AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1996
File Nos. 33-76566 and 811-8416
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 2
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
SELECT ADVISORS VARIABLE INSURANCE 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) 684-1400
THOMAS M. LENZ
SIGNATURE FINANCIAL GROUP, INC.
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
copies to:
J. Leland Brewster II, Esq. Edward G. Harness, Jr.
Frost & Jacobs Touchstone Securities, Inc.
2500 East 5th Street 311 Pike Street
P.O. Box 5715 Cincinnati, Ohio 45202
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 April 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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.
Registrant has registered an indefinite number of its Shares of Beneficial
Interest (par value $0.00001 per share) pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed the Notice required by Rule
24f-2 on February 28, 1996 for Registrant's fiscal year ended December 31, 1995.
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IFS0018D
SELECT ADVISORS VARIABLE INSURANCE TRUST
FORM N-1A
CROSS REFERENCE SHEET
Part A
ITEM NO. HEADINGS IN PROSPECTUS
1. Cover Page . . . . . . . . . . . . . .Cover Page
2. Synopsis . . . . . . . . . . . . . . .Not applicable
3. Condensed Financial Information . . .Financial Highlights
4. General Description of Registrant . .Cover Page; Investment Objectives and
Policies; Advisor and Portfolio
Advisors; Management of the Trust
5. Management of the Fund . . . . . . . .Advisor and Portfolio Advisors;
Management of the Trust
5A. Management's Discussion of Fund
Performance . . . . . . . . . . . . .Not applicable
6. Capital Stock and Other Securities . .Cover Page; Purchase of Shares;
Redemption of Shares; Dividends,
Distributions and Taxes; Management of
the Trust; Performance Information;
Additional Information
7. Purchase of Securities Being Offered .Purchase of Shares; Net Asset Value
8. Redemption or Repurchase . . . . . . .Redemption of Shares; Net Asset Value
9. Pending Legal Proceedings . . . . . .Not applicable
Part B Headings in Statement of
ITEM NO. ADDITIONAL INFORMATION
10. Cover Page . . . . . . . . . . . . .Cover Page
11. Table of Contents . . . . . . . . . .Table of Contents
12. General Information and History . . .Not applicable
13. Investment Objectives and Policies. .Investment Objective, Policies and
Restrictions
14. Management of the Fund . . . . . . .Management of the Trust
15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . .Management of the Trust; Organization
of the Trust
16. Investment Advisory and Other
Services . . .. . . . . . . . . . . .Management of the Trust
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . .Investment Objective, Policies and
Restrictions
18. Capital Stock and Other Securities . Organization of the Trust; (see also
Prospectus -- "Dividends, Distributions
and Taxes")
19. Purchase, Redemption and Pricing of
Securities Being Offered. . . . . . .Valuation of Securities; Redemption in
Kind
20. Tax Status . . . . . . . . . . . . .Taxes (see also Prospectus --
"Dividends, Distributions and Taxes")
21. Underwriters . . . . . . . . . . . .See Prospectus -- "Management of the
Trust"
22. Calculations of Yield Quotations of
Money Market Funds . . . . . . . . .Performance Information
23. Financial Statements. . . . . . . . .Not applicable.
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
MAY 1, 1996
<TABLE>
<S> <C>
SELECT ADVISORS TOUCHSTONE ADVISORS, INC.
VARIABLE INSURANCE 311 PIKE STREET
TRUST CINCINNATI, OHIO 45202
</TABLE>
- --------------------------------------------------------------------------------
Select Advisors Variable Insurance Trust (the "Trust") is an open-end,
investment management company providing investment vehicles (each, a
"Portfolio") for variable annuity contracts of various insurance companies. The
Trust is professionally managed by Touchstone Advisors, Inc. (the "Advisor" or
"Touchstone Advisors"). Each Portfolio benefits from discretionary advisory
services by one or more investment advisor(s) (each, a "Portfolio Advisor")
identified, retained, supervised and compensated by the Advisor.
The Trust is a series company that currently consists of the following
Portfolios:
TOUCHSTONE EMERGING GROWTH PORTFOLIO
TOUCHSTONE INTERNATIONAL EQUITY PORTFOLIO
TOUCHSTONE BALANCED PORTFOLIO
TOUCHSTONE INCOME OPPORTUNITY PORTFOLIO
TOUCHSTONE STANDBY INCOME PORTFOLIO
THE INCOME OPPORTUNITY PORTFOLIO MAY INVEST UP TO 100% OF ITS TOTAL ASSETS
IN NON-INVESTMENT GRADE BONDS, COMMONLY KNOWN AS "JUNK BONDS" ISSUED BY BOTH
U.S. AND FOREIGN ISSUERS, WHICH ENTAIL GREATER RISK OF UNTIMELY INTEREST AND
PRINCIPAL PAYMENTS, DEFAULT AND PRICE VOLATILITY THAN HIGHER RATED SECURITIES,
AND MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION. THE INTERNATIONAL EQUITY
PORTFOLIO AND THE INCOME OPPORTUNITY PORTFOLIO MAY INVEST UP TO 40% AND 65%,
RESPECTIVELY, OF ITS TOTAL ASSETS IN SECURITIES OF ISSUERS BASED IN EMERGING
MARKETS WHICH MAY PRESENT INCREASED RISK. INVESTORS SHOULD CAREFULLY CONSIDER
THESE RISKS PRIOR TO INVESTING. SEE "INVESTMENT OBJECTIVES, POLICIES AND RISKS"
ON PAGE 4; "RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES" ON PAGE 7; AND THE
APPENDIX ON PAGE A-1.
This Prospectus sets forth concisely certain information about the Trust,
including expenses, that prospective shareholders will find helpful in making an
investment decision. Shareholders are encouraged to read this Prospectus
carefully and retain it for future reference.
Additional information about the Trust is contained in a Statement of
Additional Information dated May 1, 1996, which is available upon request and
without charge by calling the Touchstone Variable Annuity Service Center at
1-800-669-2796 or writing the Trust at the address listed above. The Statement
of Addi-
tional Information, which has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated by reference into this Prospectus in its
entirety.
Shares of each Portfolio may only be purchased by the separate accounts of
insurance companies, for the purpose of funding variable annuity contracts.
Particular Portfolios may not be available in your state due to various
insurance regulations. Please check with the Touchstone Variable Annuity Service
Center for available Portfolios. Inclusion of a Portfolio in this Prospectus
which is not available in your state is not to be considered a solicitation.
This Prospectus should be read in conjunction with the prospectus of the
separate account of the specific insurance product which accompanies this
Prospectus.
THE SHARES OF EACH PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE TRUST'S
STATEMENT OF ADDITIONAL INFORMATION OR THE TRUST'S SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES, AND IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Table of Contents........................................................................................... 2
Financial Highlights........................................................................................ 3
Investment Objectives, Policies and Risks................................................................... 4
Risk Factors and Certain Investment Techniques.............................................................. 7
Advisor and Portfolio Advisors.............................................................................. 9
Additional Risks and Investment Techniques.................................................................. 12
Purchase and Redemption of Shares........................................................................... 20
Net Asset Value............................................................................................. 21
Management of the Trust..................................................................................... 22
Dividends, Distributions and Taxes.......................................................................... 23
Performance of the Portfolios............................................................................... 24
Additional Information...................................................................................... 25
Appendix.................................................................................................... A-1
</TABLE>
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data for
each Portfolio for the period indicated and has been audited by Coopers &
Lybrand L.L.P., the Trust's independent accountants, whose report thereon
appears in the Trust's Annual Report which is included in the Trust's Statement
of Additional Information.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED DECEMBER 31,
1995 AND THE PERIOD ENDED DECEMBER 31, 1994
WERE AS FOLLOWS:
<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL BALANCED
PORTFOLIO EQUITY PORTFOLIO PORTFOLIO
------------------- ------------------- -------------------
1995 1994(A) 1995 1994(A) 1995 1994(A)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 10.00 $ 9.51 $ 10.00 $ 10.17 $ 10.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.11 0.04 0.04 -- 0.32 0.05
Net realized and unrealized gain
(loss) on investments 1.87 0.06 0.48 (0.49) 2.15 0.12
-------- -------- -------- -------- -------- --------
Total from investment operations 1.98 0.10 0.52 (0.49) 2.47 0.17
-------- -------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.15) -- (0.03) -- (0.37) --
Realized capital gain (0.66) -- -- -- (0.79) --
-------- -------- -------- -------- -------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.81) 0.00 (0.03) -- (1.16) --
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.27 $ 10.10 $ 10.00 $ 9.51 $ 11.48 $ 10.17
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN(B) 19.57% 2.99% 5.45% (34.72)% 24.56% 15.38%
RATIOS AND SUPPLEMENTAL DATA(C):
Net assets at end of period (000's) $ 2,615 $ 2,020 $ 5,215 $ 4,757 $ 2,895 $ 2,034
Ratios to average net assets:
Expenses 1.15% 1.15% 1.25% 1.25% 0.90% 0.90%
Net investment income 1.09% 3.67% 0.46% 1.23% 2.87% 4.26%
Expenses, without waiver and
reimbursement 3.73% 11.08% 3.69% 5.58% 3.46% 8.97%
Portfolio turnover 101% 0% 86% 0% 124% 3%
<CAPTION>
INCOME
OPPORTUNITY STANDBY INCOME
PORTFOLIO PORTFOLIO
------------------- -------------------
1995 1994(A) 1995 1994(A)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.42 $ 10.00 $ 10.03 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.22 0.12 0.56 0.05
Net realized and unrealized gain
(loss) on investments 0.79 (0.70) (0.01) 0.03
-------- -------- -------- --------
Total from investment operations 2.01 (0.58) 0.55 0.08
-------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1.34) -- (0.56) (0.05)
Realized capital gain -- -- -- --
-------- -------- -------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS (1.34) -- (0.56) (0.05)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 9.42 $ 10.02 $ 10.03
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN(B) 23.35% (39.78)% 5.90% 5.35%
RATIOS AND SUPPLEMENTAL DATA(C):
Net assets at end of period (000's) $ 2,602 $ 1,883 $ 5,790 $ 5,013
Ratios to average net assets:
Expenses 0.85% 0.85% 0.50% 0.50%
Net investment income 12.81% 11.24% 5.59% 4.90%
Expenses, without waiver and
reimbursement 3.54% 11.56% 1.73% 3.67%
Portfolio turnover 104% 45% 159% 56%
</TABLE>
- ------------------------------
(a) The Portfolios commenced operations on November 21, 1994.
(b) Total return is annualized for the period ended December 31, 1994. Total
return is calculated assuming a purchase of shares on the first day and a
sale of shares on the last day of the period, and includes reinvestment of
all dividends.
(c) Ratios are annualized. Portfolio turnover is not annualized.
3
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.
THE TRUST. The Trust is a management investment company providing a
convenient means of investing in separate Portfolios each with distinct
investment objectives and policies. The Trust consists of the following five
diversified Portfolios:
EMERGING GROWTH PORTFOLIO has a primary investment objective of capital
appreciation with income as a secondary investment objective. The Portfolio
attempts to achieve its investment objectives through investment primarily
in the common stocks of smaller, rapidly growing companies.
INTERNATIONAL EQUITY PORTFOLIO has an investment objective of long term
capital appreciation through investment primarily in equity securities of
companies based outside the United States.
BALANCED PORTFOLIO has an investment objective of growth of capital and
income through investment in common stocks and fixed-income securities.
INCOME OPPORTUNITY PORTFOLIO has an investment objective of high current
income through investment in high yield, non-investment grade debt
securities (commonly known as "junk bonds") of both U.S. and non-U.S.
issuers and in mortgage related securities. To the extent consistent with
its primary objective, the Portfolio will also seek capital appreciation.
STANDBY INCOME PORTFOLIO has an investment objective of high current income
to the extent consistent with relative stability of principal which it
attempts to achieve through investment in short term, investment grade debt
securities.
There can be no assurance that the investment objective of any Portfolio
will be achieved. The investment objectives of each Portfolio may be changed
without approval by investors, but not without thirty days prior notice. If
there is a change in the investment objectives of a Portfolio, shareholders
should consider whether the Portfolio remains an appropriate investment in light
of their then-current financial position and needs.
EMERGING GROWTH PORTFOLIO
The primary investment objective of the Portfolio is capital appreciation
with income as a secondary investment objective. The Portfolio attempts to
achieve its investment objectives through investment primarily in the common
stock of smaller, rapidly growing companies. With respect to the Emerging Growth
Portfolio, "emerging growth" companies are smaller companies with total market
capitalization less than the average of Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"), which is currently approximately $20 billion, which
the Portfolio Advisor believes have earnings that may be expected to grow faster
than the U.S. economy in general, because of new products, structural changes in
the economy or management changes.
Under normal circumstances, at least 65% of the Portfolio's total assets
will be invested in securities of emerging growth companies. In selecting
investments for the Portfolio, the Portfolio Advisor seeks emerging growth
companies that it believes are undervalued in the marketplace. These companies
typically possess a relatively high rate of return on invested capital so that
future growth can be financed from internal sources. Companies in which the
Portfolio is likely to invest may have limited product lines, markets or
financial resources and may lack management depth. The securities of these
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. A portion of the Portfolio's assets may be
invested in the securities of larger companies which the Portfolio Advisor
believes offer comparable appreciation or to ensure sufficient liquidity. Since
the Portfolio invests primarily in smaller companies, the Portfolio invests only
to a limited extent in larger companies in emerging industries.
In addition to common stocks, the Portfolio may invest in preferred stocks,
convertible bonds and other fixed-income instruments not issued by emerging
growth companies which present opportunities for capital appreciation as well as
income. Such instruments include U.S. Treasury obligations, corporate bonds,
debentures, mortgage related securities issued by various governmental agencies,
such as Government National Mortgage Association
4
<PAGE>
("GNMA") and government related organizations, such as the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"), including collateralized mortgage obligations ("CMOs"), privately
issued mortgage related securities (including CMOs), stripped U.S. Government
and mortgage related securities, non-publicly registered securities, and asset
backed securities. The Portfolio will only invest in bonds and preferred stock
rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Corporation ("S&P") or, if unrated, determined by the
Portfolio Advisor to be of comparable quality. Bonds rated Baa or BBB possess
some speculative characteristics.
The Portfolio may invest up to 20% of its assets in foreign securities
principally traded outside the United States and in American Depositary Receipts
("ADRs"). The Portfolio may not invest more than 10% of its total assets in the
securities of companies based in an emerging market. See "Risk Factors and
Certain Investment Techniques -- Foreign Securities" and "-- Risks Associated
With 'Emerging Markets' Securities."
INTERNATIONAL EQUITY PORTFOLIO
The investment objective of the Portfolio is long term capital appreciation
by investing primarily in equity securities of companies based outside the
United States. The Portfolio expects that initially its investments will be
concentrated in Europe, Asia, the Far East, North and South America, Africa, the
Pacific Rim and Latin America.
The Portfolio may invest in securities of companies in emerging markets (see
"Risk Factors and Certain Investment Techniques -- Risks Associated With
'Emerging Markets' Securities"), but does not expect to invest more than 40% of
its total assets in securities of issuers in emerging markets. The Portfolio
will invest in issuers of companies from at least three countries outside the
United States.
Under normal market conditions, the Portfolio will invest a minimum of 80%
of its total assets in equity securities of non-U.S. issuers. With respect to
the International Equity Portfolio, "equity securities" means common stock and
preferred stock (including convertible preferred stock), bonds, notes and
debentures convertible into common or preferred stock, stock purchase warrants
and rights, equity interests in trusts and partnerships, and depository receipts
of companies.
The Portfolio may invest up to 20% of its total assets in debt securities
issued by U.S. or foreign banks, corporations or other business organizations,
or by U.S. or foreign governments or governmental entities (including
supranational organizations such as the International Bank for Reconstruction
and Development, I.E., the "World Bank"). The Portfolio may choose to take
advantage of opportunities for capital appreciation from debt securities by
reason of anticipated changes in such factors as interest rates, currency
relationships, or credit standing of individual issuers. The Portfolio will
invest less than 35% of its total assets in lower quality, high yielding
securities, commonly known as "junk bonds." See "Risk Factors and Certain
Investment Techniques -- Medium and Lower Rated ("Junk Bonds") and Unrated
Securities." The Portfolio will not invest in preferred stocks or debt
securities rated less than B by S&P and Moody's. 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. Investments in "emerging markets"
securities include the securities of issuers based in some of the world's
underdeveloped markets, including Eastern Europe. Investments in securities of
issuers based in underdeveloped countries entail all of the risks of investing
in foreign issuers to a heightened degree. See "Risk Factors and Certain
Investment Techniques -- Foreign Securities" and "-- Risks Associated With
'Emerging Markets' Securities."
The Portfolio will not invest in any illiquid securities except for Rule
144A securities. See "Additional Risks and Investment Techniques -- Illiquid
Securities" and "Non-Publicly Traded ("Restricted") Securities and Rule 144A
Securities."
BALANCED PORTFOLIO
The investment objective of the Portfolio is growth of capital and income
through investment in common stocks and fixed-income securities. Under normal
circumstances, the Advisor expects approximately 60% of the Portfolio's total
assets to be invested in equity securities and 40% of its total assets to be
invested in fixed-income securities. For this purpose, "equity securities"
includes warrants, preferred stock and securities convertible into
5
<PAGE>
equity securities. The Portfolio will, under normal circumstances, invest at
least 25% of the Portfolio's total assets in fixed-income senior securities. For
purposes of this requirement, only the fixed-income component of a convertible
bond will be considered.
The Portfolio may invest in the types of fixed-income securities (including
preferred stock) rated at least B by S&P or by Moody's.
Up to one-third of the Portfolio's assets may be invested in foreign equity
or fixed-income securities. No more than 15% of the Portfolio's total assets
will be invested in the securities of issuers based in emerging markets. See
"Risk Factors and Certain Investment Techniques -- Foreign Securities" and
"--Risks Associated With 'Emerging Markets' Securities."
INCOME OPPORTUNITY PORTFOLIO
The investment objective of the Portfolio is high current income from
investment in a diversified portfolio of high yield, non-investment grade debt
securities of both U.S. and non-U.S. issuers and in mortgage related securities.
To the extent consistent with its primary objective, the Portfolio will also
seek Capital appreciation. The Portfolio intends to invest a portion of its
assets in high risk, low quality debt securities of both corporate and
government issuers, commonly referred to as "junk bonds," and regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation as well as
debt securities of issuers located in emerging market countries.
The Portfolio may invest in debt obligations (which may be denominated in
U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing authority)
or their agencies or instrumentalities, and debt obligations issued by U.S.
corporations denominated in non-U.S. currencies. These investments may include
debt obligations such as bonds (including sinking fund and callable bonds),
debentures and notes (including variable and floating rate instruments),
together with preferred stocks and zero coupon securities. The Portfolio may
also invest in loans, other direct debt obligations and loan participations.
Up to 100% of the assets of the Portfolio may be invested in foreign
fixed-income securities, but no more than 30% of the total assets of the
Portfolio may be invested in non-U.S. dollar-denominated securities. The
Portfolio may invest up to 65% of its total assets in debt securities of issuers
located in emerging market countries. See "Risk Factors and Certain Investment
Techniques -- Foreign Securities."
The Portfolio will generally invest in securities rated BBB or lower by S&P
or Baa or lower by Moody's or, if unrated, of comparable quality in the opinion
of the Portfolio Advisor. Securities rated BBB by S&P or Baa by Moody's possess
some speculative characteristics. See the Appendix hereto for a description of
Moody's and S&P ratings and "Risk Factors and Certain Investment Techniques --
Medium and Lower Rated ("Junk Bonds") and Unrated Securities" for a description
of certain risks associated with lower rated securities.
In addition to high yield corporate bonds, the Portfolio will also invest in
mortgage related securities which represent pools of mortgage loans assembled
for sale to investors by various governmental agencies, such as GNMA, and
government related organizations, such as FNMA and FHLMC, as well as by private
issuers, such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies.
The Portfolio may attempt to hedge against unfavorable changes in currency
exchange rates by engaging in forward currency transactions and trading currency
futures contracts and options thereon.
STANDBY INCOME PORTFOLIO
The investment objective of the Portfolio is high current income to the
extent consistent with relative stability of principal. Unlike money market
funds, however, the Portfolio does not attempt to maintain a constant $1.00 per
share net asset value.
Investments will be diversified among a broad range of money market
instruments including short term securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and repurchase agreements with
respect to those securities. The Portfolio may also invest in corporate bonds,
commercial paper, certificates of deposit ("CDs") and bankers' acceptances.
6
<PAGE>
Up to 50% of the Portfolio's total assets may be invested in U.S.
dollar-denominated Yankee Bonds or Eurodollar certificates of deposit issued by
U.S. banks. Yankee Bonds are instruments denominated in U.S. dollars which are
issued in the U.S. by foreign issuers. Eurodollar certificates of deposit are
dollar-denominated certificates of deposit which are issued in Europe. Up to 20%
of the Portfolio's total assets may be invested in fixed-income securities
denominated in foreign currencies. These securities include debt securities
issued by foreign banks, corporations, or other business organizations or by
foreign governments or governmental entities (including supra-national
organizations such as the World Bank). The value of securities denominated in
currencies other than the U.S. dollar will change in response to relative
currency values. See "Risk Factors and Certain Investment Techniques -- Foreign
Securities" and "-- Currency Exchange Rates."
The Portfolio invests only in investment grade securities (including foreign
securities) rated Baa or higher by Moody's or BBB or higher by S&P, or non-rated
securities which the Portfolio Advisor believes to be of comparable quality. The
Portfolio's dollar-weighted average maturity will normally be less than one
year. However, the Portfolio may invest in fixed-income corporate debt with
maturities of greater than twelve months; but, no individual security will have
a weighted average maturity (or average life in the case of mortgage backed
securities) of greater than five years. Bonds rated Baa by Moody's or BBB by S&P
have some speculative characteristics. See "Risk Factors and Certain Investment
Techniques."
RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES
FOREIGN SECURITIES. Investing in securities issued by foreign companies and
governments involves considerations and potential risks not typically associated
with investing in obligations issued by the U.S. government and domestic
corporations. Less information may be available about foreign companies than
about domestic companies and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions and
custody fees are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing contractual
obligations and could be subject to extended clearance and settlement periods.
RISKS ASSOCIATED WITH "EMERGING MARKETS" SECURITIES. "Emerging markets"
securities include the securities of issuers based in markets with developing
economies. These typically include countries where per capita GNP is less than
$8,355. 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) smaller markets 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 Portfolio'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.
In certain of these markets, the Communist Party, despite the fall of
Communist-dominated governments, continues to exercise a significant or, in some
countries, dominant role. So long as the situation continues or currently
controlling parties remain vulnerable to sudden removal from power, investments
in such countries will involve risk of nationalization, expropriation and
confiscatory taxation. The former communist governments of a number of Eastern
European countries expropriated large amounts of private property in the past,
and in many cases without adequate compensation, and there is no assurance that
such expropriation will not occur in the future. In the event of any such
expropriation, a Portfolio could lose a substantial portion of any investments
it has made in
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the affected 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 Portfolio
shareholders.
CURRENCY EXCHANGE RATES. A Portfolio's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Portfolio'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.
MEDIUM AND LOWER RATED ("JUNK BONDS") AND UNRATED SECURITIES. Securities
rated in the fourth highest category by S&P or Moody's, 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 Portfolio Advisor's
research and credit analysis are an especially important part of managing
securities of this type held by a Portfolio. In light of these risks, the Board
of Trustees has instructed the Portfolio 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 Portfolios 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 Portfolios to purchase and
may also have the effect of limiting the ability of a Portfolio 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 Portfolio 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 Portfolio may decline relatively
proportionately more than a portfolio consisting of higher rated securities. If
a Portfolio 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 Portfolio and increasing the exposure of the Portfolio 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.
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Subsequent to its purchase by a Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Portfolio. Neither event will require sale of these securities by the
Portfolio, but the Portfolio Advisor will consider this event in its
determination of whether the Portfolio should continue to hold the securities.
ADVISOR AND PORTFOLIO ADVISORS
ADVISOR
Touchstone Advisors, Inc., located at 311 Pike Street, Cincinnati, Ohio
45202, serves as the investment advisor to the Trust and, accordingly, as
investment advisor to each of the Portfolios. The Advisor is a wholly-owned
subsidiary of IFS Financial Services, Inc., which is a wholly-owned subsidiary
of Western-Southern Life Assurance Company. Western-Southern Life Assurance
Company is a wholly-owned subsidiary of The Western and Southern Life Insurance
Company.
The Trust has entered into an investment advisory agreement (the "Advisory
Agreement") with the Advisor which, in turn, has entered into a portfolio
advisory agreement ("Portfolio Agreement") with each Portfolio Advisor selected
by the Advisor for the Portfolios. It is the Advisor's responsibility to select,
subject to the review and approval of the Board of Trustees of the Trust,
portfolio advisors who have distinguished themselves by able performance in
their respective areas of expertise in asset management and to review their
continued performance.
Subject to the supervision and direction of the Board of Trustees, the
Advisor provides investment management evaluation services principally by
performing initial due diligence on prospective Portfolio Advisors and
thereafter monitoring Portfolio Advisor performance through quantitative and
qualitative analysis as well as periodic in-person, telephonic and written
consultations with Portfolio Advisors. In evaluating prospective Portfolio
Advisors, the Advisor considers, among other factors, each Portfolio Advisor's
level of expertise; relative performance and consistency of performance over a
minimum period of five years; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. The Advisor has responsibility for communicating
performance expectations and evaluations to each Portfolio Advisor and
ultimately recommending to the Board of Trustees of the Trust whether the
Portfolio Advisor's contract should be renewed, modified or terminated. The
Advisor provides written reports to the Board of Trustees regarding the results
of its evaluation and monitoring functions. The Advisor is also responsible for
conducting all operations of the Portfolios except those operations
subcontracted to the Portfolio Advisors, or contracted by the Trust to the
custodian, transfer agent and administrator.
The Portfolio Advisor of each Portfolio makes all the day-to-day decisions
to buy or sell particular portfolio securities.
The Emerging Growth Portfolio will be managed by two Portfolio Advisors,
each managing a portion of the Portfolio's assets. The Advisor will allocate
varying percentages of the assets of the Portfolio to each Portfolio Advisor,
which percentages will be adjusted from time to time by the Advisor based on its
evaluation of each Portfolio Advisor.
The Balanced Portfolio will also be managed by two Portfolio Advisors. One
Portfolio Advisor will manage the Portfolio's equity investments, while the
second will manage the Portfolio's fixed-income and cash equivalents
investments. The Advisor may adjust from time to time the portion of the
Balanced Portfolio's assets invested in equities and fixed-income securities,
although the Portfolio is expected to remain relatively static in its investment
allocation between equities and fixed-income securities.
