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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
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. 3
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4
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) 361-7900
SUSAN C. MOSHER
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET, BOSTON, MASSACHUSETTS 02111
(Name and Address of Agent for Service)
copies to:
J. Leland Brewster II, Esq. Edward G. Harness, Jr.
Frost & Jacobs LLP 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)
[ ] on April 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[x] on May 1, 1997 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 IS FILING THE NOTICE REQUIRED
BY RULE 24f-2 ON OR BEFORE FEBRUARY 28, 1997 FOR REGISTRANT'S FISCAL YEAR ENDED
DECEMBER 31, 1996.
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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 Objectives,
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 Objectives,
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 . . . . . . . . . . . . . . . Not applicable
22. Calculations of Performance
Information. . . . . . . . . . . . . . . . Performance Information
23. Financial Statements . . . . . . . . . . . Financial Statements
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.
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PROSPECTUS
MAY 1, 1997
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SELECT ADVISORS TOUCHSTONE
VARIABLE INSURANCE 311 PIKE STREET
TRUST CINCINNATI, OHIO 45202
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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";
"RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES"; AND THE APPENDIX.
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, 1997, which is available upon request and
without charge by calling the Touchstone Variable Annuity Service Center at
1-800-669-2796 (PRESS 2) or writing the Trust at the address listed above. The
Statement of Additional 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 NATIONAL CREDIT UNION SHARE
INSURANCE FUND, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. MUTUAL FUNDS AND
VARIABLE ANNUITIES INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
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
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PAGE
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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.................................................................. 13
Purchase and Redemption of Shares........................................................................... 21
Net Asset Value............................................................................................. 22
Management of the Trust..................................................................................... 23
Dividends, Distributions and Taxes.......................................................................... 24
Performance of the Portfolios............................................................................... 25
Additional Information...................................................................................... 26
Appendix.................................................................................................... A-1
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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 YEARS ENDED DECEMBER 31,
1996 AND DECEMBER 31, 1995 AND THE PERIOD ENDED DECEMBER 31, 1994 WERE AS
FOLLOWS:
[TO BE FILED BY AMENDMENT]
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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 ("GNMA") and government related
organizations, such as the Federal National Mortgage Association ("FNMA")
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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 Rating
Service, a division of McGraw-Hill Companies ("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 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 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.
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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.
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
6
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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 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.
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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, BBB and Baa,
respectively, although considered investment grade, may possess speculative
characteristics, and changes in economic or other conditions are more likely to
impair the ability of issuers of these securities to make interest and principal
payments than is the case with respect to issuers of higher grade bonds.
Generally, medium or lower rated securities and unrated securities of
comparable quality, sometimes referred to as "junk bonds," offer a higher
current yield than is offered by higher rated securities, but also (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The yield of junk bonds will
fluctuate over time.
The market values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, medium and lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. Since the risk of
default is higher for lower rated debt securities, the 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.
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.
8
<PAGE>
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.
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
- -- 0.80%; Income Opportunity Portfolio -- 0.65%; and Standby Income Portfolio --
0.25%. The investment advisory fee paid by the International
9
<PAGE>
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% on the first $10 million
Company, Inc. 0.40% on 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
OpCap Advisors 0.60% on the first $20 million*
0.50% on the next $30 million*
0.40% on the next $950 million*
0.375% 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>
- ------------------------
* Includes assets of the Balanced Portfolio of the Portfolio Trust and the
Balanced Portfolio of the Select Advisors Variable Insurance Trust (a
portfolio for which OpCap Advisors also acts in an investment advisory
capacity).
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 Sponsor Services, Inc. ("RogersCasey") located at One Parklands
Drive, Darien, Connecticut 06820, 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.
10
<PAGE>
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.
Performance information for each Portfolio Advisor is also shown below. This
information may assist a potential investor in making an investment decision.
The performance information represents the composite annual total return
information for other accounts (the "Composite Account") managed by the
Portfolio Advisor that have investment objectives, policies and strategies
substantially similar to those of the corresponding Portfolio. For comparison
purposes, performance information of an appropriate securities index is
included. The performance of each Composite Account was adjusted to reflect the
operating expenses of the corresponding Portfolio. These figures do not reflect
the deduction of any insurance fees or charges imposed in connection with the
sale of variable annuity contracts and investors should refer to the separate
account prospectus which accompanies this Prospectus for information about
insurance fees and charges.
DAVID L. BABSON & COMPANY, INC. ("Babson") serves as one of two Portfolio
Advisors to EMERGING GROWTH PORTFOLIO. Babson is an 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, 1996, Babson and affiliates had assets
under management of $14.7 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, 1996, Westfield had assets under management of $1.2 billion.
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 ("BEA") serves as Portfolio Advisor to INTERNATIONAL EQUITY
PORTFOLIO. BEA Associates is a New York general partnership and is owned 80% by
Credit Suisse 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, 1996, BEA Associates had assets under management of
$31.3 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.
OpCap Advisors ("OpCap") serves as Portfolio Advisor to BALANCED PORTFOLIO.
OpCap Advisors is a majority-owned subsidiary of Oppenheimer Capital, a
registered investment advisor whose employees perform all investment advisory
services provided to the Portfolio by OpCap. Oppenheimer Capital has operated as
an investment advisor since 1968. As of December 31, 1996, Oppenheimer Capital
and its subsidiaries had assets under management of $48 billion. Oppenheimer
Financial Corp., a holding company, holds a one-third interest in Oppenheimer
Capital and Oppenheimer Capital, L.P., a Delaware limited partnership whose
units are traded on the New York Stock
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<PAGE>
Exchange and of which Oppenheimer Financial Corp. is the sole general partner,
owns the remaining two-thirds interest. On February 13, 1997, PIMCO Advisors
L.P., a registered investment advisor, signed a definitive agreement with
Oppenheimer Group, Inc. and its subsidiary Oppenheimer Financial Corp. for PIMCO
Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire the
one-third managing general partner interest in Oppenheimer Capital and the 1.0%
general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals. Alan
Gutmann is primarily responsible for the day-to-day investment management of the
equity portion of the Portfolio and Robert J. Bluestone is primarily responsible
for the day-to-day investment management of the fixed-income portion of the
Portfolio. Mr. Gutmann joined Oppenheimer in 1991 and is Vice President. Mr.
Bluestone joined Oppenheimer in 1986 and is Managing Director. Oppenheimer's
principal executive offices are located at Oppenheimer Tower, One World
Financial Center, New York, NY 10281.
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, 1996, Alliance had assets under management of $183 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. Ms. Fuller (CPA) has been with Alliance, and its predecessors, since 1985.
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, 1996, Fort Washington had assets under
management of $9.5 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.
PORTFOLIO ADVISOR PERFORMANCE INFORMATION
The performance information of each Composite Account has been prepared and
presented in compliance with the performance presentation standards of the
Association for Investment Management and Research. The relative sizes of the
Composite Accounts and the corresponding Portfolios are comparable. The
performance information of a Composite Account should not be interpreted as
indicative of the corresponding Portfolio's future performance. The accounts
included in each Composite Account are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Internal Revenue Code, which if
applicable, may have adversely affected the performance results of the Composite
Account. The Statement of Additional Information contains additional information
about performance quotations and comparisons.
12
<PAGE>
THE TOUCHSTONE FAMILY OF FUNDS AND VARIABLE ANNUITIES
PORTFOLIO ADVISOR
COMPOSITE PERFORMANCE REPORT
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMERGING GROWTH
David L. Babson & Co..... 25.35% 19.49% (2.20)% 19.42% 26.37% 46.55% (15.36)% 22.37% 34.10% (7.91)%
Westfield Capital
Mgmt.................... 12.81 35.24 (3.45) 14.27 15.35 87.60 (1.74) 41.60 N/A N/A
Russell 2000............. 16.49 28.47 (1.83) 18.89 18.42 46.04 (19.52) 16.24 24.89 (8.77)
INTERNATIONAL
BEA Associates........... 12.88 5.59 (7.75) 41.93 (0.65) 33.08 30.38 57.42 38.80 53.99
MSCIEAFE................. 6.36 11.55 8.06 32.94 (11.83) 12.47 (23.31) 10.80 28.60 24.93
BALANCED
OpCap Advisors........... 15.50 31.40 0.10 10.90 12.80 22.20 0.00 19.00 14.60 4.10
60% S&P 500/40% LB Agg... 14.91 29.60 (0.36) 9.98 7.58 24.74 1.79 24.70 13.02 5.63
INCOME OPPORTUNITY
Alliance................. 21.56 16.88 (2.53) 21.05 17.21 39.24 (3.42) 4.71 13.13 2.44
Salomon High Yield
Index................... 11.29 19.71 (1.25) 17.37 17.86 40.24 (7.31) 1.83 15.22 4.56
</TABLE>
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.
