AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
File Nos. 33-76566 and 811-8416
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 11
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 12
TOUCHSTONE VARIABLE SERIES TRUST
(formerly 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
ANDREW S. JOSEF
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET, BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
copies to:
Mark Longenecker, Esq. Jill T. McGruder
Karen McLaughlin, Esq. Touchstone Securities, Inc.
Frost & Jacobs LLP 311 Pike Street
2500 East 5th Street Cincinnati, Ohio 45202
P.O. Box 5715
Cincinnati, Ohio 45201-5715
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on May 1, 1999 pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
================================================================================
<PAGE>
TOUCHSTONE VARIABLE SERIES TRUST
PROSPECTUS
MAY 1, 1999
o TOUCHSTONE SMALL CAP VALUE FUND
o TOUCHSTONE EMERGING GROWTH FUND
o TOUCHSTONE INTERNATIONAL EQUITY FUND
o TOUCHSTONE INCOME OPPORTUNITY FUND
o TOUCHSTONE HIGH YIELD FUND
o TOUCHSTONE VALUE PLUS FUND
o TOUCHSTONE GROWTH & INCOME FUND
o TOUCHSTONE ENHANCED 30 FUND
o TOUCHSTONE BALANCED FUND
o TOUCHSTONE BOND FUND
o TOUCHSTONE STANDBY INCOME FUND
Neither the Securities and Exchange Commission nor any state securities
commission has approved any Fund's shares as an investment or determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
<PAGE>
Notes
<PAGE>
3
TABLE OF CONTENTS
TABLE OF CONTENTS
PAGE
Information About The Funds....................................... 4
Touchstone Small Cap Value Fund................................... 5
Touchstone Emerging Growth Fund................................... 7
Touchstone International Equity Fund.............................. 10
Touchstone Income Opportunity Fund................................ 13
Touchstone High Yield Fund........................................ 16
Touchstone Value Plus Fund........................................ 18
Touchstone Growth & Income Fund................................... 20
Touchstone Enhanced 30 Fund....................................... 22
Touchstone Balanced Fund.......................................... 24
Touchstone Bond Fund.............................................. 27
Touchstone Standby Income Fund.................................... 29
Investment Strategies And Risks................................... 32
The Funds' Management............................................. 39
Investing With Touchstone......................................... 44
Distributions And Taxes........................................... 46
Financial Highlights.............................................. 47
For More Information.............................................. 52
[ICON] Touchstone Variable Series Trust
<PAGE>
4
Information About The Funds
Information About The Funds
Touchstone Variable Series Trust
Touchstone Variable Series Trust (TVST) is a group of mutual funds. Each Fund
has a different investment goal and risk level.
Shares of each Fund described in this Prospectus can be purchased by insurance
company separate accounts.
You can invest indirectly in the Funds through your purchase of a Touchstone
variable annuity contract. When you purchase a Touchstone variable annuity
contract, you decide how to invest your purchase payments by selecting from the
available investment options. The investment options include the following
Sub-Accounts that invest in Funds of TVST: Touchstone Small Cap Value,
Touchstone Emerging Growth, Touchstone International Equity, Touchstone Income
Opportunity, Touchstone High Yield, Touchstone Value Plus, Touchstone Growth &
Income, Touchstone Enhanced 30, Touchstone Balanced, Touchstone Bond and
Touchstone Standby Income. Each Sub-Account invests in the corresponding Fund.
You should read the prospectus for the Touchstone variable annuity contract that
you want to purchase to learn about purchasing a contract and selecting your
investment options. That prospectus also contains information about the
contract, your investment options, the Sub-Accounts and expenses related to
purchasing a variable annuity contract.
[ICON] Touchstone Variable Series Trust
<PAGE>
5
Touchstone Small Cap Value Fund
Touchstone Small Cap Value Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Touchstone Small Cap Value Fund seeks long-term growth of capital.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily (at least 75% of total assets) in common stocks of
small to medium capitalization companies that the portfolio manager believes are
undervalued. The portfolio manager looks for stocks that it believes are priced
lower than they should be, and also contain a catalyst for growth. These stocks
may not pay dividends. The Fund may invest up to 5% of its assets (at the time
of purchase) in any one company. The Fund will limit its investments so that the
percentage of the Fund's assets invested in a particular industry will not be
more than double the percentage of the industry in the Russell 2000 Index.
The Fund may also invest in:
o Cash equivalent investments (up to 25%)
o Short-term debt securities
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o Because securities of small cap companies may be more thinly
traded and may have more frequent and larger price changes than
securities of larger cap companies
o If the market continually values the stocks in the Fund's
portfolio lower than the portfolio manager believes they should
be valued
o If the stocks in the Fund's portfolio are not undervalued as
expected
o If the companies in which the Fund invests do not grow as rapidly
as expected
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find out more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
6
Touchstone Small Cap Value Fund
Who May Want to Invest
This Fund will be most appealing to you if you are an aggressive investor and
are willing to assume a relatively high amount of risk. You should be
comfortable with extreme levels of volatility, and safety of principal in the
short term should not be a high priority for you. This Fund's approach may be
appropriate for you if you are many years from retirement and are comfortable
with wide market fluctuations.
Performance Note
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Touchstone Small Cap Value Fund started
on May 1, 1999, there is no performance information included in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
7
Touchstone Emerging Growth Fund
Touchstone Emerging Growth Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Touchstone Emerging Growth Fund seeks to increase the value of Fund shares
as a primary goal and to earn income as a secondary goal.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily (at least 65% of total assets) in the common stocks
of smaller, rapidly growing (emerging growth) companies. In selecting its
investments, the portfolio managers focus on those companies they believe will
grow faster than the U.S. economy in general. They also choose companies they
believe are priced lower in the market than their true value.
When the portfolio managers believe the following securities offer a good
potential for capital growth or income, up to 35% of the Fund's assets may be
invested in:
o Larger company stocks
o Preferred stocks
o Convertible bonds
o Other debt securities, including:
collateralized mortgage obligations (CMOS), stripped U.S.
government securities (Strips) and mortgage-related securities,
all of which will be rated investment grade
The Fund may also invest in:
o Securities of foreign companies traded mainly outside the U.S.
(up to 20%)
o American Depositary Receipts (ADRs) (up to 20%)
o Emerging market securities (up to 10%)
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o Because securities of small cap companies may be more thinly
traded and may have more frequent and larger price changes than
securities of larger cap companies
o If the market continually values the stocks in the Fund's
portfolio lower than the portfolio managers believe they should
be valued
[ICON] Touchstone Variable Series Trust
<PAGE>
8
Touchstone Emerging Growth Fund
o If the stocks in the Fund's portfolio are not undervalued as
expected s If the companies in which the Fund invests do not grow
as rapidly as expected
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because collateralized mortgage obligations (CMOs), stripped U.S.
government securities (Strips) and mortgage-related securities
may lose more value due to changes in interest rates than other
debt securities and are subject to prepayment
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
o Because emerging market securities involve unique risks, such as
exposure to economies less diverse and mature than that of the
U.S. and economic or political changes may cause larger price
changes in emerging market securities than other foreign
securities
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
Who May Want to Invest
This Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. This Fund's approach may be appropriate
for you if you are many years from retirement and are comfortable with wide
market fluctuations.
The Fund's Performance
The bar chart which follows indicates the risks of investing in the Touchstone
Emerging Growth Fund. It shows changes in the performance of the Fund's
shares from year to year since the Fund started.
[ICON] Touchstone Variable Series Trust
<PAGE>
9
Touchstone Emerging Growth Fund
The Fund's past performance does not necessarily indicate how it will perform in
the future.
TOUCHSTONE EMERGING GROWTH FUND PERFORMANCE
YEARS TOTAL RETURN
1995 19.57%
1996 11.16%
1997 33.67%
1998 3.28%
During the period shown in the bar chart, the highest quarterly return was
21.23% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -19.41% (for the quarter ended September 30, 1998).
The performance information shown here does not reflect fees that are paid by
the separate accounts through which shares of the Fund are sold. Inclusion of
those fees would reduce the total return figures for all periods.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Russell 2000 Index and to the Wiesenberger Small
Cap -- MF. The Russell 2000 Index is a widely recognized unmanaged index of
small cap stock performance. The Wiesenberger Small Cap -- MF is a composite
index of the annual returns of mutual funds that have an investment style
similar to that of the Touchstone Emerging Growth Fund.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
TOUCHSTONE EMERGING GROWTH FUND 3.3% 16.2%
- --------------------------------------------------------------------------------
RUSSELL 2000 INDEX -2.5% 15.5%
- --------------------------------------------------------------------------------
WIESENBERGER SMALL CAP -- MF -0.4% 17.6%
- --------------------------------------------------------------------------------
[ICON] Touchstone Variable Series Trust
<PAGE>
10
Touchstone International Equity Fund
Touchstone International Equity Fund
- --------------------------------------------------------------------------------
The Fund's Invesment Goal
The Touchstone International Equity Fund seeks to increase the value of Fund
shares over the long-term.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily (at least 80% of total assets) in equity securities
of foreign companies and will invest in at least three countries outside the
United States. A large portion of those non-U.S. equity securities may be issued
by companies active in emerging market countries (up to 40% of total assets).
The Fund may also invest in certain debt securities issued by U.S. and non-U.S.
entities (up to 20%), including non-investment grade debt securities rated as
low as B.
The portfolio manager uses a growth-oriented style to choose investments for the
Fund. This includes the use of both qualitative and quantitative analysis to
identify markets and companies that offer solid growth prospects at reasonable
prices. The portfolio manager's investment process seeks to add value by making
good regional and country allocations as well as by selecting individual stocks
within a region.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
o Because emerging market securities involve unique risks, such as
exposure to economies less diverse and mature than that of the
U.S. and economic or political changes may cause larger price
changes in emerging market securities than other foreign
securities
o If the stocks in the Fund's portfolio do not grow over the long
term as expected
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because issuers of non-investment grade securities held by the
Fund are more likely to be unable to make timely payments of
interest or principal
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
[ICON] Touchstone Variable Series Trust
<PAGE>
11
Touchstone International Equity Fund
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
Who May Want to Invest
This Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. This Fund's approach may be appropriate
for you if you are many years from retirement and are comfortable with wide
market fluctuations.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Touchstone
International Equity Fund. It shows changes in the performance of the Fund's
shares from year to year since the Fund started.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
TOUCHSTONE INTERNATIONAL
EQUITY FUND PERFORMANCE
YEARS TOTAL RETURN
1995 15.46%
1996 11.47%
1997 14.76%
1998 20.21%
During the period shown in the bar chart, the highest quarterly return was
16.74% (for the quarter ended March 31, 1998) and the lowest quarterly
return was -13.95% (for the quarter ended September 30, 1998).
[ICON] Touchstone Variable Series Trust
<PAGE>
12
Touchstone International Equity Fund
The performance information shown here does not reflect fees that are paid by
the separate accounts through which shares of the Fund are sold. Inclusion of
those fees would reduce the total return figures for all periods.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the MSCI EAFE Index and the Wiesenberger Non-US Equity
- -- MF index. The MSCI EAFE Index is a Morgan Stanley index that includes stocks
traded on 16 exchanges in Europe, Australia and the Far East. The Wiesenberger
Non-US Equity -- MF is a composite index of the annual returns of mutual funds
that have an investment style similar to that of the Touchstone International
Equity Fund.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
TOUCHSTONE INTERNATIONAL EQUITY FUND 20.2% 11.1%
- --------------------------------------------------------------------------------
MSCI EAFE INDEX 20.3% 11.5%
- --------------------------------------------------------------------------------
WIESENBERGER NON-US EQUITY-- MF 6.1% 7.5%
- --------------------------------------------------------------------------------
[ICON] Touchstone Variable Series Trust
<PAGE>
13
Touchstone Income Opportunity Fund
Touchstone Income Opportunity Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Touchstone Income Opportunity Fund seeks to achieve a high level of current
income as its main goal. The Fund may also seek to increase the value of Fund
shares, if consistent with its main goal.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
- --------------------------------------------------------------------------------
Its Principal Investment Strategies
The Fund invests primarily in debt securities. These debt securities will
generally be more risky non-investment grade corporate and government securities
(up to 100% of total assets). Non-investment grade debt securities are often
referred to as "junk bonds" and are considered speculative.
The Fund's investments may include:
o Securities of foreign companies (up to 100%), but only up to 30%
of its assets in securities of foreign companies that are
denominated in a currency other than the U.S. dollar
o Debt securities that are emerging market securities (up to 65%)
o Mortgage-related securities, loans and loan participations
o Currency futures and option contracts
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because issuers of non-investment grade securities held by the
Fund are more likely to be unable to make timely payments of
interest or principal
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
o Because emerging market securities involve unique risks, such as
exposure to economies less diverse and mature than that of the
U.S. and economic or political changes may cause larger price
changes in emerging market securities than other foreign
securities
o Because mortgage-related securities may lose more value due to
changes in interest rates than other debt securities and are
subject to prepayment
o Because loans and loan participations may be more difficult to
sell than other investments and are subject to the risk of
borrower default
o If the stock market as a whole goes down
[ICON] Touchstone Variable Series Trust
<PAGE>
14
Touchstone Income Opportunity Fund
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
Who May Want to Invest
This Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. This Fund's approach may be appropriate
for you if you are many years from retirement and are comfortable with wide
market fluctuations.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Touchstone
Income Opportunity Fund. It shows changes in the performance of the Fund's
shares from year to year since the Fund started.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
TOUCHSTONE INCOME OPPORTUNITY
FUND PERFORMANCE
YEARS 1995 1996 1997 1998
TOTAL RETURN 23.35% 27.37% 12.03% -12.27%
During the period shown in the bar chart, the highest quarterly return was
15.38% (for the quarter ended June 30, 1995) and the lowest quarterly
return was -16.67% (for the quarter ended September 30,1998).
[ICON] Touchstone Variable Series Trust
<PAGE>
15
Touchstone Income Opportunity Fund
The performance information shown here does not reflect fees that are paid by
the separate accounts through which shares of the Fund are sold. Inclusion of
those fees would reduce the total return figures for all periods.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Lehman Brothers Corporate Bond Index, the
Wiesenberger Corp - High Yield - MF, the Wiesenberger Global Income - MF and the
Wiesenberger Emerging Market Income - MF. The Lehman Brothers Corporate Bond
Index is based on all publicly issued intermediate fixed-rate, non-convertible
investment grade domestic corporate debt. The Wiesenberger Corp - High Yield -
MF index, the Wiesenberger Global Income - MF index and the Wiesenberger
Emerging Market Income - MF index are composite indexes of the annual returns of
mutual funds that have an investment style similar to the Touchstone Income
Opportunity Fund.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
TOUCHSTONE INCOME OPPORTUNITY FUND -12.3% 9.5%
- --------------------------------------------------------------------------------
LEHMAN BROTHERS CORPORATE BOND INDEX 8.5% 9.9%
- --------------------------------------------------------------------------------
WIESENBERGER CORP-- HIGH YIELD-- MF 1.5% 9.7%
- --------------------------------------------------------------------------------
WIESENBERGER GLOBAL INCOME-- MF 4.8% 8.2%
- --------------------------------------------------------------------------------
WIESENBERGER EMERGING MARKET INCOME-- MF 22.7% 12.2%
- --------------------------------------------------------------------------------
[ICON] Touchstone Variable Series Trust
<PAGE>
16
Touchstone High Yield Fund
Touchstone High Yield Fund
- --------------------------------------------------------------------------------
The Fund's Investment Goal
The Touchstone High Yield Fund seeks to achieve a high level of current income
as its main goal. Capital appreciation is a secondary consideration in achieving
its goal.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily in debt securities. These debt securities will
generally be more risky non-investment grade corporate and government securities
(up to 100% of total assets) issued primarily by U.S. issuers. Non-investment
grade debt securities are often referred to as "junk bonds" and are considered
speculative.
The Fund's investments may include:
o Securities of foreign companies (up to 15%), but only up to 5% of
its assets in securities of foreign companies that are
denominated in a currency other than the U.S. dollar
o Debt securities that are emerging market securities (up to 10%)
o Mortgage-related securities and other types of loans and loan
participations
o Currency futures and option contracts
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the U.S. enters into a lengthy economic downturn or recession
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because the issuers of non-investment grade debt securities held
by the Fund are more likely to be unable to make timely payments
of interest or principal
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
o Because emerging market securities involve unique risks, such as
exposure to economies less diverse and mature than that of the
U.S. and economic or political changes may cause larger price
changes in emerging market securities than other foreign
securities
o Because mortgage-related securities may lose more value due to
changes in interest rates than other debt securities and are
subject to prepayment
o Because currency futures and options may reduce the potential
gain from an investment or intensify a loss
[ICON] Touchstone Variable Series Trust
<PAGE>
17
Touchstone High Yield Fund
o Because loans and loan participations may be more difficult to
sell than other investments and are subject to the risk of
borrower default
o If the stock market as a whole goes down
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find out more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
Who May Want to Invest
This Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. This Fund's approach may be appropriate
for you if you are many years from retirement and are comfortable with wide
market fluctuations.
Performance Note
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Touchstone High Yield Fund started on May
1, 1999, there is no performance information included in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
18
Touchstone Value Plus Fund
Touchstone Value Plus Fund
The Fund's Investment Goal
The Touchstone Value Plus Fund seeks to increase the value of Fund shares over
the long-term.
As with any mutual fund, there is no guarantee that the fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily (at least 65% of total assets) in common stock of
larger companies that the portfolio manager believes are undervalued. In
choosing undervalued stocks, the portfolio manager looks for companies that have
proven management and unique features or advantages but are believed to be
priced lower than their true value. These companies may not pay dividends. The
Fund may also invest in common stocks of rapidly growing companies to enhance
the Fund's return and vary its investments to avoid having too much of the
Fund's assets subject to risks specific to undervalued stocks.
Approximately 70% of total assets will generally be invested in large cap
companies and approximately 30% will generally be invested in mid cap companies.
The Fund may invest in:
o Preferred stocks
o Investment grade debt securities
o Convertible securities
In addition, the Fund may invest in (up to 10%):
o Cash equivalent investments
o Short-term debt securities
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the market continually values the stocks in the Fund's
portfolio lower than the portfolio manager believes they should
be valued
o If the stocks in the Fund's portfolio are not undervalued as
expected
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
19
Touchstone Value Plus Fund
Who May Want to Invest
This Fund will be most appealing to you if you are a moderate, or risk tolerant
investor. You should be comfortable with a fair degree of volatility. Capital
appreciation may be important to you, but you may not want to take extreme risks
in order to achieve it. This Fund's approach may be most appropriate for you if
you are many years from retirement and are comfortable with a moderate level of
risk.
Performance Note
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Touchstone Value Plus Fund started on May
1, 1998, there is no performance information included in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
20
Touchstone Growth & Income Fund
Touchstone Growth & Income Fund
The Fund's Investment Goal
The Touchstone Growth & Income Fund seeks to increase the value of Fund shares
over the long-term, while receiving dividend income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily (at least 65% of total assets) in dividend-paying
common stocks, preferred stocks and convertible securities in a variety of
industries. The portfolio manager may choose to purchase securities which do not
pay dividends (up to 35%) but which are expected to increase in value or produce
high income payments in the future.
In choosing securities for the Fund, the portfolio manager will follow a
value-oriented style, generally buying securities with yields that are least 20%
higher than the average yield of companies in the S&P 500. The portfolio manager
focuses on investing in companies that have a market capitalization of at least
$1 billion, but may invest in companies of any size.
The Fund may also invest up to 20% of its total assets in debt securities -- and
within this 20% limitation, the Fund may invest the full 20% in investment grade
non-convertible debt securities, the full 20% in convertible debt securities
rated as low as the highest level of non-investment grade or up to 5% in
non-convertible non-investment grade debt securities.
The Fund may also invest in:
o Securities of foreign companies including American Depository
Receipts (ADRs) (up to 20%)
o Real estate investment trusts (REITs) (up to 10%)
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o If any of the stocks in the Fund's portfolio do not increase in
value as expected
o If earnings of companies the Fund invests in are not achieved and
income available for interest or dividend payments is reduced
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
o Because investments in REITs are more sensitive to changes in
interest rates and other factors that affect real estate values
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
[ICON] Touchstone Variable Series Trust
<PAGE>
21
Touchstone Growth & Income Fund
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
Who May Want to Invest
This Fund will be most appealing to you if you are a moderate or risk tolerant
investor. You should be comfortable with a fair degree of volatility. Capital
appreciation of your investment capital may be important to you, however, you
may be uncomfortable taking extreme risk in order to achieve it. This Fund's
approach may be most appropriate for you if you are many years from retirement
and are comfortable with a moderate level of risk.
Performance Note
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Touchstone Growth & Income Fund started
on January 4, 1999, there is no performance information included in this
Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
22
Touchstone Enhanced 30 Fund
Touchstone Enhanced 30 Fund
The Fund's Investment Goal
The Touchstone Enhanced 30 Fund seeks to achieve a total return which is higher
than the total return of the Dow Jones Industrial Average (DJIA).
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund's portfolio is based on the 30 stocks which comprise the DJIA. The
portfolio manager seeks to enhance the total return of the Fund by substituting
some rapidly growing companies for those companies in the DJIA that appear to
have slower growth. The portfolio manager uses a database of 4,000 stocks from
which to choose the companies that will be substituted in the enhanced portion
of the portfolio. A specific process is followed to assist the portfolio manager
in its selections:
o The 4,000 stocks are reduced to 1,400 by screening for quality
and market capitalization ($1 billion minimum).
o A dividend discount model is applied to the stocks to select
those most attractively priced. This model reduces the stock
choices to about 300 companies.
o The portfolio manager then searches for the companies that
exhibit characteristics that may help to unlock their earnings
potential.
Examples of such characteristics are:
o Positive earnings momentum
o Restructuring announcements
o Changes in regulations
Stocks are sold when the portfolio manager believes they are overpriced or face
a significant reduction in earnings prospects. The portfolio is rebalanced
periodically or as needed due to changes in the DJIA or the other securities in
the portfolio.
The portfolio manager's selection process is expected to cause the Fund to
consist of securities that have some of the following characteristics:
o Attractive valuation
o Above-average earnings and dividend growth
o Above-average market capitalization ratio
o Dominant industry position
o Seasoned management
o Above-average quality
Unlike the DJIA, the Touchstone Enhanced 30 Fund is not price-weighted.
[ICON] Touchstone Variable Series Trust
<PAGE>
23
Touchstone Enhanced 30 Fund
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the dividend discount model is not accurate in its stock
screening process
o If the stocks in the enhanced portion of the portfolio do not
increase the Fund's return as expected
o If the market continually values the stocks in the Fund's
portfolio lower than the portfolio manager believes they should
be valued
o If the stocks in the Fund's portfolio are not undervalued as
expected
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find out more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
Who May Want to Invest
This Fund will be most appealing to you if you are a moderate, or risk tolerant
investor. You should be comfortable with a fair degree of volatility. Capital
appreciation may be important to you, but you may not want to take extreme risks
in order to achieve it. This Fund's approach may be most appropriate for you if
you are many years from retirement and are comfortable with a moderate level of
risk.
Performance Note
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Touchstone Enhanced 30 Fund started on
May 1, 1999, there is no performance information included in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
24
Touchstone Balanced Fund
Touchstone Balanced Fund
The Fund's Investment Goal
The Touchstone Balanced Fund seeks to achieve both an increase in share price
and current income.
As with any mutual fund, there is no guarantee that the fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests in both equity securities (generally about 60% of total assets)
and debt securities (generally about 40%, but at least 25%). The debt securities
will be rated investment grade or at the two highest levels of non-investment
grade.
The Fund may also invest in:
o Warrants
o Preferred stocks
o Convertible securities
The Fund may also invest up to one-third of its assets in securities of foreign
companies, and up to 15% in emerging market securities.
In choosing equity securities for the Fund, the portfolio manager will seek out
companies that are in a strong position within their industry, are owned in part
by management and are selling at a price lower than the company's intrinsic
value. Debt securities are also chosen using a value style. The portfolio
manager will focus on higher yielding securities, but will also consider
expected movements in interest rates and industry position.
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the stocks in the Fund's portfolio do not increase in value as
expected
o If earnings of companies the Fund invests in are not achieved and
income available for interest or dividend payments is reduced
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
o Because emerging market securities involve unique risks, such as
exposure to economies less diverse and mature than that of the
U.S. and economic or political changes may cause larger price
changes in emerging market securities than other foreign
securities
[ICON] Touchstone Variable Series Trust
<PAGE>
25
Touchstone Balanced Fund
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
Who May Want to Invest
This Fund is most appropriate for you if you are a risk neutral or moderately
conservative investor. You may typically take a relatively low risk approach to
investing and may be comfortable with a low level of volatility in your
investments. While safety may be important to you, you may also value
appreciation of your investments. If you invest in this Fund, you should be
willing to accept some risk. This Fund's approach may be appropriate for you if
you are several years from retirement.
The Fund's Performance
The following bar chart indicates the risks of investing in the Touchstone
Balanced Fund. It shows changes in the performance of the Fund's shares from
year to year since the Fund started.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
TOUCHSTONE BALANCED FUND PERFORMANCE
YEARS TOTAL RETURN
1995 24.56%
1996 16.78%
1997 18.61%
1998 5.44%
During the period shown in the bar chart, the highest quarterly return was
10.08% (for the quarter ended June 30, 1997) and the lowest quarterly
return was -9.15% (for the quarter ended September 30, 1998).
[ICON] Touchstone Variable Series Trust
<PAGE>
26
TOUCHSTONE BALANCED FUND
The performance information shown here does not reflect fees that are paid by
the separate accounts through which shares of the Fund are sold. Inclusion of
those fees would reduce the total return figures for all periods.
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Standard & Poor's Composite Index of 500 Stocks
(S&P 500), the Lehman Brothers Aggregate, a blend made up of 60% S&P 500 and 40%
LBAggregate, and the Wiesenberger Balanced Domestic -- MF index. The Lehman
Brothers Government/Corporate Index is composed of 5,400 publicly issued
corporate and U.S. government debt rated Baa or better with at least one year to
maturity and at least $25 million par outstanding. The Wiesenberger Balanced
Domestic -- MF Index is a composite index of the annual returns of mutual funds
that have an investment style similar to the Touchstone Balanced Fund.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
TOUCHSTONE BALANCED FUND 5.4% 16.1%
- -------------------------------------------------------------------------------
S&P 500 INDEX 28.6% 29.8%
- -------------------------------------------------------------------------------
LEHMAN BROTHERS AGGREGATE 8.7% 9.2%
- -------------------------------------------------------------------------------
BLEND-- 60% S&P500, 40% LBAGGREGATE 21.0% 21.5%
- -------------------------------------------------------------------------------
WIESENBERGER BALANCED DOMESTIC -- MF 12.9% 16.8%
- -------------------------------------------------------------------------------
[ICON] Touchstone Variable Series Trust
<PAGE>
27
Touchstone Bond Fund
Touchstone Bond Fund
The Fund's Investment Goal
The Touchstone Bond Fund seeks to provide a high level of current income.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests primarily in higher quality investment grade debt securities
(at least 65% of total assets). The Fund's investment in debt securities may be
determined by the direction in which interest rates are expected to move because
the value of these securities generally moves in the opposite direction from
interest rates. The Fund expects to have an average maturity between five and
fifteen years.
The Fund invests in:
o Mortgage-related securities (up to 60%)
o Asset-backed securities
o Preferred stocks
The Fund also invests in non-investment grade U.S. or foreign debt securities
and preferred stock which are rated as low as B (up to 35%).
In addition, the Fund may invest in:
o Debt securities denominated in foreign currencies (20% or less)
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities
held by the Fund to decline
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
o Because issuers of non-investment grade securities held by the
Fund are more likely to be unable to make timely payments of
interest or principal
o Because mortgage-related securities and asset-backed securities
may lose more value due to changes in interest rates than other
debt securities and are subject to prepayment
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
28
Touchstone Bond Fund
Who May Want to Invest
This Fund is most appropriate for you if you prefer to take a relatively low
risk approach to investing. Safety of your investment may be the most important
factor to you. You may be willing to accept potentially lower returns in order
to maintain a lower, more tolerable level of risk. This Fund's approach may be
most appropriate for you if you are nearing retirement.
Performance Note
Performance information is only shown for those Funds which have had a full
calendar year of operations. Since the Touchstone Bond Fund started on January
4, 1999, there is no performance information included in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
29
Touchstone Standby Income Fund
Touchstone Standby Income Fund
The Fund's Investment Goal
The Touchstone Standby Income Fund seeks to provide a higher level of current
income than a money market fund, while also seeking to prevent large
fluctuations in the value of the investment made by a separate account. The Fund
does not try to keep a constant $1.00 per share net asset value.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
Its Principal Investment Strategies
The Fund invests mostly in various types of money market instruments. All
investments will be rated at least investment grade. On average, the securities
held by the Fund will mature in less than one year.