Each Portfolio pays the Advisor a fee for its services that is computed
daily and paid monthly at an annual rate equal to the percentage of the value of
the average daily net assets of the Portfolio as follows: Emerging Growth
Portfolio -- 0.80%; International Equity Portfolio -- 0.95%; Balanced Portfolio
- -- 0.70%; Income Opportunity Portfolio -- 0.65%; and Standby Income Portfolio --
0.25%. The investment advisory fee paid by the International
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Equity and Emerging Growth Portfolios is higher than that of most mutual funds.
The Advisor in turn pays each Portfolio Advisor a fee for its services provided
to the Portfolio 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 Portfolio:
<TABLE>
<S> <C>
EMERGING GROWTH PORTFOLIO
David L. Babson & Company, Inc. 0.50%
Westfield Capital Management 0.45% of the first $10 million
Company, Inc. 0.40% of the next $40 million
0.35% thereafter
INTERNATIONAL EQUITY PORTFOLIO
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
BALANCED PORTFOLIO
Harbor Capital Management 0.50% of the first $75 million
Company Inc. 0.40% of the next $75 million
0.30% thereafter
Morgan Grenfell Capital 0.35% on the first $40 million
Management, Inc. 0.30% thereafter
INCOME OPPORTUNITY PORTFOLIO
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
STANDBY INCOME PORTFOLIO
Fort Washington Investment 0.15%
Advisors, Inc.
</TABLE>
Fort Washington Investment Advisors, Inc. is an affiliate of the Advisor,
and shareholders should be aware that the Advisor may be subject to a conflict
of interest when making decisions regarding the retention and compensation of
Fort Washington and may be subject to such a conflict concerning other
particular Portfolio Advisors. However, the Advisor's decisions, including the
identity of a Portfolio Advisor and the specific amount of the Advisor's
compensation to be paid to the Portfolio Advisor, are subject to review and
approval by a majority of the Board of Trustees and separately by a majority of
such Trustees who are not affiliated with the Advisor or any of its affiliates.
CONSULTANT TO THE INVESTMENT ADVISOR
RogersCasey Consulting, Inc. ("RogersCasey") located at One Parklands Drive,
Darien, Connecticut 06829, has been engaged in the business of rendering
portfolio advisor evaluations since 1976. The staff at RogersCasey is
experienced in acting as investment consultants and in developing, implementing
and managing multiple portfolio advisor programs. RogersCasey provides asset
management consulting services to various institutional and individual clients
and provides the Advisor with investment consulting services with respect to
development, implementation and management of the Trust's multiple portfolio
manager program. RogersCasey is employed by and its fees are paid by the Advisor
(not the Trust). As consultant, RogersCasey provides research concerning
registered investment advisors to be retained by the Advisor as Portfolio
Advisors, monitors and assists the Advisor with the periodic reevaluation of
existing Portfolio Advisors and makes periodic reports to the Advisor and the
Board of Trustees.
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PORTFOLIO ADVISORS
Subject to the supervision and direction of the Advisor and, ultimately, the
Board of Trustees, each Portfolio Advisor manages the securities held by the
Portfolio it serves in accordance with the Portfolio's stated investment
objective and policies, making investment decisions for the Portfolio and
placing orders to purchase and sell securities on behalf of the Portfolio.
The following sets forth certain information about each of the Portfolio
Advisors. The individuals employed by the Portfolio Advisor who are primarily
responsible for the day-to-day investment management of the Portfolio are named
below.
DAVID L. BABSON & COMPANY, INC. ("Babson") serves as one of two Portfolio
Advisors to EMERGING GROWTH PORTFOLIO. As of June 30, 1995, Babson became a
separate and distinct indirect subsidiary of MassMutual Holding Company. Babson
has been registered as an investment advisor under the Investment Advisers Act
of 1940, as amended, ("the Advisers Act"), since 1940. Babson provides
investment advisory services to individual and institutional clients. As of
December 31, 1995, Babson and affiliates had assets under management of $12.6
billion. Eugene H. Gardner, Jr., Peter C. Schliemann and Lance F. James are
primarily responsible for the day-to-day investment management of the portion of
the Portfolio's assets allocated to Babson by the Advisor. Mr. Gardner has been
with Babson since 1990; Mr. Schliemann has been with Babson since 1979; and Mr.
James has been with the firm since 1986. Babson's principal executive offices
are located at One Memorial Drive, Cambridge, Massachusetts 02142-1300.
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC. ("Westfield") serves as the
second Portfolio Advisor to EMERGING GROWTH PORTFOLIO. Westfield is owned 100%
by the active members of its professional staff. 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, 1995, Westfield had assets under management of $159 million.
Michael J. Chapman is primarily responsible for the day-to-day investment
management of the portion of the Portfolio's assets allocated to Westfield by
the Advisor. Mr. Chapman (CFA) has been with Westfield since 1990, after 9 years
with Eaton Vance Corporation in Boston, Massachusetts. Westfield's principal
executive offices are located at One Financial Center, Boston, Massachusetts
02111.
BEA ASSOCIATES serves as Portfolio Advisor to INTERNATIONAL EQUITY
PORTFOLIO. BEA Associates is a New York general partnership and is owned 80% by
Credit Swisse Capital Corporation and 20% by CS Advisors Corp., a New York
corporation which is a subsidiary of CS Capital. BEA Associates has been
registered as an investment advisor under the Advisers Act since 1968. BEA
Associates provides investment advisory services to individual and institutional
clients. As of December 31, 1995, BEA Associates had assets under management of
$27.4 billion. The Portfolio is managed using a team approach co-headed by
William Sterling and Emilio Bassini. Regional portfolio managers include Stephen
Swift, Steven Bleiberg and Richard Watt. The Managers have an average of 17
years experience in the industry, ranging from 13 years to 24 years. BEA
Associates' principal executive offices are located at 153 East 53rd Street, New
York, New York 10022.
HARBOR CAPITAL MANAGEMENT COMPANY, INC. ("Harbor") serves as Portfolio
Advisor to the equity portion of BALANCED PORTFOLIO. Harbor is 85% owned by the
employees of the firm and 15% by Baer Holding Limited of Zurich. Harbor has been
registered as an investment advisor under the Advisers Act since 1979. Harbor
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Harbor had assets under management of $3.6 billion.
Alan S. Fields and Ben Niedermeyer are primarily responsible for the day-to-day
investment management of the equity portion of the Portfolio. Mr. Fields has
been a Managing Director at Harbor since 1979 and Chairman of the Executive
Committee since 1993. Mr. Niedermeyer (CFA) has been a Vice President and
portfolio manager with Harbor since 1992. Harbor's principal executive offices
are located at 125 High Street, 26th Floor, Boston, Massachusetts 02110.
MORGAN GRENFELL CAPITAL MANAGEMENT, INC. ("Morgan Grenfell") serves as
Portfolio Advisor to the fixed-income portion of BALANCED PORTFOLIO. Morgan
Grenfell is owned 100% by Deutsche Bank. Morgan Grenfell has been registered as
an investment advisor under the Advisers Act since 1985. Morgan Grenfell
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Morgan Grenfell had assets under
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management of $7.9 billion. David W. Baldt is primarily responsible for the
day-to-day investment management of the fixed-income portion of the Portfolio.
Mr. Baldt (CFA) joined Morgan Grenfell in 1989. Morgan Grenfell's principal
executive offices are located at 885 Third Avenue, New York, New York 10022.
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance") serves as Portfolio Advisor to
INCOME OPPORTUNITY PORTFOLIO. Alliance is owned 8% by its employees and 59% by
wholly-owned subsidiaries of The Equitable Life Assurance Society of the United
States. The balance of its units are held by the public. 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, 1995, Alliance had assets under management of $146.5 billion.
Wayne Lyski and Vicki Fuller are primarily responsible for the day-to-day
investment management of the Portfolio. Mr. Lyski has been with Alliance since
1983 and has 22 years of investment experience. Ms. Fuller (CPA) has been with
Alliance, and its predecessors, since 1985 and has 15 years of investment
experience. Alliance's principal executive offices are located at 1345 Avenue of
the Americas, New York, New York 10105.
FORT WASHINGTON INVESTMENT ADVISORS, INC. ("Fort Washington") serves as
Portfolio Advisor to the STANDBY INCOME PORTFOLIO. Fort Washington is owned by
The Western and Southern Life Insurance Company. Fort Washington has been
registered as an investment advisor under the Advisers Act since 1990. Fort
Washington provides investment advisory services to individuals and
institutional clients. As of December 31, 1995, Fort Washington had assets under
management of $7.2 billion. Christopher J. Mahony is primarily responsible for
the day-to- day investment management of the Standby Income Portfolio. Mr.
Mahony joined Fort Washington in 1994 after eight years of investment experience
with Neuberger & Berman. Fort Washington's principal executive offices are
located at 420 East Fourth Street, Cincinnati, Ohio 45202.
ADDITIONAL RISKS AND INVESTMENT TECHNIQUES
The following are descriptions of types of securities invested in by the
Portfolios, certain investment techniques employed by those Portfolios and risks
associated with utilizing either the securities or the investment technique.
DERIVATIVES. The Portfolios 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 Portfolio Advisor will use derivatives only in
circumstances where the Portfolio Advisor believes they offer the most economic
means of improving the risk/reward profile of the Portfolio. 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 Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative. A description of the derivatives that the Portfolios 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 Portfolios. 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.
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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 Portfolios 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 Portfolios. The market value of the obligations held by
a Portfolio can be expected to vary inversely to changes in prevailing interest
rates. Shareholders also should recognize that, in periods of declining interest
rates, a Portfolio's yield will tend to be somewhat higher than prevailing
market rates and, in periods of rising interest rates, a Portfolio's yield will
tend to be somewhat lower. Also, when interest rates are falling, the inflow of
net new money to a Portfolio 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 Portfolio's current yield. In periods of rising
interest rates, the opposite can be expected to occur. In addition, securities
in which a Portfolio 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 S&P and 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 Portfolio 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 "When-Issued and Delayed-Delivery Securities" below.
U.S. GOVERNMENT SECURITIES. Each Portfolio 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.
MORTGAGE RELATED SECURITIES. Each Portfolio 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 Portfolio. 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 Portfolio. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Portfolio 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 Portfolio'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
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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 Portfolio 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 Portfolio 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 Portfolio
Advisor, the investment restriction limiting a Portfolio'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 Portfolio 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 Portfolio 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 Portfolio.
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 Portfolio not fully recovering its initial
investment in an interest-only stripped mortgage related security. Under current
market conditions, the Portfolio 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 Portfolio will be able to effect a trade of a stripped mortgage related
security at a time when it wishes to do so. The Portfolio 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 Portfolios 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 Portfolio 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 Portfolio's
distribution obligations, in which case the Portfolio 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
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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
Portfolio 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 Portfolio 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
Portfolio to supply additional cash to the borrower on demand at the time when a
Portfolio 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 Portfolio's other illiquid securities, to not more than
15% of the Portfolio's net assets.
SWAP AGREEMENTS. To help enhance the value of its portfolio or manage its
exposure to different types of investments, the Portfolios 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 the Portfolio's
performance. Swap agreements involve risks depending upon the other party's
creditworthiness and ability to perform, as judged by the Portfolio Advisor, as
well as the Portfolio'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 Portfolio's other illiquid securities, to
15% of that Portfolio'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 Portfolio is authorized to
assert its rights directly against the issuer of the underlying obligation, the
Portfolio 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 Portfolio may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Portfolio had
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purchased a direct obligation of the issuer. In addition, if the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
respect of any taxes paid.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, each Portfolio 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 Portfolio 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 Portfolio
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
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio 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 Portfolios may engage in repurchase
agreement transactions. Under the terms of a typical repurchase agreement, a
Portfolio 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 Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding period. A Portfolio 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 Portfolio
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 Portfolio enters into repurchase
agreements. In entering into a repurchase agreement, a Portfolio bears a risk of
loss in the event that the other party to the transaction defaults on its
obligations and the Portfolio 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
Portfolio 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 Portfolios
may enter into reverse repurchase agreements and forward roll transactions. In a
reverse repurchase agreement the Portfolio 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 Portfolio enters into a reverse repurchase agreement or forward roll
transaction it will place in a segregated custodial account cash, U.S.
Government securities or high grade, liquid debt obligations having a value
equal to the repurchase price, including accrued interest. Reverse repurchase
agreements and forward roll transactions involve the risk that the market value
of the securities sold by the Portfolio may decline below the repurchase price
of the securities. Reverse repurchase agreements and forward roll transactions
are considered to be borrowings by a Portfolio for purposes of the limitations
described in "Certain Investment Restrictions" below and in the Trust's
Statement of Additional Information.
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LENDING PORTFOLIO SECURITIES. To generate income for the purpose of helping
to meet its operating expenses, each Portfolio may lend securities to brokers,
dealers and other financial organizations. These loans, if and when made, may
not exceed 30% of a Portfolio's assets taken at value. A Portfolio's loans of
securities will be collateralized by cash, letters of credit or U.S. Government
securities. The cash or instruments collateralizing a Portfolio's loans of
securities will be maintained at all times in a segregated account with the
Portfolio's custodian, or with a designated subcustodian, in an amount at least
equal to the current market value of the loaned securities. In lending
securities to brokers, dealers and other financial organizations, a Portfolio is
subject to risks, which, like those associated with other extensions of credit,
include delays in recovery and possible loss of rights in the collateral should
the borrower fail financially.
ILLIQUID SECURITIES. No Portfolio 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
Portfolio may not invest in illiquid securities other than Rule 144A securities.
If a security becomes illiquid after purchase by the Portfolio, the Portfolio
will normally sell the security unless to do so would not be in the best
interests of shareholders.
NON-PUBLICLY TRADED ("RESTRICTED") SECURITIES AND RULE 144A
SECURITIES. Each Portfolio 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 Portfolio's 15% limit on illiquid securities. The Board of
Trustees of the Trust, with advice and information from the respective Portfolio
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 Portfolio Advisor,
the Board of Trustees of the Trust will monitor trading activity in restricted
securities. Because Rule 144A is relatively new, it is not possible to predict
how the markets for Rule 144A securities will develop. If institutional trading
in restricted securities or Rule 144A securities were to decline, a Portfolio's
illiquidity could be increased and the Portfolio could be adversely affected.
No Portfolio will invest more than 10% of its total assets in restricted
securities (including Rule 144A securities).
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when
the Portfolio Advisor of a Portfolio believes, in consultation with the Advisor,
that pursuing the Portfolio's basic investment strategy may be inconsistent with
the best interests of its shareholders, the Portfolio may invest its assets
without limit in the following money market instruments: U.S. Government
securities (including those purchased in the form of custodial receipts),
repurchase agreements, certificates of deposit 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 Portfolio Advisor of International
Equity Portfolio 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 Portfolio Advisor to be of equivalent
quality. Each Portfolio 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.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio 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 concurrence of the Portfolio
Advisor that such contracts are necessary or appropriate in the management of
the Portfolio'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
Portfolio intends to purchase.
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No Portfolio will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition, no
Portfolio will buy futures or write puts whose underlying value exceeds 25% of
its total assets, and no Portfolio will buy calls with a value exceeding 5% of
its total assets.
A Portfolio 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 Portfolio's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Portfolio 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
Portfolio'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 Portfolio
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 Portfolio 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 Portfolio may not
be able to close a futures or options position without incurring a loss in the
event of adverse price movements.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio 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 Portfolio 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 Portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the event of exchange rate movements
adverse to the Portfolio's position, it may not forfeit the entire amount of the
premium plus related transaction costs. In addition, the Portfolio may purchase
call options on currency when the Portfolio 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
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio 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 Portfolio 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 Portfolio 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-rated currency options. The Portfolio'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
Portfolio 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.
OPTIONS ON STOCK. Each Portfolio may write and 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 the Portfolio owns the underlying stock sold by the
Portfolio exposes the Portfolio during the
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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 the Portfolio
exposes the Portfolio during the term of the option to a decline in price of the
underlying stock.
To close out a position when writing covered options, the Portfolio 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 Portfolio 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 Portfolio may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased.
OPTIONS ON SECURITIES INDEXES. Each Portfolio may purchase and write put
and call options on securities indexes listed on domestic and, in the case of
those Portfolios 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.
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.
To the extent permitted by federal or state law, the International Equity
Portfolio may invest in options on foreign stock indexes in lieu of direct
investment in foreign securities. The Portfolio may also use foreign stock index
options for hedging purposes.
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 Portfolio
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 Portfolio of options on security indexes will be subject to the Portfolio
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.
FORWARD CURRENCY CONTRACTS. Each Portfolio that may invest in foreign
currency-denominated securities may hold currencies to meet settlement
requirements for foreign securities and may engage in currency exchange
transactions in order to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Portfolio's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another, for example, to exchange a certain amount of U.S. dollars for a
certain amount of French francs at a future date. The date (which may be any
agreed-upon fixed number of days in the future), the amount of currency to be
exchanged and the price at which the exchange will take place will be negotiated
with a currency trader and fixed for the term of the contract at the time that
the Portfolio enters into the contract.
In hedging specific portfolio positions, a Portfolio may enter into a
forward contract with respect to either the currency in which the positions are
denominated or another currency deemed appropriate by the Portfolio Advisor. The
amount the Portfolio may invest in forward currency contracts is limited to the
amount of the Portfolio's aggregate investments in foreign currencies. Risks
associated with entering into forward currency contracts include the possibility
that the market for forward currency contracts may be limited with respect to
certain currencies and,
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upon a contract's maturity, the inability of a Portfolio to negotiate with the
dealer to enter into an offsetting transaction. Forward currency contracts may
be closed out only by the parties entering into an offsetting contract. In
addition, the correlation between movements in the prices of those contracts and
movements in the price of the currency hedged or used for cover will not be
perfect. There is no assurance that an active forward currency contract market
will always exist. These factors will restrict a Portfolio's ability to hedge
against the risk of devaluation of currencies in which a Portfolio holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular security. See the Statement of Additional
Information for further information concerning forward currency contracts.
ASSET COVERAGE. To assure that a Portfolio'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 Portfolio 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 high
grade liquid debt securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.
CERTAIN INVESTMENT RESTRICTIONS
The Trust, on behalf of each Portfolio, has adopted certain investment
restrictions that are enumerated in detail in the Statement of Additional
Information. Among other restrictions, each Portfolio may not, with respect to
75% of its total assets taken at market value, invest more than 5% of its total
assets in the securities of any one issuer, except U.S. Government securities,
or acquire more than 10% of any class of the outstanding voting securities of
any one issuer. In addition, no Portfolio may invest more than 25% of its total
assets in securities of issuers in any one industry. Each Portfolio may borrow
money as a temporary measure from banks in an aggregate amount not exceeding
one-third of the value of the Portfolio's total assets to meet redemptions and
for other temporary or emergency purposes not involving leveraging. Reverse
repurchase agreements and forward roll transactions involving mortgage related
securities will be aggregated with bank borrowings for purposes of this
calculation. No Portfolio may purchase securities while borrowings exceed 5% of
the value of the Portfolio's total assets. No Portfolio will invest more than
15% of the value of its net assets in securities that are illiquid, including
certain government stripped mortgage related securities, repurchase agreements
maturing in more than seven days and that cannot be liquidated prior to
maturity, and securities that are illiquid by virtue of the absence of a readily
available market. Securities that have legal or contractual restrictions on
resale but have a readily available market, such as certain Rule 144A
securities, are deemed not illiquid for this purpose. No Portfolio may invest
more than 10% of its assets in restricted securities (excluding Rule 144A
securities). See "Risk Factors and Certain Investment Techniques -- Illiquid
Securities" and "-- Non-Publicly Traded ("Restricted") Securities and Rule 144A
Securities."
PORTFOLIO TURNOVER
No Portfolio, other than the Standby Income Portfolio will trade in
securities for short term profits but, when circumstances warrant, securities
may be sold without regard to the length of time held. An annual turnover rate
of 100% would occur when all the securities held by the Portfolio are replaced
one time during a period of one year. For the year ended December 31, 1995, the
annual turnover rate of each Portfolio is as follows: Emerging Growth Portfolio
- -- 101%; International Equity Portfolio -- 86%; Balanced Portfolio -- 124%
(equity investments -- 110%, fixed-income investments -- 145%); Income
Opportunity Portfolio -- 104%; and Standby Income Portfolio -- 159%. A portfolio
turnover rate of approximately 100% may be higher than those of other funds. A
Portfolio with a higher portfolio turnover rate will have higher brokerage
transaction expenses and a higher incidence of realized capital gains or losses.
See "Taxation" and "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
OPENING AN ACCOUNT
SINCE YOU MAY NOT PURCHASE A PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ
THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN
INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY CONTRACT.
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SHARE PRICE
The term "net asset value" or NAV refers to the worth of one share. The NAV
is computed by adding the value of each Portfolio's investments, cash and other
assets, deducting liabilities and dividing the result by the number of shares
outstanding. Each Portfolio is open for business each day the New York Stock
Exchange Inc. ("NYSE") is open. The price of one share is its NAV which is
normally calculated at the close of regular trading on the NYSE (currently 4:00
p.m. New York time).
INVESTMENTS
Investments in a Portfolio may be made only through separate accounts
established and maintained by insurance companies for the purpose of funding
variable contracts. Please refer to the prospectus of your insurance company's
separate account for information on how to invest in a variable annuity
contract, and how to direct your investments into subaccounts which invest in
the corresponding Portfolios.
Investments by separate accounts in each Portfolio are expressed in terms of
full and fractional shares of each Portfolio. All investments in the Portfolios
are credited to an insurance company's separate account immediately upon
acceptance of the investment by a Portfolio. Investments will be processed at
the NAV calculated after an order is received and accepted by a Portfolio.
The offering of shares of any Portfolio may be suspended for a period of
time and each Portfolio reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in the Advisor's opinion, they are of
a size that would disrupt the management of a Portfolio.
REDEMPTIONS
Shares of any Portfolio may be redeemed by the insurance company to make
benefit or surrender payments on any business day. Redemptions are effected at
the per share NAV next determined after receipt of the redemption request has
been accepted by a Portfolio. Redemption proceeds will normally be wired to the
insurance company on the next business day after receipt of the redemption
instructions by a Portfolio but in no event later than 7 days following receipt
of instructions. Each Portfolio may suspend redemptions or postpone payment
dates on days when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
NET ASSET VALUE
Each Portfolio's net asset value per share is calculated on each day, Monday
through Friday, except on days on which the NYSE is closed. Net asset value per
share is determined as of the close of regular trading on the NYSE (currently
4:00 p.m. New York time) and is computed by dividing the value of a Portfolio's
net assets by the total number of its shares outstanding. The net asset value of
each Portfolio is determined as of the close of regular trading on the NYSE on
each day on which the NYSE is open for trading, by deducting the amount of the
Portfolio's liabilities from the value of its assets.
Generally, a Portfolio's investments are valued at market value or, in the
absence of a market value, at fair value as determined by or under the direction
of the Board of Trustees.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges, except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees. A security that is primarily traded on a
domestic or foreign stock exchange is valued at the last sale price on that
exchange or, if no sales occurred during the day, at the current quoted bid
price. All short term dollar-denominated investments that mature in 60 days or
less are valued on the basis of amortized cost (which involves valuing an
investment at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the investment) which the Board of
Trustees has determined represents fair value. An option that is written by a
Portfolio is generally valued at the last sale price or, in the absence of the
last sale price, the last offer price. An option that is purchased by a
Portfolio is generally valued at the last sale price or, in the absence of the
last sale price, the last bid price. The value of a futures contract is equal to
the unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price
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for a like contract on the valuation date of the futures contract. A settlement
price may not be used if the market makes the maximum price change in a single
trading session permitted by an exchange (a "limit move") with respect to a
particular futures contract or if the securities underlying the futures contract
experience significant price fluctuations after the determination of the
settlement price. When a settlement price cannot be used, futures contracts will
be valued at their fair market value as determined by or under the direction of
the Board of Trustees.
All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Board of Trustees. In
carrying out the valuation policies of the Board of Trustees, independent
pricing services may be consulted. Further information regarding the valuation
policies is contained in the Statement of Additional Information.
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. See "Management of the Trust" in the Statement of Additional Information
for more information about the Trustees and officers of the Trust.
SPONSOR
Touchstone Advisors, as sponsor to the Trust (the "Sponsor"), pursuant to an
agreement (the "Sponsor Agreement") provides oversight of the various service
providers to the Trust, including the administrator and the custodian. As
Sponsor to the Trust, Touchstone Advisors reserves the right to receive a
sponsor fee from each Portfolio equal on an annual basis to 0.20% of the average
daily net assets of that Portfolio for its then-current fiscal year. The Sponsor
Agreement may be terminated by the Sponsor at the end of any calendar quarter
after December 31, 1996 or by the Trust on not less than 30 days prior written
notice. The Sponsor has advised the Trust that it will waive all fees under the
Sponsor Agreement through April 30, 1997.
ADMINISTRATOR
Signature Financial Services, Inc. ("Signature"), located at 6 St. James
Avenue, Boston Massachusetts 02116, serves as administrator and fund accounting
agent to the Trust (the "Administrator") pursuant to an agreement
("Administrative Services and Fund Accounting Agreement"). Pursuant to the
Administrative Services and Fund Accounting Agreement, Signature provides the
Trust with general office facilities and supervises the overall administration
of the Trust, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of, the
independent contractors and agents of the Trust; the preparation and filing of
all documents required for compliance by the Trust with applicable laws and
regulations; and arranging for the maintenance of books and records of the
Trust. Signature provides persons satisfactory to the Board of Trustees of the
Trust to serve as certain officers of the Trust. Such officers, as well as
certain other employees and Trustees of the Trust, may be directors, officers or
employees of Signature or its affiliates.
For the services to be rendered by Signature, each Portfolio shall pay to
Signature administrative services and fund accounting fees computed and paid
monthly that are equal, in the aggregate, to 0.16% on an annual basis of the
average daily net assets of all the Portfolios. After $100 million of total
assets, this fee is reduced according to an asset schedule down to a minimum of
0.05%. After the total fees owing to Signature are determined, each Portfolio
will be allocated its pro-rata share on the basis of average daily net assets.
In addition, each Portfolio is subject to a minimum annual administrative
services and fund accounting fee. See "Management of the Trust" in the Statement
of Additional Information.
DISTRIBUTOR
Touchstone Securities, Inc., an affiliate of the Advisor, acts as principal
underwriter of the shares of each Portfolio pursuant to a distribution agreement
with the Trust.
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CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT") is located at 89 South Street,
Boston, Massachusetts 02111, and serves as custodian of each Portfolio's
investments. IBT also serves as the Trust's transfer agent.
