As filed with the Securities and Exchange Commission on April 29, 1996
Registration No. 33-76582
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 [X]
(Check appropriate box or boxes)
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
(Exact Name of Registrant)
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(Name of Depositor)
400 Broadway
Cincinnati, Ohio 45202
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number (513) 629-1800
Copy to:
DONALD J. WUEBBLING, ESQ. J. LELAND BREWSTER II, ESQ.
400 Broadway Frost & Jacobs
Cincinnati, Ohio 45202 2500 PNC Center
(Name and Address of Agent 201 East Fifth Street
for Service) Cincinnati, Ohio 45202
It is proposed that this filing will become effective (check the appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 486
[X] on May 1, 1996 pursuant to paragraph (b) of Rule 486
[ ] 60 days after filing pursuant to paragraph (a) of Rule 486
[ ] on _______________ pursuant to paragraph (a) of Rule 486
Variable Annuity Contracts -- Pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940, the Registrant has registered an indefinite amount of
securities. The Registrant filed a Rule 24f-2 Notice on February 29, 1996 for
fiscal year ended December 31, 1995.
Select Advisors Portfolios has also executed this Registration Statement.
0287796.03
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
CROSS-REFERENCE SHEET
REQUIRED BY RULE 495(A)
PART I - DISCUSSION OF THE VARIABLE ANNUITY CONTRACT
PART A - PROSPECTUS
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1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Summary of the Contract;
Fee and Expense Tables
4. Condensed Financial Information
(a) Accumulation Unit Value Accumulation Unit Value
(b) Performance Information Performance Information
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor The Company
(b) Registrant The Variable Account,
The Fixed Account
(c) Portfolio Company The VI Trust and the
SA Trust
(d) Prospectus The VI Trust and the
SA Trust
(e) Voting Voting Rights
(f) Administrator Charges
6. Deductions and Expenses
(a) Deductions Charges; Mortality and Expense Risk
Charge
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(b) Sales load Surrender Charge
(c) Special purchase plans Surrender Charge; Dollar
Cost Averaging;
Purchase of a Contract
(d) Commissions Distribution of the Contracts
(e) Portfolio company deductions Expenses of the VIT Portfolios
and expenses and SAT Portfolios; Expense Caps
(f) Registrant's expenses Charges
(g) Organizational expenses Administrative Charges
7. General description of variable annuity contracts
(a) Rights Summary of the
Contract; Allocation
of Purchase Payments;
Surrenders and Partial
Withdrawals; Death
Benefit; Selection of
Annuity Income Options;
Reports to Contract
Owners; Voting Rights;
Other Contract Provisions
(b) Provisions and limitations Allocation of Purchase
Payments; Transfers
(c) Changes in contracts The Variable Account
or operations
(d) Contract owner inquiries Cover Page; Summary of the
Contract
8. Annuity Period
(a) Level of benefits Selection of Annuity
Income Options
(b) Annuity commencement date Income Date Selection
(ii)
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(c) Annuity payments Annuity Payout Plans
(d) Assumed investment return Selection of Annuity Income Options
(e) Minimums Annuity Payout Plans
(f) Rights to change options Selection of Annuity Income Options
or transfer contract value
9. Death Benefit
(a) Death benefit calculation Death Benefit
(b) Forms of benefits Annuity Payout Plans, Death Benefit
10. Purchases and Contract Values
(a) Procedures for purchases Purchase of a Contract
(b) Accumulation unit values Accumulation Unit Value;
Accumulation Unit Value - VIT
Sub-Accounts; Accumulation Unit
Value - Growth & Income and
Bond Sub-Accounts
(c) Calculation of Allocation of Purchase
accumulation unit values Payments; Accumulation Unit Value;
Accumulation Unit Value - VIT
Sub-Accounts; Accumulation Unit
Value - Growth & Income and
Bond Sub-Accounts
(d) Principal underwriter Distribution of the Contracts
11. Redemptions
(a) Redemption procedures Surrenders and Partial Withdrawals
(b) Texas Optional Retirement Not Applicable
Program
(c) Delay Surrenders and Partial Withdrawals
(d) Lapse Surrenders and Partial Withdrawals
(e) Revocation rights Free Look Privilege
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12. Taxes
(a) Tax consequences Federal Income Tax Information
(b) Qualified plans Federal Income Tax Information
(c) Impact of taxes Federal Income Tax Information
13. Legal Proceedings Legal Proceedings
14. Table of Contents for Statement Table of Contents of Statement
of Additional Information of Additional Information
PART B - SAI
FORM HEADING
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ITEM NO. SAI
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History
(a) Name change Not Applicable
(b) Attribution of assets Not Applicable
(c) Control of depositor The Company (Prospectus)
18. Services
(a) Fees, expenses and costs Administrative Services;
Charges (Prospectus);
Expenses of the VIT Portfolios
and the SAT Portfolios (Prospectus);
Expense Caps (Prospectus)
(b) Management-related services Administrative Services
(c) Custodian and independent Independent Accountants
public accountant
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(d) Other custodianship Safekeeping of Assets
(e) Administrative servicing Administrative Services; The
Company (Prospectus); The Variable
Account (Prospectus)
(f) Depositor as principal Not Applicable
underwriter
19. Purchase of securities offered
(a) Manner of offering Distribution of the
Contracts (Prospectus)
(b) Sales Load Surrender Charge
(Prospectus)
20. Underwriters
(a) Depositor or affiliate Distribution of the Contracts
as principal underwriter (Prospectus)
(b) Continuous offering Distribution of the Contracts
(c) Underwriting commissions Distribution of the Contracts
(d) Payments to underwriter Distribution of the Contracts
21. Calculation of performance data Sub-Account Performance
22. Annuity payments Fixed Annuity Income Payments
23. Financial Statements
(a) Registrant Financial Statements
(b) Depositor Financial Statements
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(v)
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PART II - DISCUSSION OF SELECT ADVISORS PORTFOLIOS
PART A
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1. Cover Page Cover Page
2. Synopsis Summary; Fee and Expense Tables
(Prospectus Part I)
3. Condensed Financial Information
(a) Financial Highlights Financial Highlights
(b) Debt Not Applicable
(c) Per Share Operating Performance Information
Performance (Prospectus Part I)
4. General Description of the Registrant
(a)(i) Organization The Variable Account (Prospectus
Part I)
(a)(ii) Investment Objectives Investment Objectives, Techniques
Policies and Restrictions;
Risk Factors, Restrictions and
Investment Techniques
5. Management of the Portfolios Management of the Portfolios
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Description of Shares, Voting
Securities Rights and Liabilities; Taxation (SAI)
7. Purchase of Securities Purchase and Valuation; Special
Being Offered Information Concerning Hub and
Spoke(R) Structure; Management
of the Portfolios
8. Redemption or Purchase Special Information Concerning Hub
and Spoke(R) Structure; Description
of Interests, Voting Rights and
Liabilities
9. Pending Legal Proceedings Not Applicable
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PART B
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Facts about the Company,
and History The Variable Account and the
Fixed Account (Prospectus Part I)
13. Investment Objectives and Investment Objectives, Techniques
Policies Policies and Restrictions
14. Management of the Fund Management of the SA Trust
15. Control Persons and Management of the SA Trust; The
Principal Holders of Securities Variable Account (Prospectus Part I)
16. Investment Advisory and Management of the Portfolios
Other Persons (Prospectus Part II); Advisor,
Portfolio Advisors, Administrator and
Distributor
17. Brokerage Allocation Portfolio Transactions and
and Other Practices and Brokerage Commissions
18. Capital Stock and Other Securities Organization of the SA Trust
19. Purchase, Redemption and Pricing Valuation of Securities;
of Securities Being Offered Redemption in Kind
20. Tax Status Taxation
21. Underwriters Distribution of the Contracts
(Prospectus Part I)
22. Calculations of Performance Data Performance Information (Prospectus
Part I)
23. Financial Statements Financial Statements
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PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of the Registration Statement.
0287796.03
(vii)
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<PAGE>
T O U C H S T O N E
------------------------------------------
TOUCHSTONE VARIABLE ANNUITY
z
( EMERGING GROWTH
( INTERNATIONAL EQUITY
( GROWTH & INCOME
( BALANCED
( INCOME OPPORTUNITY
( BOND
( STANDBY INCOME
( FIXED ACCOUNT
- --------------------------------------------------------------------------------
PROSPECTUS
MAY 1, 1996
<PAGE>
THIS BOOKLET CONTAINS THE PROSPECTUS FOR TOUCHSTONE VARIABLE ANNUITY, A FLEXIBLE
PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT, ISSUED BY WESTERN-SOUTHERN
LIFE ASSURANCE COMPANY. THIS BOOKLET ALSO INCLUDES THE PROSPECTUS FOR INVESTMENT
PORTFOLIOS UNDERLYING THE TOUCHSTONE VARIABLE ANNUITY. THESE PROSPECTUSES ARE
BOUND TOGETHER FOR YOUR CONVENIENCE.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
MAY 1, 1996
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UNITS OF INTEREST UNDER WESTERN-SOUTHERN LIFE
FLEXIBLE PURCHASE ASSURANCE COMPANY
PAYMENT DEFERRED SEPARATE ACCOUNT 1
VARIABLE ANNUITY 400 BROADWAY
CONTRACTS CINCINNATI, OHIO 45202
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This Prospectus describes individual variable annuity contracts (each a
"CONTRACT" and collectively the "CONTRACTS") offered by Western-Southern Life
Assurance Company (the "COMPANY"), a life insurance company which is a wholly
owned subsidiary of The Western and Southern Life Insurance Company ("WESTERN &
SOUTHERN"). The Contracts are designed for individual investors and group plans
that desire to accumulate capital on a tax-deferred basis for retirement or
other long term objectives. Contracts may be purchased on either a non-qualified
basis or on a qualified basis in connection with qualified retirement and
pension plans. Generally, non-qualified Contracts may be purchased by making a
payment of at least $2,000, and qualified Contracts may be purchased by making a
payment of at least $1,000. Subsequent payments to a Contract must be at least
$100. Payments will be invested as the Contract Owner directs in one or more
sub-accounts (each a "SUB-ACCOUNT") of Western-Southern Life Assurance Company
Separate Account 1 (the "VARIABLE ACCOUNT") each of which invests in a
corresponding portfolio (a "PORTFOLIO") of Select Advisors Variable Insurance
Trust or of Select Advisors Portfolios, each of which is an open-end diversified
management investment company, or in a fixed-rate option funded through the
Company's general account (the "FIXED ACCOUNT").
The Sub-Accounts in which Contract Owners may invest are: Emerging Growth,
International Equity, Growth & Income, Balanced, Income Opportunity, Bond and
Standby Income. Information regarding these investment options is set forth
under the caption THE VARIABLE ACCOUNT herein. Of the seven Sub-Accounts, five,
Emerging Growth, International Equity, Balanced, Income Opportunity and Standby
Income, invest in corresponding Portfolios of Select Advisors Variable Insurance
Trust (the "VI TRUST"). THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE
CURRENT PROSPECTUS FOR THE VI TRUST (THE "VI TRUST PROSPECTUS"). The remaining
two Sub-Accounts, Growth & Income and Bond, invest in the Growth & Income
Portfolio II and Bond Portfolio II of Select Advisors Portfolios (the "SA
TRUST") under a Hub and Spoke-Registered Trademark- arrangement. Unlike the
Portfolios of the VI Trust, which receive investments only from Sub-Accounts of
the Variable Account, the SA Trust may also receive investments for its Growth &
Income Portfolio II and Bond Portfolio II from other insurance company separate
accounts registered as investment companies under the Investment Company Act of
1940. See "Special Information Concerning Hub and Spoke-Registered Trademark-
Structure" in this Prospectus. Hub and Spoke-Registered Trademark- is a
registered service mark of Signature Financial Group, Inc.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE CONTRACTS ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY.
THE INCOME OPPORTUNITY PORTFOLIO OF THE VI TRUST MAY INVEST UP TO 100% OF
ITS TOTAL ASSETS IN NON-INVESTMENT GRADE BONDS (COMMONLY KNOWN AS "JUNK BONDS")
ISSUED BY BOTH U.S. AND FOREIGN ISSUERS, WHICH ENTAIL GREATER RISK OF UNTIMELY
INTEREST AND PRINCIPAL PAYMENTS, DEFAULT AND PRICE VOLATILITY THAN HIGHER RATED
SECURITIES, AND MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION. SEE "INCOME
OPPORTUNITY PORTFOLIO" IN THE VI TRUST PROSPECTUS.
This Prospectus tells investors briefly the information they should know
before investing in the Contracts. Investors should read and retain this
Prospectus for future reference. Additional information about the Contract and
the Variable Account has been filed with the Securities and Exchange Commission
in a Statement of Additional Information dated May 1, 1996. The Statement of
Additional Information is incorporated by reference in this Prospectus and is
available without charge by calling the Touchstone Variable Annuity Service
Center at 1-800-669-2796. The table of contents of the Statement of Additional
Information appears on page 47 of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY INTEREST OR PARTICIPATION IN
THE CONTRACTS OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH
OFFER WOULD BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS CONTENTS
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GLOSSARY............................................................................... 1
PART I -- DISCUSSION OF THE VARIABLE ANNUITY CONTRACT.................................. 3
FEE AND EXPENSE TABLES................................................................. 3
SUMMARY OF THE CONTRACT................................................................ 5
PERFORMANCE INFORMATION................................................................ 8
FACTS ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FIXED ACCOUNT.................... 9
The Company.......................................................................... 9
The Variable Account................................................................. 9
The VI Trust and the SA Trust........................................................ 9
Additions, Deletions and Substitutions of Investments................................ 10
The Fixed Account.................................................................... 11
THE CONTRACT........................................................................... 11
Purchase Of A Contract............................................................... 11
Free Look Privilege.................................................................. 12
Allocation Of Purchase Payments...................................................... 12
Accumulation Unit Value.............................................................. 12
Accumulation Unit Value -- VIT Sub-Accounts........................................ 12
Accumulation Unit Value -- Growth & Income and Bond Sub-Accounts................... 13
Fixed Account Value.................................................................. 13
Dollar Cost Averaging................................................................ 14
Transfers............................................................................ 14
Surrenders and Partial Withdrawals................................................... 15
Systematic Withdrawals............................................................. 15
Selection Of Annuity Income Options.................................................. 16
Income Date Selection.............................................................. 16
Annuity Payout Plans............................................................... 16
Death Benefit........................................................................ 17
CHARGES................................................................................ 17
Premium Taxes........................................................................ 17
Other Taxes.......................................................................... 17
Administrative Charges............................................................... 17
Contract Maintenance Charge........................................................ 17
Contract Administration Charge..................................................... 18
Mortality And Expense Risk Charge.................................................... 18
Surrender Charge..................................................................... 18
Expenses of VIT Portfolios and SAT Portfolios; Expense Caps.......................... 19
OTHER INFORMATION...................................................................... 20
Distribution of the Contracts........................................................ 20
Reports to Contract Owners........................................................... 20
Adjustment of Units and Values....................................................... 20
Voting Rights........................................................................ 20
Substituted Securities............................................................... 21
OTHER CONTRACT PROVISIONS.............................................................. 21
Misstatement of Age or Sex........................................................... 21
Assignment........................................................................... 21
Loans................................................................................ 21
No Dividends......................................................................... 21
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FEDERAL INCOME TAX INFORMATION......................................................... 21
Qualification as an "Annuity Contract"............................................... 22
Diversification.................................................................... 22
Excessive Control.................................................................. 22
Required Distributions............................................................. 23
Multiple Contracts................................................................. 23
Federal Income Taxation.............................................................. 23
General............................................................................ 23
Tax Treatment of Assignments....................................................... 24
Tax Treatment of Withdrawals -- Non-Qualified Contracts............................ 24
Qualified Contracts and Qualified Plans............................................ 24
Section 401 Qualified Pension or Profit-Sharing Plans............................ 25
Section 403(b) Plans............................................................. 25
Loans............................................................................ 26
Individual Retirement Annuities.................................................. 26
Simplified Employee Pension Plans................................................ 26
Section 457 -- Deferred Compensation Plans......................................... 27
Tax Treatment of Withdrawals -- Qualified Contracts................................ 27
Tax-Sheltered Annuities -- Withdrawal Limitations.................................. 28
LEGAL PROCEEDINGS...................................................................... 28
FINANCIAL STATEMENTS................................................................... 28
PART II -- DISCUSSION OF SELECT ADVISORS PORTFOLIOS.................................... 29
SUMMARY................................................................................ 29
General.............................................................................. 29
Risks................................................................................ 29
Advisors............................................................................. 29
Sub-Accounts......................................................................... 29
Other Investors...................................................................... 30
FINANCIAL HIGHLIGHTS................................................................... 30
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS....................................... 30
Growth & Income Portfolio............................................................ 30
Bond Portfolio....................................................................... 31
SPECIAL INFORMATION CONCERNING HUB AND SPOKE-Registered Trademark-..................... 31
MANAGEMENT OF THE PORTFOLIOS........................................................... 32
General.............................................................................. 32
Consultant to the Advisor............................................................ 33
Portfolio Advisors................................................................... 33
Expenses............................................................................. 34
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RISK FACTORS, RESTRICTIONS AND INVESTMENT TECHNIQUES................................... 34
Techniques and Risk Factors.......................................................... 34
Derivatives........................................................................ 34
Foreign Securities................................................................. 34
Risks Associated with "Emerging Markets" Securities................................ 35
Currency Exchange Rates............................................................ 35
Medium and Lower Rated ("Junk Bonds") and Unrated Securities....................... 35
ADRs, EDRs and CDRs................................................................ 36
Fixed-Income and Other Debt Instrument Securities.................................. 36
U.S. Government Securities......................................................... 37
Mortgage Related Securities........................................................ 37
Stripped Mortgage Related Securities............................................... 38
Zero Coupon Securities............................................................. 38
Custodial Receipts................................................................. 38
When-Issued and Delayed-Delivery Securities........................................ 39
Repurchase Agreements.............................................................. 39
Reverse Repurchase Agreements and Forward Roll Transactions........................ 39
Lending Portfolio Securities....................................................... 40
Illiquid Securities................................................................ 40
Non-Publicly Traded ("Restricted") Securities and Rule 144A Securities............. 40
Temporary Investments.............................................................. 40
Futures Contracts and Related Options.............................................. 40
Options on Stock................................................................... 41
Options on Securities Indexes...................................................... 41
Forward Currency Contracts......................................................... 42
Asset Coverage....................................................................... 42
Certain Investment Restrictions...................................................... 42
Portfolio Turnover................................................................... 43
MANAGEMENT OF THE SA TRUST............................................................. 43
Board of Trustees.................................................................... 43
Administrator........................................................................ 43
Custodian............................................................................ 44
Sponsor.............................................................................. 44
Allocation of Expenses of the Portfolios............................................. 44
PURCHASE AND VALUATION................................................................. 44
Purchase............................................................................. 44
Valuation............................................................................ 44
ADDITIONAL INFORMATION................................................................. 45
Description of Beneficial Interests, Voting Rights and Liabilities................... 45
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION............................... 47
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GLOSSARY
ACCUMULATION UNIT -- An accounting unit of measure used to calculate the
Variable Account Value prior to the Income Date.