The Fund's investments may include:
o Short-term government securities
o Mortgage-related securities
o Asset-backed securities
o Repurchase agreements
The Fund may invest up to 50% of total assets in:
o Securities denominated in U.S. dollars and issued in the U.S. by
foreign issuers (known as Yankee bonds)
o Eurodollar Certificates of Deposits
In addition, the Fund may invest in:
o Debt securities denominated in foreign currencies (up to 20%)
o Corporate bonds, commercial paper, certificates of deposit, and
bankers' acceptances
The Key Risks
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities
to decline
o Because mortgage-related securities and asset-backed securities
may lose more value due to changes in interest rates than other
debt securities and are subject to prepayment
o Because investments in foreign securities may have more frequent
and larger price changes than U.S. securities and may lose value
due to changes in currency exchange rates and other factors
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies And Risks later in this Prospectus.
[ICON] Touchstone Variable Series Trust
<PAGE>
30
Touchstone Standby Income Fund
Who May Want to Invest
This Fund is most appropriate for you if you take a relatively low risk approach
to investing. Safety of your investment is of key importance to you.
Additionally, you are willing to accept potentially lower returns in order to
maintain a lower, more tolerable level of risk. This Fund's approach may be most
appropriate for you if you are nearing retirement, or if you have a longer time
horizon, but nevertheless, have a lower risk tolerance. This Fund is also
appropriate for you if you want the added convenience of writing checks directly
from your account.
The Fund's Performance
The bar chart shown below indicates the risks of investing in the Touchstone
Standby Income Fund. It shows changes in the performance of the Fund's shares
from year to year since the Fund's inception.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
TOUCHSTONE STANDBY INCOME FUND PERFORMANCE
YEARS TOTAL RETURN
1995 5.90%
1996 5.18%
1997 5.41%
During the period shown in the bar chart, the highest quarterly return was
1.61% (for the quarter ended December 31, 1995) and the lowest quarterly
return was 1.09% (for the quarter ended September 30, 1995).
The performance information shown here does not reflect fees that are paid by
the separate accounts through which shares of the Fund are sold. Inclusion of
those fees would reduce the total return figures for all periods.
[ICON] Touchstone Variable Series Trust
<PAGE>
31
Touchstone Standby Income Fund
The table below shows how the Fund's average annual returns for the periods
shown compare to those of the Merrill Lynch 91-Day Treasury Index, to the
30-Day Money Market Yield Index and to the Smith Barney 3-Month Treasury
Bill Index. The Merrill Lynch 91-Day Treasury Index consists of short-term U.S.
Treasury securities, maturing in 91 days. The 30-Day Money Market Yield Index is
an index of money market funds based on 30-day yields. The Smith Barney 3-Month
Treasury Bill Index consists of short-term U. S. Treasury Securities, maturing
in 90 days.
For the periods ended December 31, 1998
Past 12 Since
Months Fund Started
TOUCHSTONE STANDBY INCOME FUND 5.7% 5.5%
- --------------------------------------------------------------------------------
MERRILL LYNCH 91-DAY TREASURY INDEX 5.2% 5.5%
- --------------------------------------------------------------------------------
30-DAY MONEY MARKET YIELD INDEX 5.0% 5.1%
- --------------------------------------------------------------------------------
SMITH BARNEY 3-MONTH TREASURY BILL INDEX 5.1% 5.5%
- --------------------------------------------------------------------------------
[ICON] Touchstone Variable Series Trust
<PAGE>
32
Investment Strategies And Risks
Investment Strategies And Risks
Can a Fund Depart from its Normal Strategies?
Each Fund may depart from its investment strategies by taking temporary
defensive positions in response to adverse market, economic or political
conditions. During these times, a Fund may not achieve its investment goals.
Do the Funds Engage in Active Trading of Securities?
The Touchstone International Equity Fund, Touchstone Income Opportunity Fund and
Touchstone Bond Fund may engage in active trading to achieve their investment
goals. This may cause the Fund to realize higher capital gains which would be
passed on to you. Higher capital gains could increase your tax liability.
Frequent trading also increases transaction costs, which would lower the Fund's
performance.
Can a Fund Change its Investment Goal?
A Fund's investment goal(s) may be changed by a vote of the Board of Trustees
without shareholder approval. You would be notified at least 30 days before any
such change took effect.
Year 2000 Risk
Touchstone has implemented steps intended to assure that its major computer
systems and processes are capable of Year 2000 processing. We are also examining
the third parties with whom we work to assess their readiness and are developing
contingency plans to assure that any problems in their systems will not
materially affect Touchstone's operations.
Companies or governmental entities in which Touchstone Funds invest could also
be affected by the Year 2000 issue, but at this time the Funds cannot predict
the degree of impact.
Computer systems failure of Touchstone, a Fund Sub-Advisor or that of any Fund
service provider could impair Fund services and have a negative impact on a
Fund's operations and returns.
The Funds at a Glance
The following two tables can give you a quick basic understanding of the types
of securities a Fund tends to invest in and some of the risks associated with a
Fund's investments. You should read all of the information about a Fund and its
risks before deciding to invest.
[ICON] Touchstone Variable Series Trust
<PAGE>
33
Investment Strategies And Risks
How Can I Tell, at a Glance, Which Types of Securities a Fund Might Invest in?
The following table shows the main types of securities in which each Fund
generally will invest. Some of the Funds' investments are described in detail
below:
<TABLE>
<CAPTION>
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
SMALL CAP EMERGING INTERNATIONAL INCOME HIGH VALUE
VALUE GROWTH EQUITY OPPORTUNITY YIELD PLUS
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in U.S. stocks o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in foreign stocks o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in investment grade debt securities o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in non-investment grade debt securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in foreign debt securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in futures contracts o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in forward currency contracts o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in asset-backed securities
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in mortgage-related securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in real estate investment trusts (REITs)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of small cap companies o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of mid cap companies o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of large cap companies o
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes undervalued stocks o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in securities of emerging markets countries o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes dividend-paying common stocks
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in short-term debt securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOUCHSTONE TOUCHSTONE TOUCHSTONE
GROWTH ENHANCED TOUCHSTONE TOUCHSTONE STANDBY
& INCOME 30 BALANCED BOND INCOME
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in U.S. stocks o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in foreign stocks o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in investment grade debt securities o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in non-investment grade debt securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in foreign debt securities o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in futures contracts
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in forward currency contracts
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in asset-backed securities o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in mortgage-related securities o o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in real estate investment trusts (REITs) o
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of small cap companies
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of mid cap companies
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes securities of large cap companies o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes undervalued stocks o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in securities of emerging markets countries o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emphasizes dividend-paying common stocks o
- ------------------------------------------------------------------------------------------------------------------------------------
Invests in short-term debt securities o
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ICON] Touchstone Variable Series Trust
<PAGE>
34
Investment Strategies And Risks
Additional Information About Fund Investments
FOREIGN COMPANIES. A foreign company is organized under the laws of a foreign
country and:
o Has the principal trading market for its stock in a foreign
country
o Derives at least 50% of its revenues or profits from operations
in foreign countries or has at least 50% of its assets located in
foreign countries
Foreign companies do not include companies based in Canada with respect to the
Touchstone High Yield Fund.
AMERICAN DEPOSITORY RECEIPTS (ADRS). ADRs are securities that represent an
ownership interest in a foreign security. They are generally issued by a U.S.
bank to U.S. buyers as a substitute for direct ownership of the foreign security
and are traded on U.S. exchanges.
INVESTMENT GRADE SECURITIES. Investment grade securities are generally rated BBB
or better by Standard & Poor's Rating Service (S&P) or Baa or better by Moody's
Investor Service, Inc. (Moody's).
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are higher
risk, lower quality securities, often referred to as "junk bonds" and are
considered speculative. They are rated by S&P as less than BBB or by Moody's as
less than Baa.
ASSET-BACKED SECURITIES. Asset-backed securities represent groups of other
assets, for example credit card receivables, that are combined or pooled for
sale to investors.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent groups of
mortgage loans that are combined for sale to investors. The loans may be grouped
together by:
o The Government National Mortgage Association (GNMA)
o The Federal National Mortgage Association (FNMA)
o The Federal Home Loan Mortgage Corporation (FHLMC)
o Commercial banks
o Savings and loan institutions
o Mortgage bankers
o Private mortgage insurance companies
REAL ESTATE INVESTMENT TRUSTS (REITS). REITs pool investors' money to invest
primarily in income-producing real estate or real estate-related loans or
interests.
"LARGE CAP", "MID CAP" AND "SMALL CAP" COMPANIES. A large cap company has a
market capitalization of more than $5 billion. A mid cap company has a market
capitalization of between $1 billion and $5 billion. A small cap company has a
market capitalization of less than $1 billion.
EMERGING GROWTH COMPANIES. Emerging Growth companies are companies that have:
o A total market capitalization less than that of the average of
the companies in the Standard & Poor's 500 Composite Stock Price
Index (S&P 500)
[ICON] Touchstone Variable Series Trust
<PAGE>
35
Investment Strategies And Risks
o Earnings that the portfolio managers believe may grow faster than
the U.S. economy in general due to new products, management
changes at the company or economic shocks such as high inflation
or sudden increases or decreases in interest rates
EMERGING MARKET SECURITIES. Emerging Market securities are issued by a company
that:
o Is organized under the laws of an emerging market country (any
country other than Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Holland, Italy, Japan, Luxembourg, New
Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom
and the United States)
o Has its principal trading market for its stock in an emerging
market country
o Derives at least 50% of its revenues or profits from operations
within emerging market countries or has at least 50% of its
assets located in emerging market countries
UNDERVALUED STOCKS. A stock is considered undervalued if the portfolio manager
believes it should be trading at a higher price than it is at the time of
purchase. Factors considered are:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
REPURCHASE AGREEMENTS. Repurchase Agreements are collateralized by obligations
issued or guaranteed as to both principal and interest by the U.S. Government,
its agencies, and instrumentalities. A repurchase agreement is a transaction in
which a security is purchased with a simultaneous commitment to sell it back to
the seller (a commercial bank or recognized securities dealer) at an agreed upon
price on an agreed upon date. This date is usually not more than seven days from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest, which is unrelated to the coupon rate or
maturity of the purchased security.
[ICON] Touchstone Variable Series Trust
<PAGE>
36
Investment Strategies And Risks
How Can I Tell, at a Glance, a Fund's Key Risks?
The following table shows some of the main risks to which each Fund is subject.
Each risk is described in detail below:
<TABLE>
<CAPTION>
TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE TOUCHSTONE
SMALL CAP EMERGING INTERNATIONAL INCOME HIGH VALUE
VALUE GROWTH EQUITY OPPORTUNITY YIELD PLUS
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Market Risk o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Growth Companies o
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Risk o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Related Securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Risk o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Investment Grade Securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Investing Risk o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Market Risk o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Political Risk o o o
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOUCHSTONE TOUCHSTONE TOUCHSTONE
GROWTH ENHANCED TOUCHSTONE TOUCHSTONE STANDBY
& INCOME 30 BALANCED BOND INCOME
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Risk o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Growth Companies
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts o
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Risk o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Related Securities o o
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Risk o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Investment Grade Securities o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Investing Risk o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Market Risk o o
- ------------------------------------------------------------------------------------------------------------------------------------
Political Risk
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Risks of Investing in the Funds
MARKET RISK. A Fund that invests in common stocks is subject to stock market
risk. Stock prices in general may decline over short or even extended periods,
regardless of the success or failure of a particular company's operations. Stock
markets tend to run in cycles, with periods when stock prices generally go up
and periods when they generally go down. Common stock prices tend to go up and
down more than those of bonds.
o Emerging Growth Companies. Investment in Emerging Growth
companies is subject to enhanced risks because such companies
generally have limited product lines, markets or financial
resources and often exhibit a lack of management depth. The
securities of such companies can be difficult to sell and are
usually more volatile than securities of larger, more established
companies.
[ICON] Touchstone Variable Series Trust
<PAGE>
37
INVESTMENT STRATEGIES AND RISKS
o Real Estate Investment Trusts (REITs). Investment in REITs is
subject to risks similar to those associated with the direct
ownership of real estate (in addition to securities markets
risks). REITs are sensitive to factors such as changes in real
estate values and property taxes, interest rates, cash flow of
underlying real estate assets, supply and demand, and the
management skill and creditworthiness of the issuer. REITs may
also lose value due to changes in tax or other regulatory
requirements.
INTEREST RATE RISK. A Fund that invests in debt securities is subject to the
risk that the market value of the debt securities will decline because of rising
interest rates. The prices of debt securities are generally linked to the
prevailing market interest rates. In general, when interest rates rise, the
prices of debt securities fall, and when interest rates fall, the prices of debt
securities rise. The price volatility of a debt security also depends on its
maturity. Generally, the longer the maturity of a debt security the greater its
sensitivity to changes in interest rates. To compensate investors for this
higher risk, debt securities with longer maturities generally offer higher
yields than debt securities with shorter maturities.
o Mortgage-related securities. Payments from the pool of loans
underlying a mortgage-related security may not be enough to meet
the monthly payments of the mortgage-related security. If this
occurs, the mortgage-related security will lose value. Also,
prepayments of mortgages or mortgage foreclosures will shorten
the life of the pool of mortgages underlying a mortgage-related
security and will affect the average life of the mortgage-related
securities held by a Fund. Mortgage prepayments vary based on
several factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and
other demographic conditions. In periods of falling interest
rates, there are usually more prepayments. The reinvestment of
cash received from prepayments will, therefore, usually be at a
lower interest rate than the original investment, lowering a
Fund's yield. Mortgage-related securities may be less likely to
increase in value during periods of falling interest rates than
other debt securities.
CREDIT RISK. The debt securities in a Fund's portfolio are subject to credit
risk. Credit risk is the possibility that an issuer will fail to make timely
payments of interest or principal. Securities rated in the lowest category of
investment grade securities have some risky characteristics and changes in
economic conditions are more likely to cause issuers of these securities to be
unable to make payments.
o Non-Investment Grade Securities. Non-investment grade securities are
sometimes referred to as "junk bonds" and are very risky with respect
to their issuers' ability to make payments of interest and principal.
There is a high risk that a Fund which invests in non-investment grade
securities could suffer a loss caused by the default of an issuer of
such securities. Part of the reason for this high risk is that, in the
event of a default or bankruptcy, holders of non-investment grade
securities generally will not receive payments until the holders of all
other debt have been paid. In addition, the market for non-investment
grade securities has, in the past, had more frequent and larger price
changes than the markets for other securities. Non-investment grade
securities can also be more difficult to sell for good value.
[ICON] Touchstone Variable Series Trust
<PAGE>
38
INVESTMENT STRATEGIES AND RISKS
FOREIGN INVESTING. Investing in foreign securities poses unique risks such as
fluctuation in currency exchange rates, market illiquidity, price volatility,
high trading costs, difficulties in settlement, regulations on stock exchanges,
limits on foreign ownership, less stringent accounting, reporting and disclosure
requirements, and other considerations. In the past, equity and debt instruments
of foreign markets have had more frequent and larger price changes than those of
U.S. markets.
o Emerging Markets Risk. Investments in a country that is still
relatively underdeveloped involves exposure to economic
structures that are generally less diverse and mature than in the
U.S. and to political and legal systems which may be less stable.
In the past, markets of developing countries have had more
frequent and larger price changes than those of developed
countries.
o Political Risk. Political risk includes a greater potential for
revolts, and the taking of assets by governments. For example, a
Fund may invest in Eastern Europe and former states of the Soviet
Union. These countries were under communist systems that took
control of private industry. This could occur again in this
region or others in which a Fund may invest, in which case the
Fund may lose all or part of its investment in that country's
issuers.
[ICON] Touchstone Variable Series Trust
<PAGE>
39
The Fund's Management
The Fund's Management
Investment Advisor
Touchstone Advisors, Inc., (the Advisor or Touchstone Advisors) located at 311
Pike Street, Cincinnati, Ohio 45202 is the investment advisor of the Funds.
Touchstone Advisors has been registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the Advisers Act) since 1994.
As of December 31, 1998, Touchstone Advisors had $422 million in assets under
management.
Touchstone Advisors is responsible for selecting Fund Sub-Advisors who have
shown good investment performance in their areas of expertise. The Board of
Trustees of the Trust reviews and must approve the Advisor's selections.
Touchstone considers various factors in evaluating Fund Sub-Advisors, including:
o Level of knowledge and skill
o Performance as compared to its peers or benchmark
o Consistency of performance over five years or more
o Level of compliance with investment rules and strategies
o Employees, facilities and financial strength
o Quality of service
Touchstone will also continually monitor each Fund Sub-Advisor's performance
through various analyses and through in-person, telephone and written
consultations with the Fund Sub-Advisors.
Touchstone discusses its expectations for performance with each Fund
Sub-Advisor. Touchstone provides written evaluations and recommendations to the
Board of Trustees, including whether or not each Fund Sub-Advisor's contract
should be renewed, modified or terminated.
Touchstone is also responsible for running all of the operations of the Funds,
except for those that are subcontracted to the Fund Sub-Advisors, custodian,
transfer agent and administrator.
Two or more Fund Sub-Advisors may manage a Fund, with each managing a portion of
the Fund's assets. If a Fund has more than one Fund Sub-Advisor, Touchstone
allocates how much of a Fund's assets are managed by each Sub-Advisor.
Touchstone may change these allocations from time to time, often based upon the
results of the evaluations of the Fund Sub-Advisors.
Each Fund pays Touchstone a fee for its services. Out of this fee Touchstone
pays each Fund Sub-Advisor a fee for its services.
[ICON] Touchstone Variable Series Trust
<PAGE>
40
The Fund's Management
The fee paid to Touchstone by each Fund is shown in the table below:
Fee to Touchstone
(as % of average
daily net assets)
TOUCHSTONE SMALL CAP VALUE FUND 0.80%
- --------------------------------------------------------------------------------
TOUCHSTONE EMERGING GROWTH FUND 0.80%
- --------------------------------------------------------------------------------
TOUCHSTONE INTERNATIONAL EQUITY FUND 0.95%
- --------------------------------------------------------------------------------
TOUCHSTONE INCOME OPPORTUNITY FUND 0.65%
- --------------------------------------------------------------------------------
TOUCHSTONE HIGH YIELD FUND 0.60%
- --------------------------------------------------------------------------------
TOUCHSTONE VALUE PLUS FUND 0.75%
- --------------------------------------------------------------------------------
TOUCHSTONE GROWTH & INCOME FUND 0.80%
- --------------------------------------------------------------------------------
TOUCHSTONE ENHANCED 30 FUND 0.65%
- --------------------------------------------------------------------------------
TOUCHSTONE BALANCED FUND 0.80%
- --------------------------------------------------------------------------------
TOUCHSTONE BOND FUND 0.55%
- --------------------------------------------------------------------------------
TOUCHSTONE STANDBY INCOME FUND 0.25%
- --------------------------------------------------------------------------------
Fund Sub-Advisors
The Fund Sub-Advisors make the day-to-day decisions regarding buying and selling
specific securities for a Fund. Each Fund Sub-Advisor manages the investments
held by the Fund it serves according to the applicable investment goals and
strategies.
Fund Sub-Advisor to Touchstone Small Cap Value Fund and Touchstone Enhanced 30
Fund
Todd Investment Advisors, Inc. (Todd)
3160 National City Tower, Louisville, KY 40202
Todd has been registered as an investment advisor under the Advisers Act since
1979. Todd provides investment advisory services to individual and institutional
clients. As of December 31, 1998, Todd had assets under management of $3.1
billion. Todd has been managing the Touchstone Small Cap Value Fund and the
Touchstone Enhanced Index Fund since each Fund's inception.
Curtiss M. Scott, Jr., CFA has primary responsibility for the day-to-day
management of each of the Funds. Mr. Scott joined Todd in 1996. He currently
manages both small cap and large cap products for Todd. He has 15 years of
experience as a small cap portfolio manager and 20 years of industry experience.
Prior to joining Todd, Mr. Scott was a partner with Executive Investment
Advisors. He has also held portfolio management positions at Lazard Freres Asset
Management and Oppenheimer Management, both in New York.
Todd is an affiliate of Touchstone. Therefore, Touchstone may have a conflict of
interest when making decisions to keep Todd as a Fund Sub-Advisor. The Board of
Trustees reviews all of Touchstone's decisions to reduce the possibility of a
conflict of interest situation.
[ICON] Touchstone Variable Series Trust
<PAGE>
41
The Fund's Management
Fund Sub-Advisors to the Touchstone Emerging Growth Fund
David L. Babson & Company, Inc. (Babson)
One Memorial Drive, Cambridge, MA 02142-1300
Babson has been registered as an investment advisor under the Advisers Act since
1940. Babson provides investment advisory services to individual and
institutional clients. As of December 31, 1998, Babson and affiliates had assets
under management of $19.9 billion. Babson has been managing the Touchstone
Emerging Growth Fund since the Fund's inception.
Dennis J. Scannell and Lance F. James have primary responsibility for the
day-to-day management of the Fund. Mr. Scannell has been with the firm since
1993, and Mr. James has been with the firm since 1986.
Westfield Capital Management Company, Inc. (Westfield)
One Financial Center, Boston, MA 02111
Westfield has been registered as an investment advisor under the Advisers Act
since 1989. Westfield provides investment advisory services to individual and
institutional clients. As of December 31, 1998, Westfield had assets under
management of $1.4 billion. Westfield has been managing the Touchstone Emerging
Growth Fund since the Fund's inception.
William A. Muggia has managed the portion of the Touchstone Emerging Growth
Fund's assets allocated to Westfield by the Advisor since April 1999. Mr. Muggia
has been with Westfield since 1994.
Fund Sub-Advisor to the Touchstone International Equity Fund
Credit Suisse Asset Management (Credit Suisse)
One Citicorp Center, 153 East 53rd Street, New York, NY 10022
Credit Suisse has been registered as an investment advisor under the Advisers
Act since 1968. Credit Suisse provides investment advisory services to
individual and institutional clients. As of December 31, 1998, Credit Suisse had
assets under management of $154.2 billion. Credit Suisse has been managing the
Touchstone International Equity Fund since the Fund's inception.
The Fund is managed by the Credit Suisse International Equity Management Team.
The team consists of William Sterling, Richard Watt, Steven D. Bleiberg, Susan
Boland, Emily Alejos and Robert B. Hrabchak.
Fund Sub-Advisor to the Touchstone Income Opportunity Fund
Alliance Capital Management L.P. (Alliance)
1345 Avenue of the Americas, New York, NY 10105
Alliance has been registered as an investment advisor under the Advisers Act
since 1971. Alliance provides investment advisory services to individual and
institutional clients. As of December 31, 1998, Alliance had assets under
management of $286.7 billion. Alliance has been managing the Income Opportunity
Fund since the Fund's inception.
[ICON] Touchstone Variable Series Trust
<PAGE>
42
The Fund's Management
Wayne Lyski and Vicki Fuller have primary responsibility for the day-to-day
management of the Fund. Mr. Lyski has been with Alliance since 1983. Ms. Fuller
(CPA) has been with Alliance, and its predecessors, since 1985.
Fund Sub-Advisor to the Touchstone High Yield Fund, Touchstone Value Plus Fund,
Touchstone Bond Fund, and Touchstone Standby Income Fund
Fort Washington Investment Advisors, Inc. (Fort Washington)
420 East Fourth Street, Cincinnati, OH 45202
Fort Washington has been registered as an investment advisor under the Advisers
Act since 1990. Fort Washington provides investment advisory services to
individual and institutional clients. As of December 31, 1998, Fort Washington
had assets under management of $13 billion. Fort Washington has been managing
the Touchstone High Yield Fund, the Touchstone Value Plus Fund, the Touchstone
Bond Fund and the Touchstone Standby Income Fund since each Fund's inception.
TOUCHSTONE HIGH YIELD FUND: Brendan M. White, CFA, joined Fort Washington
Investment Advisors in 1993. He currently manages $750 million dollars in high
yield assets. His expertise in the fixed income area includes high yield,
investment grade and mortgage-backed securities. Mr White has 10 years of fixed
income management experience and was with Ohio Casualty prior to joining Fort
Washington.
TOUCHSTONE VALUE PLUS FUND: John C. Holden has managed the Value Plus Fund since
May 1998. Mr. Holden (CFA) joined Fort Washington in May 1997 and is Vice
President and Senior Portfolio Manager. Mr. Holden previously served as senior
portfolio manager with Mellon Private Asset Management in Pittsburgh, senior
portfolio manager and investment analyst for Star Bank's Stellar Performance
Group in Cincinnati, and senior employee benefit portfolio manager for First
Kentucky Trust Company in Louisville.
TOUCHSTONE BOND FUND: Roger Lanham and Brendan White have managed the Bond Fund
since October 1994. Mr. Lanham is a CFA and has been with Fort Washington since
1980. Mr. White is a CFA and has been with Fort Washington since 1993.
TOUCHSTONE STANDBY INCOME FUND: Christopher J. Mahony has managed the Standby
Income Fund since October 1994. Mr. Mahony joined Fort Washington in 1994 after
eight years of investment experience with Neuberger & Berman.
Fort Washington is an affiliate of Touchstone. Therefore, Touchstone may have a
conflict of interest when making decisions to keep Fort Washington as a Fund
Sub-Advisor. The Board of Trustees reviews all of Touchstone's decisions to
reduce the possibility of a conflict of interest situation.
[ICON] Touchstone Variable Series Trust
<PAGE>
43
THE FUNDS' MANAGEMENT
Fund Sub-Advisor to the Touchstone Growth & Income Fund
Scudder Kemper Investments, Inc. (Scudder Kemper)
345 Park Avenue, New York, NY 10154
Scudder Kemper and its predecessors have provided investment advisory services
to mutual fund investors, retirement and pension plans, institutional and
corporate clients, insurance companies, and private family and individual
accounts since 1943. As of December 31, 1998 Scudder Kemper had assets under
management of $280 billion. Scudder Kemper has been managing the Growth & Income
Fund since June 1997.
Robert T. Hoffman, Lori Ensinger, Benjamin W. Thorndike and Kathleen T. Millard
have primary responsibility for the day-to-day management of the Fund. Mr.
Hoffman, Lead Product Manager, joined Scudder in 1990. He has 13 years of
experience in the investment industry, including several years of pension fund
management experience. Lori Ensinger, Lead Portfolio Manager, focuses on stock
selection and investment strategy. She has been a portfolio manager since 1983
and joined Scudder in 1993. Benjamin W. Thorndike, Portfolio Manager, is the
Fund's chief analyst and strategist for convertible securities. Mr. Thorndike,
who has 18 years of investment experience, joined Scudder in 1983. Kathleen T.
Millard, Portfolio Manager, has worked as a portfolio manager since 1986. Ms.
Millard, who joined Scudder in 1991, focuses on strategy and stock selection.
Fund Sub-Advisor to the Touchstone Balanced Fund
OpCap Advisors (OpCap)
Oppenheimer Tower, One World Financial Center, New York, NY 10281
OpCap is a subsidiary of Oppenheimer Capital. Oppenheimer Capital has been
registered as an investment advisor under the Advisers Act since 1968 and its
employees perform all investment advisory services provided to the Fund. As of
December 31, 1998, Oppenheimer Capital and its subsidiaries had assets under
management of $63 billion. OpCap has been managing the Touchstone Balanced Fund
since May of 1997.
Louis Goldstein has managed the equity portion of the Touchstone Balanced Fund
since April of 1999. Robert J. Bluestone and Matthew Greenwald have managed the
fixed-income portion of the Balanced Fund since 1997. Mr. Goldstein joined
Oppenheimer Capital in 1991. Mr. Bluestone joined Oppenheimer Capital in 1986
and is Managing Director. Mr. Greenwald joined Oppenheimer Capital in 1989 and
is Vice President.
[ICON] Touchstone Variable Series Trust
<PAGE>
44
Investing With Touchstone
Investing With Touchstone
Choosing the Appropriate Funds to Match Your Goals
Investing well requires a plan. We recommend that you meet with your financial
advisor to plan a strategy that will best meet your financial goals. Your
financial advisor can help you buy a Touchstone variable annuity contract that
would allow you to choose the Funds.
Purchasing Shares
You cannot buy shares of the Funds directly. You can invest indirectly in the
Funds through your purchase of a Touchstone variable annuity contract. You
should read this prospectus and the prospectus of the Touchstone variable
annuity contract carefully before you choose your investment options.
The Touchstone variable annuity contracts are issued by separate accounts of
Western-Southern Life Assurance Company. The separate accounts buy Fund shares
based on the instructions that they receive from the contract owners.
o Investor Alert: Touchstone may refuse any purchase order.
