Capital Management Company with respect to Emerging
Growth Fund.
(d4) Investment Sub-Advisory Agreement between Touchstone Credit
Suisse Asset Management with respect to International Equity
Fund.
(d5) Investment Sub-Advisory Agreement between Touchstone and Scudder
Kemper Investments, Inc. with respect to Growth & Income Fund.
(d6) Investment Sub-Advisory Agreement between Touchstone and Fort
Washington Investment Advisors, Inc. with respect to Value Plus
Fund.
(d7) Investment Sub-Advisory Agreement between Touchstone and Alliance
Capital Management, L.P. with respect to Income Opportunity
Fund.
(d8) Investment Sub-Advisory Agreement between Touchstone and OpCap
Advisors with respect to Balanced Fund.
(d9) Investment Sub-Advisory Agreement between Touchstone and Fort
Washington Investment Advisors, Inc. with respect to Bond
Fund.
(d10) Investment Sub-Advisory Agreement between Touchstone and Fort
Washington Investment Advisors, Inc., with respect to Touchstone
Standby Income Fund.
(g) Amended and Restated Custodian Agreement.
(h2) Amendment to the Administration Agreement.
(h5) Amendment No. 3 to the Sponsor Agreement.
(j) Consent of independent accountants.
(n) Financial Data Schedules.
SUB-ADVISORY AGREEMENT
TOUCHSTONE EMERGING GROWTH FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
DAVID L. BABSON & COMPANY, INC., a Massachusetts corporation (the
"Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services with respect to certain assets of the Touchstone Emerging
Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of that portion of the
assets of the Fund allocated to it by the Advisor (which portion, until changed
by the Advisor by not less than ten days prior written notice, shall be 50% of
the total assets of the Fund) (the said portion, as it may be changed from time
to time, being herein called the "Fund Assets"), subject to the control and
direction of the Advisor and the Trust's Board of Trustees, for the period and
on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
<PAGE>
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the Fund Assets and the purchase and sale of portfolio
securities and shall take such steps as may be necessary or advisable
to implement the same. The Sub-Advisor also will determine the manner
in which voting rights, rights to consent to corporate action and any
other rights pertaining to the portfolio securities will be exercised.
The Sub-Advisor will render regular reports to the Trust's Board of
Trustees, to the Advisor and to BARRA RogersCasey, Inc. (or such other
advisor or advisors as the Advisor shall engage to assist it in the
evaluation of the performance and activities of the Sub-Advisor). Such
reports shall be made in such form and manner and with respect to such
matters regarding the Fund and the Sub-Advisor as the Trust, the
Advisor or BARRA RogersCasey, Inc. shall from time to time request;
provided, however, that in the absence of extraordinary circumstances,
the individual primarily responsible for management of Fund Assets for
the Sub-Advisor will not be required to attend in person more than one
meeting per year with the trustees of the Trust.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5,
(ii) permission to use the past performance and investment history of
the Sub-Advisor with respect to a composite of other funds managed by
the Sub-Advisor that are comparable, in investment objective and
composition, to the Fund, (iii) access to the individual(s)
responsible for day-to-day management of the Fund for marketing
conferences, teleconferences and other activities involving the
promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of
the Sub-Advisor and individual manager(s), and (v) permission to use
the names of those clients pre-approved by the Sub-Advisor to which
the Sub-Advisor provides investment management services, subject to
2
<PAGE>
receipt of the consent of such clients to the use of their names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor's primary objective shall be to obtain the
most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, 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.
The Sub-Advisor is specifically authorized, to the extent authorized
by law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
3
<PAGE>
as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor,
its investment principals, supervisors or members of its investment
(or comparable) committee, the Sub-Advisor shall give the Advisor and
the Trust's Board of Trustees written notice of such reorganization or
change within a reasonable time (but not later than 30 days) after
such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to comply with the provisions of the
1940 Act and with Subchapter M of the Internal Revenue Code of 1986,
as amended.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties undertaken
hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor
a monthly fee equal on an annual basis to 0.50% of the average daily
net Fund Assets. Such fee shall be computed and accrued daily. If the
Sub-Advisor serves in such capacity for less than the whole of any
period specified in this Section 3a, the compensation to the
Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund Assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees
hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request, subject to the limitation on
personal attendance at such meetings set forth in Section 2a) (i) the financial
condition and prospects of the Sub-Advisor, (ii) the nature and amount of
transactions affecting the Fund that involve the Sub-Advisor and affiliates of
the Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
4
<PAGE>
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto and will hereafter supply to
the Advisor, promptly upon the preparation thereof, copies of all amendments or
restatements of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
5
<PAGE>
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
6
<PAGE>
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be One Memorial Drive, Cambridge, Massachusetts
02142-1300.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
DAVID L. BABSON & COMPANY, INC.
Attest:
/s/ John E. Deitelbaum BY /s/ John W. Filoon Jr.
Name: John E. Deitelbaum Name: John W. Filoon Jr.
Title: Vice President & Title: Vice President
General Counsel
600121.02
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE EMERGING GROWTH FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC., a Massachusetts corporation (the
"Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone Emerging Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of that portion of the
assets of the Fund allocated to it by the Advisor (such portion being herein
called the "Fund Assets"), subject to the control and direction of the Advisor
and the Trust's Board of Trustees, for the period and on the terms hereinafter
set forth. The Sub-Advisor hereby accepts such employment and agrees during such
period to render the services and to perform the duties called for by this
Agreement for the compensation herein provided. The Sub-Advisor shall at all
times maintain its registration as an investment advisor under the Investment
Advisers Act of 1940 and shall otherwise comply in all material respects with
all applicable laws and regulations, both state and federal. The Sub-Advisor
shall for all purposes herein be deemed an independent contractor and shall,
except as expressly provided or authorized (whether herein or otherwise), have
no authority to act for or represent the Trust in any way or otherwise be deemed
an agent of the Trust or the Fund.
2
<PAGE>
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
Fund Assets, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the Fund Assets and the purchase and sale of portfolio
securities and shall take such steps as may be necessary or advisable
to implement the same. The Sub-Advisor also will determine the manner
in which voting rights, rights to consent to corporate action and any
other rights pertaining to the portfolio securities will be exercised.
The Sub-Advisor will render regular reports to the Trust's Board of
Trustees, to the Advisor and to BARRA RogersCasey, Inc. (or such other
advisor or advisors as the Advisor shall engage to assist it in the
evaluation of the performance and activities of the Sub-Advisor). Such
reports shall be made in such form and manner and with respect to such
matters regarding the Fund and the Sub-Advisor as the Trust, the
Advisor or BARRA RogersCasey, Inc. shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5,
(ii) permission to use the past performance and investment history of
the Sub-Advisor as the same is applicable to the Fund, (iii) access to
the individual(s) responsible for day-to-day management of the Fund
for marketing conferences, teleconferences and other activities
involving the promotion of the Fund, subject to the reasonable request
of the Advisor, (iv) permission to use biographical and historical
data of the Sub-Advisor and individual manager(s), and (v) permission
to use the names of those institutional clients to which the
Sub-Advisor provides investment management services, subject to
receipt of consent of such clients to the use of their names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
2
<PAGE>
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor's primary objective shall be to obtain the
most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, 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.
The Sub-Advisor is specifically authorized, to the extent authorized
by law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor,
its investment principals, supervisors or members of its investment
(or comparable) committee, the Sub-Advisor shall give the Advisor and
the Trust's Board of Trustees written notice of such reorganization or
change within a reasonable time (but not later than 30 days) after
such reorganization or change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to comply with the provisions of the
1940 Act and with Subchapter M of the Internal Revenue Code of 1986,
as amended.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties undertaken
hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor
a monthly fee equal on an annual basis to 0.45% of the first $10
million of the average daily net assets of the Fund managed by the
Sub-Advisor, 0.40% of the average daily net assets of the Fund managed
by the Sub-Advisor in excess of $10 million and up to $50 million and
0.35% of the average daily net assets of the Fund managed by the
Sub-Advisor in excess of $50 million. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less
than the whole of any period specified in this Section 3a, the
compensation to the Sub-Advisor shall be prorated. For purposes of
calculating the Sub-Advisor's fee, the daily value of the Fund's net
assets shall be computed by the same method as the Trust uses to
compute the net asset value of the Fund for purposes of purchases and
redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees
hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor will provide to the Trustees information regarding the
4
<PAGE>
composite return of such of its other accounts as are comparable, in investment
objective and composition, to the Fund. The Sub-Advisor agrees to submit to the
Trust a statement defining its policies with respect to the allocation of
investment opportunities among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
5
<PAGE>
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
6
<PAGE>
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be One Financial Center - 27th Floor, Boston,
Massachusetts 02111.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
WESTFIELD CAPITAL MANAGEMENT
COMPANY, INC.
Attest:
/s/ Karen Dibrario BY /s/ Michael J. Chapman
Name: Name: Michael J. Chapman
Title: Title: Executive Vice President
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE INTERNATIONAL EQUITY FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
CREDIT SUISSE ASSET MANAGEMENT, a New York general partnership (the
"Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone International Equity Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities
will be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time reasonably request.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund, consisting of: (i) permission to use the
Sub-Advisor's name as provided in Section 5, (ii) permission to use
the past performance and investment history of the Sub-Advisor as the
same is applicable to the Fund, (iii) access to the individual(s)
responsible for the management of the Fund for marketing conferences,
teleconferences and other activities involving the promotion of the
Fund, subject to the reasonable request of the Advisor and to the
limitation that the individual primarily responsible for management of
the Fund Assets for the Sub-Advisor will not be required to attend
more than one meeting of the Trust's Trustees in any one year, (iv)
permission to use biographical and historical data of the Sub-Advisor
and individual manager(s), and (v) permission to use the names of
clients to which the Sub-Advisor provides investment management
services, subject to any restrictions imposed by clients on the use of
such names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
2
<PAGE>
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor's primary objective shall be to obtain the
most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, 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.
The Sub-Advisor is specifically authorized, to the extent authorized
by law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the Sub-Advisor,
its investment principals, supervisors or members of its investment
(or comparable) committee, the Sub-Advisor shall give the Advisor and
the Trust's Board of Trustees written notice of such reorganization or
change within a reasonable time (but not later than 30 days) after
such reorganization or change. In addition, the Sub-Advisor will
3
<PAGE>
notify the Advisor of any change in the membership of the Sub-Advisor
within a reasonable time (but not more than 30 days) after such change
takes place.
e. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
f. Based on account information regarding the Fund provided by the
Advisor, the Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended; provided, however, that with respect
to the provisions of the 1940 Act regarding transactions with
affiliates, the obligations of the Sub-Advisor shall be limited to
matters involving its own affiliates and such other persons as the
Advisor shall expressly identify as affiliated persons.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties undertaken
hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor
a monthly fee equal on an annual basis to 0.85% of the first $30
million of the average daily net assets of the Fund, 0.80% of the
average daily net assets of the Fund in excess of $30 million and up
to $50 million, 0.60% of the average daily net assets of the Fund in
excess of $50 million and up to $75 million, and 0.50% of the average
daily net assets of the Fund in excess of $75 million. Such fee shall
be computed and accrued daily. If the Sub-Advisor serves in such
capacity for less than the whole of any period specified in this
Section 3a, the compensation to the Sub-Advisor shall be prorated. For
purposes of calculating the Sub-Advisor's fee, the daily value of the
Fund's net assets shall be computed by the same method as the Trust
uses to compute the net asset value of the Fund for purposes of
purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees
hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) information reasonably requested by
such Board of Trustees regarding (i) the nature and amount of transactions
4
<PAGE>
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (ii) any potential conflicts of interest arising by reason of its
continuing provision of advisory services to the Fund and to its other accounts,
and (iii) such other matters as the Board of Trustees shall reasonably request
regarding the Fund, the Fund's performance, the services provided by the
Sub-Advisor to the Fund as compared to its other accounts and the plans of, and
the capability of, the Sub-Advisor with respect to providing future services to
the Fund and its other accounts. The Sub-Advisor agrees to submit to the Trust a
statement defining its policies with respect to the allocation of business among
the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor.