ALLOCATION OF EXPENSES OF THE PORTFOLIOS
Each Portfolio bears its own expenses, which generally include all costs not
specifically borne by the Advisor, the Portfolio Advisors and the Administrator.
Included among a Portfolio's expenses are: costs incurred in connection with its
organization; investment management and administration fees; fees for necessary
professional and brokerage services; fees for any pricing service; the costs of
regulatory compliance; and costs associated with maintaining the Trust's legal
existence and shareholder relations. Pursuant to the Sponsor Agreement, the
Sponsor has agreed to waive or reimburse certain fees and expenses of each
Portfolio such that after such waivers and reimbursements, the aggregate
Operating Expenses of each Portfolio (as used herein, "Operating Expenses"
include amortization of organizational expenses but is exclusive of interest,
taxes, brokerage commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses) do not exceed that Portfolio's expense
cap (the "Expense Cap"). Each Portfolio's Expense Cap is as follows: Emerging
Growth Portfolio -- 1.15%; International Equity Portfolio -- 1.25%; Balanced
Portfolio -- .90%; Income Opportunity Portfolio -- .85%; and Standby Income
Portfolio -- .50%. An Expense Cap may be terminated with respect to a Portfolio
upon 30 days prior written notice by the Sponsor at the end of any calendar
quarter after December 31, 1996.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income (I.E., income other than long and short term capital
gains) and net realized long and short term capital gains will be determined
separately for each Portfolio. Dividends derived from net investment income and
distributions of net realized long and short term capital gains paid by a
Portfolio to a shareholder will be automatically reinvested (at current net
asset value) in additional shares of that Portfolio (which will be deposited in
the shareholder's account) unless the shareholder instructs the Trust, in
writing, to pay all dividends and distributions in cash. Dividends attributable
to the net investment income of the Standby Income Portfolio will be declared
daily and paid monthly. Shareholders of that Portfolio receive dividends from
the day following the purchase up to and including the date of redemption.
Dividends attributable to the net investment income of the Income Opportunity
Portfolio are declared and paid monthly. Dividends attributable to the net
investment income of the Balanced Portfolio are declared and paid quarterly.
Dividends attributable to the net investment income of the Emerging Growth
Portfolio and International Equity Portfolio are declared and paid annually.
Distributions of any net realized long term and short term capital gains earned
by a Portfolio will be made annually.
TAXES
Because each Portfolio is treated as a separate entity for federal income
tax purposes, the amounts of net income and net realized capital gains subject
to tax will be determined separately for each Portfolio (rather than on a
Trust-wide basis).
Each Portfolio separately intends to qualify each year as a regulated
investment company for federal income tax purposes. The requirements for
qualification by a Portfolio may cause it, among other things, to restrict the
extent of its short term trading or its transactions in warrants, currencies,
options, futures or forward contracts and will cause each Portfolio to maintain
a diversified asset portfolio.
A regulated investment company will not be subject to federal income tax on
its net income and its capital gains that it distributes to shareholders, so
long as it meets certain overall distribution requirements and other conditions
under the Internal Revenue Code of 1986, as amended (the "Code"). Each Portfolio
intends to satisfy these overall distribution requirements and any other
required conditions. In addition, each Portfolio is subject to a 4%
nondeductible excise tax measured with respect to certain undistributed amounts
of ordinary income and capital gains. The Trust intends to have each Portfolio
pay additional dividends and make additional distributions as are necessary in
order to avoid application of the excise tax, if such payments and distributions
are determined to be in the best interest of the Portfolio's shareholders.
Dividends declared by a Portfolio in October, November or December of any
calendar year and payable to shareholders of record on a specified date in such
a month shall be
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deemed to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the Portfolio not later than such December 31
provided that such dividend is actually paid by the Portfolio during January of
the following year.
Dividends declared by a Portfolio of net income and distributions of a
Portfolio's net realized short term capital gains (including short term gains
from Portfolio investments in tax exempt obligations) will be taxable to
shareholders as ordinary income for federal income tax purposes, regardless of
how long shareholders have held their Portfolio shares and whether the dividends
or distributions are received in cash or reinvested in additional shares.
Distributions by a Portfolio of net realized long term capital gains (including
long term gains from Portfolio investments in tax exempt obligations) will be
taxable to shareholders as long term capital gains for federal income tax
purposes, regardless of how long a shareholder has held his Portfolio shares and
whether the distributions are received in cash or reinvested in additional
shares.
A portion of the dividends and all distributions of capital gains paid by
the Portfolios will not qualify for the dividend received deduction for
corporations. As a general rule, dividends paid by a Portfolio, to the extent
derived from dividends attributable to certain types of stock issued by U.S.
corporations, will qualify for the dividend received deduction for corporations.
Some states, if certain asset and diversification requirements are
satisfied, permit shareholders to treat their portions of a Portfolio's
dividends that are attributable to interest on U.S. Treasury securities and
certain U.S. Government securities as income that is exempt from state and local
income taxes. Dividends attributable to repurchase agreement earnings are, as a
general rule, subject to state and local taxation.
Net income or capital gains earned by a Portfolio investing in foreign
securities may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the Portfolios to a reduced rate of tax or exemption from tax on this
related income and gains. It is impossible to determine the effective rate of
foreign tax in advance since the amount of these Portfolios' assets to be
invested within various countries is not known. Furthermore, if a Portfolio
qualifies as a regulated investment company, if certain distribution
requirements are satisfied, and if more than 50% of the value of the Portfolio's
assets at the close of the taxable year consists of stocks or securities of
foreign corporations, the Portfolio may elect, for U.S. federal income tax
purposes, to treat foreign income taxes paid by the Portfolio that can be
treated as income taxes under U.S. income tax principles as paid by its
shareholders. The Trust anticipates that the International Equity Portfolio will
qualify for and make this election in most, but not necessarily all, of its
taxable years. If a Portfolio were to make an election, an amount equal to the
foreign income taxes paid by the Portfolio would be included in the income of
its shareholders and the shareholders would be entitled to credit their portions
of this amount against their U.S. tax liabilities, if any, or to deduct such
portions from their U.S. taxable income, if any. Shortly after any year for
which it makes an election, a Portfolio will report to its shareholders, in
writing, the amount per share of foreign tax that must be included in each
shareholder's gross income and the amount which will be available for deduction
or credit. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Certain limitations will be imposed on the extent
to which the credit (but not the deduction) for foreign taxes may be claimed.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Shareholders will also receive, if
appropriate, various written notices after the close of the Portfolios' taxable
year with respect to certain foreign taxes paid by the Portfolios and certain
dividends and distributions that were, or were deemed to be, received by
shareholders from the Portfolios during the Portfolios' prior taxable year.
PERFORMANCE OF THE PORTFOLIOS
PERFORMANCE
EACH PORTFOLIO'S PERFORMANCE MAY BE QUOTED IN ADVERTISING IN TERMS OF YIELD
AND TOTAL RETURN IF ACCOMPANIED BY PERFORMANCE OF THE INSURANCE COMPANY'S
SEPARATE ACCOUNT. Performance is based on historical results and not intended to
indicate future performance.
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YIELD
For the Income Opportunity Portfolio, the Balanced Portfolio and the Standby
Income Portfolio, from time to time, the Trust may advertise the 30-day "yield."
The yield of a Portfolio refers to the income generated by an investment in the
Portfolio over the 30-day period identified in the advertisement and is computed
by dividing the net investment income per share earned by the Portfolio during
the period by the net asset value per share on the last day of the period. This
income is "annualized" by assuming that the amount of income is generated each
month over a one-year period and is compounded semi-annually. The annualized
income is then shown as a percentage of the net asset value.
TOTAL RETURN
From time to time, the Trust may advertise a Portfolio's "average annual
total return" over various periods of time. This total return figure shows the
average percentage change in value of an investment in the Portfolio from the
beginning date of the measuring period to the ending date of the measuring
period. The figure reflects changes in the price of the Portfolio's shares and
assumes that any income, dividends and/or capital gains distributions made by
the Portfolio during the period are reinvested in shares of the Portfolio.
Figures will be given for recent one-, five-and ten-year periods (if applicable)
and may be given for other periods as well (such as from commencement of the
Portfolio's operations or on a year-by-year basis). When considering average
total return figures for periods longer than one year, shareholders should note
that a Portfolio's annual total return for any one year in the period might have
been greater or less than the average for the entire period. A Portfolio also
may use aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in the Portfolio's share price, the effect of
the maximum sales charge during the period and assuming reinvestment of
dividends and distributions). Aggregate total returns may be shown by means of
schedules, charts or graphs, and may indicate subtotals of the various
components of total return (that is, the change in value of initial investment,
income dividends and capital gains distributions). A Portfolio may also quote
non-standardized total return figures, such as non-annualized figures or figures
that do not reflect the maximum sales charge (provided that these figures are
accompanied by standardized total return figures calculated as described above).
GENERAL
It is important to note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Statement of Additional Information describes in more detail the method used to
determine a Portfolio's yield and total return.
YIELDS AND TOTAL RETURNS FOR THE PORTFOLIOS INCLUDE THE EFFECT OF DEDUCTING
EACH PORTFOLIO'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE
TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE PORTFOLIOS MAY ONLY BE
PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR
INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from
quotations of each Portfolio's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges when
comparing a Portfolio's performance to that of other mutual funds.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's 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 five series 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.
The Trust is not required to hold annual meetings of shareholders but the
Trust will hold special meetings of shareholders when in the judgement of the
Trustees it is necessary or desirable to submit matters for a shareholder
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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 Portfolio, shareholders of that Portfolio would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
shareholders.
The Trust is an entity of the type commonly known 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.
When matters are submitted for shareholder vote, shareholders of each
Portfolio will have one vote for each full share held and proportionate,
fractional vote for fractional shares held. A separate vote of each Portfolio is
required on any matter affecting a Portfolio on which shareholders are entitled
to vote. Shareholders of a Portfolio are not entitled to vote on Trust matters
that do not affect the Portfolio and do not require a separate vote of the
Portfolio. 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
shareholder's 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 Portfolios.
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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 edge." 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.
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.
A-1
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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 RATING
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 these obligations. 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.
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-2
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DISTRIBUTOR
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, Ohio 45202
(800) 669-2796 (press 3)
INVESTMENT ADVISOR & SPONSOR
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, Ohio 45202
VARIABLE ANNUITY SERVICE CENTER
Touchstone Variable Annuity Service Center
P.O. Box 419707
Kansas City, Missouri 64179-0819
(800) 669-2796 (press 2)
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
201 East Fourth Street
Cincinnati, Ohio 45202
LEGAL COUNSEL
Frost & Jacobs
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
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T O U C H S T O N E
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FORM 7126-9605 THE MARK OF EXCELLENCE IN INVESTMENT MANAGEMENT-SM-
<PAGE>
IFS0020G
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
SELECT ADVISORS VARIABLE INSURANCE TRUST
oTouchstone Emerging Growth Portfolio
oTouchstone International Equity Portfolio
oTouchstone Balanced Portfolio
oTouchstone Income Opportunity Portfolio
oTouchstone Standby Income Portfolio
Select Advisors Variable Insurance Trust (the "Trust") is composed of five
funds: Emerging Growth Portfolio, International Equity Portfolio, Balanced
Portfolio, Income Opportunity Portfolio and Standby Income Portfolio (each, a
"Portfolio"). The Trust is an open-end, diversified, management investment
company formed as a Massachusetts business trust.
Shares of the Portfolios 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 Portfolio and the specific investments of each Portfolio are
managed on a day-to-day basis by their respective investment advisors
(collectively, the "Portfolio Advisors"). Signature Financial Services, Inc.
("Signature" or the "Administrator") serves as administrator and fund accounting
agent to each Portfolio.
The Prospectus dated May 1, 1996, provides the basic information investors
should know before investing, and may be obtained without charge by
<PAGE>
calling the Trust at the telephone number listed below. 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 Prospectus. This Statement of Additional
Information is not an offer of any Portfolio for which an investor has not
received a Prospectus. Capitalized terms not otherwise defined in this Statement
of Additional Information have the meanings accorded to them in the Prospectus.
TOUCHSTONE ADVISORS, INC.
INVESTMENT ADVISOR OF EACH PORTFOLIO
TOUCHSTONE SECURITIES, INC.
DISTRIBUTOR
311 Pike Street
Cincinnati, Ohio
(800) 669-2796
2
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TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS..................... 3
PERFORMANCE INFORMATION..................................................... 22
VALUATION OF SECURITIES; REDEMPTION IN KIND................................. 24
MANAGEMENT OF THE TRUST..................................................... 25
ORGANIZATION OF THE TRUST................................................... 31
TAXATION.................................................................... 31
FINANCIAL STATEMENTS........................................................ 34
3
<PAGE>
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS
INVESTMENT OBJECTIVES
The investment objective(s) of each Portfolio is described in the
Prospectus. There can, of course, be no assurance that any Portfolio will
achieve its investment objective(s).
INVESTMENT POLICIES, PRACTICES, RESTRICTIONS AND RISKS
The following provides additional information about the investment
policies employed by one or more Portfolios. Please refer to the Prospectus for
information as to which investment techniques are employed by which Portfolio.
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.
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
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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 to the
Prospectus.
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 Portfolio, the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
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
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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 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.
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 of 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 Portfolio Advisor will monitor the liquidity of Rule 144A
securities in each Portfolio's portfolio under the supervision of the Board of
Trustees. In reaching liquidity decisions, the Portfolio 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).
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING
EASTERN EUROPE. Investments in companies domiciled in Eastern
European countries may be subject to potentially greater risks
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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 Portfolios' investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests; (iv)
foreign taxation; (v) the absence of developed legal structures governing
private or foreign investment or allowing for judicial redress for injury to
private property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the Commonwealth of Independent States (formerly the Union of
Soviet Socialist Republics).
So long as the Communist Party continues to exercise a significant or,
in some cases, dominant role in Eastern European countries, investments in such
countries will involve risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in many cases
without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such expropriation,
a Portfolio 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 Portfolio's
shareholders.
LENDING OF PORTFOLIO SECURITIES. By lending its securities, a Portfolio
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 Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio 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 Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio 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 Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower;
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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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The successful use of such instruments draws upon the
Portfolio Advisor's skill and experience with respect to such instruments and
usually depends on the Portfolio Advisor's ability to forecast interest rate and
currency exchange rate movements correctly. Should interest or exchange rates
move in an unexpected manner, a Portfolio 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 Portfolio 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 Portfolio 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, GNMA modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. A Portfolio 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 Portfolio
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 Portfolio
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.
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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 Portfolio 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 Portfolio which holds or intends to acquire fixed-income securities,
is to attempt to protect the Portfolio 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 Portfolio 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 securities owned by the Portfolio. If interest rates did
increase, the value of the debt security in the Portfolio would decline, but the
value of the futures contracts to the Portfolio would increase at approximately
the same rate, thereby keeping the net asset value of the Portfolio from
declining as much as it otherwise would have. The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio could then buy debt securities
on the cash market.
When a Portfolio enters into a futures contract for any purpose, the
Portfolio will establish a segregated account with the Portfolio's custodian to
collateralize or "cover" the Portfolio's obligation consisting of cash, cash
equivalents or high grade liquid debt 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
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variation margin payments made by the Portfolio 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 Portfolio Advisor may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although each applicable
Portfolio Advisor believes that use of such contracts will benefit the
respective Portfolio, if the Portfolio Advisor's investment judgment about the
general direction of interest rates is incorrect, a Portfolio's overall
performance would be poorer than if it had not entered into any such contract.
For example, if a Portfolio 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 Portfolio 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 Portfolio 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 Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio 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 contract or underlying debt securities. As with
the purchase of futures contracts, when a Portfolio 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.
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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 Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio'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 Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio 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 Portfolio'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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio and premiums paid on outstanding options
on futures contracts owned by the Portfolio would exceed 5% of the market value
of the total assets of the Portfolio.
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 Portfolio may purchase put
options on the foreign currency. If the value of the currency does decline, a
Portfolio will have the right to sell such currency for a fixed
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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 Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving 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 Portfolio 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 Portfolio 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
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio 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 Portfolio 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 Portfolio 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 Portfolios intend to write covered call options on foreign
currencies. A call option written on a foreign currency by a Portfolio is
"covered" if the Portfolio 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
Portfolio has a call on the same foreign currency and in the same principal
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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 Portfolio in cash, U.S. Government securities and other high quality liquid
debt securities in a segregated account with its custodian.
Certain Portfolios 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 Portfolio 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 Portfolio collateralizes the
option by maintaining in a segregated account with its custodian, cash or U.S.
Government securities or other high quality liquid debt securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by a Portfolio
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,
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,
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potentially permitting a Portfolio 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
Portfolio'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
Portfolio 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
Portfolio'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.
OPTIONS ON SECURITIES. The respective Portfolios may write
(sell), to a limited extent, only covered call and put options on
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a security then held in its portfolio ("covered options") in an attempt to
increase income. However, the Portfolio 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 Portfolio.
When a Portfolio 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 Portfolio 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 Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio 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 Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio 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 Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, 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. The Portfolio will only write put options involving
securities that the Portfolio owns, or which the Portfolio wishes to acquire at
the exercise price.
A Portfolio 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 Portfolio cannot effect a closing purchase transaction,
it may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
When a Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio'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 Portfolio enters into a closing purchase transaction, the
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Portfolio 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 Portfolio 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.
Securities against which options are written will be segregated on the
books of the custodian for the Portfolio. If the Portfolio does not own the
security on which the option is written, the Portfolio will "cover" its
obligation by placing high grade liquid debt securities in a segregated account
at the Portfolio's custodian.
A Portfolio may purchase call and put options on any securities in
which it may invest. The Portfolio 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 Portfolio, in exchange for the premium paid,
to purchase a security at a specified price during the option period. The
Portfolio 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 Portfolio 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 Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio'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
Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio 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 Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The Portfolio'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.
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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 Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio 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 Portfolio Advisor will
monitor the creditworthiness of dealers with whom a Portfolio enters into such
options transactions under the general supervision of the Board of Trustees.
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
Portfolio generally will only purchase or write such an option if the Portfolio
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 Portfolio will not purchase such options unless
the Advisor and the respective Portfolio 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 Portfolio's portfolio may not correlate precisely
with movements in the level of an index and, therefore,
17
<PAGE>
the use of options on indexes cannot serve as a complete hedge. Because options
on securities indexes require settlement in cash, the Portfolio Advisor may be
forced to liquidate portfolio securities to meet settlement obligations.
When a Portfolio writes a put or call option on a securities index it
will cover the position by placing high grade liquid debt instruments in a
segregated asset account with the Portfolio's custodian.
FORWARD CURRENCY CONTRACTS. Because, when investing in foreign
securities,a Portfolio 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 Portfolios 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 Portfolio 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 Portfolio 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
Portfolio maintains with its custodian a segregated account of high grade liquid
assets 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 Portfolio's securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
A Portfolio 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 Portfolio Advisor's long-term
investment decisions, a Portfolio will not routinely enter into foreign currency
hedging transactions with respect to security transactions; however, the
Portfolio 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 Portfolio's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of the
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<PAGE>
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 Portfolio's ability to utilize forward currency contracts in the
manner set forth in the Prospectus 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 Portfolio than if it had not
entered into such contracts. The use of foreign currency 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 Portfolio's foreign
currency denominated portfolio securities and the use of such techniques will
subject a Portfolio 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 Portfolio may not always be able to enter into foreign
currency forward currency contracts at attractive prices and this will limit the
Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a Portfolio'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 Portfolio's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Portfolio's assets that
are the subject of such cross-hedges are denominated.
RATING SERVICES
The ratings of rating services 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, the Portfolio Advisors also make their own evaluation of
these securities, subject to review by the Board of Trustees. After purchase by
a Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require a Portfolio to eliminate the obligation from its
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<PAGE>
portfolio, but a Portfolio Advisor will consider such an event in its
determination of whether a Portfolio should continue to hold the obligation. A
description of the ratings used herein and in the Trust's Prospectus is set
forth in the Appendix to the Prospectus.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of
each Portfolio and may not be changed with respect to the Portfolio without the
approval of a "majority of the outstanding voting securities" of the Portfolio .
"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 Prospectus, means, with respect to the Portfolio,
the lesser of (i) 67% or more of the outstanding voting securities of the
Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present or represented by
proxy or (ii) more than 50% of the outstanding voting securities of the
Portfolio.
As a matter of fundamental policy, no Portfolio may:
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio'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 "State and Federal Restrictions"
below;
(2) underwrite securities issued by other persons except insofar as the
Portfolios 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
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
(4) 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
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<PAGE>
option contracts) in the ordinary course of business (except that the Portfolio
may hold and sell, for the Portfolio's portfolio, real estate acquired as a
result of the Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry
(excluding U.S. Government securities), but if it is deemed
appropriate for the achievement of a Portfolio'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 greater in value than 5% of the value of the total assets
of the Portfolio and to not more than 10% of the outstanding voting securities
of such issuer, invest more than 5% of its total assets in the securities
(excluding U.S. Government securities) of any one issuer.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies each Portfolio (or the Trust, on behalf of
each Portfolio) will not as a matter of "operating policy" (changeable by the
Board of Trustees without a shareholder vote):
(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 Portfolio may borrow
for temporary or emergency purposes up to 10% of its total
assets; provided, however, that no Portfolio may purchase any
security while outstanding borrowings exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of
10% of the Portfolio'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
21
<PAGE>
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;
(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 Portfolio if such purchase at the time thereof would
cause: (a) more than 10% of the Portfolio'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
Portfolio'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 Portfolio; provided
further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any
securities of any open-end investment company unless the
Portfolio (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 Portfolio'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 Portfolio
has valued the security) not including (a) Rule 144A
securities that have been determined to be liquid by the
Board of Trustees ; and (b)
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<PAGE>
commercial paper that is sold under section 4(2) of the 1933
Act which: (i) is not traded flat or in default as to interest
or principal; and (ii) is rated in one of the two highest
categories by at least two nationally recognized statistical
rating organizations and the Portfolio's Board of Trustees
have determined the commercial paper to be liquid; or (iii) is
rated in one of the two highest categories by one nationally
recognized statistical rating agency and the Portfolio's Board
of Trustees have determined that the commercial paper is
equivalent quality and is liquid;
(viii) invest more than 5% of the Portfolio's total assets in
securities issued by issuers which (including the period of
operation of any predecessor or unconditional guarantor of
such issuer) have been in operation less than three years;
(ix) invest more than 10% of the Portfolio'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 Portfolio's Board of
Trustees;
(x) purchase securities of any issuer if such purchase at the
time thereof would cause the Portfolio 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;
(xi) purchase or retain in the Portfolio's portfolio any
securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or
Trustee of the Portfolio (Trust), or is an officer or partner
of the Advisor, if after the purchase of the securities of
such issuer for the Portfolio one or more of such persons
owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at
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<PAGE>
market value, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or
both, all taken at market value;
(xii) invest more than 5% of the Portfolio's net assets in warrants
(valued at the lower of cost or market) (other than warrants
acquired by the Portfolio as part of a unit or attached to
securities at the time of purchase), but not more than 2% of
the Portfolio's net assets may be invested in warrants not
listed on the New York Stock Exchange Inc. ("NYSE") or the
American Stock Exchange;
(xiii) 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 Portfolio'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 Portfolios have no current intention to engage
in short selling);
(xiv) purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of the Portfolio's
aggregate investment in such classes of securities will
exceed 5% of its total assets;
(xv) 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
Portfolio and the option is issued by the Options Clearing
Corporation, 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 Portfolio's net
assets; (c) the securities subject to the exercise of the
call written by the Portfolio must be owned by the Portfolio
at the time the call is sold and must continue to be owned by
the Portfolio until the call has been exercised, has lapsed,
or the Portfolio has purchased a closing call, and such
purchase has been confirmed, thereby extinguishing the
Portfolio's obligation to deliver securities pursuant to the
call it has sold; and (d) at the
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<PAGE>
time a put is written, the Portfolio establishes a segregated
account with its custodian consisting of cash or short-term
U.S. Government securities equal in value to the amount the
Portfolio will be obligated to pay upon exercise of the put
(this account must be maintained until the put is exercised,
has expired, or the Portfolio has purchased a closing put,
which is a put of the same series as the one previously
written); and
(xvi) 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 Portfolio'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 Portfolio's
total assets.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Portfolio Advisors are responsible for decisions to buy and sell
securities, futures contracts and options on such securities and futures for
each Portfolio, 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 Portfolio Advisors or their subsidiaries or affiliates. Purchases
and sales of certain portfolio securities on behalf of a Portfolio are
frequently placed by the Portfolio 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 Portfolio. 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 Portfolio Advisors seek to evaluate the overall reasonableness of
the brokerage commissions paid
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<PAGE>
through familiarity with commissions charged on comparable transactions, as well
as by comparing commissions paid by the Portfolio to reported commissions paid
by others. In placing orders for the purchase and sale of securities for a
Portfolio, the Portfolio 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 Portfolio Advisors review on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Portfolio Advisors are authorized, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Portfolio 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 Portfolio Advisor may use this research
information in managing a Portfolio's assets, as well as the assets of other
clients.
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 Portfolio Advisors may consider sales
of shares of the Trust or the Portfolio Advisor as a factor in the selection of
broker-dealers to execute portfolio transactions. The Portfolio Advisor will
make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.
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<PAGE>
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 Portfolio and to the corresponding
Portfolio Advisor, it is the opinion of the management of the Portfolios that
such information is only supplementary to the Portfolio Advisor's own research
effort, since the information must still be analyzed, weighed and reviewed by
the Portfolio Advisor's staff. Such information may be useful to the Portfolio
Advisor in providing services to clients other than the Portfolios, and not all
such information is used by the Portfolio Advisor in connection with the
Portfolios. Conversely, such information provided to the Portfolio Advisor by
brokers and dealers through whom other clients of the Portfolio Advisor effect
securities transactions may be useful to the Portfolio Advisor in providing
services to the Portfolios.
In certain instances there may be securities which are suitable for a
Portfolio as well as for one or more of the respective Portfolio Advisor's other
clients. Investment decisions for a Portfolio and for the Portfolio 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
27
<PAGE>
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 Portfolio in
concerned. However, it is believed that the ability of a Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.
The Portfolios paid the following brokerage commissions for the periods
indicated:
<TABLE>
<S> <C> <C> <C> <C> <C>
Emerging International Income Standby
Aggregate Growth Equity Balanced Opportunity Income
Commission Portfolio Portfolio Portfolio Portfolio Portfolio
For the Year
Ended 12/31/95 $2,204 $15,378 $2,043 $0 $0
For the period
11/21/94* to
12/31/94 $5,180 $22,869 $4,882 $0 $0
- ------------
* Commencement of operations
</TABLE>
PERFORMANCE INFORMATION
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of a Portfolio's performance may be
included in advertisements, sales literature or shareholder reports, if
accompanied by performance of your insurance company's corresponding insurance
separate account. These performance figures are calculated in the following
manner:
YIELD: Yields for a Portfolio used in advertising are computed by
dividing the Portfolio'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 Portfolio'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 purpose 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
28
<PAGE>
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 Portfolio'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
Portfolio may differ from the rate of distributions of the Portfolio
paid over the same period or the rate of income reported in the
Portfolio's financial statements. The 30-day yield for the period ended
December 31, 1995 for the
Income Opportunity Portfolio, Balanced Portfolio and Standby Income
Portfolio was 10.13%, 2.54% and 3.90%, respectively. The Standby Income
Portfolio's 7-day yield for the period ended December 31, 1995 was
5.50%.