Selling Shares
To meet various obligations under the contracts, the separate accounts may sell
Fund shares to generate cash. For example, a separate account may sell Fund
shares and use the proceeds to pay a contract owner who requested a partial
withdrawal or who canceled a contract. Proceeds from the sale are usually sent
to the separate account on the next business day. The Fund may suspend sales of
shares or postpone payment dates when the New York Stock Exchange (NYSE) is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as otherwise permitted by the SEC.
Pricing of Fund Shares
Each Fund's share price, also called net asset value (NAV), is determined as of
the close of trading (normally 4:00 p.m. Eastern time) every day the NYSE is
open. The fund calculates the NAV per share, generally using market prices, by
dividing the total value of its net assets by the number of its shares
outstanding. Shares are purchased at the NAV next determined after a purchase or
sale order is received in proper form by Touchstone.
A Fund's investments are valued based on market value or, if no market value is
available, based on fair value as determined by the Board of Trustees (or under
their direction). All assets and liabilities initially expressed in foreign
currency values will be converted into U.S. dollar values. Some specific pricing
strategies follow:
o All short-term dollar-denominated investments that mature in 60
days or less are valued on the basis of amortized cost which the
Board of Trustees has determined represents fair value.
o Securities mainly traded on a U.S. exchange are valued at the
last sale price on that exchange or, if no sales occurred during
the day, at the current quoted bid price.
[ICON] Touchstone Variable Series Trust
<PAGE>
45
Investing With Touchstone
o Securities mainly traded on a non-U.S. exchange are generally
valued according to the preceding closing values on that
exchange. However, if an event which may change the value of a
security occurs after the time that the closing value on the
non-U.S. exchange was determined, the Board of Trustees might
decide to value the security based on fair value. This may cause
the value of the security on the books of the fund to be
significantly different from the closing value on the non-U.S.
exchange and may affect the calculation of NAV.
o Because portfolio securities that are primarily listed on
non-U.S. exchanges may trade on weekends or other days when a
Fund does not price its shares, a Fund's NAV may change on days
when shareholders will not be able to buy or sell shares.
[ICON] Touchstone Variable Series Trust
<PAGE>
46
Distribution And Taxes
Distribution And Taxes
Dividends and Other Distributions
Each Touchstone Fund intends to distribute to its shareholders substantially all
of its income and capital gains. Each Touchstone Fund, other than the Touchstone
Standby Income Fund, will declare and pay dividends annually. The Touchstone
Standby Income Fund will declare dividends daily and pay dividends monthly.
Distributions of any net realized long-term and short-term capital gains earned
by a Fund will be made at least annually.
Tax Information
Because you do not own shares of the Funds directly, your tax situation is not
likely to be affected by a Fund's distributions. The separate accounts in which
you own a variable annuity contract, as the owner of the Funds' shares, may be
affected.
Each Fund's distributions may be taxed as ordinary income or capital gains
(which may be taxable at different rates depending on the length of time the
Fund holds its assets). Each Fund's distributions may be subject to federal
income tax whether distributions are reinvested in Fund shares or received as
cash.
ooo You should consult with your tax advisor to address your own tax
situation.
[ICON] Touchstone Variable Series Trust
<PAGE>
47
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
These financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years or, if shorter, the period of a
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, are incorporated by reference in the Statement of Additional
Information, which is available upon request.
<TABLE>
<CAPTION>
Touchstone Emerging Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED 12/31/94(A) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00 $10.10 $11.27 $ 12.20 $ 15.40
- ---------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.04 0.11 0.04 0.03 0.02
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 0.06 1.87 1.22 4.06 0.46
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.10 1.98 1.26 4.09 0.48
- ---------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income -- (0.15) (0.04) (0.03) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- (0.66) (0.29) (0.86) (0.52)
- ---------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions -- (0.81) (0.33) (0.89) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.10 $11.27 $12.20 $ 15.40 $ 15.33
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (c) 1.00% 19.57% 11.16% 33.67% 3.28%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000s) $2,020 $2,615 $5,771 $19,417 $31,264
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.15%(d) 1.15% 1.15% 1.15% 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 3.67%(d) 1.09% 0.50% 0.27% 0.14%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, without Waiver and Reimbursement 11.08%(d) 3.73% 3.22% 2.19% 1.49%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 0% 101% 89% 88% 66%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
[ICON] Touchstone Variable Series Trust
<PAGE>
48
FINANCIAL HIGHLIGHTS
Touchstone International Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED 12/31/94(A) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00 $ 9.51 $10.00 $ 11.07 $ 12.01
- ---------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) -- 0.04 0.06 0.07 0.06
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments (0.49) 0.48 1.08 1.56 2.37
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.49) 0.52 1.14 1.63 2.43
- ---------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income -- (0.03) (0.07) (0.05) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- -- -- (0.64) (0.38)
- ---------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions -- (0.03) (0.07) (0.69) (0.48)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.51 $10.00 $11.07 $ 12.01 $ 13.96
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (c) (4.90)% 15.45% 11.47% 14.76% 20.21%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data (c)
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000s) $4,757 $5,215 $8,758 $19,703 $33.813
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.25%(d) 1.25% 1.25% 1.25% 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 1.23%(d) 0.46% 0.86% 0.71% 0.49%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, without Waiver and Reimbursement 5.58%(d) 3.69%(f) 3.03% 3.19% 1.95%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 0% 86% 90% 149% 141%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Touchstone Income Opportunity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED 12/31/94(A) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00 $ 9.42 $10.09 $ 11.21 $ 11.02
- ---------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.12 1.22 1.17 1.20 1.02
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments (0.70) 0.79 1.45 0.11 (2.30)
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.58) 2.01 2.62 1.31 (1.28)
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions to Shareholders from:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income -- (1.34) (1.17) (1.19) (1.02)
- ---------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- -- (0.33) (0.31) --
- ---------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions -- (1.34) (1.50) (1.50) (1.05)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.42 $10.09 $11.21 $ 11.02 $ 8.69
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (c) (5.80)% 23.35% 27.37% 12.03% (12.27)%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000s) $1,883 $2,602 $8,268 $26,879 $34,494
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Expenses 0.85%(D) 0.85% 0.85% 0.85% 0.85%
Net Investment Income (Loss) 11.24%(d) 12.81% 11.85% 10.93% 10.40%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, without Waiver and Reimbursement 11.56%(d) 3.54% 2.85% 1.72% 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 45% 104% 213% 189% 175%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
[ICON] Touchstone Variable Series Trust
<PAGE>
49
FINANCIAL HIGHLIGHTS
Touchstone Value Plus Fund
- ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
12/31/98(B)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments 0.18
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.21
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions to Shareholders from:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains --
- ---------------------------------------------------------------------------------------------------------------------------
Return of Capital --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.18
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (c) 2.11%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data (c)
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000s) $3,168
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.15%(d)
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.65%(d)
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, without Waiver and Reimbursement 7.49%(d)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 100%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Touchstone Balanced Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED 12/31/94(A) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00 $10.17 $11.48 $ 12.84 $ 13.99
- ---------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.05 0.32 0.30 0.31 0.35
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 0.12 2.15 1.60 2.05 0.40
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.17 2.47 1.90 2.36 0.75
- ---------------------------------------------------------------------------------------------------------------------------
Less: Dividends And Distributions To Shareholders From:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income -- (0.37) (0.30) (0.32) (0.37)
- ---------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains -- (0.79) (0.24) (0.89) (0.41)
- ---------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions -- (1.16) (0.54) (1.21) (0.78)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.17 $11.48 $12.84 $ 13.99 $ 13.96
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (c) 1.70% 24.56% 16.78% 18.61% 5.44%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000s) $2,034 $2,895 $6,695 $22,287 $41,250
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Expenses 0.90%(d) 0.90% 0.90% 0.90% 0.90%
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 4.26%(d) 2.87% 2.76% 2.61% 2.67%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, without Waiver and Reimbursement 8.97%(d) 3.46% 2.72% 2.04% 1.37%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 3% 124% 75% 86% 51%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
[ICON] Touchstone Variable Series Trust
<PAGE>
50
FINANCIAL HIGHLIGHTS
Touchstone Standby Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED 12/31/94(A) 12/31/95 12/31/96 12/31/97 12/31/98
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00 $10.03 $10.02 $ 10.01 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.05 0.56 0.52 0.54 0.55
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 0.03 (0.01) (0.01) (0.01) 0.01
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.08 0.55 0.51 0.53 0.56
- ---------------------------------------------------------------------------------------------------------------------------
Less: Dividends and Distributions to Shareholders from:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.05) (0.56) (0.52) (0.54) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------
Realized Capital Gains
- ---------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.03 $10.02 $10.01 $ 10.00 $ 10.01
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (c) 0.30% 5.90% 5.18% 5.41% 5.71%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at End of Period (000s) $5,013 $5,790 $9,105 $17,562 $26,450
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Expenses 0.50%(d) 0.50% 0.50% 0.50% 0.50%
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 4.90%(d) 5.59% 5.15% 5.42% 5.47%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, without Waiver and Reimbursement 3.67%(d) 1.73% 1.54% 1.48% 0.95%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 56% 159% 143% 251% 328%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) THE FUND COMMENCED OPERATIONS ON NOVEMBER 21, 1994.
(b) The Fund commenced operations on May 1, 1998.
(c) Total return would have been lower had certain expenses not been reimbursed
or waived during the period shown.
(d) Ratios are annualized.
[ICON] Touchstone Variable Series Trust
<PAGE>
51
Notes
[ICON] Touchstone Variable Series Trust
<PAGE>
52
For More Information
For More Information
For investors who want more information about the Funds, the following documents
are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION
(SAI): The SAI provides more detailed information about the Funds and is legally
a part of this prospectus.
ANNUAL/SEMI-ANNUAL REPORTS: The Funds' annual and semi-annual reports provide
additional information about the Funds' investments. In each Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
You can get free copies of the SAI, the reports, other information and answers
to your questions about the Funds by contacting your financial advisor, or the
Funds at:
Touchstone Variable Annuity
Service Center
400 Broadway
Cincinnati, Ohio 45202
800.669.2796 (Press 2)
http://www.touchstonefunds.com
You can view the Funds' SAI and the reports at the Public Reference Room of the
Securities and Exchange Commission.
For a fee, you can get text-only copies by writing to the Public Reference Room
of the Commission, 450 Fifth Street N.W., Washington, D.C. 20549-6009. You can
also call 800.SEC.0330.
You can also view the SAI and the reports free from the Commission's Internet
website at http://www.sec.gov.
Investment Company Act file no. 811-8380.
TOUCHSTONE VARIABLE
SERIES TRUST
o TOUCHSTONE SMALL CAP
VALUE FUND
o TOUCHSTONE EMERGING
GROWTH FUND
o TOUCHSTONE INTERNATIONAL
EQUITY FUND
o TOUCHSTONE INCOME
OPPORTUNITY FUND
o TOUCHSTONE HIGH
YIELD FUND
o TOUCHSTONE VALUE
PLUS FUND
o TOUCHSTONE GROWTH &
INCOME FUND
o TOUCHSTONE ENHANCED
30 FUND
o TOUCHSTONE BALANCED FUND
o TOUCHSTONE BOND FUND
o TOUCHSTONE STANDBY
INCOME FUND
<PAGE>
TOUCHSTONE VARIABLE SERIES TRUST
(formerly Select Advisors Variable Insurance Trust)
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Small Cap Value Fund
Touchstone High Yield Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Enhanced 30 Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
Statement of Additional Information
May 1, 1999
This Statement of Additional Information is not a Prospectus,
but it relates to the Prospectus of Touchstone Variable Series
Trust dated May 1, 1999.
Financial statements are incorporated by reference into this
Statement of Additional Information from the Funds' most recent
annual and semi-annual reports.
You can get a free copy of the Prospectus of Touchstone Variable
Series Trust or the Funds' most recent annual and semi-annual
reports, request other information and discuss your questions
about the Funds by contacting your financial advisor or
Touchstone at:
Touchstone Variable Annuity Service Center
Mail Station 74
400 Broadway
Cincinnati, Ohio 45202
(800) 669-2796 (Press 2)
http://www.touchstonefunds.com
You can view the Funds' Prospectus as well as other reports at
the Public Reference Room of the Securities and Exchange
Commission.
You can get text-only copies:
For a fee by writing to or calling the Public Reference
Room of the Commission, Washington, D.C. 20549-6009.
Telephone: 1-800-SEC-0330.
Free from the Commission's Internet website at
http://www.sec.gov.
<PAGE>
TABLE OF CONTENTS
PAGE
The Trust and the Funds............................................... 3
Description of the Funds and Their Investments and Risks.............. 4
Fund Policies......................................................... 26
Management Trust...................................................... 29
Investment Advisory and Other Services................................ 31
Brokerage Allocation and Other Practices.............................. 35
Capital Stock and Other Securities.................................... 36
Purchase, Redemption and Pricing of Shares............................ 37
Taxation of the Funds................................................. 38
Performance Information............................................... 40
Financial Statements.................................................. 43
Appendix.............................................................. A-1
2
<PAGE>
THE TRUST AND THE FUNDS
Touchstone Variable Series Trust (the "Trust") is composed of eleven
funds: Emerging Growth Fund, International Equity Fund, Income Opportunity Fund,
Small Cap Value Fund, High Yield Fund, Value Plus Fund, Growth & Income Fund,
Enhanced 30 Fund, Balanced Fund, Bond Fund and Standby Income Fund (each, a
"Fund" and collectively, the "Funds"). Each Fund is an open-end, diversified,
management investment company. The Trust was formed as a Massachusetts business
trust on November 9, 1994.
Prior to January 1999, the Trust was called Select Advisors Variable
Insurance Trust and each existing Fund was referred to as a "Portfolio."
Touchstone Advisors, Inc. ("Touchstone" or the "Advisor") is the
investment advisor of each Fund. The specific investments of each Fund are
managed on a day-to-day basis by their respective portfolio advisors
(collectively, the "Fund Sub-Advisors"). Investors Bank & Trust Company
("Investors Bank" or the "Administrator") serves as administrator and fund
accounting agent to each Fund.
The Prospectus, dated May 1, 1999, provides the basic information
investors should know before investing, and may be obtained without charge by
calling the Trust at the telephone number listed on the cover. This Statement of
Additional Information, which is not a prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Prospectus. This Statement of Additional
Information is not an offer of any Fund for which an investor has not received a
Prospectus.
3
<PAGE>
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
INVESTMENT GOALS
The investment goal(s) of each Fund is described in the Prospectus.
There can be no assurance that any Fund will achieve its investment goal(s).
INVESTMENT STRATEGIES AND RISKS
The following provides additional information about the investment
policies and types of securities which may be invested in by one or more Funds.
FIXED-INCOME AND OTHER DEBT INSTRUMENT SECURITIES
Fixed-income and other debt instrument securities include all bonds,
high yield or "junk" bonds, municipal bonds, debentures, U.S. Government
securities, mortgage-related securities including government stripped
mortgage-related securities, zero coupon securities and custodial receipts. The
market value of fixed-income obligations of the Funds will be affected by
general changes in interest rates which will result in increases or decreases in
the value of the obligations held by the Funds. The market value of the
obligations held by a Fund can be expected to vary inversely to changes in
prevailing interest rates. As a result, shareholders should anticipate that the
market value of the obligations held by the Fund generally will increase when
prevailing interest rates are declining and generally will decrease when
prevailing interest rates are rising. Shareholders also should recognize that,
in periods of declining interest rates, a Fund's yield will tend to be somewhat
higher than prevailing market rates and, in periods of rising interest rates, a
Fund's yield will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to a Fund from the continuous sale of its
shares will tend to be invested in instruments producing lower yields than the
balance of its portfolio, thereby reducing the Fund's current yield. In periods
of rising interest rates, the opposite can be expected to occur. In addition,
securities in which a Fund may invest may not yield as high a level of current
income as might be achieved by investing in securities with less liquidity, less
creditworthiness or longer maturities.
Ratings made available by Standard & Poor's Rating Service ("S&P") and
Moody's Investor Service, Inc. ("Moody's") are relative and subjective and are
not absolute standards of quality. Although these ratings are initial criteria
for selection of portfolio investments, a Fund Advisor also will make its own
evaluation of these securities. Among the factors that will be considered are
the long term ability of the issuers to pay principal and interest and general
economic trends.
Fixed-income securities may be purchased on a when-issued or
delayed-delivery basis. See "Additional Risks and Investment Techniques --
When-Issued and Delayed-Delivery Securities" below.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
4
<PAGE>
MEDIUM AND LOWER RATED AND UNRATED SECURITIES
Securities rated in the fourth highest category by S&P or Moody's, BBB
and Baa, respectively, although considered investment grade, may possess
speculative characteristics, and changes in economic or other conditions are
more likely to impair the ability of issuers of these securities to make
interest and principal payments than is the case with respect to issuers of
higher grade bonds.
Generally, medium or lower-rated securities and unrated securities of
comparable quality, sometimes referred to as "junk bonds," offer a higher
current yield than is offered by higher rated securities, but also (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The yield of junk bonds will
fluctuate over time.
The market values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, medium and lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower-rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. Since the risk of
default is higher for lower rated debt securities, the Fund Sub-Advisor's
research and credit analysis are an especially important part of managing
securities of this type held by a Fund. In light of these risks, the Board of
Trustees of the Trust has instructed the Fund Sub-Advisor, in evaluating the
creditworthiness of an issue, whether rated or unrated, to take various factors
into consideration, which may include, as applicable, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower-rated categories
is more volatile than that of higher quality securities, and the markets in
which medium and lower-rated or unrated securities are traded are more limited
than those in which higher rated securities are traded. The existence of limited
markets may make it more difficult for the Funds to obtain accurate market
quotations for purposes of valuing their respective portfolios and calculating
their respective net asset values. Moreover, the lack of a liquid trading market
may restrict the availability of securities for the Funds to purchase and may
also have the effect of limiting the ability of a Fund to sell securities at
their fair value either to meet redemption requests or to respond to changes in
the economy or the financial markets.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund may have
to replace the security with a lower yielding security, resulting in a decreased
return for shareholders. Also, as the principal value of bonds moves inversely
with movements in interest rates, in the event of rising interest rates the
value of the securities held by a Fund may decline relatively proportionately
more than a portfolio consisting of higher rated securities. If a Fund
experiences unexpected net redemptions, it may be forced to sell its higher
rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Fund and increasing the exposure of the Fund to the risks
of lower rated securities. Investments in zero coupon bonds may be more
speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. Neither event will require sale of these securities by the Fund,
but the Fund Sub-Advisor will consider this event in its determination of
whether the Fund should continue to hold the securities.
5
<PAGE>
LOWER-RATED DEBT SECURITIES
While the market for high yield corporate debt securities has been in
existence for many years and has weathered previous economic downturns, the
1980's brought a dramatic increase in the use of such securities to fund highly
leveraged corporate acquisitions and restructuring. Past experience may not
provide an accurate indication of future performance of the high yield bond
market, especially during periods of economic recession. In fact, from 1989 to
1991, the percentage of lower-rated debt securities that defaulted rose
significantly above prior levels.
The market for lower-rated debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Trustees, including the use of outside pricing
services. Judgment plays a greater role in valuing high yield corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the ability of outside pricing services
to value lower-rated debt securities and the ability to dispose of these
securities.
In considering investments for the Fund, the Fund Sub-Advisor will
attempt to identify those issuers of high yielding debt securities whose
financial condition is adequate to meet future obligations, has improved or is
expected to improve in the future. The Fund Sub-Advisor's analysis focuses on
relative values based on such factors as interest or dividend coverage, asset
coverage, earnings prospects and the experience and managerial strength of the
issuer.
A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to seek
to protect the interest of security holders if it determines this to be in the
best interest of the Fund.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as "private placements" or
"restricted securities" and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted securities or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and an investment company might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days. An investment
company might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act on resales of certain securities to qualified institutional buyers. The
Advisor anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
6
<PAGE>
Each Fund Sub-Advisor will monitor the liquidity of Rule 144A
securities in each Fund's portfolio under the supervision of the Board of
Trustees. In reaching liquidity decisions, the Fund Sub-Advisor will consider,
among other things, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers and other potential
purchasers wishing to purchase or sell the security; (3) dealer undertakings to
make a market in the security and (4) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
RELATED INVESTMENT POLICIES
No Fund may invest more than 15% of its net assets in securities which
are illiquid or otherwise not readily marketable. The Trustees of the Trust have
adopted a policy that the International Equity Fund may not invest in illiquid
securities other than Rule 144A securities. If a security becomes illiquid after
purchase by the Fund, the Fund will normally sell the security unless to do so
would not be in the best interests of shareholders.
Each Fund may purchase securities in the United States that are not
registered for sale under federal securities laws but which can be resold to
institutions under SEC Rule 144A or under an exemption from such laws. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities or Rule 144A securities are treated as exempt from the
Fund's 15% limit on illiquid securities. The Board of Trustees of the Trust,
with advice and information from the respective Fund Sub-Advisor, will determine
the liquidity of restricted securities or Rule 144A securities by looking at
factors such as trading activity and the availability of reliable price
information and, through reports from such Fund Sub-Advisor, the Board of
Trustees of the Trust will monitor trading activity in restricted securities. If
institutional trading in restricted securities or Rule 144A securities were to
decline, a Fund's illiquidity could be increased and the Fund could be adversely
affected.
No Fund will invest more than 10% of its total assets in restricted
securities (excluding Rule 144A securities).
FOREIGN SECURITIES
Investing in securities issued by foreign companies and governments
involves considerations and potential risks not typically associated with
investing in obligations issued by the U.S. government and domestic
corporations. Less information may be available about foreign companies than
about domestic companies and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions and
custody fees are generally higher than those charged in the United States, and
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.
7
<PAGE>
EMERGING MARKET SECURITIES
Emerging Market Securities are securities that are issued by a company
that (i) is organized under the laws of an emerging market country (any country
other than Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Holland, Italy, Japan, Luxembourg, New Zealand, Norway, Spain, Sweden,
Switzerland, the United Kingdom and the United States, (ii) has its principal
trading market for its stock in an emerging market country, or (iii) derives at
least 50% of its revenues or profits from corporations within emerging market
countries or has at least 50% of its assets located in emerging market
countries.
The following Funds may invest in Emerging Market Securities:
Emerging Growth Fund - up to 10% of total assets,
International Equity Fund - up to 40% of total assets,
Income Opportunity Fund - up to 65% of total assets,
Growth & Income Fund - up to 5% of total assets, and
Balanced Fund - up to 15% of total assets.
Investments in securities of issuers based in underdeveloped countries
entail all of the risks of investing in foreign issuers outlined in this section
to a heightened degree. These heightened risks include: (i) expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such securities and a low or
nonexistent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies which may restrict a Fund's
investment opportunities including restrictions on investing in issuers in
industries deemed sensitive to relevant national interests; and (iv) in the case
of Eastern Europe, the absence of developed capital markets and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events.
SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE
Investments in companies domiciled in Eastern European countries may be
subject to potentially greater risks than those of other foreign issuers. These
risks include: (i) potentially less social, political and economic stability;
(ii) the small current size of the markets for such securities and the low
volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Funds'
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries, or in
the Commonwealth of Independent States (formerly the Union of Soviet Socialist
Republics).
So long as the Communist Party continues to exercise a significant or,
in some cases, dominant role in Eastern European countries, investments in such
countries will involve risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in many cases
without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such expropriation,
a Fund could lose a substantial portion of any investments it has made in the
affected countries. Further, no accounting standards exist in Eastern European
countries. Finally, even though certain Eastern European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial in
relation to the actual market values and may be adverse to the interests of a
Fund's shareholders.
CURRENCY EXCHANGE RATES
A Fund's share value may change significantly when the currencies,
other than the U.S. dollar, in which the Fund's investments are denominated
strengthen or weaken against the U.S. dollar. Currency exchange rates generally
are determined by the forces of supply and demand in the foreign exchange
markets and the relative merits of investments in different countries as seen
from an international perspective. Currency exchange rates can also be affected
unpredictably by intervention by U.S. or foreign governments or central banks or
by currency controls or political developments in the United States or abroad.
8
<PAGE>
OPTIONS
OPTIONS ON SECURITIES
The respective Funds may write (sell), to a limited extent, only
covered call and put options ("covered options") in an attempt to increase
income. However, the Fund may forgo the benefits of appreciation on securities
sold or may pay more than the market price on securities acquired pursuant to
call and put options written by the Fund.
When a Fund writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Fund will realize income
in an amount equal to the premium received for writing the option. If the option
is exercised, a decision over which the Fund has no control, the Fund must sell
the underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price.
When a Fund writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Fund at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Fund will realize income in the amount of the premium received
for writing the option. If the put option is exercised, a decision over which
the Fund has no control, the Fund must purchase the underlying security from the
option holder at the exercise price. By writing a covered put option, the Fund,
in exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price.
A Fund may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." Where the Fund cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
When a Fund writes an option, an amount equal to the net premium
received by the Fund is included in the liability section of the Fund's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction, the Fund will
realize a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold), and the deferred credit related
to such option will be eliminated. If a call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security and the proceeds
of the sale will be increased by the premium originally received. The writing of
covered call options may be deemed to involve the pledge of the securities
against which the option is being written.
When a Fund writes a call option, it will "cover" its obligation by
segregating the underlying security on the books of the Fund's custodian or by
placing liquid securities in a segregated account at the Fund's custodian. When
a Fund writes a put option, it will "cover" its obligation by placing liquid
securities in a segregated account at the Fund's custodian.
A Fund may purchase call and put options on any securities in which it
may invest. The Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. The Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.
9
<PAGE>
A Fund would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle the Fund, in exchange for the premium paid, to sell a
security, which may or may not be held in the Fund's portfolio, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Fund's
portfolio securities. Put options also may be purchased by the Fund for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Fund does not own. The Fund would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities remained
at or above the exercise price. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
Each Fund has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Fund's activities in options
may also be restricted by the requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
A Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Fund will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Fund Sub-Advisor will
monitor the creditworthiness of dealers with whom a Fund enters into such
options transactions under the general supervision of the Board of Trustees.
RELATED INVESTMENT POLICIES
Each Fund which invests in equity securities may write or purchase
options on stocks. A call option gives the purchaser of the option the right to
buy, and obligates the writer to sell, the underlying stock at the exercise
price at any time during the option period. Similarly, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy the
underlying stock at the exercise price at any time during the option period. A
covered call option with respect to which a Fund owns the underlying stock sold
by the Fund exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying stock
or to possible continued holding of a stock which might otherwise have been sold
to protect against depreciation in the market price of the stock. A covered put
option sold by a Fund exposes the Fund during the term of the option to a
decline in price of the underlying stock.
To close out a position when writing covered options, a Fund may make a
"closing purchase transaction" which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Fund will realize a profit or loss for
a closing purchase transaction if the amount paid to purchase an option is less
or more, as the case may be, than the amount received from the sale thereof. To
close out a position as a purchaser of an option, the Fund may make a "closing
sale transaction" which involves liquidating the Fund's position by selling the
option previously purchased.
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OPTIONS ON SECURITIES INDEXES
Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index. Such options will be used for the purposes
described above under "Options on Securities" or, to the extent allowed by law,
as a substitute for investment in individual securities.
Options on securities indexes entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indexes is more likely to occur, although the
Fund generally will only purchase or write such an option if the Fund
Sub-Advisor believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Advisor and the respective Fund Sub-Advisor each believes the market is
sufficiently developed such that the risk of trading in such options is no
greater than the risk of trading in options on securities.
Price movements in a Fund's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indexes
cannot serve as a complete hedge. Because options on securities indexes require
settlement in cash, the Fund Sub-Advisor may be forced to liquidate portfolio
securities to meet settlement obligations.
When a Fund writes a put or call option on a securities index it will
cover the position by placing liquid securities in a segregated asset account
with the Fund's custodian.
Options on securities indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in securities
index options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular security, whether the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of securities prices in the market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in price of a particular security. Accordingly, successful
use by a Fund of options on security indexes will be subject to the Fund
Sub-Advisor's ability to predict correctly movement in the direction of that
securities market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities.
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RELATED INVESTMENT POLICIES
Each Fund may purchase and write put and call options on securities
indexes listed on domestic and, in the case of those Funds which may invest in
foreign securities, on foreign exchanges. A securities index fluctuates with
changes in the market values of the securities included in the index.
To the extent permitted by U.S. federal or state securities laws, the
International Equity Fund may invest in options on foreign stock indexes in lieu
of direct investment in foreign securities. The Fund may also use foreign stock
index options for hedging purposes.
OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies are used for hedging purposes in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, are utilized. For example, a decline in the dollar value of a foreign
currency in which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, a Fund will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund derived from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
Options on foreign currencies may be written for the same types of
hedging purposes. For example, where a Fund anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse fluctuations in
exchange rates; it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the options
will most likely not be exercised, and the diminution in value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Certain Funds intend to write covered call options on foreign
currencies. A call option written on a foreign currency by a Fund is "covered"
if the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Fund has a call on
the same foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash and liquid
securities in a segregated account with its custodian.
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Certain Funds also intend to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a security which
the Fund owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Fund collateralizes the option by maintaining in a
segregated account with its custodian, cash or liquid securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked to market daily.
RELATED INVESTMENT POLICIES
Each Fund that may invest in foreign securities may write covered put
and call options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Fund may use options on currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different, but related currency. As with other types of
options, however, the writing of an option on foreign currency will constitute
only a partial hedge up to the amount of the premium received, and the Fund
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may be used to hedge against fluctuations in exchange rates although,
in the event of exchange rate movements adverse to the Fund's position, it may
not forfeit the entire amount of the premium plus related transaction costs. In
addition, the Fund may purchase call options on currency when the Fund
Sub-Advisor anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time. If the
Fund is unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
currency or dispose of assets held in a segregated account until the options
expire. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying currency. The Fund pays brokerage commissions or
spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. The
Fund's ability to terminate over-the-counter options ("OTC Options") will be
more limited than the exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Fund will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
FORWARD CURRENCY CONTRACTS
Because, when investing in foreign securities, a Fund buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
such Funds from time to time may enter into forward currency transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. A Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward currency contracts to purchase
or sell foreign currencies.
A forward currency contract is an obligation by a Fund to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract. Forward currency contracts establish an exchange
rate at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward currency contract generally has no deposit
requirement and is traded at a net price without commission. Each Fund maintains
with its custodian a segregated account of liquid securities in an amount at
least equal to its obligations under each forward currency contract. Neither
spot transactions nor forward currency contracts eliminate fluctuations in the
prices of the Fund's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
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A Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into a Fund Sub-Advisor's long-term
investment decisions, a Fund will not routinely enter into foreign currency
hedging transactions with respect to security transactions; however, the Fund
Sub-Advisors believe that it is important to have the flexibility to enter into
foreign currency hedging transactions when it determines that the transactions
would be in a Fund's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
currency contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of such
securities between the date the forward currency contract is entered into and
the date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward currency contracts. In such event the Fund's ability to
utilize forward currency contracts in the manner set forth in the 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 Fund than if it had not entered into such contracts.
The use of forward currency contracts may not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return on a
Fund's foreign currency denominated portfolio securities and the use of such
techniques will subject a Fund to certain risks.
The matching of the increase in value of a forward currency contract
and the decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Fund may not always be able to enter into forward
currency contracts at attractive prices and this will limit the Fund's ability
to use such contract to hedge or cross-hedge its assets. Also, with regard to a
Fund's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying a Fund's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which the Fund's assets that are the subject of such cross-hedges are
denominated.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The successful use of such instruments draws upon the Fund
Sub-Advisor's skill and experience with respect to such instruments and usually
depends on the Fund Sub-Advisor's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
FUTURES CONTRACTS
A Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or contracts based on
financial indexes including any index of U.S. Government securities, foreign
government securities or corporate debt securities. U.S. futures contracts have
been designed by exchanges which have been designated "contracts markets" by the
CFTC, and must be executed through a futures commission merchant, or brokerage
firm, which is a member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing members
of the exchange. A Fund may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, Government National
Mortgage Association ("GNMA") modified pass-through mortgage-backed securities
and three-month U.S. Treasury Bills. A Fund may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
Government.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of a Fund which holds or intends to acquire fixed-income securities, is to
attempt to protect the Fund from fluctuations in interest or foreign exchange
rates without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the debt
securities owned by the Fund. If interest rates did increase, the value of the
debt security in the Fund would decline, but the value of the futures contracts
to the Fund would increase at approximately the same rate, thereby keeping the
net asset value of the Fund from declining as much as it otherwise would have.
The Fund could accomplish similar results by selling debt securities and
investing in bonds with short maturities when interest rates are expected to
increase. However, since the futures market is more liquid than the cash market,
the use of futures contracts as an investment technique allows the Fund to
maintain a defensive position without having to sell its portfolio securities.
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Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Fund could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could then buy debt securities on the
cash market.
When a Fund enters into a futures contract for any purpose, the Fund
will establish a segregated account with the Fund's custodian to collateralize
or "cover" the Fund's obligation consisting of cash or liquid securities from
its portfolio in an amount equal to the difference between the fluctuating
market value of such futures contracts and the aggregate value of the initial
and variation margin payments made by the Fund with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Fund Sub-Advisor may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although each applicable
Fund Sub-Advisor believes that use of such contracts will benefit the respective
Fund, if the Fund Sub-Advisor's investment judgment about the general direction
of interest rates is incorrect, a Fund's overall performance would be poorer
than if it had not entered into any such contract. For example, if a Fund has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its portfolio and interest
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of its debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Fund has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
Each Fund may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is similar
in some respects to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of futures
contracts, when a Fund is not fully invested it may purchase a call option on a
futures contract to hedge against a market advance due to declining interest
rates.
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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 Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk a Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Fund will not enter into any futures contracts or options on
futures contracts if immediately thereafter the amount of margin deposits on all
the futures contracts of the Fund and premiums paid on outstanding options on
futures contracts owned by the Fund would exceed 5% of the market value of the
total assets of the Fund.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES
Unlike transactions entered into by a Fund in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option writer and a
trader of forward contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
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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
Fund's ability to terminate over-the-counter options will be more limited than
with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Fund will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
FUTURES CONTRACTS AND RELATED OPTIONS
Each Fund may enter into futures contracts and purchase and write
(sell) options on these contracts, including but not limited to interest rate,
securities index and foreign currency futures contracts and put and call options
on these futures contracts. These contracts will be entered into only upon the
agreement of the Fund Sub-Advisor that such contracts are necessary or
appropriate in the management of the Fund's assets. These contracts will be
entered into on exchanges designated by the Commodity Futures Trading Commission
("CFTC") or, consistent with CFTC regulations, on foreign exchanges. These
transactions may be entered into for bona fide hedging and other permissible
risk management purposes including protecting against anticipated changes in the
value of securities a Fund intends to purchase.
No Fund will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition, no
Fund will buy futures or write puts whose underlying value exceeds 25% of its
total assets, and no Fund will buy calls with a value exceeding 5% of its total
assets.
A Fund will not enter into futures contracts and related options for
which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Fund's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Fund may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the Fund's
futures and options positions may not prove to be perfectly or even highly
correlated with changes in the value of its portfolio securities. Successful use
of futures and related options is subject to a Fund Sub-Advisor's ability to
predict correctly movements in the direction of the securities markets
generally, which ability may require different skills and techniques than
predicting changes in the prices of individual securities. Moreover, futures and
options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Fund may realize a
loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Fund may not be
able to close a futures or options position without incurring a loss in the
event of adverse price movements.
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CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
Certificates of deposit are receipts issued by a depository institution
in exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified on
the certificate. The certificate usually can be traded in the secondary market
prior to maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
LENDING OF FUND SECURITIES
By lending its securities, a Fund can increase its income by continuing
to receive interest on the loaned securities as well as by either investing the
cash collateral in short-term securities or obtaining yield in the form of
interest paid by the borrower when U.S. Government obligations are used as
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. Each Fund
will adhere to the following conditions whenever its securities are loaned: (i)
the Fund must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Fund must be able to terminate the
loan at any time; (iv) the Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities,
and any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities.
Each Fund may lend securities to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed 30% of a Fund's
assets taken at value. A Fund's loans of securities will be collateralized by
cash, letters of credit or U.S. Government securities. The cash or instruments
collateralizing a Fund's loans of securities will be maintained at all times in
a segregated account with the Fund'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 Fund 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.
DERIVATIVES
The Funds may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as certain mortgage-related and other
asset-backed securities are in many respects like any other investment, although
they may be more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many different ways
to use them. There is a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. A Fund Sub-Advisor
will use derivatives only in circumstances where the Fund Sub-Advisor believes
they offer the most economic means of improving the risk/reward profile of the
Fund. Derivatives will not be used to increase portfolio risk above the level
that could be achieved using only traditional investment securities or to
acquire exposure to changes in the value of assets or indexes that by themselves
would not be purchased for the Fund. The use of derivatives for non-hedging
purposes may be considered speculative. A description of the derivatives that
the Funds may use and some of their associated risks is found below.
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ADRS, EDRS AND CDRS
ADRs are U.S. dollar-denominated receipts typically issued by domestic
banks or trust companies that represent the deposit with those entities of
securities of a foreign issuer. ADRs are publicly traded on exchanges or
over-the-counter in the United States. European Depositary Receipts ("EDRs"),
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), may
also be purchased by the Funds. EDRs and CDRs are generally issued by foreign
banks and evidence ownership of either foreign or domestic securities. Certain
institutions issuing ADRs or EDRs may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the underlying foreign
securities.
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government securities, which are
obligations issued or guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities. Some U.S. Government securities, such as U.S.
Treasury bills, Treasury notes and Treasury bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others are supported by: (i) the right of
the issuer to borrow from the U.S. Treasury, such as securities of the Federal
Home Loan Banks; (ii) the discretionary authority of the U.S. government to
purchase the agency's obligations, such as securities of the FNMA; or (iii) only
the credit of the issuer, such as securities of the Student Loan Marketing
Association. No assurance can be given that the U.S. Government will provide
financial support in the future to U.S. Government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States.
Securities guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities include: (i)
securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. Government or any of its
agencies, authorities or instrumentalities; and (ii) participation interests in
loans made to foreign governments or other entities that are so guaranteed. The
secondary market for certain of these participation interests is limited and,
therefore, may be regarded as illiquid.
MORTGAGE-RELATED SECURITIES
Each Fund may invest in mortgage-related securities. There are several
risks associated with mortgage-related securities generally. One is that the
monthly cash inflow from the underlying loans may not be sufficient to meet the
monthly payment requirements of the mortgage-related security.
Prepayment of principal by mortgagors or mortgage foreclosures will
shorten the term of the underlying mortgage pool for a mortgage-related
security. Early returns of principal will affect the average life of the
mortgage-related securities remaining in a Fund. The occurrence of mortgage
prepayments is affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. In periods of rising interest rates, the rate
of prepayment tends to decrease, thereby lengthening the average life of a pool
of mortgage-related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Fund. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Fund will have to reinvest the proceeds of prepayments at lower
interest rates than those at which the assets were previously invested. If this
occurs, a Fund's yield will correspondingly decline. Thus, mortgage-related
securities may have less potential for capital appreciation in periods of
falling interest rates than other fixed-income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that a Fund
purchases mortgage-related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
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CMOs are obligations fully collateralized by a portfolio of mortgages
or mortgage-related securities. Payments of principal and interest on the
mortgages are passed through to the holders of the CMOs on the same schedule as
they are received, although certain classes of CMOs have priority over others
with respect to the receipt of prepayments on the mortgages. Therefore,
depending on the type of CMOs in which a Fund invests, the investment may be
subject to a greater or lesser risk of prepayment than other types of
mortgage-related securities.
Mortgage-related securities may not be readily marketable. To the
extent any of these securities are not readily marketable in the judgment of the
Fund Sub-Advisor, the investment restriction limiting a Fund's investment in
illiquid instruments to not more than 15% of the value of its net assets will
apply.
STRIPPED MORTGAGE-RELATED SECURITIES
These securities are either issued and guaranteed, or privately-issued
but collateralized by securities issued, by GNMA, FNMA or FHLMC. These
securities represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage-related certificates issued by GNMA, FNMA or FHLMC, as the case may be.
The certificates underlying the stripped mortgage-related securities represent
all or part of the beneficial interest in pools of mortgage loans. The Fund will
invest in stripped mortgage-related securities in order to enhance yield or to
benefit from anticipated appreciation in value of the securities at times when
its Fund Sub-Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the expected increase in the
value of stripped mortgage-related securities may offset all or a portion of any
decline in value of the securities held by the Fund.
Investing in stripped mortgage-related securities involves the risks
normally associated with investing in mortgage-related securities. See
"Mortgage-Related Securities" above. In addition, the yields on stripped
mortgage- related securities are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only stripped mortgage-related securities and increasing the yield to
maturity on principal-only stripped mortgage-related securities. Sufficiently
high prepayment rates could result in a Fund not fully recovering its initial
investment in an interest-only stripped mortgage-related security. Under current
market conditions, the Fund expects that investments in stripped
mortgage-related securities will consist primarily of interest-only securities.
Stripped mortgage-related securities are currently traded in an over-the-counter
market maintained by several large investment banking firms. There can be no
assurance that the Fund will be able to effect a trade of a stripped
mortgage-related security at a time when it wishes to do so. The Fund will
acquire stripped mortgage-related securities only if a secondary market for the
securities exists at the time of acquisition. Except for stripped mortgage-
related securities based on fixed rate FNMA and FHLMC mortgage certificates that
meet certain liquidity criteria established by the Board of Trustees, the Funds
will treat government stripped mortgage-related securities and privately-issued
mortgage-related securities as illiquid and will limit its investments in these
securities, together with other illiquid investments, to not more than 15% of
net assets.
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ZERO COUPON SECURITIES
Zero coupon U.S. Government securities are debt obligations that are
issued or purchased at a significant discount from face value. The discount
approximates the total amount of interest the security will accrue and compound
over the period until maturity or the particular interest payment date at a rate
of interest reflecting the market rate of the security at the time of issuance.
Zero coupon securities do not require the periodic payment of interest. These
investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of cash. These investments may experience greater
volatility in market value than U.S. Government securities that make regular
payments of interest. A Fund accrues income on these investments for tax and
accounting purposes, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Fund's distribution obligations, in which
case the Fund will forego the purchase of additional income producing assets
with these funds. Zero coupon securities include STRIPS, that is, securities
underwritten by securities dealers or banks that evidence ownership of future
interest payments, principal payments or both on certain notes or bonds issued
by the U.S. government, its agencies, authorities or instrumentalities. They
also include Coupons Under Book Entry System ("CUBES"), which are component
parts of U.S. Treasury bonds and represent scheduled interest and principal
payments on the bonds.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
These are instruments in amounts owed by a corporate, governmental or
other borrower to another party. They may represent amounts owed to lenders or
lending syndicates (loans and loan participations), to suppliers of goods or
services (trade claims or other receivables) or to other parties. Direct debt
instruments purchased by a Fund may have a maturity of any number of days or
years, may be secured or unsecured, and may be of any credit quality. Direct
debt instruments involve the risk of loss in the case of default or insolvency
of the borrower. Direct debt instruments may offer less legal protection to a
Fund in the event of fraud or misrepresentation. In addition, loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary. Direct debt instruments also may include standby
financing commitments that obligate a Fund to supply additional cash to the
borrower on demand at the time when a Fund would not have otherwise done so,
even if the borrower's condition makes it unlikely that the amount will ever be
repaid.
These instruments will be considered illiquid securities and so will be
limited, along with a Fund's other illiquid securities, to not more than 15% of
the Fund's net assets.
SWAP AGREEMENTS
To help enhance the value of its portfolio or manage its exposure to
different types of investments, the Funds may enter into interest rate, currency
and mortgage swap agreements and may purchase and sell interest rate "caps,"
"floors" and "collars."
In a typical interest rate swap agreement, one party agrees to make
regular payments equal to a floating interest rate on a specified amount (the
"notional principal amount") in return for payments equal to a fixed interest
rate on the same amount for a specified period. If a swap agreement provides for
payment in different currencies, the parties may also agree to exchange the
notional principal amount. Mortgage swap agreements are similar to interest rate
swap agreements, except that notional principal amount is tied to a reference
pool of mortgages.
In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile;
depending on how they are used, they may have a considerable impact on a Fund's
performance. Swap agreements involve risks depending upon the other party's
creditworthiness and ability to perform, as judged by the Fund Sub-Advisor, as
well as the Fund's ability to terminate its swap agreements or reduce its
exposure through offsetting transactions.
All swap agreements are considered as illiquid securities and,
therefore, will be limited, along with all of a Fund's other illiquid
securities, to 15% of that Fund's net assets.
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CUSTODIAL RECEIPTS
Custodial receipts or certificates, such as Certificates of Accrual on
Treasury Securities ("CATS"), Treasury Investors Growth Receipts ("TIGRs") and
Financial Corporation certificates ("FICO Strips"), are securities underwritten
by securities dealers or banks that evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, authorities or instrumentalities. The
underwriters of these certificates or receipts purchase a U.S. Government
security and deposit the security in an irrevocable trust or custodial account
with a custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the U.S. Government security. Custodial receipts evidencing specific
coupon or principal payments have the same general attributes as zero coupon
U.S. Government securities, described above. Although typically under the terms
of a custodial receipt a Fund is authorized to assert its rights directly
against the issuer of the underlying obligation, the Fund may be required to
assert through the custodian bank such rights as may exist against the
underlying issuer. Thus, if the underlying issuer fails to pay principal and/or
interest when due, a Fund may be subject to delays, expenses and risks that are
greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer. In addition, if the trust or custodial account
in which the underlying security has been deposited is determined to be an
association taxable as a corporation, instead of a non-taxable entity, the yield
on the underlying security would be reduced in respect of any taxes paid.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
To secure prices deemed advantageous at a particular time, each Fund
may purchase securities on a when-issued or delayed-delivery basis, in which
case delivery of the securities occurs beyond the normal settlement period;
payment for or delivery of the securities would be made prior to the reciprocal
delivery or payment by the other party to the transaction. A Fund will enter
into when-issued or delayed-delivery transactions for the purpose of acquiring
securities and not for the purpose of leverage. When-issued securities purchased
by the Fund may include securities purchased on a "when, as and if issued" basis
under which the issuance of the securities depends on the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or debt
restructuring.
Securities purchased on a when-issued or delayed-delivery basis may
expose a Fund to risk because the securities may experience fluctuations in
value prior to their actual delivery. The Fund does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
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REPURCHASE AGREEMENTS
Each of the Funds may engage in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, a Fund would acquire an
underlying debt obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Fund's holding
period. A Fund may enter into repurchase agreements with respect to U.S.
Government securities with member banks of the Federal Reserve System and
certain non-bank dealers approved by the Board of Trustees. Under each
repurchase agreement, the selling institution is required to maintain the value
of the securities subject to the repurchase agreement at not less than their
repurchase price. The Fund Sub-Advisor, acting under the supervision of the
Advisor and the Board of Trustees, reviews on an ongoing basis the value of the
collateral and the creditworthiness of those non-bank dealers with whom the Fund
enters into repurchase agreements. In entering into a repurchase agreement, a
Fund bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement. Repurchase agreements are considered to
be collateralized loans under the Investment Company Act of 1940, as amended
(the "1940 Act").
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS
The Funds may enter into reverse repurchase agreements and forward roll
transactions. In a reverse repurchase agreement the Fund agrees to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price. Forward roll
transactions are equivalent to reverse repurchase agreements but involve
mortgage-backed securities and involve a repurchase of a substantially similar
security. At the time the Fund enters into a reverse repurchase agreement or
forward roll transaction it will place in a segregated custodial account cash or
liquid securities having a value equal to the repurchase price, including
accrued interest. Reverse repurchase agreements and forward roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. Reverse repurchase
agreements and forward roll transactions are considered to be borrowings by a
Fund for purposes of the limitations described in "Fund Policies" below.
TEMPORARY INVESTMENTS
For temporary defensive purposes during periods when the Fund
Sub-Advisor of a Fund believes, in consultation with the Advisor, that pursuing
the Fund's basic investment strategy may be inconsistent with the best interests
of its shareholders, the Fund may invest its assets without limit in the
following money market instruments: securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities (including those purchased in
the form of custodial receipts), repurchase agreements, certificates of deposit,
master notes, time deposits and bankers' acceptances issued by banks or savings
and loan associations having assets of at least $500 million as of the end of
their most recent fiscal year and high quality commercial paper.
In addition, for the same purposes the Fund Sub-Advisor of the
International Equity Fund may invest without limit in obligations issued or
guaranteed by foreign governments or by any of their political subdivisions,
authorities, agencies or instrumentalities that are rated at least AA by S&P or
Aa by Moody's or, if unrated, are determined by the Fund Sub-Advisor to be of
equivalent quality. Each Fund also may hold a portion of its assets in money
market instruments or cash in amounts designed to pay expenses, to meet
anticipated redemptions or pending investments in accordance with its objectives
and policies. Any temporary investments may be purchased on a when-issued basis.
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CONVERTIBLE SECURITIES
Convertible securities may offer higher income than the common stocks
into which they are convertible and include fixed-income or zero coupon debt
securities, which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. Prior to their
conversion, convertible securities may have characteristics similar to both
non-convertible debt securities and equity securities.
While convertible securities generally offer lower yields than
non-convertible debt securities of similar quality, their prices may reflect
changes in the value of the underlying common stock. Convertible securities
entail less credit risk than the issuer's common stock.
REAL ESTATE INVESTMENT TRUSTS
The Growth & Income Fund may invest in REITs, which can generally be
classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which
invest the majority of their assets directly in real property, derive their
income primarily from rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs, which invest
the majority of their assets in real estate mortgages, derive their income
primarily from interest payments on real estate mortgages in which they are
invested. Hybrid REITs combine the characteristics of both equity REITs and
mortgage REITs.
Investment in REITs is subject to risks similar to those associated
with the direct ownership of real estate (in addition to securities markets
risks). REITs are sensitive to factors such as changes in real estate values and
property taxes, interest rates, cash flow of underlying real estate assets,
supply and demand, and the management skill and creditworthiness of the issuer.
REITs may also be affected by tax and regulatory requirements.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS")
The Growth & Income Fund may invest up to 5% of its total assets in
SPDRs. SPDRs typically trade like a share of common stock and provide investment
results that generally correspond to the price and yield performance of the
component common stocks of the S&P 500 Index. There can be no assurance that
this can be accomplished as it may not be possible for the portfolio to
replicate and maintain exactly the composition and relative weightings of the
S&P 500 Index securities. SPDRs are subject to the risks of an investment in a
broadly based portfolio of common stocks, including the risk that the general
level of stock prices may decline, thereby adversely affecting the value of such
investment.
ASSET COVERAGE
To assure that a Fund's use of futures and related options, as well as
when-issued and delayed-delivery transactions, forward currency contracts and
swap transactions, are not used to achieve investment leverage, the Fund will
cover such transactions, as required under applicable SEC interpretations,
either by owning the underlying securities or by establishing a segregated
account with the Trust's custodian containing liquid securities in an amount at
all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
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RATING SERVICES
The ratings of nationally recognized statistical rating organizations
represent their opinions as to the quality of the securities that they undertake
to rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. Although these ratings are
an initial criterion for selection of portfolio investments, each Fund
Sub-Advisor also makes its own evaluation of these securities, subject to review
by the Board of Trustees. After purchase by a Fund, an obligation may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event would require a Fund to eliminate the obligation from
its portfolio, but a Fund Sub-Advisor will consider such an event in its
determination of whether a Fund should continue to hold the obligation. A
description of the ratings used herein and in the Trust's Prospectuses is set
forth in the Appendix.
FUND POLICIES
The following investment restrictions are "fundamental policies" of
each Fund and may not be changed with respect to the Fund without the approval
of a "majority of the outstanding voting securities" of the Fund. "Majority of
the outstanding voting securities" under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in this Statement of Additional
Information and the Prospectus, means, the lesser of (i) 67% or more of the
outstanding voting securities of the Fund present at a meeting, if the holders
of more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy or (ii) more than 50% of the outstanding voting securities
of the Fund.
As a matter of fundamental policy, no Fund may:
(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the Fund's net
assets, it may borrow money (including through reverse repurchase agreements,
forward roll transactions involving mortgage-backed securities or other
investment techniques entered into for the purpose of leverage), and except that
it may pledge, mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings, provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute; for additional related restrictions, see clause
(i) under the caption "Additional Restrictions" below;
(2) underwrite securities issued by other persons except insofar as the
Funds may technically be deemed an underwriter under the 1933 Act in selling a
portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Fund's portfolio securities and provided that any such loans not exceed 30% of
the Fund's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
(4)(a) (all Funds except the Growth & Income Fund) purchase or sell
real estate (including limited partnership interests but excluding securities
secured by real estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts (except futures and option contracts)
in the ordinary course of business (except that the Fund may hold and sell, for
the Fund's portfolio, real estate acquired as a result of the Fund's ownership
of securities);
(4)(b) (Growth & Income Fund only)
(i) purchase or sell real estate (except that (a) the Fund may invest
in (i) securities of entities that invest or deal in real estate, mortgages, or
interests therein and (ii) securities secured by real estate or interests
therein and (b) the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities).
26
<PAGE>
(ii) purchase or sell interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and options contracts) in the
ordinary course of business.
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the achievement
of a Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) with respect to 75% of its total assets taken at market value,
invest in assets other than cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies and other
securities for purposes of this calculation limited in respect of any one issuer
to an amount not greater in value than 5% of the value of the total assets of
the Fund and to not more than 10% of the outstanding voting securities of such
issuer.
ADDITIONAL RESTRICTIONS
Each Fund (or the Trust, on behalf of each Fund) will not as a matter
of "operating policy" (changeable by the Board of Trustees without a shareholder
vote):
(i) borrow money (including through reverse repurchase agreements or forward
roll transactions involving mortgage-backed securities or similar investment
techniques entered into for leveraging purposes), except that the Fund may
borrow for temporary or emergency purposes up to 10% of its total assets;
provided, however, that no Fund may purchase any security while outstanding
borrowings exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Fund's total assets (taken at market value), provided that collateral
arrangements with respect to options and futures, including deposits of initial
deposit and variation margin, and reverse repurchase agreements are not
considered a pledge of assets for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of purchases
and sales of securities may be obtained and except that deposits of initial
deposit and variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(iv) sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain securities,
without payment of further consideration, equivalent in kind and amount to the
securities sold and provided that if such right is conditional the sale is made
upon the same conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any investment company
will not be purchased for the Fund if such purchase at the time thereof would
cause: (a) more than 10% of the Fund's total assets (taken at the greater of
cost or market value) to be invested in the securities of such issuers; (b) more
than 5% of the Fund's total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held for the Fund;
provided further that, except in the case of a merger or consolidation, the Fund
shall not purchase any securities of any open-end investment company unless the
Fund (1) waives the investment advisory fee, with respect to assets invested in
other open-end investment companies and (2) incurs no sales charge in connection
with the investment;
27
<PAGE>
(vii) invest more than 15% of the Fund's net assets (taken at the greater of
cost or market value) in securities that are illiquid or not readily marketable
(defined as a security that cannot be sold in the ordinary course of business
within seven days at approximately the value at which the Fund has valued the
security) not including (a) Rule 144A securities that have been determined to be
liquid by the Board of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which is not traded flat or in default as to
interest or principal and either (i) is rated in one of the two highest
categories by at least two nationally recognized statistical rating
organizations and the Fund's Board of Trustees have determined the commercial
paper to be liquid; or (ii) is rated in one of the two highest categories by one
nationally recognized statistical rating agency and the Fund's Board of Trustees
have determined that the commercial paper is equivalent quality and is liquid;
(viii) invest more than 10% of the Fund's total assets in securities that are
restricted from being sold to the public without registration under the 1933 Act
(other than Rule 144A Securities deemed liquid by the Fund's Board of Trustees);
(ix) purchase securities of any issuer if such purchase at the time thereof
would cause the Fund to hold more than 10% of any class of securities of such
issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be subject to this
restriction;
(x) make short sales of securities or maintain a short position, unless at all
times when a short position is open it owns an equal amount of such securities
or securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's net assets
(taken at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time (the Funds
have no current intention to engage in short selling);
(xi) purchase puts, calls, straddles, spreads and any combination thereof if by
reason thereof the value of the Fund's aggregate investment in such classes of
securities will exceed 5% of its total assets;
(xii) write puts and calls on securities unless each of the following conditions
are met: (a) the security underlying the put or call is within the investment
policies of the Fund and the option is issued by the OCC, except for put and
call options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations underlying the
puts determined as of the date the options are sold shall not exceed 50% of the
Fund's net assets; (c) the securities subject to the exercise of the call
written by the Fund must be owned by the Fund at the time the call is sold and
must continue to be owned by the Fund until the call has been exercised, has
lapsed, or the Fund has purchased a closing call, and such purchase has been
confirmed, thereby extinguishing the Fund's obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put is written, the Fund
establishes a segregated account with its custodian consisting of cash or liquid
securities equal in value to the amount the Fund will be obligated to pay upon
exercise of the put (this account must be maintained until the put is exercised,
has expired, or the Fund has purchased a closing put, which is a put of the same
series as the one previously written); and
(xiii) buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial futures
unless such options are written by other persons and: (a) the options or futures
are offered through the facilities of a national securities association or are
listed on a national securities or commodities exchange, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such options which
are held at any time do not exceed 20% of the Fund's total net assets; and (c)
the aggregate margin deposits required on all such futures or options thereon
held at any time do not exceed 5% of the Fund's total assets.