a. Absent willful misfeasance, bad faith, gross negligence, or reckless
disregard of obligations or duties hereunder on the part of the
Sub-Advisor, the Sub-Advisor shall not be subject to liability to the
Advisor, the Trust or to any shareholder in the Fund for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. As used in this Section 6, the term
"Sub-Advisor" shall include the Sub-Advisor and/or any of its
affiliates and the directors, officers and employees of the
5
<PAGE>
Sub-Advisor and/or any of its affiliates. b. The Trust or the Advisor
will indemnify the Sub-Advisor against, and hold it harmless from, any
and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from its activities
under and pursuant to this Agreement, except to the extent that such
losses, claims, damages, liabilities or expenses result from the gross
negligence, bad faith or willful misfeasance of the Sub-Advisor or
from a breach of its obligations or duties hereunder. Indemnification
shall be made only after: (i) a final decision on the merits by a
court or other body before whom the proceeding was brought that the
Trust or the Advisor was liable for the damages claimed or (ii) in the
absence of such a decision, a reasonable determination based upon a
review of the facts, that the Trust or the Advisor was liable for the
damages claimed, which determination shall be made by either (a) the
vote of a majority of a quorum of Trustees of the Trust who are
neither "interested persons" of the Trust nor parties to the
proceeding ("disinterested non-party Trustees") or (b) an independent
legal counsel satisfactory to the parties hereto, whose determination
shall be set forth in a written opinion. The Sub-Advisor shall be
entitled to advances from the Trust for payment of the reasonable
expenses incurred by it in connection with the matter as to which it
is seeking indemnification in the manner and to the fullest extent
that would be permissible under the applicable provisions of the
General Corporation Law of Ohio. The Sub-Advisor shall provide to the
Trust a written affirmation of its good faith belief that the standard
of conduct necessary for indemnification under such law has been met
and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions
shall be met: (a) the Sub-Advisor shall provide security in form and
amount acceptable to the Trust for its undertaking; (b) the Trust is
insured against losses arising by reason of the advance; or (c) a
majority of a quorum of the Trustees of the Trust, the members of
which majority are disinterested non-party Trustees, or independent
legal counsel in a written opinion, shall have determined, based on a
review of facts readily available to the Trust at the time the advance
is proposed to be made, that there is reason to believe that the
Sub-Advisor will ultimately be found to be entitled to
indemnification.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
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8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
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<PAGE>
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be One Citicorp Center, 153 East 53rd Street,
New York, New York 10122.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
CREDIT SUISSE ASSET MANAGEMENT
Attest:
/s/ Michael A. Pignataro BY /s/ Hal Liebes
Name: Michael A. Pignataro Name: Hal Liebes
Title: Vice President Title: General Counsel
SUB-ADVISORY AGREEMENT
TOUCHSTONE GROWTH & INCOME FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone Growth & Income Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Advisor hereby represents that (i)
it has authority under the Advisory Agreement to appoint the Sub-Advisor to act
as an investment advisor to the Trust, and (ii) this Agreement is valid and
binding upon the Advisor. The Sub-Advisor hereby accepts such employment and
agrees during such period to render the services and to perform the duties
called for by this Agreement for the compensation herein provided. The
Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
<PAGE>
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities
will be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time reasonably request.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund in a manner comparable to the support
provided to comparable clients of the Sub-Advisor, including but not
limited to: (i) permission to use the Sub-Advisor's name as provided
in Section 6, (ii) permission to use the past performance and
investment history of the Sub-Advisor as the same is applicable to the
Fund, provided counsel to the Trust determine that the use of such
information and the manner of presentation of such information is
legally permissible, (iii) access to the individual(s) responsible for
day-to-day management of the Fund for marketing conferences,
teleconferences and other activities involving the promotion of the
Fund, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Sub-Advisor
and individual manager(s), and (v) with respect to clients whose names
are provided to the Advisor by the Sub-Advisor in writing prior to
use, permission to use the names of these clients, subject to any
restrictions imposed by clients on the use of such names or by the
Investment Advisors Act of 1940 and the rules adopted thereunder.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor shall seek to obtain the most favorable price
and execution available for the Fund, and in placing such orders the
Sub-Advisor may consider a number of factors, including, without
limitation, 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. The
Sub-Advisor is specifically authorized, to the extent authorized by
law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly and at such other times as reasonably requested by the
Board of Trustees, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
3
<PAGE>
d. The Sub-Advisor may execute standard account documentation,
agreements, contracts and other documents (collectively, the "Account
Documents") as the Sub-Advisor may be requested by brokers, dealers,
counterparties and other persons in connection with the Sub-Advisor's
management of the Fund Assets, provided that the Advisor and the
Trust's Board of Trustees first authorize the Sub-Advisor to execute
Account Documents. In such respect, and only for this limited purpose,
the Sub-Advisor shall act as the agent and/or attorney-in-fact of the
Trust and/or the Advisor.
e. The Advisor recognizes that, subject to the provisions of Section 2c,
Scudder Investor Services, Inc. or its successor ("SIS"), an affiliate
of the Sub-Advisor, may act as the regular broker for the Fund so long
as it is lawful for it so to act and that SIS may be a major recipient
of brokerage commissions paid by the Fund. SIS may effect securities
transactions for the Fund only if (i) the commissions, fees or other
remuneration received or to be received by it are reasonable and fair
compared to the commissions, fees or other remuneration received by
other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange
during a comparable period of time and (ii) the Trustees, including a
majority of those Trustees who are not interested persons, have
adopted procedures pursuant to Rule 17e-1 under the 1940 Act for
determining the permissible level of such commissions.
f. The Advisor understands that (i) when orders to purchase or sell the
same security on identical terms are placed by more than one of the
funds and/or other advisory accounts managed by the Sub-Advisor or its
affiliates, the transactions generally will be executed as received,
although a fund or advisory account that does not direct trades to a
specific broker ("free trades") usually will have its order executed
first, (ii) although all orders placed on behalf of the Fund will be
considered free trades, having an order placed first in the market
does not necessarily guarantee the most favorable price, and (iii)
purchases will be combined where possible for the purpose of
negotiating brokerage commissions, which in some cases might have a
detrimental effect on the price or volume of the security in a
particular transaction as far as the Fund is concerned.
g. The Sub-Advisor may enter into arrangements with other persons
affiliated with the Sub-Advisor for the provision of certain personnel
and facilities to the Sub-Advisor to better enable it to fulfill its
duties and obligations under this Agreement.
4
<PAGE>
h. In the event of any reorganization or other change in the Sub-Advisor,
its investment principals, supervisors or members of its investment
(or comparable) committee, the Sub-Advisor shall give the Advisor and
the Trust's Board of Trustees written notice of such reorganization or
change within a reasonable time (but not later than 30 days) after
such reorganization or change.
i. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
j. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to seek to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties undertaken
hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor
a monthly fee equal on an annual basis to 0.50% of the first $150
million of the average daily net assets of the Combined Funds, and
0.45% of such average daily net assets in excess of $150 million.
b. "Combined Funds," for purposes of this Section 3, means the combined
assets of the Fund and the Touchstone Growth & Income Fund of the
Touchstone Variable Series Trust, to which the Sub-Advisor also acts
as an investment advisor.
c. The fee of the Sub-Advisor hereunder shall be computed and accrued
daily and paid monthly. If the Sub-Advisor serves in such capacity for
less than the whole of any period specified in this Section 3a, the
fee to the Sub-Advisor shall be prorated. For purposes of calculating
the Sub-Advisor's fee, the daily value of the Combined Funds shall be
computed by the same method as the Trust and the Touchstone Variable
Series Trust use, respectively, to compute the net asset value of each
such Fund for purposes of purchases and redemptions of shares thereof.
d. The Sub-Advisor reserves the right to waive all or a part of its fees
hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. Furthermore, it is understood that the Sub-Advisor
may give advice, and take action, with respect to its other clients that may
5
<PAGE>
differ from the advice given, or the time and nature of the action taken, with
respect to the Fund. The Sub-Advisor will report to the Board of Trustees of the
Trust (at regular quarterly meetings and at such other times as such Board of
Trustees reasonably shall request) (i) the financial condition and prospects of
the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund
that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii)
information regarding any potential conflicts of interest arising by reason of
its continuing provision of advisory services to the Fund and to its other
accounts, and (iv) such other information as the Board of Trustees shall
reasonably request regarding the Fund, the Fund's performance, the performance
of other comparable accounts to whom the Sub-Advisor provides services and the
plans of, and the capability of, the Sub-Advisor with respect to providing
future services to the Fund and its other accounts. The Sub-Advisor agrees, on
an ongoing basis, to notify the Advisor of any change in the individual(s)
responsible for day-to-day management of the Fund and any material change in the
investment strategies employed by the Sub-Advisor in managing the Fund. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of investment opportunities among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
Nothing in this Agreement shall prevent the Sub-Advisor, any parent,
subsidiary or affiliate, or any director or officer thereof, from acting as
investment advisor for any other person, firm, or corporation, and shall not in
any way limit or restrict the Sub-Advisor or any of its directors, officers,
stockholders or employees from buying, selling or trading any securities or
commodities for its or their own account or for the account of others for whom
it or they may be acting, if such activities will not adversely affect or
otherwise impair the performance by the Sub-Advisor of its duties and
obligations under this Agreement. The Sub-Advisor will (i) supply to the
Advisor, upon the execution of this Agreement, with a true copy of its currently
effective Code of Ethics and policies regarding insider trading and (ii)
thereafter supply to Advisor copies of any amendments to or restatements of such
Code of Ethics or insider trading policies. The Sub-Advisor agrees to provide
the Advisor, on a quarterly basis, a report with respect to material violations
of the Sub-Advisor's Code of Ethics or insider trading policies by portfolio
6
<PAGE>
managers who have responsibility for managing the Fund or a written statement
indicating that no such violations have occurred during the quarter. In
addition, the Sub-Advisor agrees to provide to the Advisor such other
information concerning violations of its Code of Ethics or insider trading
policies to the same extent that it provides such information to the Boards of
Directors of its proprietary mutual funds. The parties agree to be bound by the
provisions of Rule 17j-1 under the 1940 Act as it may be amended to the extent
that the provisions of the Rule are stricter than the provisions of this
paragraph.
5. Provision of Information by the Advisor. To facilitate the
Sub-Advisor's fulfillment of its obligations under this Agreement, the Advisor
agrees (i) promptly to provide the Sub-Advisor with all amendments or
supplements to the Trust's registration statements, its Agreement and
Declaration of Trust, and its By-Laws, (ii) on an ongoing basis, to notify the
Sub-Advisor expressly in writing of each change in the fundamental and
nonfundamental investment policies of the Fund, (iii) to provide or cause to be
provided to the Sub-Advisor on an ongoing basis such assistance as may
reasonably be requested by the Sub-Advisor in connection with its activities
under this Agreement, including, without limitation, information concerning the
Fund, its available funds, or funds that may reasonably become available for
investment, and information as to the general condition of the Fund's affairs,
(iv) to provide or cause to be provided to the Sub-Advisor on an ongoing basis
such information as is reasonably requested by the Sub-Advisor for performance
by the Sub-Advisor of its obligations under this Agreement and the Sub-Advisor
shall not be in breach of any term of this Agreement or be deemed to have acted
negligently if such alleged breach or negligent act is the result of the
Advisor's failure to provide or cause to be provided such requested information
and the Sub-Advisor's reliance on the information most recently furnished to the
Sub-Advisor, and (v) promptly to provide the Sub-Advisor with any guidelines and
procedures applicable to the Sub-Advisor or the Fund adopted from time to time
by the Board of Trustees of the Trust and all amendments thereto.
6. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
7
<PAGE>
that in no event shall such approval be unreasonably withheld. Upon termination
of this Agreement, the Advisor and the Trust shall immediately cease to use the
name of the Sub-Advisor.
7. Limitation of Liability of the Sub-Advisor. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. The Sub-Advisor shall not be liable to the Advisor or the
Trust for any loss suffered as a consequence of any action or inaction of other
service providers to the Trust, provided such action or inaction of such other
service providers to the Fund is not a result of the willful misconduct, bad
faith or gross negligence in the performance of, or reckless disregard of, the
duties of the Sub-Advisor under this Agreement. As used in this Section 7, the
term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates
and the directors, officers and employees of the Sub-Advisor and/or any of its
affiliates.
8. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
9. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
10. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
8
<PAGE>
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. If this Agreement is not approved by the favorable vote of a majority
of the outstanding voting securities of the Fund by February 4, 1999,
it will terminate as of the close of business on the last day of such
period.
d. This Agreement will also terminate upon written notice to the other
party that the other party is in material breach of this Agreement,
unless the other party in material breach of this Agreement cures such
breach to the reasonable satisfaction of the party alleging the breach
within 30 days after the written notice.
e. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
f. The terms "affiliated persons," "assignment," "interested persons" and
"majority of the outstanding voting securities" shall have the meaning
set forth for such terms in Section 2(a) of the 1940 Act.
11. Severability and Incorporated Effect. If any provision of this
Agreement shall become or shall be found to be invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is relaxed by a rule, regulation or
order of the SEC, whether of specific or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
12. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
9
<PAGE>
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 345 Park Avenue, New York, New York 10154.
13. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio, or any applicable provisions of the
1940 Act. To the extent that the laws of the State of Ohio, or any of the
provisions in the Agreement, conflict with applicable provisions of the 1940
Act, the latter shall control. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
SCUDDER KEMPER INVESTMENTS, INC.
Attest:
/s/ Nicholas J. Griparich BY /s/ Cornelia Small
Name: Nicholas J. Griparich Name: Cornelia Small
Title: AVP Title: Managing Director
10
SUB-ADVISORY AGREEMENT
TOUCHSTONE VALUE PLUS FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT
WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone Value Plus Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
2
<PAGE>
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities
will be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5,
(ii) permission to use the past performance and investment history of
the Sub-Advisor as the same is applicable to the Fund, (iii) access to
the individual(s) responsible for day-to-day management of the Fund
for marketing conferences, teleconferences and other activities
involving the promotion of the Fund, subject to the reasonable request
of the Advisor, (iv) permission to use biographical and historical
data of the Sub-Advisor and individual manager(s), and (v) permission
to use the names of clients to which the Sub-Advisor provides
investment management services, subject to any restrictions imposed by
clients on the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
2
<PAGE>
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor's primary objective shall be to obtain the
most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, 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.
The Sub-Advisor is specifically authorized, to the extent authorized
by law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor,
its investment principals, supervisors or members of its investment
(or comparable) committee, the Sub-Advisor shall give the Advisor and
the Trust's Board of Trustees written notice of such reorganization or
change within a reasonable time (but not later than 30 days) after
such reorganization or change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to comply with the provisions of the
1940 Act and with Subchapter M of the Internal Revenue Code of 1986,
as amended.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties undertaken
hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor
a monthly fee equal on an annual basis to 0.45% of the average daily
net assets of the Fund. Such fee shall be computed and accrued daily.
If the Sub-Advisor serves in such capacity for less than the whole of
any period specified in this Section 3a, the compensation to the
Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees
hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
5
<PAGE>
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
6
<PAGE>
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 East 4th Street, Cincinnati, Ohio 45202.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
President
FORT WASHINGTON INVESTMENT
ADVISORS, INC.
By /s/ William F. Ledwin
Name: William F. Ledwin
Title: PresidenT
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE INCOME OPPORTUNITY FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
ALLIANCE CAPITAL MANAGEMENT, L.P., a limited partnership organized under the
laws of Delaware (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone Income Opportunity Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the
oversight responsibilities of the Advisor under the Advisory Agreement and of
the Trust's Board of Trustees under applicable law, for the period and on the
terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and
agrees during such period to render the services and to perform the duties
called for by this Agreement for the compensation herein provided. The
Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
<PAGE>
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and subject to the
oversight responsibilities of the Advisor under the Advisory Agreement
and of the Trust's Board of Trustees under applicable law, in each
case with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities
will be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5,
(ii) permission to use the past performance and investment history of
the Sub-Advisor as the same is applicable to the Fund, (iii) access to
the individual(s) responsible for day-to-day management of the Fund
for marketing conferences, teleconferences and other activities
involving the promotion of the Fund, subject to the reasonable request
of the Advisor, (iv) permission to use biographical and historical
data of the Sub-Advisor and individual manager(s), and (v) permission
to use the names of those clients to which the Sub-Advisor provides
investment management services, subject to receipt of the consent of
such clients to the use of their names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
2
<PAGE>
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor's primary objective shall be to obtain the
most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, 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.
The Sub-Advisor is specifically authorized, to the extent authorized
by law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization(s) or other change(s) in the
Sub-Advisor, its executive officers or members of its investment (or
comparable) committee that, individually or collectively, are likely
to have a material adverse effect on the ability of the Sub-Advisor to
manage the Fund or otherwise perform its obligations to the Advisor
and the Trust under this Agreement, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change. In addition, the
3
<PAGE>
Sub-Advisor will notify the Advisor of any change in membership of the
Sub-Advisor's general partners within a reasonable time (but not later
than 30 days) after such change.
e. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to comply with the provisions of the
1940 Act and with Subchapter M of the Internal Revenue Code of 1986,
as amended.
3. Compensation of the Sub-Advisor. As compensation for the services to
be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will
pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.40% of the
first $50 million of the average daily net assets of the Fund, 0.35% of the
average daily net assets of the Fund in excess of $50 million and up to $70
million and 0.30% of the average daily net assets of the Fund in excess of $70
million and up to $90 million and 0.25% of the average daily net assets of the
Fund in excess of $90 million. Such fee shall be computed and accrued daily. If
the Sub-Advisor serves in such capacity for less than the whole of any period
specified in this Section 3, the compensation to the Sub-Advisor shall be
prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of
the Fund's net assets shall be computed by the same method as the Trust uses to
compute the net asset value of the Fund for purposes of purchases and
redemptions of shares thereof.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the nature and amount of
transactions affecting the Fund that involve the Sub-Advisor and affiliates of
the Sub-Advisor, (ii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iii) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of investment opportunities among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
5
<PAGE>
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its assignment
(as defined below).
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment" and "majority of the outstanding voting
securities" shall have the meaning set forth for such terms in the
1940 Act.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
6
<PAGE>
address of the Sub-Advisor shall be 1345 Avenue of the Americas, New York, New
York 10105.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
ALLIANCE CAPITAL MANAGEMENT, L.P.
by ALLIANCE CAPITAL MANAGEMENT
CORP., General Partner
Attest:
/s/ David M. Lesser BY /s/ Mark B. Manley
Name: David M. Lesser Name: Mark B. Manley
Title: Administrative Officer Title: Assistant Secretary
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE BALANCED FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
OPCAP ADVISORS (the "Sub-Advisor"), a subsidiary of Oppenheimer Capital, a
Delaware general partnership.
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone Balanced Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
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or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities
will be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5,
(ii) permission to use the past performance and investment history of
the Sub-Advisor as the same is applicable to the Fund, (iii) access to
the individual(s) responsible for day-to-day management of the Fund
for marketing conferences, teleconferences and other activities
involving the promotion of the Fund, subject to the reasonable request
of the Advisor, (iv) permission to use biographical and historical
data of the Sub-Advisor and individual manager(s), and (v) permission
to use the names of clients to which the Sub-Advisor provides
investment management services, subject to any restrictions imposed by
clients on the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
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rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor's primary objective shall be to obtain the
most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, 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.
The Sub-Advisor is specifically authorized, to the extent authorized
by law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
d. The Advisor recognizes that, subject to the foregoing provisions of
this Section 2, an affiliate of the Sub-Advisor may act as the regular
broker for the Fund so long as it is lawful for it so to act and that
such affiliate may be a major recipient of brokerage commissions paid
by the Fund. Any such affiliate may effect securities transactions for
the Fund only if (1) the commissions, fees or other remuneration
received or to be received by it are reasonable and fair compared to
the commissions, fees or other remuneration received by other brokers
in connection with comparable transactions involving similar
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securities being purchased or sold on a securities exchange during a
comparable period of time and (2) the Trustees, including a majority
of those Trustees who are not interested persons, have adopted
procedures pursuant to Rule 17e-1 under the 1940 Act for determining
the permissible level of such commissions.
e. The Advisor understands that (i) when orders to purchase or sell the
same security on identical terms are placed by more than one of the
funds and/or other advisory accounts managed by the Sub-Advisor or its
affiliates, the transactions generally will be executed as received,
although a fund or advisory account that does not direct trades to a
specific broker ("free trades") usually will have its order executed
first, (ii) although all orders placed on behalf of the Fund will be
considered free trades, having an order placed first in the market
does not necessarily guarantee the most favorable price, and (iii)
purchases will be combined where possible for the purpose of
negotiating brokerage commissions, which in some cases might have a
detrimental effect on the price or volume of the security in a
particular transaction as far as the Fund is concerned.
f. In the event of any reorganization or other change in the Sub-Advisor,
its investment principals, supervisors or members of its investment
(or comparable) committee, the Sub-Advisor shall give the Advisor and
the Trust's Board of Trustees written notice of such reorganization or
change within a reasonable time (but not later than 30 days) after
such reorganization or change.
g. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
h. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to comply with the provisions of the
1940 Act and with Subchapter M of the Internal Revenue Code of 1986,
as amended.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties undertaken
hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor
a monthly fee equal on an annual basis to 0.60% of the first $20
million of the average daily net assets of the Combined Funds, 0.50%
of such average daily net assets in excess of $20 million and up to
$50 million and 0.40% of such average daily net assets in excess of
$50 million.
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b. "Combined Funds," for purposes of this Section 3, means the combined
assets of the Fund and the Touchstone Balanced Fund of the Touchstone
Variable Series Trust, to which fund the Sub-Advisor also acts as
an investment advisor.
c. The fee of the Sub-Advisor hereunder shall be computed and accrued
daily. If the Sub-Advisor serves in such capacity for less than the
whole of any period specified in Section 3a, the fee to the
Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the net assets of the Combined
Funds shall be computed by the same method as the Trust and Touchstone
Variable Series Trust use, respectively, to compute the net asset
value of each such Fund for purposes of purchases and redemptions of
shares thereof.
d. The Sub-Advisor reserves the right to waive all or a part of its fees
hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
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Nothing in this Agreement shall prevent the Sub-Advisor, any parent,
subsidiary or affiliate, or any director or officer thereof, from acting as
investment advisor for any other person, firm, or corporation, and shall not in
any way limit or restrict the Sub-Advisor or any of its directors, officers,
stockholders or employees from buying, selling or trading any securities or
commodities for its or their own account or for the account of others for whom
it or they may be acting, if such activities will not adversely affect or
otherwise impair the performance by the Sub-Advisor of its duties and
obligations under this Agreement. The Sub-Advisor will (i) supply to the
Advisor, upon execution of this Agreement, with a true copy of its currently
effective Code of Ethics and policies regarding insider trading and (ii)
thereafter supply to Advisor copies of any amendments to or restatements of such
Code of Ethics or insider trading policies, and (iii) report to the Board of
Trustees not less often than quarterly with respect to any violations of such
Code of Ethics or insider trading policies by persons covered thereby to the
extent that such violations involve the assets or activities of the Fund.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
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Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
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10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 225 Liberty Street, 16th Floor, New York,
New York 10281.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
OPCAP ADVISORS
Attest:
/s/ Thomas E. Duggan BY /s/ Bernard H. Garil
Name: Thomas E. Duggan Name: Bernard H. Garil
Title: Secretary Title: President
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SUB-ADVISORY AGREEMENT
TOUCHSTONE BOND FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT
WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone Bond Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
<PAGE>
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
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rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, 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. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer 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 or dealer 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. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
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e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.30% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
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It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor.
a. Absent willful misfeasance, bad faith, gross negligence, or reckless
disregard of obligations or duties hereunder on the part of the
Sub-Advisor, the Sub-Advisor shall not be subject to liability to the
Advisor, the Trust or to any shareholder in the Fund for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. As used in this Section 6, the term
"Sub-Advisor" shall include the Sub-Advisor and/or any of its
affiliates and the directors, officers and employees of the
Sub-Advisor and/or any of its affiliates.
b. The Advisor will indemnify the Sub-Advisor against, and hold it
harmless from, any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from acts or omissions of the Advisor and/or the Trust.
Indemnification shall be made only after: (i) a final decision on the
merits by a court or other body before whom the proceeding was brought
that the Trust or the Advisor was liable for the damages claimed or
(ii) in the absence of such a decision, a reasonable determination
based upon a review of the facts, that the Trust or the Advisor was
5
<PAGE>
liable for the damages claimed, which determination shall be made by
either (a) the vote of a majority of a quorum of Trustees of the Trust
who are neither "interested persons" of the Trust nor parties to the
proceeding ("disinterested non-party Trustees") or (b) an independent
legal counsel satisfactory to the parties hereto, whose determination
shall be set forth in a written opinion. The Sub-Advisor shall be
entitled to advances from the Trust for payment of the reasonable
expenses incurred by it in connection with the matter as to which it
is seeking indemnification in the manner and to the fullest extent
that would be permissible under the indemnification provisions of the
General Corporation Law of Ohio. The Sub-Advisor shall provide to the
Trust a written affirmation of its good faith belief that the standard
of conduct necessary for indemnification under such law has been met
and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions
shall be met: (a) the Sub-Advisor shall provide security in form and
amount acceptable to the Trust for its undertaking; (b) the Trust is
insured against losses arising by reason of the advance; or (c) a
majority of a quorum of the Trustees of the Trust, the members of
which majority are disinterested non-party Trustees, or independent
legal counsel in a written opinion, shall have determined, based on a
review of facts readily available to the Trust at the time the advance
is proposed to be made, that there is reason to believe that the
Sub-Advisor will ultimately be found to be entitled to
indemnification.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
6
<PAGE>
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 East 4th Street, Cincinnati, Ohio 45202.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
President
FORT WASHINGTON INVESTMENT
ADVISORS, INC.