ACCUMULATION UNIT VALUE -- The dollar value of an Accumulation Unit in a
Sub-Account of the Variable Account.
ANNUITANT -- The natural person whose life is used to determine the duration
and amount of any annuity payments.
BENEFICIARY -- The person(s) to whom the Death Benefit will be paid if the
Annuitant dies before the Income Date.
CODE -- The Internal Revenue Code of 1986, as amended.
COMPANY -- Western-Southern Life Assurance Company.
CONTRACT -- An individual variable annuity contract, including the
Application Form and any amendments, riders or endorsements, offered by the
Company as set forth in this Prospectus.
CONTRACT ANNIVERSARY -- The same day and month as the Contract Date in each
subsequent year.
CONTRACT DATE -- The date, as set forth on page 3 of the Contract, on which
the Contract becomes effective, which generally will be within one business day
after receipt of the initial Purchase Payment and Application Form in good order
at the Touchstone Variable Annuity Service Center.
CONTRACT VALUE -- The total value of the Contract at any time prior to or on
the Income Date, representing the sum of the Variable Account Value and the
Fixed Account Value.
CONTRACT YEAR -- A year which starts with the Contract Date or with a
Contract Anniversary.
FIXED ACCOUNT -- A Contract option under which some or all of the Purchase
Payments are allocated to the Company's general account. The Company credits
interest to the amounts allocated to the Fixed Account at rates declared by the
Company from time to time and guaranteed for one year periods.
FIXED ACCOUNT VALUE -- At any given time, (1) the sum of all Purchase
Payments allocated to the Fixed Account, plus (2) any Variable Account Value
transferred to the Fixed Account, plus (3) interest credited by the Company to
the Fixed Account, less (4) any amounts transferred from the Fixed Account to
the Variable Account, less (5) any amounts withdrawn for charges, deductions or
surrenders (which includes Surrender Charges, if any).
INCOME DATE -- The date on which annuity payments are scheduled to begin,
changeable by written notice to the Company.
OWNER OR JOINT OWNER -- The person(s) owning all rights under the Contract.
PORTFOLIO -- An investment portfolio of the VI Trust or of the SA Trust,
each of which is a registered open-end management investment company. Each
Portfolio corresponds to a Sub-Account of the Variable Account.
PURCHASE PAYMENT -- An amount paid to the Company under the Contract prior
to deduction of any applicable premium tax.
QUALIFIED AND NON-QUALIFIED CONTRACTS -- A QUALIFIED CONTRACT is a Contract
purchased in connection with a plan which qualifies for favorable federal income
tax treatment under Sections 401, 403(b) or 408 of the Code. A NON-QUALIFIED
CONTRACT is any other Contract.
SAT PORTFOLIO -- Either the Growth & Income Portfolio II ("GROWTH & INCOME
PORTFOLIO") or the Bond Portfolio II ("BOND PORTFOLIO") of the SA Trust.
SA TRUST -- Select Advisors Portfolios, a trust formed under New York law
that includes portfolios in which certain of the Sub-Accounts invest. Part II of
this Prospectus, beginning at page 29, contains information regarding the SA
Trust and such Portfolios.
SUB-ACCOUNT -- A division of the Variable Account which invests in a
Portfolio of the VI Trust or the SA Trust. Purchase Payments allocated to the
Variable Account are further allocated among Sub-Accounts as designated by the
Owner.
SURRENDER CHARGE -- A declining contingent deferred sales charge, ranging
from 7% during the first two years after a Purchase Payment is received to 0%
after seven years from receipt of a Purchase Payment.
1
<PAGE>
SURRENDER VALUE -- The Contract Value less any applicable Surrender Charge
and Contract Maintenance Charge. This is the amount payable to an Owner upon
surrender of the Contract prior to the Income Date during the Annuitant's
lifetime.
VALUATION DATE -- Each day on which valuation of the Sub-Accounts is
required by applicable law, including every day that the New York Stock Exchange
is open.
VALUATION PERIOD -- The period of time beginning at the close of trading on
the New York Stock Exchange on one Valuation Date and ending at the close of
trading on the New York Stock Exchange on the next succeeding Valuation Date.
VARIABLE ACCOUNT -- A contract option under which some or all of the
Purchase Payments are allocated to the Western-Southern Life Assurance Company
Separate Account 1, a separate investment account of the Company.
VARIABLE ACCOUNT VALUE -- At any given time, the value of all Accumulation
Units credited to the Sub-Accounts pursuant to the Contract.
VI TRUST -- Select Advisors Variable Insurance Trust, a business trust
formed under Massachusetts law that includes portfolios in which certain of the
Sub-Accounts invest. A separate Prospectus describing the VI Trust and such
Portfolios accompanies and is bound with this Prospectus.
VIT PORTFOLIO -- A Portfolio of the VI Trust.
TERMS DEFINED ELSEWHERE IN THE PROSPECTUS
The following terms have the meanings given such terms at the pages
indicated in this table:
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Administrative Services and Fund Accounting
Agreement.................................... 43
Administrator/Signature....................... 10
Advisor....................................... 10
Advisors Act.................................. 33
Advisory Agreement............................ 32
Benefit determination date.................... 17
Board of Trustees/Trustees.................... 32
Custodian..................................... 44
Death Benefit................................. 17
Designated beneficiary........................ 23
Dollar Cost Averaging......................... 14
Distributor................................... 20
Expense Cap................................... 3
Expense risk.................................. 18
Fort Washington............................... 33
Free look..................................... 6
Free look period.............................. 12
IFS........................................... 20
Individual retirement arrangement............. 27
IRA........................................... 26
Mortality risk................................ 18
PIN........................................... 14
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Portfolio Advisors............................ 10
Qualified Plans............................... 25
RogersCasey................................... 10
SAT Net Investment Factor..................... 13
SEC........................................... 9
SEP........................................... 26
Signature/Administrator....................... 10
Signature Financial........................... 31
Sponsor....................................... 3
Sponsor Agreements............................ 3
Surrender..................................... 6
Touchstone Variable Annuity Service Center.... 6
Treasury Department........................... 22
Trustees/Board of Trustees.................... 32
VIT Net Investment Factor..................... 12
VIT Sub-Account............................... 12
VI Trust Prospectus........................... cover
Western & Southern............................ cover
1933 Act...................................... 10
1940 Act...................................... 9
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2
<PAGE>
PART I -- DISCUSSION OF THE VARIABLE ANNUITY CONTRACT
FEE AND EXPENSE TABLES
The following tables provide information concerning Contract Owner
transaction expenses and annual operating expenses of the Variable Account and
each Sub-Account. For these purposes, expenses of the Portfolio in which each
Sub-Account invests are treated as if they were expenses of that Sub-Account,
since that is their practical effect. It is expected that the combined expenses
per Accumulation Unit of each Sub-Account and its corresponding Portfolio will,
at a minimum, be approximately equal to and may be less than the expenses that
would be incurred by each Sub-Account alone if, instead of investing in such
Portfolio, the Sub-Account retained an investment advisor and portfolio advisors
and invested directly in the types of securities held by the Portfolio. For
additional information regarding these expenses, see "Charges."
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Contingent Deferred Sales Charge*.............. 7%
</TABLE>
RANGE OF CONTINGENT DEFERRED SALES CHARGE* OVER TIME
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
COMPLETED YEARS CHARGE AS PERCENTAGE OF
FROM DATE OF AMOUNT OF PURCHASE
PURCHASE PAYMENT PAYMENT WITHDRAWN
- ---------------- ---------------------------
<S> <C>
less than 1 7%
1 7%
2 6%
3 5%
4 4%
5 2%
6 1%
7 and later 0%
</TABLE>
<TABLE>
<S> <C>
Annual Contract Maintenance Charge**................................................. $ 35
Variable Account Annual Expenses (as a percentage of average account value)
Mortality and Expense Risk Charges............................................... 1.20%
Contract Administration Charge................................................... .15%
-----
Total Variable Account Annual Expenses........................................... 1.35%
</TABLE>
*Also referred to as a "Surrender Charge." See "Surrender Charge."
**In states in which it has received the necessary regulatory approvals, the
Company may waive the Annual Contract Maintenance Charge for Qualified
Contracts.
PORTFOLIO EXPENSES
The expenses of each of the VIT Portfolios and each of the SAT Portfolios
shown below are assessed at the underlying Portfolio level and are not direct
charges against the assets of the Sub-Accounts or reductions from Contract
Value, although such charges are borne indirectly by Contract Owners. Portfolio
expenses are taken into consideration in computing the net asset value of each
Portfolio, which is the price used to calculate the Variable Account Value.
However, under agreements (the "SPONSOR AGREEMENTS") with the VI Trust and the
SA Trust, Touchstone Advisors, Inc., as sponsor of the two trusts (the
"SPONSOR"), has agreed to reimburse each Portfolio for those annual operating
expenses of the Portfolio exceeding a specified percentage (the "EXPENSE CAP")
of the Portfolio's average daily net assets. For additional information
regarding the Sponsor Agreements, see "Sponsor" at page 44. Operating expenses
for this purpose include fees of the Advisor, fees of the Administrator,
amortization of
3
<PAGE>
organizational expenses, legal and accounting fees and Sponsor fees, but do not
include interest, taxes, brokerage commissions and other portfolio transaction
expenses, capital expenditures and extraordinary expenses. Fees and expenses in
the table are expressed as a percentage of average daily net assets.
<TABLE>
<CAPTION>
TOTAL EXPENSES
ADVISOR FEE OTHER EXPENSES (AFTER EXPENSE
(AFTER EXPENSE (AFTER EXPENSE REIMBURSEMENT)
VIT PORTFOLIOS REIMBURSEMENT) REIMBURSEMENT) (1)
- ---------------------------------------------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Emerging Growth..................................... 0.80% 0.35% 1.15%
International Equity................................ 0.95% 0.30% 1.25%
Balanced............................................ 0.70% 0.20% 0.90%
Income Opportunity.................................. 0.65% 0.20% 0.85%
Standby Income...................................... 0.25% 0.25% 0.50%
<CAPTION>
SAT PORTFOLIOS
- ----------------------------------------------------
<S> <C> <C> <C>
Growth & Income..................................... 0.75% 0.10% 0.85%
Bond................................................ 0.55% 0.20% 0.75%
</TABLE>
- ------------------------
(1) Total Portfolio expenses absent reimbursement by the Sponsor would have been
as follows: Emerging Growth -- 3.73%; International Equity -- 3.69%;
Balanced -- 2.87%; Income Opportunity -- 3.54%; Standby Income -- 1.73%;
Growth & Income -- 1.77%; and Bond -- 1.58%. A Sponsor Agreement may be
terminated by the Sponsor as to any Portfolio, as of the end of any calendar
quarter after December 31, 1996, by giving at least 30 days prior written
notice, and will be terminated if the Sponsor ceases to be the investment
advisor for the Portfolio. If a Sponsor Agreement is terminated, actual
Portfolio expenses may exceed those shown in the table. For more information
regarding each Portfolio's expenses, see "Expenses of the VIT Portfolios and
SAT Portfolios; Expense Caps" herein, the VI Trust Prospectus, and the
Statement of Additional Information (available on request from the
Touchstone Variable Annuity Service Center).
EXAMPLE
The following charts depict the expenses that would be incurred under the
Contract assuming a $1,000 investment in each Sub-Account and a 5% annual return
on that investment. Portfolio expenses have been estimated at the Expense Cap
for each Portfolio. THE DOLLAR FIGURES IN EACH CHART ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The effect of the Contract
Maintenance Charge is calculated by expressing it as a percentage of the average
Contract Value, which is assumed, for this purpose only, to be $25,000. Premium
taxes currently are imposed by certain states and municipalities on Purchase
Payments made under the Contracts. Premium taxes are not reflected in the
samples below; where applicable, such taxes may decrease the amount of each
Purchase Payment available for allocation.
An Owner surrendering a Contract at the end of the applicable time period
would pay the following aggregate Contract and Portfolio expenses on a $1,000
investment in each Sub-Account, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
--- --- --- ---
<S> <C> <C> <C> <C>
Emerging Growth............................................. $97 $137 $178 $301
International Equity........................................ $98 $140 $183 $311
Balanced.................................................... $94 $129 $165 $275
Income Opportunity.......................................... $94 $128 $162 $270
Standby Income.............................................. $90 $117 $144 $232
Growth & Income............................................. $94 $128 $162 $270
Bond........................................................ $93 $125 $157 $259
</TABLE>
4
<PAGE>
An Owner annuitizing a Contract (with a minimum 5 year payout) at the end of
the applicable time period would pay the following aggregate Contract and
Portfolio expenses on the same investment:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
--- --- --- ---
<S> <C> <C> <C> <C>
Emerging Growth............................................. $97 $83 $142 $301
International Equity........................................ $98 $86 $147 $311
Balanced.................................................... $94 $75 $129 $275
Income Opportunity.......................................... $94 $74 $126 $270
Standby Income.............................................. $90 $63 $108 $232
Growth & Income............................................. $94 $74 $126 $270
Bond........................................................ $93 $71 $121 $259
</TABLE>
An Owner who does not surrender a Contract at the end of the applicable time
period would pay the following aggregate Contract and Portfolio expenses on the
same investment:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
--- --- --- ---
<S> <C> <C> <C> <C>
Emerging Growth............................................. $27 $83 $142 $301
International Equity........................................ $28 $86 $147 $311
Balanced.................................................... $24 $75 $129 $275
Income Opportunity.......................................... $24 $74 $126 $270
Standby Income.............................................. $20 $63 $108 $232
Growth & Income............................................. $24 $74 $126 $270
Bond........................................................ $23 $71 $121 $259
</TABLE>
The purpose of the above tables is to assist an Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly.
OTHER PORTFOLIO FINANCIAL INFORMATION
Additional financial information regarding the Growth & Income and Bond
Portfolios may be found at page 29 of this Prospectus, and similar information
regarding the Emerging Growth, International Equity, Balanced, Income
Opportunity and Standby Income Portfolios may be found in the VI Prospectus,
which follows and is bound with this Prospectus.
SUMMARY OF THE CONTRACT
GENERAL
The purpose of the Contract is to permit an Owner to accumulate funds on a
tax-deferred basis by investing in one or more alternatives, and to permit the
Owner or the Owner's designee to receive annuity income payments starting on the
Income Date. An Owner may invest in one or more of seven Sub-Accounts of the
Variable Account and in the Company's Fixed Account. Each Sub-Account will, in
turn, invest solely in one of seven Portfolios, five of which are Portfolios of
the VI Trust and two of which are Portfolios of the SA Trust. Each Trust is an
open-end diversified management investment company. The VI Trust is organized as
a Massachusetts business trust and the SA Trust is organized as a New York
trust. For further information regarding these two trusts, see "The VI Trust and
the SA Trust." An investment in the Fixed Account will be held and managed by
the Company through its general account. See "The Fixed Account."
The Variable Account is a separate account of the Company. Its assets are
segregated from other assets of the Company. Owners bear the investment risk
with respect to the Sub-Accounts which they select, and there is no guarantee
that amounts invested by the Owner in the Sub-Accounts will increase or retain
their value. See "The Variable Account." The Company guarantees that amounts
allocated by an Owner to the Fixed Account will earn interest at a rate
determined periodically by the Company and in effect at the time of each
investment. See "The Fixed Account."
MINIMUM AND MAXIMUM INVESTMENTS
A Contract may be purchased on a Non-Qualified basis or on a Qualified basis
as part of a plan which qualifies for favorable federal income tax treatment
under Sections 401, 403(b) or 408 of the Code. The initial Purchase
5
<PAGE>
Payment must be at least $2,000 for Non-Qualified Contracts and $1,000 for
Qualified Contracts. Each subsequent payment must be at least $100. If payments
are made under an automatic or scheduled installment plan, the minimums may be
satisfied by purchase payments made on an annualized basis of not less than $600
(which may be waived for Qualified Contracts). The cumulative total of all
Purchase Payments under a Contract may not exceed $500,000 without the prior
consent of the Company. See "Purchase Of A Contract."
VARIABLE ANNUITY SERVICE CENTER
Investments in or withdrawals from a Contract, transfers of amounts to or
from the Variable Account and other directions with respect to the investment of
Purchase Payments should be directed to the Company at the Touchstone Variable
Annuity Service Center, P.O. Box 419707, Kansas City, Missouri 64179-0849 (the
"TOUCHSTONE VARIABLE ANNUITY SERVICE CENTER").
TEN-DAY FREE LOOK
To be sure that the Owner is satisfied with the Contract, the Owner has a
ten-day "FREE LOOK." Within ten days of the date the Contract is received by the
Owner, it may be returned to the Company at the Touchstone Variable Annuity
Service Center. If the Contract is received by the Company within such time, the
Company will void the Contract, and the Contract Value, plus any amount deducted
from the initial Purchase Payment prior to allocation to the Sub-Accounts or the
Fixed Account, will then be refunded in full unless otherwise required by state
or federal law. See "Free Look Privilege."
INVESTMENT OPTIONS
Purchase Payments will be invested by the Company, in the proportions that
the Owner directs, in the Fixed Account and the Sub-Accounts. See "Allocation of
Purchase Payments." The Variable Account currently has seven Sub-Accounts, each
of which invests exclusively in one of the VIT Portfolios or one of the SAT
Portfolios. The VIT Portfolios are Emerging Growth, International Equity,
Balanced, Income Opportunity and Standby Income. The SAT Portfolios are Growth &
Income and Bond. Information regarding the investment options presented by the
VIT Portfolios and the SAT Portfolios is set forth under the caption "The VI
Trust and the SA Trust" herein. More detailed information regarding the SAT
Portfolios will be found under the caption "Investment Objectives, Policies and
Restrictions" in this Prospectus. Detailed information regarding the VIT
Portfolios will be found in the VI Trust Prospectus. Owners may transfer funds
between Sub-Accounts once every thirty days. Transfers from the Variable Account
to the Fixed Account may be made once during any Contract Year. Transfers from
the Fixed Account to the Variable Account also may be made once during any
Contract Year; such transfers are permitted up to a maximum of 25% of the Fixed
Account Value. See "Transfers."
PURCHASE PAYMENTS
The Owner may elect to allocate Purchase Payments to the Sub-Accounts or the
Fixed Account or any combination of these alternatives. Purchase Payments will
be processed by the Company on the day received at the Touchstone Variable
Annuity Service Center, if received in good order no later than 3:00 p.m.
Central Time on any Valuation Date. Payments received in good order later in the
day, or on any day not a Valuation Date, will be processed on the next Valuation
Date. Purchases by the Sub-Accounts of shares of the corresponding VIT
Portfolios or of interests in the corresponding SAT Portfolio will be made on
the next Valuation Date following processing, at the value of the corresponding
Portfolio on the date of processing. As the value of the investments in the Sub-
Accounts increases or decreases, the Variable Account Value increases or
decreases. See "Allocation of Purchase Payments."