28
<PAGE>
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust
rests with the Board of Trustees. The Trustees approve all significant
agreements between the Trust and the persons and companies that furnish services
to the Trust.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Trust. Unless otherwise indicated,
the address of each Trustee and officer is 311 Pike Street, Cincinnati, Ohio
45202. The Trustees and officers of the Trust also serve in the same positions
with the Touchstone Series Trust (formerly named the Select Advisors Trust A).
TRUSTEES OF THE TRUST
*Jill T. McGruder (Born: 7/9/55) -- Chairman of the Board of Trustees,
President and Chief Executive Officer; Director, President and Chief Executive
Officer, Touchstone Advisors, Inc. and Touchstone Securities, Inc. (since
February, 1999); Senior Vice President, Western-Southern Life Insurance Company
(since December, 1996); National Marketing Director, Metropolitan Life Insurance
Co. (February, 1996 - December, 1996); Executive Vice President, Touchstone
Advisors, Inc. and Touchstone Securities, Inc. (1991 - 1996).
*WILLIAM J. WILLIAMS (Born: 12/19/15) -- Trustee; Chairman of the Board of
Directors, The Western and Southern Life Insurance Company (since March, 1984);
Chief Executive Officer, The Western and Southern Life Insurance Company (from
March, 1984 to March, 1994). His address is 400 Broadway, Cincinnati, OH 45202.
JOSEPH S. STERN, JR. (Born: 3/31/18) -- Trustee; Retired Professor
Emeritus, College of Business, University of Cincinnati. His address is 3
Grandin Place, Cincinnati, OH 45208.
PHILLIP R. COX (Born: 11/24/47) -- Trustee; President and Chief Executive
Officer, Cox Financial Corp. (since 1972); Director, Federal Reserve Bank of
Cleveland; Director, Cincinnati Bell, Inc.; Director, PNC Bank; Director,
Cinergy Corporation. His address is 105 East Fourth Street, Cincinnati, OH
45202.
ROBERT E. STAUTBERG (Born: 9/6/34) -- Trustee; Retired Partner and
Director, KPMG Peat Marwick; Chairman of the Board of Trustees, Good Samaritan
Hospital. His address is 4815 Drake Road, Cincinnati, OH 45243.
OFFICERS OF THE TRUST
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Fund.
JAMES J. VANCE (Born: 7/12/61) -- Treasurer; Treasurer, Western-Southern
Life Insurance Company (since January, 1994). His address is 400 Broadway,
Cincinnati, OH 45202.
EDWARD S. HEENAN (Born 12/18/43) - Controller; Vice President and
Controller, Touchstone Advisors, Inc. (since December, 1993); Director,
Controller, Touchstone Securities, Inc. (since October, 1991); Vice President
and Comptroller, The Western and Southern Life Insurance Company (since 1987).
His address is 400 Broadway, Cincinnati, OH 45202.
29
<PAGE>
DAVID DENNISON (Born: 2/20/62) - Assistant Treasurer; Vice President of
Administration, IFS Financial Services and Touchstone Securities, Inc. (since
August, 1994); Director of Strategic Marketing, Providian Capital Management
(January, 1993 to July, 1994).
ANDREW S. JOSEF (Born: 2/25/64) - Secretary; Director, Legal
Administration, Investors Bank & Trust Company ("Investors Bank") (since May,
1997); Senior Associate, Sullivan & Worcester LLP (November, 1995 to May, 1997);
Associate, Goodwin, Proctor & Hoar (January, 1993 to November, 1995); Associate,
Simpson Thacher & Bartlett (prior to 1993). His address is 200 Clarendon Street,
Boston, MA 02116.
SUSAN C. MOSHER (Born: 1/29/55) -- Assistant Secretary; Director, Legal
Administration, Investors Bank (since August, 1995); Associate Counsel, 440
Financial Group of Worcester, Inc. (January, 1993 to August, 1995). Her address
is 200 Clarendon Street, Boston, Massachusetts 02116.
TIMOTHY F. OSBORNE (Born: 12/3/66) -- Assistant Treasurer; Director, Mutual
Fund Administration, Investors Bank (since May, 1995); Account Supervisor,
Mutual Fund Administration, Chase Global Funds Services Company (prior to May,
1995).
Ms. Mosher and Messrs. Josef and Osborne also hold similar positions for
Touchstone Series Trust and certain unaffiliated investment companies for which
Investors Bank serves as administrator.
No director, officer or employee of the Advisor, the Fund Sub-Advisors, the
Administrator or any of their affiliates will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust. The Trust and
Touchstone Series Trust, (together, the "Fund Complex") pay, in the aggregate,
each Trustee who is not a director, officer or employee of the Advisor, the Fund
Sub-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. The following table
reflects Trustee fees paid for the year ended December 31, 1998.
TRUSTEE COMPENSATION TABLE
NAME OF AGGREGATE TOTAL COMPENSATION
PERSON AND COMPENSATION FROM TRUST AND FUND COMPLEX
POSITION FROM TRUST PAID TO TRUSTEES
Joseph S. Stern, Jr. $ 4,486.00 $ 8,000.00
Trustee
Phillip R. Cox $ 5,612.00 $10,000.00
Trustee
Robert E. Stautberg $ 5,612.00 $10,000.00
Trustee
David Pollak $ 5,612.00 $10,000.00
Trustee
As of April 2, 1999, the Trustees and officers of the Trust owned in
the aggregate less than 1% of the shares of any Fund or the Trust (all series
taken together).
30
<PAGE>
CONTROL PERSONS
As of April 2, 1999, (i) Western-Southern Life Assurance Company, 400
Broadway, Cincinnati, Ohio 45202, an Ohio corporation ("WSLAC"), was the record
owner of 100% of the outstanding shares of the Emerging Growth Fund,
International Equity Fund, Balanced Fund, Income Opportunity Fund and Standby
Income Fund, respectively; (ii) WSLAC was the record owner of 88.14% of the
outstanding shares of the Value Plus Fund, 73.47% of the outstanding shares of
the Growth & Income Fund and 64.15% of the outstanding shares of the Bond Fund,
and (iii) Western and Southern Life Insurance Company, 400 Broadway, Cincinnati,
Ohio 45202, an Ohio corporation ("WSLIC"), was record owner of 11.86% of the
outstanding shares of the Value Plus Fund, 26.52% of the outstanding shares of
the Growth & Income Fund and 35.84% of the outstanding shares of the Bond Fund.
WSLAC is a wholly owned subsidiary of WSLIC. Because WSLAC owns more than 50% of
the outstanding shares of the above-named Funds, it may take actions requiring a
majority vote without the approval of any other investor in such Funds.
INVESTMENT ADVISORY AND OTHER SERVICES
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 Funds. 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.
Touchstone Advisors provides service to each Fund pursuant to an
Investment Advisory Agreement with the Trust (the "Advisory Agreement"). The
services provided by the Advisor consist of directing and supervising each Fund
Sub-Advisor, reviewing and evaluating the performance of each Fund Sub-Advisor
and determining whether or not any Fund Sub-Advisor should be replaced. The
Advisor furnishes at its own expense all facilities and personnel necessary in
connection with providing these services. 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 Fund without
penalty on not more than 60 days' nor less than 30 days' written notice by (1)
the Trust when authorized either by (a) in the case of a Fund, a majority vote
of the Fund's shareholders or (b) a vote of a majority of the Board of Trustees
or (2) the Advisor. The Advisory Agreement 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 Funds, except for willful 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 Agreement.
For the periods indicated, each Fund incurred the following investment
advisory fees equal on an annual basis to the following percentages of the
average daily net assets of each Fund.
31
<PAGE>
<TABLE>
<CAPTION>
Emerging International Income Value Plus Balanced Standby
Growth Fund Equity Fund Opportunity Fund Fund Income Fund
Fund
<S> <C> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.65% 0.75% 0.80%* 0.25%
For the period
5/1/98** to 12/31/98 N/A N/A N/A $9,223 N/A N/A
For the Year Ended
December 31, 1998 $204,486 $270,100 $217,105 N/A $267,938 $56,841
For the Year Ended
December 31, 1997 $98,956 $135,300 $108,452 N/A $103,999 $34,222
For the Year Ended
December 31, 1996 $28,916 $62,256 $27,962 N/A $29,360 $17,132
- ------------
* Prior to May, 1997 the rate was 0.70%.
** Commencement of operations.
The Advisor has contractually agreed to reimburse each Fund for certain
of its fees and expenses as described in the Prospectus. For the periods
indicated, the Advisor reimbursed each Fund the following amounts:
<CAPTION>
Emerging International Income Value Plus Balanced Standby
Growth Fund Equity Fund Opportunity Fund Fund Income Fund
Fund
<S> <C> <C> <C> <C> <C> <C>
For the period
5/1/98* to 12/31/98 N/A N/A N/A $75,538 N/A N/A
For the Year Ended $35,626 $142,709 $67,018 N/A $92,075 $56,515
December 31, 1998
For the Year Ended $102,973 $247,296 $110,959 N/A $125,649 $107,078
December 31, 1997
For the Year Ended $70,043 $103,586 $77,994 N/A $68,161 $57,820
December 31, 1996
* Commencement of operations.
</TABLE>
Pursuant to the Sponsor Agreement, the Sponsor has agreed to waive or
reimburse certain fees and expenses of each Fund such that after such waivers
and reimbursements, the aggregate Operating Expenses of each Fund (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 Fund's expense cap (the "Expense Cap"). Each Fund's Expense Cap is
as follows: Emerging Growth Fund - 1.15%; International Equity Fund - 1.25%;
Income Opportunity Fund - 0.85%; Small Cap Value Fund - 1.00%; High Yield Fund -
0.80%; Value Plus Fund - 1.15%; Growth & Income Fund - 0.85%; Enhanced 30 Fund -
0.75%; Balanced Fund - 0.90%; Bond Fund - 0.75%; and Standby Income Fund -
0.50%. An Expense Cap may be terminated with respect to a Fund upon 30 days
prior written notice by the Sponsor at the end of any calendar quarter after
December 31, 1999.
32
<PAGE>
FUND SUB-ADVISORS
The Advisor has, in turn, entered into a portfolio advisory agreement
(each, a "Fund Agreement") with each Fund Sub-Advisor selected by the Advisor
for a Fund. Under the direction of the Advisor and, ultimately, of the Board of
Trustees, each Fund Sub-Advisor is responsible for making all of the day-to-day
investment decisions for the respective Fund (or portion of a Fund).
Each Fund Sub-Advisor furnishes at its own expense all facilities and
personnel necessary in connection with providing these services. Each Fund
Agreement contains provisions similar to those described above with respect to
the Advisory Agreement.
The Advisor pays each Fund Sub-Advisor a fee for its services provided
to the Fund that is computed daily and paid monthly at an annual rate equal to
the percentage specified below of the value of the average daily net assets of
the Fund:
<TABLE>
<CAPTION>
EMERGING GROWTH FUND
- ----------------------------------------------------------------------------------------------
<S> <C>
David L. Babson & Company, Inc. 0.50%
- ----------------------------------------------------------------------------------------------
Westfield Capital Management Company, Inc. 0.45% on the first $10 million
0.40% on the next $40 million
0.35% thereafter
- ----------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------
Credit Suisse Asset Management 0.85% on the first $30 million
0.80% on the next $20 million
0.70% on the next $20 million
0.60% thereafter
- ----------------------------------------------------------------------------------------------
INCOME OPPORTUNITY FUND
- ----------------------------------------------------------------------------------------------
Alliance Capital Management L.P. 0.40% on the first $50 million
0.35% on the next $20 million
0.30% on the next $20 million
0.25% thereafter
- ----------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND
- ----------------------------------------------------------------------------------------------
Todd Investment Advisors, Inc. 0.50%
- ----------------------------------------------------------------------------------------------
HIGH YIELD FUND
- ----------------------------------------------------------------------------------------------
Fort Washington Investment Advisors, Inc. 0.40%
- ----------------------------------------------------------------------------------------------
VALUE PLUS FUND
- ----------------------------------------------------------------------------------------------
Fort Washington Investment Advisors, Inc. 0.45%
- ----------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
- ----------------------------------------------------------------------------------------------
Scudder Kemper Investments, Inc. 0.50% on the first $150 million
0.45% thereafter
- ----------------------------------------------------------------------------------------------
ENHANCED 30 FUND
- ----------------------------------------------------------------------------------------------
Todd Investment Advisors, Inc. 0.40%
- ----------------------------------------------------------------------------------------------
BALANCED FUND
- ----------------------------------------------------------------------------------------------
OpCap Advisors 0.60% on the first $20 million
0.50% on the next $30 million
0.40% thereafter
- ----------------------------------------------------------------------------------------------
BOND FUND
- ----------------------------------------------------------------------------------------------
Fort Washington Investment Advisors, Inc. 0.30%
- ----------------------------------------------------------------------------------------------
STANDBY INCOME FUND
- ----------------------------------------------------------------------------------------------
Fort Washington Investment Advisors, Inc. 0.15%
- ----------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
ADMINISTRATOR, FUND ACCOUNTING AGENT, CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("Investors Bank"), 200 Clarendon
Street, Boston, Massachusetts 02116, serves as administrator, fund accounting
agent, custodian and transfer agent for the Trust. 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 Funds, 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
pays 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 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 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 Fund pays Investors Bank
$5,000 annually.
Prior to December 1, 1996, Signature Financial Services, Inc.
("Signature") served as administrator and fund accounting agent to the Trust.
The Funds incurred the following administration and fund accounting
fees for the periods indicated:
<TABLE>
<CAPTION>
Emerging International Income Value Balanced Standby
Growth Fund Equity Fund Opportunity Fund Plus Fund Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
For the period
5/1/98* to 12/31/98 N/A N/A N/A $64,925 N/A N/A
For the Year Ended
12/31/98** $93,751 $192,611 $93,667 N/A $94,507 $89,474
For the Year Ended
12/31/97 $64,999 $80,001 $64,999 N/A $64,999 $64,999
For the Year Ended
12/31/96*** $27,620 $28,589 $27,265 N/A $29,793 $27,061
- -----------
* Commencement of operations.
** Amounts include custody fees.
*** Includes administrative and fund accounting fees paid to Signature
Financial Services, Inc. and to Investors Bank & Trust Company.
</TABLE>
Each of the Administration, Fund Accounting, Custodian and Transfer
Agency Agreements (collectively, the "Agreements") provide that neither
Investors Bank nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission, except for willful misfeasance, bad
faith or negligence (gross negligence in respect of the Custodian Agreement) in
the performance of its or their duties or by reason of disregard (reckless
disregard in respect of the Custodian Agreement) of its or their obligations and
duties under the Agreements.
34
<PAGE>
Each Agreement may not be assigned without the consent of the
non-assigning party, and may be terminated after its initial term, with respect
to a Fund, without penalty by majority vote of the shareholders of the Fund or
by either party on not more than 60 days' written notice.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Frost & Jacobs LLP, 2500 PNC Center, 201 East Fifth Street, Cincinnati,
Ohio 45202-5715, serves as counsel to the Funds. PricewaterhouseCoopers LLP, One
Post Office Square, Boston, Massachusetts 02109, acts as independent accountants
of the Trust and each Fund, providing audit services, tax return review and
assistance and consultation in connection with the review of filings with the
SEC.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
The Fund Sub-Advisors are responsible for decisions to buy and sell
securities, futures contracts and options on such securities and futures for
each Fund, the selection of brokers, dealers and futures commission merchants to
effect transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, the Advisor, the Fund
Sub-Advisors or their subsidiaries or affiliates. Purchases and sales of certain
portfolio securities on behalf of a Fund are frequently placed by the Fund
Sub-Advisor with the issuer or a primary or secondary market-maker for these
securities on a net basis, without any brokerage commission being paid by the
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as market-makers reflect the spread between the bid and asked
prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Fund Sub-Advisors seek to evaluate the overall reasonableness of
the brokerage commissions paid through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. In placing orders for the purchase and sale
of securities for a Fund, the Fund Sub-Advisors take into account such factors
as price, commission (if any, negotiable in the case of national securities
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker-dealer. The Fund Sub-Advisors review on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Fund Sub-Advisors are authorized, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Fund with a broker to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. A Fund Sub-Advisor may use this research
information in managing a Fund's assets, as well as the assets of other clients.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Board of Trustees may determine, the Fund Sub-Advisors may consider sales of
shares of the Trust or the Funds as a factor in the selection of broker-dealers
to execute portfolio transactions. The Fund Sub-Advisor will make such
allocations if commissions are comparable to those charged by nonaffiliated,
qualified broker-dealers for similar services.
35
<PAGE>
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Fund and to the corresponding Fund
Sub-Advisor, it is the opinion of the management of the Funds that such
information is only supplementary to the Fund Sub-Advisor's own research effort,
since the information must still be analyzed, weighed and reviewed by the Fund
Sub-Advisor's staff. Such information may be useful to the Fund Sub-Advisor in
providing services to clients other than the Funds, and not all such information
is used by the Fund Sub-Advisor in connection with the Funds. Conversely, such
information provided to the Fund Sub-Advisor by brokers and dealers through whom
other clients of the Fund Sub-Advisor effect securities transactions may be
useful to the Fund Sub-Advisor in providing services to the Funds.
In certain instances there may be securities which are suitable for a
Fund as well as for one or more of the respective Fund Sub-Advisor's other
clients. Investment decisions for a Fund and for the Fund Sub-Advisor's other
clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment advisor, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as a Fund is concerned.
However, it is believed that the ability of a Fund to participate in volume
transactions will produce better executions for the Fund.
COMMISSIONS
The Funds paid the following brokerage commissions for the periods
indicated:
<TABLE>
<CAPTION>
Emerging International Income Value Plus Balanced Standby
Aggregate Growth Fund Equity Fund Opportunity Fund Fund Fund Income Fund
Commission
<S> <C> <C> <C> <C> <C> <C>
For the Period
5/1/98* to 12/31/98 N/A N/A N/A $8,777 N/A NA/
For the Year Ended
12/31/98 $50,890 $187,645 $0 N/A $49,608 $0
For the Year Ended
12/31/97 $31,847 $108,088 $0 N/A $34,791 $0
For the Year
Ended 12/31/96 $8,834 $37,164 $0 N/A $5,732 $0
- --------------------
*Commencement of operations
</TABLE>
CAPITAL STOCK AND OTHER SECURITIES
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
36
<PAGE>
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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
OFFERING PRICE
Shares of the Funds are offered at NAV (as defined int he Prospectus).
VALUATION OF SECURITIES
The value of each security for which readily available market
quotations exists is based on a decision as to the broadest and most
representative market for such security. The value of such security is based
either on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on such
exchanges, or at the quoted bid price in the over-the-counter market. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market. Debt
securities are valued by a pricing service which determines valuations based
upon market transactions for normal, institutional-size trading units of similar
securities. Securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by the Trust. Such procedures include the use of independent pricing
services, which use prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. All portfolio securities with a
remaining maturity of less than 60 days are valued at amortized cost, which
approximates market.
The accounting records of the Funds are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and forward
contracts denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rates at the end of the period. Purchases and sales of
securities, income receipts, and expense payments are translated at the exchange
rate prevailing on the respective dates of such transactions. Reported net
realized gains and losses on foreign currency transactions represent net gains
and losses from sales and maturities of forward currency contracts, disposition
of foreign currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received.
The problems inherent in making a good faith determination of the value
of restricted securities are recognized in the codification effected by SEC
Financial Reporting Release No. 1 ("FRR 1" (formerly Accounting Series Release
No. 113)) which concludes that there is "no automatic formula" for calculating
the value of restricted securities. It recommends that the best method simply is
to consider all relevant factors before making any calculation. According to FRR
1 such factors would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
37
<PAGE>
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the Fund
Sub-Advisor will value such securities based upon all relevant factors as
outlined in FRR 1.
REDEMPTION IN KIND
Each Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Trust and valued as they are for purposes of computing the Fund'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 Fund has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which each Fund is obligated to redeem shares or
with respect to any one investor during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning
of the period.
TAXATION OF THE FUNDS
The Trust intends to qualify annually and to elect each Fund to be
treated as a regulated investment company under the Code.
To qualify as a regulated investment company, each Fund must, among
other things: (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.
As a regulated investment company, each Fund will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute during each calendar year an amount equal
to the sum of: (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year; (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the one-year period ending on October 31
of the calendar year; and (3) any ordinary income and capital gains for previous
years that was not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
the Fund in October, November or December with a record date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
38
<PAGE>
FOREIGN TAXES
Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of each applicable Fund's assets to
be invested in various countries will vary.
If a Fund is liable for foreign taxes, and if more than 50% of the
value of the Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities, which have invested in the Fund.
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 Fund's taxable year whether the
foreign taxes paid will "pass through" for that year and, if so, such
notification will designate (a) the shareholder's portion of the foreign taxes
paid to each such country and (b) the portion which represents income derived
from sources within each such country.
The amount of foreign taxes for which 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 Fund on
the sale of foreign securities will be treated as U.S.-source income, the
available credit of foreign taxes paid with respect to such gains may be
restricted by this limitation.
FOREIGN INCOME TAXES: Net income or capital gains earned by any Fund 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 Funds to a reduced tax rate or even a tax exemption
on related income and gains. It is impossible to determine the effective rate of
foreign tax in advance since the amount of these Funds' assets to be invested
within various countries is not known. Plus, a Fund may elect to treat foreign
income taxes as income taxes paid by its shareholders for U.S. federal income
tax purposes, under U.S. federal income tax principals, if a Fund meets certain
requirements. These requirements of a Fund include:
o qualification as a regulated investment company;
o satisfaction of certain distribution requirements; and
o more than 50% of the value of that Fund's assets at the
close of the taxable year must consist of stocks or
securities of foreign corporations.
If a Fund makes this election, an amount equal to the foreign income taxes paid
by the Fund would be included in the income of its shareholders. The
shareholders would then be allowed to credit their portions of this amount
against their U.S. tax liabilities, if any, or to deduct it from their U.S.
taxable income, if any. Shortly after any year for which it makes this election,
a Fund 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.
INTERNATIONAL EQUITY FUND: The International Equity Fund is expected to qualify
for and make this election in most of its taxable years (but not necessarily
all).
o SPECIAL TAX CONSIDERATION: 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.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will
be taxable to a U.S. shareholder as ordinary income. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the shareholder has held the
Fund's shares, and are not eligible for the dividends-received deduction.
Shareholders receiving distributions in the form of additional shares, rather
than cash, generally will have a cost basis in each such share equal to the net
asset value of a share of the Fund on the reinvestment date. Shareholders will
be notified annually as to the U.S. federal tax status of distributions.
39
<PAGE>
FOREIGN WITHHOLDING TAXES
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING
A Fund may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
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 Fund intends to
comply with these requirements.
PERFORMANCE INFORMATION
From time to time, quotations of a Fund'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 Fund used in advertising are computed by dividing the
Fund's interest and dividend income for a given 30-day or one-month period, net
of expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is calculated
for purposes of yield quotations in accordance with standardized methods
applicable to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the purpose of
yield calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from the calculation.
40
<PAGE>
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements. For the 30-day period ended
December 31, 1998, the Fund's yields were as follows: Income Opportunity Fund
17.05%, Balanced Fund 2.94%, Standby Income Fund 5.31%.
The Standby Income Fund's 7-day yield for the period ended December 31,
1998 was 5.23%.
TOTAL RETURN:
A Fund's standardized average annual total return is calculated for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (with all
distributions reinvested) to reach the value of that investment at the end of
the periods. A Fund may also calculate non-standardized total return figures
which represent aggregate (not annualized) performance over any period or
year-by-year performance.
<TABLE>
<CAPTION>
Emerging International Income Value Plus Balanced Standby
AVERAGE ANNUAL Growth Fund Equity Fund Opportunity Fund Fund Income Fund
TOTAL RETURN Fund
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended
12/31/98 3.28% 20.21% -12.27% N/A 5.44% 5.71%
For the Period
11/21/94* to 12/31/98 16.19% 11.10% 9.54% N/A 16.14% 5.54%
For the Period
5/1/98* to 12/31/98 N/A N/A N/A 2.11% N/A N/A
AGGREGATE
TOTAL RETURN
For the Year Ended
12/31/98 3.28% 20.21% -12.27% N/A 5.44% 5.71%
For the Period
11/21/94* to 12/31/98 85.33% 54.19% 45.47% N/A 85.00% 24.83%
For the Period
5/1/98* to 12/31/98 N/A N/A N/A 2.11% N/A N/A
- ------------
* Commencement of operations
</TABLE>
Any total return quotation provided for a Fund should not be considered
as representative of the performance of the Fund in the future since
the net asset value of shares of the Fund will vary based not only on
the type, quality and maturities of the securities held in the Fund,
but also on changes in the current value of such securities and on
changes in the expenses of the Fund. These factors and possible
differences in the methods used to calculate total return should be
considered when comparing the total return of a Fund to total returns
published for other investment companies or other investment vehicles.
Total return reflects the performance of both principal and income.
41
<PAGE>
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services, to the
performance of various indices and investments for which reliable performance
data is available. The performance figures of unmanaged indices may assume
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs. The performance of the Funds may also be
compared to averages, performance rankings, or other information prepared by
recognized mutual fund statistical services. Evaluations of a Fund's performance
made by independent sources may also be used in advertisements concerning the
Fund. Sources for a Fund's performance information could include Asian Wall
Street Journal, Barron's, Business Week, Changing Times, The Kiplinger Magazine,
Consumer Digest, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund
Performance Analysis, Money, The New York Times, Personal Investing News,
Personal Investor, Success, U.S. News and World Report, The Wall Street Journal
and CDA/Weisenberger Investment Companies Services.
42
<PAGE>
FINANCIAL STATEMENTS
The following financial statements for the Trust at and for the fiscal
periods indicated are incorporated herein by reference from their current
semi-annual and annual reports to shareholders filed with the SEC pursuant to
Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. A copy of each such
report will be provided, without charge, to each person receiving this Statement
of Additional Information.
TOUCHSTONE VARIABLE SERIES TRUST (other than the Bond Fund, the Growth & Income
Fund, Small Cap Value Fund, High Yield Fund and Enhanced 30 Fund)
Schedule of Investments, December 31, 1998
Statement of Assets and
Liabilities, December 31, 1998
Statement of Operations, for the year ended December 31, 1998
Statement of Changes in Net Assets for the years ended December 31,
1998 and December 31, 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
43
<PAGE>
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's and S&P,
which represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality.
MOODY'S BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
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.
A-1
<PAGE>
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effect of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1, Ba-1 and B-1.
S&P'S BOND RATINGS
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from higher rated issues only in a small degree.
A. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the highest rated
categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC and C. Bonds rated BB, B, CCC, CC, and C are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is
being paid.
D. Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
NR. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P,
which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
A-2
<PAGE>
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
A-3
<PAGE>
TOUCHSTONE VARIABLE SERIES TRUST
o TOUCHSTONE EMERGING GROWTH FUND
o TOUCHSTONE INTERNATIONAL EQUITY FUND
o TOUCHSTONE INCOME OPPORTUNITY FUND
o TOUCHSTONE SMALL CAP VALUE FUND
o TOUCHSTONE HIGH YIELD FUND
o TOUCHSTONE VALUE PLUS FUND
o TOUCHSTONE GROWTH & INCOME FUND
o TOUCHSTONE ENHANCED 30 FUND
INVESTMENT ADVISOR o TOUCHSTONE BALANCED FUND
o TOUCHSTONE BOND FUND
Touchstone Advisors, Inc. o TOUCHSTONE STANDBY INCOME FUND
311 Pike Street
Cincinnati, Ohio 45202
ADMINISTRATOR, FUND ACCOUNTING
AGENT, CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company STATEMENT OF ADDITIONAL INFORMATION
200 Clarendon Street
Boston, Massachusetts 02116 MAY 1, 1999
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS:
(a1) Amended Declaration of Trust of the Trust.(1)
(a2) Amendment to the Amended Declaration of Trust of the Trust.(3)
(a3) Amendment No. 5 to Amended Declaration of Trust of the Trust.(9)
(a4) Amendment No. 6 to Amended Declaration of Trust of the Trust.(8)
(b) Amended By-Laws of the Trust.(1)
(c) Inapplicable.