By /s/ William F. Ledwin
Name: William F. Ledwin
Title: President
8
SUB-ADVISORY AGREEMENT
TOUCHSTONE STANDBY INCOME FUND
TOUCHSTONE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT
WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Series Trust (formerly Select Advisors Trust A) (the "Trust"), a Massachusetts
business trust organized pursuant to a Declaration of Trust dated February 7,
1994 and registered as an open-end diversified management investment company
under the Investment Company Act of 1940 (the "1940 Act"), to provide investment
advisory services to the Touchstone Standby Income Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Sub-Advisor. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
<PAGE>
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
2. Duties of the Sub-Advisor. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the
investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities
will be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to
the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5,
(ii) permission to use the past performance and investment history of
the Sub-Advisor as the same is applicable to the Fund, (iii) access to
the individual(s) responsible for day-to-day management of the Fund
for marketing conferences, teleconferences and other activities
involving the promotion of the Fund, subject to the reasonable request
of the Advisor, (iv) permission to use biographical and historical
data of the Sub-Advisor and individual manager(s), and (v) permission
to use the names of clients to which the Sub-Advisor provides
investment management services, subject to any restrictions imposed by
clients on the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
2
<PAGE>
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor's primary objective shall be to obtain the
most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, 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.
The Sub-Advisor is specifically authorized, to the extent authorized
by law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer 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 or dealer 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. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor,
its investment principals, supervisors or members of its investment
(or comparable) committee, the Sub-Advisor shall give the Advisor and
the Trust's Board of Trustees written notice of such reorganization or
change within a reasonable time (but not later than 30 days) after
such reorganization or change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken
by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to comply with the provisions of the
1940 Act and with Subchapter M of the Internal Revenue Code of 1986,
as amended.
3. Compensation of the Sub-Advisor.
a. As compensation for the services to be rendered and duties undertaken
hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor
a monthly fee equal on an annual basis to 0.15% of the average daily
net assets of the Fund. Such fee shall be computed and accrued daily.
If the Sub-Advisor serves in such capacity for less than the whole of
any period specified in this Section 3a, the compensation to the
Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees
hereunder.
4. Activities of the Sub-Advisor. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Sub-Advisor.
a. Absent willful misfeasance, bad faith, gross negligence, or reckless
disregard of obligations or duties hereunder on the part of the
Sub-Advisor, the Sub-Advisor shall not be subject to liability to the
Advisor, the Trust or to any shareholder in the Fund for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. As used in this Section 6, the term
"Sub-Advisor" shall include the Sub-Advisor and/or any of its
affiliates and the directors, officers and employees of the
Sub-Advisor and/or any of its affiliates.
b. The Advisor will indemnify the Sub-Advisor against, and hold it
harmless from, any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from acts or omissions of the Advisor and/or the Trust.
Indemnification shall be made only after: (i) a final decision on the
merits by a court or other body before whom the proceeding was brought
that the Trust or the Advisor was liable for the damages claimed or
(ii) in the absence of such a decision, a reasonable determination
based upon a review of the facts, that the Trust or the Advisor was
5
<PAGE>
liable for the damages claimed, which determination shall be made by
either (a) the vote of a majority of a quorum of Trustees of the Trust
who are neither "interested persons" of the Trust nor parties to the
proceeding ("disinterested non-party Trustees") or (b) an independent
legal counsel satisfactory to the parties hereto, whose determination
shall be set forth in a written opinion. The Sub-Advisor shall be
entitled to advances from the Trust for payment of the reasonable
expenses incurred by it in connection with the matter as to which it
is seeking indemnification in the manner and to the fullest extent
that would be permissible under the indemnification provisions of the
General Corporation Law of Ohio. The Sub-Advisor shall provide to the
Trust a written affirmation of its good faith belief that the standard
of conduct necessary for indemnification under such law has been met
and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions
shall be met: (a) the Sub-Advisor shall provide security in form and
amount acceptable to the Trust for its undertaking; (b) the Trust is
insured against losses arising by reason of the advance; or (c) a
majority of a quorum of the Trustees of the Trust, the members of
which majority are disinterested non-party Trustees, or independent
legal counsel in a written opinion, shall have determined, based on a
review of facts readily available to the Trust at the time the advance
is proposed to be made, that there is reason to believe that the
Sub-Advisor will ultimately be found to be entitled to
indemnification.
7. Limitation of Trust's Liability. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, until December 31, 1999; and it shall continue
6
<PAGE>
thereafter provided that such continuance is specifically approved by
the parties and, in addition, at least annually by (i) the vote of the
holders of a majority of the outstanding voting securities (as herein
defined) of the Fund or by vote of a majority of the Trust's Board of
Trustees and (ii) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of either the
Advisor or the Sub-Advisor, cast in person at a meeting called for the
purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any
penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund,
in any such case upon not less than 60 days' prior written notice to
the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required
by applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 East 4th Street, Cincinnati, Ohio 45202.
12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
President
FORT WASHINGTON INVESTMENT
ADVISORS, INC.
By William F. Ledwin
Name: William F. Ledwin
Title: President
8
CUSTODIAN AGREEMENT
AGREEMENT made as of this 17th day of March, 1999, between Touchstone
Series Trust, a Massachusetts business trust (the "Fund"), and Investors Bank &
Trust Company, a Massachusetts trust company (the "Bank").
The Fund, on behalf of the portfolios/series listed on Appendix A
hereto (as such Appendix A may be amended from time to time) (each a "Portfolio"
and collectively, the "Portfolios"), desires to place and maintain all of its
portfolio securities and cash in the custody of the Bank. The Bank has at least
the minimum qualifications required by Section 17(f)(1) of the Investment
Company Act of 1940 (the "1940 Act") to act as custodian of the portfolio
securities and cash of the Fund, and has indicated its willingness to so act,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank
as hereinafter described and the Bank agrees to act as such upon the
terms and conditions hereinafter set forth. For the services rendered
pursuant to this Agreement the Fund agrees to pay to the Bank the fees
set forth on Appendix B hereto.
2. Definitions. Whenever used herein, the terms listed below will have
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on
behalf of the Fund by appropriate resolution of its Board, and
set forth in a certificate as required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as
amended, including, without limitation, any note, stock, treasury
stock, bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit sharing agreement,
collateral-trust certificate, preorganization 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, any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities
(including any interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to a foreign currency,
or, in general, any interest or instrument commonly known as a
"security", or any certificate of interest or participation in,
temporary or interim certificate for, receipt for, guarantee of,
or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward
contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security
owned by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or
certification in writing signed by any two Authorized Persons of
the Fund.
<PAGE>
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States
government, instrumentality and agency securities operated by the
Federal Reserve Bank, its successor or successors and its nominee
or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange
Act of 1934 ("Exchange Act"), its successor or successors and its
nominee or nominees. The term "Depository" shall further mean and
include any other person authorized to act as a depository under
the 1940 Act, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a
resolution of the Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio
Securities, and payments and deliveries in connection therewith,
given by an Authorized Person, such instructions to be given in
such form and manner as the Bank and the Fund shall agree upon
from time to time, and (ii) instructions (which may be continuing
instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper
Instructions if the Bank reasonably believes them to have been
given by an Authorized Person. The Fund shall cause all oral
instructions to be promptly confirmed in writing. The Bank shall
act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank
with respect to any follow-up or confirmatory instruction shall
be to make reasonable efforts to detect any discrepancy between
the original instruction and such confirmation and to report such
discrepancy to the Fund. The Fund shall be responsible, at the
Fund's expense, for taking any action, including any
reprocessing, necessary to correct any such discrepancy or error,
and to the extent such action requires the Bank to act, the Fund
shall give the Bank specific Proper Instructions as to the action
required. Upon receipt by the Bank of an Officers' Certificate as
to the authorization by the Board accompanied by a detailed
description of procedures approved by the Fund, Proper
Instructions may include communication effected directly between
electro-mechanical or electronic devices provided that the Board
and the Bank agree in writing that such procedures afford
adequate safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such
series or portfolio containing the assets of such series or portfolio
(and all investment earnings thereon). Unless the context otherwise
requires, any reference in this Agreement to any actions to be taken
by the Fund shall be deemed to refer to the Fund acting on behalf of
one or more of its series, any reference in this Agreement to any
assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the
Bank hereunder to the Fund shall be deemed to refer to duties and
obligations with respect to such individual series and any obligation
or liability of the Fund hereunder shall be binding only with respect
to such individual series, and shall be discharged only out of the
assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank
his or her certification to the Bank, in such form as may be
acceptable to the Bank, of (i) the names and signatures of the
Authorized Persons and (ii) the names of the members of the Board, it
being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file
(including without limitation any person named in the most recent
certification who is no longer an Authorized Person as designated
therein), the Secretary or Assistant Secretary of the Fund will sign a
new or amended certification setting forth the change and the new,
additional or omitted names or signatures. The Bank will be entitled
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to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in
the name of the Bank, as Custodian of the Fund, and will deposit to
the account of the Fund all of the cash of the Fund, except for cash
held by a subcustodian appointed pursuant to Sections 14.2 or 14.3
hereof, including borrowed funds, delivered to the Bank, subject only
to draft or order by the Bank acting pursuant to the terms of this
Agreement. Pursuant to the Bank's internal policies regarding the
management of cash accounts, the Bank may segregate certain portions
of the cash of the Fund into a separate savings deposit account upon
which the Bank reserves the right to require seven (7) days notice
prior to withdrawal of cash from such an account. Upon receipt by the
Bank of Proper Instructions (which may be continuing instructions) or
in the case of payments for redemptions and repurchases of outstanding
shares of common stock of the Fund, notification from the Fund's
transfer agent as provided in Section 7, requesting such payment,
designating the payee or the account or accounts to which the Bank
will release funds for deposit, and stating that it is for a purpose
permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts
of the Fund, insofar as funds are available for that purpose, only as
permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the
Bank or against delivery of such securities to the Bank in
accordance with generally accepted settlement practices and
customs in the jurisdiction or market in which the transaction
occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a
nominee of the Bank, or receipt for the account of the Bank
pursuant to the provisions of Section 6 below, each such payment
to be made at the purchase price shown on a broker's confirmation
(or transaction report in the case of Book Entry Paper (as that
term is defined in Section 6.6 hereof)) of purchase of the
securities received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank before
such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
repurchase or redemption of common shares of the Fund offered for
repurchase or redemption in accordance with Section 7 of this
Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the
account of the Fund of dividends or other distributions to
shareholders as may from time to time be declared by the Board,
interest, taxes, management or supervisory fees, distribution
fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as
provided hereunder, fees of any transfer agent, fees for legal,
accounting, and auditing services, or other operating expenses of
the Fund.
5.4 Payment in Respect of Securities. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or
securities subscribed to by the Fund held by or to be delivered
to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the
Bank of any Portfolio Securities pledged or hypothecated therefor
and upon surrender of documents evidencing the loan;
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5.6 Repayment of Cash. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the
Fund certificates borrowed from the Fund representing Portfolio
Securities, but only upon redelivery to the Bank of such borrowed
certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot
and future delivery (collectively, "Foreign Exchange
Agreements")which may be entered into by the Bank on behalf
of the Fund upon the receipt of Proper Instructions, such
Proper Instructions to specify the currency broker or
banking institution (which may be the Bank, or any other
subcustodian or agent hereunder, acting as principal) with
which the contract or option is made, and the Bank shall
have no duty with respect to the selection of such currency
brokers or banking institutions with which the Fund deals or
for their failure to comply with the terms of any contract
or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank
pursuant to Proper Instructions, the Fund agrees that the
Bank shall have a continuing lien and security interest, to
the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the
Bank for the Fund's benefit or in which the Fund has an
interest and which is then in the Bank's possession or
control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank,
in the Bank's sole discretion, at any time to charge any
such payment due under any Foreign Exchange Agreement
against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper
Fund purposes; provided that before making any such payment the
Bank will also receive a certified copy of a resolution of the
Board signed by an Authorized Person (other than the Person
certifying such resolution) and certified by its Secretary or
Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for
which payment is to be made and declaring it to be an authorized
transaction of the Fund, or specifying the amount of the
obligation for which payment is to be made, setting forth the
purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 16 of
this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided
herein, and except for securities to be delivered to any
subcustodian appointed pursuant to Sections 14.2 or 14.3 hereof,
the Bank as custodian will receive and hold pursuant to the
provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons,
any and all Portfolio Securities which may now or hereafter be
delivered to it by or for the account of the Fund. All such
Portfolio Securities will be held or disposed of by the Bank for,
and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific
provisions herein relating to Portfolio Securities that are not
physically held by the Bank, the Bank will register all Portfolio
Securities (unless otherwise directed by Proper Instructions or
an Officers' Certificate), in the name of a registered nominee of
the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, and
will execute and deliver all such certificates in connection
therewith as may be required by such laws or regulations or under
the laws of any state.