TOTAL RETURN: A Portfolio'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 Portfolio may
also calculate non-standardized total return figures which represent
aggregate (not annualized) performance over any period or year-by-year
performance.
<TABLE>
<S> <C> <C> <C> <C> <C>
Average Emerging International Income Standby
Annual Total Growth Equity Balanced Opportunity Income
Return Portfolio Portfolio Portfolio Portfolio Portfolio
For the Year Ended
12/31/95 19.57% 5.45% 24.56% 23.35% 5.90%
For the Period
11/21/94* to 12/31/95 18.54% 0.25% 23.75% 14.49% 5.85%
Aggregate
Total Return
For the 3-Month Period
Ended 3/31/96 4.97% 6.20% 3.48% 5.70% 1.19%
For the 12-Month Period
Ended 3/31/96 22.72% 16.52% 21.61% 36.63% 5.53%
</TABLE>
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<PAGE>
- ------------
* Commencement of operations
PERFORMANCE RESULTS: Any total return quotation provided for a
Portfolio should not be considered as representative of the performance
of the Portfolio in the future since the net asset value of shares of
the Portfolio will vary based not only on the type, quality and
maturities of the securities held in the Portfolio, but also on changes
in the current value of such securities and on changes in the expenses
of the Portfolio. These factors and possible differences in the methods
used to calculate total return should be considered when comparing the
total return of a Portfolio to total returns published for other
investment companies or other investment vehicles. Total return
reflects the performance of both principal and income.
COMPARISON OF PORTFOLIO PERFORMANCE
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of a Portfolio with performance quoted with respect to other
investment companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Portfolio also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indexes. The performance figures of unmanaged indexes may assume
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs. Evaluations of a Portfolio's performance
made by independent sources may also be used in advertisements concerning the
Portfolio. Sources for a Portfolio'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
PORTFOLIO 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 .
VALUATION OF SECURITIES; REDEMPTION IN KIND
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
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<PAGE>
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 Portfolios 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
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<PAGE>
companies, and other relevant matters.
To the extent that the Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
available, the Portfolio Advisor will value such securities based upon all
relevant factors as outlined in FRR 1.
Each Portfolio 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 and valued as they are for purposes of computing the Portfolio's net
asset value (a redemption in kind). If payment is made in securities a
shareholder may incur transaction expenses in converting these securities into
cash. The Trust, on behalf of each Portfolio has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which each Portfolio
are obligated to redeem shares or 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 Portfolio at the beginning of the period.
Each investor in a Portfolio, may add to or reduce its investment in
the Portfolio on each day that the NYSE is open for business. As of 4:00 p.m.,
New York time, on each such day, the value of each investor's interest in a
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or reductions which are to be effected
on that day will then be effected. The investor's percentage of the aggregate
beneficial interests in a Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of 4:00 p.m. on such day plus or minus, as the
case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected on such day and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of 4:00 p.m. on such
day plus or minus, as the case may be, the amount of net additions to or
reductions in the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of 4:00 p.m. on the
following day the NYSE is open for trading.
MANAGEMENT OF 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.
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TRUSTEES OF THE TRUST
*EDWARD G. HARNESS, JR. (age 47) -- Trustee and President; Director,
President and Chief Executive Officer, Touchstone (since December, 1993);
Director, Chief Executive Officer, Touchstone Securities (since October, 1991);
President, IFS Financial Services, Inc. (since November, 1990); President,
Landmark Financial Corporation (prior to July, 1990).
*WILLIAM J. WILLIAMS (age 80) -- Trustee; Chairman of the Board of
Directors, The Western and Southern Life Insurance Company (since 1984). His
address is 400 Broadway, Cincinnati, OH 45202.
JOSEPH S. STERN, JR., (age 78) -- Trustee; Retired Professor Emeritus,
College of Business, University of Cincinnati. His address is 3 Grandin Place,
Cincinnati, OH 45208.
PHILLIP R. COX (age 48) -- Trustee; President and Chief Executive
Officer, Cox Financial Corp. (prior to 1989); Director, Federal Reserve Bank of
Cleveland (since January, 1994); Director, Cincinnati Bell, Inc. (since March,
1993); Director, PNC Bank (since October, 1992); Director, CINergy (since May,
1994). His address is 4199 Crossgate Lane, Cincinnati, OH 45236.
ROBERT E. STAUTBERG (age 61) -- Trustee; Director, Scripps Howard
Broadcasting Co. (since May, 1989); Retired Partner, KPMG Peat Marwick (prior to
1989); Trustee, Good Samaritan Hospital (since January, 1988); Trustee and
Director of other not for profit organizations. His address is 4815 Drake Road,
Cincinnati, OH 45243.
DAVID POLLAK (age 79) -- Trustee; Retired; President, Ultimate
Distributing Company (prior to 1994); Vice Chairman and Director, Continental
Steel (prior to 1986); Director Emeritus, Fifth Third Bank; Trustee Emeritus,
Cornell University; Trustee and officer of other not for profit organizations.
His address is 1313 Kemper Road, Suite 111, Cincinnati, OH 45246.
OFFICERS OF THE TRUST
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Portfolio.
EDWARD S. HEENAN (age 52) -- Treasurer; Vice President and Controller,
Touchstone (since December, 1993); Director, Controller, Touchstone Securities
(since October, 1991); Vice
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<PAGE>
President and Comptroller, The Western and Southern Life Insurance Company
(since 1987). His address is 400 Broadway, Cincinnati, OH 45202.
THOMAS M. LENZ (age 37) -- Secretary; Senior Vice President and
Associate General Counsel, Signature Financial Group, Inc. ("SFG") (since
November, 1989); Attorney, Ropes & Gray (prior to November, 1989). His address
is 6 St. James Avenue, Boston,
Massachusetts 02116.
DAVID G. DANIELSON (age 31) -- Assistant Treasurer; Assistant Manager,
SFG (since May, 1991); Graduate Student, Northeastern University (from April,
1990 to March, 1991); Tax Accountant and Systems Analyst, Putnam Companies
(prior to March, 1990). His address is 6 St. James Avenue, Boston, Massachusetts
02116.
JOHN R. ELDER (age 47) -- Assistant Treasurer; Vice President, SFG
(since April, 1995); Treasurer, Phoenix Family of Mutual Funds (prior to April,
1995); Audit Manager, Price
Waterhouse (prior to 1983).
His address is 6 St.
James Avenue, Boston, Massachusetts 02116.
BRIAN J. HALL (age 30) -- Assistant Treasurer; Assistant Manager, SFG
(since November, 1991); Senior State Regulation Administrator (prior to
November, 1991) The Boston Company. His address is 6 St. James Avenue, Boston,
MA 02116.
BRIAN J. MANLEY (age 32) -- Assistant Treasurer; Vice President and
Chief Financial Officer, Touchstone (since December, 1993); Vice President and
Chief Financial Officer, Touchstone Securities (since November, 1991); Assistant
Controller, The Union Central Life Insurance Company (prior to 1991).
DANIEL E. SHEA (age 33) -- Assistant Treasurer; Assistant Manager, SFG
(since November 1993); Supervisor and Senior Technical Advisor, Putnam
Investments (prior to November 1993). His address is 6 St. James Avenue, Boston,
Massachusetts 02116.
LINDA T. GIBSON (age 30) -- Assistant Secretary; Vice President, Global
Product Management and Assistant Secretary, SFG (since May, 1992); student,
Boston University School of Law (September, 1989 to May, 1992) . Her address is
6 St.
James Avenue, Boston, Massachusetts 02116.
MOLLY S. MUGLER (age 44) -- Assistant Secretary; Legal Counsel and
Assistant Secretary, SFG (since December, 1988). Her address is 6 St. James
Avenue, Boston, Massachusetts 02116.
ANDRES E. SALDANA (age 33) -- Assistant Secretary; Legal
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Counsel, SFG (since November, 1992); Attorney, Ropes & Gray (September, 1990 to
November, 1992) . His address is 6 St. James Avenue, Boston, Massachusetts
02116.
Messrs. Danielson, Elder, Hall, Lenz, Saldana and Shea and Mss. Gibson
and Mugler also hold similar positions for affiliates of SFG and for other
investment companies for which SFG or an affiliate serves as administrator or
principal underwriter.
No director, officer or employee of the Advisor, the Portfolio
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, Select Advisors Portfolios, Select Advisors Trust A and
Select Advisors Trust C (the "Fund Complex") pay, in the aggregate, each Trustee
who is not a director, officer or employee of the Advisor, the Portfolio
Advisors, the Distributor, the Administrator or any of their affiliates an
annual fee of $5,000, respectively, per annum plus $1,000, respectively, per
meeting attended and reimburses them for travel and out-of-pocket expenses. For
the year ended December 31, 1995, the Trust incurred $7,950 in Trustee fees and
expenses. The following table reflects fees paid for the same period.
TRUSTEE COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST AND FUND COMPLEX
NAME FROM TRUST PAID TO TRUSTEES
Joseph S. Stern, Jr. $2,144 $10,000
Phillip R. Cox $2,144 $10,000
Robert E. Stautberg $2,144 $10,000
David Pollak $1,159 $9,000
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<PAGE>
As of April 1, 1996, the Trustees and officers of the Trust owned in
the aggregate less than 1% of the shares of any Portfolio or the Trust (all
series taken together).
ADVISOR, PORTFOLIO ADVISORS, ADMINISTRATOR AND DISTRIBUTOR
ADVISOR
Touchstone Advisors provides service to each Portfolio pursuant to an
Investment Advisory Agreement with the Trust (the "Advisory Agreement"). The
services provided by the Advisor consist of directing and supervising each
Portfolio Advisor, reviewing and evaluating the performance of each Portfolio
Advisor and determining whether or not any Portfolio Advisor should be replaced.
The Advisor furnishes at its own expense all facilities and personnel necessary
in connection with providing these services. The Advisory Agreement will
continue in effect if such continuance is specifically approved at least
annually by the Trustees and by a majority of the Board of 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.
The Advisory Agreement is terminable, with respect to a Portfolio
without penalty on not more than 60 days' nor less than 30 days' written notice
by the Trust when authorized either by, in the case of a Portfolio, majority
vote of the Portfolio's shareholders or by a vote of a majority of the Board of
Trustees or by the Advisor, and will automatically terminate in the event of its
assignment. The 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 Portfolios, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its or their obligations and duties under the Advisory
Agreement.
The Trust's Prospectus contains a description of fees payable to the
Advisor for services under the Advisory Agreements.
For the periods indicated, each Portfolio incurred the following
investment advisory fees equal on an annual basis to the following percentages
of the average daily net assets of each Portfolio.
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Emerging International Income Standby
Growth Equity Balanced Opportunity Income
Portfolio Portfolio Portfolio Portfolio Portfolio
Rate 0.80% 0.95% 0.70% 0.65% 0.25%
For the Year Ended $18,059 $45,830 $16,874 $13,754 $13,198
December 31, 1995
For the $1,753 $5,033 $1,519 $1,401 $1,368
Period
November 21, 1994*
to December 31, 1994
- ------------
* Commencement of operations
</TABLE>
For the periods indicated, the Advisor has voluntarily agreed to
reimburse each Portfolio the following amounts:
<TABLE>
<S> <C> <C> <C> <C> <C>
Emerging International Income Standby
Growth Equity Balanced Opportunity Income
Portfolio Portfolio Portfolio Portfolio Portfolio
For the Year
Ended
December 31, 1995 $53,734 $107,717 $56,860 $52,598 $54,343
For the $21,749 $22,961 $17,574 $23 ,084 $17,375
Period
November 21, 1994*
to December 31, 1994
- ------------
* Commencement of operations
</TABLE>
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<PAGE>
PORTFOLIO ADVISORS
The Advisor has, in turn, entered into a portfolio advisory agreement
(each, a "Portfolio Agreement") with each Portfolio Advisor selected by the
Advisor for a Portfolio. Under the direction of the Advisor and, ultimately, of
the Board of Trustees, each Portfolio Advisor is responsible for making all of
the day-to-day investment decisions for the respective Portfolio (or portion of
a Portfolio).
Each Portfolio Advisor furnishes at its own expense all facilities and
personnel necessary in connection with providing these services. Each Portfolio
Agreement contains provisions similar to those described above with respect to
the Advisory Agreement.
ADMINISTRATOR
Pursuant to an administrative services and fund accounting agreement
(the "Administrative Services Agreement"), Signature provides the Trust with
general office facilities and supervises the overall administration of the
Trust, including, among other responsibilities, the negotiation of contracts and
fees with, and the monitoring of performance and billings of, the independent
contractors and agents of the Trust; the preparation and filing of all documents
required for compliance by the Trust with applicable laws and regulations; and
arranging for the maintenance of books and records of the Trust. The
Administrator provides persons satisfactory to the Board of Trustees to serve as
officers of the Trust. Such officers, as well as certain other employees and
Trustees of the Trust, may be directors, officers or employees of the
Administrator or its affiliates.
Each Administrative Services Agreement provides that Signature shall
receive from each Portfolio administrative and fund accounting fees equal, in
the aggregate, on an annual basis to the following:
0.16% of the average daily net assets of all Select
Advisory Portfolios (as defined below) up to $100 million;
0.14% of the average daily net assets of all Select
Advisory Portfolios from $100 million to $200 million;
0.10% of the average daily net assets of all Select
Advisory Portfolios from $200 million to $500 million;
0.06% of the average daily net assets of all Select
Advisory Portfolios from $500 million to $1 billion; and
0.05% of the average daily net assets of all Select Advisory
Portfolios greater than $1 billion.
(As used above, the term "Select Advisory Portfolios" includes all
registered investment companies (or series thereof) the securities issued by
which are not registered under the Securities Act of 1933, as amended (the "1933
Act") and which invest in a portfolio of securities, as opposed to investing all
or most of their Assets in another
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<PAGE>
registered investment company, with which the Advisor has an investment
advisory agreement and with which Signature has an administrative
services and fund accounting agreement.)
In addition, each Portfolio is subject to a minimum annual
administrative services and fund accounting fee of $25,000. The Portfolios
incurred the following administrative and fund accounting fees for the periods
indicated:
<TABLE>
<S> <C> <C> <C> <C> <C>
Emerging International Income Standby
Growth Equity Balanced Opportunity Income
Portfolio Portfolio Portfolio Portfolio Portfolio
For the Year $28,035 $33,909 $30,059 $27,169 $28,485
December 31, 1995
For the $2,470 $2,740 $2,740 $2,740 $2,740
Period 11/21/94*
to 12/31/94
- -----------
* Commencement of operations
</TABLE>
The Administrative Services Agreement provides that Signature may
render administrative services to others. Each Administrative Services Agreement
also provides that neither the Administrator nor its personnel shall be liable
for any error of judgment or mistake of law or for any act or omission, except
for wilful misfeasance, bad faith or gross negligence in the performance of its
or their duties or by reason of reckless disregard of its or their obligations
and duties under the Administrative Services Agreement.
The Administrative Services Agreement terminates automatically if it is
assigned and may be terminated, with respect to a Portfolio, without penalty by
majority vote of the shareholders of the Portfolio or by either party on not
more than 60 days' nor less than 30 days' written notice.
Signature is a wholly-owned subsidiary of SFG, a Delaware corporation.
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<PAGE>
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT"), 89 South Street, Boston,
Massachusetts 02111, serves as custodian for each Portfolio pursuant to a
custody agreement. As custodian, it holds each Portfolio's assets.
IBT also serves as transfer agent of the Trust pursuant to a transfer
agency agreement. Under its transfer agency agreement with the Trust, IBT
maintains the shareholder account records for each Portfolio, handles certain
communications between shareholders and the Trust and causes to be distributed
any dividends and distributions payable by the Trust. IBT may be reimbursed by
the Trust for its out-of-pocket expenses.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Frost & Jacobs, 2500 PNC Center, 201 East 5th Street,
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<PAGE>
Cincinnati, Ohio 45202, serves as counsel to the Trust and each Portfolio.
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109,
acts as independent accountants of the Trust and each Portfolio.
ORGANIZATION OF THE TRUST
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 Portfolio,
except with respect to the election of Trustees and the ratification of the
selection of independent accountants.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
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.
TAXATION
The Trust intends to qualify annually and to elect each Portfolio to be
treated as a regulated investment company under the Code.
To qualify as a regulated investment company, each Portfolio 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) derive less than 30% of its gross
income from the sale or other disposition of certain assets (namely, (i) stock
or securities; (ii) options, futures, and forward contracts (other than those on
foreign currencies); and (iii) foreign currencies (including options, futures,
and forward currency contracts on such currencies) not directly related to the
Portfolio's principal business of investing in stock or securities (or options
and futures with respect to stocks or securities)) held less than three months
(the 30% Limitation");
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<PAGE>
(c) 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 Portfolio'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 Portfolio'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 (d) 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 Portfolio 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 Portfolio
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 Portfolio 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 Portfolio in October, November or December with a record date in
such a month and paid by the Portfolio 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
Portfolio intends to make its distributions in accordance with the calendar year
distribution requirement.
FOREIGN SECURITIES. 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
Portfolio's assets to be invested in various countries will vary.
If a Portfolio is liable for foreign taxes, and if more than 50% of the
value of the Portfolio's total assets at the close of its taxable year consists
of stocks or securities of foreign
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<PAGE>
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, which have invested in the Portfolio. Pursuant to such election, the
amount of foreign taxes paid will be included in the income of the investing
entities' shareholders and such investing entities' shareholders (except
tax-exempt shareholders) may, subject to certain limitations, claim either a
credit or deduction for the taxes. Each such investor will be notified after the
close of the Portfolio'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 an investor 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 Portfolio
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 Portfolio'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
Portfolio'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 Portfolio on the reinvestment date. Shareholders
will be notified annually as to the U.S. federal tax status of distributions.
FOREIGN WITHHOLDING TAXES
Income received by a Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING
A Portfolio 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 Portfolio 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
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<PAGE>
be credited against the shareholder's U.S. federal income tax liability.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Portfolio is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Portfolio
continues to qualify as a regulated investment company under Subchapter M of the
Code.
TAXATION OF VARIABLE CONTRACTS
For a discussion of tax consequences of variable contracts, please
refer to your insurance company's separate account prospectus.
Variable contracts purchased through insurance company separate
accounts provide for the accumulation of all earnings from interest, dividends
and capital appreciation without current federal income tax liability to the
owner. Depending on the variable contract, distributions from the contract may
be subject to ordinary income tax and a 10% penalty tax on distributions before
age 59 1/2. Only the portion of a distribution attributable to income is subject
to federal income tax. Investors should consult with competent tax advisors for
a more complete discussion of possible tax consequences in a particular
situation.
Section 817(h) of the Code provides that the investments of a separate
account underlying a variable insurance contract (or the investments of a mutual
fund, the shares of which are owned by the variable separate account) must be
"adequately diversified" in order for the contract to be treated as an annuity
or life insurance for tax purposes. The Department of the Treasury has issued
regulations prescribing these diversification requirements. Each Portfolio
intends to comply with these requirements.
FINANCIAL STATEMENTS
The following financial statements for the Trust at and for
the period 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.
SELECT ADVISORS VARIABLE INSURANCE TRUST
Schedule of Investments, December 31, 1995
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
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<PAGE>
Statement of Changes in Net Assets for the year ended December 31, 1995
and the period from November 21, 1994 (commencement of operations) to
December 31, 1994
Financial Highlights for the year ended December 31, 1995 and the
period from November 21, 1994 (commencement of operations) to December 31,
Notes to Financial Statements
Supplementary Data
Report of Independent Accountants
45
IFS0020G
DISTRIBUTOR
Touchstone Securities, Inc. SELECT ADVISORS VARIABLE INSURANCE TRUST
311 Pike Street
Cincinnati, Ohio 45202 TOUCHSTONE EMERGING GROWTH PORTFOLIO
TOUCHSTONE INTERNATIONAL EQUITY PORTFOLIO
TOUCHSTONE BALANCED PORTFOLIO
INVESTMENT ADVISOR TOUCHSTONE INCOME OPPORTUNITY PORTFOLIO
TOUCHSTONE STANDBY INCOME PORTFOLIO
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, Ohio 45202
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company STATEMENT OF ADDITIONAL INFORMATION
89 South Street
Boston, Massachusetts 02111 MAY 1, 1996
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Frost & Jacobs
2500 PNC Center
201 East 5th Street
Cincinnati, Ohio 45202
<PAGE>
IFS0018D
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART B
FOR THE REGISTRANT:
Schedule of Investments, December 31, 1995
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
Statement of Changes in Net Assets, for the period November 21, 1994
(commencement of operations) to December 31, 1994 and the year ended
December 31, 1995
Financial Highlights, for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
(b) EXHIBITS:
(1) Amended Declaration of Trust of the Trust.3
(2) Amended By-Laws of the Trust.3
(3) Inapplicable.
(4) Inapplicable.
(5A) Investment Advisory Agreement.3
(5B) Portfolio Advisory Agreements with respect to Emerging Growth
Portfolio.3
(5C) Portfolio Advisory Agreement with respect to International Equity
Portfolio.3
(5D) Portfolio Advisory Agreements with respect to Balanced Portfolio.3
(5E) Portfolio Advisory Agreement with respect to Income Opportunity
Portfolio.3
(5F) Portfolio Advisory Agreement with respect to Standby Income
Portfolio.3
(6) Distribution Agreement.2
(7) Inapplicable.
(8) Custody Agreement.2
(9A) Administrative Services and Fund Accounting Agreement.2
(9B) Sponsor Agreement.2
(10) Opinion of counsel.2
(11) Consent of independent accountants.3
(12) Inapplicable.
(13) Investment letter of initial shareholders.2
(14) Inapplicable.
(15) Inapplicable.
(16) Method of computation of performance information.2
(17) Powers of Attorney.2
(27) Financial Data Schedules.3
1 Incorporated herein by reference from this registration statement of the
Registrant on Form N-1A (the "Registration Statement") as originally filed
with the Securities and Exchange Commission (the "SEC") on March 17, 1994.
2 Incorporated herein by reference from Pre-Effective Amendment No. 1 to
the Registration Statement as filed with the SEC on November 14, 1994.
3 Filed herein.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS NUMBER OF RECORD HOLDERS
(as of March 31, 1996)
Emerging Growth Portfolio 5
International Equity Portfolio 5
Balanced Portfolio 5
Income Opportunity Portfolio 5
Standby Income Portfolio 5
ITEM 27. INDEMNIFICATION.
Under Article XI, Section 2 of the Trust's Declaration of Trust, any past
or present Trustee or officer of the Trust (including persons who serve at
the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor
or otherwise hereinafter referred to as a "Covered Person") is indemnified
to the fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any action, suit or
proceeding to which he may be a party or otherwise involved by reason of
his being or having been a Covered Person. This provision does not
authorize indemnification when it is determined, in the manner specified in
the Declaration of Trust, that such Covered Person has not acted in good
faith in the reasonable belief that his actions were in or not opposed to
the best interests of the Trust. Moreover, this provision does not
authorize indemnification when it is determined, in the manner specified in
the Declaration of Trust, that such Covered Person would otherwise be
liable to the Trust or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of his duties. Expenses
may be paid by the Trust in advance of the final disposition of any action,
suit or proceeding upon receipt of an undertaking by such Covered Person to
repay such expenses to the Trust in the event that it is ultimately
determined that indemnification of such expenses is not authorized under
the Declaration of Trust and either (i) the Covered Person provides
security for such undertaking, (ii) the Trust is insured against losses
from such advances or (iii) the disinterested Trustees or independent legal
counsel determines, in the manner specified in the Declaration of Trust,
that there is reason to believe the Covered Person will be found to be
entitled to indemnification.
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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Touchstone Advisors, Inc. ("Touchstone Advisors") serves as investment
advisor to each series of the Trust.
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.
Position and Offices Position and Offices
NAME WITH TOUCHSTONE ADVISERS WITH THE REGISTRANT
James N. Clark* Director none
Edward G. Harness, Jr. Director, President Chairman of the Board,
and Chief Executive President and Chief
Officer Executive Officer
William F. Ledwin* Director none
Donald J. Wuebbling* Director, Secretary
and Chief Legal Officer none
Edward S. Heenan* Vice President Treasurer
and Controller
J. Thomas Lancaster* Vice President and
Treasurer none
Brian Manley Vice President and Assistant Treasurer
Chief Financial Officer
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
ITEM 29. 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.
Position and Offices Position and Offices
NAME WITH TOUCHSTONE WITH THE REGISTRANT
James N. Clark* Director none
Edward G. Harness, Jr. Director and Chief Chairman of the Board,
Executive Officer President and Chief
Executive Officer
Edward S. Heenan* Director and Controller Treasurer
William F. Ledwin* Director none
Donald J. Wuebbling* Director none
Brian Manley Vice President and Assistant Treasurer
Chief Financial Officer
Richard K. Taulbee* Vice President none
Carl A. Ramsey*** Vice President none
E. Duane Clay*** Vice President none
Patricia Wilson Chief Compliance
Officer none
J. Thomas Lancaster* Treasurer none
Robert F. Morand* Secretary none
* Principal business address is 400 Broadway, Cincinnati, Ohio 45202.
** Principal business address is 1165 Northchase Parkway, Suite 300, Marietta,
Georgia 30067.
*** Principal Business address is 8901 Indian Hills Drive, Omaha, Nebraska 68114
(c) Inapplicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Select Advisors Variable Insurance Trust
311 Pike Street
Cincinnati, OH 45202
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, OH 45202
(investment advisor)
Signature Financial Services, Inc.
89 South Street
Boston, MA 02111
(administrator and fund accounting agent)
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, OH 45202
(distributor)
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) The Registrant undertakes to comply with Section 16(c) of the 1940 Act.
(b) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to
shareholders upon request and without charge.
<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 requirements for effectiveness of this amendment to its
Registration Statement on Form N-1A (the "Registration Statement") pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
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 29th day of April, 1996.
SELECT ADVISORS VARIABLE INSURANCE TRUST
By: /S/ THOMAS M. LENZ
Thomas M. Lenz, 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 29, 1996.
SIGNATURE TITLE
EDWARD G. HARNESS, JR.* President and Trustee
Edward G. Harness, Jr.