WITHDRAWAL; SURRENDER
Prior to the Income Date, the Owner may withdraw all or part of the Contract
Value. A withdrawal of all of the Contract Value is a "SURRENDER." During the
first seven years following the receipt of a Purchase Payment, such withdrawals
generally will be subject to a Surrender Charge. See "Surrender Charge." This
charge is 7% of the amount of any Purchase Payment withdrawn less than two years
following receipt of such payment and decreases over time, reducing to zero
after the seventh year from the receipt of a Purchase Payment. The minimum
partial withdrawal is $250, and the Contract Value following any partial
withdrawal must be at least $2,000 (which may be waived for Qualified
Contracts). Where permitted by applicable law, the Company will waive the
Surrender Charge if the Owner or the Annuitant is confined to a long term health
care facility or hospital (as defined in the Contract)
6
<PAGE>
for at least 30 days prior to surrender, and reserves the right to waive the
Surrender Charge in certain other circumstances. See "Surrenders and Partial
Withdrawals" and "Surrender Charge." Certain withdrawals may be subject to an
additional tax on premature distributions as well as to federal income tax. See
"Federal Income Taxation."
INCOME OPTIONS
The Contract offers four fixed annuity income options, unless otherwise
limited by applicable state insurance laws. Income may be paid in installments,
either for a fixed period of one to 30 years or in a fixed amount. Income also
may be paid under one of two life income alternatives. Other payout plans may be
selected with prior approval of the Company. If no income option is selected by
the Owner, the Contract provides for a monthly annuity payment, beginning on the
Income Date if the Annuitant is then living, payable for life with ten years
certain. See "Selection of Annuity Income Options." If the Annuitant dies after
the Income Date, the amount and manner of any continuing payments will depend
upon the income option selected.
BENEFIT UPON DEATH
If the Annuitant dies before the Income Date, the Company will pay a Death
Benefit to the Beneficiary selected by the Owner. See "Death Benefit."
CHARGES
The Company does not deduct a sales charge from Purchase Payments made for
Contracts. However, if any part of the Contract Value is withdrawn, the Company
will, with certain exceptions, deduct from the Owner's Contract Value a
Surrender Charge not to exceed 7% of the lesser of (i) the total of all purchase
payments made within 84 months prior to the date of the request to surrender,
and (ii) the amount surrendered. This charge, when applicable, is imposed to
permit the Company to recover sales expenses that have been incurred by the
Company. See "Surrenders and Partial Withdrawals" and "Surrender Charge."
In addition, on each Contract Anniversary (and upon surrender) the Company
will deduct an annual Contract Maintenance Charge of $35 from the Contract
Value. In states in which it has received the necessary regulatory approvals,
the Company may waive such charge for any Qualified Contract. Due to certain
state insurance law requirements, the Contract Maintenance Charge may be reduced
or eliminated in such states. The Company also will deduct on a daily basis a
Contract Administration Charge equal to an annual rate of 0.15% of the Variable
Account Value. These charges are to reimburse the Company for administrative
expenses related to the issue and maintenance of the Contract. The Company does
not expect to recover from these charges an amount in excess of accumulated
administrative expenses. See "Administrative Charges."
The Company deducts on a daily basis a Mortality Risk Charge equal to an
annual rate of 0.80% of the Variable Account Value for mortality risk assumed by
the Company. The Company also deducts on a daily basis an Expense Risk Charge
equal to an annual rate of 0.40% of the Variable Account Value as compensation
for the Company's risk in agreeing not to increase administrative charges on the
Contracts regardless of actual administrative costs. See "Mortality and Expense
Risk Charge."
Premium taxes payable to any governmental entity will be charged against the
Contracts. See "Premium Taxes" and "Other Taxes."
The Company may include as a component of the Net Investment Factor (see
"Accumulation Unit Value") a charge or credit for any taxes reserved, which are
determined by the Company to have resulted from the investment operations of any
Sub-Account. See "Allocation of Purchase Payments" and "Other Taxes."
The Portfolios of the VI Trust and of the SA Trust accrue management fees
and other expenses daily and pay them monthly. See "Expenses of VIT Portfolios
and SAT Portfolios; Expense Caps."
THE FOREGOING SUMMARY IS INTENDED TO PROVIDE ONLY AN OVERVIEW OF THE MORE
SIGNIFICANT ASPECTS OF THE CONTRACT. DETAILED INFORMATION IS PROVIDED IN
SUBSEQUENT SECTIONS OF THIS PROSPECTUS AND IN THE CONTRACT. THE CONTRACT
(INCLUDING ANY AMENDMENTS, RIDERS AND ENDORSEMENTS) TOGETHER WITH THE
APPLICATION FORM CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE OWNER AND THE
COMPANY AND SHOULD BE RETAINED BY THE OWNER.
7
<PAGE>
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
UNIT VALUE AT
COMMENCEMENT UNIT VALUE AT NUMBER OF UNITS AT
SUB-ACCOUNT OF OPERATIONS* DECEMBER 31, 1995 DECEMBER 31, 1995
- ---------------------------------------------------------- -------------- ------------------ -------------------
<S> <C> <C> <C>
Emerging Growth........................................... 10.000000 11.687169 14,972
International Equity...................................... 10.000000 11.230830 15,645
Balanced.................................................. 10.000000 11.962842 28,416
Income Opportunity........................................ 10.000000 12.515143 20,015
Standby Income............................................ 10.000000 10.317194 42,991
Growth & Income........................................... 10.000000 12.490239 28,701
Bond...................................................... 10.000000 11.262524 28,863
</TABLE>
- ------------------------
* Operations commenced on February 23, 1995.
For information explaining how Accumulation Unit Value is calculated for the
various Sub-Accounts, see "Accumulation Unit Value."
PERFORMANCE INFORMATION
GENERAL
The Variable Account may advertise certain performance information regarding
the Sub-Accounts from time to time. Such performance information will be based
upon historical performance and is not intended to predict future performance
under an actual Contract.
Average annual total return quotations represent the average compounded rate
of return on a hypothetical initial investment of $1,000. Average annual total
return reflects all historical investment results, less all charges and
deductions applied against a Sub-Account (including any Surrender Charge that
might apply if an Owner terminated the Contract at the end of the indicated
period, but excluding any deductions for premium taxes). The rate for each
Sub-Account is computed by comparing a hypothetical initial investment of $1,000
in the Sub-Account to the hypothetical Surrender Value of that investment at the
end of specifically defined 1, 5 and 10 year periods or for the life of the
Contract.
It is important to note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes in more detail the methods used to determine
total return.
RATINGS; INDEXES
In reports or other communications to shareholders or in advertising
material, a Sub-Account may also quote non-standardized total return figures,
such as non-annualized figures (provided that these figures are accompanied by
standardized total return figures calculated as described above), as well as
compare its performance with that of other separate accounts as listed in the
rankings prepared by Lipper Analytical Services, Inc. or similar independent
services that monitor the performance of separate accounts. The performance
information also may include evaluations of the separate accounts published by
nationally recognized ranking services and by financial publications that are
nationally recognized.
Additional information regarding the calculation of performance information
appears in the Statement of Additional Information.
FACTS ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FIXED ACCOUNT
THE COMPANY
The Company is a stock life insurance company organized under the laws of
the State of Ohio on December 1, 1980. The Company is a wholly-owned subsidiary
of The Western and Southern Life Insurance Company, a mutual life insurance
company originally organized under the laws of the State of Ohio on February 23,
1888 ("WESTERN &
8
<PAGE>
SOUTHERN"). Both companies are in the business of issuing insurance and annuity
contracts. The executive offices of both companies are located at 400 Broadway,
Cincinnati, Ohio 45202 and their telephone number is (513) 629-1800.
THE VARIABLE ACCOUNT
The Variable Account is a separate investment account of the Company
established pursuant to Ohio law on July 27, 1992. It is used to support the
Contracts described in this Prospectus and for other purposes permitted by law.
The Variable Account is registered with the Securities and Exchange Commission
(the "SEC") as a unit investment trust under the Investment Company Act of 1940
(the "1940 ACT").
The Company owns the assets of the Variable Account. As required by law,
however, the assets of the Variable Account are kept separate from the Company's
general account assets and any other separate account assets and are held
exclusively for the benefit of Owners and Beneficiaries of the Contracts. These
assets may not be charged with liabilities from any other business which the
Company may conduct. The Company is obligated to pay all benefits provided under
the Contracts.
Each Sub-Account of the Variable Account is administered and accounted for
as part of the general business of the Company; however, the income, capital
gains or capital losses of each Sub-Account are credited to or charged against
the assets held in that Sub-Account in accordance with the terms of each
Contract without regard to the income, capital gains or capital losses of any
other Sub-Account or arising out of any other business of the Company.
Each Sub-Account invests either in a Portfolio of the VI Trust or in a
Portfolio of the SA Trust. The VI Trust is a Massachusetts business trust and
the SA Trust is a New York trust. Each Trust is registered as an open-end
management investment company under the 1940 Act. The Portfolios are described
generally below. Owners periodically may transfer funds between Sub-Accounts or
change allocations among Sub-Accounts. See "Transfers."
THE VI TRUST AND THE SA TRUST
The Variable Account consists of seven Sub-Accounts, each of which invests
exclusively in one of the VIT Portfolios or in one of the SAT Portfolios. The
investment objective of each Sub-Account is the same as the corresponding
Portfolio, each of which is described briefly below. There is no assurance that
any Contract or Portfolio will meet its investment objective.
VIT PORTFOLIOS
EMERGING GROWTH PORTFOLIO has a primary investment objective of capital
appreciation with income as a secondary investment objective. The Portfolio
attempts to achieve its investment objective through investment primarily in the
common stock of smaller, rapidly growing companies.
INTERNATIONAL EQUITY PORTFOLIO has an investment objective of long term
capital appreciation through investment primarily in equity securities of
companies based outside the United States.
BALANCED PORTFOLIO has an investment objective of growth of capital and
income through investment in common stocks and fixed-income securities.
INCOME OPPORTUNITY PORTFOLIO has an investment objective of high current
income through investment in high yield, non-investment grade debt securities
(commonly known as "junk bonds") of both U.S. and non U.S. issuers and in
mortgage-related securities. To the extent consistent with its primary
objective, the Portfolio will also seek capital appreciation.
STANDBY INCOME PORTFOLIO has an investment objective of high current income
to the extent consistent with relative stability of principal which it attempts
to achieve through investment in short-term, investment grade debt securities.
9
<PAGE>
SAT PORTFOLIOS
GROWTH & INCOME PORTFOLIO has an investment objective of long term capital
appreciation and dividend income through investment primarily in common stocks
of high quality companies.
BOND PORTFOLIO has an investment objective of providing a high level of
current income primarily through investment in investment grade bonds.
Several of the Portfolios invest in non-investment grade (or "junk") bonds,
which entail greater risk of untimely interest and principal payments, default
and price volatility than higher rated securities and may present problems of
liquidity and valuation. The Income Opportunity Portfolio and the International
Equity Portfolio of the VI Trust, which are described in more detail in the VI
Trust Prospectus, may invest up to 100% and 35%, respectively, of their total
assets in non-investment grade bonds. See "Income Opportunity Portfolio,"
"International Equity Portfolio" and "Medium and Lower Rated ("Junk Bonds") and
Unrated Securities" in the VI Trust Prospectus. The Growth & Income Portfolio
and Bond Portfolio of the SA Trust, which are described more fully in Part II of
this Prospectus, may invest up to 5% and 35%, respectively, of their total
assets in non-investment grade bonds. See "Growth & Income Portfolio," "Bond
Portfolio" and "Medium and Lower Rated ("Junk Bonds") and Unrated Securities."
Such investments may not be appropriate for all investors.
Both the VI Trust and the SA Trust have entered into investment advisory
agreements with Touchstone Advisors, Inc. (the "ADVISOR"). The Advisor, in turn,
has entered into investment advisory agreements with separate investment
advisors selected for each Portfolio (the "PORTFOLIO ADVISORS"). It is the
responsibility of the Advisor to select the Portfolio Advisors, subject to the
review and approval of the trustees of the VI Trust or the SA Trust, as the case
may be, and to review the ongoing investment strategy of each Portfolio Advisor
and the performance of the Portfolios. Each of the Trusts has entered into an
agreement with Signature Financial Services, Inc. ("SIGNATURE" or the
"ADMINISTRATOR") pursuant to which Signature provides administrative and fund
accounting services for such Trusts. The Advisor employs, at its expense, the
services of RogersCasey Consulting, Inc. ("ROGERSCASEY"), a research firm
specializing in appraisal and comparison of investment managers, as a consultant
to assist in evaluating portfolio advisors. See "Consultant to the Advisor."
MORE COMPLETE INFORMATION ABOUT THE FIVE PORTFOLIOS OF THE VI TRUST,
INCLUDING THE ASSOCIATED RISKS, IS SET FORTH IN THE VI TRUST PROSPECTUS. SIMILAR
INFORMATION WITH RESPECT TO THE GROWTH & INCOME AND THE BOND PORTFOLIOS OF THE
SA TRUST IS CONTAINED IN PART II OF THIS PROSPECTUS. PROSPECTIVE PURCHASERS OF
CONTRACTS SHOULD READ THE VI TRUST PROSPECTUS AND PART II OF THIS PROSPECTUS IN
CONJUNCTION WITH THE INFORMATION REGARDING THE VARIABLE ACCOUNT CONTAINED
HEREIN.
ADDITIONS, DELETIONS AND SUBSTITUTIONS OF INVESTMENTS
The Company may from time to time make additional Sub-Accounts available.
These Sub-Accounts will invest in investment portfolios that the Company deems
suitable for the Contracts. The Company also has the right, upon approval of
affected Contract Owners or approval of the SEC, to substitute a new investment
portfolio or similar investment option for the Portfolio in which a Sub-Account
invests. A substitution may become necessary if, in the Company's judgment, the
Portfolio or other investment option no longer suits the purposes of the
Contracts. This may happen due to unsatisfactory investment performance, a
change in laws or regulations, a change in a Portfolio's investment objectives
or restrictions, because the Portfolio is no longer available for investment, or
for some other reason. The Company would obtain prior approval from the SEC to
the extent required and any other required approvals before making such a
substitution. The Company also reserves the right to eliminate Sub-Accounts from
the Variable Account or to combine two or more Sub-Accounts, and the right to
operate the Variable Account as a management investment company under the 1940
Act or any other form permitted by law or to deregister the Variable Account
under the 1940 Act in the event such registration no longer is required.
THE FIXED ACCOUNT
Due to exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933 (the "1933 ACT") and
the Company's general account has not been registered as an
10
<PAGE>
investment company under the 1940 Act. Accordingly, interests in the Fixed
Account are not subject to the provisions of those acts, and the Company has
been advised that the staff of the SEC has not reviewed the disclosures in this
Prospectus relating to the Fixed Account.
As noted earlier, a Contract Owner may allocate purchase payments or
transfer all or part of the Owner's Contract Value to the Fixed Account. Funds
allocated or transferred to the Fixed Account will not fluctuate with the
investment experience of the Company's general account. The Company guarantees
that the portion of an Owner's Contract Value that is held in the Fixed Account
will accrue interest at an effective annual rate of at least 3%. When a Purchase
Payment is received or an amount is transferred into the Fixed Account, an
interest rate will be assigned to that amount. That rate will be guaranteed by
the Company for one year from the receipt of the Purchase Payment or transferred
amount. At the end of that year, a new interest rate, which will be guaranteed
by the Company for at least one year, will be assigned to that Purchase Payment
or transferred amount and related earnings. Thereafter, interest rates assigned
to that amount and to subsequent Purchase Payments or to subsequent transferred
amounts allocated to the Fixed Account will be similarly guaranteed for
successive periods of at least one year. Therefore, different interest rates may
apply to different amounts in the Fixed Account depending upon when the amount
was initially allocated by the Owner, and the interest rate applicable to any
particular amount may vary over time. The interest rate credited to a Purchase
Payment or transferred amount by the Company may differ from the rate being
earned by the Company's general account and may differ from the interest rates
being credited to other funds in the general account, whether such funds were
received at the same time as the Purchase Payment or transferred amount or at a
different time. In no event will any interest rate credited be less than an
effective annual rate of 3%. The amount of an Owner's Fixed Account Value and
the amount of interest credited will be included in statements sent to Contract
Owners.
THE CONTRACT
PURCHASE OF A CONTRACT
The Company offers Contracts only in states in which it has received the
necessary regulatory approvals to do so. Contracts may be Qualified or
Non-Qualified. Qualified Contracts are accorded special federal income tax
treatment under the Code. Generally, Qualified Contracts may be purchased only
in connection with plans which qualify under Sections 401, 403(b) or 408 under
the Code. Qualified Contracts contain provisions restricting the timing and
amount of payments to and distributions from such Contracts. See "Federal Income
Taxation."
The purchase of a Non-Qualified Contract requires a minimum initial Purchase
Payment of $2,000. The minimum initial Purchase Payment for a Qualified Contract
is $1,000. Initial payments of $50 (or $600 annualized) are permitted if such
payments are made under an automatic or scheduled installment plan, such as
pre-authorized checking account deduction, salary deduction or electronic funds
transfer. If no Purchase Payments have been received for two full years and both
(a) the total Purchase Payments less any partial withdrawals and (b) the
Contract Value are less than $2,000, the Company requires that the deficiency be
paid within 14 days of notice to the Owner. If it is not paid, the Company may
terminate the Contract and pay the Surrender Value to the Owner. Subsequent
Purchase Payments under both types of Contracts must be at least $100 (at least
$50 if made under an automatic or scheduled installment plan), and may be made
at any time. The maximum cumulative total of all Purchase Payments under any
Contract may not exceed $500,000 without prior approval by the Company. With
respect to Qualified Contracts, the Company may waive the requirements for
minimum annual payments and post-withdrawal balances.
To purchase a Contract, the purchaser must submit the initial Purchase
Payment and the completed Application Form in good order to the Company at the
Touchstone Variable Annuity Service Center. The proposed Annuitant must be no
older than 85 years old. The Contract becomes effective on the Contract Date,
which is stated on page 3 of the Contract, and generally is the Valuation Date
on which the initial Purchase Payment and the Application Form are received in
good order at the Touchstone Variable Annuity Service Center. Any such receipt
must be by 3:00 p.m. Central Time on a Valuation Date; if later, the effective
date of the Contract will be the following Valuation Date. Purchase Payments
will be allocated among the Sub-Accounts (and, if applicable, the Fixed Account)
according to the instructions of the Owner. See "Allocation of Purchase
Payments." If an
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<PAGE>
incomplete Application Form is received, the Company will request additional
information to complete the application. If the Application Form remains
incomplete for five business days after its receipt, the Company will return the
initial Purchase Payment unless the purchaser consents to a delay.