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The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except
in accordance with Proper Instructions or an Officers'
Certificate. The Bank will execute and deliver, or cause to be
executed and delivered, to the Fund all notices, proxies and
proxy soliciting materials delivered to the Bank with respect to
such Securities, such proxies to be executed by the registered
holder of such Securities (if registered otherwise than in the
name of the Fund), but without indicating the manner in which
such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a
corporate action (a "Corporate Action") that affects the rights,
privileges, powers, preferences, qualifications or ownership of a
Portfolio Security, including without limitation, liquidation,
consolidation, merger, recapitalization, reorganization,
reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response
or action on the part of the holder of such Portfolio Security (a
"Response"), the Bank shall notify the Fund promptly of the
Corporate Action, the Response required in connection with the
Corporate Action and the Bank's deadline for receipt from the
Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier
and/or overnight courier all notices, information statements or
other materials relating to the Corporate Action promptly after
receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund no
later than 5:00 p.m. on the date specified as the Response
Deadline and only if the Bank (or its agent or subcustodian
hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00
p.m. on the date specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response
if Proper Instructions relating to such Response and all
necessary Securities, consents and other materials are not
received by and in the possession of the Bank no later than
5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use
its best efforts to act upon a Response for which Proper
Instructions and/or necessary Securities, consents or other
materials are received by the Bank after 5:00 p.m. on the
date specified as the Response Deadline, it being
acknowledged and agreed by the parties that any undertaking
by the Bank to use its best efforts in such circumstances
shall in no way create any duty upon the Bank to complete
such Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no
other notice of such Corporate Action, the Response Deadline
shall be 48 hours prior to the Response expiration time set
by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a
Selected Foreign Sub-Custodian.
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6.4 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits
of Fund assets in the Book-Entry System, and (ii) for any
subsequent changes to such arrangements following such approval,
the Board has reviewed and approved the arrangement and has not
delivered an Officer's Certificate to the Bank indicating that
the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are
represented in an account ("Account") of the Bank (or its
agent) in such System which shall not include any assets of
the Bank (or such agent) other than assets held as a
fiduciary, custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through
the Bank (or any such agent) will identify by book entry the
Portfolio Securities which are included with other
securities deposited in the Account and shall at all times
during the regular business hours of the Bank (or such
agent) be open for inspection by duly authorized officers,
employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by
book entry or otherwise, identify as belonging to the Fund a
quantity of securities in a fungible bulk of securities (i)
registered in the name of the Bank or its nominee, or (ii)
shown on the Bank's account on the books of the Federal
Reserve Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral
against the return of Portfolio Securities loaned by the
Fund upon (i) receipt of advice from the Book-Entry System
that such Securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Bank
(or its agent) to reflect such payment and transfer for the
account of the Fund. The Bank (or its agent) shall transfer
securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial
cash collateral against the delivery of securities
loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the
Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be
maintained for the Fund by the Bank and shall be
provided to the Fund at its request. The Bank shall
send the Fund a confirmation, as defined by Rule 17f-4
of the 1940 Act, of any transfers to or from the
account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically
approving deposits in DTC or other such Depository and (ii) for
any subsequent changes to such arrangements following such
approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating
that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio
Securities including stock dividends, rights and other items
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of like nature, and to receive and remit to the Bank on
behalf of the Fund all income and other payments thereon and
to take all steps necessary and proper in connection with
the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for
transactions of participants acting through it. Upon any
purchase of Portfolio Securities, payment will be made only
upon delivery of the securities to or for the account of the
Fund and the Fund shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund only upon
delivery of the Securities to or for the account of the
Fund; and upon any sale of Portfolio Securities, delivery of
the Securities will be made only against payment therefor
or, in the event Portfolio Securities are loaned, delivery
of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund;
and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such
Security is lost, destroyed, wrongfully taken or
otherwise not available to be returned to the Bank upon
its request;
(ii) Proxy materials received by a Depository with respect
to Portfolio Securities deposited with such Depository
are forwarded immediately to the Bank for prompt
transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio
Securities and of the appropriate book entry made by
such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's
obligations and duties hereunder as may be necessary
for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule
31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by
an independent public accountant, as well as such other
reports as the Fund may reasonably request in order to
verify the Portfolio Securities held by such
Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board
specifically approving participation in a system maintained by
the Bank for the holding of commercial paper in book-entry form
("Book-Entry Paper") and (ii) for each year following such
approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of
confirmation from an Issuer (as defined below) that the Fund has
purchased such Issuer's Book-Entry Paper, the Bank shall issue
and hold in book-entry form, on behalf of the Fund, commercial
paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures
for Book-Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by
it for customers;
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(b) The records of the Bank with respect to the Fund's purchase
of Book-Entry Paper through the Bank will identify, by
book-entry, commercial paper belonging to the Fund which is
included in the Book-Entry System and shall at all times
during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents
of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of
advice from the Issuer that such sale of Book-Entry Paper
has been effected, and (ii) the making of an entry on the
records of the Bank to reflect such payment and transfer for
the account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of
advice that payment for such Book-Entry Paper has been
transferred to the Fund, and (ii) the making of an entry on
the records of the Bank to reflect such payment for the
account of the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry
Paper as the Fund may reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has
received a certified copy of a resolution of the Board
specifically approving the maintenance of Portfolio Securities in
an immobilization program operated by a bank which meets the
requirements of Section 26(a)(1) of the 1940 Act, and (ii) for
each year following such approval the Board has reviewed and
approved the arrangement and has not delivered an Officer's
Certificate to the Bank indicating that the Board has withdrawn
its approval, the Bank shall enter into such immobilization
program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European
Branch"), provided that such Portfolio Securities are identified
on the books of the Bank as belonging to the Fund and that the
books of the Bank identify the European Branch holding such
Portfolio Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence
of this subsection 6.8, the Bank shall be under no other duty
with respect to such Eurodollar CDs belonging to the Fund.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written)
by the Fund regarding escrow or other arrangements (i)
in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions among
the Bank, any broker-dealer registered with the
National Association of Securities Dealers, Inc. (the
"NASD"), and, if necessary, the Fund, relating to the
compliance with the rules of the Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the
Fund has deposited or is maintaining adequate margin,
if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation
to present such option to the broker for exercise
unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality
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of any put or call purchased or sold on behalf of the
Fund, the propriety of any such purchase or sale, or
the adequacy of any collateral delivered to a broker in
connection with an option or deposited to or withdrawn
from a Segregated Account (as defined in subsection
6.10 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation
to: (i) periodically check or notify the Fund that the
amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker
or the Fund against any loss; (ii) effect the return of
any collateral delivered to a broker; or (iii) advise
the Fund that any option it holds, has or is about to
expire. Such duties or obligations shall be the sole
responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the
Fund in accordance with the provisions of any agreement
entered into upon the receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission
Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding
account deposits in connection with transactions by the
Fund.
(ii) The responsibilities of the Bank as to futures, puts
and calls traded on commodities exchanges, any Futures
Commission Merchant account and the Segregated Account
shall be limited as set forth in subparagraph (a)(ii)
of this Section 6.9 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and
Futures and puts and calls thereon instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or
Accounts for and on behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in
the following circumstances:
(i) in accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer registered
under the Exchange Act and a member of the NASD or any
Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation and of any
registered national securities exchange or the
Commodity Futures Trading Commission or any registered
Contract Market, or of any similar organizations
regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the
Fund or commodity futures purchased or written by the
Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt
obligations, having a market value (marked to market on
a daily basis) at all times equal to not less than the
aggregate purchase price due on the settlement dates of
all the Fund's then outstanding forward commitment or
"when-issued" agreements relating to the purchase of
Portfolio Securities and all the Fund's then
outstanding commitments under reverse repurchase
agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the
maintenance of Segregated Accounts by registered
investment companies;
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(v) for other proper corporate purposes, but only, in the
case of this clause (v), upon receipt of, in addition
to Proper Instructions, a certified copy of a
resolution of the Board, or of the executive committee
of the Board signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such
Segregated Account and declaring such purposes to be
proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the
following circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or
(a)(ii) above, in accordance with the provisions of
such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii)
or (a)(iv) above, for sale or delivery to meet the
Fund's obligations under outstanding forward commitment
or when-issued agreements for the purchase of Portfolio
Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase
of portfolio securities or reverse repurchase
agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund
other than those in the Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio
Securities; or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account
as set forth in Proper Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the
Fund of interest-bearing fixed-term and call deposits, transfer
cash, by wire or otherwise, in such amounts and to such bank or
banks as shall be indicated in such Proper Instructions. The Bank
shall include in its records with respect to the assets of the
Fund appropriate notation as to the amount of each such deposit,
the banking institution with which such deposit is made (the
"Deposit Bank"), and shall retain such forms of advice or receipt
evidencing the deposit, if any, as may be forwarded to the Bank
by the Deposit Bank. Such deposits shall be deemed Portfolio
Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's
responsibility in respect of other Portfolio Securities of the
Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as
such Securities are available for such purpose, provided that
before making any transfer, exchange, delivery or release under
this Section only upon receipt of Proper Instructions. The Proper
Instructions shall state that such transfer, exchange or delivery
is for a purpose permitted under the terms of this Section 6.12,
and shall specify the applicable subsection, or describe the
purpose of the transaction with sufficient particularity to
permit the Bank to ascertain the applicable subsection. After
receipt of such Proper Instructions, the Bank will transfer,
exchange, deliver or release Portfolio Securities only in the
following circumstances:
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(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment
therefor in full, or against payment to the Bank in
accordance with generally accepted settlement practices and
customs in the jurisdiction or market in which the
transaction occurs, each such payment to be in the amount of
the sale price shown in a broker's confirmation of sale
received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank
before such payment is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of
merger, consolidation, reorganization, share split-up,
change in par value, recapitalization or readjustment or
otherwise, upon exercise of subscription, purchase or sale
or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the
event of a tender offer therefor, provided, however, that in
the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery
of Portfolio Securities, the Bank shall have no liability
for failure to so tender in a timely manner unless such
Proper Instructions are received by the Bank at least two
business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has
actual possession of such Security at least two business
days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans
made to the Fund by any bank, including the Bank; provided,
however, that such Portfolio Securities will be released
only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in
cases where additional collateral is required to secure a
borrowing already made, and such fact is made to appear in
the Proper Instructions, Portfolio Securities may be
released for that purpose without any such payment. In the
event that any pledged Portfolio Securities are held by the
Bank, they will be so held for the account of the lender,
and after notice to the Fund from the lender in accordance
with the normal procedures of the lender and any loan
agreement between the fund and the lender that an event of
deficiency or default on the loan has occurred, the Bank may
deliver such pledged Portfolio Securities to or for the
account of the lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the
Bank of the fair market value of such security, as set forth
in the Proper Instructions received by the Bank before such
payment is made;
(i) for the purpose of delivering securities lent by the Fund to
a bank or broker dealer, but only against receipt in
accordance with street delivery custom except as otherwise
provided herein, of adequate collateral as agreed upon from
time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating
to such securities entered into by the Fund;
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(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such
transfer, the Bank will also receive a certified copy of
resolutions of the Board, signed by an authorized officer of
the Fund (other than the officer certifying such resolution)
and certified by its Secretary or Assistant Secretary,
specifying the Portfolio Securities to be delivered, setting
forth the transaction in or purpose for which such delivery
is to be made, declaring such transaction to be an
authorized transaction of the Fund or such purpose to be a
proper corporate purpose, and naming the person or persons
to whom delivery of such securities shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of
outstanding common shares, the Bank will rely on notification by the
Fund's transfer agent of receipt of a request for redemption and
certificates, if issued, in proper form for redemption before such
payment is made. Payment shall be made in accordance with the Articles
of Incorporation or Declaration of Trust and By-laws of the Fund (the
"Articles"), from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the
merger of the Fund into or the consolidation of the Fund with another
investment company, the sale by the Fund of all, or substantially all,
of its assets to another investment company, or the liquidation or
dissolution of the Fund and distribution of its assets, the Bank will
deliver the Portfolio Securities held by it under this Agreement and
disburse cash only upon the order of the Fund set forth in an
Officers' Certificate, accompanied by a certified copy of a resolution
of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the
fees through the end of the then current term of this Agreement,
disbursements and expenses of the Bank, this Agreement will terminate
and the Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an
Officers' Certificate to the contrary, the Bank will take the
following actions without prior authorization or instruction of the
Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or
transferable instruments or other orders for the payment of money
received by it for the account of the Fund and hold for the
account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio
Securities held thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon
presentation and hold the cash received by it upon such payment
for the account of the Fund;
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9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of
a stock dividend, share split-up, reorganization,
recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect
to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal
Revenue Code or the regulations of the Treasury Department issued
thereunder, or by the laws of any state, now or hereafter in
effect, inserting the Fund's name on such certificates as the
owner of the securities covered thereby, to the extent it may
lawfully do so and as may be required to obtain payment in
respect thereof. The Bank will execute and deliver such
certificates in connection with Portfolio Securities delivered to
it or by it under this Agreement as may be required under the
provisions of the Internal Revenue Code and any Regulations of
the Treasury Department issued thereunder, or under the laws of
any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash
received by it upon payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible
arising from Portfolio Securities, including dividends, interest and
other income, and to transmit to the Fund notice actually received by
it of any call for redemption, offer of exchange, right of
subscription, reorganization or other proceedings affecting such
Securities. If Portfolio Securities upon which such income is payable
are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to
pay within two business days from the day on which it receives
knowledge of such default or refusal.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in
compliance with the applicable rules and regulations of the 1940 Act.