WILLIAM J. WILLIAMS* Trustee
William J. Williams
JOSEPH S. STERN, JR.* Trustee
Joseph S. Stern, Jr.
PHILLIP R. COX* Trustee
Phillip R. Cox
ROBERT E. STAUTBERG* Trustee
Robert E. Stautberg
EDWARD S. HEENAN* Treasurer (Principal
Edward S. Heenan Financial Office and
Principal Accounting
Officer)
DAVID POLLAK* Trustee
David Pollak
*By THOMAS M. LENZ
Thomas M. Lenz, as Attorney-in-fact pursuant to power of attorney
previously filed
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
EXHIBITS TO
REGISTRATION STATEMENT ON
FORM N-1A
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(1) Amended Declaration of Trust of the Trust.
(2) Amended By-Laws of the Trust.
(5A) Investment Advisory Agreement.
(5B) Portfolio Advisory Agreements with respect to Emerging Growth
Portfolio.
(5C) Portfolio Advisory Agreement with respect to International Equity
Portfolio.
(5D) Portfolio Advisory Agreements with respect to Balanced Portfolio.
(5E) Portfolio Advisory Agreement with respect to Income Opportunity
Portfolio.
(5F) Portfolio Advisory Agreement with respect to Standby Income
Portfolio.
(11) Consent of independent accountants.
(27) Financial Data Schedules.
IFS0021
IFS TRUST III
----------------------------
DECLARATION OF TRUST
Dated as of February 7, 1994
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C> <C>
ARTICLE I--NAME AND DEFINITIONS 1
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II--TRUSTEES 3
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 3
Section 2.4 Vacancies 3
Section 2.5 Delegation of Power to Other Trustees 4
ARTICLE III--POWERS OF TRUSTEES 4
Section 3.1 General 4
Section 3.2 Investments 5
Section 3.3 Legal Title 6
Section 3.4 Issuance and Repurchase of Securities 6
Section 3.5 Borrowing Money; Lending Trust Property 6
Section 3.6 Delegation; Committees 6
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 7
Section 3.9 Manner of Acting; By-Laws 7
Section 3.10 Miscellaneous Powers 7
Section 3.11 Principal Transactions 8
Section 3.12 Trustees and Officers as Shareholders 8
ARTICLE IV--INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER
AGENT AND SHAREHOLDER SERVICING AGENTS 9
Section 4.1 Investment Adviser 9
Section 4.2 Distributor 9
Section 4.3 Administrator 9
Section 4.4 Transfer Agent and Shareholder Servicing Agents 10
Section 4.5 Parties to Contract 10
ARTICLE V--LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS 10
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc. 10
Section 5.2 Non-Liability of Trustees, etc. 11
Section 5.3 Mandatory Indemnification; Insurance 11
Section 5.4 No Bond Required of Trustees 13
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 13
Section 5.6 Reliance on Experts, etc. 13
i
<PAGE>
ARTICLE VI--SHARES OF BENEFICIAL INTEREST 13
Section 6.1 Beneficial Interest 13
Section 6.2 Rights of Shareholders 14
Section 6.3 Trust Only 14
Section 6.4 Issuance of Shares 14
Section 6.5 Register of Shares 14
Section 6.6 Transfer of Shares 15
Section 6.7 Notices 15
Section 6.8 Voting Powers 15
Section 6.9 Series Designation 16
ARTICLE VII--REDEMPTIONS 18
Section 7.1 Redemptions 18
Section 7.2 Suspension of Right of Redemption 19
Section 7.3 Disclosure of Holding 19
Section 7.4 Redemptions of Accounts of Less than
Minimum Amount 20
ARTICLE VIII--DETERMINATION OF NET ASSET VALUE, NET INCOME AND
DISTRIBUTIONS 20
ARTICLE IX--DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC 20
Section 9.1 Duration 20
Section 9.2 Termination of Trust 20
Section 9.3 Amendment Procedure 21
Section 9.4 Merger, Consolidation and Sale of Assets 22
Section 9.5 Incorporation, Reorganization 23
Section 9.6 Incorporation or Reorganization of Series 23
ARTICLE X--REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 24
ARTICLE XI--MISCELLANEOUS 24
Section 11.1 Filing 24
Section 11.2 Governing Law 24
Section 11.3 Counterparts 24
Section 11.4 Reliance by Third Parties 24
Section 11.5 Provisions in Conflict with Law or Regulations 25
Section 11.6 Principal Office 25
APPENDIX I--SERIES DESIGNATION
ii
</TABLE>
<PAGE>
IFS0021
DECLARATION OF TRUST
OF
IFS TRUST III
----------------------------
Dated as of February 7, 1994
----------------------------
WHEREAS, the Trustees desire to establish a trust for the investment
and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable Shares of Beneficial Interest (par value
$0.00001 per share) ("Shares") issued in one or more series as hereinafter
provided; and
NOW THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the Shares issued
hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
--------------------
SECTION 1.1. NAME. The name of the trust created hereby is " IFS TRUST
III".
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "ADMINISTRATOR" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.3 hereof.
(b) "BY-LAWS" means the By-laws referred to in Section 3.9 hereof, as
from time to time amended.
(c) "COMMISSION" has the meaning given that term in the 1940 Act.
(d) "CUSTODIAN" means a party employed by the Trust to furnish services
as described in Article X of the By-Laws.
(e) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION", "HEREOF",
"HEREIN", and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
<PAGE>
2
(f) "DISTRIBUTOR" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.2 hereof.
(g) "INTERESTED PERSON" has the meaning given that term in the 1940
Act.
(h) "INVESTMENT ADVISER" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(i) "MAJORITY SHAREHOLDER VOTE" has the same meaning as the phrase
"vote of a majority of the outstanding voting securities" as defined in the 1940
Act, except that such term may be used herein with respect to the Shares of the
Trust as a whole or the Shares of any particular series, as the context may
require.
(j) "1940 ACT" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, as amended from time to time.
(k) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof, whether domestic or foreign.
(l) "SHAREHOLDER" means a record owner of outstanding Shares.
(m) "SHARES" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series of Shares established by the Trustees
pursuant to Section 6.9 hereof, equal proportionate transferable units into
which such series of Shares shall be divided from time to time. The term
"Shares" includes fractions of Shares as well as whole Shares.
(n) "SHAREHOLDER SERVICING AGENT" means a party furnishing services to
the Trust pursuant to any shareholder servicing contract described in Section
4.4 hereof.
(o) "TRANSFER AGENT" means a party furnishing services to the Trust
pursuant to any transfer agency contract described in Section 4.4 hereof.
(p) "TRUST" means the trust created hereby.
(q) "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees, including, without limitation, any and all property
allocated or belonging to any series of Shares pursuant to Section 6.9 hereof.
(r) "TRUSTEES" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected or appointed,
qualified and serving as Trustees in accordance with the provisions hereof, and
reference herein to a Trustee or the Trustees shall refer to such person or
persons in their capacity as trustees hereunder.
<PAGE>
3
ARTICLE II
TRUSTEES
--------
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a majority of the Trustees,
provided, however, that the number of Trustees shall in no event be less than
three nor more than 15.
SECTION 2.2. TERM OF OFFICE OF TRUSTEES. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided; except
that (a) any Trustee may resign his trust (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the other
Trustees, which shall take effect upon such delivery or upon such later date as
is specified therein; (b) any Trustee may be removed with cause, at any time by
written instrument signed by at least two-thirds of the remaining Trustees,
specifying the date when such removal shall become effective; (c) any Trustee
who has attained a mandatory retirement age established pursuant to any written
policy adopted form time to time by at least two thirds of the Trustees shall,
automatically and without action of such Trustee or the remaining Trustees, be
deemed to have retired in accordance with the terms of such policy, effective as
of the date determined in accordance with such policy; (d) any Trustee who has
become incapacitated by illness or injury as determined by a majority of the
other Trustees, may be retired by written instrument signed by a majority of the
other Trustees, specifying the date of his retirement; and (e) a Trustee may be
removed at any meeting of Shareholders by a vote of two thirds of the
outstanding Shares. For purposes of the foregoing clause (b), the term "cause"
shall include, but not be limited to, failure to comply with such written
policies as may from time to time be adopted by at least two thirds of the
Trustees with respect to the conduct of Trustees and attendance at meetings.
Upon the resignation, retirement or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property held in the name of the resigning,
retiring or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
SECTION 2.3. RESIGNATION AND APPOINTMENT OF TRUSTEES. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, a majority of the remaining Trustees shall fill such
vacancy by appointing such other individual as they in their discretion shall
see fit. Any such appointment shall not become effective, however, until the
person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. The power of appointment is subject to the provisions of Section
16(a) of the 1940 Act.
SECTION 2.4. VACANCIES. The death, declination, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall not
<PAGE>
4
operate to annul the Trust or to revoke any existing agency created pursuant to
the terms of this Declaration. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.3, the
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by the Declaration.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two Trustees personally exercise the powers granted to the Trustees
under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
------------------
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have full
power and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall not in any way
be bound or limited by present or future laws or customs in regard to Trust
investments, but shall have full authority and power to make any and all
investment which they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust.
The Trust shall be of the type commonly called a Massachusetts business
trust, and, without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
<PAGE>
5
SECTION 3.2. INVESTMENTS. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment
company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of U.S. and foreign currencies, any form of gold
or other precious metal, commodity contracts, any form of option contract,
contracts for the future acquisition or delivery of fixed income or other
securities, shares of, or any other interest in, any investment company as
defined in the Investment Company Act of 1940, and securities and related
derivatives of every nature and kind, including, without limitation, all types
of bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed or sponsored by any and all
Persons, including, without limitation,
(A) states, territories and possessions of the United States and the
District of Columbia and any political subdivision, agency or instrumentality of
any such Person,
(B) the U.S. Government, any foreign government, any political
subdivision or any agency or instrumentality of the U.S. Government, any foreign
government or any political subdivision of the U.S. Government or any foreign
government,
(C) any international or supranational instrumentality,
(D) any bank or savings institution, or
(E) any corporation, trust, partnership or other organization organized
under the laws of the United States or of any state, territory or possession
thereof, or under any foreign law;
or in "when issued" contracts for any such securities, to retain Trust assets in
cash and from time to time to change the securities or obligations in which the
assets of the Trust are invested; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect of
any of said investments; and
(iii) to hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either in
its own name or in the name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual practice of
Massachusetts trust companies or investment companies.
(iv) to definitively interpret the investment objective, policies and
limitations of the Trust or any series.
<PAGE>
6
(v) to carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary, proper or desirable for
the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in securities or
obligations maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made by
fiduciaries.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
SECTION 3.3. LEGAL TITLE. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person or nominee, on such terms as the Trustees may determine. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee, such Trustee shall automatically
cease to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds of the Trust or other Trust Property whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST PROPERTY. The Trustees
shall have power to borrow money or otherwise obtain credit and to secure the
same by mortgaging, pledging or otherwise subjecting as security the Trust
Property, to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust Property.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees,
independent contractors or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient.
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Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
SECTION 3.7. COLLECTION AND PAYMENT. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
SECTION 3.8. EXPENSES. Subject to Section 6.9 hereof, the Trustees
shall have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees shall be reimbursed from the Trust estate
or the assets belonging to the appropriate series for their expenses and
disbursements and for all losses and liabilities by them incurred in
administering the Trust; and for the payment of such expenses, disbursements,
losses and liabilities, the Trustees shall have a lien on the assets belonging
to the appropriate series prior to any rights of interests of the Shareholders
thereto.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees or any
committee of the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees at which a quorum (as determined in the By-Laws) is
present, including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of a majority of the
Trustees or any committee of the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, the Administrator, Trustees,
officers, employees, agents, the Investment Adviser, the Distributor, selected
dealers or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not constituting negligence, or
<PAGE>
8
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust; (f) to the extent permitted by law, indemnify any person
with whom the Trust has dealings, including any Investment Adviser,
Administrator, Custodian, Distributor, Transfer Agent, Shareholder Servicing
Agent, any dealer, or any other agent or independent contractor, to such extent
as the Trustees shall determine; (g) guarantee indebtedness or contractual
obligations of others; (h) determine and change the fiscal year of the Trust and
the method by which its accounts shall be kept; and (i) adopt a seal for the
Trust, provided, that the absence of such seal shall not impair the validity of
any instrument executed on behalf of the Trust.
SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions permitted
by the 1940 Act, or any order of exemption issued by the Commission, the
Trustees shall not, on behalf of the Trust, buy any securities (other than
Shares) from or sell any securities (other than Shares) to, or lend any assets
of the Trust to, any Trustee or officer of the Trust or any firm of which any
such Trustee or officer is a member acting as principal, or have any such
dealings with any Investment Adviser, Administrator, Shareholder Servicing
Agent, Custodian (other than repurchase agreements), Distributor or Transfer
Agent or with any Interested Person of such Person; but the Trust may, upon
customary terms, employ any such Person, or firm or company in which such Person
is an Interested Person, as broker, legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian.
SECTION 3.12. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Except as
hereinafter provided, no officer, Trustee or member of any advisory board of the
Trust, and no member, partner, officer, director or trustee of the Investment
Adviser, Administrator or of the Distributor, and no Investment Adviser,
Administrator or Distributor of the Trust, shall take long or short positions in
the securities issued by the Trust. The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for Shares received by the Distributor and
provided that orders to purchase from the Trust are entered with the Trust or
the Custodian promptly upon receipt by the Distributor of purchase orders for
Shares, unless the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of
the Trust;
(c) The purchase from the Trust or from the Distributor of Shares by
any officer, Trustee or member of any advisory board of the Trust or by any
member, partner, officer, director or trustee of the Investment Adviser or of
the Distributor at a price not lower than the net asset value of the Shares at
the moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the current prospectus or statement of
additional information for the Shares being purchased; or
<PAGE>
9
(d) The Investment Adviser, the Distributor, the Administrator, or any
of their officers, partners, directors or trustees from purchasing Shares prior
to the effective date of the Trust's Registration Statement under the Securities
Act of 1933, as amended, relating to the Shares.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
--------------------------------------------------------------
AND SHAREHOLDER SERVICING AGENTS
--------------------------------
SECTION 4.1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote
of the Shares of each series affected thereby, the Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts whereby the other party to each such contract shall
undertake to furnish the Trust such management, investment advisory, statistical
and research facilities and services, promotional activities, and such other
facilities and services, if any, with respect to one or more series of Shares,
as the Trustees shall from time to time consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provision of the Declaration, the Trustees may delegate to
the Investment Adviser authority (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect purchases,
sales, loans or exchanges of assets of the Trust on behalf of the Trustees or
may authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Investment Adviser (and
all without further action by the Trustees). Any of such purchases, sales, loans
or exchanges shall be deemed to have been authorized by all the Trustees. Such
services may be provided by one or more Persons.
SECTION 4.2. DISTRIBUTOR. The Trustees may in their discretion from
time to time enter into one or more distribution contracts providing for the
sale of Shares whereby the Trust may either agree to sell the Shares to the
other party to any such contract or appoint any such other party its sales agent
for such Shares. In either case, any such contract shall be on such terms and
conditions as the Trustees may in their discretion determine, provided that such
terms and conditions are not inconsistent with the provisions of the Declaration
or the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer and sales agreements with
registered securities dealers and depository institutions to further the purpose
of the distribution or repurchase of the Shares. Such services may be provided
by one or more Persons.
SECTION 4.3. ADMINISTRATOR. The Trustees may in their discretion from
time to time enter into one or more administrative services contracts whereby
the other party to each such contract shall undertake to furnish such
administrative services to the Trust as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may in
their discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws. Such
services may be provided by one or more Persons.
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10
SECTION 4.4. TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS. The
Trustees may in their discretion from time to time enter into one or more
transfer agency and shareholder servicing contracts whereby the other party to
each such contract shall undertake to furnish such transfer agency and/or
shareholder services to the Trust or to shareholders of the Trust as the
Trustees shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine, provided that such
terms and conditions are not inconsistent with the provisions of this
Declaration or the By-Laws. Such services may be provided by one or more
Persons. Except as otherwise provided in the applicable shareholder servicing
contract, a Shareholder Servicing Agent shall be deemed to be the record owner
of outstanding Shares beneficially owned by customers of such Shareholder
Servicing Agent for whom it is acting pursuant to such shareholder servicing
contract.
SECTION 4.5. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or any Custodian
contract as described in Article X of the By-Laws may be entered into with any
Person, although one or more of the Trustees or officers of the Trust may be an
officer, partner, director, trustee, shareholder, or member of such other party
to the contract, and no such contract shall be invalidated or rendered voidable
by reason of the existence of any such relationship; nor shall any Person
holding such relationship be liable merely by reason of such relationship for
any loss or expense to the Trust under or by reason of any such contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract when entered into was not inconsistent with the provisions of
this Article IV or the By-Laws. The same Person may be the other party to
contracts entered into pursuant to Sections 4.1, 4.2, 4.3 and 4.4 above or any
Custodian contract as described in Article X of the By-Laws, and any individual
may be financially interested or otherwise affiliated with Persons who are
parties to any or all of the contracts mentioned in this Section 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
-----------------------------------------
TRUSTEES AND OTHERS
-------------------
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer or employee of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust and
all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer or employee, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability, he shall not, on
account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and liabilities
to which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
<PAGE>
11
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein. Notwithstanding any other provision of this
Declaration to the contrary, no Trust Property shall be used to indemnify or
reimburse any Shareholder of any Shares of any series other than Trust Property
allocated or belonging to that series.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer or
employee of the Trust shall be liable to the Trust or to any Shareholder,
Trustee, officer, employee, or agent thereof for any action or failure to act
(including without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust), or for any error of judgement or
mistake of fact or law, except for his own bad faith, wilful misfeasance, gross
negligence or reckless disregard of his duties.
SECTION 5.3. MANDATORY INDEMNIFICATION; INSURANCE. (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 hereafter 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 wilful 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 wilful 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
<PAGE>
12
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 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 of 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
<PAGE>
13
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.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender, Shareholder Servicing Agent, Transfer Agent or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking, and every other act or thing whatsoever executed in
connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacity as Trustees under the
Declaration or in their capacity as officers, employees or agents of the Trust.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or undertaking made or issued by the Trustees shall recite
that the same is executed or made by them not individually, but as Trustees
under the Declaration, and that the obligations of any such instrument are not
binding upon any of the Trustees or Shareholders individually, but bind only the
trust estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind any of
the Trustees or Shareholders individually. The Trustees shall at all times
maintain insurance for the protection of the Trust Property, Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, any Shareholder Servicing Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
-----------------------------
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder may be divided into transferable Shares, which may be divided into one
or more series as provided in Section 6.9 hereof. Each such series shall have
<PAGE>
14
such class or classes of Shares as the Trustees may from time to time determine.
The number of Shares authorized hereunder is unlimited. The Trustees may divide
or combine the Shares into a greater of lesser number, and may classify or
reclassify any unissued Shares into one or more series or classes of Shares. All
Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any series
of Shares. Every Shareholder by virtue of having become a Shareholder shall be
held expressly to have assented and agreed to the terms of this Declaration and
to have become a party hereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the Trust nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust.
SECTION 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and the
Shareholders. It is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association, corporation, bailment
or any form of legal relationship other than a trust. Nothing in the Declaration
shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint stock association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, and on such terms as the Trustees may deem best, and may in such
manner acquire other assets (including the acquisition of assets subject to, and
in connection, with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares. The
Trustees may from time to time divide or combine the Shares of any series into a
greater or lesser number without thereby changing their proportionate beneficial
interests in Trust Property allocated or belonging to such series. Contributions
to the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or fractions of a Share.
SECTION 6.5. REGISTER OF SHARES. A register or registers shall be kept
at the principal office of the Trust or at an office of the Transfer Agent
(and/or any sub-transfer agent which may be a Shareholder Servicing Agent) which
<PAGE>
15
register or registers, taken together, shall contain the names and addresses of
the Shareholders and the number of Shares held by them respectively and a record
of all transfers thereof. Such register or registers shall be conclusive as to
who are the holders of the Shares and who shall be entitled to receive dividends
or distributions or otherwise to exercise or enjoy the rights of Shareholders.
No Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent, a sub-transfer
agent, or such other officer or agent of the Trustees as shall keep the said
register for entry thereon. It is not contemplated that certificates will be
issued for the Shares; however, the Trustees, in their discretion, may authorize
the issuance of Share certificates and promulgate appropriate rules and
regulations as to their use.
The Trust shall be entitled to treat the holder of record of any Share
or Shares as the holder in fact thereof, and shall not be bound to recognize any
equitable or other claim of interest in such Share or Shares on the part of any
other person except as may be otherwise expressly provided by law.
SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees, the Transfer Agent or
a sub-transfer agent, of a duly executed instrument of transfer, together with
any certificate or certificates (if issued) for such Shares and such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent, a sub-transfer agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees, the Transfer
Agent or a sub-transfer agent; but until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes
hereunder and neither the Trustees nor any Transfer Agent, sub-transfer agent or
registrar nor any officer or agent of the Trust shall be affected by any notice
of such death, bankruptcy or incompetence, or other operation of law.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 16 of the 1940 Act,
(or any other applicable current or successor provision), (ii) for the removal
of Trustees as provided in Section 2.2 hereof, (iii) with respect to any
investment advisory or management contract as provided in Section 4.1 hereof,
<PAGE>
16
(iv) with respect to termination of the Trust as provided in Section 9.2 hereof,
(v) with respect to any amendment of this Declaration to the extent and as
provided in Section 9.3 hereof, (vi) with respect to any merger, consolidation
or sale of assets as provided in Sections 9.4 and 9.6 hereof, (vii) with respect
to incorporation of the Trust or any series to the extent and as provided in
Sections 9.5 and 9.6 hereof, (viii) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (ix) with
respect to such additional matters relating to the Trust as may be required by
the 1940 Act, the Declaration, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted. Shares shall be voted by individual
series on any matter submitted to a vote of the Shareholders of the Trust except
as provided in Section 6.9(g) hereof. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, the Declaration
or the By-Laws to be taken by Shareholders. At any meeting of Shareholders of
the Trust or of any series of the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are not otherwise represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by beneficial owners of all
shares otherwise represented at the meeting in person or by proxy as to which
such Shareholder Servicing Agent is the agent of record. Any shares so voted by
a Shareholder Servicing Agent will be deemed represented at the meeting for
quorum purposes. The By-Laws may include further provisions for Shareholder
votes and meetings and related matters.
SECTION 6.9. SERIES DESIGNATION. As set forth in Appendix I hereto, the
Trustees have authorized the division of Shares into series, as designated and
established pursuant to the provisions of Appendix I and this Section 6.9. The
Trustees, in their discretion, may authorize the division of Shares into one or
more additional series, and the different series shall be established and
designated, and the variations in the relative rights, privileges and
preferences as between the different series shall be fixed and determined by the
Trustees upon and subject to the following provisions:
(a) All Shares shall be identical except that there may be such
variations as shall be fixed and determined by the Trustees between different
series as to purchase price, right of redemption and the price, terms and manner
of redemption, and special and relative rights as to dividends and on
liquidation.
(b) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
<PAGE>
17
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issuance or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income and earnings thereon,
profits therefrom, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income, earnings, profits,
proceeds, funds or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them to and among any one or
more of the series established and designated from time to time in such manner
and on such basis as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all series for all purposes. No Shareholder of any
particular series shall have any claim on or right to any assets allocated or
belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
costs, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees, in their sole discretion, deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. Under no circumstances shall the assets allocated
or belonging to any particular series be charged with liabilities, expenses,
costs, charges or reserves attributable to any other series. All Persons who
have extended credit which has been allocated to a particular series, or who
have a claim or contract which has been allocated to any particular series,
shall look only to the assets of that particular series for payment of such
credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section 3.2
hereof unless otherwise provided in the instrument of the Trustees establishing
such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the
net assets allocated or belonging to such series only, and such interest shall
not extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series may be paid with such frequency as the Trustees
may determine, which may be monthly or otherwise, pursuant to a standing vote or
<PAGE>
18
votes adopted only once or with such frequency as the Trustees may determine, to
the Shareholders of that series only, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed PRO RATA to the Shareholders of that series in proportion
to the number of Shares of that series held by such Shareholders at the date and
time of record established for the payment of such dividends or distributions.
Shares of any particular series of the Trust may be redeemed solely out of Trust
Property allocated or belonging to that series. Upon liquidation or termination
of a series of the Trust, Shareholders of such series shall be entitled to
receive a PRO RATA share of the net assets of such series only.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders of the Trust, all Shares then entitled
to vote shall be voted by individual series, except that (i) when required by
the 1940 Act to be voted in the aggregate, Shares shall not be voted by
individual series, and (ii) when the Trustees have determined that the matter
affects only the interests of Shareholders of one or more series or classes of
Shares of a series, only Shareholders of such series or class shall be entitled
to vote thereon.
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument, or upon
a resolution adopted by a majority of the Trustees and the execution by an
officer of the Trust on behalf of the Trustees of an instrument setting forth
such establishment and designation and the relative rights and preferences of
such series, or as otherwise provided in such instrument. At any time that there
are no Shares outstanding of any particular series previously established and
designated, the Trustees may by an instrument executed by a majority of their
number abolish that series and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
to this Declaration.
(i) Notwithstanding anything in this Declaration to the contrary, the
Trustees may, in their discretion, authorize the division of Shares of any
series into Shares of one or more classes or subseries of such series. All
Shares of a class or a subseries shall be identical with each other and with the
Shares of each other class or subseries of the same series except for such
variations between classes or subseries as may be approved by the Board of
Trustees and be permitted under the 1940 Act or pursuant to any exemptive order
issued by the Commission.
ARTICLE VII
REDEMPTIONS
-----------
SECTION 7.1 REDEMPTIONS. In case any Shareholder at any time desires to
dispose of his Shares, he may deposit his certificate or certificates therefor,
duly endorsed in blank or accompanied by an instrument of transfer executed in
<PAGE>
19
blank, or if the Shares are not represented by any certificate, a written
request or other such form of request as the Trustees may from time to time
authorize, at the office of the Transfer Agent, the Shareholder Servicing Agent
which is the agent of record for such Shareholder, or at the office of any bank
or trust company, either in or outside of the Commonwealth of Massachusetts,
which is a member of the Federal Reserve System and which the said Transfer
Agent or the said Shareholder Servicing Agent has designated in writing for that
purpose, together with an irrevocable offer in writing in a form acceptable to
the Trustees to sell the Shares represented thereby to the Trust at the net
asset value per Share thereof (less any applicable redemption fee or sales
charge), next determined after such deposit as provided in Section 8.1 hereof.