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
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<PAGE>
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 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
14
<PAGE>
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 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
15
<PAGE>
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 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.
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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 or liquid
securities having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements and forward roll transactions involve
the risk that the market value of the securities sold by the 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.
LENDING PORTFOLIO SECURITIES. 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.
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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. 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 (excluding 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 the
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.
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
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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 which invests in equity securities 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 that Portfolio exposes that Portfolio during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying stock or to possible continued holding of a
stock which might otherwise have been sold to protect against depreciation in
the market price of the stock. A covered put option sold by 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.
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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, 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 liquid
securities in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.
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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 last two fiscal years ended
December 31, 1996 and December 31, 1995, respectively, the annual turnover rate
of each Portfolio is as follows: Emerging Growth Portfolio -- 89% and 101%;
International Equity Portfolio -- 106% and 86%; Balanced Portfolio -- 73% and
124% (equity investments -- % and 110%, fixed-income investments -- % and
145%); Income Opportunity Portfolio -- 202% and 104%; and Standby Income
Portfolio -- 138% and 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.
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.
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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 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.
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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, 1997 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, 1998.
ADMINISTRATOR, FUND ACCOUNTING AGENT, CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("Investors Bank"), 89 South Street, Boston,
Massachusetts 02111, serves as administrator, fund accounting agent, custodian
and transfer agent for the Trust pursuant to Administration, Fund Accounting,
Custodian and Transfer Agency Agreements. Investors Bank was organized in 1969
as a Massachusetts-chartered trust company and is a wholly-owned subsidiary of
Investors Financial Services Corp., a publicly-held corporation and holding
company registered under the Bank Holding Company Act of 1956.
As administrator and fund accounting agent, Investors Bank provides, on
behalf of the Trust and its Portfolios, accounting, clerical and bookkeeping
services; the daily calculation of net asset values and unit values; corporate
secretarial services; assistance in the preparation of management reports;
preparation and filing of tax returns, registration statements, and reports to
shareholders and to the Securities and Exchange Commission. Investors Bank also
provides personnel to serve as certain officers of the Trust.
As custodian, Investors Bank holds cash, securities and other assets of the
Trust as required by the Investment Company Act of 1940. As transfer agent,
Investors Bank is responsible for the issuance and redemption of shares and the
establishment and maintenance of shareholder accounts for the Trust and its
Portfolios.
For its services as administrator and fund accounting agent, the Trust shall
pay fees to Investors Bank, which are computed and paid monthly. Such fees
equal, in the aggregate, 0.12% on an annual basis of the average daily net
assets of all the Portfolios and Funds for which Investors Bank acts as fund
accounting agent and administrator up to $1 billion in assets and 0.08% on an
annual basis of average daily net assets which exceed $1 billion, subject to
certain annual minimum fees. As compensation for its services as custodian to
the Trust, Investors Bank receives fees, computed and paid monthly, in the
aggregate, of 0.03% on an annual basis of the average daily net assets of all
the Portfolios and Funds for which Investors Bank acts as custodian up to $500
million and 0.02% on an annual basis of such average daily net assets for the
next $500 million and 0.01% on an annual basis of such average daily net assets
which exceed $1 billion. As compensation for its services as transfer agent,
each Portfolio pays Investors Bank $5,000 annually.
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
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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, 1997.
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 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.
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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.
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
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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 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 was organized on November 9, 1994 as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
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
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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 RATINGS
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from higher rated issues only in a small degree.
A. Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC and C. Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of 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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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)
ADMINISTRATOR, FUND ACCOUNTING AGENT, CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
T O U C H S T O N E
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FORM 7127-9705 THE MARK OF EXCELLENCE IN INVESTMENT MANAGEMENT-SM-
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IFS0020G
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
SELECT ADVISORS VARIABLE INSURANCE TRUST
- -Touchstone Emerging Growth Portfolio
- -Touchstone International Equity Portfolio
- -Touchstone Balanced Portfolio
- -Touchstone Income Opportunity Portfolio
- -Touchstone 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"). Investors Bank & Trust Company
("Investors Bank" or the "Administrator") serves as administrator and fund
accounting agent to each Portfolio.
The Prospectus dated May 1, 1997, provides the basic information investors
should know before investing, and may be obtained without charge by 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
311 Pike Street Cincinnati, Ohio (800) 669-2796
<PAGE>
TABLE OF CONTENTS
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PAGE
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INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS. . . . . . . . 3
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 23
VALUATION OF SECURITIES; REDEMPTION IN KIND. . . . . . . . . . . . . . 25
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . 27
ORGANIZATION OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . 32
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 36
2
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INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS
INVESTMENT OBJECTIVES
The investment objective(s) of each Portfolio is described in the
Prospectus. There can 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 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.
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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 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.
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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 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.
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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; 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, Government
National Mortgage Association ("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.
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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.
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.
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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 or liquid
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the 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 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
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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
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 and liquid 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
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liquid 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, 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.
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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 ("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
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received, accepts the risk of a decline in the market value of the underlying
security below 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 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.
When a Portfolio writes a call option, it will "cover" its obligation by
segregating the underlying security on the books of the Portfolio's custodian or
by placing liquid securities in a segregated account at the Portfolio's
custodian. When a Portfolio writes a put option, it will "cover" its obligation
by placing liquid 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
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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.
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.
14
<PAGE>
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, 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 liquid securities 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 liquid securities in an
amount at least equal to its obligations under each forward currency contract.
Neither spot transactions nor forward currency contracts eliminate fluctuations
in the prices of the 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
15
<PAGE>
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward currency contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
the forward currency contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward currency contracts. In
such event the 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 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 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 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.
16
<PAGE>
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 "Additional 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 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;
17
<PAGE>
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) with respect to 75% of its total assets taken at market value, invest
in assets other than cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies and other
securities for purposes of this calculation limited in respect of any one issuer
to an amount not greater in value than 5% of the value of the total assets of
the Portfolio and to not more than 10% of the outstanding voting securities of
such issuer.
ADDITIONAL RESTRICTIONS. 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 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
18
<PAGE>
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) commercial paper that is sold under section
4(2) of the 1933 Act which is not traded flat or in default as
to interest or principal and either (i) is rated in one of the
two highest categories by at least two nationally recognized
statistical rating organizations and the Portfolio's Board of
Trustees have determined the commercial paper to be liquid; or
(ii) is rated in one of the two highest categories by one
nationally recognized statistical rating agency and the
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;
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<PAGE>
(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 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 OCC, except for put and call
options issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the aggregate value
of the obligations underlying the puts determined as of the
date the options are sold shall not exceed 50% of the
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 time a put is
written, the Portfolio establishes a segregated account with
its custodian consisting of cash or liquid securities equal in
value to the amount the Portfolio will be obligated to pay
upon exercise of the
20
<PAGE>
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 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
21
<PAGE>
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.
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 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
22
<PAGE>
as far as a Portfolio is 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>
<CAPTION>
Emerging Growth International Income Standby
Aggregate Portfolio Equity Balanced Opportunity Income
Commission Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
For the Year $8,834 $37,164 $5,732 $0 $0
Ended 12/31/96
For the Year $2,204 $15,378 $2,043 $0 $0
Ended 12/31/95
For the Period $5,180 $22,869 $4,882 $0 $0
11/21/94* to
12/31/94
</TABLE>
- ---------------------
* Commencement of operations
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 purposes of yield
quotations in accordance with standardized methods applicable to all stock
and bond mutual funds. Dividends from equity investments are treated as if
they were accrued on a daily basis, solely for the purpose of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from the
calculation.
Income calculated for the purposes of calculating a 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
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<PAGE>
period or the rate of income reported in the Portfolio's financial
statements. The 30-day yield for the period ended December 31, 1996 for
the Income Opportunity Portfolio, Balanced Portfolio and Standby Income
Portfolio was 10.62%, 2.49% and 5.22%, respectively. The Standby Income
Portfolio's 7-day yield for the period ended December 31, 1996 was 6.16%.