The books and records of the Bank pertaining to its actions under this
Agreement and reports by the Bank or its independent accountants
concerning its accounting system, procedures for safeguarding
securities and internal accounting controls will be open to inspection
and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in
accordance with the applicable rules and regulations under the 1940
Act.
The Bank shall perform fund accounting and shall keep the books of
account and render statements or copies from time to time as reasonably
requested by the Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of regular
trading on the New York Stock Exchange on each day on which said
Exchange is open for unrestricted trading and as of such other
days, or hours, if any, as may be authorized by the Board, the
net asset value and the public offering price of a share of
capital stock of the Fund, such determination to be made in
accordance with the provisions of the Articles and By-laws of the
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Fund and the Prospectus and Statement of Additional Information
relating to the Fund, as they may from time to time be amended,
and any applicable resolutions of the Board at the time in force
and applicable; and promptly to notify the Fund, the proper
exchange and the NASD or such other persons as the Fund may
request of the results of such computation and determination. In
computing the net asset value hereunder, the Bank may rely in
good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities
of the Fund and in respect of liabilities of the Fund not
appearing on its books of account kept by the Bank, (ii)
reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations
to be used in computing the net asset value, (iv) the value to be
assigned to any security for which no price quotations are
available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares,
and the Bank shall not be responsible for any loss occasioned by
such reliance or for any good faith reliance on any quotations
received from a source pursuant to (iii) above.
12.2. Yield Calculation. The Bank will compute the performance results
of the Fund (the "Yield Calculation") in accordance with the
provisions of Release No. 33-6753 and Release No. IC-16245
(February 2, 1988) (the "Releases") promulgated by the Securities
and Exchange Commission, and any subsequent amendments to,
published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect
to such releases or the subject matter thereof ("Subsequent Staff
Positions"), subject to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund
for the stated periods of time as shall be mutually agreed
upon, and communicate in a timely manner the result of such
computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive
the items of data necessary for the computation from the
records it generates and maintains for the Fund pursuant
Section 11 hereof. The Bank shall have no responsibility to
review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data
supplied to it by the Fund, any of the Fund's designated
agents or any of the Fund's designated third party
providers.
(c) At the request of the Bank, the Fund shall provide, and the
Bank shall be entitled to rely on, written standards and
guidelines to be followed by the Bank in interpreting and
applying the computation methods set forth in the Releases
or any Subsequent Staff Positions as they specifically apply
to the Fund. In the event that the computation methods in
the Releases or the Subsequent Staff Positions or the
application to the Fund of a standard or guideline is not
free from doubt or in the event there is any question of
interpretation as to the characterization of a particular
security or any aspect of a security or a payment with
respect thereto (e.g., original issue discount,
participating debt security, income or return of capital,
etc.) or otherwise or as to any other element of the
computation which is pertinent to the Fund, the Fund or its
designated agent shall have the full responsibility for
making the determination of how the security or payment is
to be treated for purposes of the computation and how the
computation is to be made and shall inform the Bank thereof
on a timely basis. The Bank shall have no responsibility to
make independent determinations with respect to any item
which is covered by this Section, and shall not be
responsible for its computations made in accordance with
such determinations so long as such computations are
mathematically correct.
(d) The Fund shall keep the Bank informed of all publicly
available information and of any non-public advice, or
information obtained by the Fund from its independent
auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to
the computations to be undertaken by the Bank pursuant to
this Agreement and the Bank shall not be deemed to have
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knowledge of such information (except as contained in the
Releases) unless it has been furnished to the Bank in
writing.
13. Additional Services. The Bank shall perform the additional services
for the Fund as are set forth on Appendix C hereto. Appendix C may be
amended from time to time upon agreement of the parties to include
further additional services to be provided by the Bank to the Fund, at
which time the fees set forth in Appendix B shall be appropriately
increased.
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule
hereto, if any, the Bank will be entitled to receive and act upon
the advice of independent counsel of its own selection, which may
be counsel for the Fund, and will be without liability for any
action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and
will not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases
thereof or the propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the
same are sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received
therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund
or the legality of the distribution of any Portfolio
Securities as payment in kind of such dividend; and
(f) any property or moneys of the Fund unless and until received
by it, and any such property or moneys delivered or paid by
it pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund
Held in the United States. The Bank may employ agents of its own
selection in the performance of its duties hereunder and shall be
responsible for the acts and omissions of such agents as if
performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or
more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Fund, provided that any such subcustodian
meets at least the minimum qualifications required by Section 17(f)(1) of the
1940 Act to act as a custodian of the Fund's assets with respect to property of
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the Fund held in the United States. The Bank shall have no liability to the Fund
or any other person by reason of any act or omission of any such subcustodian
and the Fund shall indemnify the Bank and hold it harmless from and against any
and all actions, suits and claims, arising directly or indirectly out of the
performance of any subcustodian. Upon request of the Bank, the Fund shall assume
the entire defense of any action, suit, or claim subject to the foregoing
indemnity. The Fund shall pay all fees and expenses of any subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Custody Manager.
(i) If the Fund has appointed the Bank Foreign Custody
Manager (as that term is defined in Rule 17f-5 under
the 1940 Act), the Bank's duties and obligations with
respect to the Fund's Portfolio Securities and other
assets maintained outside the United States shall be,
to the extent not set forth herein, as set forth in the
Delegation Agreement between the Fund and the Bank (the
"Delegation Agreement").
(ii) If the Fund has appointed any other person or entity
Foreign Custody Manager, the Bank shall act only upon
Proper Instructions from the Fund with regard to any of
the Fund's Portfolio Securities or other assets held or
to be held outside of the United States, and the Bank
shall be without liability for any Claim (as that term
is defined in Section 15 hereof) arising out of
maintenance of the Fund's Portfolio Securities or other
assets outside of the United States. The Fund also
agrees that it shall enter into a written agreement
with such Foreign Custody Manager that shall obligate
such Foreign Custody Manager to provide to the Bank in
a timely manner all information required by the Bank in
order to complete its obligations hereunder. The Bank
shall not be liable for any Claim arising out of the
failure of such Foreign Custody Manager to provide such
information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio
Securities held by each foreign sub-custodian (each an
"Eligible Foreign Custodian") selected by the Foreign
Custody Manager, subject to receipt by the Bank of the
necessary information from such Eligible Foreign Custodian
if the Foreign Custody Manager is not the Bank.
(c) Access of Independent Accountants of the Fund. If the Bank
is the Fund's Foreign Custody Manager, upon request of the
Fund, the Bank will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to
the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such
books and records relate to the performance of such foreign
banking institution with regard to the Fund's Portfolio
Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
Manager, the Bank will supply to the Fund the reports
required under the Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by an Eligible
Foreign Custodian shall be effected pursuant to Proper
Instructions from the Fund to the Bank and shall be effected
in accordance with the applicable agreement between the
Foreign Custody Manager and such Eligible Foreign Custodian.
If at any time any Foreign Portfolio Securities shall be
registered in the name of the nominee of the Eligible
Foreign Custodian, the Fund agrees to hold any such nominee
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harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
In connection with any action to be taken with respect to the Foreign
Portfolio Securities held hereunder, including, without limitation, the exercise
of any voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or liability
for any obligations now or hereafter imposed on the Fund or
the Bank as custodian of the Fund by the tax laws of any
jurisdiction, and it shall be the responsibility of the Fund
to notify the Bank of the obligations imposed on the Fund or
the Bank as the custodian of the Fund by the tax law of any
non-U.S. jurisdiction, including responsibility for
withholding and other taxes, assessments or other
governmental charges, certifications and governmental
reporting. The sole responsibility of the Eligible Foreign
Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any
claim for exemption or refund under the tax law of
jurisdictions for which the Fund has provided such
information.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by
it as it uses in respect of its own similar property but it need
not maintain any special insurance for the benefit of the Fund.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon
transfer of Portfolio Securities made hereunder, and for all
necessary proper disbursements, expenses and charges made or
incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any)
including any indemnities for any loss, liabilities or expense to
the Bank as provided above. For the services rendered by the Bank
hereunder, the Fund will pay to the Bank such compensation or
fees at such rate and at such times as shall be agreed upon in
writing by the parties from time to time. The Bank will also be
entitled to reimbursement by the Fund for all reasonable expenses
incurred in conjunction with termination of this Agreement.
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14.6 Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted
by this Agreement upon receipt of any proper authorization
required by this Agreement for such payments by the Fund. Should
such a payment or payments, with advanced funds, result in an
overdraft (due to insufficiencies of the Fund's account with the
Bank, or for any other reason) this Agreement deems any such
overdraft or related indebtedness a loan made by the Bank to the
Fund payable on demand. Such overdraft shall bear interest at the
current rate charged by the Bank for such loans unless the Fund
shall provide the Bank with agreed upon compensating balances.
The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness
and to the extent required by law, in and to any property at any
time held by it for the Fund's benefit or in which the Fund has
an interest and which is then in the Bank's possession or control
(or in the possession or control of any third party acting on the
Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any overdraft or indebtedness,
together with interest due thereon, against any balance of
account standing to the credit of the Fund on the Bank's books.
15. Limitation of Liability.
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees
or agents (collectively, the "Indemnified Parties") be liable to
the Fund or any third party, and the Fund shall indemnify and
hold the Bank and the Indemnified Parties harmless from and
against any and all loss, damage, liability, actions, suits,
claims, costs and expenses, including legal fees, (a "Claim")
arising as a result of any act or omission of the Bank or any
Indemnified Party under this Agreement, except for any Claim
resulting solely from the negligence, willful misfeasance or bad
faith of the Bank or any Indemnified Party. Without limiting the
foregoing, neither the Bank nor the Indemnified Parties shall be
liable for, and the Bank and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in
good faith reliance upon the terms of this Agreement, any
Officer's Certificate, Proper Instructions, resolution of
the Board, telegram, telecopier, notice, request,
certificate or other instrument reasonably believed by the
Bank to genuine;
(b) Any act or omission of any subcustodian selected by or at
the direction of the Fund;
(c) Any act or omission of any Foreign Custody Manager other
than the Bank or any act or ommission of any Eligible
Foreign Custodian if the Bank is not the Foreign Custody
Manager;
(d) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Fund,
have not been registered in the name of the Bank or its
nominee;
(e) Any Corporate Action requiring a Response for which the Bank
has not received Proper Instructions or obtained actual
possession of all necessary Securities, consents or other
materials by 5:00 p.m. on the date specified as the Response
Deadline;
(f) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in
connection with any Eurodollar CDs held by such European
Branch;
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(g) Information relied on in good faith by the Bank and supplied
by any Authorized Person in connection with the calculation
of (i) the net asset value and public offering price of the
shares of capital stock of the Fund or (ii) the Yield
Calculation; or
(h) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots,
nationalization, expropriation, currency restrictions, acts
of war, civil war or terrorism, insurrection, nuclear
fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers
(hardware or software) and computer facilities, the
unavailability of energy sources and other similar
happenings or events.
15.2 The Bank agrees to indemnify the Fund, its trustees, officers,
employees and agents against and hold them harmless from any
Claim arising from the willful misfeasance, bad faith or
negligence of the Bank in the performance of its duties and
obligations under this Agreement.