Payment (which may be in cash or in kind) for said Shares shall be made to the
Shareholder within seven days after the date on which the deposit is made,
unless (i) the date of payment is postponed pursuant to Section 7.2 hereof, or
(ii) the receipt, or verification of receipt, of the purchase price for the
Shares to be redeemed is delayed, in either of which events payment may be
delayed beyond seven days.
SECTION 7.2 SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment of the
redemption proceeds for the whole or any part of any period (i) during which the
New York Stock Exchange is closed other than customary week-end and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (iv) during which the Commission for the protection of
Shareholders by order permits the suspension of the right of redemption or
postponement of the date of payment of the redemption proceeds; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii) or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment of the
redemption proceeds until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
SECTION 7.3. DISCLOSURE OF HOLDING. The Shareholders of the Trust shall
upon demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares of the Trust as the Trustees deem
necessary to comply with the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), or to comply with the requirements of any other authority.
Upon the failure of a Shareholder to disclose such information and to comply
with such demand of the Trustees, the Trust shall have the power to redeem such
Shares at a redemption price determined in accordance with Section 7.1 hereof.
<PAGE>
20
SECTION 7.4 REDEMPTIONS OF ACCOUNTS OF LESS THAN MINIMUM AMOUNT. The
Trustees shall have the power, and any Shareholder Servicing Agent with whom the
Trust has so agreed (or a subcontractor of such Shareholder Servicing Agent)
shall have the power, at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.l hereof if at such
time the aggregate net asset value of the Shares owned by such Shareholder is
less than a minimum amount as determined from time to time and disclosed in a
prospectus of the Trust or in the Shareholder Servicing Agent's (or sub-
contractor's) agreement with its customer. A Shareholder shall be notified that
the aggregate value of his Shares is less than such minimum amount and allowed
60 days to make an additional investment before redemption is processed.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
---------------------------------
NET INCOME AND DISTRIBUTIONS
----------------------------
(a) The Trustees may from time to time declare and pay dividends and
other distributions. The Trustees, in their absolute discretion, may prescribe
and shall set forth in the By-Laws or in a duly adopted vote or votes of the
Trustees such bases and times for determining the per Share net asset value of
the Shares or net income, or the declaration and payment of dividends and
distributions, as they may deem necessary or desirable.
(b) Dividends and other distributions may be declared pursuant to a
standing resolution or resolutions adopted only once or with such frequency as
the Trustees may determine, and may be payable in Shares of that series or class
thereof, as appropriate, at the election of each Shareholder of that series or
class. All dividends and distributions on Shares of a particular series shall be
distributed pro rata to the holders of that series in proportion to the number
of Shares of that series held by such payment of such dividends or
distributions, except that such dividends and distributions shall approximately
reflect expenses allocated to a particular class of such series.
(c) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a "stock dividend" pro rata
among the Shareholders of a particular series or of a class thereof as of the
record date of that series.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
-------------------------------
AMENDMENT; MERGERS, ETC.
------------------------
SECTION 9.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust may be terminated (i)
by a Majority Shareholder Vote of its Shareholders, or (ii) by the Trustees by
written notice to the Shareholders. Any series of the Trust may be terminated
(i) by a Majority Shareholder Vote of the Shareholders of that series, or (ii)
<PAGE>
21
by the Trustees by written notice to the Shareholders of that series. Upon the
termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business except
for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust, collect the assets of the Trust or series of the Trust, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property of the Trust or series of the Trust to one or more
Persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
the liabilities of the Trust or series of the Trust, and to do all other acts
appropriate to liquidate the business of the Trust or series of the Trust;
provided, that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all of the Trust Property of the Trust or
series of the Trust shall require Shareholder approval in accordance with
Section 9.4 or 9.6 hereof, respectively; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property of the Trust or series of the Trust, in
cash or in kind or partly in cash and partly in kind, among the Shareholders of
the Trust or series of the Trust according to their respective rights.
(b) After termination of the Trust or series of the Trust and
distribution to the Shareholders of the Trust or series of the Trust as herein
provided, a majority of the Trustees shall execute and lodge among the records
of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder with respect to the Trust or series of the
Trust, and the rights and interests of all Shareholders of the Trust or series
of the Trust shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. All rights granted to Shareholders
hereunder are granted subject to a right to amend this Declaration, except as
otherwise provided. (a) This Declaration may be amended by a Majority
Shareholder Vote of the Shareholders or by any instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by the holders of
not less than a majority of the Shares of the Trust. The Trustees may also amend
this Declaration without the vote or consent of Shareholders to designate series
in accordance with Section 6.9 hereof, to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or to conform this Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Code or to (i) change the
state or other jurisdiction designated herein as the state or other jurisdiction
whose laws shall be the governing law hereof, (ii) effect such changes herein as
<PAGE>
22
the Trustees find to be necessary or appropriate (A) to permit the filing of
this Declaration under the laws of such state or other jurisdiction applicable
to trusts or voluntary associations, (B) to permit the Trust to elect to be
treated as a "regulated investment company" under the applicable provisions of
the Code or (C) to permit the transfer of shares (or to permit the transfer of
any other beneficial interests or shares in the Trust, however denominated), and
(iii) in conjunction with any amendment contemplated by the foregoing clause (i)
or the foregoing clause (ii) to make any and all such further changes or
modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees referred to in the foregoing clause
(ii) or clause (iii) to be conclusively evidenced by the execution of any such
amendment by a majority of the Trustees, but the Trustees shall not be liable
for failing so to do.
(b) No amendment which the Trustees have determined would affect the
rights, privileges or interests of holders of a particular series of Shares, but
not the rights, privileges or interests of holders of all series of Shares
generally, and which would otherwise require a Majority Shareholder Vote under
paragraph (a) of this Section 9.3, may be made except with the vote or consent
by a Majority Shareholder Vote of Shareholders of such series.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
(d) Notwithstanding any other provision hereof, no amendment may be
made under this Section 9.3 which would change any rights with respect to the
Shares, or any series of Shares, by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the Majority Shareholder Vote of the Shares or
that series of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid, and executed by a majority of the Trustees, shall be
conclusive evidence of such amendment when lodged among the records of the
Trust.
(f) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be amended in any respect by the affirmative vote of a
majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
<PAGE>
23
Trust Property (or all or substantially all of the Trust Property allocated or
belonging to a particular series of the Trust) including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for such purpose by the vote of the holders
of two-thirds of the outstanding Shares of all series of the Trust voting as a
single class, or of the affected series of the Trust, as the case may be, or by
an instrument or instruments in writing without a meeting, consented to by the
vote of the holders of two-thirds of the outstanding Shares of all series of the
Trust voting as a single class, or of the affected series of the Trust, as the
case may be; provided, however, that if such merger, consolidation, sale, lease
or exchange is recommended by the Trustees, the vote or written consent by
Majority Shareholder Vote shall be sufficient authorization; and any such
merger, consolidation, sale, lease or exchange shall be deemed for all purposes
to have been accomplished under and pursuant to the statutes of the Commonwealth
of Massachusetts. Nothing contained herein shall be construed as requiring
approval of Shareholders for any sale of assets in the ordinary course of the
business of the Trust.
SECTION 9.5. INCORPORATION, REORGANIZATION. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. Subject to Section 9.4 hereof, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained in this Section 9.5 shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
SECTION 9.6. INCORPORATION OR REORGANIZATION OF SERIES. With the
approval of a Majority Shareholder Vote of any series, the Trustees may sell,
lease or exchange all of the Trust Property allocated or belonging to that
series, or cause to be organized or assist in organizing a corporation or
corporations under the laws of any other jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization, to take over
all of the Trust Property allocated or belonging to that series and to sell,
convey and transfer such Trust Property to any such corporation, trust, unit
investment trust, partnership, association, or other organization in exchange
for the shares or securities thereof or otherwise.
<PAGE>
24
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
------------------------------------------------------
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XI
MISCELLANEOUS
-------------
SECTION 11.1. FILING. This Declaration and any amendment hereto shall
be filed in the office of the Secretary of the Commonwealth of Massachusetts and
in such other place or places as may be required under the laws of the
Commonwealth of Massachusetts and may also be filed or recorded in such other
places as the Trustees deem appropriate. Each amendment shall be signed a
majority of the Trustees or shall be accompanied by a certificate of an
appropriate officer of the Trust stating that such amendment was properly
approved. Unless such amendment or certificate sets forth a later date on which
it shall take effect, any amendment shall take effect as of its approval. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees and shall be conclusive evidence of
all amendments contained therein and may thereafter be referred to in lieu of
this original Declaration and the various amendments thereto.
SECTION 11.2. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in the Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
SECTION 11.3. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, is a Trustee hereunder
certifying to: (i) the number or identity of Trustees or Shareholders, (ii) the
due authorization of the execution of any instrument or writing, (iii) the form
of any vote passed at a meeting of Trustees or Shareholders, (iv) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (v) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (vi) the existence of any fact or facts which in any manner relates
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
<PAGE>
25
SECTION 11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any such provision is in conflict
with the 1940 Act, the regulated investment company provisions of the Code or
with other applicable laws and regulations, the conflicting provision shall be
deemed never to have constituted a part of this Declaration; provided however,
that such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
SECTION 11.6. PRINCIPAL OFFICE. The principal office of the Trust is 6
St. James Avenue, 9th Floor, Boston, Massachusetts, 02116 or such other address
determined by the Trustees.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 7th day of February, 1994.
/S/ THOMAS M. LENZ
----------------------------------
Thomas M. Lenz
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
/S/ LINDA T. GIBSON
----------------------------------
Linda T. Gibson
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
/S/ SUZAN M. BARRON
----------------------------------
Suzan M. Barron
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
IFS0021
<PAGE>
IFS0021 Appendix I
IFS TRUST III
Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.00001 per share)
Dated as of February 7, 1994
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
February 7, 1994 (the "Declaration of Trust"), of IFS Trust III (the "Trust"),
the Trustees of the Trust hereby establish and Designate the initial series of
Shares (as defined in the Declaration of Trust) (each a "Fund" and collectively
the "Funds"):
1. The Funds shall be designated as follows:
Standby Reserve Portfolio
Balanced Portfolio
Income Opportunity Portfolio
Emerging Growth Portfolio
International Equity Portfolio
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such Fund. Each Share of a Fund shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional share)
on matters on which Shares of the Fund shall be entitled to vote, shall
represent a PRO RATA beneficial interest in the assets allocated or belonging to
the Fund, and shall be entitled to receive its PRO RATA share of the net assets
of the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of a Fund, together with
any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and expenses,
<PAGE>
to change the designation of any Fund now or hereafter created, or otherwise to
change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 7th day of February, 1994.
/S/ THOMAS M. LENZ
----------------------------------
Thomas M. Lenz
/S/ LINDA T. GIBSON
----------------------------------
Linda T. Gibson
/S/ SUZAN M. BARRON
----------------------------------
Suzan M. Barron
IFS0021
<PAGE>
IFS0021
THE IFS VARIABLE INSURANCE TRUST
(formerly IFS TRUST III)
AMENDMENT NO. 1 TO
DECLARATION OF TRUST DATED FEBRUARY 7, 1994
Dated as of March 15, 1994
The undersigned, being the Trustees of IFS Trust III, a Massachusetts
business trust (the "Trust"), acting pursuant to Article IX, Sections 9.3(a) and
9.3(f) of the Trust's Declaration of Trust dated as of February 7, 1994 (the
"Declaration"), hereby amend and restate the first sentence of Section 1.1. of
the Declaration to read in its entirety "The name of the trust is "The IFS
Variable Insurance Trust"."
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Declaration as of the 15th day of March, 1994. This instrument may be executed
by the Trustees on separate counterparts but shall be effective only when signed
by a majority of the Trustees.
/S/ THOMAS M. LENZ
----------------------------------
Thomas M. Lenz
As Trustee and not Individually
/S/ LINDA T. GIBSON
----------------------------------
Linda T. Gibson
As Trustee and not Individually
/S/ SUZAN M. BARRON
----------------------------------
Suzan M. Barron
As Trustee and not Individually
<PAGE>
IFS0021 Appendix I
SELECT ADVISORS VARIABLE INSURANCE TRUST
(formerly The IFS Variable Insurance Trust)
Amendment No. 2 to Amended Declaration of Trust and
First Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.00001 per share)
Dated as of April 11, 1994
The undersigned, being the Trustees of The IFS Variable Insurance
Trust, a Massachusetts business trust (the "Trust"), acting pursuant to Article
IX, Sections 9.3(a) and 9.3(f) of the Trust's Declaration of Trust, dated as of
February 7, 1994, as amended (the "Declaration"), hereby amend and restate the
first sentence of Section 1.1. of the Declaration to read in its entirety "The
name of the trust is "Select Advisors Variable Insurance Trust"."
Pursuant to Article VI, Section 6.9 of the Declaration, the Trustees of
the Trust hereby amend and restate the Establishment and Designation of Series
appended to the Declaration to change the names of the five initial series of
Shares (as defined in the Declaration) (each a "Fund" and collectively the
"Funds") of the Trust.
1. The Funds shall be redesignated, respectively, as follows:
Touchstone Standby Reserves Portfolio
Touchstone Balanced Portfolio
Touchstone Income Opportunity Portfolio
Touchstone Emerging Growth Portfolio
Touchstone International Equity Portfolio
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such Fund. Each Share of a Fund shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional share)
on matters on which Shares of the Fund shall be entitled to vote, shall
represent a PRO RATA beneficial interest in the assets allocated or belonging to
the Fund, and shall be entitled to receive its PRO RATA share of the net assets
of the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration. The proceeds of sales of Shares of a Fund, together with any income
and gain thereon, less any diminution or expenses thereof, shall irrevocably
belong to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
<PAGE>
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
Funds as set forth in Section 6.9 of the Declaration.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration, the Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses, to
change the designation of any Fund or any other series hereafter created, or
otherwise to change the special and relative rights of any Fund or any such
other series.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 11th day of April, 1994. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/S/ THOMAS M. LENZ
----------------------------------
Thomas M. Lenz
/S/ LINDA T. GIBSON
----------------------------------
Linda T. Gibson
/S/ SUZAN M. BARRON
----------------------------------
Suzan M. Barron
<PAGE>
IFS0021 Appendix I
SELECT ADVISORS VARIABLE INSURANCE TRUST
Amendment No. 3 to Amended Declaration of Trust and
Second Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.00001 per share)
Dated as of October 31, 1994
The undersigned, being the Trustees of The Select Advisors Variable
Insurance Trust, a Massachusetts business trust (the "Trust"), acting pursuant
to Article IX, Sections 9.3(a) and 9.3(f) and Article VI, Section 6.9 of the
Trust's Declaration of Trust, dated as of February 7, 1994, as amended (the
"Declaration"), hereby amend and restate the Establishment and Designation of
Series appended to the Declaration to change the names of the five initial
series of Shares (as defined in the Declaration) (each a "Fund" and collectively
the "Funds") of the Trust.
1. The Funds shall be redesignated, respectively, as follows:
Touchstone Standby Income Portfolio
Touchstone Balanced Portfolio
Touchstone Income Opportunity Portfolio
Touchstone Emerging Growth Portfolio
Touchstone International Equity Portfolio
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such Fund. Each Share of a Fund shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional share)
on matters on which Shares of the Fund shall be entitled to vote, shall
represent a PRO RATA beneficial interest in the assets allocated or belonging to
the Fund, and shall be entitled to receive its PRO RATA share of the net assets
of the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration. The proceeds of sales of Shares of a Fund, together with any income
and gain thereon, less any diminution or expenses thereof, shall irrevocably
belong to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
Funds as set forth in Section 6.9 of the Declaration.
<PAGE>
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration, the Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses, to
change the designation of any Fund or any other series hereafter created, or
otherwise to change the special and relative rights of any Fund or any such
other series.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 31st day of October, 1994. This instrument may be executed by the Trustees
on separate counterparts but shall be effective only when signed by a majority
of the Trustees.
EDWARD G. HARNESS, JR.
-------------------------------
Edward G. Harness, Jr.
WILLIAM J. WILLIAMS
-------------------------------
William J. Williams
PHILIP R. COX
-------------------------------
Philip R. Cox
JOSEPH S. STERN, JR.
-------------------------------
Joseph S. Stern, Jr.
ROBERT E. STAUTBERG
-------------------------------
Robert E. Stautberg
IFS0021
THE IFS VARIABLE INSURANCE TRUST (THE "TRUST")
AMENDMENT NO. 1 TO
BY-LAWS ADOPTED FEBRUARY 7, 1994
Dated as of March 15, 1994
Each reference in the By-Laws of the Trust, adopted February
7, 1994, to "IFS Trust III" is hereby changed to "The IFS Variable
Insurance Trust".
<PAGE>
IFS0021
THE SELECT ADVISORS VARIABLE INSURANCE TRUST (THE "TRUST")
AMENDMENT NO. 2 TO
BY-LAWS ADOPTED FEBRUARY 7, 1994
Dated as of April 11, 1994
Each reference in the By-Laws of the Trust, adopted February
7, 1994, to "IFS Variable Insurance Trust" is hereby changed to "The
Select Advisors Variable Insurance Trust."
<PAGE>
IFS0021
BY-LAWS OF
IFS TRUST III
ARTICLE I
DEFINITIONS
The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT
ADVISER", "MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES",
"TRANSFER AGENT", "TRUST", "TRUST PROPERTY" and "TRUSTEES" have the respective
meanings given them in the Declaration of Trust of IFS Trust III dated as of
February 7, 1994.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the Commonwealth as the Trustees may from time
to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. A meeting of Shareholders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request, which shall specify the purpose or purposes for which such
meeting is to be called, of Shareholders holding in the aggregate not less than
10% of the outstanding Shares entitled to vote on the matters specified in such
written request. Any such meeting shall be held within or without the
Commonwealth of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of a majority of outstanding Shares entitled to vote
present in person or by proxy shall constitute a quorum at any meeting of the
Shareholders. In the absence of a quorum, a majority of outstanding Shares
entitled to vote present in person or by proxy may adjourn the meeting from time
to time until a quorum shall be present.
Whenever a matter is required to be voted by Shareholders of the Trust
in the aggregate under Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration, the Trust may either hold a meeting of Shareholders of all series,
as defined in Section 6.9 of the Declaration, to vote on such matter, or hold
separate meetings of shareholders of each of the individual series to vote on
such matter, PROVIDED THAT (i) such separate meetings shall be held within one
year of each other, (ii) a quorum consisting of the holders of the majority of
outstanding Shares of the individual series entitled to vote present in person
or by proxy shall be present at each such separate meeting and (iii) a quorum
consisting of the holders of a majority of all Shares of the Trust entitled to
vote present in person or by proxy shall be present in the aggregate at such
<PAGE>
2
separate meetings, and the votes of Shareholders at all such separate meetings
shall be aggregated in order to determine if sufficient votes have been cast for
such matter to be voted.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least 10 days and
not more than 60 days before the meeting. Only the business stated in the notice
of the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of his current address or
if a written waiver of notice, executed before or after the meeting by the
Shareholder or his attorney thereunto authorized, is filed with the records of
the meeting.
Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, notice
of each such separate meeting shall be provided in the manner described above in
this Section 2.
SECTION 3. RECORD DATE. For the purpose of determining the Shareholders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the Trustees may from
time to time close the transfer books for such period, not exceeding 30 days, as
the Trustees may determine; or without closing the transfer books the Trustees
may fix a date not more than 60 days prior to the date of any meeting of
Shareholders or distribution or other action as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, the
record date of each such separate meeting shall be determined in the manner
described above in this Section 3.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a vote of a majority of the Trustees, proxies may be solicited in
the name of the Trust or one or more Trustees or officers of the Trust. Only
Shareholders of record shall be entitled to vote. Each full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
<PAGE>
3
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person as regards the charge or management of such Share,
such Share may be voted by such guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. Unless
otherwise specifically limited by their terms, proxies shall entitle the holder
thereof to vote at any adjournment of a meeting.
SECTION 5. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
SECTION 6. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the Chairman or
by any Trustee. Notice of the time and place of each meeting other than regular
or stated meetings shall be given by the Secretary or an Assistant Secretary or
by the officer or Trustee calling the meeting and shall be mailed to each
Trustee at least two days before the meeting, or shall be telegraphed, cabled,
or wirelessed to each Trustee at his business address, or personally delivered
to him at least one day before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A notice or waiver of notice need not specify the
purpose of any meeting. The Trustees may meet by means of a telephone conference
circuit or similar communications equipment by means of which all persons
participating in the meeting can hear each other, which telephone conference
meeting shall be deemed to have been held at a place designated by the Trustees
at the meeting. Any action required or permitted to be taken at any meeting of
the Trustees may be taken by the Trustees without a meeting if a majority of the
Trustees consent to the action in writing and the written consents are filed
with the records of the Trustees' meetings. Such consents shall be treated as a
vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall constitute a quorum for the transaction of business at any regular or
<PAGE>
4
special meeting of the Trustees and (except as otherwise required by law, the
Declaration or these By-Laws) the act of a majority of the Trustees present at
any such meeting, at which a quorum is present, shall be the act of the
Trustees. In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be present. Notice of
an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three Trustees to hold office at the
pleasure of the Trustees. While the Trustees are not in session, the Executive
Committee shall have the power to conduct the current and ordinary business of
the Trust, including the purchase and sale of securities and the designation of
securities to be delivered upon redemption of Shares of the Trust, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
the Executive Committee except those powers which by law, the Declaration or
these By-Laws the Trustees are prohibited from so delegating. The Trustees may
also elect from their own number other Committees from time to time, the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a chairman of any such Committee. In the absence of such designation a
Committee may elect its own chairman. The Trustees may abolish any Committee at
any time. The Trustees shall have power to rescind any action of any Committee,
but no such rescission shall have retroactive effect.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING. The Trustees may (i)
provide for stated meetings of any Committee, (ii) specify the manner of calling
and notice required for special meetings of any Committee, (iii) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (iv) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (v) authorize the members of a Committee to meet by means
of a telephone conference circuit. Unless the Trustees so provide, all the
Committees shall be governed by the same rules as the full Board is.
Each Committee may, but is not required to, keep regular minutes of its
meetings and records of decisions taken without a meeting and cause them to be
recorded in a book designated for that purpose and kept in the office of the
Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board
to consist in the first instance of not less than three members. Members of such
Advisory Board shall not be Trustees or officers and need not be Shareholders. A
member of such Advisory Board shall hold office for such period as the Trustees
may by vote provide and may resign therefrom by a written instrument signed by
him which shall take effect upon its delivery to the Trustees. The Advisory
<PAGE>
5
Board shall have no legal powers and shall not perform the functions of Trustees
in any manner, such Advisory Board being intended merely to act in an advisory
capacity. Such Advisory Board shall meet at such times and upon such notice as
the Trustees may by vote provide.
SECTION 4. CHAIRMAN. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to hold office until his
successor shall have been duly elected and qualified. The Chairman shall not
hold any other office. The Chairman may be, but need not be, a Shareholder. The
Chairman shall preside at all meetings of the Trustees and shall have such other
duties as from time to time may be assigned to him by the Trustees.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, each of whom shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, one or
more Assistant Treasurers, and one or more Assistant Secretaries. The Trustees
may delegate to any officer or committee the power to appoint any subordinate
officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the Treasurer
and the Secretary shall hold office until his respective successor shall have
been duly elected and qualified, and all other officers shall hold office at the
pleasure of the Trustees. The Secretary and Treasurer may be the same person. A
Vice President and the Treasurer or a Vice President and the Secretary may be
the same person, but the offices of Vice President, Secretary and Treasurer
shall not be held by the same person. Except as above provided, any two offices
may be held by the same person. Any officer may be, but does not need be, a
Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause by a vote of a
majority of the Trustees. Any officer or agent appointed by any officer or
committee may be removed with or without cause by such appointing officer or
committee.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President, unless
the Chairman, if any, is so appointed by the Trustees, shall be the principal
executive officer of the Trust. Subject to the control of the Trustees and any
committee of the Trustees, the President shall at all times exercise a general
supervision and direction over the affairs of the Trust. The President shall
have the power to employ attorneys and counsel for the Trust and to employ such
subordinate officers, agents, clerks and employees as he may find necessary to
transact the business of the Trust. The President shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in the furtherance of the
<PAGE>
6
interests of the Trust. The President shall have such other powers and duties
as, from time to time, may be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there are more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require. The
Treasurer shall be responsible for the general supervision of the Trust's funds
and property and for the general supervision of the Trust's custodian.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Shareholders in proper books provided for
that purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust; and shall have charge of the Share transfer
books, lists and records unless the same are in the charge of the Transfer
Agent. The Secretary shall attend to the giving and serving of all notices by
the Trust in accordance with the provisions of these By-Laws and as required by
law; and subject to these By-Laws, shall in general perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each Assistant Treasurer shall
give a bond for the faithful discharge of his duties, if required to do so by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
<PAGE>
7
shall be fixed from time to time by the Trustees or, in the case of officers, by
any committee of officers upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
SECTION 11. EXECUTION OF PAPERS. Except as the Trustees may generally
or in particular cases authorize, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be executed by the President, any Vice President, or the
Treasurer, or by whomever else shall be designated for that purpose by the
Trustees, and need not bear the seal of the Trust.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be determined by the Trustees,
provided, however, that the Trustees may from time to time change the fiscal
year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed for the purposes of these By-Laws when it has been
delivered to a representative of any telegraph, cable or wireless company with
instruction that it be telegraphed, cabled or wirelessed. Any notice shall be
deemed to be given at the time when the same shall be mailed, telegraphed,
cabled or wirelessed.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a bank or trust company having a capital, surplus and undivided profits
of at least $5,000,000 as custodian with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in the Declaration, these By-Laws and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver
the same upon written order;
<PAGE>
8
(ii) to receive and receipt for any monies due to the Trust
and deposit the same in its own banking department or
elsewhere as the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting
services; and
(v) if authorized by the Trustees, to compute the net income
of the Trust and the net asset value of Shares;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust (1) in
a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, pursuant to which system
all securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust or its custodian; or (2) with such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The following provisions
shall apply to the employment of a custodian pursuant to this Article X and to
any contract entered into with the custodian so employed:
(a) The Trustees shall cause to be delivered to the custodian all
securities owned by the Trust or to which it may become entitled, and shall
order the same to be delivered by the custodian only upon completion of a sale,
exchange, transfer, pledge, or other disposition thereof, and upon receipt by
<PAGE>
9
the custodian of the consideration therefor or a certificate of deposit or a
receipt of an issuer or of its Transfer Agent, all as the Trustees may generally
or from time to time require or approve, or to a successor custodian; and the
Trustees shall cause all funds owned by the Trust or to which it may become
entitled to be paid to the custodian, and shall order the same disbursed only
for investment against delivery of the securities acquired, or in payment of
expenses, including management compensation, and liabilities of the Trust,
including distributions to Shareholders, or to a successor custodian; provided,
however, that nothing herein shall prevent delivery of securities for
examination to the broker purchasing the same in accord with the "street
delivery" custom whereby such securities are delivered to such broker in
exchange for a delivery receipt exchanged on the same day for an uncertified
check of such broker to be presented on the same day for certification.