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>
<CAPTION>
AVERAGE Emerging International Income Standby Income
ANNUAL Growth Equity Balanced Opportunity Portfolio
TOTAL RETURN Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
For the Year Ended 11.16% 11.47% 16.78% 27.37% 5.18%
12/31/96
For the Period 14.96% 5.41% 20.37% 20.39% 5.52%
11/21/94* to
12/31/96
AGGREGATE
TOTAL RETURN
For the Year Ended 11.16% 11.47% 16.78% 27.37% 5.18%
- 12/31/96
</TABLE>
- -----------------
* 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.
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<PAGE>
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 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
25
<PAGE>
No. 113)) which concludes that there is "no automatic formula" for calculating
the value of restricted securities. It recommends that the best method simply
is to consider all relevant factors before making any calculation. According to
FRR 1 such factors would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of purchase,
special reports prepared by analysts, information as to any
transactions or offers with respect to the security, existence
of merger proposals or tender offers affecting the security, price
and extent of public trading in similar securities of the issuer
or comparable companies, and other relevant matters.
To the extent that the 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 is
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.
26
<PAGE>
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. The Trustees and officers of the Trust also serve in the same positions
with the Select Advisors Portfolios, Select Advisors Trust A and Select Advisors
Trust C.
TRUSTEES OF THE TRUST
*EDWARD G. HARNESS, JR. (age 48) -- Chairman of the Board of Trustees,
President and Chief Executive Officer; Director, President and Chief Executive
Officer, Touchstone Advisors, Inc. (since December, 1993); Director, Chief
Executive Officer, Touchstone Securities, Inc. (since October, 1991); President,
Touchstone Securities, Inc. (since March, 1996); President, IFS Financial
Services, Inc. (since November, 1990); President IFS Systems, Inc. (since
August, 1991).
*WILLIAM J. WILLIAMS (age 81) -- Trustee; Chairman of the Board of
Directors, The Western and Southern Life Insurance Company (since March, 1984);
Chief Executive Officer, The Western and Southern Life Insurance Company (from
March, 1984 to March, 1994). His address is 400 Broadway, Cincinnati, OH 45202.
JOSEPH S. STERN, JR., (age 79) -- Trustee; Retired Professor Emeritus,
College of Business, University of Cincinnati. His address is 3 Grandin Place,
Cincinnati, OH 45208.
PHILLIP R. COX (age 49) -- Trustee; President and Chief Executive
Officer, Cox Financial Corp. (since 1972); Director, Federal Reserve Bank of
Cleveland; Director, Cincinnati Bell, Inc; Director, PNC Bank; Director,
Cinergy Corporation. His address is 105 East Fourth Street, Cincinnati, OH
45202.
ROBERT E. STAUTBERG (age 62) -- Trustee; Retired Partner and Director,
KPMG Peat Marwick; Chairman of the Board of Trustees, Good Samaritan Hospital.
His address is 4815 Drake Road, Cincinnati, OH 45243.
DAVID POLLAK (age 79) -- Trustee; President, The Ultimate Distributing
Company (1986-1993); Director Emeritus, Fifth Third Bank. 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.
27
<PAGE>
EDWARD S. HEENAN (age 53) -- Treasurer; Vice President and Controller,
Touchstone Advisors, Inc. (since December, 1993); Director, Controller,
Touchstone Securities, Inc. (since October, 1991); Vice President and
Comptroller, The Western and Southern Life Insurance Company (since 1987). His
address is 400 Broadway, Cincinnati, OH 45202.
SUSAN C. MOSHER (age 42) -- Secretary; Director, Fund Administration --
Legal and Regulatory, Investors Bank & Trust Company ("Investors Bank")
(since August, 1995); Associate Counsel, 440 Financial Group of Worcester,
Inc. (January, 1993 to August, 1995); Partner, Gallagher, Callahan &
Gartrell, P.A. (prior to September, 1992). Her address is 89 South
Street/ADF 29, Boston, Massachusetts 02111.
KEVIN M. CONNERTY (age 32) -- Assistant Treasurer; Director, Fund
Administration - Reporting and Compliance, Investors Bank (since October, 1992);
Assistant Manager of Financial Reporting, The Boston Company (prior to October,
1992). His address is 89 South Street/ADF 29, Boston, Massachusetts 02111.
PAUL J. JASINSKI (age 50) -- Assistant Treasurer; Managing Director, Fund
Administration, Investors Bank (since July, 1985). His address is 89 South
Street/ADF 29, Boston, Massachusetts 02111.
BRIAN J. MANLEY (age 33) -- Assistant Treasurer; Vice President and Chief
Financial Officer, Touchstone Advisors, Inc. (since December, 1993); Vice
President and Chief Financial Officer, Touchstone Securities, Inc.
Ms. Mosher and Messrs. Connerty and Jasinski also hold similar positions
for other investment companies for which Investors Bank serves as administrator.
No director, officer or employee of the Advisor, the Portfolio Advisors,
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 Administrator or
any of their affiliates an annual fee of $5,000, respectively, plus $1,000,
respectively, per meeting attended and reimburses them for travel and out-of-
pocket expenses. For the year ended December 31, 1996, the Trust incurred
$16,186 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. $ $
Phillip R. Cox $ $
28
<PAGE>
Robert E. Stautberg $ $
David Pollak $ $
As of February 1, 1997, 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, FUND ACCOUNTING AGENT,
CUSTODIAN AND TRANSFER AGENT
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, a 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.
29
<PAGE>
<TABLE>
<CAPTION>
Emerging International Income Standby Income
Growth Equity Balanced Opportunity Portfolio
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.70% 0.65% 0.25%
For the Year Ended $28,916 $62,256 $29,360 $27,962 $17,132
December 31, 1996
For the Year Ended $18,059 $45,830 $16,874 $13,754 $13,198
December 31, 1995
For the Period $1,753 $5,033 $1,519 $1,401 $1,368
November 21, 1994* to
December 31, 1994
</TABLE>
- -------------------------------
* Commencement of operations
For the periods indicated, the Advisor has voluntarily agreed to reimburse
each Portfolio the following amounts:
<TABLE>
<CAPTION>
Emerging International Income Standby Income
Growth Equity Balanced Opportunity Portfolio
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
For the Year $67,043 $ 91,586 $65,161 $79,994 $56,420
Ended December 31,
1996
For the Year $53,734 $107,717 $56,860 $52,598 $54,343
Ended
December 31,
1995
For the Period $21,749 $22,961 $17,574 $23,084 $17,375
November 21,
1994* to
December 31, 1994
</TABLE>
- ---------------------
* Commencement of operations
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, FUND ACCOUNTING AGENT, CUSTODIAN AND TRANSFER AGENT
30
<PAGE>
Pursuant to Administration and Fund Accounting Agreements, Investors Bank
supervises the overall administration of the Trust, including but not limited
to, accounting, clerical and bookkeeping services; daily calculation of net
asset values and unit values; preparation and filing of all documents required
for compliance by the Trust with applicable laws and regulations. Investors
Bank also provides persons to serve as officers of the Trust. As custodian,
Investors Bank holds cash, securities and other assets of the Trust and as
transfer agent, Investors Bank 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.
The Trust's Prospectus contains a description of fees payable to Investors
Bank for its services as administrator, fund accounting agent, custodian and
transfer agent.
Prior to December 1, 1996, Signature Financial Services, Inc. ("Signature")
served as administrator and fund accounting agent to the Trust.
The Portfolios incurred the following administrative and fund accounting
fees for the periods indicated:
<TABLE>
<CAPTION>
Emerging International Income Standby Income
Growth Equity Balanced Opportunity Portfolio
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
For the Year $24,620 $25,589 $26,793 $24,265 $25,661
Ended 12/31/96*
For the Year $28,035 $33,909 $30,059 $27,169 $28,485
Ended 12/31/95
For the Period $2,740 $2,740 $2,740 $2,740 $2,740
11/21/94**to
12/31/94
</TABLE>
- ----------------
* Includes administrative and fund accounting fees paid to Signature and to
Investors Bank
** Commencement of operations
Each of the Administration, Fund Accounting, Custodian and Transfer Agency
Agreements (collectively, the "Agreements") provides that neither Investors Bank
nor its personnel shall be liable for any error of judgment or mistake of law or
for any act or omission, except for wilful misfeasance, bad faith or negligence
(gross negligence in respect of the Custodian Agreement) in the performance of
its or their duties or by reason of disregard (reckless disregard in respect of
the Custodian Agreement) of its or their obligations and duties under the
Agreements.
Each Agreement may not be assigned without the consent of the non-
assigning party, and may be terminated after its initial term, with respect to a
Portfolio, without penalty by majority vote of the shareholders of the Portfolio
or by either party on not more than 60 days' written notice.