15.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the
Fund or any third party for lost profits or lost revenues or any
special, consequential, punitive or incidental damages of any
kind whatsoever in connection with this Agreement or any
activities hereunder.
16. Termination.
16.1 The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated
as provided herein. After the expiration of the Initial Term, the
term of this Agreement shall automatically renew for successive
three-year terms (each a "Renewal Term") unless notice of
non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the
Initial Term or any Renewal Term, as the case may be.
Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term or any Renewal Term in the event the other party
violates any material provision of this Agreement, provided that the
non-violating party gives written notice of such violation to the violating
party and the violating party does not cure such violation within 90 days of
receipt of such notice.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of
notice of termination, commence and prosecute diligently to
completion the transfer of all cash and the delivery of all
Portfolio Securities duly endorsed and all records maintained
under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the
assets of the Fund held by it directly to such successor
custodian will commence as soon as such successor is appointed
and will continue until completed as aforesaid. If the Fund does
not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject
to the provisions of subsection 16.3, deliver the Portfolio
Securities and cash of the Fund held by the Bank to a bank or
trust company of the Bank's own selection which meets the
requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not
less than $2,000,000, to be held as the property of the Fund
under terms similar to those on which they were held by the Bank,
whereupon such bank or trust company so selected by the Bank will
become the successor custodian of such assets of the Fund with
the same effect as though selected by the Board. Thereafter, the
Bank shall be released from any and all obligations under this
Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an
order of the Fund advising that a successor custodian cannot be
found willing and able to act upon reasonable and customary terms
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and that there has been submitted to the shareholders of the Fund
the question of whether the Fund will be liquidated or will
function without a custodian for the assets of the Fund held by
the Bank. In that event the Bank will deliver the Portfolio
Securities and cash of the Fund held by it, subject as aforesaid,
in accordance with one of such alternatives which may be approved
by the requisite vote of shareholders, upon receipt by the Bank
of a copy of the minutes of the meeting of shareholders at which
action was taken, certified by the Fund's Secretary and an
opinion of counsel to the Fund in form and content satisfactory
to the Bank. Thereafter, the Bank shall be released from any and
all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this
Agreement.
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records
of the Bank relating to its performance of its duties as
custodian.
17. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is
confidential and may not be disclosed without the consent of the other
party, except as may be required by applicable law or at the request
of a governmental agency. The parties further agree that a breach of
this provision would irreparably damage the other party and
accordingly agree that each of them is entitled, in addition to all
other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I)
United States Postal Service registered mail, (ii) telecopier with
written confirmation, (iii) hand delivery with signature to such party
at its office at the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Touchstone Series Trust
311 Pike Street
Cincinnati, OH 45202
Attn:
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Carol Lowd, Director - Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate in
writing.
19. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement will not be assignable
by the Fund without the written consent of the Bank or by the Bank
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without the written consent of the Fund, authorized and approved by
its Board; and provided further that termination proceedings pursuant
to Section 16 hereof will not be deemed to be an assignment within the
meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without
regard to conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but
such counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating
to the subject matter herein and does not operate as an acceptance of
any conflicting terms or provisions of any other instrument and
terminates and supersedes any and all prior agreements and
undertakings between the parties relating to the subject matter
herein.
24. Limitation of Liability. The Bank agrees that the obligations assumed
by the Fund hereunder shall be limited in all cases to the assets of
the Fund and that the Bank shall not seek satisfaction of any such
obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
[Remainder of Page Intentionally Left Blank]
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
TOUCHSTONE SERIES TRUST
By:_______________________________
Name:
Title:
Investors Bank & Trust Company
By:_______________________________
Name:
Title:
22
<PAGE>
Appendices
Appendix A............................ Portfolios
Appendix B............................ Fee Schedule
Appendix C............................ Additional Services
23
<PAGE>
Appendix A
Portfolios
----------
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
24
<PAGE>
Appendix C
Additional Services
None
25
AMENDMENT AGREEMENT
AGREEMENT, effective as of March 17, 1999, by and between Touchstone
Series Trust, a Massachusetts business trust (the "Fund") (formerly known as
Select Advisors Trust A) and Investors Bank & Trust Company, a Massachusetts
trust company ("Investors Bank").
WHEREAS the Fund and Investors Bank entered into an Administration
Agreement dated December 1, 1999 (the "Administration Agreement"); and
WHEREAS, the Fund and Investors Bank desire to amend the Administration
Agreement as set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
1. AMENDMENT.
(a) The first sentence of the Administration Agreement is hereby amended
to read as follows:
THIS ADMINISTRATION AGREEMENT is made as of December 1, 1996 by and
between TOUCHSTONE SERIES TRUST, a Massachusetts business trust (the "Fund"),
and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company ("Investors
Bank").
(b) Section 11 of the Administration Agreement is hereby amended to read
in its entirety as follows:
7. TERMINATION OF AGREEMENT.
(a) The initial term of this Agreement shall continue through
March 17, 2002 (the "Initial Term"), unless earlier
terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically
renew for successive three-year terms (each a "Renewal
Term") unless notice of non-renewal is delivered by the
non-renewing party to the other party no later than 90 days
prior to the expiration of the Initial Term or any Renewal
Term, as the case may be.
(b) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term or any Renewal Term in
the event the other party violates any material provision of
this Agreement, provided that the non-violating party gives
written notice of such violation to the violating party and
the violating party does not cure such violation within 30
days of receipt of such notice.
(c) In the event notice of termination is given to Investors
Bank by the Fund under this section, such notice shall be
accompanied by a resolution of the Board of Trustees,
certified by the Secretary, electing to terminate this
Agreement and designating a successor service company.
(d) At any time after the termination of this Agreement, the
Fund may, upon written request, have reasonable access to
the records of Investors Bank relating to its performance of
its duties hereunder.
(c) Investors Bank shall perform the services for the Funds on behalf of
the portfolios listed on APPENDIX 1 hereto.
(d) APPENDIX 2 to the Administration Agreement shall be amended to read in
its entirety as set forth on APPENDIX 2 hereto.
2. MISCELLANEOUS.
<PAGE>
(a) Except as amended hereby, the Administration Agreement shall remain in
full force and effect.
(b) This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its duly authorized officer, as the case may be, as of the date and
year first above written.
INVESTORS BANK & TRUST COMPANY
By: _______________________________
Name: _____________________________
Title: ____________________________
TOUCHSTONE SERIES TRUST
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
APPENDIX 1
PORTFOLIOS
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
SPONSOR AGREEMENT
TOUCHSTONE ADVISORS, INC. AND
TOUCHSTONE SERIES TRUST (FORMERLY SELECT ADVISORS TRUST A)
AMENDMENT NO. 3
AMENDMENT dated as of January 1, 1999, between TOUCHSTONE SERIES TRUST
(formerly Select Advisors Trust A), a Massachusetts business trust (the "Trust")
and TOUCHSTONE ADVISORS, INC., an Ohio corporation ("Touchstone").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust has engaged Touchstone to provide certain management
services with respect to each series of the Trust (each a "Fund") pursuant to
the Sponsor Agreement dated as of September 9, 1994, as amended (the
"Agreement") between the Trust and Touchstone; and
WHEREAS, the Trust and Touchstone wish to amend the Agreement to
reflect (1) the designation of classes of shares of each series, (2) the
reorganization pursuant to which Select Advisors Trust C, on behalf of each of
its series, transferred to the corresponding series of the Trust all of its
property and assets and all of its liabilities in exchange for Class C shares of
such corresponding series of the Trust, (3) revisions to the Expense Cap
Termination provision and the fee waiver provision and (4) changes in the
address of the parties;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as set forth in the Agreement and herein, acting pursuant
to Section 9 of the Agreement, the Trust and Touchstone hereby amend the
Agreement as follows:
(A) Section 5 of the Agreement shall read as follows:
5. OPERATING EXPENSE WAIVERS OR REIMBURSEMENT.
a) Touchstone shall waive all or a portion of its fee
pursuant to this Sponsor Agreement and/or reimburse a
portion of the operating expenses (including
amortization of organization expense, but excluding
interest, taxes, brokerage commissions and other
portfolio transaction expenses, capital expenditures
and extraordinary expenses) ("Expenses") of Class A of
each Fund of the Trust (other than the Touchstone
Standby Income Fund) such that after such reimbursement
the aggregate Expenses of Class A of each such Fund of
the Trust shall be equal on an annual basis to the
following percentages of the average daily net assets
of Class A of the Fund for the Fund's then-current
fiscal year:
Page 1
<PAGE>
Touchstone Emerging Growth Fund Class A 1.50%
Touchstone International Equity Fund Class A 1.60%
Touchstone Income Opportunity Fund Class A 1.20%
Touchstone Value Plus Fund Class A 1.30%
Touchstone Growth & Income Fund Class A 1.30%
Touchstone Balanced Fund Class A 1.35%
Touchstone Bond Fund Class A 0.90%
b) Touchstone shall waive all or a portion of its fee
pursuant to this Sponsor Agreement and/or reimburse a
portion of the Expenses of Class C of each Fund of the
Trust (other than the Touchstone Standby Income Fund)
such that after such reimbursement the aggregate
Expenses of Class C of each such Fund of the Trust
shall be equal on an annual basis to the following
percentages of the average daily net assets of Class C
of the Fund for the Fund's then-current fiscal year:
Touchstone Emerging Growth Fund Class C 2.25%
Touchstone International Equity Fund Class C 2.35%
Touchstone Income Opportunity Fund Class C 1.95%
Touchstone Value Plus Fund Class C 2.05%
Touchstone Growth & Income Fund Class C 2.05%
Touchstone Balanced Fund Class C 2.10%
Touchstone Bond Fund Class C 1.65%
c) Touchstone shall waive all or a portion of its fee
pursuant to this Sponsor Agreement and/or reimburse a
portion of the Expenses of Class Y of each Fund of the
Trust (other than the Touchstone Standby Income Fund)
such that after such reimbursement the aggregate
Expenses of Class Y of each such Fund of the Trust
shall be equal on an annual basis to the following
percentages of the average daily net assets of Class Y
of the Fund for the Fund's then-current fiscal year:
Touchstone Emerging Growth Fund Class Y 1.25%
Touchstone International Equity Fund Class Y 1.35%
Touchstone Income Opportunity Fund Class Y 0.95%
Touchstone Value Plus Fund Class Y 1.05%
Touchstone Growth & Income Fund Class Y 1.05%
Touchstone Balanced Fund Class Y 1.10%
Touchstone Bond Fund Class Y 0.65%
d) Touchstone shall waive all or a portion of its fee
pursuant to this Sponsor Agreement and/or reimburse a
portion of the Expenses of the Touchstone Standby
Income Fund of the Trust such that after such
reimbursement the aggregate Expenses of the Touchstone
Standby Income Fund of the Trust shall be equal on an
annual basis to 0.75% of the average daily net assets
of the Touchstone Standby Income Fund for the Fund's
then-current fiscal year.
e) Touchstone's obligations in this Section 5 may be
terminated, with respect to any Fund or any class of
2
<PAGE>
any Fund, by Touchstone as of the end of any calendar
quarter after December 31, 1999, upon at least 30 days
prior written notice to the Trust (an "Expense Cap
Termination").
(B) The last paragraph of Section 6 of the Agreement shall read
as follows:
Touchstone hereby waives all of its fees under this
Agreement with respect to each Fund until April 30, 2000.
(C) Section 9(a) of the Agreement shall read as follows:
This Agreement may be terminated, with respect to any Fund
or Funds or any class or classes
a) by Touchstone, either (i) at the end of the calendar
quarter after December 31, 1999 during which Touchstone
has given at least 30 days advance written notice to
the Trust, on behalf of each such Fund, that it is
terminating this agreement as to such fund or (ii) at
such time as Touchstone ceases to be the investment
advisor to each such Fund. In the event of a
termination pursuant to the foregoing clause (i) of the
foregoing sentence, each party's obligations hereunder
shall terminate as to each such Fund as of the end of
the calendar quarter in which the notice of termination
is given; in the event of a termination pursuant to
clause (ii) of the preceding sentence Touchstone's
obligations hereunder shall terminate as to each such
Fund as of the effective date of its termination as
investment advisor.
(D) Section 12 of the Agreement shall read as follows:
12. NOTICE. Any notice under this Agreement shall be in
writing addressed and delivered personally (or by
telecopy) or mailed postage-paid, to the other party at
such address as such other party may designate in
accordance with this paragraph for the receipt of such
notice. Until further notice to the other party, it is
agreed that the address of the Trust and Touchstone
shall be 311 Pike Street, Cincinnati, OH 45202.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of January 4, 1999. The undersigned has
executed this Agreement not individually, but as an officer under the Trust's
Declaration of Trust, and the obligations of this Amendment are not binding upon
the Trust's Trustees, its officers, or investors in the Funds individually, but
bind only the Trust estate.