(d1) Amended and Restated Investment Advisory Agreement.(8)
(d2) Amended and Restated Sub-Advisory Agreement with respect to Value Plus
Fund.(9)
(d3) Amended and Restated Sub-Advisory Agreement with respect to Emerging
Growth Fund (David L. Babson & Company, Inc.).(9)
(d4) Amended and Restated Sub-Advisory Agreement with respect to International
Equity Fund.(9)
(d5) Amended and Restated Sub-Advisory Agreement with respect to Balanced
Fund.(9)
(d6) Amended and Restated Sub-Advisory Agreement with respect to Income
Opportunity Fund.(9)
(d7) Amended and Restated Sub-Advisory Agreement with respect to Standby Income
Fund.(9)
(d8) Sub-Advisory Agreement with respect to the Bond Fund.(9)
(d9) Sub-Advisory Agreement with respect to the Growth & Income Fund.(9)
(d10) Amended and Restated Sub-Advisory Agreement with respect to Emerging
Growth Fund (Westfield Capital Management).(9)
(d11) Form of Sub-Advisory Agreement with respect to the High Yield Fund.(9)
(d12) Form of Sub-Advisory Agreement with respect to the Small Cap Value
Fund.(9)
(d13) Form of Sub-Advisory Agreement with respect to the Enhanced Index Fund.(9)
(d14) Form of Amendment to the Amended and Restated Investment Advisory
Agreement adding the High Yield Fund, Small Cap Value Fund, and Enhanced
30 Fund.(9)
<PAGE>
(e) Inapplicable.
(f) Inapplicable.
(g) Amended and Restated Custodian Agreement.(9)
(h1) Administration Agreement.(2)
(h2) Sponsor Agreement.(5)
(h3) Transfer Agency Agreement.(2)
(h4) Fund Accounting Agreement.(2)
(h5) Amendment No. 2 to the Sponsor Agreement.(9)
(h6) Form of Amendment No. 3 to the Sponsor Agreement.(9)
(h7) Amendment to the Administration Agreement. (9)
(i1) Opinion of counsel.(5)
(i2) Opinion of counsel regarding Growth & Income Fund and Bond Fund by Bingham
Dana, LLP.(7)
(i3) Opinion of counsel regarding Value Plus Fund by Bingham Dana, LLP.(7)
(i4) Opinion of counsel regarding the High Yield Fund, Small Cap Value Fund,
and Enhanced 30 Fund by Bingham Dana, LLP.(9)
(j) Consent of independent accountants.(9)
(k) Inapplicable.
(l) Investment letter of initial shareholders.(5)
(m) Inapplicable.
(n) Financial Data Schedules.(9)
(o) Inapplicable.
(1) Incorporated by reference from Post-Effective Amendment No. 2 to the
Registration Statement as filed with the SEC via Edgar on April 29, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement as filed with the SEC via Edgar on February 28,
1997.
(3) Incorporated by reference from Post-Effective Amendment No. 5 to the
Registration Statement as filed with the SEC via Edgar on February 13,
1998.
(4) Incorporated by reference from Post-Effective Amendment No. 6 to the
Registration Statement as filed with the SEC via Edgar on April 28, 1998.
<PAGE>
(5) Incorporated by reference from Post-Effective Amendment No. 7 to the
Registration Statement as filed with the SEC via Edgar on July 30, 1998.
(6) Incorporated by reference from Post-Effective Amendment No. 8 to the
Registration Statement as filed with the SEC via Edgar on October 20,
1998.
(7) Incorporated by reference from Post-Effective Amendment No. 9 to the
Registration Statement as filed with the SEC via Edgar on December 30,
1998.
(8) Incorporated by reference from Post-Effective Amendment No. 10 to the
Registration Statement as filed with the SEC via Edgar on February 12,
1999.
(9) Filed herein.
(10) To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Inapplicable.
ITEM 25. INDEMNIFICATION.
Under Article V, Section 5.3 of the Trust's Declaration of Trust, (a) subject to
the exceptions and limitations contained in paragraph (b) below: (i) every
person who is or has been a Trustee or officer of the Trust shall be indemnified
by the Trust, to the fullest extent permitted by law (including the 1940 Act) as
currently in effect or as hereinafter amended, against all liability and against
all expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof; (ii) the words "claim",
"action", "suit", or "proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative or other, including appeals),
actual or threatened; and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities. (b) No indemnification shall
be provided hereunder to a Trustee or officer: (i) against any liability to the
Trust or the Shareholders by reason of a final adjudication by the court or
other body before which the proceeding was brought that he engaged in wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office; (ii) with respect to any matter as to
which he shall have been finally adjudicated not to have acted in good faith in
the reasonable belief that his action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or officer
or other disposition not involving a final adjudication as provided in paragraph
(b)(i) or (b)(ii) above resulting in a payment by a Trustee or officer, unless
there has been either a determination that such Trustee or officer did not
engage in wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office by the court or other body
approving the settlement or other disposition or by a reasonable determination,
based upon a review of readily available facts (as opposed to a full trial-type
<PAGE>
inquiry) that he did not engage in such conduct: (A) by a vote of a majority of
the Disinterested Trustees acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter); or (B) by written
opinion of independent legal counsel. (c) Subject to the provisions of the 1940
Act, the Trust may maintain insurance for the protection of the Trust Property,
its present or former Shareholders, Trustees, officers, employees, independent
contractors and agents in such amount as the Trustees shall deem adequate to
cover possible tort liability (whether or not the Trust would have the power to
indemnify such Persons against such liability), and such other insurance as the
Trustees in their sole judgment shall deem advisable. (d) The rights of
indemnification herein provided shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a Person who has ceased to be such a Trustee or officer and shall
inure to the benefit of the heirs, executors and administrators of such Person.
Nothing contained herein shall affect any rights to indemnification to which
personnel other than Trustees and officers may be entitled by contract or
otherwise under law. (e) Expenses of preparation and presentation of a defense
to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 5.3 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 5.3, provided that either: (I)
such undertaking is secured by a surety bond or some other appropriate security
or the Trust shall be insured against losses arising out of any such advances;
or (ii) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the matter)
or an independent legal counsel in a written opinion, shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately will be
found entitled to indemnification. As used in this Section 5.3 a "Disinterested
Trustee" is one (i) who is not an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), and (ii) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or had been pending. As used in this
Section 5.3, the term "independent legal counsel" means an attorney who is
independent in all respects from the Trust and from the person or persons who
seek indemnification hereunder and in any event means an attorney who has not
been retained by or performed services for the Trust or any person to be so
indemnified within the five years prior to the Initial request for
indemnification pursuant hereto.
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of the Trust pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Trust of expenses incurred or paid by a Trustee, officer
or controlling person of the Trust in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
<PAGE>
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Touchstone Advisors, Inc. ("Touchstone Advisors") serves as investment
advisor to each series of the Trust.
Set forth below are the names, principal business addresses and positions
of each director and officer of Touchstone Advisors. Unless otherwise
noted, the principal business address of these individuals is Touchstone
Advisors, Inc., 311 Pike Street, Cincinnati, Ohio 45202. Unless otherwise
specified, none of the officers and directors of Touchstone Advisors serve
as officers and Trustees of the Trust.
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES POSITION AND OFFICES
WITH TOUCHSTONE ADVISORS WITH THE REGISTRANT
<S> <C> <C>
James N. Clark* Director none
Jill T. McGruder Director, President and Chief Trustee, President, Chairman of the
Executive Officer Board and Chief Executive Officer
William F. Ledwin* Director none
Donald J. Wuebbling* Director, Secretary and Chief Legal none
Officer
James J. Vance* Treasurer Treasurer
Edward S. Heenan* Vice President and Controller Controller
J. Thomas Lancaster* Vice President none
Richard K. Taulbee* Vice President none
Patricia Wilson Chief Compliance Officer none
Robert F. Morand* Assistant Secretary none
Robert A. Dressman* Assistant Treasurer none
Timothy D. Speed* Assistant Treasurer none
*Principal business address is 400 Broadway, Cincinnati, Ohio 45202
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
Inapplicable.
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Touchstone Variable Series Trust
311 Pike Street
Cincinnati, OH 45202
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, OH 45202
(investment advisor)
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(administrator and fund accounting agent)
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston and the Commonwealth
of Massachusetts on the 26th day of April, 1999.
TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ ANDREW S. JOSEF
----------------------------------------
Andrew S. Josef, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 26, 1999.
SIGNATURE TITLE
/s/ Jill T. McGruder President and Trustee (Principal
- - ------------------------------- Executive Officer)
Jill T. McGruder
/s/ William J. Williams Trustee
- - -------------------------------
William J. Williams
/s/ Joseph S. Stern Trustee
- - -------------------------------
Joseph S. Stern, Jr.
/s/ Phillip R. Cox Trustee
- ---------------------------------
Phillip R. Cox
/s/ Robert E. Stautberg Trustee
- - -------------------------------
Robert E. Stautberg
/s/ James J. Vance Treasurer (Principal Financial
- - ------------------------------- Officer and Principal Accounting
James J. Vance Officer)
<PAGE>
TOUCHSTONE VARIABLE SERIES TRUST
EXHIBITS TO
REGISTRATION STATEMENT ON
FORM N-1A
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(a3) Amendment No. 5 to Amended Declaration of Trust of the Trust.
(d2) Amended and Restated Sub-Advisory Agreement with respect to Value Plus
Fund.
(d3) Amended and Restated Sub-Advisory Agreement with respect to Emerging
Growth Fund (David L. Babson & Company, Inc.).
(d4) Amended and Restated Sub-Advisory Agreement with respect to
International Equity Fund.
(d5) Amended and Restated Sub-Advisory Agreement with respect to Balanced
Fund.
(d6) Amended and Restated Sub-Advisory Agreement with respect to Income
Opportunity Fund.
(d7) Amended and Restated Sub-Advisory Agreement with respect to Standby
Income Fund.
(d8) Sub-Advisory Agreement with respect to the Bond Fund.
(d9) Sub-Advisory Agreement with respect to the Growth & Income Fund.
(d10) Amended and Restated Sub-Advisory Agreement with respect to Emerging
Growth Fund (Westfield Capital Management).
(d11) Form of Sub-Advisory Agreement with respect to the High Yield Fund.
(d12) Form of Sub-Advisory Agreement with respect to the Small Cap Value
Fund.
(d13) Form of Sub-Advisory Agreement with respect to the Enhanced Index
Fund.
(d14) Form of Amendment to the Amended and Restated Investment Advisory
Agreement adding the High Yield Fund, Small Cap Value Fund, and
Enhanced 30 Fund.
(g) Amended and Restated Custodian Agreement.
(h5) Amendment No. 2 to the Sponsor Agreement.
(h6) Form of Amendment No. 3 to the Sponsor Agreement.
(h7) Amendment to Administration Agreement.
(i4) Opinion of counsel regarding the High Yield Fund, Small Cap Value
Fund, and Enhanced 30 Fund by Bingham Dana, LLP.
(j) Consent of independent accountants.
(n) Financial Data Schedules.
TOUCHSTONE VARIABLE SERIES TRUST
(formerly Select Advisors Variable Insurance Trust)
Amendment No. 5 to Amended Declaration of Trust and
Fourth Amended and Restated Establishment and
Designation of Series of Shares of Beneficial
Interest (par value $0.00001 per share)
Dated as of January 4, 1999
The undersigned, being the Trustees of the Select Advisors Variable
Insurance Trust, a Massachusetts business trust (the "Trust"), acting pursuant
to Article IX, Section 9.3(a) and 9.3(f) of the Trust's Declaration of Trust
dated as of February 7, 1994 (the "Declaration"), hereby amend and restate the
first sentence of Section 1.1 of the Declaration to read in its entirety: "The
name of the trust is "Touchstone Variable Series Trust"."
Pursuant to Articles IX, Section 9.3(a) and Article VI, Section 6.1 and
6.9 of the Declaration, the Trustees of the Trust hereby amend and restate the
Establishment and Designation of Series appended to the Declaration to:
i.) add two additional series of Shares (as defined in the Declaration)
of the Trust, to be designated the Touchstone Growth & Income Fund (the
"Growth & Income Fund") and the Touchstone Bond Fund (the "Bond
Fund")(each a "New Fund" and, collectively, the "New Funds"); and
ii.) change the names of the six currently designated series of
Shares (as defined in the Declaration)(each a "Current Fund" and,
collectively, together with the New Funds, the "Funds") as follows:
The Current Funds shall be redesignated as follows:
Current Fund name: New Fund name:
Touchstone Standby Income Portfolio Touchstone Standby Income Fund
Touchstone Balanced Portfolio Touchstone Balanced Fund
Touchstone Income Opportunity Portfolio Touchstone Income Opportunity Fund
Touchstone Emerging Growth Portfolio Touchstone Emerging Growth Fund
Touchstone International Equity Portfolio Touchstone International Equity Fund
Touchstone Value Plus Portfolio Touchstone Value Plus Fund
The Funds shall have the following special and relative rights:
1. The Funds shall each be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, (the "1933 Act") to the extent
pertaining to the offering of Shares of such Fund. Each Share of the Funds shall
be redeemable, shall be entitled to one vote (or fraction thereof in respect of
a fractional share) on matters on which Shares of such Fund shall be entitled to
vote, shall represent a pro rata beneficial interest in the assets allocated or
belonging to that Fund, and shall be entitled to receive its pro rata share of
the net assets of that Fund upon liquidation of the Fund, all as provided in
Section 6.9 of the Declaration. The proceeds of sales of Shares of each Fund,
together with any income and gain thereon, less any diminution or expenses
thereof, shall irrevocably belong to such Fund, unless otherwise required by
law.
<PAGE>
2. Shareholders of each of the Funds shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to that Fund as provided in Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended (the "1940 Act"), or any successor rule, and by the Declaration.
3. The assets and liabilities of the Trust shall be allocated among each of the
Growth & Income Fund and the Bond Fund and the other series of the Trust as set
forth in Section 6.9 of the Declaration.
4. Subject to the provisions of Section 6.9 and Article IX of the Declaration,
the Trustees (including any successor Trustees) shall have the right at any time
and from time to time to reallocate assets and expenses, to change the
designation of the Fund or any other series hereafter created, or otherwise to
change the special and relative rights of the Funds or any such other series.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 30th day of December, 1998. This instrument may be executed by the Trustees
on separate counterparts but shall be effective only when signed by a majority
of the Trustees.
/s/ Edward G. Harness, Jr.
________________________________
Edward G. Harness, Jr.
/s/ Wiliam J. Williams
--------------------------------
William J. Williams
/s/ Joseph S. Stern, Jr.
--------------------------------
Joseph S. Stern, Jr.
--------------------------------
Phillip R. Cox
/s/ David Pollak
--------------------------------
David Pollak
/s/ Robert E. Stautberg
--------------------------------
Robert E. Stautberg
SUB-ADVISORY AGREEMENT
TOUCHSTONE VALUE PLUS FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT
WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Value
Plus Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.45% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
5
<PAGE>
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 East 4th Street, Cincinnati, Ohio 45202.
6
<PAGE>
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
President
FORT WASHINGTON INVESTMENT
ADVISORS, INC.
By /s/ William F. Ledwin
Name: William F. Ledwin
Title: President
600144.02
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE EMERGING GROWTH FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
DAVID L. BABSON & COMPANY, INC., a Massachusetts corporation (the
"Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services with respect to certain
assets of the Touchstone Emerging Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of that portion of the
assets of the Fund allocated to it by the Advisor (which portion, until changed
by the Advisor by not less than ten days prior written notice, shall be 50% of
the total assets of the Fund) (the said portion, as it may be changed from time
to time, being herein called the "Fund Assets"), subject to the control and
direction of the Advisor and the Trust's Board of Trustees, for the period and
on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the Fund Assets and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request; provided, however, that in the absence of extraordinary
circumstances, the individual primarily responsible for management of
Fund Assets for the Sub-Advisor will not be required to attend in
person more than one meeting per year with the trustees of the Trust.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor with respect to a composite of other funds managed by the
Sub-Advisor that are comparable, in investment objective and
composition, to the Fund, (iii) access to the individual(s) responsible
for day-to-day management of the Fund for marketing conferences,
teleconferences and other activities involving the promotion of the
Fund, subject to the reasonable request of the Advisor, (iv) permission
to use biographical and historical data of the Sub-Advisor and
individual manager(s), and (v) permission to use the names of those
clients pre-approved by the Sub-Advisor to which the Sub-Advisor
provides investment management services, subject to receipt of the
consent of such clients to the use of their names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
3
<PAGE>
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.50% of the
average daily net Fund Assets. Such fee shall be computed and accrued
daily. If the Sub-Advisor serves in such capacity for less than the
whole of any period specified in this Section 3a, the compensation to
the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund Assets shall be computed
by the same method as the Trust uses to compute the net asset value of
the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request, subject to the limitation on
personal attendance at such meetings set forth in Section 2a) (i) the financial
condition and prospects of the Sub-Advisor, (ii) the nature and amount of
transactions affecting the Fund that involve the Sub-Advisor and affiliates of
the Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto and will hereafter supply to
the Advisor, promptly upon the preparation thereof, copies of all amendments or
restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any sharholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
5
<PAGE>
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
6
<PAGE>
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be One Memorial Drive, Cambridge, Massachusetts
02142-1300.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
DAVID L. BABSON & COMPANY, INC.
Attest:
/s/ John E. Deitelbaum BY /s/ John W. Filooa Jr.
Name:John E. Deitelbaum Name: John W. Filooa Jr.
Title: Vice President & Title: Vice President
General Counsel
600474.02
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE INTERNATIONAL EQUITY FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
CREDIT SUISSE ASSET MANAGEMENT, a New York general partnership (the
"Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone
International Equity Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time reasonably request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, consisting of: (i) permission to
use the Sub-Advisor's name as provided in Section 5, (ii) permission to
use the past performance and investment history of the Sub-Advisor as
the same is applicable to the Fund, (iii) access to the individual(s)
responsible for the management of the Fund for marketing conferences,
teleconferences and other activities involving the promotion of the
Fund, subject to the reasonable request of the Advisor and to the
limitation that the individual primarily responsible for management of
the Fund Assets for the Sub-Advisor will not be required to attend more
than one meeting of the Trust's Trustees in any one year, (iv)
permission to use biographical and historical data of the Sub-Advisor
and individual manager(s), and (v) permission to use the names of
clients to which the Sub-Advisor provides investment management
services, subject to any restrictions imposed by clients on the use of
such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages. The Sub-Advisor will present a
written report to the Board of Trustees of the Trust, at least
quarterly, indicating total brokerage expenses, actual or imputed, as
well as the services obtained in consideration for such expenses,
broken down by broker-dealer and containing such information as the
Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change. In addition, the
Sub-Advisor will notify the Advisor of any change in the membership of
the Sub-Advisor within a reasonable time (but not more than 30 days)
after such change takes place.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. Based on account information regarding the Fund provided by
the Advisor, the Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended; provided, however, that with respect
to the provisions of the 1940 Act regarding transactions with
affiliates, the obligations of the Sub-Advisor shall be limited to
matters involving its own affiliates and such other persons as the
Advisor shall expressly identify as affiliated persons.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered
and duties undertaken hereunder by the Sub-Advisor, the
Advisor will pay to the Sub-Advisor a monthly fee equal on an
annual basis to 0.85% of the first $30 million of the average
daily net assets of the Fund, 0.80% of the average daily net
assets of the Fund in excess of $30 million and up to $50
million, 0.60% of the average daily net assets of the Fund in
excess of $50 million and up to $75 million, and 0.50% of the
average daily net assets of the Fund in excess of $75 million.
Such fee shall be computed and accrued daily. If the
Sub-Advisor serves in such capacity for less than the whole of
any period specified in this Section 3a, the compensation to
the Sub-Advisor shall be prorated. For purposes of calculating
the Sub-Advisor's fee, the daily value of the Fund's net
assets shall be computed by the same method as the Trust uses
to compute the net asset value of the Fund for purposes of
purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or
a part of its fees hereunder.
4
<PAGE>
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) information reasonably requested by
such Board of Trustees regarding (i) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (ii) any potential conflicts of interest arising by reason of its
continuing provision of advisory services to the Fund and to its other accounts,
and (iii) such other matters as the Board of Trustees shall reasonably request
regarding the Fund, the Fund's performance, the services provided by the
Sub-Advisor to the Fund as compared to its other accounts and the plans of, and
the capability of, the Sub-Advisor with respect to providing future services to
the Fund and its other accounts. The Sub-Advisor agrees to submit to the Trust a
statement defining its policies with respect to the allocation of business among
the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the
part of the Sub-Advisor, the Sub-Advisor shall not be subject to
liability to the Advisor, the Trust or to any shareholder in the
Fund for any act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security. As
used in this Section 6, the term "Sub-Advisor" shall include the
Sub-Advisor and/or any of its affiliates and the directors,
officers and employees of the Sub-Advisor and/or any of its
affiliates.
b. The Trust or the Advisor will indemnify the Sub-Advisor
against, and hold it harmless from, any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from its activities under and
pursuant to this Agreement, except to the extent that such
losses, claims, damages, liabilities or expenses result from the
gross negligence, bad faith or willful misfeasance of the
Sub-Advisor or from a breach of its obligations or duties
hereunder. Indemnification shall be made only after: (i) a final
decision on the merits by a court or other body before whom the
proceeding was brought that the Trust or the Advisor was liable
for the damages claimed or (ii) in the absence of such a
decision, a reasonable determination based upon a review of the
facts, that the Trust or the Advisor was liable for the damages
claimed, which determination shall be made by either (a) the vote
of a majority of a quorum of Trustees of the Trust who are
neither "interested persons" of the Trust nor parties to the
proceeding ("disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties hereto,
whose determination shall be set forth in a written opinion. The
Sub-Advisor shall be entitled to advances from the Trust for
payment of the reasonable expenses incurred by it in connection
with the matter as to which it is seeking indemnification in the
manner and to the fullest extent that would be permissible under
the applicable provisions of the General Corporation Law of Ohio.
The Sub-Advisor shall provide to the Trust a written affirmation
of its good faith belief that the standard of conduct necessary
for indemnification under such law has been met and a written
undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions
shall be met: (a) the Sub-Advisor shall provide security in form
and amount acceptable to the Trust for its undertaking; (b) the
Trust is insured against losses arising by reason of the advance;
or (c) a majority of a quorum of the Trustees of the Trust, the
members of which majority are disinterested non-party Trustees,
or independent legal counsel in a written opinion, shall have
determined, based on a review of facts readily available to the
Trust at the time the advance is proposed to be made, that there
is reason to believe that the Sub-Advisor will ultimately be
found to be entitled to indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
6
<PAGE>
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
7
<PAGE>
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be One Citicorp Center, 153 East 53rd Street,
New York, New York 10122.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
CREDIT SUISSE ASSET MANAGEMENT
Attest:
/s/ Michael A. Pignataro BY /s/ Hal Liebes
Name: Michael A. Pignataro Name: Hal Liebes
Title: Vice President Title: General Counsel
600518.02
SUB-ADVISORY AGREEMENT
TOUCHSTONE BALANCED FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
OPCAP ADVISORS (the "Sub-Advisor"), a subsidiary of Oppenheimer Capital, a
Delaware general partnership.
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Balanced
Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
3
<PAGE>
d. The Advisor recognizes that, subject to the foregoing
provisions of this Section 2, an affiliate of the Sub-Advisor may act
as the regular broker for the Fund so long as it is lawful for it so
to act and that such affiliate may be a major recipient of brokerage
commissions paid by the Fund. Any such affiliate may effect securities
transactions for the Fund only if (1) the commissions, fees or other
remuneration received or to be received by it are reasonable and fair
compared to the commissions, fees or other remuneration received by
other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange
during a comparable period of time and (2) the Trustees, including a
majority of those Trustees who are not interested persons, have
adopted procedures pursuant to Rule 17e-1 under the 1940 Act for
determining the permissible level of such commissions.
e. The Advisor understands that (i) when orders to purchase or
sell the same security on identical terms are placed by more than one
of the funds and/or other advisory accounts managed by the Sub-Advisor
or its affiliates, the transactions generally will be executed as
received, although a fund or advisory account that does not direct
trades to a specific broker ("free trades") usually will have its
order executed first, (ii) although all orders placed on behalf of the
Fund will be considered free trades, having an order placed first in
the market does not necessarily guarantee the most favorable price,
and (iii) purchases will be combined where possible for the purpose of
negotiating brokerage commissions, which in some cases might have a
detrimental effect on the price or volume of the security in a
particular transaction as far as the Fund is concerned.
f. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
g. The Sub-Advisor will bear its expenses of providing services
to the Fund pursuant to this Agreement except such expenses as are
undertaken by the Advisor or the Trust.
h. The Sub-Advisor will manage the Fund Assets and the investment
and reinvestment of such assets so as to comply with the provisions of
the 1940 Act and with Subchapter M of the Internal Revenue Code of
1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.60% of the
first $20 million of the average daily net assets of the Combined
Funds, 0.50% of such average daily net assets in excess of $20 million
and up to $50 million and 0.40% of such average daily net assets in
excess of $50 million.
4
<PAGE>
b. "Combined Funds," for purposes of this Section 3, means the
combined assets of the Fund and the Touchstone Balanced Fund of the
Touchstone Series Trust, to which fund the Sub-Advisor also acts as an
investment advisor.
c. The fee of the Sub-Advisor hereunder shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less
than the whole of any period specified in Section 3a, the fee to the
Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the net assets of the Combined
Funds shall be computed by the same method as the Trust and Touchstone
Series Trust use, respectively, to compute the net asset value of each
such Fund for purposes of purchases and redemptions of shares thereof.
d. The Sub-Advisor reserves the right to waive all or a part of
its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5
<PAGE>
Nothing in this Agreement shall prevent the Sub-Advisor, any parent,
subsidiary or affiliate, or any director or officer thereof, from acting as
investment advisor for any other person, firm, or corporation, and shall not in
any way limit or restrict the Sub-Advisor or any of its directors, officers,
stockholders or employees from buying, selling or trading any securities or
commodities for its or their own account or for the account of others for whom
it or they may be acting, if such activities will not adversely affect or
otherwise impair the performance by the Sub-Advisor of its duties and
obligations under this Agreement. The Sub-Advisor will (i) supply to the
Advisor, upon execution of this Agreement, with a true copy of its currently
effective Code of Ethics and policies regarding insider trading and (ii)
thereafter supply to Advisor copies of any amendments to or restatements of such
Code of Ethics or insider trading policies, and (iii) report to the Board of
Trustees not less often than quarterly with respect to any violations of such
Code of Ethics or insider trading policies by persons covered thereby to the
extent that such violations involve the assets or activities of the Fund.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
6
<PAGE>
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
7
<PAGE>
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 225 Liberty Street, 16th Floor, New York,
New York 10281.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
OPCAP ADVISORS
Attest:
/s/ Thomas E. Duggan BY /s/ Bernard H. Gavil
Name: Thomas E. Duggan Name: Bernard H. Gavil
Title: Secretary Title: President
600513.02
8
SUB-ADVISORY AGREEMENT
TOUCHSTONE INCOME OPPORTUNITY FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
ALLIANCE CAPITAL MANAGEMENT, L.P., a limited partnership organized under the
laws of Delaware (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Income
Opportunity Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the
oversight responsibilities of the Advisor under the Advisory Agreement and of
the Trust's Board of Trustees under applicable law, for the period and on the
terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and
agrees during such period to render the services and to perform the duties
called for by this Agreement for the compensation herein provided. The
Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and
subject to the oversight responsibilities of the Advisor under the
Advisory Agreement and of the Trust's Board of Trustees under
applicable law, in each case with respect to the Fund. In furtherance
of the foregoing, the Sub-Advisor will make all determinations with
respect to the investment of the assets of the Fund and the purchase
and sale of portfolio securities and shall take such steps as may be
necessary or advisable to implement the same. The Sub-Advisor also will
determine the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the portfolio
securities will be exercised. The Sub-Advisor will render regular
reports to the Trust's Board of Trustees, to the Advisor and to BARRA
RogersCasey, Inc. (or such other advisor or advisors as the Advisor
shall engage to assist it in the evaluation of the performance and
activities of the Sub-Advisor). Such reports shall be made in such form
and manner and with respect to such matters regarding the Fund and the
Sub-Advisor as the Trust, the Advisor or BARRA RogersCasey, Inc. shall
from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of those clients to which the Sub-Advisor provides investment
management services, subject to receipt of the consent of such clients
to the use of their names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages. The Sub-Advisor will present a
written report to the Board of Trustees of the Trust, at least
quarterly, indicating total brokerage expenses, actual or imputed, as
well as the services obtained in consideration for such expenses,
broken down by broker-dealer and containing such information as the
Board of Trustees reasonably shall request.
d. In the event of any reorganization(s) or other change(s) in
the Sub-Advisor, its executive officers or members of its investment
(or comparable) committee that, individually or collectively, are
likely to have a material adverse effect on the ability of the
Sub-Advisor to manage the Fund or otherwise perform its obligations to
the Advisor and the Trust under this Agreement, the Sub-Advisor shall
give the Advisor and the Trust's Board of Trustees written notice of
such reorganization or change within a reasonable time (but not later
than 30 days) after such reorganization or change. In addition, the
Sub-Advisor will notify the Advisor of any change in membership of the
Sub-Advisor's general partners within a reasonable time (but not later
than 30 days) after such change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR. As compensation for the services to
be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will
pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.40% of the
first $50 million of the average daily net assets of the Fund, 0.35% of the
average daily net assets of the Fund in excess of $50 million and up to $70
million and 0.30% of the average daily net assets of the Fund in excess of $70
million and up to $90 million and 0.25% of the average daily net assets of the
Fund in excess of $90 million. Such fee shall be computed and accrued daily. If
the Sub-Advisor serves in such capacity for less than the whole of any period
specified in this Section 3, the compensation to the Sub-Advisor shall be
prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of
the Fund's net assets shall be computed by the same method as the Trust uses to
compute the net asset value of the Fund for purposes of purchases and
redemptions of shares thereof.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the nature and amount of
transactions affecting the Fund that involve the Sub-Advisor and affiliates of
the Sub-Advisor, (ii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iii) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of investment opportunities among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
5
<PAGE>
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment (as defined below).