FREE LOOK PRIVILEGE
A Contract may be returned for a refund within 10 days after the Owner
receives it (the "FREE LOOK PERIOD"). If the Owner chooses not to retain the
Contract, it must be returned to the Company at the Touchstone Variable Annuity
Service Center within the free look period. In such circumstances, the Company
will cancel the Contract and refund promptly an amount that in most cases will
be equal to the Owner's Contract Value, plus any amount deducted from the
initial Purchase Payment prior to allocation to the Sub-Accounts or the Fixed
Account. The laws of certain states require the Company to return other amounts
to Owners pursuant to the free look privilege; in such states, such amounts will
be returned. Similarly, the laws of certain states require a free look period
longer than 10 days; Owners living in such states will have a free look period
conforming to applicable state law.
ALLOCATION OF PURCHASE PAYMENTS
Allocation of the initial Purchase Payment will be made according to the
instructions given by the Owner on the Application Form. Each allocation must be
in whole percentages of at least 5%, and the sum of the allocation percentages
must equal 100%. Absent written instructions from the Owner, subsequent Purchase
Payments will be allocated in the same manner as the most recent written
allocation, or the initial allocation, if unchanged. Contract Owners should
periodically review their allocations under the Contract in light of market
conditions and their own financial objectives.
For all Purchase Payments allocated to Sub-Accounts (other than the initial
such payment, which is allocated as of the Contract Date), Accumulation Units
will be credited at the Accumulation Unit Value calculated as of the close of
business on the Valuation Date such Purchase Payment is received in good order
by the Company at the Touchstone Variable Annuity Service Center if received
before 3:00 p.m. Central Time on such Valuation Date. For payments received
after such time, Accumulation Units will be credited at the Accumulation Unit
Value calculated as of the next following Valuation Date. The number of
Accumulation Units for each Sub-Account of the Variable Account is determined by
dividing the amount of the Purchase Payment allocated to the Sub-Account by the
Accumulation Unit Value for the Sub-Account as of the close of business on the
Valuation Date on which the Company is deemed to have received the Purchase
Payment. The Accumulation Unit Value for each Sub-Account was set arbitrarily at
$10 when the first Portfolio interest was purchased by the Sub-Account.
Thereafter, Accumulation Unit Value fluctuates from day to day depending upon
the investment performance of the Portfolio in which the Sub-Account is
invested.
ACCUMULATION UNIT VALUE
The following material describes the procedures used to calculate
Accumulation Unit Value for, respectively, the five Sub-Accounts (Emerging
Growth, International Equity, Balanced, Income Opportunity and Standby Income)
that invest in Portfolios of the VI Trust and the two Sub-Accounts (Growth &
Income and Bond) that invest in Portfolios of the SA Trust. The procedures do
not produce different results. Rather, they reflect different accounting
treatment at the Portfolio level, with interests in the VI Trust being
calculated on a per share basis and interests in the SA Trust being calculated
on a percentage basis.
ACCUMULATION UNIT VALUE -- VIT SUB-ACCOUNTS
The value of an Accumulation Unit at the close of any Valuation Period is
determined for each Sub-Account that invests in an VIT Portfolio (a "VIT
SUB-ACCOUNT") by multiplying the Accumulation Unit Value of the Sub-Account at
the close of the immediately preceding Valuation Period by the "VIT NET
INVESTMENT FACTOR" (described below). Depending upon investment performance of
the Portfolio in which the Sub-Account is invested, the Accumulation Unit Value
may increase or decrease. Accordingly, the VIT Net Investment Factor may be
greater or less than one.
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<PAGE>
The VIT Net Investment Factor for each VIT Sub-Account, for any Valuation
Period, is determined by dividing (a) by (b) and subtracting (c) from the
result, where:
(a) is:
(1) the net asset value per share of the corresponding VIT Portfolio at
the end of the current Valuation Period, plus
(2) the per share amount of any dividend or capital gain distribution
made by the VIT Portfolio on shares held in the Sub-Account if the
"ex-dividend" date occurs during the current Valuation Period, plus
or minus
(3) a per share charge or credit for any taxes reserved, which are
determined by the Company to have resulted from the investment
operations of the Sub-Account during the current Valuation Period;
and
(b) is:
(1) the net asset value per share of the corresponding VIT Portfolio
determined at the end of the immediately preceding Valuation Period,
plus or minus
(2) a per share charge or credit for any taxes reserved for the
immediately preceding Valuation Period; and
(c) is a factor representing the charges deducted from the Sub-Account on a
daily basis for the daily portion of the annual Mortality and Expense
Risk Charge (1.20%) and the annual Contract Administration Charge
(0.15%).
ACCUMULATION UNIT VALUE -- GROWTH & INCOME AND BOND SUB-ACCOUNTS
The value of an Accumulation Unit at the close of any Valuation Period is
determined for the Growth & Income and Bond Sub-Accounts by multiplying the
Accumulation Unit Value at the close of the immediately preceding Valuation
Period by the "SAT NET INVESTMENT FACTOR" (described below). Depending upon
investment performance of the SAT Portfolio in which the Sub-Account is
invested, the Accumulation Unit Value may increase or decrease. Accordingly, the
SAT Net Investment Factor may be greater or less than one.
The SAT Net Investment Factor for each of the Growth & Income and Bond
Sub-Accounts for any Valuation Period is equal to one plus the net result of (a)
divided by (b) where:
(a) is the accrued gain or loss in the Sub-Account for the Valuation Period,
including investment income, capital gains and losses, adjusted by:
(1) charging the Sub-Account a dollar amount representing the portion of
the annual Mortality and Expense Risk Charge (1.20%) and the annual
Contract Administration Charge (0.15%) that is allocable to the
Sub-Account for the Valuation Period, and
(2) charging or crediting the Sub-Account for any tax charge or tax
credit determined by the Company to have resulted from the investment
operations of the Sub-Account during the Valuation Period; and
(b) is the value of the Sub-Account as of the close of the immediately
preceding Valuation Period.
FIXED ACCOUNT VALUE
Fixed Account Value is calculated on a daily basis, and consists of (i) the
sum of all Purchase Payments allocated to the Fixed Account, plus (ii) any
Variable Account Value transferred to the Fixed Account, plus (iii) interest
credited by the Company to the Fixed Account, less (iv) any amounts transferred
from the Fixed Account to the Variable Account, less (v) any amounts withdrawn
for charges or deductions, or in connection with any surrenders or partial
withdrawals (which include Surrender Charges, if any). See "The Fixed Account."
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<PAGE>
DOLLAR COST AVERAGING
A Contract Owner may direct the Company automatically to transfer specified
dollar amounts from the Fixed Account or from the Standby Income Sub-Account to
other Sub-Accounts on a monthly or quarterly basis. This automatic transfer is
known as Dollar Cost Averaging. Dollar Cost Averaging may be selected by a
Contract Owner for periods of between 12 and 36 months. The minimum Dollar Cost
Averaging transfer is $200, with a minimum allocation per Sub-Account of 5% of
the total amount transferred. The maximum amount that may be transferred from
the Fixed Account in any Contract Year is 25% of the Fixed Account Value at the
beginning of the Contract Year. Dollar Cost Averaging is available only if the
Contract Value is at least $10,000. All Dollar Cost Averaging transfers for all
Contracts will be made effective on the monthly or quarterly anniversary of the
Contract Date, at the election of the Owner. Contract Owners may elect to
participate in Dollar Cost Averaging by notifying the Company in writing. Forms
for this purpose are available from the Touchstone Variable Annuity Service
Center. Dollar Cost Averaging will terminate when any of the following occurs:
(1) the number of designated transfers has been completed; (2) the portion of
the Contract Value in the Fixed Account or in the Standby Income Sub-Account is
insufficient to complete the next scheduled transfer; (3) the Contract Owner
requests termination in writing; or (4) the Contract is terminated. There is no
charge at this time for Dollar Cost Averaging, but the Company reserves the
right to charge a fee for this service. The Company also reserves the right to
terminate Dollar Cost Averaging, on a prospective basis, upon 30 days' written
notice to Contract Owners.
TRANSFERS
Subject to the conditions described below, an Owner may transfer all or part
of the Contract Value among the Sub-Accounts and the Fixed Account.
The minimum transfer amount is $250. Transfers among Sub-Accounts other than
by Dollar Cost Averaging may be made once every thirty days, and not less than
5% of the total amount transferred can be directed to any other Sub-Account. An
Owner may only transfer from one or more Sub-Accounts to the Fixed Account once
each Contract Year, and from the Fixed Account to one or more Sub-Accounts once
each Contract Year (except in the case of Dollar Cost Averaging). When
transferring from the Fixed Account, the amount of the transfer (including
Dollar Cost Averaging transfers) is limited to a maximum of 25% of the Fixed
Account Value as of the beginning of the Contract Year. The Company currently
imposes no charges for any such transfer, but reserves the right to modify
availability of and conditions for transfers at any time, including the right to
charge transfer fees.
The Company will effect transfers pursuant to proper written or telephone
instructions received at the Touchstone Variable Annuity Service Center which
clearly specify the requested changes. Requests received in good order by the
Company at the Touchstone Variable Annuity Service Center by 3:00 p.m. Central
Time on any Valuation Date will be effected that day; requests received after
that time will be effected on the next Valuation Date.
The Company will not honor telephone transfer instructions unless proper
authorization has been provided either (i) in the completed Application Form, or
(ii) in a properly completed telephone transfer authorization form. If the
proper authorization is on file at the Touchstone Variable Annuity Service
Center, requests for transfers may be made by calling 1-800-669-2796 between
8:00 a.m. and 3:00 p.m. Central Time on any Valuation Date. Such telephone
transfer request must include a precise identification of the Owner's Contract
and Social Security number. A personal identification number ("PIN") also may be
required. The Company will accept telephone requests for transfers from any
person presenting the required information and claiming to be the Owner. All or
part of any telephone conversation relating to transfer instructions may be
recorded by the Company without prior disclosure.
Telephone transfer instructions apply only to previously invested Purchase
Payments and may not be employed to change the investment allocation of future
Purchase Payments under the Contract. Allocation of future Purchase Payments can
be changed only by proper written request. See "Allocation of Purchase
Payments."
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<PAGE>
The Company will not be liable for following instructions received by
telephone that it reasonably believes to be genuine. The Company has established
certain procedures, some of which are described above, to confirm that telephone
instructions are genuine. If it does not follow reasonable procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions.
The Company reserves the right to modify, suspend or discontinue the
telephone transfer privilege at any time and without prior notice.
SURRENDERS AND PARTIAL WITHDRAWALS
While the Contract is in force and prior to the Income Date or the death of
the Annuitant, the Company will, upon proper written notification by the Owner,
allow the Owner to surrender all, or withdraw part, of the Contract Value, less
any Surrender Charge. See "Surrender Charge." A withdrawal may not be less than
$250, and it may not reduce the Contract Value to less than $2,000 (which
minimum may be waived by the Company for Qualified Contracts).
Any amount withdrawn will result in the liquidation of Accumulation Units
from each applicable Sub-Account and liquidation of value from the Fixed Account
in the ratio that the value of each Sub-Account and the Fixed Account bears to
the total Contract Value. The Owner must specify in writing in advance which
Accumulation Units or value are to be liquidated if some other ratio is desired.
All surrenders and partial withdrawals from the Variable Account, will be
paid within seven days of receipt of written notification, subject to
postponement of either calculation or payment, or both, for any of the following
reasons:
(1) The New York Stock Exchange is closed other than for customary weekend
and holiday closings;
(2) Trading on the New York Stock Exchange is restricted;
(3) An emergency exists as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to fairly
determine the value of the net assets of the Variable Account;
(4) The SEC, by order, permits postponement of payments for the protection
of security holders; or
(5) The request for surrender or withdrawal is not made in writing.
Applicable regulations of the SEC shall determine whether the conditions
prescribed in (2) and (3) exist.
Payments resulting from surrenders or withdrawals from the Fixed Account may
be deferred for up to six months.
Since the Owner assumes the investment risk with respect to amounts held in
the Sub-Accounts and because certain surrenders and partial withdrawals are
subject to a Surrender Charge, the total amount paid upon surrenders and partial
withdrawals under the Contracts may be more or less than the Purchase Payments
made.
Certain tax penalties and restrictions may apply to surrenders and partial
withdrawals. For example, the Internal Revenue Service imposes a penalty tax
equal to 10% of the amount treated as taxable income on most surrenders and
partial withdrawals made from Contracts prior to the Contract Owner or the
Annuitant (as applicable) reaching age 59 1/2. See "Tax Treatment of Withdrawals
- -- Non-Qualified Contracts" and -- Qualified Contracts."
SYSTEMATIC WITHDRAWALS
A Contract Owner may elect to take systematic withdrawals by withdrawing a
specified dollar amount of at least $100 on a monthly, quarterly, semiannual or
annual basis. Systematic withdrawals will be accomplished by liquidating, on a
pro rata basis, Accumulation Units from all Sub-Accounts to which Contract Value
is allocated and value from the Fixed Account. Surrender Charges may apply to
such withdrawals. However, Accumulation Units representing income earned, if
any, on the Contract will be liquidated first to satisfy systematic withdrawals,
and no Surrender Charges will apply to liquidations of such Accumulation Units.
Surrender Charges will apply in the event of systematic withdrawals which
require liquidation of Accumulation Units representing Purchase Payments. See
"Surrender Charge." An Owner may discontinue systematic withdrawals at any time
by notifying the
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<PAGE>
Company in writing. The Company reserves the right to discontinue offering
systematic withdrawals, on a prospective basis, upon 30 days' written notice to
Contract Owners. The Company also reserves the right to assess a processing fee
for this service. Based upon the Company's present costs, the Company does not
expect that such fee would exceed $5.00 per transaction.
The Internal Revenue Service imposes a penalty tax equal to 10% of the
amount treated as taxable income on most surrenders and partial withdrawals made
from Contracts prior to the Contract Owner or the Annuitant (as applicable)
reaching age 59 1/2. See "Tax Treatment of Withdrawals -- Non-Qualified
Contracts" and -- Qualified Contracts."
SELECTION OF ANNUITY INCOME OPTIONS
INCOME DATE SELECTION
For a Non-Qualified Contract, the Income Date is the later of the Contract
Anniversary on or following the Annuitant's 80th birthday and the 10th Contract
Anniversary, unless otherwise indicated on Page 3 of the Contract. The Income
Date can be changed to any date by written request to the Company, if such
written request is received at least 31 days prior to the scheduled Income Date.
The Income Date for a Qualified Contract with issue age less than 70 is the
Contract Anniversary on or before April 1 of the year following the year in
which the Annuitant reaches age 70 1/2, unless otherwise indicated by the Owner.
The Income Date for any Qualified Contract with issue age greater than age 69 is
the 10th Contract Anniversary, unless otherwise indicated by the Owner. Special
rules apply to the selection of Income Dates for Qualified Contracts. See "Tax
Treatment of Withdrawals -- Qualified Contracts."
ANNUITY PAYOUT PLANS
The Owner may apply the Surrender Value less any applicable premium tax
under any one of the annuity payout plans specified in the Contract and
described below. A change of annuity payout plan is permitted prior to the
Income Date upon 31 days' prior written notice to the Company. In the absence of
an election, annuity payments will be made in accordance with Life Income Plan
A, described below, with monthly payments guaranteed for ten years. Annuity
payments will be made monthly (or, if requested, quarterly, semiannually or
annually) except that: (i) proceeds of less than $1,000 shall be paid in a
single sum and (ii) the Company may change the frequency of payment to avoid
periodic payments of less than $50.
The annuity payout plans currently available under the Contract are as
follows, unless limited in some jurisdictions by applicable state insurance
laws:
Installment Income Plans
A. Fixed period -- Paid in equal monthly payments for the number of
years selected, but not more than 30 years.
B. Fixed Amount -- Paid in equal monthly installments of $5 or more for
each $1,000 applied until the full amount, with compound interest at
not less than 3% a year, is used up.
Life Income Plans
A. One Life -- Paid in equal monthly payments during the lifetime of
the Annuitant. The Company guarantees payments for either 10 years or
20 years, and for as long as the Annuitant lives. The amount of the
monthly payment is based on the Annuitant's sex and age on the date
of the first payment and on the number of years for which payments
are guaranteed. Payments may not be commuted.
B. Joint and Survivor -- Paid in equal monthly payments during the
lifetimes of the Annuitant and another designated person. Payments
will continue as long as either person is living. The amount of each
payment is based on both persons' sex and age on the date of the
first payment. If either one dies before the due date of the first
payment, the Company will make payments during the survivor's
lifetime under Life Income Plan A, with payments guaranteed for 10
years. Payments may not be commuted.
Under a Qualified Contract, the Owner must make an affirmative election
before the Company makes any annuity payments.
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DEATH BENEFIT
If the Annuitant dies before the Income Date, the Company will pay a death
benefit to the Beneficiary designated by the Owner (the "DEATH BENEFIT"). The
Death Benefit will be calculated as of the Valuation Date on which satisfactory
proof of death and Death Benefit payout instructions are received in good order
by the Company (the "BENEFIT DETERMINATION DATE"). If the Annuitant dies prior
to the first day of the calendar month after the Annuitant's 80th birthday, the
Death Benefit will equal the greatest of (1) the Contract Value on the Benefit
Determination Date, (2) the sum of all Purchase Payments less any amounts
withdrawn (which include any Surrender Charge thereon) and, (3) if the Annuitant
dies after the seventh Contract Anniversary, the Contract Value on the most
recent septennial Contract Anniversary (i.e., years 7, 14, 21, etc.), plus any
Purchase Payments made since such Contract Anniversary and less any amounts
withdrawn (which include any Surrender Charge thereon) since that Contract
Anniversary.
If the Annuitant dies on or after the first day of the calendar month after
the Annuitant's 80th birthday (but before the Income Date), the Death Benefit
will equal the Contract Value on the Benefit Determination Date. If the Company
does not receive Death Benefit payout instructions within 60 days of receipt of
satisfactory proof of death, it reserves the right to make payment of the Death
Benefit in a lump sum.
No Surrender Charge is made in connection with the payment of a Death
Benefit.
If the Annuitant dies after the Income Date, the benefits, if any, remaining
to be paid will depend upon the annuity payout plan in effect. See "Annuity
Payout Plans."
CHARGES
All charges under the Contract are described below.
PREMIUM TAXES
Certain states or other governmental entities impose premium taxes, with
rates that range up to as much as 3.5% of the Purchase Payment. Some states
assess the tax at the time Purchase Payments are made, and others assess at the
time annuity payments begin. The Company will pay the premium tax at the time
imposed by applicable law. The Company reserves the right to deduct for the tax,
however, at the time the tax is paid, at the time the Contract is surrendered or
amounts are withdrawn, when the Death Benefit is paid or when the annuity
payments begin.
OTHER TAXES
The Company reserves the right to deduct the amount of certain taxes (other
than premium taxes) that it may have to pay. See "Federal Income Tax
Information."