(b) In case of the resignation, removal or inability to serve of any
such custodian, the Trust shall promptly appoint another bank or trust company
meeting the requirements of this Article X as successor custodian. The agreement
with the custodian shall provide that the retiring custodian shall, upon receipt
of notice of such appointment, deliver all Trust Property in its possession to
and only to such successor, and that pending appointment of a successor
custodian, or a vote of the Shareholders to function without a custodian, the
custodian shall not deliver any Trust Property to the Trust, but may deliver all
or any part of the Trust Property to a bank or trust company doing business in
Boston, Massachusetts, of its own selection, having an aggregate capital,
surplus and undivided profits (as shown in its last published report) of at
least $5,000,000; provided that arrangements are made for the Trust Property to
be held under terms similar to those on which they were held by the retiring
custodian.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted (a) by the Shareholders by a Majority Shareholder
Vote, or (b) by the Trustees, provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration or these By-Laws, a vote of the
Shareholders.
IFS0021
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of _________________, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and SELECT
ADVISORS VARIABLE INSURANCE TRUST, a Massachusetts business trust created
pursuant to a Declaration of Trust dated February 7, 1994, as amended from time
to time (the "Trust").
WHEREAS, the Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act"); and
WHEREAS, shares of beneficial in the Trust are divided into separate
series (each, along with any series which may in the future be established, a
"Portfolio"); and
WHEREAS, the Trust desires to avail itself of the services,
information, advice, assistance and facilities of an investment advisor and to
have an investment advisor perform for it various investment advisory and
research services and other management services; and
WHEREAS, the Advisor is an investment Advisor registered under the
Investment Advisers Act of 1940, as amended, and desires to provide investment
advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. The Trust hereby employs the Advisor to
manage the investment and reinvestment of the assets of each Portfolio subject
to the control and direction of the Trust's Board of Trustees, for the period on
the terms hereinafter set forth. The Advisor hereby accepts such employment and
agrees during such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The Advisor shall for all
purposes herein be deemed to be 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.
2. OBLIGATIONS AND SERVICES TO BE PROVIDED BY THE ADVISOR. In
providing the services and assuming the obligations set forth herein, the
Advisor may, at its expense, employ one or more subadvisors for any Portfolio.
Any agreement between the Advisor and a subadvisor shall be subject to the
renewal, termination and amendment provisions of paragraph 10 hereof. The
Advisor undertakes to provide the following services and to assume the following
obligations:
a) The Advisor will manage the investment and reinvestment of the
assets of each Portfolio, subject to and in accordance with the respective
investment objectives and policies of each Portfolio and any directions which
the Trust's Board of Trustees may issue from time to time. In pursuance of the
foregoing, the Advisor may engage separate investment advisors ("Portfolio
Advisor(s)") to make all determinations with respect to the investment of the
assets of each Portfolio, to effect the purchase and sale of portfolio
securities and to take such steps as may be necessary to implement the same.
Such determination and services by each Portfolio Advisor shall also include
determining the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities shall be
exercised. The Advisor shall, and shall cause each Portfolio Advisor to, render
regular reports to the Trust's Board of Trustees concerning the Trust's and each
Portfolio's investment activities.
b) The Advisor shall, or shall cause the respective Portfolio
Advisor(s) to place orders for the execution of all portfolio transactions, in
the name of the respective Portfolio and 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
amended from time to time. In connection with the placement of orders for the
execution of portfolio transactions, the Advisor shall create and maintain (or
cause the Portfolio Advisors to create and maintain) all necessary brokerage
records for each Portfolio, which records shall comply 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 (or Portfolio Advisor) for the
periods and in the places required by Rule 31a-02 under the 1940 Act.
c. In the event of any reorganization or other change in the Advisor,
its investment principals, supervisors or members of its investment (or
comparable) committee, the Advisor shall give 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.
d) The Advisor shall bear its expenses of providing services to the
Trust pursuant to this Agreement except such expenses as are undertaken by the
Trust. In addition, the Advisor shall pay the salaries and fees, if any, of all
Trustees, officers and employees of the Trust who are affiliated persons, as
defined in Section 2(a)(3) of the 1940 Act, of the Advisor.
e) The Advisor will manage, or will cause the Portfolio Advisors to
manage, the Portfolio 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. EXPENSES. The Trust shall pay the expenses of its operation,
including but not limited to (i) charges and expenses for Trust accounting,
pricing and appraisal services and related overhead, (ii) the charges and
expenses of the Portfolio's auditor's; (iii) the charges and expenses of any
custodian, transfer agent, plan agent, dividend disbursing agent and registrar
appointed by the Trust with respect to the Portfolios; (iv) brokers'
commissions, and issue and transfer taxes, chargeable to the Trust in connection
with securities transactions to which the Trust is a party; (v) insurance
premiums, interest charges, dues and fees for Trust membership in trade
associations and all taxes and fees payable by the Trust to federal, state or
other governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the Trust and/or interests in the Trust with the
SEC, state or blue sky securities agencies and foreign countries, including the
preparation of Prospectuses and Statements of Additional Information for filing
with the SEC; (vii) all expenses of meetings of Trustees and of interest holders
of the Trust and of preparing, printing and distributing prospectuses, notices,
proxy statements and all reports to shareholders and to governmental agencies;
(viii) charges and expenses of legal counsel to the Trust; (ix) compensation of
Trustees of the Trust; (x) the cost of preparing and printing share
certificates; and (xi) interest on borrowed money, if any.
4. COMPENSATION OF THE ADVISOR.
a) As compensation for the services rendered and obligations assumed
hereunder by the Advisor, the Trust shall pay to the Advisor monthly a fee that
is equal on an annual basis to that percentage of the average daily net assets
of each Portfolio set forth on Schedule 1 attached hereto (and with respect to
any future Portfolio, such percentage as the Trust and the Advisor may agree to
from time to time). Such fee shall be computed and accrued daily. If the Advisor
serves as investment advisor for less than the whole of any period specified in
this Section 4a, the compensation to the Advisor shall be prorated. For purposes
of calculating the Advisor's fee, the daily value of each Portfolio's net assets
shall be computed by the same method as the Trust uses to compute the net asset
value of that Portfolio.
b) The Advisor will pay all fees owing to each Portfolio Advisor, and
the Trust shall not be obligated to the Portfolio Advisors in any manner with
respect to the compensation of such Portfolio Advisors.
c) The Advisor reserves the right to waive all or a part of its fee.
5. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. It is understood that the Trustees and
officers of the Trust are or may become interested in the Advisor as
stockholders, officers or otherwise, and that stockholders and officers of the
Advisor are or may become similarly interested in the Trust, and that the
Advisor may become interested in the Trust as a shareholder or otherwise.
6. USE OF NAMES. The Trust will not use the name of the Advisor in any
prospectus, sales literature or other material relating to the Trust in any
manner not approved prior thereto by the Advisor; except that the Trust may use
such name in any document which merely refers in accurate terms to its
appointment hereunder or in any situation which is required by the SEC or a
state securities commission; and provided further, that in no event shall such
approval be unreasonably withheld. The Advisor will not use the name of the
Trust in any material relating to the Advisor in any manner not approved prior
thereto by the Trust; except that the Advisor may use such name in any document
which merely refers in accurate terms to the appointment of the Advisor
hereunder or in any situation which is required by the SEC or a state securities
commission. In all other cases, the parties may use such names to the extent
that the use is approved by the party named, it being agreed that in no event
shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that, in consideration of the
Advisor's assumption of certain organization expenses of the Trust and of the
various Portfolios, the Advisor has reserved for itself the rights to the name
"Select Advisors Portfolios" (or any similar names) and that use by the Trust of
such name shall continue only with the continuing consent of the Advisor, which
consent may be withdrawn at any time, effective immediately, upon written notice
thereof to the Trust.
7. LIMITATION OF LIABILITY OF THE ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of the
Advisor, the Advisor shall not be subject to liability to the Trust or to any
holder of an interest in any Portfolio 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 7, the term "Advisor" shall include Touchstone Advisors, Inc. and/or any
of its affiliates and the directors, officers and employees of Touchstone
Advisors, Inc. and/or of its affiliates.
b. The Trust will indemnify the 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
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 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 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 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 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 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 Advisor will ultimately be found to be entitled to indemnification.
8. LIMITATION OF TRUST'S LIABILITY. The 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 Advisor agrees that the Trust's
obligations hereunder in any case shall be limited to the Trust and to its
assets and that the Advisor shall not seek satisfaction of any such obligation
from the holders of the interests in any Portfolio nor from any Trustee,
officer, employee or agent of the Trust.
9. FORCE MAJEURE. The 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 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, for a period of twelve months from the date hereof and
it shall continue indefinitely thereafter as to each Portfolio, provided that
such continuance is specifically approved by the parties hereto and, in
addition, at least annually by (i) the vote of holders of a majority of the
outstanding voting securities of the affected Portfolio 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 the
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, with respect to any
Portfolio(s), without payment of any penalty, by the Trust's Board of Trustees
or by a vote of the majority of the outstanding voting securities of the
affected Portfolio(s) upon 60 days' prior written notice to the Advisor and by
the Advisor upon 60 days' prior written notice to the Trust.
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 any Portfolio affected by such change. This Agreement shall
terminate automatically in the event of its assignment.
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.
11. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
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 inn their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first above
written. Pursuant to the Trust's Declaration of Trust, dated as of February 7,
1994, the obligations of this Agreement are not binding upon any of the Trustees
or interestholders of the Trust individually, but bind only the Trust estate.
SELECT ADVISORS VARIABLE INSURANCE TRUST
By
Attest:
TOUCHSTONE ADVISORS, INC.
By
Attest:
<PAGE>
SCHEDULE 1
Emerging Growth Portfolio 0.80%
International Equity Portfolio 0.95%
Balanced Portfolio 0.70%
Income Opportunity 0.65%
Standby Reserves 0.25%
PORTFOLIO ADVISORY AGREEMENT
EMERGING GROWTH PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the day of , 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
DAVID L. BABSON & COMPANY, INC., a Massachusetts corporation (the "Portfolio
Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Variable Insurance Trust (the "Trust"), a Massachusetts business trust
organized pursuant to a Declaration of Trust dated February 7, 1994 and
registered as an open-end 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 Emerging Growth Portfolio of the Trust
(herein the "Portfolio"); and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO 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
Portfolio Advisor to manage the investment and reinvestment of that portion of
the assets of the Portfolio 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 Portfolio) (the said portion, as it may be
changed from time to time, being herein called the "Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
<PAGE>
a. The Portfolio Advisor will manage the investment and
reinvestment of the Portfolio Assets, subject to and in accordance with
the investment objectives, policies and restrictions of the Portfolio
and any directions which the Advisor or the Trust's Board of Trustees
may give from time to time with respect to the Portfolio. In
furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of the Portfolio 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
Portfolio 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 Portfolio
Advisor will render regular reports to the Trust's Board of Trustees,
to the Advisor and to Rogers, Casey Consulting, 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 Portfolio Advisor).
Such reports shall be made in such form and manner and with respect to
such matters regarding the Portfolio and the Portfolio Advisor as the
Trust, the Advisor or Rogers, Casey Consulting, Inc. shall from time to
time request; provided, however, that in the absence of extraordinary
circumstances, the individual primarily responsible for management of
the Portfolio Assets for the Portfolio Advisor will not be required to
attend in person more than one meeting per year with the trustees of
the Trust.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor with respect to a composite
of other portfolios managed by the Portfolio Advisor that are
comparable, in investment objective and composition, to the Portfolio,
(iii) access to the individual(s) responsible for day-to-day management
of the Portfolio for marketing conferences, teleconferences and other
activities involving the promotion of the Portfolio, subject to the
reasonable request of the Advisor, (iv) permission to use biographical
and historical data of the Portfolio Advisor and individual manager(s),
and (v) permission to use the names of those clients, preapproved by
the Portfolio Advisor, to which the Portfolio Advisor provides
investment management services, subject to receipt of the consent of
such clients to the use of their names.
c. The Portfolio Advisor will, in the name of the Portfolio,
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 Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio 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
<PAGE>
placing orders with brokers and dealers, the Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(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 Portfolio 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 Portfolio 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 Portfolio
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 Portfolio Advisor's overall
responsibilities with respect to discretionary accounts that it
manages, and that the Portfolio derives or will derive a reasonably
significant benefit from such research services. The Portfolio 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
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio 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 Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Portfolio Advisor will manage the Portfolio Assets and
the investment and reinvestment of such assets so as to comply with the
1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as
amended.
3. COMPENSATION OF THE PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio Advisor a monthly fee equal on an annual basis to 0.50%
of the
<PAGE>
average daily net Portfolio Assets. Such fee shall be computed and
accrued daily. If the Portfolio Advisor serves in such capacity for
less than the whole of any period specified in this Section 3a, the
compensation to the Portfolio Advisor shall be prorated. For purposes
of calculating the Portfolio Advisor's fee, the daily value of the
Portfolio Assets shall be computed by the same method as the Trust uses
to compute the net asset value of the Portfolio for purposes of
purchases and redemptions of interests thereof.
b. The Portfolio Advisor reserves the right to waive all or a
part of its fees hereunder.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio 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 Portfolio Advisor, (ii) the nature
and amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding any
potential conflicts of interest arising by reason of its continuing provision of
advisory services to the Portfolio and to its other accounts, and (iv) such
other information as the Board of Trustees shall reasonably request regarding
the Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to providing
future services to the Portfolio and its other accounts. The Portfolio Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Portfolio and its other clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio 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 Portfolio 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 Portfolio Advisor; provided, however, that the Portfolio 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 Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio 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 Portfolio 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.
<PAGE>
6. LIMITATION OF LIABILITY OF THE PORTFOLIO ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Portfolio Advisor, the Portfolio Advisor
shall not be subject to liability to the Advisor, the Trust or to any holder of
an interest in the Portfolio 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 "Portfolio Advisor" shall include the Portfolio Advisor
and/or any of its affiliates and the directors, officers and employees of the
Portfolio Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio 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 Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio 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 Portfolio 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, for a period of 12 months from the
date hereof; 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 Portfolio 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 Portfolio
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 Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio 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
<PAGE>
outstanding voting securities of the Portfolio 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 318 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be One Memorial Drive, Cambridge, MA
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.
By
Edward G. Harness, Jr.
President
Attest:
Secretary
DAVID L. BABSON & COMPANY, INC.
By
Name, President
Attest:
PORTFOLIO ADVISORY AGREEMENT
EMERGING GROWTH PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the day of , 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC., a Massachusetts corporation (the
"Portfolio Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Variable Insurance Trust, a Massachusetts business trust (the "Trust")
registered under the Investment Company Act of 1940 (the "1940 Act"), to provide
investment advisory services with respect to certain assets of the Emerging
Growth Portfolio (herein the "Portfolio") of the Trust; and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO 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
Portfolio Advisor to manage the investment and reinvestment of that portion of
the assets of the Portfolio allocated to it by the Advisor (such portion being
herein called the "Portfolio 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 Portfolio 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 Portfolio
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 Portfolio 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 Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the Portfolio Assets, subject to and in accordance with
the investment objectives, policies and restrictions of the Portfolio
and any directions which the Advisor or the Trust's Board of Trustees
may give
<PAGE>
from time to time with respect to the Portfolio. In furtherance of the
foregoing, the Portfolio Advisor will make all determinations with
respect to the investment of the Portfolio 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 Portfolio 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 Portfolio Advisor will
render regular reports to the Trust's Board of Trustees, to the Advisor
and to Rogers, Casey Consulting, 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 Portfolio Advisor). Such reports
shall be made in such form and manner and with respect to such matters
regarding the Portfolio and the Portfolio Advisor as the Trust, the
Advisor or Rogers, Casey Advisors, Inc. shall from time to time
request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor as the same is applicable
to the Portfolio, (iii) access to the individual(s) responsible for
day-to-day management of the Portfolio for marketing conferences,
teleconferences and other activities involving the promotion of the
Portfolio, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Portfolio
Advisor and individual manager(s), and (v) permission to use the names
of those institutional clients to which the Portfolio Advisor provides
investment management services, subject to receipt of the consent of
such clients to the use of their names.
c. The Portfolio Advisor will, in the name of the Portfolio,
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 Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio 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 Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall,direct net economic result to the Portfolio
(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
<PAGE>
dealer to stand ready to execute possibly difficult transactions in the
future. The Portfolio 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 Portfolio
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 Portfolio 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 Portfolio Advisor's overall
responsibilities with respect to discretionary accounts that it
manages, and that the Portfolio derives or will derive a reasonably
significant benefit from such research services. The Portfolio 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
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio 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 Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Portfolio Advisor will manage the Portfolio Assets and
the investment and reinvestment of such assets so as to comply with the
provisions of the Investment Company Act of 1940 and with Subchapter M
of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio 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
Portfolio managed by the Portfolio Advisor, 0.40% of the average daily
net assets of the Portfolio managed by the Portfolio Advisor in excess
of $10 million and up to $50 million and 0.35% of the average daily net
assets of the Portfolio managed by the Portfolio Advisor in excess of
$50 million. Such fee shall be computed and accrued daily. If the
Portfolio Advisor serves in such capacity for less than the whole of
any period specified in this Section 3a, the compensation to the
Portfolio Advisor shall be prorated. For purposes of calculating the
Portfolio Advisor's fee, the daily value of the Portfolio's net assets
shall be computed by the same method as the
<PAGE>
Trust uses to compute the net asset value of the Portfolio for purposes
of purchases and redemptions of interests thereof.
b. The Portfolio Advisor reserves the right to waive all or a
part of its fees hereunder.
4. Activities of the Portfolio Advisor. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio 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 Portfolio Advisor, (ii) the nature and
amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding any
potential conflicts of interest arising by reason of its continuing provision of
advisory services to the Portfolio and to its other accounts, and (iv) such
other information as the Board of Trustees shall reasonably request regarding
the Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to providing
future services to the Portfolio and its other accounts. At least annually, the
Portfolio Advisor will provide to the Trustees information regarding the
composite return of such of its other accounts as are comparable, in investment
objective and composition, to the Portfolio. The Portfolio Advisor agrees to
submit to the Trust a statement defining its policies with respect to the
allocation of investment opportunities among the Portfolio and its other
clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio 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 Portfolio 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 Portfolio Advisor; provided, however, that the Portfolio 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 Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio 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 Portfolio 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 PORTFOLIO ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
<PAGE>
or duties hereunder on the part of the Portfolio Advisor, the Portfolio Advisor
shall not be subject to liability to the Advisor, the Trust or to any holder of
an interest in the Portfolio 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 "Portfolio Advisor" shall include the Portfolio Advisor
and/or any of its affiliates and the directors, officers and employees of the
Portfolio Advisor and/or any of its affiliates.
7. Limitation of Trust's Liability. The Portfolio 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 Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio 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 Portfolio 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, for a period of 12 months from the
date hereof; 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 Portfolio 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 Portfolio
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 Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio 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 Portfolio affected
by such change.
<PAGE>
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 318 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be One Financial Center - 27th Floor,
Boston, MA 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.
By
Edward G. Harness, Jr.
President
Attest:
Secretary
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC.
By
Name, President
Attest:
Secretary
PORTFOLIO ADVISORY AGREEMENT
INTERNATIONAL EQUITY PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the day of , 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
BEA ASSOCIATES, a New York general partnership (the "Portfolio Advisor").
WHEREAS, the Advisor has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940, as amended, and
has been retained by Select Advisors Variable Insurance Trust (the "Trust"), a
Massachusetts business trust organized pursuant to a Declaration of Trust dated
February 7, 1994 and registered as an open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act") to provide investment
advisory services to the International Equity Portfolio of the Trust (herein the
"Portfolio"); and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO 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
Portfolio Advisor to manage the investment and reinvestment of those assets of
the Portfolio allocated to it by the Advisor (the "Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
<PAGE>
reinvestment of the assets of the Portfolio Assets, subject to and in
accordance with the investment objectives, policies and restrictions of
the Portfolio and any directions which the Advisor or the Trust's Board
of Trustees may give from time to time with respect to the Portfolio.
In furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of the assets of the
Portfolio and the purchase and sale of portfolio securities and shall
take such steps as may be necessary or advisable to implement the same.
The Portfolio 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 Portfolio
Advisor will render regular reports to the Trust's Board of Trustees,
to the Advisor and to Rogers, Casey Consulting, 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 Portfolio Advisor).
Such reports shall be made in such form and manner and with respect to
such matters regarding the Portfolio and the Portfolio Advisor as the
Trust, the Advisor or Rogers, Casey Consulting, Inc. shall from time to
time reasonably request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, consisting of (i)
permission to use the Portfolio Advisor's name as provided in Section
5, (ii) permission to use the past performance and investment history
of the Portfolio Advisor as the same is applicable to the Portfolio,
(iii) access to the individual(s) responsible for the management of the
Portfolio for marketing conferences, teleconferences and other
activities involving the promotion of the Portfolio, subject to the
reasonable request of the Advisor and to the limitation that the
individual primarily responsible for management of the Portfolio Assets
for the Portfolio 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 Portfolio Advisor and
individual manager(s), and (v) permission to use the names of clients
to which the Portfolio Advisor provides investment management services,
subject to any restrictions imposed by clients on the use of such
names.
c. The Portfolio Advisor will, in the name of the Portfolio,
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 Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio 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 Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
<PAGE>
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(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 Portfolio 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 Portfolio 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 Portfolio
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 Portfolio Advisor's overall
responsibilities with respect to discretionary accounts that it
manages. The Portfolio 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
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio 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
Portfolio Advisor will notify the Advisor of any change in the
membership of the Portfolio Advisor within a reasonable time (but not
more than 30 days) after such change takes place.
e. The Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. Based on account information regarding the Portfolio
provided by the Advisor, the Portfolio Advisor will manage the
Portfolio 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 provisions of the 1940 Act regarding transactions
with affiliates, the obligations of the Portfolio Advisor shall be
limited to matters involving its own affiliates and such other persons
as the Advisor shall expressly identify as affiliated persons.
<PAGE>
3. COMPENSATION OF THE PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio 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
Portfolio, 0.80% of the average daily net assets of the Portfolio in
excess of $30 million and up to $50 million, 0.60% of the average daily
net assets of the Portfolio in excess of $50 million and up to $75
million, and 0.50% of the average daily net assets of the Portfolio in
excess of $75 million. Such fee shall be computed and accrued daily. If
the Portfolio Advisor serves in such capacity for less than the whole
of any period specified in this Section 3a, the compensation to the
Portfolio Advisor shall be prorated. For purposes of calculating the
Portfolio Advisor's fee, the daily value of the Portfolio's net assets
shall be computed by the same method as the Trust uses to compute the
net asset value of the Portfolio for purposes of purchases and
redemptions of interests thereof.
b. The Portfolio Advisor reserves the right to waive all or a
part of its fees hereunder.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio 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 affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (ii) any potential conflicts of
interest arising by reason of its continuing provision of advisory services to
the Portfolio and to its other accounts, and (iii) such other matters as the
Board of Trustees shall reasonably request regarding the Portfolio, the
Portfolio's performance, the services provided by the Portfolio Advisor to the
Portfolio as compared to its other accounts and the plans of, and the capability
of, the Portfolio Advisor with respect to providing future services to the
Portfolio and its other accounts. The Portfolio Advisor agrees to submit to the
Trust a statement defining its policies with respect to the allocation of
business among the Portfolio and its other clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio 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 Portfolio 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 Portfolio Advisor; provided, however, that the Portfolio
<PAGE>
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 Portfolio Advisor shall not use the name
of the Advisor or the Trust in any material relating to the Portfolio 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 Portfolio 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 PORTFOLIO ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Portfolio Advisor, the Portfolio Advisor shall not be subject to
liability to the Advisor, the Trust or to any holder of an interest in
the Portfolio 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 "Portfolio Advisor" shall include the
Portfolio Advisor and/or any of its affiliates and the directors,
officers and employees of the Portfolio Advisor and/or any of its
affiliates.
b. The Trust or the Advisor will indemnify the Portfolio
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 Portfolio 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 Portfolio 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
Portfolio 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
<PAGE>
conditions shall be met: (a) the Portfolio 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 Portfolio Advisor will ultimately be found to be
entitled to indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio 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 Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer or employee of the Trust.
8. FORCE MAJEURE. The Portfolio 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 Portfolio 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, for a period of 12 months from the
date hereof; 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 Portfolio 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 Portfolio
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 Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio 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
<PAGE>
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 Portfolio 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 318 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be One Citicorp Center, 153 E. 53rd
Street, New York, NY 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.
By
Edward G. Harness, Jr.
President
Attest:
Secretary
BEA ASSOCIATES
By
Name, President
Attest:
Secretary
PORTFOLIO ADVISORY AGREEMENT
BALANCED PORTFOLIO (FIXED INCOME)
This PORTFOLIO ADVISORY AGREEMENT is made as of the day of , 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and,
MORGAN GRENFELL CAPITAL MANAGEMENT, INC., a New York corporation (the "Portfolio
Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Variable Insurance Trust (the "Trust") a Massachusetts business trust
organized pursuant to a Declaration of Trust dated February 7, 1994 and
registered as an open-end management investment company under The Investment
Company Act of 1940 (the " 1940 Act") to provide investment advisory services to
the fixed income portion of the Balanced Portfolio, a series of the Trust
(herein the "Portfolio"); and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO 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
Portfolio Advisor to manage the investment and reinvestment of those assets of
the Portfolio allocated to it by the Advisor (the "Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the assets of the Portfolio Assets, subject to and in
<PAGE>
accordance with the investment objectives, policies and restrictions of
the Portfolio and any directions which the Advisor or the Trust's Board
of Trustees may give from time to time with respect to the Portfolio.
In furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of the assets of the
Portfolio and the purchase and sale of portfolio securities and shall
take such steps as may be necessary or advisable to implement the same.