31
<PAGE>
COUNSEL AND INDEPENDENT ACCOUNTANTS
Frost & Jacobs LLP, 2500 PNC Center, 201 East 5th Street, 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, providing audit services, tax
return preparation and assistance and consultation in connection with the review
of filings with the SEC.
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.
32
<PAGE>
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"); (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,
33
<PAGE>
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 TAXES. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. It is impossible to determine the
effective rate of foreign tax in advance since the amount of each applicable
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 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.
34
<PAGE>
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 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.
35
<PAGE>
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, 1996
Statement of Assets and Liabilities, December 31, 1996
Statement of Operations, for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended December 31, 1996
and December 31, 1995
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
36
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
- 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
ADMINISTRATOR, FUND ACCOUNTING
AGENT, CUSTODIAN AND
TRANSFER AGENT
Investors Bank & Trust Company STATEMENT OF ADDITIONAL INFORMATION
89 South Street
Boston, Massachusetts 02111 MAY 1, 1997
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Frost & Jacobs LLP
2500 PNC Center
201 East 5th Street
Cincinnati, Ohio 45202
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART B
FOR THE REGISTRANT:
[TO BE PROVIDED BY AMENDMENT]
(b) EXHIBITS:
(1) Amended Declaration of Trust of the Trust.3
(2) Amended By-Laws of the Trust.3
(3) Inapplicable.
(4) Inapplicable.
(5A) Amended Investment Advisory Agreement.4
(5B) Portfolio Advisory Agreements with respect to Emerging Growth
Portfolio.3
(5C) Portfolio Advisory Agreement with respect to International Equity
Portfolio.3
(5D) Form of Portfolio Advisory Agreement with respect to Balanced Portfolio.4
(5E) Portfolio Advisory Agreement with respect to Income Opportunity
Portfolio.3
(5F) Portfolio Advisory Agreement with respect to Standby Income
Portfolio.3
(6) Inapplicable.
(7) Inapplicable.
<PAGE>
(8) Custody Agreement.2
(9A) Administration Agreement.4
(9B) Sponsor Agreement.2
(9C) Transfer Agency Agreement.4
(9D) Fund Accounting Agreement.4
(10) Opinion of counsel.2
(11) Consent of independent accountants.5
(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.4
(27) Financial Data Schedules.5
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 Incorporated by reference from Post-Effective Amendment No. 2 to the
Registration Statement as filed with the SEC via Edgar on April 29, 1996.
4 Filed herein.
5 To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Inapplicable.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<S> <C>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
(as of February 1, 1997)
Emerging Growth Portfolio 3
International Equity Portfolio 3
Balanced Portfolio 3
Income Opportunity Portfolio 3
Standby Income Portfolio 3
</TABLE>
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
<PAGE>
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.
<TABLE>
<C> <S> <C>
POSITIONS AND OFFICES
WITH TOUCHSTONE POSITION AND OFFICES
NAME 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
<PAGE>
Richard K. Taulbee* Vice President none
Patricia Wilson Chief Compliance Officer none
Robert F. Morand* Assistant Secretary none
Robert A. Dressman* Assistant Treasurer none
Timothy D. Speed* Assistant Treasurer none
*Principal business address is 400 Broadway, Cincinnati, Ohio 45202
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
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)
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(administrator, custodian, transfer agent and fund accounting agent)
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
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 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 26th day of February, 1997.
SELECT ADVISORS VARIABLE INSURANCE TRUST
By: /S/ SUSAN C. MOSHER
Susan C. Mosher, 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 February 26, 1997.
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 SUSAN C. MOSHER
Susan C. Mosher, as Attorney-in-fact pursuant to power of attorney
filed herein
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
EXHIBITS TO
REGISTRATION STATEMENT ON
FORM N-1A
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(5A) Amended Investment Advisory Agreement.
(5D) Form of Portfolio Advisory Agreement with respect to
Balanced Portfolio.
(9A) Administration Agreement.
(9C) Transfer Agency Agreement.
(9D) Fund Accounting Agreement.
(17) Powers of Attorney.
<PAGE>
EXHIBIT 5(A)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of ________________, 1994, 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 OF 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:
<PAGE>
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
2
<PAGE>
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 shares of 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 shareholders of the Trust and of preparing,
printing and distributing prospectuses, notices, proxy statements and all
reports to shareholders and to governmental agencies; (viii) charges and
expenses of legal counsel to the Trust; (ix) compensation of Trustees of the
Trust; (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.
3
<PAGE>
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 Variable Insurance Trust (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
4
<PAGE>
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
5
<PAGE>
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
6
<PAGE>
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
shareholders of the Trust individually, but bind only the Trust estate.
SELECT ADVISORS VARIABLE INSURANCE
TRUST
By ________________________________
Edward G. Harness, Jr., President
Attest:
___________________________
TOUCHSTONE ADVISORS, INC.
By ________________________________
Jill T. McGruder, Vice President
Attest:
___________________________
7
<PAGE>
AMENDMENT NO. 1
TO
INVESTMENT ADVISORY AGREEMENT
This Amendment No. 1 to Investment Advisory Agreement is dated as of May
1, 1997 and amends the Investment Advisory Agreement (the "Advisory
Agreement") dated September 9, 1994 made 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 ___________, 1994 (the "Trust").
WHEREAS, the Advisor acts as investment advisor to the Trust pursuant to
the Advisory Agreement; and in such capacity the Advisor has engaged separate
portfolio advisors for each of the Trust's portfolios; and
WHEREAS, the Trust, by its Board of Trustees, has taken action to
terminate, effective as of the close of business on April 30, 1997, Portfolio
Advisory Agreements presently in effect between the Advisor and Harbor
Capital Management Company, Inc. ("Harbor Capital") and Morgan Grenfell
Capital Management, Inc. ("Morgan Grenfell") with respect to the Trust's
Balanced Portfolio, each such Portfolio Advisory Agreement being dated as of
September 9, 1994; and
WHEREAS, such Board of Trustees also has taken action to enter into a
Portfolio Advisory Agreement with Op Cap Advisors, a subsidiary of
Oppenheimer Capital, a registered investment advisor, under which Op Cap
Advisors will act as Portfolio Advisor to the Trust's Balanced Portfolio,
replacing Harbor Capital and Morgan Grenfell; and
WHEREAS, the advisory fees to be paid to Op Cap Advisors under such
Portfolio Advisory Agreement will be higher than the fees currently being
paid to Harbor Capital and Morgan Grenfell under their Portfolio Advisor
Agreements; and
WHEREAS, the trust is agreeable to an increase in the fees being paid
under the Advisory Agreement sufficient to offset the increase in fees to be
paid to Op Cap Advisors, having found that such increased fees are comparable
to the average fees being paid to advisors of balanced portfolios generally.
NOW, THEREFORE, Schedule 1 to the Advisory Agreement is hereby amended,
effective as of the close of business on April 30, 1997, to read as set forth
in Exhibit A to this Amendment, the sole change in such Schedule being an
increase in the advisory fees to be paid by the Balanced Portfolio, from
0.70% to 0.80% of average daily net assets.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered in their names and on their behalf as of the day and year first
above written.
SELECT ADVISORS VARIABLE INSURANCE TRUST
By:_________________________________
Edward G. Harness, Jr., President
TOUCHSTONE ADVISORS INC.
By:____________________________________
10
<PAGE>
Exhibit A to Amendment No. 1
to Advisory Agreement
SCHEDULE 1
Emerging Growth Portfolio 0.80%
International Equity Portfolio 0.95%
Balanced Portfolio 0.80%
Income Opportunity 0.65%
Standby Income 0.25%
0121053.03
10
<PAGE>
EXHIBIT 5(D)
PORTFOLIO ADVISORY AGREEMENT
SELECT ADVISORS VARIABLE INSURANCE TRUST
BALANCED PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the ____ day of
________, 1997, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation
(the "Advisor"), and OpCap Advisors, a subsidiary of Oppenheimer Capital
__________, a ______________ (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 Balanced Portfolio (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.
<PAGE>
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 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 RogersCasey 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 RogersCasey 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
<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
provisions of the 1940 Act and with Subchapter M of the Internal Revenue
Code of 1986, as amended.