ADMINISTRATIVE CHARGES
The Company incurs costs in establishing and maintaining the Contracts, and
in maintaining records and systems and issuing reports to Owners. The
administrative charges discussed below have been established at the levels
indicated to reimburse the Company for its expected actual costs of
administering the Contracts over time.
CONTRACT MAINTENANCE CHARGE
On each Contract Anniversary before the Income Date, an annual maintenance
charge is deducted from the Contract Value to cover such costs. The maintenance
charge is also deducted on any date not a Contract Anniversary on which the
Owner fully surrenders the Contract, or on the Income Date. The contract
maintenance charge for the first ten Contract Years is $35. After the tenth
Contract Anniversary the charge is the lesser of (a) $35 and (b) 0.17% of the
Contract Value. This charge will be deducted by liquidating on a pro-rata basis
Accumulation Units from all Sub-Accounts to which Contract Value is allocated
and value from the Fixed Account. In states in which it has received regulatory
approval, the Company may waive the contract maintenance charge for any
Qualified Contract. Due to certain state insurance law requirements, the
contract maintenance charge may be reduced or eliminated in such states.
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CONTRACT ADMINISTRATION CHARGE
On each Valuation Date, the Company deducts from the Accumulation Unit Value
a charge equal to a percentage of such value that is the daily equivalent of an
effective annual rate of .15%. This charge is assessed only against the
Sub-Accounts of the Variable Account and is not imposed against the portion, if
any, of the Contract Value allocated to the Fixed Account.
MORTALITY AND EXPENSE RISK CHARGE
As compensation for its assumption of mortality and expense risks, the
Company deducts from the Accumulation Unit Value a charge equal to a percentage
of such value that is the daily equivalent of an effective annual rate of 1.20%.
This charge is not imposed against any portion of the Contract Value allocated
to the Fixed Account. The Company bears a "MORTALITY RISK" because the Company
is taking the risk that its actuarial estimate of mortality rates may prove
inaccurate. This would result if the Annuitant lives longer than expected, or if
the Annuitant dies prior to the Income Date at a time when the Death Benefit
guaranteed by the Company is higher than the Contract Value. The Company bears
an "EXPENSE RISK" because the costs of issuing and administering Contracts may
be greater than expected when setting the administrative charges. Of the 1.20%
total charge, 0.80% is for assuming the mortality risk and 0.40% is for assuming
the expense risk. The Company may realize a gain from the charge for these risks
to the extent that the charge is not needed to provide for benefits and expenses
under the Contracts.
If the Surrender Charge is insufficient to cover the distribution expenses
of the Contracts, the deficiency will be met from the Company's general account,
including amounts derived from the Mortality and Expense Risk Charge.
SURRENDER CHARGE
SURRENDERS AND WITHDRAWALS. Since no deduction for a sales charge is made
from the Purchase Payments, a Surrender Charge is imposed on certain surrenders
and partial withdrawals to cover expenses relating to the promotion, sale and
distribution of the Contracts. The Surrender Charge is assessed on each Purchase
Payment (except for certain "free" amounts described below) from which amounts
are being withdrawn and is based upon the number of years since the Purchase
Payment was received. For purposes of computing the Surrender Charge, amounts
will be deemed to be withdrawn from Purchase Payments first, and in the order
they were received, before any amounts in excess of Purchase Payments are
withdrawn from the Contract Value. To the extent permitted by applicable law, no
Surrender Charge shall be assessed (i) at the death of the Annuitant, or (ii)
if, at the time of withdrawal, the Owner or the Annuitant has been confined to a
long-term health care facility or hospital (as defined in the Contract) for at
least 30 days.
The Surrender Charge applies to Purchase Payments (except for certain "free"
amounts described below) as follows:
<TABLE>
<CAPTION>
SURRENDER CHARGE AS
COMPLETED YEARS PERCENTAGE OF
FROM DATE OF AMOUNT OF PURCHASE
PURCHASE PAYMENT PAYMENT WITHDRAWN
- ---------------- ---------------------------
<S> <C>
less than 1 7%
1 7%
2 6%
3 5%
4 4%
5 2%
6 1%
7 and later 0%
</TABLE>
The Company reserves the right to reduce or eliminate the Surrender Charge
when Contracts are sold to a trustee, employer or similar entity pursuant to a
retirement plan or when Contracts are otherwise sold to a group such that the
Company saves sales expenses. Whether the Surrender Charge will be reduced or
eliminated depends upon a number of factors, including the size of the group,
the total amount of Purchase Payments received from the group and the manner in
which they are made, the type of plan involved, the type of individuals that
participate in
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the plan, the costs to the Company of distribution and other circumstances, all
as evaluated at the sole discretion of the Company. In no event will reduction
or elimination of the Surrender Charge be permitted where such reduction or
elimination will unfairly discriminate against any person or where prohibited by
state law.
ANNUITIZATION. A Surrender Charge is also imposed if annuity payments begin
during the first seven Contract Years. However, if the Contract Owner elects an
Income Date that is at least two years after the Contract Date and selects a
payout plan with at least five years of level payments, the Surrender Charge
will be waived. If the Owner later (but within seven years after the Contract
Date) elects, where permitted, to take the commuted value of the remaining
payments, a Surrender Charge will be imposed at the rates shown in the above
table, calculated as of the date of commutation.
"FREE" AMOUNTS. Any Purchase Payment received more than seven years prior
to the withdrawal (less any amounts previously withdrawn) may be withdrawn free
of any Surrender Charge. In addition, for any Purchase Payment that has been in
the Contract for at least one year and less than seven years, the Owner may
withdraw up to 10% of the Purchase Payment (to the extent not already withdrawn)
without a Surrender Charge. This free withdrawal privilege is non-cumulative and
is available each Contract Year for amounts of eligible Purchase Payments not
already withdrawn. Free withdrawal amounts are deemed withdrawn on a first-in,
first-out basis; that is, withdrawals are deemed to come from the oldest
Purchase Payments first. With respect to Contracts owned by charitable remainder
trusts, the Contract Owner may, in states where regulatory approval has been
received, withdraw without Surrender Charge the amount by which the Contract
Value at any given time exceeds the aggregate Purchase Payments.
EXPENSES OF VIT PORTFOLIOS AND SAT PORTFOLIOS; EXPENSE CAPS
Each VIT Portfolio and each SAT Portfolio incurs various operating expenses.
For the VIT Portfolios these expenses are more fully described in the prospectus
for the VIT Portfolios. For the Growth & Income and Bond Portfolios, they are
described in Part II of this Prospectus. All such expenses are borne indirectly
by Owners in that they reduce the net asset value of the Portfolios.
Under Sponsor Agreements with the VI Trust and the SA Trust, the Sponsor has
agreed to reimburse each Portfolio for the amounts by which total operating
expenses, on an annual basis, exceed the following percentages of the average
daily net assets of the various Portfolios:
<TABLE>
<CAPTION>
VI TRUST
- ---------------------------------------------------------------------------------------
<S> <C>
Emerging Growth Portfolio.............................................................. 1.15%
International Equity Portfolio......................................................... 1.25%
Balanced Portfolio..................................................................... 0.90%
Income Opportunity Portfolio........................................................... 0.85%
Standby Income Portfolio............................................................... 0.50%
<CAPTION>
SA TRUST
- ---------------------------------------------------------------------------------------
<S> <C>
Growth & Income Portfolio.............................................................. 0.85%
Bond Portfolio......................................................................... 0.75%
</TABLE>
Operating expenses, for purposes of expense reimbursement, include fees of
the Advisor, fees of the Administrator, amortization of organizational expenses,
legal and accounting fees and Sponsor fees, but do not include interest, taxes,
brokerage commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses. The Sponsor Agreements may be
terminated by the Sponsor as of the end of any calendar quarter after December
31, 1996 upon not less than 30 days prior written notice. The Sponsor's
agreement to reimburse a Portfolio also terminates as to a Portfolio if the
Sponsor ceases to be the investment advisor to that Portfolio. See "Sponsor."
Under the Sponsor Agreements, the Sponsor is entitled to an annual fee of 0.20%
of average daily net assets, but the Sponsor has waived such fees through April
30, 1997.
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<PAGE>
OTHER INFORMATION
DISTRIBUTION OF THE CONTRACTS
Contracts are distributed through Touchstone Securities, Inc. (the
"DISTRIBUTOR"), which is a wholly-owned subsidiary of IFS Financial Services,
Inc. ("IFS"), in turn a wholly-owned subsidiary of the Company. The principal
business address of the Distributor is 311 Pike Street, Cincinnati, Ohio 45202.
The Distributor will pay sales commissions to those individuals or entities who
sell the Contracts. Commissions may be calculated as a percentage of the
Purchase Payments received or as a trail commission that is determined as a
percentage of the Contract Value. In addition, under certain circumstances the
Distributor may pay production bonuses which take into account, among other
things, the total Purchase Payments that have been made under Contracts
associated with the broker-dealer. Additional payments may be made for other
services not directly related to the sale of the Contracts. These expenses are
not passed on to the Owner of the Contract except to the extent absorbed by any
Mortality and Expense Risk Charges or by Surrender Charges on Purchase Payments
withdrawn during the first seven years following their receipt. See "Surrender
Charge" and "Mortality and Expense Risk Charge."
REPORTS TO CONTRACT OWNERS
Prior to the Income Date, a confirmation of each Purchase Payment and
certain other transactions, such as transfers and partial withdrawals, will be
sent to the Owner.
At least once in each Contract Year prior to the Income Date, each Owner
will be sent a report that includes a statement of the Variable Account Value
and the Fixed Account Value as of a date not more than four months prior to the
mailing date of such report. Each Owner whose Contract Value is measured in any
part by Accumulation Units in the Variable Account also will receive semiannual
reports containing financial statements for the Variable Account. At least one
such report in each year will be accompanied by a list of portfolio securities
of each of the Portfolios underlying the Sub-Accounts and any other information
required by applicable law or regulation.
ADJUSTMENT OF UNITS AND VALUES
The Company reserves the right to change the number and value of the
Accumulation Units credited to any Contract, without the consent of the Owner or
any other person, provided strict equity is preserved and the change does not
otherwise affect the benefits, provisions or investment return of the Contract.
VOTING RIGHTS
Prior to the Income Date the Company will vote shares of each VIT Portfolio
and the interest in each SAT Portfolio owned by the Variable Account according
to instructions received from Owners whose Contract Value includes Accumulation
Units in the Variable Account. However, if the 1940 Act or any related
regulations or interpretations should change and the Company decides it may be
permitted to vote shares (or interests) of the Portfolios in its own right, it
may do so.
Persons entitled to give voting instructions will be determined as of the
record date for meetings of shareholders of any or all of the Portfolios. Prior
to the Income Date, the Owner has the right to direct the vote by the Company at
such meetings of that portion of the shares of any VIT Portfolio (or interest in
any SAT Portfolio) held in the Sub-Account that is attributable to the Owner's
Contract.
The Company calculates that portion of the shares (interest, in the case of
the SA Trust) in the Portfolio that the Owner may direct the Company to vote by
applying the Owner's percentage interest, if any, in a particular Sub-Account to
the total number of shares (interest, in the case of the SA Trust) attributable
to such Sub-Account as of the record date. Fractional votes will be counted. The
Company reserves the right to modify the manner in which it calculates the
weight given to voting instructions where such change is necessary to comply
with then-current federal regulations or interpretations of those regulations.
The Company will determine 90 days or less before the applicable meeting the
number of shares in each VIT Portfolio (or, in the case of the SA Trust, the
portion of the interest in each SAT Portfolio) that each Contract Owner can
instruct the Company to vote. At least 14 days before such meeting, the Company
will mail such person materials enabling him or her to instruct the Company how
to vote.
20
<PAGE>
If voting instructions are not received from an Owner, the Company will vote
the shares of the VI Trust (or interest in the SAT Portfolio) attributable to
such Owner in the same proportion as the voting instructions which are received
from other Contract Owners. The Company also will vote shares or interest it
holds in the Sub-Accounts that are not attributable to Contract Owners in the
same manner. Under certain circumstances, the Company may be required by state
regulatory authorities to disregard voting instructions. This could happen if
such instructions would change the sub-classification or investment objectives
of the Portfolios, or result in approval or disapproval of an investment
advisory contract.
Under federal regulations, the Company also may disregard instructions to
vote for Owner-initiated changes in investment policies or the investment
advisor if the Company disapproves of the proposed changes. The Company would
disapprove of a proposed change only if it were contrary to state law,
prohibited by state regulatory authorities or if the Company concluded that the
change would result in overspeculative or unsound investment practices. If the
Company disregards voting instructions, it will include a summary of its actions
in the next report to Contract Owners.
SUBSTITUTED SECURITIES
Shares of the VIT Portfolios or interests in the SAT Portfolios may not
always be available for purchase by the Sub-Accounts of the Variable Account, or
the Company may decide that further investment in any such shares or interest or
in any such Portfolios is no longer appropriate in view of the purposes of the
Variable Account. In either event, shares of or an interest in another open-end
investment company or unit investment trust may be substituted both for the
Portfolio shares or interest already purchased by the corresponding Sub-Accounts
and/or as the security to be purchased in the future, provided that these
substitutions have been approved by the Securities and Exchange Commission. In
the event of any substitution pursuant to this provision, the Company may make
an appropriate endorsement to the Contract to reflect the substitution.
OTHER CONTRACT PROVISIONS
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant is misstated to the Company, the Company
will change any benefits under the Contract to those which the proceeds would
have purchased had the correct age and sex been stated. If the misstatement is
not discovered until after annuity payments have started, any overpayments will
be charged, with compound interest, against subsequent payments. Any amount the
Company owes as the result of underpayments will be paid, with compound
interest, in a lump sum.
ASSIGNMENT
An Owner may assign a Non-Qualified Contract in writing, but may not assign
a Qualified Contract except as may be allowed under applicable law. The Company
will not be bound by any assignment until written notice of the assignment is
received and recorded at the Touchstone Variable Annuity Service Center. The
rights of the Owner and any Beneficiary will be affected by an assignment, and
the Company disclaims any responsibility for the validity or tax consequences of
any assignment.
LOANS
Loans may be permitted under Qualified Contracts purchased in connection
with a plan established under Section 403(b) or, when state approval is
obtained, under Section 401 of the Code. Loans are not permitted under any other
type of Contract.
NO DIVIDENDS
The Contracts are "non-participating." That means that they do not provide
for dividends. Investment results under the Contracts are reflected in benefits.
FEDERAL INCOME TAX INFORMATION
PROSPECTIVE OWNERS SHOULD CONSULT THEIR OWN TAX ADVISORS PRIOR TO PURCHASING
A CONTRACT.
THE FOLLOWING DISCUSSION IS NOT INTENDED AND SHOULD NOT BE RELIED UPON AS
TAX ADVICE, BUT MERELY AS A SYNOPSIS OF CERTAIN FEDERAL INCOME TAX LAWS.
ALTHOUGH THE FOLLOWING DISCUSSION IS BASED UPON THE COMPANY'S
21
<PAGE>
UNDERSTANDING OF FEDERAL INCOME TAX LAWS AS CURRENTLY INTERPRETED, THERE IS NO
GUARANTEE THAT THOSE LAWS AND INTERPRETATIONS WILL NOT CHANGE. THE DISCUSSION
DOES NOT TAKE INTO ACCOUNT STATE OR LOCAL TAX LAWS WHICH MAY AFFECT THE PURCHASE
OF A CONTRACT OR THE BENEFITS PAID OUT UNDER A CONTRACT, AND DOES NOT CONSIDER
FEDERAL ESTATE AND GIFT TAXES AND STATE AND LOCAL ESTATE, INHERITANCE AND OTHER
SIMILAR TAXES WHICH WILL DEPEND UPON THE INDIVIDUAL SITUATION OF EACH OWNER OR
BENEFICIARY.
QUALIFICATION AS AN "ANNUITY CONTRACT"
The following discussion is based upon the Company's assumption that the
Contract will be treated as an "annuity contract" under the Code. The Company
does not guarantee the tax status of any Contract. A purchaser bears the
complete risk that the Contract may not be treated as an "annuity contract"
under federal income tax laws. Disqualification of the Contract as an annuity
contract generally would result in imposition of federal income tax to the Owner
with respect to yearly earnings allocable to the Contract prior to the receipt
of payments under the Contract.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of all variable annuity contracts. The Code generally provides
that a variable contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("TREASURY DEPARTMENT"), adequately diversified. The Code contains a safe harbor
provision which provides that variable contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards prescribed elsewhere in the Code for
an entity to be classified as a regulated investment company and no more than
fifty-five percent (55%) of the total assets consist of cash, cash items, U.S.
government securities and securities of other regulated investment companies.
In March 1989, the Treasury Department issued regulations (Treas. Reg.
Section1.817-5), which established diversification requirements for the
investment portfolios such as the Portfolios underlying variable contracts such
as the Contracts. The regulations amplify the diversification requirements for
variable contracts set forth in the Code and provide an alternative to the safe
harbor provision described in Section 817(h) of the Code. Under the Regulations,
an investment portfolio will be deemed adequately diversified if: (1) no more
than 55% of the value of the total assets of the investment portfolio is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the investment portfolio is represented by any two investments;
(3) no more than 80% of the value of the total assets of the investment
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the investment portfolio is represented by any
four investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States Government
agency or instrumentality shall be treated as a separate issuer."
The Variable Account, through each of the VIT Portfolios and each of the SAT
Portfolios, intends to comply with the diversification requirements of the Code
and the regulations. The Advisor has agreed to manage the Portfolios so as to
comply with such requirements.
EXCESSIVE CONTROL
The Treasury Department has from time to time suggested that guidelines may
be forthcoming under which a variable annuity contract will not be treated as an
annuity contract for tax purposes if the owner of the contract has excessive
control over the investments underlying the contract (I.E., by being able to
transfer values among Sub-Accounts with only limited restrictions). If a
variable contract is not treated as an annuity contract, the owner of such
contract would be considered the owner of the assets of a separate account, and
income and gains from that account would be included each year in the owner's
gross income. No such guidelines have been issued to date.
The issuance of such guidelines, or regulations or rulings dealing with
excessive control issues, might require the Company to impose limitations on an
Owner's right to transfer all or part of the Contract Value among the Sub-
Accounts and the Fixed Account or to make other changes in the Contract as
necessary to attempt to prevent an
22
<PAGE>
Owner from being considered the owner of any assets of the Variable Account. The
Company therefore reserves the right to make such changes. It is not known
whether any such guidelines, regulations or rulings, if adopted, would have
retroactive effect.