The Portfolio 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 Portfolio
Advisor will render regular reports to the Trust's Board of Trustees,
to the Advisor and to such other advisor or consultant as the Advisor
shall engage to assist it in the evaluation of the performance and
activities of the Portfolio Advisor. Such reports shall be made in such
form and manner and with respect to such matters regarding the
Portfolio and the Portfolio Advisor as the Trust, the Advisor or such
consultant or advisor engaged by the Advisor shall from time to time
request.
b. The Portfolio Advisor shall (i) permit the Advisor and the
Trust to use the past performance and investment history of the
Portfolio Advisor, as the same is applicable to the Portfolio and to
the extent permitted by applicable law and regulations, (ii) provide
the Advisor and the Trust access to the individual(s) responsible for
day-to-day management of the Portfolio in connection with marketing
conferences, teleconferences and other activities involving the
promotion of the Portfolio, subject to the reasonable request of the
Trust or the Advisor, and (iii) permit the Advisor and the Trust to use
biographical and historical data of the Portfolio Advisor and
individual manager(s).
c. The Portfolio Advisor will, in the name of the Portfolio,
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 Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio 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 Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(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
<PAGE>
future. The Portfolio 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 Portfolio
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 Portfolio 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 Portfolio Advisor's overall
responsibilities with respect to the Portfolio and other discretionary
accounts that it manages. The Portfolio 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
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio 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 Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Advisor understands that the Portfolio Advisor, because
it will manage only a portion of the assets held by the Portfolio, is
unable to assure that the Portfolio, as a whole, will comply with the
provisions of the 1940 Act and Subchapter M of the Internal Revenue
Code of 1986. Nonetheless, during the term of this Agreement the
Portfolio Advisor will not take or omit to take any action with respect
to the Portfolio Assets that it knows or reasonably should know will
have the effect of causing the Portfolio to fail to comply with the
provisions of the 1940 Act or such Subchapter M. In this regard, the
Portfolio Advisor will not be charged with knowledge of any information
regarding those assets of the Portfolio that are not under its
management, unless such information is provided, in writing, to the
Portfolio Advisor by the Trust or the Advisor in sufficient time to
enable the Portfolio Advisor to take or omit to take action that would
keep the Portfolio in compliance with the 1940 Act and Subchapter M.
3. COMPENSATION OF THE PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio Advisor a monthly fee equal on an annual basis to 0.35%
of the first $40 million of the average daily net assets of the fixed
income portion of the Portfolio, and 0.30% of the average daily net
assets of the
<PAGE>
fixed income portion of the Portfolio in excess of $40 million. Such
fee shall be computed and accrued daily. If the Portfolio Advisor
serves in such capacity for less than the whole of any period specified
in this Section 3a, the compensation to the Portfolio Advisor shall be
prorated. For purposes of calculating the Portfolio Advisor's fee, the
daily value of the Portfolio's net assets shall be computed by the same
method as the Trust uses to compute the net asset value of the
Portfolio for purposes of purchases and redemptions of interests
thereof.
b. The Portfolio Advisor reserves the right to waive all or a
part of its fees hereunder, as well as to terminate any such waiver at
any time by written notice to the Advisor and the Trust.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio 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 of the Portfolio Advisor, (ii) the nature and amount of
transactions affecting the Portfolio that involve the Portfolio Advisor and
affiliates of the Portfolio Advisor, (iii) information regarding any potential
conflicts of interest arising by reason of its continuing provision of advisory
services to the Portfolio and to its other accounts, and (iv) such other
information as the Board of Trustees shall reasonably request regarding the
Portfolio, the Portfolio's performance, the services provided by the Portfolio
Advisor to the Portfolio as compared to its other accounts and the plans of, and
the capability of, the Portfolio Advisor with respect to providing future
services to the Portfolio and its other accounts. The Portfolio Advisor agrees
to submit to the Trust a statement defining its policies with respect to the
allocation of investment opportunities among the Portfolio and its other
clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio 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 Portfolio 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 Portfolio Advisor; provided, however, that the Portfolio 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 Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio 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 Portfolio Advisor hereunder or which are required by the SEC or a state
securities commission; and,
<PAGE>
provided further, that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE PORTFOLIO ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Portfolio Advisor, the Portfolio Advisor shall not be subject to
liability to the Advisor, the Trust or to any holder of an interest in
the Portfolio 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 "Portfolio Advisor" shall include the
Portfolio Advisor and/or any of its affiliates and the directors,
officers and employees of the Portfolio Advisor and/or any of its
affiliates.
b. The Advisor will indemnify the Portfolio 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 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 Portfolio
Advisor shall be entitled to advances from the Advisor 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 Portfolio Advisor shall provide to
the Advisor 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 Portfolio Advisor shall provide
security in form and amount acceptable to the Advisor for its
undertaking; (b) the Advisor 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 Portfolio Advisor will ultimately be found to be
entitled to indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio 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 Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
<PAGE>
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio 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 Portfolio 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, for a period of 12 months from the
date hereof; 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 Portfolio 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 Portfolio
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 Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio 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 Portfolio affected
by such change.
d. The terms "assignment," "interested persons" and "majority"
of the outstanding voting securities" shall have the meanings 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
<PAGE>
for this purpose shall be 31 8 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be 885 Third Avenue, New York, NY 10002.
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. This
Agreement sets forth the entire agreement of the parties with respect to the
subject matter hereof and supersedes any oral or prior written understanding of
agreement of the parties with respect to the subject matter hereof.
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
Edward G. Harness, Jr.
President
Attest:
Secretary
MORGAN GRENFELL CAPITAL MANAGEMENT, INC.
By
James E. Minnick, President
Attest:
Secretary
<PAGE>
JOINDER
Select Advisors Variable Insurance Trust, an intended beneficiary of
the performance to be rendered by Morgan Grenfell Capital Management, Inc.
pursuant to the foregoing agreement (the "Agreement"), does hereby, as further
consideration for such performance, join in and agree to perform, jointly and
severally with Touchstone Advisors, Inc. (the "Advisor"), those obligations to
be performed by the Advisor and/or Select Advisors Variable Insurance Trust
under and pursuant to Section 6b of the Agreement (subject, however, to the
terms of such Section 6b and of Section 7 of the Agreement) and under and
pursuant to Section 5 of the Agreement.
SELECT ADVISORS VARIABLE INSURANCE TRUST
By:
Trustee
PORTFOLIO ADVISORY AGREEMENT
BALANCED PORTFOLIO (EQUITY)
This PORTFOLIO ADVISORY AGREEMENT is made as of the day of , 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
HARBOR CAPITAL MANAGEMENT COMPANY, INC., a Massachusetts corporation (the
"Portfolio Advisor").
WHEREAS, the Advisor has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940, as amended, and
has been retained by Select Advisors Variable Insurance Trust (the "Trust"), a
Massachusetts business trust organized pursuant to a Declaration of Trust dated
February 7, 1994 and registered as an open-end management investment company
under the Investment Company Act of 1940 (the " 1940 Act") to provide investment
advisory services to the equity portion of the Balanced Portfolio (herein the
"Portfolio") of the Trust; and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO 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
Portfolio Advisor to manage the investment and reinvestment of those assets of
the Portfolio allocated to it by the Advisor (the "Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the assets of the Portfolio Assets, subject to and in
accordance with the investment objectives, policies and restrictions of
the Portfolio and any directions which the Advisor or the Trust's Board
of
<PAGE>
Trustees may give from time to time with respect to the Portfolio. In
furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of the assets of the
Portfolio and the purchase and sale of portfolio securities and shall
take such steps as may be necessary or advisable to implement the same.
The Portfolio 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 Portfolio
Advisor will render regular reports to the Trust's Board of Trustees,
to the Advisor and to Rogers, Casey Consulting, 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 Portfolio Advisor).
Such reports shall be made in such form and manner and with respect to
such matters regarding the Portfolio and the Portfolio Advisor as the
Trust, the Advisor or Rogers, Casey Advisors, Inc. shall from time to
time request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor as the same is applicable
to the Portfolio, and (iii) access to the individual(s) responsible for
day-to-day management of the Portfolio for marketing conferences,
teleconferences and other activities involving the promotion of the
Portfolio, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Portfolio
Advisor and individual manager(s), and (v) permission to use the names
of clients to which the Portfolio Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
c. The Portfolio Advisor will, in the name of the Portfolio,
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 Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio 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 Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(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
<PAGE>
dealer to stand ready to execute possibly difficult transactions in the
future. The Portfolio 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 Portfolio
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 Portfolio 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 Portfolio Advisor's overall
responsibilities with respect to discretionary accounts that it
manages, and that the Portfolio derives or will derive a reasonably
significant benefit from such research services. The Portfolio 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
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio 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 Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Portfolio Advisor will manage the Portfolio 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 PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio Advisor a monthly fee equal on an annual basis to 0.50%
of the first $75 million of the average daily net assets of the equity
portion of the Portfolio, 0.40% of the average daily net assets of the
equity portion of the Portfolio in excess of $75 million and up to $150
million and 0.30% of the average daily net assets of the equity portion
of the Portfolio in excess of $150 million. Such fee shall be computed
and accrued daily. If the Portfolio Advisor serves in such capacity for
less than the whole of any period specified in this Section 3a, the
compensation to the Portfolio Advisor shall be prorated. For purposes
of calculating the Portfolio Advisor's fee, the daily value of the
Portfolio's net assets shall be
<PAGE>
computed by the same method as the Trust uses to compute the net asset
value of the Portfolio for purposes of purchases and redemptions of
interests thereof.
b. The Portfolio Advisor reserves the right to waive all or a
part of its fees hereunder.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio 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 Portfolio Advisor, (ii) the nature and
amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding any
potential conflicts of interest arising by reason of its continuing provision of
advisory services to the Portfolio and to its other accounts, and (iv) such
other information as the Board of Trustees shall reasonably request regarding
the Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to providing
future services to the Portfolio and its other accounts. At least annually, the
Portfolio 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 Portfolio Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Portfolio and its other clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio 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 Portfolio 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 Portfolio Advisor; provided, however, that the Portfolio 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 Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio 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 Portfolio 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 PORTFOLIO ADVISOR. Absent willful
<PAGE>
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Portfolio Advisor, the Portfolio Advisor
shall not be subject to liability to the Advisor, the Trust or to any holder of
an interest in the Portfolio for any act or omission in the course (if, 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 "Portfolio Advisor" shall include the Portfolio Advisor
and/or any of its affiliates and the directors, officers and employees of the
Portfolio Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio 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 Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio 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 Portfolio 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, for a period of 12 months from the
date hereof; 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 Portfolio 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 Portfolio
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 Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio 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 Portfolio affected
by such change.
<PAGE>
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 318 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be 125 High Street - 26th Floor, Boston,
MA 02110.
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
Edward G. Harness, Jr.
President
Attest:
Secretary
HARBOR CAPITAL MANAGEMENT COMPANY, INC.
BY
Name, President
Attest:
Secretary
PORTFOLIO ADVISORY AGREEMENT
INCOME OPPORTUNITY PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the day of , 1994, 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 "Portfolio Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Variable Insurance Trust (the "Trust"), a Massachusetts business trust
organized pursuant to a Declaration of Trust dated February 7, 1994 and
registered as an open-end investment company under The Investment Company Act of
1940 (the "1940 Act"), to provide investment advisory services to the Income
Opportunity Portfolio (herein the "Portfolio") of the Trust; and
WHEREAS, the Portfolio Advisor is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO 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
Portfolio Advisor to manage the investment and reinvestment of those assets of
the Portfolio allocated to it by the Advisor (the "Portfolio Assets"), subject
to the oversight responsibilities of the Advisor under the Advisor Agreement and
of the Trust's Board of Trustees under applicable law, for the period and on the
terms hereinafter set forth. The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the Portfolio Assets, subject to and in accordance with
the investment objectives, policies and restrictions of the Portfolio
and subject to the oversight responsibilities of the Advisor under the
Advisory Agreement and of the Trust's Board of Trustees under
applicable
<PAGE>
law, in each case with respect to the Portfolio. In furtherance of the
foregoing, the Portfolio Advisor will make all determinations with
respect to the investment of the assets of the Portfolio and the
purchase and sale of portfolio securities and shall take such steps as
may be necessary or advisable to implement the same. The Portfolio
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 Portfolio Advisor will
render regular reports to the Trust's Board of Trustees, to the Advisor
and to Rogers, Casey Consulting, 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 Portfolio Advisor). Such reports
shall be made in such form and manner and with respect to such matters
regarding the Portfolio and the Portfolio Advisor as the Trust, the
Advisor or Rogers, Casey Advisors, Inc. shall from time to time
request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor as the same is applicable
to the Portfolio, and (iii) access to the individual(s) responsible for
day-to-day management of the Portfolio for marketing conferences,
teleconferences and other activities involving the promotion of the
Portfolio, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Portfolio
Advisor and individual manager(s), and (v) permission to use the names
of those clients to which the Portfolio Advisor provides investment
management services, subject to receipt of the consent of such clients
to the use of their names.
c. The Portfolio Advisor will, in the name of the Portfolio,
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 Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio 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 Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(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
<PAGE>
dealer to stand ready to execute possibly difficult transactions in the
future. The Portfolio 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 Portfolio
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 Portfolio 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 Portfolio Advisor's overall
responsibilities with respect to discretionary accounts that it
manages. The Portfolio 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 Portfolio 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 Portfolio Advisor to manage the Portfolio or otherwise
perform its obligations to the Advisor and the Trust under this
Agreement, the Portfolio 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 Portfolio Advisor will
notify the Advisor of any change in membership of the Portfolio
Advisor's general partners within a reasonable time (but not later than
30 days) after such change.
e. The Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Portfolio Advisor will manage the Portfolio Assets and
the investment and reinvestment of such assets so as to comply with the
provisions of the Investment Company Act of 1940 and with Subchapter M
of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE PORTFOLIO ADVISOR. As compensation for the
services to be rendered and duties undertaken hereunder by the Portfolio
Advisor, the Advisor will pay to the Portfolio 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 Portfolio, 0.35% of the average daily net assets of the Portfolio in
excess of $50 million and up to $70 million and 0.30% of the average daily net
assets of the Portfolio in excess of $70 million and up to $90 million and 0.25%
of the average daily assets of the Portfolio in excess of $90 million. Such fee
shall be computed and accrued daily. If the Portfolio Advisor serves in such
capacity for less than the whole of any period specified in this Section 3, the
compensation to the Portfolio Advisor shall be prorated. For purposes of
<PAGE>
calculating the Portfolio Advisor's fee, the daily value of the Portfolio's net
assets shall be computed by the same method as the Trust uses to compute the net
asset value of the Portfolio for purposes of purchases and redemptions of
interests thereof.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio 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 Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (ii) information regarding any
potential conflicts of interest arising by reason of its continuing provision of
advisory services to the Portfolio and to its other accounts, and (iii) such
other information as the Board of Trustees shall reasonably request regarding
the Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to providing
future services to the Portfolio and its other accounts. The Portfolio Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of investment opportunities among the Portfolio and its other
clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio 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 Portfolio 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 Portfolio Advisor; provided, however, that the Portfolio 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 Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio 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 Portfolio 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 PORTFOLIO ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Portfolio Advisor, the Portfolio Advisor
shall not be subject to liability to the Advisor, the Trust or to any holder of
an interest in the Portfolio 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
<PAGE>
Section 6, the term "Portfolio Advisor" shall include the Portfolio Advisor
and/or any of its affiliates and the directors, officers and employees of the
Portfolio Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio 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 Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio 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 Portfolio 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, for a period of 12 months from the
date hereof; 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 Portfolio 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 Portfolio
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 Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio 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 Portfolio 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
<PAGE>
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 318 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be 1345 Avenue of the Americas, New York,
NY 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.
By
Edward G. Harness, Jr.
President
Attest:
Secretary
ALLIANCE CAPITAL MANAGEMENT L.P.
by ALLIANCE CAPITAL MANAGEMENT CORP.,
GENERAL PARTNER
By
Mark R. Manley
Assistant Secretary
Attest:
Secretary
PORTFOLIO ADVISORY AGREEMENT
STANDBY RESERVES PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the day of , 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
FORT WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Portfolio
Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Variable Insurance Trust (the "Trust"), a Massachusetts business trust
organized pursuant to a Declaration of Trust dated February 7, 1994 and
registered as an open-end management investment company under the Investment
Company Act of 1940 (the " 1940 Act"), to provide investment advisory services
to the Standby Reserves Portfolio (herein the "Portfolio") of the Trust; and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO 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
Portfolio Advisor to manage the investment and reinvestment of those assets of
the Portfolio allocated to it by the Advisor (the "Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 day of
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust or the Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the assets of the Portfolio Assets, subject to and in
<PAGE>
accordance with the investment objectives, policies and restrictions of
the Portfolio and any directions which the Advisor or the Trust's Board
of Trustees may give from time to time with respect to the Portfolio.
In furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of the assets of the
Portfolio and the purchase and sale of portfolio securities and shall
take such steps as may be necessary or advisable to implement the same.
The Portfolio 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 Portfolio
Advisor will render regular reports to the Trust's Board of Trustees,
to the Advisor and to Rogers, Casey Consulting, 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 Portfolio Advisor).
Such reports shall be made in such form and manner and with respect to
such matters regarding the Portfolio and the Portfolio Advisor as the
Trust, the Advisor or Rogers, Casey Consulting, Inc. shall from time to
time request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor as the same is applicable
to the Portfolio, and (iii) access to the individual(s) responsible for
day-to-day management of the Portfolio for marketing conferences,
teleconferences and other activities involving the promotion of the
Portfolio, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Portfolio
Advisor and individual manager(s), and (v) permission to use the names
of clients to which the Portfolio Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
c. The Portfolio Advisor will, in the name of the Portfolio,
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 Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio 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 Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(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
<PAGE>
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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Portfolio derives
or will derive a reasonably significant benefit from such research
services. The Portfolio 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
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio 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 Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Portfolio Advisor will manage the Portfolio 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 PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio Advisor a monthly fee equal on an annual basis to 0. 15%
of the average daily net assets of the Portfolio. Such fee shall be
computed and accrued daily. If the Portfolio Advisor serves in such
capacity for less than the whole of any period specified in this
Section 3a, the compensation to the Portfolio Advisor shall be
prorated. For purposes of calculating the Portfolio Advisor's fee, the
daily value of the Portfolio's net assets shall be computed by the same
method as the Trust uses to compute the net asset value of the
Portfolio for purposes of purchases and redemptions of interests
thereof.
<PAGE>
b. The Portfolio Advisor reserves the right to waive all or a
part of its fees hereunder.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio 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 Portfolio Advisor, (ii) the nature and
amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding any
potential conflicts of interest arising by reason of its continuing provision of
advisory services to the Portfolio and to its other accounts, and (iv) such
other information as the Board of Trustees shall reasonably request regarding
the Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to providing
future services to the Portfolio and its other accounts. At least annually, the
Portfolio 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 Portfolio Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Portfolio and its other clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio 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 Portfolio 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 Portfolio Advisor; provided, however, that the Portfolio 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 Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio 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 Portfolio 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 PORTFOLIO ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Portfolio Advisor, the Portfolio Advisor shall not be subject to
liability
<PAGE>
to the Advisor, the Trust or to any holder of an interest in the
Portfolio 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 "Portfolio Advisor" shall include the Portfolio Advisor
and/or any of its affiliates and the directors, officers and employees
of the Portfolio Advisor and/or any of its affiliates.
b. The Advisor will indemnify the Portfolio 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 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 Portfolio
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 Portfolio 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 Portfolio 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 Portfolio Advisor will ultimately be found to be
entitled to indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio 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 Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio Advisor shall not be liable for delays
<PAGE>
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 Portfolio 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, for a period of 12 months from the
date hereof; 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 Portfolio 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 Portfolio
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 Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio 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 Portfolio 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 318 Broadway Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be 550 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
<PAGE>
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
Edward G. Harness, Jr.
President
Attest:
Secretary
WASHINGTON INVESTMENT ADVISORS, INC.
By
Name, President
Attest:
Secretary
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Select Advisors Variable Insurance Trust:
We consent to the inclusion in Post-Effective Amendment No. 2 to the
Registration Statement of Select Advisors Variable Insurance Trust on Form N-1A
(File No. 33-76566) of our audit of the financial statements and financial
highlights of the Select Advisors Variable Insurance Trust (consisting of
Emerging Growth Portfolio, International Equity Portfolio, Income Opportunity
Portfolio, Balanced Portfolio and Standby Income Portfolio), as of December 31,
1995, which report is included in the Statement of Additional Information. We
also consent to the reference to our firm under the headings "Financial
Highlights" and "Counsel and Independent Accountants".
/S/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 26, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Emerging Growth
Portfolio Annual Report dated December 31, 1995 and is qualified in its entirety
by reference to such Annual Report.
</LEGEND>
<CIK> 920547
<NAME> EMERGING GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2328472
<INVESTMENTS-AT-VALUE> 2598164
<RECEIVABLES> 67468
<ASSETS-OTHER> 15195
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2680827
<PAYABLE-FOR-SECURITIES> 5204
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60946
<TOTAL-LIABILITIES> 66150
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2366398
<SHARES-COMMON-STOCK> 231918
<SHARES-COMMON-PRIOR> 199992
<ACCUMULATED-NII-CURRENT> 595
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22008)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 269692
<NET-ASSETS> 2614677
<DIVIDEND-INCOME> 25259
<INTEREST-INCOME> 25330
<OTHER-INCOME> 0
<EXPENSES-NET> 26030
<NET-INVESTMENT-INCOME> 24559
<REALIZED-GAINS-CURRENT> 120237
<APPREC-INCREASE-CURRENT> 258146
<NET-CHANGE-FROM-OPS> 402942
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 32317
<DISTRIBUTIONS-OF-GAINS> 142245
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17137
<NUMBER-OF-SHARES-REDEEMED> 663
<SHARES-REINVESTED> 15452
<NET-CHANGE-IN-ASSETS> 595173
<ACCUMULATED-NII-PRIOR> 8038
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18059
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 84279
<AVERAGE-NET-ASSETS> 2257335
<PER-SHARE-NAV-BEGIN> 10.10
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.87
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 0.66
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.27
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the International
Equity Portfolio Annual Report dated December 31, 1995 and is qualified in its
entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000920547
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4895931
<INVESTMENTS-AT-VALUE> 5210533
<RECEIVABLES> 84649
<ASSETS-OTHER> 15195
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5310377
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 95746
<TOTAL-LIABILITIES> 95746
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5206596
<SHARES-COMMON-STOCK> 521394
<SHARES-COMMON-PRIOR> 499992
<ACCUMULATED-NII-CURRENT> 5617
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (312184)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 314602
<NET-ASSETS> 5214631
<DIVIDEND-INCOME> 65593
<INTEREST-INCOME> 17053
<OTHER-INCOME> 0
<EXPENSES-NET> 60467
<NET-INVESTMENT-INCOME> 22179
<REALIZED-GAINS-CURRENT> (315865)
<APPREC-INCREASE-CURRENT> 554467
<NET-CHANGE-FROM-OPS> 260781
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14558
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20307
<NUMBER-OF-SHARES-REDEEMED> 361
<SHARES-REINVESTED> 1456
<NET-CHANGE-IN-ASSETS> 457214
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2638)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 45830
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 177832
<AVERAGE-NET-ASSETS> 4824176
<PER-SHARE-NAV-BEGIN> 9.51
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.48
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Balanced
Portfolio Annual Report dated December 31, 1995 and is qualified in its entirety
by reference to such annual report.
</LEGEND>
<CIK> 0000920547
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2624776
<INVESTMENTS-AT-VALUE> 2881110
<RECEIVABLES> 58447
<ASSETS-OTHER> 15195
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2954752
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59992
<TOTAL-LIABILITIES> 59992
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2616131
<SHARES-COMMON-STOCK> 22153
<SHARES-COMMON-PRIOR> 199992
<ACCUMULATED-NII-CURRENT> 199
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22096
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 256334
<NET-ASSETS> 2894760
<DIVIDEND-INCOME> 21415
<INTEREST-INCOME> 69409
<OTHER-INCOME> 0
<EXPENSES-NET> 21754
<NET-INVESTMENT-INCOME> 69070
<REALIZED-GAINS-CURRENT> 209370
<APPREC-INCREASE-CURRENT> 229338
<NET-CHANGE-FROM-OPS> 507778
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 78513
<DISTRIBUTIONS-OF-GAINS> 185230
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29352
<NUMBER-OF-SHARES-REDEEMED> 199
<SHARES-REINVESTED> 23008
<NET-CHANGE-IN-ASSETS> 860610
<ACCUMULATED-NII-PRIOR> 9278
<ACCUMULATED-GAINS-PRIOR> (2044)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16874
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 83435
<AVERAGE-NET-ASSETS> 2410579
<PER-SHARE-NAV-BEGIN> 10.17
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 2.15
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0.79
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.48
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Income
Opportunity Portfolio Annual Report dated December 31, 1995 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000920547
<NAME> INCOME OPPORTUNITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2444649
<INVESTMENTS-AT-VALUE> 2547178
<RECEIVABLES> 95193
<ASSETS-OTHER> 15195
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2657566
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55966
<TOTAL-LIABILITIES> 2601600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2553526
<SHARES-COMMON-STOCK> 257952
<SHARES-COMMON-PRIOR> 199992
<ACCUMULATED-NII-CURRENT> 69
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (54524)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 102529
<NET-ASSETS> 2601600
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 289060
<OTHER-INCOME> 0
<EXPENSES-NET> 18035
<NET-INVESTMENT-INCOME> 271025
<REALIZED-GAINS-CURRENT> 18334
<APPREC-INCREASE-CURRENT> 170448
<NET-CHANGE-FROM-OPS> 459807
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 296140
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26665
<NUMBER-OF-SHARES-REDEEMED> 338
<SHARES-REINVESTED> 31633
<NET-CHANGE-IN-ASSETS> 718223
<ACCUMULATED-NII-PRIOR> 24234
<ACCUMULATED-GAINS-PRIOR> (72858)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13754
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74865
<AVERAGE-NET-ASSETS> 2115951
<PER-SHARE-NAV-BEGIN> 9.42
<PER-SHARE-NII> 1.22
<PER-SHARE-GAIN-APPREC> 0.79
<PER-SHARE-DIVIDEND> 1.34
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Standby Income
Portfolio Annual Report dated December 31, 1995 and is qualified in its entirety
by reference to such Annual Report.
</LEGEND>
<CIK> 0000920547
<NAME> STANDBY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 5753877
<INVESTMENTS-AT-VALUE> 5768613
<RECEIVABLES> 66541
<ASSETS-OTHER> 15299
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5850453
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60517
<TOTAL-LIABILITIES> 60517
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5778443
<SHARES-COMMON-STOCK> 577628
<SHARES-COMMON-PRIOR> 499992
<ACCUMULATED-NII-CURRENT> 68
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3311)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14736
<NET-ASSETS> 578993
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 321557
<OTHER-INCOME> 0
<EXPENSES-NET> 26467
<NET-INVESTMENT-INCOME> 295090
<REALIZED-GAINS-CURRENT> (2779)
<APPREC-INCREASE-CURRENT> 2114
<NET-CHANGE-FROM-OPS> 294425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 295796
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47228
<NUMBER-OF-SHARES-REDEEMED> 2398
<SHARES-REINVESTED> 32806
<NET-CHANGE-IN-ASSETS> 777152
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 242
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13198
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 91368
<AVERAGE-NET-ASSETS> 5279036
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