<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 0.60% of the
first $20 million of the average daily net assets of the Combined
Portfolios, 0.50% of the average daily net assets of the Combined
Portfolios in excess of $20 million and up to $50 million, 0.40% of the
average daily net assets of the Combined Portfolios in excess of $50
million and up to $1 billion and 0.375% of the average daily net assets
of the Combined Portfolios in excess of $1 billion.
b. "Combined Portfolios," for purposes of this Section 3, means the
combined assets of the Portfolio and the Balanced Portfolio of the Select
Advisors Variable Trust, to which portfolio the Portfolio Advisor also acts
as investment advisor.
c. The fee of the Portfolio Advisor hereunder shall be computed and
accrued daily. If the Portfolio Advisor serves in such capacity for less
than the whole of any period specified in Section 3a, the fee to the
Portfolio Advisor shall be prorated. For purposes of calculating the
Portfolio Advisor's fee, the daily value of the net assets of the Combined
Portfolios shall be computed by the same method as the Trust and the Select
Advisors Variable Insurance Trust use, respectively, to compute the net
asset value of each such Portfolio for purposes of purchases and
redemptions of interests thereof.
d. 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.
<PAGE>
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
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.
<PAGE>
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 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be ________________________,
_________________.
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
BY _____________________________
Edward G. Harness, Jr.
President
Attest:
_________________________
Secretary
OPPENHEIMER CAPITAL _____________
BY _____________________________
Name, President
Attest:
_________________________
Secretary
0384762.01
<PAGE>
ADMINISTRATION AGREEMENT
BETWEEN
SELECT ADVISORS VARIABLE INSURANCE TRUST
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of December 1, 1996 by and
between SELECT ADVISORS VARIABLE INSURANCE TRUST, a Massachusetts business trust
(the "Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company
("Investors Bank").
WHEREAS, the Fund is registered as a management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act") consisting of
separate portfolios; and
WHEREAS, the Fund desires to retain Investors Bank to render certain
administrative services to the Fund and Investors Bank is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Investors Bank to provide
administration and processing services for and on behalf of the Fund on the
terms set forth in this Agreement. Investors Bank accepts such appointment and
agrees to render the services herein set forth for the compensation herein
provided.
2. DELIVERY OF DOCUMENTS. The Fund has furnished Investors Bank with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of Investors Bank to provide certain administrative services to the
Fund and approving this Agreement;
(b) The Fund's Declaration of Trust filed with the Commonwealth of
Massachusetts on March 11, 1994 and all amendments thereto (the "Declaration");
(c) The Fund's by-laws and all amendments thereto (the "By-Laws");
(d) The Fund's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory agreements, custody
agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(e) The Fund's most recent Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the 1940
Act and all amendments thereto; and
(f) The Fund's most recent prospectus and statement of additional
information (together, the "Prospectus"); and
(g) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for Investors Bank in the proper performance of
its duties hereunder.
The Fund will immediately furnish Investors Bank with copies of all
amendments of or supplements to the foregoing. Furthermore, the Fund will
notify Investors Bank as soon as possible of any matter which may materially
affect the performance by Investors Bank of its services under this Agreement.
<PAGE>
2
3. DUTIES OF INVESTORS BANK. Subject to the supervision and direction of
the Board of Trustees of the Fund, Investors Bank will (i) supervise the overall
administration of the Fund, (ii) prepare and, if applicable, file all documents
required for compliance by the Fund with applicable laws and regulations, and
(iii) provide monitoring reports and assistance reasonably required for the
Fund's compliance with federal securities and tax laws, including the 1940 Act
and Subchapter M of the Internal Revenue Code of 1986, as amended. Pursuant to
such obligations, Investors Bank will perform the services described in APPENDIX
1 hereto. Investors Bank may, from time to time, perform additional duties and
functions which shall be set forth in an amendment to such APPENDIX 1 executed
by both parties. At such time, the fee schedule included in APPENDIX 2 hereto
shall be appropriately amended, by written amendment thereto executed by both
parties.
In performing all services under this Agreement, Investors Bank shall
act in conformity with the Fund's Declaration and By-Laws and the 1940 Act, as
the same may be amended from time to time, and the investment objectives,
investment policies and other practices and policies set forth in the Fund's
Registration Statement, as the same may be amended from time to time.
Notwithstanding any item discussed herein, Investors Bank has no responsibility
for the rendering of investment advice to the Fund nor for the choice of its
investments.
4. DUTIES OF THE FUND.
(a) The Fund is solely responsible (through its transfer agent or
otherwise) for (i) providing timely and accurate reports ("Daily Sales Reports")
which will enable Investors Bank to monitor the total number of shares sold in
each state on a daily basis and (ii) identifying any exempt transactions
("Exempt Transactions") which are to be excluded from the Daily Sales Reports.
(b) The Fund agrees to make its legal counsel available to Investors
Bank for advice with respect to any matter of law arising in connection with
Investors Bank's duties hereunder, and the Fund further agrees that Investors
Bank shall be entitled to rely on such advice without further investigation on
the part of Investors Bank. Investors Bank will not consult with such counsel
on matters relating to the interpretation, construction or enforceability of
this Agreement or any part hereof.
5. FEES AND EXPENSES.
(a) For the services to be rendered and the facilities to be
furnished by Investors Bank, as provided for in this Agreement, the Fund will
compensate Investors Bank in accordance with the fee schedule attached as
APPENDIX 2 hereto. Such fees do not include out-of-pocket disbursements (as
delineated on the fee schedule or approved in advance by the Fund's management)
of Investors Bank for which Investors Bank shall be entitled to bill the Fund
separately and for which the Fund shall reimburse Investors Bank.
(b) Investors Bank shall not be required to pay any expenses incurred
by the Fund.
6. LIMITATION OF LIABILITY.
(a) Investors Bank, its directors, officers, employees and agents
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of its obligations and
duties under this Agreement, except in respect of an error, mistake or loss
resulting from willful misfeasance, bad faith or negligence in the performance
of such obligations and duties, or by reason of its disregard thereof or a
material breach of the provisions hereof.
(b) The Fund will indemnify Investors Bank, its directors, officers,
employees and agents against and hold it and them harmless from any and all
losses, claims, damages, liabilities or expenses (including legal fees and
expenses) resulting from any claim, demand, action or suit (i) arising out of
the
<PAGE>
3
actions or omissions of the Fund, including, but not limited to, inaccurate
Daily Sales Reports and misidentification of Exempt Transactions; (ii) arising
out of the offer or sale of any securities of the Fund in violation of (x) any
requirement under the federal securities laws or regulations, (y) any
requirement under the securities laws or regulations of any state, or (z) any
stop order or other determination or ruling by any federal or state agency with
respect to the offer or sale of such securities; or (iii) not resulting from the
willful misfeasance, bad faith or negligence of Investors Bank in the
performance of such obligations and duties or by reason of its disregard thereof
or a material breach of the provisions hereof.
(c) Investors Bank may apply to the Fund at any time for instructions
and may consult counsel for the Fund (except as to matters where the interests
of the Fund and Investors Bank, in the opinion of such counsel, differ), or its
own counsel, knowledgeable in the field, and with accountants and other experts
with respect to any matter arising in connection with its duties hereunder, and
Investors Bank shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction, or with the
opinion of such counsel, accountants, or other experts. Investors Bank shall
not be liable for any act or omission taken or not taken in reliance upon any
document, certificate or instrument which it reasonably believes to be genuine
and to be signed or presented by any person or persons duly authorized by the
Fund (as set forth in a certificate duly executed by an officer of the Fund).
Investors Bank shall not be held to have notice of any change of authority of
any officers, employees, or agents of the Fund until receipt of written notice
thereof has been received by Investors Bank from the Fund.
(d) In the event Investors Bank is unable to perform, or is
delayed in performing, its obligations under the terms of this Agreement
because of acts of God, strikes, legal constraint, govern ment actions, war,
emergency conditions, interruption of electrical power or other utilities,
equipment or transmission failure or damage reasonably beyond its control or
other causes reasonably beyond its control, Investors Bank shall not be
liable to the Fund for any damages resulting from such failure to perform,
delay in performance, or otherwise that is attributable to such causes.
(e) Investors Bank acknowledges that the portfolios comprising the
Fund are organized under a two-tier financial services structure, known as the
Hub & Spoke-Registered Trademark-(1) structure, under and pursuant to a certain
Hub & Spoke License and Service Agreement dated December 14, 1993 (the "License
Agreement"), by and between the Fund's adviser, Touchstone Advisors, Inc., and
Signature Financial Group, Inc. ("Signature"). As a material inducement to the
Fund to enter into this Agreement, Investors Bank hereby warrants and represents
that Investors Bank is a duly licensed and authorized third party Hub & Spoke
processing agent of Signature, and is duly licensed and authorized by Signature
to provide Hub & Spoke processing and administration services to, for and on
behalf of the Fund and its portfolios in accordance with the terms of this
Agreement; and further, that no consent, which has not already been obtained in
writing by Investors Bank, is required by Touchstone Securities, Inc., or by
either party to this Agreement from Signature in order for Investors Bank to
provide Hub & Spoke processing and administration services, for and on behalf of
the Fund and its portfolios.