REQUIRED DISTRIBUTIONS
Additionally, in order to qualify as an annuity contract under the Code, a
Non-Qualified Contract must meet certain requirements regarding distributions in
the event of the death of the Owner. In general, if the Owner dies before the
entire value of the Contract is distributed, the remaining value of the Contract
must be distributed according to provisions of the Code. Upon the death of an
Owner prior to commencement of annuity payments, the amounts accumulated under a
Contract must be distributed within five years, or, if distributions to a
designated beneficiary within the meaning of Section 72 of the Code (a
"DESIGNATED BENEFICIARY") begin within one year of the Owner's death,
distributions are permitted over a period not extending beyond the life (or life
expectancy) of the designated beneficiary. The above rules are modified if the
designated beneficiary is the surviving spouse. The surviving spouse is not
required to take distributions from the Contract and may continue the Contract
as if the surviving spouse was the original Owner. If distributions have begun
prior to the death of the Owner, distributions must continue at least as rapidly
as under the method in effect at the date of the Owner's death (unless the
method in effect provides that payments cease at the death of the Owner).
For Qualified Contracts issued in connection with tax-qualified plans and
individual retirement annuities, the plan documents and rules will determine
mandatory distribution rules. However, under the Code, distributions generally
must commence no later than April 1 of the calendar year following the calendar
year in which the employee reaches age 70 1/2 and such distributions must be
made over a period that does not exceed the life expectancy of the employee or
the joint and last survivor life expectancy of the employee and a designated
beneficiary. A special rule for Contracts issued and qualified under Code
Section 403(b) (but not other Qualified Plans) may permit persons employed by
certain governmental or church employers to defer distributions until April 1 of
the calendar year after the calendar year in which they retire or reach age
70 1/2, whichever is later. A penalty tax of 50% is imposed on any amount by
which the required minimum distribution in any year exceeds the amount actually
distributed.
If the Contract is a Qualified Contract issued in connection with an
individual retirement annuity, the Company will send a notice to the Owner when
the Owner reaches age 70 1/2. The notice will summarize the required minimum
distribution rules and advise the Owner of the date that such distributions must
begin from the Qualified Contract or other individual retirement annuities of
the Owner. The Owner has sole responsibility for requesting distributions under
the Qualified Contract or other individual retirement annuities that will
satisfy the minimum distribution rules.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year period to the same contract owner by one company
or its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may result
in adverse tax consequences, including accelerated taxation of the gain deemed
distributed from such combination of contracts. Owners should consult a tax
advisor prior to purchasing more than one non-qualified annuity contract in any
calendar year period.
FEDERAL INCOME TAXATION
GENERAL
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company and its operations form a part of the Company.
Section 72 of the Code governs taxation of annuities in general. Except as
described below for Owners who are not natural persons, an Owner is not taxed on
increases in the value of a Contract. Instead, an Owner is taxed only when
distribution occurs, either in the form of a lump sum payment or as annuity
payments under the payout plan selected. For a lump sum payment received as a
total surrender (total redemption), the recipient is taxed on the portion of the
payment that exceeds the cost basis of the Contract. For Non-Qualified
Contracts, this cost basis is
23
<PAGE>
generally the sum of the Purchase Payments, while for a Qualified Contract there
may be no cost basis in the Contract within the meaning of Section 72 of the
Code. The taxable portion of the lump sum payment is taxed at ordinary income
tax rates.
For annuity payments under the Contracts, a fixed portion of each payment is
excludable from gross income as a tax-free recovery of the Owner's Purchase
Payments (if any), and the balance is taxed at ordinary income tax rates. The
excludable portion can be determined by dividing (i) the Owner's Purchase
Payments (adjusted for any period-certain or refund guarantee), less any
withdrawals from those Purchase Payments, by (ii) the number of years over which
it is anticipated that the annuity will be paid. If annuity payments continue
beyond the anticipated number of years, such payments will be fully taxable.
Owners who are not natural persons generally must include in income any
increase in the excess of the Contract's Value over the "investment in the
contract" during the taxable year. As a result, Contracts used in connection
with unfunded deferred compensation plans of private employers (sometimes called
"top hat" plans) generally are currently subject to income tax on such increase
in value. There are some exceptions to this rule, including an exception for
Contracts owned by certain tax-qualified plans. A prospective Owner that is not
a natural person may wish to discuss availability of these exceptions with its
own tax advisor.
Annuity payments or other amounts received under all Contracts are subject
to income tax withholding under the Code unless the recipient elects not to have
taxes withheld. However, annuity payments to former employees under deferred
compensation plans pursuant to Section 457 of the Code are subject to tax
withholding as if such payments are wages. Amounts so withheld will vary among
recipients depending upon the tax status of the recipient and the type of
payment.
Owners, Annuitants and Beneficiaries under the Contracts should seek
financial advice about the tax consequences of any withdrawals or other
distributions.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult their tax advisors should they wish to assign their Contracts.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of all payments (including
withdrawals of Contract Value) from annuity contracts. Applied to a Contract, it
provides that if the Contract Value exceeds the aggregate Purchase Payments
made, any payment that is not received as an annuity payment will be treated as
coming first from earnings and then, only after the earnings portion is
exhausted, as coming from the principal. If the Contract contains investments in
the Contract made prior to August 14, 1982, special taxation rules apply to such
withdrawals and related earnings. These special rules provide that any amount
withdrawn that is not received as an annuity payment will be treated as coming
first from principal and then, only after the principal portion is exhausted, as
coming from earnings. Withdrawn earnings are includable in gross income.
Section 72 further provides that a ten percent (10%) penalty will apply to
the income portion of amounts received other than: (a) on or after the date the
taxpayer reaches age 59 1/2; (b) on or after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (as defined in Section 72(m)(7) of the
Code); (d) in a series of substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy) of the taxpayer or
for the joint lives (or joint life expectancies) of the taxpayer and the joint
annuitant; (e) under an immediate annuity; or (f) amounts attributable to
investment in the Contract prior to August 14, 1982.
The above paragraph does not apply to Qualified Contracts. However, separate
withdrawal restrictions and tax penalties and restrictions may apply to such
Qualified Contracts. See "Tax Treatment of Withdrawals -- Qualified Contracts."
QUALIFIED CONTRACTS AND QUALIFIED PLANS
The Qualified Contracts offered by this Prospectus are designed to be
suitable for use under various types of plans which qualify for favorable
federal income tax treatment under Sections 401, 403(b) or 408 of the Code
24
<PAGE>
("QUALIFIED PLANS"). Because of the minimum purchase payment requirements, such
Contracts may not be appropriate for some retirement plans. Taxation of
participants in each Qualified Plan varies with the type of plan and terms and
conditions of each specific plan.
Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified Plan usually are subject to the terms and conditions of such plan
regardless of the terms and conditions of Qualified Contracts issued pursuant to
such plan. Although the Company provides administration for Qualified Contracts,
it does not provide administrative support for Qualified Plans. Qualified
Contracts may include special provisions restricting Contract provisions that
may otherwise be available and described in this Prospectus. Generally,
Qualified Contracts issued pursuant to Qualified Plans are not transferable
except upon surrender or annuitization. Various penalty and excise taxes may
apply to contributions or distributions made in violation of applicable
limitations. Furthermore, certain withdrawal penalties and restrictions may
apply to surrenders from Qualified Contracts. See "Tax Treatment of Withdrawals
- -- Qualified Contracts."
On July 8, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. Accordingly, Contracts sold by the Company in
connection with Qualified Plans (excluding individual retirement annuities) will
utilize annuity tables which do not differentiate on the basis of sex.
The following are general descriptions of the types of Qualified Plans with
which the Qualified Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are complex and will have differing applications depending on
individual facts and circumstances. Each purchaser should obtain tax advice
prior to purchasing a Contract issued under a Qualified Plan.
SECTION 401 QUALIFIED PENSION OR PROFIT-SHARING PLANS
Section 401 of the Code permits self-employed individuals to establish
various types of Qualified Plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" plans. Section 401 of the Code also permits
corporate employers to establish various types of Qualified Plans for employees.
These retirement plans may permit the purchase of the Contracts to provide
benefits under the plans. Permissible contributions to such plans for the
benefit of such persons will not be includable in the gross income of such
persons until distributed from the plans.
The tax consequences to participants may vary depending upon the particular
plan design. However, the Code places limitations and restrictions on all such
plans including on such items as: amounts of allowable contributions; form,
manner and timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. See "Tax Treatment of Withdrawals --
Qualified Contracts."
SECTION 403(B) PLANS
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includable in the gross income of
employees until the employees receive distributions from the Contracts. The
amount of contributions to a tax-sheltered annuity is limited to certain
maximums imposed by the Code. Contributions also must comply with
nondiscrimination rules, which may further limit contributions for highly
compensated employees. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions and withdrawals. See "Tax
Treatment of Withdrawals -- Qualified Contracts" and "Tax Sheltered Annuities --
Withdrawal Limitations."
Section 403(b) Plans are qualified employer plans covered under Section
72(p) of the Code. Under the Contract, an Owner may, subject to certain
requirements, receive loans from a Contract that is issued as a 403(b) tax
sheltered annuity beginning 30 days after date of issue.
25
<PAGE>
LOANS
With respect to Section 403(b) Plans, the Contract provides for loans (and
as to Section 401 Plans, will provide for loans upon receipt of necessary state
regulatory approvals) that conform to the specific terms set forth in the
Contract and Code Section 72(p). In general, the maximum amount and other terms
and conditions of loans from a Contract are determined as though the Contract
was a qualified plan covered under Title I of ERISA. Among other things, the
Contract specifically requires that each such loan must be a minimum of $1,000
and that the maximum term for repayment of loans (other than residential
purchase loans) is 5 years, at an interest rate comparable to that charged by
commercial lenders for similar loans. Residential purchase loans may be repaid
over a 15-year period.
A Contract cannot be surrendered or annuitized while a Contract loan is
outstanding, unless the Contract Value can be reduced by the outstanding loan
balance plus interest and such reduction satisfies Section 403(b)(11) of the
Code (or, with respect to Section 401 Plans, Section 401(k)(2)(B)), which places
limitations on premature distributions of contributions that are salary
reduction amounts and earnings thereon.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's gross income. Tax-deductible
contributions to individual retirement annuities under Section 408(b) of the
Code are limited to the lesser of $2,000 or 100% of compensation for individuals
who (i) are not (and whose spouses are not) active participants in another tax-
qualified retirement plan, (ii) are active participants in another such plan but
are unmarried and have adjusted gross incomes of $25,000 or less or (iii) are
active participants (or have spouses who are active participants) in another
tax-qualified retirement plan but are married and have adjusted gross incomes of
$40,000 or less.
Such individuals also may establish an IRA for a spouse who does not work
outside the home and receives no compensation during the tax year. Individuals
who are active participants in other retirement plans and whose adjusted gross
income exceeds the above limits by less than $10,000 are entitled to make
deductible contributions in proportionately reduced amounts. An individual may
make nondeductible contributions to the extent of the excess of (i) the lesser
of $2,000 ($2,250 for a spousal individual retirement annuity) or 100% of
compensation over (ii) the deduction limit with respect to the individual.
Under certain conditions, distributions from other individual retirement
accounts, individual retirement annuities or Qualified Plans may be rolled over
or transferred to an IRA on a tax-deferred basis. IRAs are subject to
limitations on eligibility, contributions, transferability and distributions.
See "Tax Treatment of Withdrawals -- Qualified Contracts." Sales of Contracts
for use with IRAs are subject to special requirements imposed by the Code,
including the requirement that certain informational disclosure be given to
persons desiring to establish an IRA. Purchasers of Contracts to be qualified as
Individual Retirement Annuities should obtain tax advice as to the tax treatment
and suitability of such an investment.
SIMPLIFIED EMPLOYEE PENSION PLANS
Employers may establish what is known as a simplified employee pension plan
("SEP") under Section 408(k) of the Code. Employer contributions to a SEP can be
invested in an individual retirement annuity selected by a participant in the
SEP. Contributions generally must be made as a uniform percentage of employee
compensation and are excluded from gross income of the employee for federal
income tax purposes. Employer contributions to a SEP cannot exceed the lesser of
$30,000 or 15% of an employee's eligible compensation (which may not exceed
$150,000 for the year 1995, indexed to reflect certain cost-of-living changes
for 1996 and later years). The Code also permits employees of certain small
employers to have SEP contributions made on the basis of salary reduction. Such
salary reduction contributions may not exceed $9,500, indexed annually for
inflation.
The tax consequences to participants may vary depending upon the particular
plan design. However, the Code places limitations and restrictions on all such
plans including on such items as: amounts of allowable contributions; form,
manner and timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation, and the tax treatment of
distributions, withdrawals and surrenders. See "Tax Treatment of Withdrawals --
Qualified Contracts."
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SECTION 457 -- DEFERRED COMPENSATION PLANS
Under Section 457 of the Code, governmental and certain other tax exempt
employers may establish deferred compensation plans for the benefit of their
employees which may invest in annuity contracts. Under such plans, contributions
made for the benefit of the employees will not be includable in the employees'
gross income until distributed from the Plan. If the program is considered an
"eligible deferred compensation plan" under the Code, an individual generally
may contribute, on a tax-deferred basis, the lesser of $7,500 or 33 1/3% of
gross income from the employer, reduced by contributions to any Section 403(b)
plan. Amounts so deferred may be used by the employer to purchase Contracts
pursuant to this Prospectus.
Under a Section 457 plan, all the plan assets, including any Contract, must
remain solely the property of the employer subject only to the claims of the
employer's general creditors until such time as made available to the
participant or beneficiary. The employee has no present rights or vested
interest in the Contract and is entitled to payment only under the terms of the
plan. Distributions from such plans generally are not permitted prior to
termination of employment except in cases of unforeseeable emergencies (as
defined in Treas. Reg. Section1.457-2(b)(4)).
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
The following discussion applies to Qualified Plans other than IRAs.
Distributions from Qualified Contracts purchased under Qualified Plans (but
not from IRAs) that are "eligible rollover distributions" are subject to certain
"direct rollover" and federal income tax withholding rules. The Qualified Plan
is required to give the Contract Owner, Annuitant or Beneficiary (as applicable)
the choice of having payments that are eligible rollover distributions paid
either as (a) a "direct rollover" to an individual retirement account or an
individual retirement annuity (an "INDIVIDUAL RETIREMENT ARRANGEMENT") or to
another Qualified Plan, or (b) a payment to the Contract Owner, Annuitant or
Beneficiary. Nonspouse Beneficiaries cannot elect direct rollovers. If a direct
rollover is chosen, the payment will be made directly to the individual
retirement arrangement or other Qualified Plan, and will not be taxed in the
year the direct rollover is made, but will be taxed later when it is taken out
of the individual retirement arrangement or other Qualified Plan. If a payment
to the Contract Owner, Annuitant or Beneficiary is chosen, he or she will
receive only 80% of the payment because the Qualified Plan administrator is
required to withhold 20% of the payment and send it to the Internal Revenue
Service to be credited against federal income taxes. Also, the Contract Owner,
Annuitant or Beneficiary will be taxed on the payment for the year it is made
unless he or she rolls it over to an individual retirement arrangement or
another Qualified Plan within 60 days of receiving the payment. Nonspouse
Beneficiaries cannot make such rollovers. If the Contract Owner, Annuitant or
Beneficiary wants to roll over 100% of a payment, he or she must find other
funds to replace the 20% that was withheld. Distributions are not "eligible
rollover contributions" and cannot be paid as a direct rollover if they
represent the return of "after-tax" employee contributions, are made for a
period of ten years or more, are required minimum payments made after age 70 1/2
or are made for certain other reasons. The administrator of the Qualified Plan
will provide additional information about these tax rules when a distribution is
made.
Distributions from Qualified Contracts purchased under Qualified Plans that
are not rolled over to an individual retirement arrangement or another Qualified
Plan are taxable as ordinary income, except to the extent allocable to an
employee's after-tax contributions. If an employee or the Beneficiary receives
from an exempt employees' trust a "lump sum distribution" under the Code, the
taxable portion of the distribution may be subject to special tax treatment. For
most individuals receiving lump sum distributions after age 59 1/2, the tax rate
may be determined under five-year income averaging provisions of the Code. Those
reaching age 50 on or before January 1, 1986 instead may elect to use a ten-year
income averaging. In addition, such individuals may elect capital gains
treatment for the taxable portion of a lump sum distribution attributable to
years of service before 1974.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any distribution from qualified retirement plans, including Contracts issued
and qualified under Code Sections 401, 403(b) and 408(b). To the extent amounts
are not includable in gross income because they have been properly rolled over
(as direct rollovers or as rollovers of other payments) to an individual
retirement arrangement or to another eligible Qualified Plan, no tax penalty
will be imposed. The tax penalty will not apply to the following distributions:
(a) distributions made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59 1/2; (b) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable)
(disability is defined in
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Section 72(m)(7) of the Code); (c) after separation from service, distributions
that are part of substantially equal periodic payments made not less frequently
than annually for the life (or life expectancy) of the Contract Owner or
Annuitant (as applicable) or the joint lives (or joint life expectancies) of
such Contract Owner or Annuitant (as applicable) and the designated beneficiary;
(d) distributions to a Contract Owner or Annuitant (as applicable) who has
separated from service after attaining age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; and (f) distributions made to an alternate payee pursuant
to a qualified domestic relations order.
Distributions from a Qualified Contract issued in connection with a
Qualified Plan or an IRA generally must commence by April 1 of the calendar year
after the calendar year in which the Contract Owner or Annuitant reaches age
70 1/2, and must be made in minimum annual amounts determined under rules issued
by the Internal Revenue Service. See "Required Distributions." However, in the
case of Contracts issued and qualified under Code Section 403(b), persons
employed by certain governmental or church employers may be able to postpone the
commencement of distributions until April 1 of the calendar year following the
calendar year in which they retire or reach age 70 1/2, whichever is later.
Other rules apply to a Qualified Contract issued in connection with a
Qualified Plan or an IRA to determine when and how required minimum
distributions must be made in the event of the death of the Contract Owner or
Annuitant. The plan or IRA documents will contain such rules. In addition, if
the Contract Owner's or Annuitant's surviving spouse is the beneficiary of the
interest in the Qualified Plan or the IRA, the surviving spouse may be able to
elect to defer the commencement of distributions past the commencement date that
otherwise would apply, to roll over a distribution to the surviving spouse's own
individual retirement arrangement or to treat an IRA as his or her own.
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA or
another Qualified Plan. Persons seeking to roll over distributions in such a
manner should obtain tax advice as to the limitations imposed by the Code on
such rollovers.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
Effective January 1, 1989, the Code limits the withdrawal of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Section 403(b)(11) of the Code) to circumstances only: (1) when the
Owner attains age 59 1/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship. However, withdrawals for hardship are restricted to the
portion of the Owner's Contract Value which represents contributions by the
Owner and does not include any investment results. The limitations on
withdrawals apply only to salary reduction contributions made after December 31,
1988 and to income attributable to such contributions and to income attributable
to amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers between certain Qualified Plans. Owners should consult their
own tax counsel or other tax advisor regarding any distributions.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to the businesses of the Company, the Variable Account,
the Distributor, the Advisor or IFS, to which any of these entities is a party
or to which any of their respective property is subject.
FINANCIAL STATEMENTS
Financial Statements of the Company and of the Company's Separate Account 1
may be found in the Statement of Additional Information, which may be obtained
without charge by calling the Touchstone Variable Annuity Service Center at
1-800-669-2796 (press 2).