TOUCHSTONE ADVISORS, INC. TOUCHSTONE SERIES TRUST
By: /S/ PATRICIA WILSON By: /S/ JILL T. MCGRUDER
Jill T. McGruder
Name: PATRICIA WILSON President and Chief Executive Officer
Title: CHIEF COMPLIANCE OFFICER
3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No.11
to the Registration Statement under the Securities Act of 1933 and Amendment No.
15 to the Registration Statement under the Investment Company Act of 1940 of
Touchstone Series Trust (formerly Touchstone Select Advisors Trust A) on Form
N-1A of our report dated February 18, 1999, on our audits of the financial
statements and financial highlights of Touchstone Emerging Growth Fund A,
Touchstone International Equity Fund A, Touchstone Growth & Income Fund A,
Touchstone Balanced Fund A, Touchstone Income Opportunity Fund A, Touchstone
Value Plus Fund A and Touchstone Bond Fund A, which report is included in the
Annual Report for Select Advisors Trust A for the year ended December 31, 1998,
which is incorporated by reference in the Registration Statement; and our report
dated February 18, 1999, on our audits of the financial statements and financial
highlights of Touchstone Standby Income Fund, which report is included in the
Annual Report for Touchstone Standby Income Fund for the year ended December 31,
1998, which is incorporated by reference in the Registration Statement.
We also consent to the reference to our Firm under the captions "Financial
Highlights" and "Counsel and Independent Accountants."
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> Touchstone Emerging Growth Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 7,558,533
<INVESTMENTS-AT-VALUE> 8,226,045
<RECEIVABLES> 136,880
<ASSETS-OTHER> 7,393
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,370,318
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,172
<TOTAL-LIABILITIES> 35,172
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,715,214
<SHARES-COMMON-STOCK> 621,969
<SHARES-COMMON-PRIOR> 357,329
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 47,580
<ACCUM-APPREC-OR-DEPREC> 667,512
<NET-ASSETS> 8,335,146
<DIVIDEND-INCOME> 54,074
<INTEREST-INCOME> 20,790
<OTHER-INCOME> 0
<EXPENSES-NET> 102,629
<NET-INVESTMENT-INCOME> (27,765)
<REALIZED-GAINS-CURRENT> 363,157
<APPREC-INCREASE-CURRENT> (340,021)
<NET-CHANGE-FROM-OPS> (4,629)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 458,159
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 343,695
<NUMBER-OF-SHARES-REDEEMED> 111,410
<SHARES-REINVESTED> 32,355
<NET-CHANGE-IN-ASSETS> 3,386,473
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 44,431
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 250,374
<AVERAGE-NET-ASSETS> 6,841,930
<PER-SHARE-NAV-BEGIN> 13.85
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.78
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.40
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> Touchstone International Equity Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 5,684,656
<INVESTMENTS-AT-VALUE> 6,761,320
<RECEIVABLES> 135,817
<ASSETS-OTHER> 7,393
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,904,530
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,014
<TOTAL-LIABILITIES> 29,014
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,804,081
<SHARES-COMMON-STOCK> 533,285
<SHARES-COMMON-PRIOR> 417,090
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 32,893
<ACCUMULATED-NET-GAINS> 27,664
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,076,664
<NET-ASSETS> 6,875,516
<DIVIDEND-INCOME> 83,173
<INTEREST-INCOME> 11,604
<OTHER-INCOME> 0
<EXPENSES-NET> 96,468
<NET-INVESTMENT-INCOME> (1,691)
<REALIZED-GAINS-CURRENT> 345,939
<APPREC-INCREASE-CURRENT> 643,481
<NET-CHANGE-FROM-OPS> 987,729
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 27,096
<DISTRIBUTIONS-OF-GAINS> 373,319
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 123,496
<NUMBER-OF-SHARES-REDEEMED> 38,129
<SHARES-REINVESTED> 30,828
<NET-CHANGE-IN-ASSETS> 2,114,749
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 58,978
<OVERDISTRIB-NII-PRIOR> 14,430
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,103
<AVERAGE-NET-ASSETS> 6,029,272
<PER-SHARE-NAV-BEGIN> 11.41
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 2.27
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.74
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.89
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> Touchstone Growth & Income Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 15,149,538
<INVESTMENTS-AT-VALUE> 15,198,536
<RECEIVABLES> 146,977
<ASSETS-OTHER> 7,393
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,352,906
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91,957
<TOTAL-LIABILITIES> 91,957
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,278,502
<SHARES-COMMON-STOCK> 986,703
<SHARES-COMMON-PRIOR> 397,027
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 66,551
<ACCUM-APPREC-OR-DEPREC> 48,998
<NET-ASSETS> 15,260,949
<DIVIDEND-INCOME> 323,261
<INTEREST-INCOME> 14,249
<OTHER-INCOME> 0
<EXPENSES-NET> 156,336
<NET-INVESTMENT-INCOME> 181,174
<REALIZED-GAINS-CURRENT> 220,365
<APPREC-INCREASE-CURRENT> (338,911)
<NET-CHANGE-FROM-OPS> 62,628
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 190,176
<DISTRIBUTIONS-OF-GAINS> 374,954
<DISTRIBUTIONS-OTHER> 13,429
<NUMBER-OF-SHARES-SOLD> 840,694
<NUMBER-OF-SHARES-REDEEMED> 287,905
<SHARES-REINVESTED> 36,887
<NET-CHANGE-IN-ASSETS> 9,280,723
<ACCUMULATED-NII-PRIOR> 2,166
<ACCUMULATED-GAINS-PRIOR> 83,816
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 322,393
<AVERAGE-NET-ASSETS> 12,025,893
<PER-SHARE-NAV-BEGIN> 15.06
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 0.40
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.47
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 014
<NAME> Touchstone Balanced Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 4,511,254
<INVESTMENTS-AT-VALUE> 4,549,649
<RECEIVABLES> 103,115
<ASSETS-OTHER> 7,393
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,660,157
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,070
<TOTAL-LIABILITIES> 24,070
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,521,372
<SHARES-COMMON-STOCK> 383,389
<SHARES-COMMON-PRIOR> 267,075
<ACCUMULATED-NII-CURRENT> 1,963
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74,357
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 38,395
<NET-ASSETS> 4,636,087
<DIVIDEND-INCOME> 31,244
<INTEREST-INCOME> 114,023
<OTHER-INCOME> 0
<EXPENSES-NET> 56,528
<NET-INVESTMENT-INCOME> 88,739
<REALIZED-GAINS-CURRENT> 225,430
<APPREC-INCREASE-CURRENT> (183,060)
<NET-CHANGE-FROM-OPS> 131,109
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105,254
<DISTRIBUTIONS-OF-GAINS> 185,895
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 161,051
<NUMBER-OF-SHARES-REDEEMED> 68,591
<SHARES-REINVESTED> 23,854
<NET-CHANGE-IN-ASSETS> 1,320,322
<ACCUMULATED-NII-PRIOR> 2,506
<ACCUMULATED-GAINS-PRIOR> 30,260
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 166,933
<AVERAGE-NET-ASSETS> 4,187,166
<PER-SHARE-NAV-BEGIN> 12.42
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.09
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 015
<NAME> Touchstone Income Opportunity Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 7,957,621
<INVESTMENTS-AT-VALUE> 6,547,626
<RECEIVABLES> 141,559
<ASSETS-OTHER> 7,393
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,696,578
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,254
<TOTAL-LIABILITIES> 38,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,978,000
<SHARES-COMMON-STOCK> 872,133
<SHARES-COMMON-PRIOR> 709,018
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 909,681
<ACCUM-APPREC-OR-DEPREC> (1,409,995)
<NET-ASSETS> 6,658,324
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 798,119
<OTHER-INCOME> 0
<EXPENSES-NET> 83,631
<NET-INVESTMENT-INCOME> 714,488
<REALIZED-GAINS-CURRENT> (670,556)
<APPREC-INCREASE-CURRENT> (1,110,683)
<NET-CHANGE-FROM-OPS> (1,066,751)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 727,740
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 56,290
<NUMBER-OF-SHARES-SOLD> 374,781
<NUMBER-OF-SHARES-REDEEMED> 283,285
<SHARES-REINVESTED> 71,619
<NET-CHANGE-IN-ASSETS> (350,542)
<ACCUMULATED-NII-PRIOR> 5,651
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 235,330
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 231,537
<AVERAGE-NET-ASSETS> 7,129,711
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.90
<PER-SHARE-GAIN-APPREC> (2.18)
<PER-SHARE-DIVIDEND> 0.91
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.63
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 016
<NAME> Touchstone Bond Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 4,767,817
<INVESTMENTS-AT-VALUE> 4,836,836
<RECEIVABLES> 106,561
<ASSETS-OTHER> 7,393
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,950,790
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,283
<TOTAL-LIABILITIES> 27,283
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,840,284
<SHARES-COMMON-STOCK> 474,097
<SHARES-COMMON-PRIOR> 164,839
<ACCUMULATED-NII-CURRENT> 3,657
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,547
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 69,019
<NET-ASSETS> 4,923,507
<DIVIDEND-INCOME> 15,703
<INTEREST-INCOME> 237,220
<OTHER-INCOME> 0
<EXPENSES-NET> 34,520
<NET-INVESTMENT-INCOME> 218,403
<REALIZED-GAINS-CURRENT> 66,845
<APPREC-INCREASE-CURRENT> 37,207
<NET-CHANGE-FROM-OPS> 322,455
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 223,591
<DISTRIBUTIONS-OF-GAINS> 53,127
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 436,841
<NUMBER-OF-SHARES-REDEEMED> 153,703
<SHARES-REINVESTED> 26,120
<NET-CHANGE-IN-ASSETS> 3,238,885
<ACCUMULATED-NII-PRIOR> 1,097
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,317
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 148,238
<AVERAGE-NET-ASSETS> 3,835,538
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> 0.57
<PER-SHARE-DISTRIBUTIONS> 0.11
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 017
<NAME> Touchstone Standby Income Fund
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 10,877,241
<INVESTMENTS-AT-VALUE> 10,879,577
<RECEIVABLES> 409,090
<ASSETS-OTHER> 9,789
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,298,456
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,448
<TOTAL-LIABILITIES> 41,448
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,238,577
<SHARES-COMMON-STOCK> 1,128,085
<SHARES-COMMON-PRIOR> 862,865
<ACCUMULATED-NII-CURRENT> 7,490
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,605
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,336
<NET-ASSETS> 11,257,008
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 614,876
<OTHER-INCOME> 0
<EXPENSES-NET> 77,908
<NET-INVESTMENT-INCOME> 536,968
<REALIZED-GAINS-CURRENT> 15,437
<APPREC-INCREASE-CURRENT> 2,467
<NET-CHANGE-FROM-OPS> 554,872
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 541,711
<DISTRIBUTIONS-OF-GAINS> 2,087
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 846,688
<NUMBER-OF-SHARES-REDEEMED> 635,946
<SHARES-REINVESTED> 54,478
<NET-CHANGE-IN-ASSETS> 2,654,077
<ACCUMULATED-NII-PRIOR> 4,343
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3,836
<GROSS-ADVISORY-FEES> 25,969
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 246,408
<AVERAGE-NET-ASSETS> 10,387,722
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.52
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Select Advisers Trust A
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 018
<NAME> Touchstone Value Plus Fund A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<INVESTMENTS-AT-COST> 25,356,456
<INVESTMENTS-AT-VALUE> 27,056,281
<RECEIVABLES> 50,342
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,106,623
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,089
<TOTAL-LIABILITIES> 39,089
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,976,551
<SHARES-COMMON-STOCK> 2,600,842
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 608,842
<ACCUM-APPREC-OR-DEPREC> 1,699,825
<NET-ASSETS> 27,067,534
<DIVIDEND-INCOME> 221,662
<INTEREST-INCOME> 30,586
<OTHER-INCOME> 0
<EXPENSES-NET> 212,066
<NET-INVESTMENT-INCOME> 40,182
<REALIZED-GAINS-CURRENT> (608,840)
<APPREC-INCREASE-CURRENT> 1,699,825
<NET-CHANGE-FROM-OPS> 1,131,167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40,182
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 3,702
<NUMBER-OF-SHARES-SOLD> 2,605,472
<NUMBER-OF-SHARES-REDEEMED> 9,307
<SHARES-REINVESTED> 4,677
<NET-CHANGE-IN-ASSETS> 27,067,534
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 316,562
<AVERAGE-NET-ASSETS> 24,301,194
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.41
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.41
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