(f) Investors Bank will indemnify the Fund, its trustees, officers,
employees and agents against and hold them harmless from any and all losses,
claims, damages, liabilities or expenses (including legal fees and related
expenses) resulting from any claim, demand, action or suit (i) arising out of
Investors Bank's failure to obtain and maintain in effect all licenses rights
and permissions (all without cost to the Fund for so long as the Fund remains a
party to the License Agreement and the License Agreement remains in full force
and effect) required to enable it to use, to the full extent necessary for the
performance of its duties and obligations under this Agreement, all intellectual
property belonging to Signature Financial Services, Inc. and its affiliates that
relates to the Hub & Spoke structure and related fund accounting and
administration and the software and processes associated therewith and (ii)
resulting from the willful misfeasance, bad faith or negligence of Investors
Bank in the performance of its duties and obligations under this Agreement or
from its disregard thereof, or a material breach of the provisions hereof.
- -----------------
(1) Hub & Spoke is a registered service mark of Signature Financial Group, Inc.
<PAGE>
4
(g) In no event shall Investors Bank be liable for special,
incidental or consequential damages, even if advised of the possibility of such
damages.
7. TERMINATION OF AGREEMENT.
(a) The term of this Agreement shall be eighteen months commencing
upon the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than sixty days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the violating party does not
cure such violation within 60 days of receipt of written notice from the non-
violating party of such violation.
(ii) Either party may terminate this Agreement during any
Renewal Term upon sixty days written notice to the other party. Any termination
pursuant to this paragraph 7(a)(ii) shall be effective upon expiration of such
sixty days, provided, however, that the effective date of such termination may
be postponed, at the request of the Fund, to a date not more than ninety days
after delivery of the written notice in order to give the Fund an opportunity to
make suitable arrangements for a successor administrator.
(iii) If the Fund determines at any time to cease using the Hub
& Spoke structure in the conduct of its business, whether it changes to a
master-feeder, multiple class or other structure, the Fund may terminate this
Agreement if, after the Fund gives Investors Bank at least 30 days prior written
notice of such change, the parties, after making diligent and good faith
efforts, are unable to agree to amendments to this Agreement that are reasonable
and fair to both parties under the circumstances, such termination to be
effective 90 days after the delivery of such prior written notice.
(iv) The Fund may terminate this Agreement if and at such time
as a court of competent jurisdiction either (A) finds, after the exhaustion of
all appeals, that the performance by Investors Bank of the services called for
by this Agreement or the engagement by the Fund of Investors Bank to perform
such services infringes the intellectual property rights of Signature Financial
Services, Inc., or any affiliate thereof, in any manner whatsoever, or (B)
enjoins or restrains the performance by Investors Bank of the services called
for by this Agreement.
(v) The Fund may terminate this Agreement if and at such time as
any of the administration agreements between Investors Bank and Select Advisors
Trust A, Select Advisors Portfolio or Select Advisors Variable Insurance Trust
are terminated due to a material violation of the terms of any such
administration agreement by Investors Bank.
(b) At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of Investors Bank
relating to its performance of its duties hereunder.
8. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or Investors Bank shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
<PAGE>
5
To the Fund: Select Advisors Variable Insurance Trust
311 Pike Street
Cincinnati, OH 45202
Attention: Edward G. Harness, Jr.
To Investors Bank: Investors Bank & Trust Company
89 South Street
Boston, MA 02111
Attention: Carol Lowd
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent of the
other party.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to its conflict of laws
provisions.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
9. CONFIDENTIALITY. All books, records, information and data pertaining
to the business of the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required in the performance of duties hereunder or as otherwise
required by law.
10. USE OF NAME. The Fund shall not use the name of Investors Bank or any
of its affiliates in any prospectus, sales literature or other material relating
to the Fund in a manner not approved by Investors Bank prior thereto in writing;
provided however, that the approval of Investors Bank shall not be required for
any use of its name which merely refers in accurate and factual terms to its
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; PROVIDED FURTHER, that in no
event shall such approval be unreasonably withheld or delayed.
11. LIMITATION OF LIABILITY. Investors Bank is hereby expressly put on
notice of the limitation of liability set forth in the Declaration of Trust of
the Fund and agrees that the obligations assumed by the Fund hereunder shall be
limited in all cases to the assets of the Fund and that Investors Bank shall not
seek satisfaction of any such obligation from the officers, agents, employees,
trustees, or shareholders of the Fund.
12. SEVERAL OBLIGATIONS OF THE PORTFOLIOS. This Agreement is an agreement
entered into between Investors Bank and the Fund with respect to each Portfolio.
With respect to any obligation of the Fund on behalf of any Portfolio arising
out of this Agreement, Investors Bank shall look for payment or satisfaction of
such obligation solely to the assets of the Portfolio to which such obligation
relates as though Investors Bank had separately contracted with the Fund by
separate written instrument with respect to each Portfolio.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
SELECT ADVISORS VARIABLE INSURANCE
TRUST
By: /s/ Edward G. Harness
----------------------------
Name: Edward G. Harness
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
----------------------------
Name: Robert D. Mancuso
Title: Managing Director
<PAGE>
SCHEDULE A
ANCILLARY SERVICES
TRANSFER AGENT
The Bank as Transfer Agent of the Funds will perform the following
duties in accordance with procedures that may be agreed upon from time to
time by the Bank and Authorized Persons of the Funds:
1. MAINTAINING REGISTER OF INTERESTS. The Bank shall maintain a
register which shall contain the name, address and Book Capital Account
Balance of each investor in the Funds, or any series thereof, and shall
maintain continuous proof of all outstanding interests in the Funds.
2. PROCESSING OF INVESTMENTS. Upon an increase by an investor of
its interest in the Funds (through a capital contribution) the Bank
shall reflect such increase as an increase in the Book Capital Account
Balance of such investor as of the close of business on each business
day.
3. PROCESSING WITHDRAWALS. Upon a capital withdrawal by any
investor, the Bank shall reflect such withdrawal by a decrease in the
Book Capital Account Balance of such investor as of the close of
business on each business day.
4. PROCESSING REDEMPTIONS. In the event that an investor elects a
complete withdrawal of its interest in the Funds (a "Redemption"), the
Bank shall process such redemption in accordance with Proper
Instructions, which may include, if so determined by the Board and
included in Proper Instructions, charging fees for effecting such
Redemption, and shall reduce the Book Capital Account of such investor
to zero.
5. SUSPENSION OF WITHDRAWALS AND REDEMPTIONS. Upon receipt of
Proper Instructions indicating that the Board has determined to suspend
the right of withdrawal or Redemption, the Bank shall cease processing
any such withdrawals or Redemptions, until the Bank has received Proper
Instructions indicating that the suspension has been rescinded.
6. BOOK CAPITAL ACCOUNT BALANCE. For the purpose of this
Agreement, the term Book Capital Account Balance for any investor shall
mean that amount as shall be determined by the Bank.
<PAGE>
7. COMMUNICATIONS WITH INVESTORS. The Bank will promptly respond
to communications from investors with respect to its duties hereunder.
8. NO OBLIGATIONS ON PART OF BANK. The Bank shall not be liable
for and shall be under no obligation or duty to (i) determine whether
any investor has satisfied any requirement for investment in the Funds,
either under federal law or the laws of any state or under the Funds's
Declaration of Trust, By-laws, registration statement or other offering
materials; (ii) monitor any purchase with respect to the securities
laws of any state, or any federal securities laws or to make any filing
under the same with connection therewith, or (iii) determine whether the
procedures established by the Board with respect to the Book Capital
Account Balance of any investor are in compliance with any requirements
under federal law or the laws of any state or other governmental
authority, including, without limitation, the requirements of the
Securities and Exchange Commission or any taxing authority.
9. MAINTAINING ACCOUNT INFORMATION. The Bank shall maintain the
investors' accounts to update registration, address, options and wire
instructions as requested by the investor, provided all Proper
Instructions, signatures, documents and indemnification are received.