28
<PAGE>
PART II -- DISCUSSION OF SELECT ADVISORS PORTFOLIOS
SUMMARY
GENERAL
Select Advisors Portfolios (the "SA TRUST") is a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on February 7, 1994. The SA Trust includes seven separate
portfolios, two of which, the Growth & Income Portfolio and the Bond Portfolio
(sometimes herein called the "SAT PORTFOLIOS"), are discussed in this Part II.
Each of the SAT Portfolios has a different investment objective and different
policies and practices:
GROWTH & INCOME PORTFOLIO has an investment objective of long term capital
appreciation and dividend income through investment primarily in common
stocks of high quality companies.
BOND PORTFOLIO has an investment objective of providing a high level of
current income primarily through investment in investment grade bonds.
The Growth & Income Portfolio and Bond Portfolio of the SA Trust, which are
described in this Part II, may invest up to 5% and 35%, respectively, of their
total assets in non-investment grade bonds. See "Growth & Income Portfolio,"
"Bond Portfolio" and "Medium and Lower Rated ("Junk Bonds") and Unrated
Securities." For further information regarding the investment objectives,
policies and restrictions of each of the SAT Portfolios, see "Investment
Objectives, Policies and Restrictions."
RISKS
There are certain risks associated with the investment policies of each SAT
Portfolio. The value of a Sub-Account will fluctuate with the value of the
underlying securities in the corresponding SAT Portfolio in which all of the
Sub-Account's assets are invested. To the extent that a Portfolio invests in
income securities, the market value of those securities will be affected by
general changes in interest rates, which may result in either increases or
decreases in the value of those securities. To the extent that a Portfolio
invests in securities of non-U.S. issuers and foreign currencies, the Portfolio
may face risks that are different from those associated with investment in
domestic securities, including the effect of different economies, change in
relative currency exchange rates, future political and economic developments,
the possible imposition of exchange controls or other governmental confiscation
or restrictions, and less availability of data on companies and the securities
industry as well as less regulation of stock exchanges, brokers and issuers. For
additional information, see "Investment Objectives, Policies and Restrictions"
and "Risk Factors, Restrictions and Investment Techniques."
ADVISORS
Each SAT Portfolio is managed by one or more Portfolio Advisors selected by
the Board of Trustees of the SA Trust based on the recommendations of the
Advisor. The Advisor is paid advisory fees for the general management of the SAT
Portfolios. The Portfolio Advisors are paid fees by the Advisor to manage the
assets of each of the SAT Portfolios. See "Management of the Portfolios."
There can, of course, be no assurance that the investment objectives of the
SAT Portfolios can be achieved. Except for certain investment restrictions
designated as fundamental in this Prospectus or the Statement of Additional
Information, the investment objectives and policies of any SAT Portfolio may be
changed by the Trustees of the SA Trust without the approval of the investors in
the respective Portfolio.
SUB-ACCOUNTS
Each Portfolio corresponds to a Sub-Account of the Variable Account. The
investment objectives of each Sub-Account are the same as the investment
objectives of its corresponding SAT Portfolio, and each Sub-Account invests the
funds it receives from Contract Owners only in an interest in the corresponding
SAT Portfolio.
Contract Owners electing to allocate a portion of their Purchase Payments to
the Variable Account acquire interests in the Sub-Account(s) which they select,
and do not invest directly in the corresponding SAT Portfolios. Instead,
Purchase Payments of Owners are allocated to the Sub-Accounts. Each Sub-Account,
in turn, holds an
29
<PAGE>
interest in the corresponding SAT Portfolio. See "Purchase Payments." Similarly,
Owners that surrender or make withdrawals from their Contracts do not directly
redeem interests in the Portfolios. See "Surrenders and Partial Withdrawals."
Although Owners who allocate all or any portion of their Purchase Payments
to the various Sub-Accounts do not directly own interests in the SAT Portfolios
or the SA Trust, they do have voting rights in certain circumstances. If at any
time any Sub-Account is requested to vote on a matter regarding the
corresponding SAT Portfolio, the Company will solicit the directions of each
Owner who has allocated Contract Value to such Sub-Account and will cast the
votes of the Sub-Account in accordance with the directions received from such
Owners. See "Voting Rights."
OTHER INVESTORS
Owners should be aware that each SAT Portfolio may receive investments from
other insurance company separate accounts. Owners should be aware that other
investors in an SAT Portfolio could control the results of voting on any matter
submitted to investors in that Portfolio. In certain instances, such as a change
in an SAT Portfolio's fundamental policies, it might be advisable for the
affected Sub-Account (subject to receipt of required approvals) to redeem its
investment in the Portfolio. Substantial redemptions could result in that
Portfolio effecting any such redemption by means of a distribution in kind of
Portfolio securities. Any such distribution in kind could adversely affect the
diversification and liquidity of the Sub-Accounts' investments. In addition, the
Sub-Account could incur brokerage and other transaction costs in order to
convert the resulting securities to cash.
As is true with many investments generally, investors in the SAT Portfolios
(including the Sub-Accounts) may be affected by the actions of other large or
controlling investors. For example, the decision of a large investor to redeem
its shares could result in higher operating expenses and a corresponding
reduction in return. Large redemptions could, as well, cause a Sub-Account's
holdings to become less diverse, resulting in increased risk.
FINANCIAL HIGHLIGHTS
The following table shows ratios to average net assets and other financial
data for each SAT Portfolio for the period indicated and has been audited by
Coopers & Lybrand L.L.P., the SA Trust's independent accountants, whose report
thereon appears in the SA Trust's Annual Report which is included in the SA
Trust's Statement of Additional Information.
<TABLE>
<CAPTION>
GROWTH & INCOME
PORTFOLIO II BOND PORTFOLIO II
----------------------- ------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1995 1994(A) 1995 1994(A)
- ---------------------------------------------------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Ratios and supplemental data (b):
Net assets at end of period (000's)........................... $ 13,894 $ 9,923 $ 12,304 $ 10,104
Ratios to average net assets:
Expenses...................................................... 0.85% 0.85% 0.75% 0.75%
Net investment income......................................... 1.27% 2.06% 6.91% 6.76%
Expenses, without waiver and reimbursement.................... 1.77% 2.94% 1.58% 2.67%
Portfolio Turnover.............................................. 0.96% 0.00% 0.80% 0.00%
</TABLE>
- ------------------------
(a) The Portfolios commenced operations on November 21, 1994.
(b) Ratios are annualized. Portfolio turnover is not annualized.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
GROWTH & INCOME PORTFOLIO
The investment objective of the Portfolio is long term capital appreciation
and dividend income through investment primarily in a diversified portfolio of
common stocks of high quality companies that, in the Portfolio Advisor's
opinion, have above average growth potential at the time of purchase. In
general, these securities are characterized as having above average dividend
yields and below average price earnings ratios relative to the stock
30
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market in general, as measured by the S&P 500. Other factors, such as earnings
and dividend growth prospects as well as industry outlook and market share, also
are considered. Under normal conditions, at least 80% of the Portfolio's assets
will be invested in common stocks and at least 65% of the Portfolio's assets
will be invested in common stocks that, at the time of investment, will be
expected to pay regular dividends.
The Portfolio will generally invest a majority of its assets in common
stocks of issuers with total market capitalization of $1 billion or greater at
the time of purchase, but may invest in securities of companies having various
levels of market capitalization, including smaller companies whose securities
may be more volatile and less liquid than securities issued by larger companies
with higher levels of net worth. Investments will be in companies in various
industries.
The Portfolio may also invest up to 20% of its total assets in foreign
securities, including securities of foreign issuers in the form of ADRs. The
Portfolio may not invest more than 5% of its total assets in the securities of
companies based in an emerging market. See "Foreign Securities."
The Portfolio may invest under normal circumstances up to 20% of its total
assets in preferred stock, convertible bonds and other fixed income instruments
rated at least Baa by Moody's or BBB by S&P. The Portfolio may invest up to 5%
of its total assets in bonds rated below Baa by Moody's or BBB by S&P (commonly
known as "junk bonds"). See "Medium and Lower-Rated ("Junk Bonds") and Unrated
Securities."
BOND PORTFOLIO
The investment objective of the Portfolio is to provide high current income
primarily through investments in investment grade bonds. Investment grade bonds
are those rated at least Baa by Moody's or BBB by S&P or unrated bonds
considered by the Portfolio Advisor to be of comparable quality. Under normal
circumstances, at least 65% of the value of the Portfolio's total assets will be
invested in bonds or debentures (as described in the first sentence of the next
paragraph). The average maturity of the Portfolio will be between five and
fifteen years. The average maturity of the Portfolio's holdings may be shortened
in order to preserve capital if the Portfolio Advisor anticipates a rise in
interest rates. Conversely, the maturity may be lengthened to maximize returns
if interest rates are expected to decline.
This Portfolio invests in U.S. Treasury obligations, corporate bonds,
debentures, mortgage related securities issued by various governmental agencies,
such as GNMA and government related organizations, such as FNMA and FHLMC,
including collateralized mortgage obligations ("CMOs"), privately issued
mortgage related securities (including CMOs), stripped U.S. Government and
mortgage related securities, non-publicly registered securities, asset backed
securities and Eurodollar certificates of deposit and Eurodollar bonds. It will
also invest in preferred stock. No more than 60% of the Portfolio's total assets
will be invested in mortgage related securities. The Portfolio will not invest
in any bond rated lower than B by S&P or by Moody's. The Portfolio will invest
less than 35% of its assets in U.S. or foreign non-investment grade (or "junk")
bonds and preferred stock. High risk, lower quality debt securities are regarded
as predominantly speculative with respect to the issuer's ability to pay
interest and repay principal in accordance with the terms of the obligation. See
"Medium and Lower-Rated ("Junk Bonds") and Unrated Securities." Up to 20% of the
Portfolio's assets may be invested in fixed-income securities denominated in
foreign currencies. These foreign securities must meet the same rating and
quality standards as the Portfolio's U.S. dollar-denominated investments. See
"Foreign Securities."
SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK- STRUCTURE
The SA Trust is utilizing certain proprietary rights, know-how and financial
services referred to as Hub and Spoke-Registered Trademark- from Signature
Financial Group, Inc. ("SIGNATURE FINANCIAL"), of which the Administrator is a
wholly owned subsidiary. Hub and Spoke-Registered Trademark- is a registered
service mark of Signature Financial.
The Growth & Income and Bond Sub-Accounts seek to achieve their investment
objectives by investing all of their respective assets in the corresponding SAT
Portfolio, each of which is a series of a separate registered investment company
with the same investment objectives as the Sub-Account. In addition to selling
an interest to the corresponding Sub-Account, each SAT Portfolio may sell
interests to other insurance company separate accounts. Such investors will
invest in an SAT Portfolio on the same terms and conditions and will pay a
proportionate share of that Portfolio's expenses. However, the other investors
investing in the SAT Portfolio are not
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<PAGE>
required to sell their shares at the same public offering price as the
Sub-Account due to variations in sales commissions and other operating expenses.
Therefore, Owners investing in either the Bond or Growth & Income Sub-Account
should be aware that these differences may result in differences in returns
experienced by investors in the different investment vehicles that invest in a
Portfolio. Such differences in returns are also present in other mutual fund
structures. Information concerning other holders of interests in an SAT
Portfolio is available from the Distributor at (800) 669-2796 (press 3). The Hub
and Spoke-Registered Trademark- Structure has been developed relatively
recently, so shareholders should carefully consider this investment approach.
The investment objective of an SAT Portfolio may also be changed without the
approval of the investors in the Portfolio, but not without written notice
thereof to the investors in the Portfolio (and notice by the corresponding
Sub-Account to its Owners) thirty days prior to implementing the change. If
there were a change in a Sub-Account's investment objective, Owners should
consider whether the Sub-Account remains an appropriate investment in light of
their then-current financial positions and needs. There can, of course, be no
assurance that the investment objective of any SAT Portfolio will be achieved.
Smaller investors in an SAT Portfolio may be materially affected by the
actions of larger investors in the Portfolio. For example, if a larger investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk.
(However, this possibility exists as well for traditionally structured
investment vehicles which have large or institutional investors.) Also,
investors with a greater pro rata ownership in an SAT Portfolio could have
effective voting control of the operations of the Portfolio. Whenever a
Sub-Account is requested to vote on matters pertaining to the corresponding
Portfolio (other than a vote by the Sub-Account to continue the operation of the
Portfolio upon the withdrawal of another investor in the Portfolio), the Company
will hold a meeting of Owners investing in the Sub-Account and will cast all of
its votes in the same proportion as the votes of these Owners. Owners who do not
vote will not affect the Sub-Account's vote at the Portfolio meeting. The
percentage of a Sub-Account's votes representing Owners not voting will be voted
by the Company in the same proportion as the Sub-Account Owners who do, in fact,
vote. Certain changes in a Portfolio's investment objective, policies or
restrictions might cause a Sub-Account to withdraw its interest in an SAT
Portfolio. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, a Sub-Account could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Sub-Account. Notwithstanding the above, there are
other means for meeting shareholder redemption requests, such as borrowing.
For more information about each Portfolio's policies, management and
expenses, see "Investment Objectives, Policies and Restrictions," "Management of
the Portfolios" and "Risk Factors, Restrictions and Investment Techniques." For
more information about each Portfolio's investment restrictions, see the
Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIOS
GENERAL
The business of the SA Trust is governed by a board of trustees (the
"TRUSTEES" or "BOARD OF TRUSTEES") who are elected by a vote of the investors in
the Portfolios. The Trustees exercise broad supervision over the affairs of the
SA Trust. They have retained the services of the Advisor, a subsidiary of IFS
(in turn a subsidiary of the Company), under terms of an investment advisory
agreement (the "ADVISORY AGREEMENT"), pursuant to which the Advisor has been
engaged as investment advisor to each of the SAT Portfolios. Under terms of the
Advisory Agreement it is the Advisor's responsibility to select, subject to
review and approval by the Trustees, one or more Portfolio Advisors. The Advisor
is responsible for the continuing evaluation, selection and monitoring of the
Portfolio Advisors. In this regard, the Advisor employs the services of
RogersCasey, a research firm specializing in appraisal and comparison of
investment advisers, to assist it in evaluating the Portfolio Advisors and
candidates for those positions. See "Consultant to the Advisor."
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<PAGE>
Each Portfolio Advisor has discretion, subject to oversight by the Trustees,
to purchase and sell portfolio assets, except as limited by each Portfolio's
investment objectives, policies and restrictions and by specific investment
strategies developed by the Advisor. See "Investment Objectives, Policies and
Restrictions" and "Risk Factors, Restrictions and Investment Techniques."
For its services, the Advisor receives an advisory fee from each SAT
Portfolio. See "Expenses." A part of the fee paid to the Advisor is used by the
Advisor to pay the advisory fees of the Portfolio Advisors. Such fees are paid
by the Advisor and not by the SAT Portfolio. Any Portfolio Advisor may waive any
or all of such fees. The allocation of the fees paid to the Advisor, showing the
amount received by the Advisor and the amounts paid by it to the two Portfolio
Advisors is set forth below. Such fees are computed daily and paid monthly at
the annual rate specified below of the value of the average daily net assets of
the SAT Portfolio:
<TABLE>
<CAPTION>
GROWTH & INCOME BOND PORTFOLIO
---------------- --------------
<S> <C> <C>
Advisor............................................................... 0.75% 0.55%
Portfolio Advisor..................................................... 0.45% 0.30%
</TABLE>
The Portfolio Advisor for the Growth & Income and Bond Portfolios is Fort
Washington Investment Advisors, Inc. ("FORT WASHINGTON"). See "Portfolio
Advisors," below. Because Fort Washington is a subsidiary of Western & Southern
and, hence, an affiliate of the Advisor, the Advisor is subject to a conflict of
interest when making decisions regarding the retention and compensation of that
particular Portfolio Advisor. However, the Advisor's decisions, including the
identity of a Portfolio Advisor and the specific amount of the Advisor's
compensation to be paid to the Portfolio Advisor, are subject to review and
approval by a majority of the Board of Trustees and separately by a majority of
such Trustees who are not affiliated with the Advisor or any of its affiliates.
CONSULTANT TO THE ADVISOR
RogersCasey, located at One Parklands Drive, Darien, Connecticut 06829, has
been engaged in the business of rendering portfolio advisor evaluations since
1976. The staff at RogersCasey is experienced in acting as investment
consultants and in developing, implementing and managing multiple portfolio
advisor programs. RogersCasey provides asset management consulting services to
various institutional and individual clients and provides the Advisor with
investment consulting services with respect to development, implementation and
management of the SA Trust's multiple portfolio manager program. RogersCasey is
employed by, and its fees and expenses are paid by, the Advisor (not the SA
Trust). As consultant, RogersCasey provides research concerning registered
investment advisors to be retained by the Advisor as Portfolio Advisors,
monitors and assists the Advisor with the periodic reevaluation of existing
Portfolio Advisors and makes periodic reports to the Advisor and the Board of
Trustees of the SA Trust.
PORTFOLIO ADVISORS
The following sets forth certain information about each of the Portfolio
Advisors. The individuals employed by the Portfolio Advisor who are primarily
responsible for the day-to-day investment management of the Portfolio are named
below. The annual total return information shown below includes the effect of
deducting each Portfolio's expenses, but does not include charges attributable
to the Contract. See "Fee and Expense Tables."
FORT WASHINGTON serves as the Portfolio Advisor to the Growth & Income
Portfolio. Fort Washington is a wholly-owned subsidiary of Western & Southern.
Fort Washington has been registered as an investment advisor under the
Investment Advisers Act of 1940, as amended, (the "ADVISORS ACT") since
September 14, 1990. Fort Washington provides investment advisory services to
individual and institutional clients. As of December 31, 1995, Fort Washington
had assets under management of approximately $7.2 billion. John J. O'Connor is
primarily responsible for the day-to-day investment management of the Growth &
Income Portfolio. Mr. O'Connor (CFA and CPA) joined Western & Southern/Fort
Washington in 1988 and is the Senior Portfolio Manager and Director of
Investment Research. Fort Washington's principal executive offices are located
at 420 East Fourth Street, Cincinnati, Ohio 45202.
Fort Washington also serves as Portfolio Advisor to the Bond Portfolio.
Roger M. Lanham, Rance Duke and Brendan White are the individuals primarily
responsible for the day-to-day investment management of the Bond
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<PAGE>
Portfolio. Mr. Lanham is a CFA and has been with Western & Southern/Fort
Washington since 1981. Mr. Duke has been with Western & Southern/Fort Washington
since 1978. Mr. White is a CFA and has been with Western & Southern/Fort
Washington since 1993.