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment" and "majority of the outstanding
voting securities" shall have the meaning set forth for such terms in
the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 1345 Avenue of the Americas, New York, New
York 10105.
6
<PAGE>
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
ALLIANCE CAPITAL MANAGEMENT, L.P.
by ALLIANCE CAPITAL MANAGEMENT
CORP., General Partner
Attest:
/s/ David M. Lesser BY /s/ Mark R. Manley
Name: David M. Lesser Name: Mark R. Manley
Title: Administrative Officer Title: Assistant Secretary
600521.02
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE STANDBY INCOME FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT
WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Standby
Income Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.15% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Sub-Advisor, the Sub-Advisor shall not be subject to liability to
the Advisor, the Trust or to any shareholder in the Fund for any act
or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. As used in this Section 6, the term
"Sub-Advisor" shall include the Sub-Advisor and/or any of its
affiliates and the directors, officers and employees of the
Sub-Advisor and/or any of its affiliates.
5
<PAGE>
b. The Advisor will indemnify the Sub-Advisor against, and hold
it harmless from, any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from acts or omissions of the Advisor and/or the Trust.
Indemnification shall be made only after: (i) a final decision on the
merits by a court or other body before whom the proceeding was brought
that the Trust or the Advisor was liable for the damages claimed or
(ii) in the absence of such a decision, a reasonable determination
based upon a review of the facts, that the Trust or the Advisor was
liable for the damages claimed, which determination shall be made by
either (a) the vote of a majority of a quorum of Trustees of the Trust
who are neither "interested persons" of the Trust nor parties to the
proceeding ("disinterested non-party Trustees") or (b) an independent
legal counsel satisfactory to the parties hereto, whose determination
shall be set forth in a written opinion. The Sub-Advisor shall be
entitled to advances from the Trust for payment of the reasonable
expenses incurred by it in connection with the matter as to which it
is seeking indemnification in the manner and to the fullest extent
that would be permissible under the indemnification provisions of the
General Corporation Law of Ohio. The Sub-Advisor shall provide to the
Trust a written affirmation of its good faith belief that the standard
of conduct necessary for indemnification under such law has been met
and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions
shall be met: (a) the Sub-Advisor shall provide security in form and
amount acceptable to the Trust for its undertaking; (b) the Trust is
insured against losses arising by reason of the advance; or (c) a
majority of a quorum of the Trustees of the Trust, the members of
which majority are disinterested non-party Trustees, or independent
legal counsel in a written opinion, shall have determined, based on a
review of facts readily available to the Trust at the time the advance
is proposed to be made, that there is reason to believe that the
Sub-Advisor will ultimately be found to be entitled to
indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
6
<PAGE>
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 East 4th Street, Cincinnati, Ohio 45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
President
FORT WASHINGTON INVESTMENT
ADVISORS, INC.
By /s/ William F. Ledwin
Name: William F. Ledwin
Title: President
600527.02
8
SUB-ADVISORY AGREEMENT
TOUCHSTONE BOND FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT
WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Bond Fund
(the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
3
<PAGE>
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.30% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Sub-Advisor, the Sub-Advisor shall not be subject to liability to
the Advisor, the Trust or to any shareholder in the Fund for any act
or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. As used in this Section 6, the term
"Sub-Advisor" shall include the Sub-Advisor and/or any of its
affiliates and the directors, officers and employees of the
Sub-Advisor and/or any of its affiliates.
5
<PAGE>
b. The Advisor will indemnify the Sub-Advisor against, and hold
it harmless from, any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from acts or omissions of the Advisor and/or the Trust.
Indemnification shall be made only after: (i) a final decision on the
merits by a court or other body before whom the proceeding was brought
that the Trust or the Advisor was liable for the damages claimed or
(ii) in the absence of such a decision, a reasonable determination
based upon a review of the facts, that the Trust or the Advisor was
liable for the damages claimed, which determination shall be made by
either (a) the vote of a majority of a quorum of Trustees of the Trust
who are neither "interested persons" of the Trust nor parties to the
proceeding ("disinterested non-party Trustees") or (b) an independent
legal counsel satisfactory to the parties hereto, whose determination
shall be set forth in a written opinion. The Sub-Advisor shall be
entitled to advances from the Trust for payment of the reasonable
expenses incurred by it in connection with the matter as to which it
is seeking indemnification in the manner and to the fullest extent
that would be permissible under the indemnification provisions of the
General Corporation Law of Ohio. The Sub-Advisor shall provide to the
Trust a written affirmation of its good faith belief that the standard
of conduct necessary for indemnification under such law has been met
and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions
shall be met: (a) the Sub-Advisor shall provide security in form and
amount acceptable to the Trust for its undertaking; (b) the Trust is
insured against losses arising by reason of the advance; or (c) a
majority of a quorum of the Trustees of the Trust, the members of
which majority are disinterested non-party Trustees, or independent
legal counsel in a written opinion, shall have determined, based on a
review of facts readily available to the Trust at the time the advance
is proposed to be made, that there is reason to believe that the
Sub-Advisor will ultimately be found to be entitled to
indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
6
<PAGE>
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 East 4th Street, Cincinnati, Ohio 45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
President
FORT WASHINGTON INVESTMENT
ADVISORS, INC.
By /s/ William F. Ledwin
Name: William F. Ledwin
Title: President
600525.02
8
SUB-ADVISORY AGREEMENT
TOUCHSTONE GROWTH & INCOME FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Growth &
Income Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Advisor hereby represents that (i)
it has authority under the Advisory Agreement to appoint the Sub-Advisor to act
as an investment advisor to the Trust, and (ii) this Agreement is valid and
binding upon the Advisor. The Sub-Advisor hereby accepts such employment and
agrees during such period to render the services and to perform the duties
called for by this Agreement for the compensation herein provided. The
Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time reasonably request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund in a manner comparable to the
support provided to comparable clients of the Sub-Advisor, including
but not limited to: (i) permission to use the Sub-Advisor's name as
provided in Section 6, (ii) permission to use the past performance and
investment history of the Sub-Advisor as the same is applicable to the
Fund, provided counsel to the Trust determine that the use of such
information and the manner of presentation of such information is
legally permissible, (iii) access to the individual(s) responsible for
day-to-day management of the Fund for marketing conferences,
teleconferences and other activities involving the promotion of the
Fund, subject to the reasonable request of the Advisor, (iv) permission
to use biographical and historical data of the Sub-Advisor and
individual manager(s), and (v) with respect to clients whose names are
provided to the Advisor by the Sub-Advisor in writing prior to use,
permission to use the names of these clients, subject to any
restrictions imposed by clients on the use of such names or by the
Investment Advisors Act of 1940 and the rules adopted thereunder.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required
by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the
Securities and Exchange Commission (the "SEC"), the Trust or any
person retained by the Trust. Where applicable, such records shall be
maintained by the Advisor for the periods and in the places required
by Rule 31a-2 under the 1940 Act. When placing orders with brokers and
dealers, the Sub-Advisor shall seek to obtain the most favorable price
and execution available for the Fund, and in placing such orders the
Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the
broker, the efficiency with which the transaction will be effected,
the ability to effect the transaction at all where a large block is
involved and the availability of the broker or dealer to stand ready
to execute possibly difficult transactions in the future. The
Sub-Advisor is specifically authorized, to the extent authorized by
law (including, without limitation, Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), to pay a
broker or dealer who provides research services to the Sub-Advisor an
amount of commission for effecting a portfolio transaction in excess
of the amount of commission another broker or dealer would have
charged for effecting such transaction, in recognition of such
additional research services rendered by the broker or dealer, but
only if the Sub-Advisor determines in good faith that the excess
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer viewed in terms of
the particular transaction or the Sub-Advisor's overall
responsibilities with respect to discretionary accounts that it
manages, and that the Fund derives or will derive a reasonably
significant benefit from such research services. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly and at such other times as reasonably requested by the
Board of Trustees, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
3
<PAGE>
d. The Sub-Advisor may execute standard account documentation,
agreements, contracts and other documents (collectively, the "Account
Documents") as the Sub-Advisor may be requested by brokers, dealers,
counterparties and other persons in connection with the Sub-Advisor's
management of the Fund Assets, provided that the Advisor and the
Trust's Board of Trustees first authorize the Sub-Advisor to execute
Account Documents. In such respect, and only for this limited purpose,
the Sub-Advisor shall act as the agent and/or attorney-in-fact of the
Trust and/or the Advisor.
e. The Advisor recognizes that, subject to the provisions of
Section 2c, Scudder Investor Services, Inc. or its successor ("SIS"),
an affiliate of the Sub-Advisor, may act as the regular broker for the
Fund so long as it is lawful for it so to act and that SIS may be a
major recipient of brokerage commissions paid by the Fund. SIS may
effect securities transactions for the Fund only if (i) the
commissions, fees or other remuneration received or to be received by
it are reasonable and fair compared to the commissions, fees or other
remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time and (ii) the
Trustees, including a majority of those Trustees who are not
interested persons, have adopted procedures pursuant to Rule 17e-1
under the 1940 Act for determining the permissible level of such
commissions.
f. The Advisor understands that (i) when orders to purchase or
sell the same security on identical terms are placed by more than one
of the funds and/or other advisory accounts managed by the Sub-Advisor
or its affiliates, the transactions generally will be executed as
received, although a fund or advisory account that does not direct
trades to a specific broker ("free trades") usually will have its
order executed first, (ii) although all orders placed on behalf of the
Fund will be considered free trades, having an order placed first in
the market does not necessarily guarantee the most favorable price,
and (iii) purchases will be combined where possible for the purpose of
negotiating brokerage commissions, which in some cases might have a
detrimental effect on the price or volume of the security in a
particular transaction as far as the Fund is concerned.
g. The Sub-Advisor may enter into arrangements with other persons
affiliated with the Sub-Advisor for the provision of certain personnel
and facilities to the Sub-Advisor to better enable it to fulfill its
duties and obligations under this Agreement.
4
<PAGE>
h. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
i. The Sub-Advisor will bear its expenses of providing services
to the Fund pursuant to this Agreement except such expenses as are
undertaken by the Advisor or the Trust.
j. The Sub-Advisor will manage the Fund Assets and the investment
and reinvestment of such assets so as to seek to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.50% of the
first $150 million of the average daily net assets of the Combined
Funds, and 0.45% of such average daily net assets in excess of $150
million.
b. "Combined Funds," for purposes of this Section 3, means the
combined assets of the Fund and the Touchstone Growth & Income Fund of
the Touchstone Series Trust, to which the Sub-Advisor also acts as an
investment advisor.
c. The fee of the Sub-Advisor hereunder shall be computed and
accrued daily and paid monthly. If the Sub-Advisor serves in such
capacity for less than the whole of any period specified in this
Section 3a, the fee to the Sub-Advisor shall be prorated. For purposes
of calculating the Sub-Advisor's fee, the daily value of the Combined
Funds shall be computed by the same method as the Trust and the
Touchstone Series Trust use, respectively, to compute the net asset
value of each such Fund for purposes of purchases and redemptions of
shares thereof.
d. The Sub-Advisor reserves the right to waive all or a part of
its fees hereunder.
5
<PAGE>
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. Furthermore, it is understood that the Sub-Advisor
may give advice, and take action, with respect to its other clients that may
differ from the advice given, or the time and nature of the action taken, with
respect to the Fund. The Sub-Advisor will report to the Board of Trustees of the
Trust (at regular quarterly meetings and at such other times as such Board of
Trustees reasonably shall request) (i) the financial condition and prospects of
the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund
that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii)
information regarding any potential conflicts of interest arising by reason of
its continuing provision of advisory services to the Fund and to its other
accounts, and (iv) such other information as the Board of Trustees shall
reasonably request regarding the Fund, the Fund's performance, the performance
of other comparable accounts to whom the Sub-Advisor provides services and the
plans of, and the capability of, the Sub-Advisor with respect to providing
future services to the Fund and its other accounts. The Sub-Advisor agrees, on
an ongoing basis, to notify the Advisor of any change in the individual(s)
responsible for day-to-day management of the Fund and any material change in the
investment strategies employed by the Sub-Advisor in managing the Fund. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of investment opportunities among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
Nothing in this Agreement shall prevent the Sub-Advisor, any parent,
subsidiary or affiliate, or any director or officer thereof, from acting as
investment advisor for any other person, firm, or corporation, and shall not in
any way limit or restrict the Sub-Advisor or any of its directors, officers,
stockholders or employees from buying, selling or trading any securities or
commodities for its or their own account or for the account of others for whom
it or they may be acting, if such activities will not adversely affect or
otherwise impair the performance by the Sub-Advisor of its duties and
obligations under this Agreement. The Sub-Advisor will (i) supply to the
Advisor, upon the execution of this Agreement, with a true copy of its currently
effective Code of Ethics and policies regarding insider trading and (ii)
thereafter supply to Advisor copies of any amendments to or restatements of such
Code of Ethics or insider trading policies. The Sub-Advisor agrees to provide
the Advisor, on a quarterly basis, a report with respect to material violations
of the Sub-Advisor's Code of Ethics or insider trading policies by portfolio
managers who have responsibility for managing the Fund or a written statement
indicating that no such violations have occurred during the quarter. In
addition, the Sub-Advisor agrees to provide to the Advisor such other
information concerning violations of its Code of Ethics or insider trading
policies to the same extent that it provides such information to the Boards of
Directors of its proprietary mutual funds. The parties agree to be bound by the
provisions of Rule 17j-1 under the 1940 Act as it may be amended to the extent
that the provisions of the Rule are stricter than the provisions of this
paragraph.
6
<PAGE>
5. PROVISION OF INFORMATION BY THE ADVISOR. To facilitate the Sub-Advisor's
fulfillment of its obligations under this Agreement, the Advisor agrees (i)
promptly to provide the Sub-Advisor with all amendments or supplements to the
Trust's registration statements, its Agreement and Declaration of Trust, and its
By-Laws, (ii) on an ongoing basis, to notify the Sub-Advisor expressly in
writing of each change in the fundamental and nonfundamental investment policies
of the Fund, (iii) to provide or cause to be provided to the Sub-Advisor on an
ongoing basis such assistance as may reasonably be requested by the Sub-Advisor
in connection with its activities under this Agreement, including, without
limitation, information concerning the Fund, its available funds, or funds that
may reasonably become available for investment, and information as to the
general condition of the Fund's affairs, (iv) to provide or cause to be provided
to the Sub-Advisor on an ongoing basis such information as is reasonably
requested by the Sub-Advisor for performance by the Sub-Advisor of its
obligations under this Agreement and the Sub-Advisor shall not be in breach of
any term of this Agreement or be deemed to have acted negligently if such
alleged breach or negligent act is the result of the Advisor's failure to
provide or cause to be provided such requested information and the Sub-Advisor's
reliance on the information most recently furnished to the Sub-Advisor, and (v)
promptly to provide the Sub-Advisor with any guidelines and procedures
applicable to the Sub-Advisor or the Fund adopted from time to time by the Board
of Trustees of the Trust and all amendments thereto.
6. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of
the Sub-Advisor in any prospectus, sales literature or other material relating
to the Advisor or the Trust in any manner not approved in advance by the
Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of
its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld. Upon termination
of this Agreement, the Advisor and the Trust shall immediately cease to use the
name of the Sub-Advisor.
7
<PAGE>
7. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance,
bad faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject
to liability to the Advisor, the Trust or to any shareholder in the Fund for any
act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. The Sub-Advisor shall not be liable to the Advisor or the
Trust for any loss suffered as a consequence of any action or inaction of other
service providers to the Trust, provided such action or inaction of such other
service providers to the Fund is not a result of the willful misconduct, bad
faith or gross negligence in the performance of, or reckless disregard of, the
duties of the Sub-Advisor under this Agreement. As used in this Section 7, the
term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates
and the directors, officers and employees of the Sub-Advisor and/or any of its
affiliates.
8. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
9. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
10. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
8
<PAGE>
b. This Agreement may be terminated at any time, without payment
of any penalty, (i) by the Advisor, by the Trust's Board of Trustees
or by a vote of the majority of the outstanding voting securities of
the Fund, in any such case upon not less than 60 days' prior written
notice to the Sub-Advisor and (ii) by the Sub-Advisor upon not less
than 60 days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
c. If this Agreement is not approved by the favorable vote of a
majority of the outstanding voting securities of the Fund by February
4, 1999, it will terminate as of the close of business on the last day
of such period.
d. This Agreement will also terminate upon written notice to the
other party that the other party is in material breach of this
Agreement, unless the other party in material breach of this Agreement
cures such breach to the reasonable satisfaction of the party alleging
the breach within 30 days after the written notice.
e. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
f. The terms "affiliated persons," "assignment," "interested
persons" and "majority of the outstanding voting securities" shall
have the meaning set forth for such terms in Section 2(a) of the 1940
Act.
11. SEVERABILITY AND INCORPORATED EFFECT. If any provision of this
Agreement shall become or shall be found to be invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is relaxed by a rule, regulation or
order of the SEC, whether of specific or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
12. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 345 Park Avenue, New York, New York 10154.
9
<PAGE>
13. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio, or any applicable provisions of the
1940 Act. To the extent that the laws of the State of Ohio, or any of the
provisions in the Agreement, conflict with applicable provisions of the 1940
Act, the latter shall control. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
SCUDDER KEMPER INVESTMENTS, INC.
Attest:
/s/ Nicholas J. Griparich BY /s/ Cornelia Small
Name: Nicholas J. Griparich Name: Cornelia Small
Title: AVP Title: Managing Director
600524.02
10
SUB-ADVISORY AGREEMENT
TOUCHSTONE EMERGING GROWTH FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of January 1, 1999, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC., a Massachusetts corporation (the
"Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Emerging
Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of that portion of the
assets of the Fund allocated to it by the Advisor (such portion being herein
called the "Fund Assets"), subject to the control and direction of the Advisor
and the Trust's Board of Trustees, for the period and on the terms hereinafter
set forth. The Sub-Advisor hereby accepts such employment and agrees during such
period to render the services and to perform the duties called for by this
Agreement for the compensation herein provided. The Sub-Advisor shall at all
times maintain its registration as an investment advisor under the Investment
Advisers Act of 1940 and shall otherwise comply in all material respects with
all applicable laws and regulations, both state and federal. The Sub-Advisor
shall for all purposes herein be deemed an independent contractor and shall,
except as expressly provided or authorized (whether herein or otherwise), have
no authority to act for or represent the Trust in any way or otherwise be deemed
an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the Fund Assets, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions
which the Advisor or the Trust's Board of Trustees may give from time
to time with respect to the Fund. In furtherance of the foregoing, the
Sub-Advisor will make all determinations with respect to the investment
of the Fund Assets and the purchase and sale of portfolio securities
and shall take such steps as may be necessary or advisable to implement
the same. The Sub-Advisor also will determine the manner in which
voting rights, rights to consent to corporate action and any other
rights pertaining to the portfolio securities will be exercised. The
Sub-Advisor will render regular reports to the Trust's Board of
Trustees, to the Advisor and to BARRA RogersCasey, Inc. (or such other
advisor or advisors as the Advisor shall engage to assist it in the
evaluation of the performance and activities of the Sub-Advisor). Such
reports shall be made in such form and manner and with respect to such
matters regarding the Fund and the Sub-Advisor as the Trust, the
Advisor or BARRA RogersCasey, Inc. shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of those institutional clients to which the Sub-Advisor provides
investment management services, subject to receipt of consent of such
clients to the use of their names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.45% of the
first $10 million of the average daily net assets of the Fund managed
by the Sub-Advisor, 0.40% of the average daily net assets of the Fund
managed by the Sub-Advisor in excess of $10 million and up to $50
million and 0.35% of the average daily net assets of the Fund managed
by the Sub-Advisor in excess of $50 million. Such fee shall be computed
and accrued daily. If the Sub-Advisor serves in such capacity for less
than the whole of any period specified in this Section 3a, the
compensation to the Sub-Advisor shall be prorated. For purposes of
calculating the Sub-Advisor's fee, the daily value of the Fund's net
assets shall be computed by the same method as the Trust uses to
compute the net asset value of the Fund for purposes of purchases and
redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor will provide to the Trustees information regarding the
composite return of such of its other accounts as are comparable, in investment
objective and composition, to the Fund. The Sub-Advisor agrees to submit to the
Trust a statement defining its policies with respect to the allocation of
investment opportunities among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
5
<PAGE>
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1999; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
6
<PAGE>
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be One Financial Center - 23rd Floor, Boston,
Massachusetts 02111.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
/s/ Patricia J. Wilson BY /s/ Edward G. Harness, Jr.
Edward G. Harness, Jr.
Name: Patricia J. Wilson President
Title: Chief Compliance Officer
WESTFIELD CAPITAL MANAGEMENT
COMPANY, INC.
Attest:
/s/ Karen Dibrario BY /s/ Michael J. Chapman
Name: Name: Michael J. Chapman
Title: Title: Executive Vice President
600516.02
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE HIGH YIELD FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 1999, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT
WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone High
Yield Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
3
<PAGE>
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.40% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
5
<PAGE>
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 2000; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
6
<PAGE>
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 East 4th Street, Cincinnati, Ohio 45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By ______________________
Jill T. McGruder
President
FORT WASHINGTON INVESTMENT
ADVISORS, INC.
By ______________________
Name: _____________________
Title: ____________________
629638.01
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE SMALL CAP VALUE FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 1999, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and TODD
INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Small Cap
Value Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
3
<PAGE>
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.50% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
5
<PAGE>
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 2000; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
6
<PAGE>
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 3160 National City Tower, Louisville,
Kentucky 40202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By _________________________
Jill T. McGruder
President
TODD INVESTMENT ADVISORS, INC.
By _________________________
Name: ___________________
Title: __________________
629645.01
7
SUB-ADVISORY AGREEMENT
TOUCHSTONE ENHANCED INDEX FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 1999, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and TODD
INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (formerly 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 diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), to provide investment advisory services to the Touchstone Enhanced
Index Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to BARRA RogersCasey,
Inc. (or such other advisor or advisors as the Advisor shall engage to
assist it in the evaluation of the performance and activities of the
Sub-Advisor). Such reports shall be made in such form and manner and
with respect to such matters regarding the Fund and the Sub-Advisor as
the Trust, the Advisor or BARRA RogersCasey, Inc. shall from time to
time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
2
<PAGE>
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
3
<PAGE>
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.40% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
4
<PAGE>
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
5
<PAGE>
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 2000; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
6
<PAGE>
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 3160 National City Tower, Louisville,
Kentucky 40202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By _________________________
Jill T. McGruder
President
TODD INVESTMENT ADVISORS, INC.
By _________________________
Name: ___________________
Title: __________________
629643.01
7
AMENDMENT NO. 1
TO
INVESTMENT ADVISORY AGREEMENT
BETWEEN
TOUCHSTONE ADVISORS, INC. AND TOUCHSTONE VARIABLE SERIES TRUST
This Amendment No. 1 to Investment Advisory Agreement is dated as of
May 1, 1999 and amends the Investment Advisory Agreement (the "Advisory
Agreement") dated as of January 1, 1999, made by and between Touchstone
Advisors, Inc., an Ohio corporation (the "Advisor"), and Touchstone Variable
Series Trust, a Massachusetts business trust created pursuant to a Declaration
of Trust dated February 7, 1994 (the "Trust").
WHEREAS, the Advisor acts as investment advisor to the Trust pursuant
to the Advisory Agreement; and
WHEREAS, the Trust's Board of Trustees has amended and restated the
Establishment and Designation of Series appended to the Trust's Declaration of
Trust (the "Declaration") to add three additional series of Shares (as defined
in the Declaration) of the Trust, to be designated the Touchstone High Yield
Fund, Touchstone Enhanced Index Fund and Touchstone Small Cap Value Fund (the
"Funds");
NOW, THEREFORE, Schedule 1 to the Advisory Agreement is hereby amended,
effective as of May 1, 1999, to read as set forth in Exhibit A to this
Amendment, the sole change in such Schedule being the addition of the Funds.
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.
TOUCHSTONE VARIABLE SERIES TRUST
By: ___________________________
Jill T. McGruder, President
TOUCHSTONE ADVISORS, INC.
By: ___________________________
Patricia J. Wilson
629787.01
<PAGE>
Exhibit A to Amendment No. 1 to
Investment Advisory Agreement
SCHEDULE 1
Touchstone Emerging Growth Fund 0.80%
Touchstone International Equity Fund 0.95%
Touchstone Growth & Income Fund 0.80% on the first $150 million of
average daily net assets and 0.75% on
such assets in excess of $150 million
Touchstone Balanced Fund 0.80%
Touchstone Income Opportunity Fund 0.65%
Touchstone Bond Fund 0.55%
Touchstone Value Plus Fund 0.75%
Touchstone Standby Income Fund 0.25%
Touchstone High Yield Fund 0.60%
Touchstone Enhanced Index Fund 0.65%
Touchstone Small Cap Value Fund 0.80%
CUSTODIAN AGREEMENT
AGREEMENT made as of this 17th day of March, 1999, between Touchstone
Variable Series Trust, a Massachusetts business trust (the "Fund"), and
Investors Bank & Trust Company, a Massachusetts trust company (the "Bank").
The Fund, on behalf of the portfolios/series listed on Appendix A hereto
(as such Appendix A may be amended from time to time) (each a "Portfolio" and
collectively, the "Portfolios"), desires to place and maintain all of its
portfolio securities and cash in the custody of the Bank. The Bank has at least
the minimum qualifications required by Section 17(f)(1) of the Investment
Company Act of 1940 (the "1940 Act") to act as custodian of the portfolio
securities and cash of the Fund, and has indicated its willingness to so act,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix B
hereto.
2. Definitions. Whenever used herein, the terms listed below will hav
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security
owned by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its series, any reference in this Agreement
to any assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to such
individual series and any obligation or liability of the Fund hereunder shall be
binding only with respect to such individual series, and shall be discharged
only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase
or redemption of common shares of the Fund offered for repurchase or redemption
in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account
of the Fund of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of the
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed pursuant
to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after receipt
by the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the
date specified as the Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all necessary Securities,
consents and other materials no later than 5:00 p.m. on the date specified as
the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response if
Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign
Sub-Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report obtained
by the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment therefor or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund in
an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund which is included in the Book-Entry System and shall at
all times during the regular business hours of the Bank be open for inspection
by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time. .
6.7 Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to the Fund and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this Agreement
to the contrary, except as stated in the first sentence of this subsection 6.8,
the Bank shall be under no other duty with respect to such Eurodollar CDs
belonging to the Fund.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund regarding escrow
or other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.10 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker or the Fund against any
loss; (ii) effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon the receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
(ii) The responsibilities of the Bank as to futures, puts and
calls traded on commodities exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set forth in subparagraph (a)(ii)
of this Section 6.9 as if such subparagraph referred to Futures Commission
Merchants rather than brokers, and Futures and puts and calls thereon instead of
options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among
the Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the case
of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section only upon receipt of Proper
Instructions. The Proper Instructions shall state that such transfer, exchange
or delivery is for a purpose permitted under the terms of this Section 6.12, and
shall specify the applicable subsection, or describe the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection. After receipt of such Proper Instructions, the Bank will
transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired
or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market value
of such security, as set forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Articles of Incorporation or Declaration of Trust and
By-laws of the Fund (the "Articles"), from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees through
the end of the then current term of this Agreement, disbursements and expenses
of the Bank, this Agreement will terminate and the Bank shall be released from
any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act. The books and records of the
Bank pertaining to its actions under this Agreement and reports by the Bank or
its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of account
and render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Fund, such determination to be made in accordance with the
provisions of the Articles and By-laws of the Fund and the Prospectus and
Statement of Additional Information relating to the Fund, as they may from time
to time be amended, and any applicable resolutions of the Board at the time in
force and applicable; and promptly to notify the Fund, the proper exchange and
the NASD or such other persons as the Fund may request of the results of such
computation and determination. In computing the net asset value hereunder, the
Bank may rely in good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities of the Fund
and in respect of liabilities of the Fund not appearing on its books of account
kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any quotations received from a source pursuant to
(iii) above.