10. MAINTAINING TRADE INFORMATION. The Bank shall maintain trade
information as requested by the investor, provided all Proper
Instructions, signatures, documents and indemnification are received.
Accepted and agreed:
Select Advisors Variable Insuance Trust
Initial: ____________
<PAGE>
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 1st day of December, 1996, between Select
Advisors Variable Insurance Trust, a Massachusetts business trust (the "Fund")
and Investors Bank & Trust Company ("IBT").
The Fund, an open-end management investment company, on behalf of the
portfolios listed on APPENDIX A hereto, desires to retain IBT to perform certain
fund accounting services for the Fund, and IBT has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
1.1 AUTHORIZED PERSON. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 1.4 hereof.
1.2 BOARD. Board will mean the Board of Trustees of the Fund, as the
case may be.
1.3 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
1.4 PROPER INSTRUCTIONS. Proper Instructions shall mean instructions
(which may be continuing instructions) regarding matters signed or initialed by
an Authorized Person. Oral instructions will be considered Proper Instructions
if IBT reasonably believes them to have been given by an Authorized Person. The
Fund shall cause all oral instructions to be promptly confirmed in writing. IBT
shall act upon and comply with any subsequent Proper Instruction which modifies
a prior instruction and the sole obligation of IBT with respect to any follow-up
or confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires IBT to
act, the Fund shall give IBT specific Proper Instructions as to the action
required. Upon receipt by IBT of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and IBT agree in writing that such procedures afford adequate safeguards
for the Fund's assets.
2. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with IBT his or her
certification to IBT, in such form as may be acceptable to IBT, of (i) the names
and signatures of the Authorized Persons and (ii) the names of the members of
the Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. IBT will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by IBT.
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3. FUND EVALUATION AND YIELD CALCULATION
3.1 FUND EVALUATION. IBT shall compute and, unless otherwise directed
by the Board, determine as of the close of regular trading on the New York Stock
Exchange on each day on which said Exchange is open for unrestricted trading and
as of such other days, or hours, if any, as may be authorized by the Board, the
net asset value and the public offering price of a share of capital stock of the
Fund, such determination to be made in accordance with the provisions of the
Declaration of Trust and By-laws of the Fund and the Prospectus and Statement of
Additional Information relating to the Fund, as they may from time to time be
amended, and any applicable resolutions of the Board at the time in force and
applicable; and promptly to notify the Fund, the proper exchange and the NASD or
such other persons as the Fund may request of the results of such computation
and determination. In computing the net asset value hereunder, IBT may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by IBT, (ii)
reserves, if any, authorized by the Board or that no such reserves have been
authorized, (iii) the source of the quotations to be used in computing the net
asset value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and IBT shall
not be responsible for any loss occasioned by such reliance or for any good
faith reliance on any quotations received from a source pursuant to (iii) above.
3.2. YIELD CALCULATION. IBT will compute the performance results of
the Fund (the "Yield Calculation") in accordance with the provisions of Release
No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) IBT shall compute the Yield Calculation for the Fund for the
stated periods of time as shall be mutually agreed upon, and communicate in a
timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, IBT will derive the items of
data necessary for the computation from the records it generates and maintains
for the Fund pursuant Section 11 hereof. IBT shall have no responsibility to
review, confirm, or otherwise assume any duty or liability with respect to the
accuracy or correctness of any such data supplied to it by the Fund, any of the
Fund's designated agents or any of the Fund's designated third party providers.
(c) At the request of IBT, the Fund shall provide, and IBT shall be
entitled to rely on, written standards and guidelines to be followed by IBT in
interpreting and applying the computation methods set forth in the Releases or
any Subsequent Staff Positions as they specifically apply to the Fund. In the
event that the computation methods in the Releases or the Subsequent Staff
Positions or the application to the Fund of a standard or guideline is not free
from doubt or in the event there is any question of interpretation as to the
characterization of a particular security or any aspect of a security or a
payment with respect thereto (e.g., original issue discount, participating debt
security, income or return of capital, etc.) or otherwise or as to any other
element of the computation which is pertinent to the Fund, the Fund or its
designated agent shall have the full responsibility for making the determination
of how the security or payment is to be treated for purposes of the computation
and how the computation is to be made and shall inform IBT thereof on a timely
basis. IBT shall have no responsibility to make independent determinations with
respect to any item which is covered by this Section, and shall not be
responsible for its
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computations made in accordance with such determinations so long as such
computations are mathematically correct.
(d) The Fund shall keep IBT informed of all publicly available
information relating specifically to the Fund (as opposed to investment
companies generally) and of any non-public advice, or non-public information
obtained by the Fund from its independent auditors or by its personnel or the
personnel of its investment adviser related to the computations to be undertaken
by IBT pursuant to this Agreement and IBT shall not be deemed to have knowledge
of such information (except as contained in the Releases and the Subsequent
Staff Positions or as publicly available regarding investment companies
generally) unless it has been furnished to IBT in writing.
4. FEES. For the services rendered pursuant to this Agreement, the Fund
agrees to pay IBT the fees set forth on APPENDIX B hereto.
5. ADDITIONAL SERVICES. IBT shall perform the additional services for
the Fund as are set forth on APPENDIX C hereto. APPENDIX C may be amended from
time to time upon agreement of the parties to include further additional
services to be provided by IBT to the Fund, at which time the fees set forth in
APPENDIX B shall be appropriately increased.
6. LIMITATION OF LIABILITY.
6.1 IBT, its directors, officers, employees and agents shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the performance of its obligations and duties under
this Agreement, except in respect of an error, mistake or loss resulting from
willful misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its disregard thereof or a material
breach of the provisions hereof.
6.2 The Fund will indemnify IBT, its directors, officers, employees and
agents against and hold it and them harmless from any and all losses, claims,
damages, liabilities or expenses (including legal fees and expenses) resulting
from any claim, demand, action or suit (i) arising as a result of any act or
omission by IBT or any of its officers, directors, employees or agents in good
faith reliance upon the terms of this Agreement, any Officer's Certificate or
Proper Instructions; (ii) arising as a result of information supplied by any
Authorized Person and relied on in good faith by IBT in connection with the
calculation of (A) the net asset value and public offering price of the shares
of capital stock of the Fund or (B) the Yield Calculation; or (iii) not
resulting from the willful misfeasance, bad faith or negligence of IBT in the
performance of such obligations and duties or by reason of its disregard thereof
or a material breach of the provisions hereof.
6.3 IBT may apply to the Fund at any time for instructions and may
consult counsel for the Fund (except as to matters where the interests of the
Fund and IBT, in the opinion of such counsel, differ), or its own counsel,
knowledgeable in the field, and with accountants and other experts with respect
to any matter arising in connection with its duties hereunder, and IBT shall not
be liable or accountable for any action taken or omitted by it in good faith in
accordance with such instruction, or with the opinion of such counsel,
accountants, or other experts. IBT shall not be liable for any act or omission
taken or not taken in reliance upon any document, certificate or instrument
which it reasonably believes to be genuine and to be signed or presented by any
person or persons duly authorized by the Fund (as set forth in a certificate
duly executed by an officer of the Fund). IBT shall not be held to have notice
of any change of authority of any officers, employees, or agents of the Fund
until receipt of written notice thereof has been received by IBT from the Fund.
6.4 In the event IBT is unable to perform, or is delayed in performing,
its obligations under the terms of this Agreement because of acts of God,
strikes, legal constraint, government actions, war,
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emergency conditions, interruption of electrical power or other utilities,
equipment or transmission failure or damage reasonably beyond its control or
other causes reasonably beyond its control, IBT shall not be liable to the Fund
for any damages resulting from such failure to perform, delay in performance, or
otherwise that is attributable to such causes.
6.5 IBT acknowledges that the portfolios comprising the Fund are
organized under a two-tier financial services structure, known as the Hub &
Spoke-Registered Trademark-(1) structure, under and pursuant to a certain Hub &
Spoke License and Service Agreement dated December 14, 1993 (the "License
Agreement"), by and between the Fund's adviser, Touchstone Advisors, Inc., and
Signature Financial Group, Inc. ("Signature"). As a material inducement to the
Fund to enter into this Agreement, IBT hereby warrants and represents that IBT
is a duly licensed and authorized third party Hub & Spoke processing agent of
Signature, and is duly licensed and authorized by Signature to provide Hub &
Spoke processing and administration services to, for and on behalf of the Fund
and its portfolios in accordance with the terms of this Agreement; and further,
that no consent, which has not already been obtained in writing by IBT, is
required by Touchstone Securities, Inc., or by either party to this Agreement
from Signature in order for IBT to provide Hub & Spoke processing and
administration services, for and on behalf of the Fund and its portfolios.
6.6 IBT will indemnify the Fund, its trustees, officers, employees and
agents against and hold them harmless from any and all losses, claims, damages,
liabilities or expenses (including legal fees and related expenses) resulting
from any claim, demand, action or suit (i) arising out of IBT's failure to
obtain and maintain in effect all licenses rights and permissions (all without
cost to the Fund for so long as the Fund remains a party to the License
Agreement and the License Agreement remains in full force and effect) required
to enable it to use, to the full extent necessary for the performance of its
duties and obligations under this Agreement, all intellectual property belonging
to Signature Financial Services, Inc. and its affiliates that relates to the Hub
& Spoke structure and related fund accounting and administration and the
software and processes associated therewith and (ii) resulting from the willful
misfeasance, bad faith or negligence of IBT in the performance of its duties and
obligations under this Agreement or from its disregard thereof.
6.7 In no event shall IBT be liable for special, incidental or
consequential damages, even if advised of the possibility of such damages.
7. TERMINATION.
7.1 The term of this Agreement shall be eighteen months commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than sixty days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 60 days of receipt of such notice.
(b) Either party may terminate this Agreement during any Renewal Term
upon sixty days written notice to the other party. Any termination pursuant to
this paragraph 7.1(b) shall be effective upon expiration of such sixty days,
provided, however, that the effective date of such termination may be postponed,
at the request of the Fund, to a date not more than ninety days after delivery
of the written notice in order to give the Fund an opportunity to make suitable
arrangements for a successor fund accountant.
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(1) Hub & Spoke is a registered service mark of Signature Financial Group, Inc.
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(c) If the Fund determines at any time to cease using the Hub & Spoke
structure in the conduct of its business, whether it changes to a master-feeder,
multiple class or other structure, the Fund may terminate this Agreement if,
after the Fund gives IBT at least 30 days prior written notice of such change,
the parties, after making diligent and good faith efforts, are unable to agree
to amendments to this Agreement that are reasonable and fair to both parties
under the circumstances, such termination to be effective 90 days after the
delivery of such prior written notice.
(d) The Fund may terminate this Agreement if and at such time as a
court of competent jurisdiction either (A) finds, after the exhaustion of all
appeals, that the performance by IBT of the services called for by this
Agreement or the engagement by the Fund of IBT to perform such services
infringes the intellectual property rights of Signature Financial Services,
Inc., or any affiliate thereof, in any manner whatsoever, or (B) enjoins or
restrains the performance by Investors Bank of the services called for by this
Agreement.
(e) The Fund may terminate this Agreement if and at such time as any
of the fund accounting agreements between Investors Bank and Select Advisors
Trust A, Select Advisors Portfolio or Select Advisors Variable Insurance Trust
are terminated due to a material violation of the terms of any such fund
accounting agreement by Investors Bank.
7.2 The Fund shall reimburse IBT for any reasonable expenses incurred
by IBT for transition accounting and transfer of records in connection with the
termination of this Agreement.
7.3 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of IBT relating to
its performance of its duties as hereunder.
8. CONFIDENTIALITY. Both parties hereto agree that any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at low or in equal to an injunction or injunctions without
bond or other security to prevent breaches of this provision.
9. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Select Advisors Variable Insurance Trust
311 Pike Street
Cincinnati, OH 45202
Attention: Edward G. Harness, Jr.
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(b) In the case of notices sent to IBT to:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
Attention: Carol Lowd, Client Manager
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate
in writing.
10. AMENDMENTS. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
11. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of IBT or by IBT without the written consent of the
Fund, authorized and approved by its Board; and provided further that
termination proceedings pursuant to Section 16 hereof will not be deemed to be
an assignment within the meaning of this provision.
12. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
14. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
15. LIMITATION OF LIABILITY. IBT is hereby expressly put on notice of the
limitation of liability set forth in the Declaration of Trust of the Fund and
agrees that the obligations assumed by the Fund hereunder shall be limited in
all cases to the assets of the Fund and that IBT shall not seek satisfaction of
any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
16. SEVERAL OBLIGATIONS OF THE PORTFOLIOS. This Agreement is an agreement
entered into between IBT and the Fund with respect to each Portfolio. With
respect to any obligation of the Fund on behalf of any Portfolio arising out of
this Agreement, IBT shall look for payment or satisfaction of such obligation
solely to the assets of the Portfolio to which such obligation relates as though
IBT had separately contracted with the Fund by separate written instrument with
respect to each Portfolio.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
SELECT ADVISORS VARIABLEINSURANCE TRUST
By: /s/ Edward G. Harness
--------------------------------
Name: Edward G. Harness
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
---------------------------------
Name: Robert D. Mancuso
Title: Managing Director
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POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward S. Heenan, Susan C.
Mosher, Kevin M. Connerty and Paul J. Jasinski, each of them, with full powers
of substitution as his true and lawful attorneys and agents to execute in his
name and on his behalf in any and all capacities the Registration Statements on
Form N-1A, and any and all amendments thereto, filed by Select Advisors Trust A,
Select Advisors Trust C, Select Advisors Variable Insurance Trust and Select
Advisors Portfolios (the "Investment Companies") with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act of 1940, as
amended, and/or the Securities Act of 1933, as amended, and/or any and all
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Investment Companies to comply with such Acts, the
rules, regulations and requirements of the SEC, and the securities or Blue Sky
laws of any state or other jurisdiction, and the undersigned hereby ratifies and
confirms as his own act and deed any and all acts that such attorneys and
agents, or any of them, shall do or cause to be done by virtue hereof. Any one
of such attorneys and agents have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Edward G. Harness, Jr
Edward G. Harness, Jr., Trustee
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POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski, each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by Select Advisors Trust A, Select Advisors Trust C, Select Advisors Variable
Insurance Trust and Select Advisors Portfolios (the "Investment Companies") with
the Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended, and/or the Securities Act of 1933, as amended, and/or
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Investment Companies to comply with such
Acts, the rules, regulations and requirements of the SEC, and the securities or
Blue Sky laws of any state or other jurisdiction, and the undersigned hereby
ratifies and confirms as his own act and deed any and all acts that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Philip R. Cox
Philip R. Cox, Trustee
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POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski, each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by Select Advisors Trust A, Select Advisors Trust C, Select Advisors Variable
Insurance Trust and Select Advisors Portfolios (the "Investment Companies") with
the Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended, and/or the Securities Act of 1933, as amended, and/or
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Investment Companies to comply with such
Acts, the rules, regulations and requirements of the SEC, and the securities or
Blue Sky laws of any state or other jurisdiction, and the undersigned hereby
ratifies and confirms as his own act and deed any and all acts that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ David Pollak
David Pollak, Trustee
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POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski, each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by Select Advisors Trust A, Select Advisors Trust C, Select Advisors Variable
Insurance Trust and Select Advisors Portfolios (the "Investment Companies") with
the Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended, and/or the Securities Act of 1933, as amended, and/or
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Investment Companies to comply with such
Acts, the rules, regulations and requirements of the SEC, and the securities or
Blue Sky laws of any state or other jurisdiction, and the undersigned hereby
ratifies and confirms as his own act and deed any and all acts that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Robert E. Stautberg
Robert E. Stautberg, Trustee
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POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski, each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by Select Advisors Trust A, Select Advisors Trust C, Select Advisors Variable
Insurance Trust and Select Advisors Portfolios (the "Investment Companies") with
the Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended, and/or the Securities Act of 1933, as amended, and/or
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Investment Companies to comply with such
Acts, the rules, regulations and requirements of the SEC, and the securities or
Blue Sky laws of any state or other jurisdiction, and the undersigned hereby
ratifies and confirms as his own act and deed any and all acts that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Joseph S. Stern, Jr.
Joseph S. Stern, Jr., Trustee
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POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski, each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by Select Advisors Trust A, Select Advisors Trust C, Select Advisors Variable
Insurance Trust and Select Advisors Portfolios (the "Investment Companies") with
the Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended, and/or the Securities Act of 1933, as amended, and/or
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Investment Companies to comply with such
Acts, the rules, regulations and requirements of the SEC, and the securities or
Blue Sky laws of any state or other jurisdiction, and the undersigned hereby
ratifies and confirms as his own act and deed any and all acts that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ William J. Williams
William J. Williams, Trustee