12.2. Yield Calculation. The Bank will compute the performance results
of the Fund (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund for
the stated periods of time as shall be mutually agreed upon, and communicate in
a timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive the
items of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of the Bank, the Fund shall provide, and the Bank
shall be entitled to rely on, written standards and guidelines to be followed by
the Bank in interpreting and applying the computation methods set forth in the
Releases or any Subsequent Staff Positions as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by this
Section, and shall not be responsible for its computations made in accordance
with such determinations so long as such computations are mathematically
correct.
(d) The Fund shall keep the Bank informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by the Bank pursuant to this Agreement and the Bank shall not be
deemed to have knowledge of such information (except as contained in the
Releases) unless it has been furnished to the Bank in writing.
13. Additional Services. The Bank shall perform the additional services
for the Fund as are set forth on Appendix C hereto. Appendix C may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix B shall be appropriately increased.
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased
by or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the Fund
or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund Held
in the United States. The Bank may employ agents of its own selection in the
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder. Without limiting
the foregoing, certain duties of the Bank hereunder may be performed by one or
more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Fund, provided that any such subcustodian
meets at least the minimum qualifications required by Section 17(f)(1) of the
1940 Act to act as a custodian of the Fund's assets with respect to property of
the Fund held in the United States. The Bank shall have no liability to the Fund
or any other person by reason of any act or omission of any such subcustodian
and the Fund shall indemnify the Bank and hold it harmless from and against any
and all actions, suits and claims, arising directly or indirectly out of the
performance of any subcustodian. Upon request of the Bank, the Fund shall assume
the entire defense of any action, suit, or claim subject to the foregoing
indemnity. The Fund shall pay all fees and expenses of any subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Custody Manager.
(i) If the Fund has appointed the Bank Foreign Custody Manager
(as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's duties
and obligations with respect to the Fund's Portfolio Securities and other assets
maintained outside the United States shall be, to the extent not set forth
herein, as set forth in the Delegation Agreement between the Fund and the Bank
(the "Delegation Agreement").
(ii) If the Fund has appointed any other person or entity
Foreign Custody Manager, the Bank shall act only upon Proper Instructions from
the Fund with regard to any of the Fund's Portfolio Securities or other assets
held or to be held outside of the United States, and the Bank shall be without
liability for any Claim (as that term is defined in Section 15 hereof) arising
out of maintenance of the Fund's Portfolio Securities or other assets outside of
the United States. The Fund also agrees that it shall enter into a written
agreement with such Foreign Custody Manager that shall obligate such Foreign
Custody Manager to provide to the Bank in a timely manner all information
required by the Bank in order to complete its obligations hereunder. The Bank
shall not be liable for any Claim arising out of the failure of such Foreign
Custody Manager to provide such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its books
as belonging to the Fund the Foreign Portfolio Securities held by each foreign
sub-custodian (each an "Eligible Foreign Custodian") selected by the Foreign
Custody Manager, subject to receipt by the Bank of the necessary information
from such Eligible Foreign Custodian if the Foreign Custody Manager is not the
Bank.
(c) Access of Independent Accountants of the Fund. If the Bank is
the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will use
its best efforts to arrange for the independent accountants of the Fund to be
afforded access to the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
Manager, the Bank will supply to the Fund the reports required under the
Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable agreement between the Foreign Custody
Manager and such Eligible Foreign Custodian. If at any time any Foreign
Portfolio Securities shall be registered in the name of the nominee of the
Eligible Foreign Custodian, the Fund agrees to hold any such nominee harmless
from any liability by reason of the registration of such securities in the name
of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Bank as custodian of
the Fund by the tax laws of any jurisdiction, and it shall be the responsibility
of the Fund to notify the Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Eligible Foreign Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness and to the
extent required by law, in and to any property at any time held by it for the
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon, against any balance of account standing to the credit of
the Fund on the Bank's books.
15. Limitation of Liability.
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Fund;
(c) Any act or omission of any Foreign Custody Manager other than
the Bank or any act or ommission of any Eligible Foreign Custodian if the Bank
is not the Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Fund, have not been
registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the Bank has
not received Proper Instructions or obtained actual possession of all necessary
Securities, consents or other materials by 5:00 p.m. on the date specified as
the Response Deadline;
(f) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(g) Information relied on in good faith by the Bank and supplied by
any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
(h) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events.
15.2 The Bank agrees to indemnify the Fund, its trustees, officers,
employees and agents against and hold them harmless from any Claim arising from
the willful misfeasance, bad faith or negligence of the Bank in the performance
of its duties and obligations under this Agreement.
15.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. Termination.
16.1 The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive three-year terms (each a "Renewal
Term") unless notice of non-renewal is delivered by the non-renewing party to
the other party no later than ninety days prior to the expiration of the Initial
Term or any Renewal Term, as the case may be.
Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term or any Renewal Term in the event the other party
violates any material provision of this Agreement, provided that the
non-violating party gives written notice of such violation to the violating
party and the violating party does not cure such violation within 90 days of
receipt of such notice.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Touchstone Variable Series Trust
311 Pike Street
Cincinnati, OH 45202
Attn:
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Carol Lowd, Director - Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate
in writing.
19. Amendments. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Limitation of Liability. The Bank agrees that the obligations assumed
by the Fund hereunder shall be limited in all cases to the assets of the Fund
and that the Bank shall not seek satisfaction of any such obligation from the
officers, agents, employees, trustees, or shareholders of the Fund.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
TOUCHSTONE VARIABLE SERIES TRUST
By:_________________________________
Name:
Title:
Investors Bank & Trust Company
By:_________________________________
Name:
Title:
<PAGE>
Appendices
Appendix A........................................ Portfolios
Appendix B........................................ Fee Schedule
Appendix C................................. Additional Services
<PAGE>
Appendix A
Portfolios
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
<PAGE>
Appendix C
Additional Services
None
SPONSOR AGREEMENT
TOUCHSTONE ADVISORS, INC. AND
TOUCHSTONE VARIABLE SERIES TRUST
(FORMERLY SELECT ADVISORS VARIABLE INSURANCE TRUST)
AMENDMENT NO. 2
AMENDMENT dated as of January 1, 1999, between TOUCHSTONE VARIABLE
SERIES TRUST (formerly Select Advisors Variable Insurance Trust ), a
Massachusetts business trust (the "Trust") and TOUCHSTONE ADVISORS, INC., an
Ohio corporation ("Touchstone").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust has engaged Touchstone to provide certain management
services with respect to each series of the Trust (each a "Fund") pursuant to
the Sponsor Agreement dated as of September 9, 1994, as amended (the
"Agreement") between the Trust and Touchstone; and
WHEREAS, the Trust and Touchstone wish to amend the Agreement to
reflect (1) the addition of the Growth & Income Fund and the Bond Fund to the
Trust, (2) revisions to the Expense Cap Termination provision and the fee waiver
provision, (3) changes in the terminology used in the names of the series of the
Trust and (4) changes in the address of the parties;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as set forth in the Agreement and herein, acting pursuant
to Section 9 of the Agreement, the Trust and Touchstone hereby amend the
Agreement as follows:
(A) Section 4 of the Agreement shall read as follows:
4. Operating Expense Waivers or Reimbursement.
a) Touchstone shall waive all or a portion of its fee
pursuant to this Sponsor Agreement and/or reimburse a portion
of the operating expenses (including amortization of
organization expense, but excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses) ("Expenses") of each
Fund of the Trust such that after such reimbursement the
aggregate Expenses of each such Fund of the Trust shall be
equal on an annual basis to the following percentages of the
average daily net assets of the Fund for the Fund's
then-current fiscal year:
Page 1
<PAGE>
Touchstone Emerging Growth Fund 1.50%
Touchstone International Equity Fund 1.60%
Touchstone Income Opportunity Fund 1.20%
Touchstone Value Plus Fund 1.30%
Touchstone Growth & Income Fund 1.30%
Touchstone Balanced Fund 1.35%
Touchstone Bond Fund 0.90%
Touchstone Standby Income Fund 0.75%
Touchstone's obligations in this Section 5 may be
terminated, with respect to any Fund, by Touchstone as of the
end of any calendar quarter after December 31, 1999, upon at
least 30 days prior written notice to the Trust (an "Expense
Cap Termination").
(B) The last paragraph of Section 5 of the Agreement shall read as
follows:
Touchstone hereby waives all of its fees under this
Agreement with respect to each Fund until April 30, 2000.
(C) Section 9(a) of the Agreement shall read as follows:
This Agreement may be terminated, with respect to any Fund or Funds
a) by Touchstone, either (i) at the end of the calendar
quarter after December 31, 1999 during which Touchstone has given
at least 30 days advance written notice to the Trust, on behalf
of each such Fund, that it is terminating this agreement as to
such fund or (ii) at such time as Touchstone ceases to be the
investment advisor to each such Fund. In the event of a
termination pursuant to the foregoing clause (i) of the foregoing
sentence, each party's obligations hereunder shall terminate as
to each such Fund as of the end of the calendar quarter in which
the notice of termination is given; in the event of a termination
pursuant to clause (ii) of the preceding sentence Touchstone's
obligations hereunder shall terminate as to each such Fund as of
the effective date of its termination as investment advisor.
(D) Section 12 of the Agreement shall read as follows:
12. Notice. Any notice under this Agreement shall be in
writing addressed and delivered personally (or by telecopy) or
mailed postage-paid, to the other party at such address as such
other party may designate in accordance with this paragraph for
the receipt of such notice. Until further notice to the other
party, it is agreed that the address of the Trust and Touchstone
shall be 311 Pike Street, Cincinnati, OH 45202.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of January 4, 1999. The undersigned has
executed this Agreement not individually, but as an officer under the Trust's
Declaration of Trust, and the obligations of this Amendment are not binding upon
the Trust's Trustees, its officers, or investors in the Funds individually, but
bind only the Trust estate.
Page 2
<PAGE>
TOUCHSTONE ADVISORS, INC. TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ Patricia Wilson By: /s/ Jill T. McGruder
Jill T. McGruder
Name: Patricia Wilson President and Chief Executive Officer
Title: Chief Compliance Officer
Page 3
SPONSOR AGREEMENT
TOUCHSTONE ADVISORS, INC. AND
TOUCHSTONE VARIABLE SERIES TRUST
(FORMERLY SELECT ADVISORS VARIABLE INSURANCE TRUST)
AMENDMENT NO. 3
AMENDMENT dated as of May 1, 1999, between TOUCHSTONE VARIABLE SERIES
TRUST (formerly Select Advisors Variable Insurance Trust ), a Massachusetts
business trust (the "Trust") and TOUCHSTONE ADVISORS, INC., an Ohio corporation
("Touchstone").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust has engaged Touchstone to provide certain management
services with respect to each series of the Trust (each a "Fund") pursuant to
the Sponsor Agreement dated as of September 9, 1994, as amended (the
"Agreement") between the Trust and Touchstone; and
WHEREAS, the Trust and Touchstone wish to amend the Agreement to
correct the clerical errors in paragraph (A) of Amendment No. 2 to the Agreement
dated as of January 1, 1999;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as set forth in the Agreement and herein, acting pursuant
to Section 9 of the Agreement, the Trust and Touchstone hereby amend the
Agreement as follows:
(A) Section 4 of the Agreement shall read as follows:
4. Operating Expense Waivers or Reimbursement.
a) Touchstone shall waive all or a portion of its fee
pursuant to this Sponsor Agreement and/or reimburse a portion
of the operating expenses (including amortization of
organization expense, but excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses) ("Expenses") of each
Fund of the Trust such that after such reimbursement the
aggregate Expenses of each such Fund of the Trust shall be
equal on an annual basis to the following percentages of the
average daily net assets of the Fund for the Fund's
then-current fiscal year:
Page 1
<PAGE>
Touchstone Emerging Growth Fund 1.15%
Touchstone International Equity Fund 1.25%
Touchstone Income Opportunity Fund 0.85%
Touchstone Value Plus Fund 1.15%
Touchstone Growth & Income Fund 0.85%
Touchstone Balanced Fund 0.90%
Touchstone Bond Fund 0.75%
Touchstone Standby Income Fund 0.50%
Touchstone's obligations in this Section 5 may be
terminated, with respect to any Fund, by Touchstone as of the
end of any calendar quarter after December 31, 1999, upon at
least 30 days prior written notice to the Trust (an "Expense
Cap Termination").
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of May 1, 1999. The undersigned has executed
this Agreement not individually, but as an officer under the Trust's Declaration
of Trust, and the obligations of this Amendment are not binding upon the Trust's
Trustees, its officers, or investors in the Funds individually, but bind only
the Trust estate.
Page 2
<PAGE>
TOUCHSTONE ADVISORS, INC. TOUCHSTONE VARIABLE SERIES TRUST
By: _____________________ By:
Jill T. McGruder
Name: ___________________ President and Chief Executive Officer
Title: __________________
639976.01
Page 3'
AMENDMENT AGREEMENT
AGREEMENT, effective as of March 17, 1999, by and between Touchstone
Variable Series Trust, a Massachusetts business trust (the "Fund") (formerly
known as Select Advisors Variable Insurance Trust) and Investors Bank & Trust
Company, a Massachusetts trust company ("Investors Bank").
WHEREAS the Fund and Investors Bank entered into an Administration
Agreement dated December 1, 1999 (the "Administration Agreement"); and
WHEREAS, the Fund and Investors Bank desire to amend the Administration
Agreement as set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
1. Amendment.
(a) The first sentence of the Administration Agreement is hereby amended
to read as follows:
THIS ADMINISTRATION AGREEMENT is made as of December 1, 1996
by and between TOUCHSTONE VARIABLE SERIES TRUST, a Massachusetts business trust
(the "Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company
("Investors Bank").
(b) Section 11 of the Administration Agreement is hereby amended to read
in its entirety as follows:
7. Termination of Agreement.
(a) The initial term of this Agreement shall continue through
March 17, 2002 (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive three-year terms (each a "Renewal
Term") unless notice of non-renewal is delivered by the non-renewing party to
the other party no later than 90 days prior to the expiration of the Initial
Term or any Renewal Term, as the case may be.
(b) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term or any Renewal Term in the event the other
party violates any material provision of this Agreement, provided that the
non-violating party gives written notice of such violation to the violating
party and the violating party does not cure such violation within 30 days of
receipt of such notice.
(c) In the event notice of termination is given to Investors
Bank by the Fund under this section, such notice shall be accompanied by a
resolution of the Board of Trustees, certified by the Secretary, electing to
terminate this Agreement and designating a successor service company.
(d) At any time after the termination of this Agreement, the
Fund may, upon written request, have reasonable access to the records of
Investors Bank relating to its performance of its duties hereunder.
(c) Investors Bank shall perform the services for the Funds on behalf of
the portfolios listed on Appendix 1 hereto.
(d) Appendix 2 to the Administration Agreement shall be amended to read in
its entirety as set forth on Appendix 2 hereto.
2. Miscellaneous.
(a) Except as amended hereby, the Administration Agreement shall remain in
full force and effect.
(b) This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its duly authorized officer, as the case may be, as of the date and
year first above written.
INVESTORS BANK & TRUST COMPANY
By: ________________________________
Name: _____________________________
Title: ______________________________
TOUCHSTONE VARIABLE SERIES TRUST
By: ________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
Appendix 2
Portfolios
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
April 28, 1999
Touchstone Variable Series Trust
311 Pike Street
Cincinnati, Ohio 45202
Re: Touchstone Variable Series Trust
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Touchstone Variable Series
Trust, a Massachusetts business trust (the "Trust"), in connection with
Post-Effective Amendment No. 11 to the Trust's Registration Statement on Form
N-1A to be filed with the Securities and Exchange Commission on or about April
28, 1999 (as amended by such Post-Effective Amendment No. 11, the "Registration
Statement"), with respect to the shares of beneficial interest, par value
$.00001 per share (the "Shares") of its series Touchstone High Yield Fund,
Touchstone Small Cap Value Fund and Touchstone Enhanced 30 Fund (each, a "Fund"
and collectively, the "Funds"). You have requested that we deliver this opinion
to you to be used as an exhibit to the Registration Statement.
In connection with the furnishing of this opinion, we have examined the
following documents:
(a) a certificate of the Secretary of State of the
Commonwealth of Massachusetts as to the existence of the Trust;
(b) a copy of the Trust's Declaration of Trust dated as of February
7, 1994, Amendment No. 1 to the Declaration dated as of March 15, 1994,
Amendment No. 2 to the Declaration dated as of April 11, 1994, Amendment
No. 3 to the Declaration dated as of October 31, 1994, Amendment No. 4 to
the Declaration dated as of September 18, 1997, Amendment No. 5 to the
Declaration dated as of January 4, 1999, Amendment No, 6 to the
Declaration dated as of February 11, 1999 and Amendment No. 7 to the
Declaration dated as of April 22, 1999, in each case as filed with the
Secretary of State of the Commonwealth of Massachusetts (collectively, the
"Declaration");
(c) a certificate executed by the Secretary of the Trust (the
"Secretary's Certificate"), certifying as to, and attaching copies of, the
Trust's Declaration, By-Laws, and certain resolutions adopted by the
Trustees of the Trust at meetings held on February 10, 1999 and March 18,
1999 (the "Board Resolutions"); and
(d) a printer's proof dated February 12, 1999 of the Registration
Statement.
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, including conformed copies, the authenticity and completeness of all
original documents reviewed by us in original or copy form and the legal
competence of each individual executing any document. We have assumed that the
Registration Statement as filed with the Securities and Exchange Commission will
be in substantially the form of the printer's proof referred to in paragraph (d)
above and that the minutes setting forth the Board Resolutions will be approved
by the Trustees of the Trust in substantially the form attached to the
Secretary's Certificate referred to in paragraph (c) above.
This opinion is based entirely on our review of the documents listed above
and such investigation of law as we have deemed necessary or appropriate. We
have made no other review or investigation of any kind whatsoever, and we have
assumed, without independent inquiry, the accuracy of the information set forth
in such documents.
This opinion is limited solely to the internal substantive laws of the
Commonwealth of Massachusetts as applied by courts located in such Commonwealth,
to the extent the same may apply to or govern the transactions covered by this
opinion, except that we express no opinion as to any Massachusetts securities
law.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is our
opinion that:
1. The Trust is duly organized and existing under the Trust's Declaration
of Trust and the laws of the Commonwealth of Massachusetts as a voluntary
association with transferable shares of beneficial interest commonly referred to
as a "Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the Trust's
Declaration and By-Laws and for the consideration described in the Registration
Statement will be legally issued, fully paid and non-assessable, except that, as
set forth in the statement of additional information contained in the
Registration Statement, shareholders of the Funds may under certain
circumstances be held personally liable for its obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
The opinions expressed herein concern only the effect of the law as
currently in effect and the facts and assumptions described herein. The
undersigned undertakes no obligation to supplement or update this opinion after
the date hereof.
Very truly yours,
/s/ Bingham Dana LLP
BINGHAM DANA LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No.11
to the Registration Statement under the Securities Act of 1933 and Amendment
No. 12 to the Registration Statement under the Investment Company Act of 1940
of Touchstone Variable Series Trust (formerly Select Advisors Variable
Insurance Trust) on Form N-1A of our report dated February 18, 1999, on our
audits of the financial statements and financial highlights of Touchstone
Emerging Growth Portfolio, Touchstone International Equity Portfolio,
Touchstone Balanced Portfolio, Touchstone Income Opportunity Portfolio,
Touchstone Value Plus Portfolio and Touchstone Standby Income Portfolio, which
report is included in the Annual Report for Select Advisors Variable Insurance
Trust for the year ended December 31, 1998, which is incorporated by reference
in the Registration Statement.
We also consent to the reference to our Firm under the captions "Financial
Highlights" and "Counsel and Independent Accountants."
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Variable Insurance Trust
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> Touchstone Emerging Growth Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 26,231,211
<INVESTMENTS-AT-VALUE> 28,754,795
<RECEIVABLES> 2,828,468
<ASSETS-OTHER> 3,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,586,730
<PAYABLE-FOR-SECURITIES> 127,890
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 194,937
<TOTAL-LIABILITIES> 322,827
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,584,379
<SHARES-COMMON-STOCK> 2,038,737
<SHARES-COMMON-PRIOR> 1,260,959
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 155,940
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,523,584
<NET-ASSETS> 31,263,903
<DIVIDEND-INCOME> 195,612
<INTEREST-INCOME> 133,513
<OTHER-INCOME> 0
<EXPENSES-NET> 293,949
<NET-INVESTMENT-INCOME> 35,176
<REALIZED-GAINS-CURRENT> 993,434
<APPREC-INCREASE-CURRENT> (296,091)
<NET-CHANGE-FROM-OPS> 697,343
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 49,174
<DISTRIBUTIONS-OF-GAINS> 1,035,008
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 892,493
<NUMBER-OF-SHARES-REDEEMED> 188,219
<SHARES-REINVESTED> 73,504
<NET-CHANGE-IN-ASSETS> 11,846,953
<ACCUMULATED-NII-PRIOR> 3,217
<ACCUMULATED-GAINS-PRIOR> 208,293
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 380,695
<AVERAGE-NET-ASSETS> 25,560,764
<PER-SHARE-NAV-BEGIN> 15.40
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.46
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.33
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Variable Insurance Trust
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> Touchstone International Equity Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 26,545,659
<INVESTMENTS-AT-VALUE> 31,344,325
<RECEIVABLES> 2,625,978
<ASSETS-OTHER> 3,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,973,770
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160,744
<TOTAL-LIABILITIES> 160,744
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,242,515
<SHARES-COMMON-STOCK> 2,421,891
<SHARES-COMMON-PRIOR> 1,640,973
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 186,882
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 39,788
<ACCUM-APPREC-OR-DEPREC> 4,797,181
<NET-ASSETS> 33,813,026
<DIVIDEND-INCOME> 387,564
<INTEREST-INCOME> 106,869
<OTHER-INCOME> 0
<EXPENSES-NET> 355,395
<NET-INVESTMENT-INCOME> 139,038
<REALIZED-GAINS-CURRENT> 748,210
<APPREC-INCREASE-CURRENT> 3,381,779
<NET-CHANGE-FROM-OPS> 4,269,027
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 270,954
<DISTRIBUTIONS-OF-GAINS> 845,182
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 869,535
<NUMBER-OF-SHARES-REDEEMED> 168,341
<SHARES-REINVESTED> 79,724
<NET-CHANGE-IN-ASSETS> 14,110,295
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 58,471
<OVERDISTRIB-NII-PRIOR> 56,246
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 270,100
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 554,966
<AVERAGE-NET-ASSETS> 28,431,588
<PER-SHARE-NAV-BEGIN> 12.01
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 2.37
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.38
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.96
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Variable Insurance Trust
financial statements at December 31, 1997
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> Touchstone Balanced Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 39,439,057
<INVESTMENTS-AT-VALUE> 39,514,246
<RECEIVABLES> 1,937,678
<ASSETS-OTHER> 3,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,455,391
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 205,672
<TOTAL-LIABILITIES> 205,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,767,171
<SHARES-COMMON-STOCK> 2,955,100
<SHARES-COMMON-PRIOR> 1,592,899
<ACCUMULATED-NII-CURRENT> 20,627
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 394,283
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 67,638
<NET-ASSETS> 41,249,719
<DIVIDEND-INCOME> 241,554
<INTEREST-INCOME> 957,009
<OTHER-INCOME> 0
<EXPENSES-NET> 301,413
<NET-INVESTMENT-INCOME> 897,150
<REALIZED-GAINS-CURRENT> 1,451,424
<APPREC-INCREASE-CURRENT> (1,134,565)
<NET-CHANGE-FROM-OPS> 1,214,009
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 933,379
<DISTRIBUTIONS-OF-GAINS> 1,163,140
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,468,902
<NUMBER-OF-SHARES-REDEEMED> 257,510
<SHARES-REINVESTED> 150,809
<NET-CHANGE-IN-ASSETS> 18,962,652
<ACCUMULATED-NII-PRIOR> 14,838
<ACCUMULATED-GAINS-PRIOR> 148,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 267,938
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 460,471
<AVERAGE-NET-ASSETS> 33,492,273
<PER-SHARE-NAV-BEGIN> 13.99
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 0.40
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.96
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Variable Insurance Trust
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 014
<NAME> Touchstone Income Opportunity Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 37,422,665
<INVESTMENTS-AT-VALUE> 32,773,952
<RECEIVABLES> 1,894,900
<ASSETS-OTHER> 3,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,672,319
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178,306
<TOTAL-LIABILITIES> 178,306
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,631,963
<SHARES-COMMON-STOCK> 3,971,175
<SHARES-COMMON-PRIOR> 2,439,073
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,489,001
<ACCUM-APPREC-OR-DEPREC> (4,648,949)
<NET-ASSETS> 34,494,013
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,762,184
<OTHER-INCOME> 0
<EXPENSES-NET> 283,893
<NET-INVESTMENT-INCOME> 3,478,291
<REALIZED-GAINS-CURRENT> (4,004,977)
<APPREC-INCREASE-CURRENT> (4,418,973)
<NET-CHANGE-FROM-OPS> (4,945,659)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,478,834
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 96,964
<NUMBER-OF-SHARES-SOLD> 1,636,452
<NUMBER-OF-SHARES-REDEEMED> 474,021
<SHARES-REINVESTED> 369,671
<NET-CHANGE-IN-ASSETS> 7,614,602
<ACCUMULATED-NII-PRIOR> 543
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 484,024
<GROSS-ADVISORY-FEES> 217,105
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 417,711
<AVERAGE-NET-ASSETS> 33,400,798
<PER-SHARE-NAV-BEGIN> 11.02
<PER-SHARE-NII> 1.02
<PER-SHARE-GAIN-APPREC> (2.30)
<PER-SHARE-DIVIDEND> 1.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.69
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Variable Insurance Trust
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 015
<NAME> Touchstone Standby Income Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 26,248,751
<INVESTMENTS-AT-VALUE> 26,254,883
<RECEIVABLES> 307,927
<ASSETS-OTHER> 3,496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,566,306
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,366
<TOTAL-LIABILITIES> 116,366
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,440,029
<SHARES-COMMON-STOCK> 2,642,337
<SHARES-COMMON-PRIOR> 1,755,724
<ACCUMULATED-NII-CURRENT> 3,709
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 70
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,132
<NET-ASSETS> 26,449,940
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,358,522
<OTHER-INCOME> 0
<EXPENSES-NET> 113,683
<NET-INVESTMENT-INCOME> 1,244,839
<REALIZED-GAINS-CURRENT> 12,585
<APPREC-INCREASE-CURRENT> 6,334
<NET-CHANGE-FROM-OPS> 1,263,758
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,244,085
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,223,752
<NUMBER-OF-SHARES-REDEEMED> 1,461,706
<SHARES-REINVESTED> 124,567
<NET-CHANGE-IN-ASSETS> 8,887,739
<ACCUMULATED-NII-PRIOR> 1,366
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 10,925
<GROSS-ADVISORY-FEES> 56,841
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,670
<AVERAGE-NET-ASSETS> 22,736,577
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Touchstone Variable Insurance Trust
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 016
<NAME> Touchstone Value Plus Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,591,965
<INVESTMENTS-AT-VALUE> 2,847,922
<RECEIVABLES> 274,938
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 66,315
<TOTAL-ASSETS> 3,189,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,501
<TOTAL-LIABILITIES> 21,501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,151,602
<SHARES-COMMON-STOCK> 311,304
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 239,885
<ACCUM-APPREC-OR-DEPREC> 255,957
<NET-ASSETS> 3,167,674
<DIVIDEND-INCOME> 16,202
<INTEREST-INCOME> 5,934
<OTHER-INCOME> 0
<EXPENSES-NET> 14,143
<NET-INVESTMENT-INCOME> 7,993
<REALIZED-GAINS-CURRENT> (239,885)
<APPREC-INCREASE-CURRENT> 255,957
<NET-CHANGE-FROM-OPS> 24,065
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,332
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 563,284
<NUMBER-OF-SHARES-REDEEMED> 252,832
<SHARES-REINVESTED> 852
<NET-CHANGE-IN-ASSETS> 3,167,674
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,223
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 92,141
<AVERAGE-NET-ASSETS> 1,832,090
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