EXPENSES
The SA Trust pays all of its expenses of operations, other than those borne
by the Advisor. In particular, the SA Trust pays: the compensation of its
Trustees who are not affiliated with the Advisor and its affiliates;
governmental fees; interest charges; taxes; membership dues in trade
associations; fees and expenses of independent auditors and legal counsel of the
SA Trust; insurance premiums; amortization of organizational expenses; and
expenses of calculating the net asset value and net income of each of the
Portfolios; expenses related to the execution, recording and settlement of
security transactions; fees and expenses of the custodian; expenses of preparing
and mailing reports to investors and to governmental officers and commissions;
expenses of meetings of investors; and the advisory fees payable to the Advisor
under the Advisory Agreement.
RISK FACTORS, RESTRICTIONS AND INVESTMENT TECHNIQUES
TECHNIQUES AND RISK FACTORS
The following are descriptions of certain types of securities invested in by
the SAT Portfolios, certain investment techniques employed by those Portfolios
and risks associated with utilizing either the securities or the investment
techniques.
DERIVATIVES. The Portfolios may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset, or market index. Some "derivatives" such as certain
mortgage-related and other asset-backed securities are in many respects like any
other investment, although they may be more volatile or less liquid than more
traditional debt securities. There are, in fact, many different types of
derivatives and many different ways to use them. There is a range of risks
associated with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and as a
low cost method of gaining exposure to a particular securities market without
investing directly in those securities. However, some derivatives are used for
leverage, which tends to magnify the effects of an instrument's price changes as
market conditions change. Leverage involves the use of a small amount of money
to control a large amount of financial assets, and can in some circumstances,
lead to significant losses. A Portfolio Advisor will use derivatives only in
circumstances where the Portfolio Advisor believes they offer the most economic
means of improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be achieved
using only traditional investment securities or to acquire exposure to changes
in the value of assets or indexes that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative. A description of the derivatives that the Portfolios may use and
some of their associated risks is found below.
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
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United States, including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations and could be subject to extended clearance and
settlement periods.
RISKS ASSOCIATED WITH "EMERGING MARKETS" SECURITIES
"Emerging Markets" securities include the securities of issuers based in
markets with developing economies. These typically include countries where per
capita GNP is less than $8,355. Investments in securities of issuers based in
such countries entail all of the risks of investing in foreign issuers outlined
in this section but to a heightened degree. These heightened risks include: (i)
expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) smaller markets for such securities and a
low or nonexistent volume of trading, resulting in a lack of liquidity and in
price volatility; (iii) certain national policies that may restrict a
Portfolio's investment opportunities including restrictions on investing in
issuers in industries deemed sensitive to relevant national interests; and (iv)
in the case of Eastern Europe, the absence of developed capital markets and
legal structures governing private or foreign investment and private property
and the possibility that recent favorable economic and political developments
could be slowed or reversed by unanticipated events.
In certain of the these markets, the Communist Party, despite the fall of
communist dominated governments, continues to exercise a significant or, in some
countries, a dominant role. So long as this situation continues or currently
controlling parties remain vulnerable to sudden removal from power, investments
in such countries will involve risk of nationalization, expropriation and
confiscatory taxation. The former communist governments of a number of Eastern
European countries expropriated large amounts of private property in the past,
and in many cases without adequate compensation. There is no assurance that such
expropriation will not occur in the future at the hands of either an existing
non-communist regime or upon the return to power of the Communist Party. In the
event of any such expropriation, a Portfolio could lose a substantial portion of
any investments it has made in the affected countries. Finally, even though the
currencies of less developed countries may be convertible into U.S. dollars, the
conversion rates may be artificial in relation to the actual market values and
may be adverse to Portfolio shareholders.
CURRENCY EXCHANGE RATES
A Portfolio's share value may change significantly when the currencies,
other than the U.S. dollar, in which the Portfolio's investments are denominated
strengthen or weaken against the U.S. dollar. Currency exchange rates generally
are determined by the forces of supply and demand in the foreign exchange
markets and the relative merits of investments in different countries as seen
from an international perspective. Currency exchange rates can also be affected
unpredictably by intervention by U.S. or foreign governments or central banks or
by currency controls or political developments in the United States or abroad.
MEDIUM AND LOWER RATED AND UNRATED SECURITIES
Securities rated in the fourth highest category by S&P or Moody's, although
considered investment grade, 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 securities, the Portfolio Advisor's research
and credit
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analysis are an especially important part of managing securities of the type
held by a Portfolio. In light of these risks, the Board of Trustees has
instructed the Portfolio Advisor, in evaluating the creditworthiness of an
issue, whether rated or unrated, to take various factors into consideration,
which may include, as applicable, the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the ability of the
issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
medium and lower rated or unrated securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets may make it more difficult for the Portfolios to obtain accurate market
quotations for purposes of valuing their respective portfolios and calculating
their respective net asset values. Moreover, the lack of a liquid trading market
may restrict the availability of securities for the Portfolios to purchase and
may also have the effect of limiting the ability of a Portfolio to sell
securities at their fair value either to meet redemption requests or to respond
to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for shareholders. Also, as the principal value of bonds moves
conversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by a Portfolio may decline relatively
proportionately more than a portfolio consisting of higher rated securities. If
a Portfolio experiences unexpected net redemptions, it may be forced to sell its
higher rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Portfolio and increasing the exposure of the Portfolio to
the risks of lower rated securities. Investments in zero coupon bonds may be
more speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
Subsequent to its purchase by a Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Portfolio. Neither event will require sale of these securities by the
Portfolio, but the Portfolio Advisor will consider this event in its
determination of whether the Portfolio should continue to hold the securities.
ADRS, EDRS AND CDRS
ADRs are U.S. dollar-denominated receipts typically issued by domestic banks
or trust companies that represent the deposit with those entities of securities
of a foreign issuer. ADRs are publicly traded on exchanges or over-the-counter
in the United States. European Depositary Receipts ("EDRs"), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), may also be purchased
by the Portfolios. EDRs and CDRs are generally issued by foreign banks and
evidence ownership of either foreign or domestic securities. Certain
institutions issuing ADRs or EDRs may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the underlying foreign
securities.
FIXED-INCOME AND OTHER DEBT INSTRUMENT SECURITIES
Fixed-income and other debt instrument securities include all bonds, high
yield or "junk" bonds, municipal bonds, debentures, U.S. Government securities,
mortgage-related securities including government stripped mortgage-related
securities, zero coupon securities and custodial receipts. The market value of
fixed-income obligations of the Portfolios will be affected by general changes
in interest rates which will result in increases or decreases in the value of
the obligations held by the Portfolios. The market value of the obligations held
by a Portfolio can be expected to vary inversely to changes in prevailing
interest rates. Shareholders also should recognize that, in periods of declining
interest rates, a Portfolio's yield will tend to be somewhat higher than
prevailing market rates and, in periods of rising interest rates, a Portfolio's
yield will tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a Portfolio from the continuous sale of its shares
will tend to be invested in instruments producing lower yields than the balance
of its portfolio, thereby reducing the Portfolio's current yield. In periods of
rising interest rates, the opposite can be expected to occur. In addition,
securities in which a Portfolio may invest may not yield as high a level of
current income as might be achieved by investing in securities with less
liquidity, less creditworthiness or longer maturities.
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Ratings made available by S&P and Moody's are relative and subjective and
are not absolute standards of quality. Although these ratings are initial
criteria for selection of portfolio investments, a Portfolio Advisor also will
make its own evaluation of these securities. Among the factors that will be
considered are the long-term ability of the issuers to pay principal and
interest and general economic trends.
Fixed-income securities may be purchased on a when-issued or
delayed-delivery basis. See "When-Issued and Delayed-Delivery Securities."
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in U.S. Government securities, which are
obligations issued or guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities. Some U.S. government securities, such as U.S.
Treasury bills, Treasury notes and Treasury bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others are supported by: (i) the right of
the issuer to borrow from the U.S. Treasury, such as securities of the Federal
Home Loan Banks; (ii) the discretionary authority of the U.S. government to
purchase the agency's obligations, such as securities of the FNMA; or (iii) only
the credit of the issuer, such as securities of the Student Loan Marketing
Association. No assurance can be given that the U.S. Government will provide
financial support in the future to U.S. government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States.
Securities guaranteed as to principal and interest by the U.S. government,
its agencies, authorities or instrumentalities include: (i) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation interests in loans made to foreign
governments or other entities that are so guaranteed. The secondary market for
certain of these participation interests is limited and, therefore, may be
regarded as illiquid.
MORTGAGE RELATED SECURITIES
Each Portfolio may invest in mortgage related securities. There are several
risks associated with mortgage related securities generally. One is that the
monthly cash inflow from the underlying loans may not be sufficient to meet the
monthly payment requirements of the mortgage related security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten
the term of the underlying mortgage pool for a mortgage related security. Early
returns of principal will affect the average life of the mortgage related
securities remaining in a Portfolio. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Portfolio. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Portfolio will have to reinvest the proceeds of prepayments at
lower interest rates than those at which the assets were previously invested. If
this occurs, a Portfolio's yield will correspondingly decline. Thus, mortgage
related securities may have less potential for capital appreciation in periods
of falling interest rates than other fixed-income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that a Portfolio
purchases mortgage related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which a Portfolio invests, the investment may be subject to
a greater or lesser risk of prepayment than other types of mortgage related
securities.
Mortgage related securities may not be readily marketable. To the extent any
of these securities are not readily marketable in the judgment of the Portfolio
Advisor, the investment restriction limiting a Portfolio's investment in
illiquid instruments to not more than 15% of the value of its net assets will
apply.
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STRIPPED MORTGAGE RELATED SECURITIES
These securities are either issued and guaranteed, or privately-issued but
collateralized by securities issued, by GNMA, FNMA or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage related certificates issued by GNMA, FNMA or FHLMC, as the case may be.
The certificates underlying the stripped mortgage related securities represent
all or part of the beneficial interest in pools of mortgage loans. The Portfolio
will invest in stripped mortgage related securities in order to enhance yield or
to benefit from anticipated appreciation in value of the securities at times
when its Portfolio Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the expected increase in the
value of stripped mortgage related securities may offset all or a portion of any
decline in value of the securities held by the Portfolio.
Investing in stripped mortgage related securities involves the risks
normally associated with investing in mortgage related securities. See "Mortgage
Related Securities" above. In addition, the yields on stripped mortgage related
securities are extremely sensitive to the prepayment experience on the mortgage
loans underlying the certificates collateralizing the securities. If a decline
in the level of prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will be
accelerated, thereby reducing the yield to maturity on interest-only stripped
mortgage related securities and increasing the yield to maturity on
principal-only stripped mortgage related securities. Sufficiently high
prepayment rates could result in a Portfolio not fully recovering its initial
investment in an interest-only stripped mortgage related security. Under current
market conditions, the Portfolio expects that investments in stripped mortgage
related securities will consist primarily of interest-only securities. Stripped
mortgage related securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that the Portfolio will be able to effect a trade of a stripped mortgage related
security at a time when it wishes to do so. The Portfolio will acquire stripped
mortgage related securities only if a secondary market for the securities exists
at the time of acquisition. Except for stripped mortgage related securities
based on fixed rate FNMA and FHLMC mortgage certificates that meet certain
liquidity criteria established by the Board of Trustees, the Portfolios will
treat stripped mortgage related securities as illiquid and will limit its
investments in these securities, together with other illiquid investments, to
not more than 15% of net assets.
ZERO COUPON SECURITIES
Zero coupon U.S. Government securities are debt obligations that are issued
or purchased at a significant discount from face value. The discount
approximates the total amount of interest the security will accrue and compound
over the period until maturity or the particular interest payment date at a rate
of interest reflecting the market rate of the security at the time of issuance.
Zero coupon securities do not require the periodic payment of interest. These
investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of cash. These investments may experience greater
volatility in market value than U.S. Government securities that make regular
payments of interest. A Portfolio accrues income on these investments for tax
and accounting purposes, which is distributable to shareholders and which,
because no cash is received at the time of accrual, may require the liquidation
of other portfolio securities to satisfy the Portfolio's distribution
obligations, in which case the Portfolio will forego the purchase of additional
income producing assets with these funds. Zero coupon securities include STRIPS,
that is, securities underwritten by securities dealers or banks that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. They also include Coupons Under Book Entry System ("CUBES"),
which are component parts of U.S. Treasury bonds and represent scheduled
interest and principal payments on the bonds.
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
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Security. Custodial receipts evidencing specific coupon or principal payments
have the same general attributes as zero coupon U.S. Government securities,
described above. Although typically under the terms of a custodial receipt a
Portfolio is authorized to assert its rights directly against the issuer of the
underlying obligation, the Portfolio may be required to assert through the
custodian bank such rights as may exist against the underlying issuer. Thus, if
the underlying issuer fails to pay principal and/or interest when due, a
Portfolio may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Portfolio had purchased a direct
obligation of the issuer. In addition, if the trust or custodial account in
which the underlying security has been deposited is determined to be an
association taxable as a corporation, instead of a non-taxable entity, the yield
on the underlying security would be reduced in respect of any taxes paid.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
To secure prices deemed advantageous at a particular time, each Portfolio
may purchase securities on a when-issued or delayed-delivery basis, in which
case delivery of the securities occurs beyond the normal settlement period;
payment for or delivery of the securities would be made prior to the reciprocal
delivery or payment by the other party to the transaction. A Portfolio will
enter into when-issued or delayed-delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by the Portfolio may include securities purchased on a "when, as and
if issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
REPURCHASE AGREEMENTS
Each of the Portfolios may engage in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, a Portfolio would acquire an
underlying debt obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Portfolio's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Portfolio's holding period. A Portfolio may enter into repurchase
agreements with respect to U.S. government securities with member banks of the
Federal Reserve System and certain non-bank dealers approved by the respective
Board of Trustees. Under each repurchase agreement, the selling institution is
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. The Portfolio Advisor, acting
under the supervision of the Advisor and the Board of Trustees, reviews on an
ongoing basis the value of the collateral and the creditworthiness of those
non-bank dealers with whom the Portfolio enters into repurchase agreements. In
entering into a repurchase agreement, a Portfolio bears a risk of loss in the
event that the other party to the transaction defaults on its obligations and
the Portfolio is delayed or prevented from exercising its rights to dispose of
the underlying securities, including the risk of a possible decline in the value
of the underlying securities during the period in which the Portfolio seeks to
assert its rights to them, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or a part of the income from
the agreement. Repurchase agreements are considered to be collateralized loans
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS
The Portfolios may enter into reverse repurchase agreements and forward roll
transactions. In a reverse repurchase agreement the Portfolio agrees to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price. Forward roll
transactions are equivalent to reverse repurchase agreements but involve
mortgage-backed securities and involve a repurchase of a substantially similar
security. At the time the Portfolio enters into a reverse repurchase agreement
or forward roll transaction it will place in a segregated custodial account
cash, U.S. Government securities or high grade, liquid debt obligations having a
value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements and forward roll transactions involve the risk that the
market value of the securities sold by the Portfolio
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may decline below the repurchase price of the securities. Reverse repurchase
agreements and forward roll transactions are considered to be borrowings by a
Portfolio for purposes of the limitations described in "Certain Investment
Restrictions" below and in the Statement of Additional Information.
LENDING PORTFOLIO SECURITIES
To generate income for the purpose of helping to meet its operating
expenses, each Portfolio may lend securities to brokers, dealers and other
financial organizations. These loans, if and when made, may not exceed 30% of a
Portfolio's assets taken at value. A Portfolio's loans of securities will be
collateralized by cash, letters of credit or U.S. Government securities. The
cash or instruments collateralizing a Portfolio's loans of securities will be
maintained at all times in a segregated account with the Portfolio's custodian,
or with a designated subcustodian, in an amount at least equal to the current
market value of the loaned securities. In lending securities to brokers, dealers
and other financial organizations, a Portfolio is subject to risks, which, like
those associated with other extensions of credit, include delays in recovery and
possible loss of rights in the collateral should the borrower fail financially.
For further information regarding measures to be taken to protect a lending
Portfolio, see the Statement of Additional Information.
ILLIQUID SECURITIES
No Portfolio may invest more than 15% of its net assets in securities which
are illiquid or otherwise not readily marketable. If a security becomes illiquid
after purchase by the Portfolio, the Portfolio will normally sell the security
unless to do so would not be in the best interests of shareholders.
NON-PUBLICLY TRADED ("RESTRICTED") SECURITIES AND RULE 144A SECURITIES
Each Portfolio may purchase securities in the United States that are not
registered for sale under federal securities laws but which can be resold to
institutions under SEC Rule 144A or under an exemption from such laws. If a
dealer or institutional trading market in such securities exists, these
restricted securities or Rule 144A securities are treated as exempt from the
Portfolio's 15% limit on illiquid securities. The Board of Trustees of the SA
Trust, with advice and information from the respective Portfolio Advisor, will
determine the liquidity of restricted securities or Rule 144A securities by
looking at factors such as trading activity and the availability of reliable
price information and, through reports from such Portfolio Advisor, the Board of
Trustees of the Portfolio Trust will monitor trading activity in restricted
securities. Because Rule 144A is relatively new, it is not possible to predict
how the markets for Rule 144A securities will develop. If institutional trading
in restricted securities or Rule 144A securities were to decline, a Portfolio's
illiquidity could be increased and the Portfolio could be adversely affected.
No Portfolio will invest more than 10% of its total assets in restricted
securities (excluding Rule 144A securities).
TEMPORARY INVESTMENTS
For temporary defensive purposes during periods when the Portfolio Advisor
of a Portfolio believes, in consultation with the Advisor, that pursuing the
Portfolio's basic investment strategy may be inconsistent with the best
interests of its shareholders, the Portfolio may invest its assets without limit
in the following money market instruments: U.S. Government securities (including
those purchased in the form of custodial receipts), repurchase agreements,
certificates of deposit and bankers' acceptances issued by banks or savings and
loan associations having assets of at least $500 million as of the end of their
most recent fiscal year and high quality commercial paper.
In addition, for the same purposes the Portfolio Advisor may invest without
limit in obligations issued or guaranteed by foreign governments or by any of
their political subdivisions, authorities, agencies or instrumentalities that
are rated at least AA by S&P or Aa by Moody's or, if unrated, are determined by
the Portfolio Advisor to be of equivalent quality. Each Portfolio also may hold
a portion of its assets in money market instruments or cash in amounts designed
to pay expenses, to meet anticipated redemptions or pending investments in
accordance with its objectives and policies. Any temporary investments may be
purchased on a when-issued basis.
FUTURES CONTRACTS AND RELATED OPTIONS
Each Portfolio may enter into futures contracts and purchase and write
(sell) options on these contracts, including but not limited to interest rate,
securities index and foreign currency futures contracts and put and call options
on these futures contracts. These contracts will be entered into only upon the
concurrence of the Portfolio
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Advisor that such contracts are necessary or appropriate in the management of
the Portfolio's assets. These contracts will be entered into on exchanges
designated by the Commodity Futures Trading Commission ("CFTC") or, consistent
with CFTC regulations, on foreign exchanges. These transactions may be entered
into for bona fide hedging and other permissible risk management purposes
including protecting against anticipated changes in the value of securities a
Portfolio intends to purchase.
No Portfolio will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition, no
Portfolio will buy futures or write puts whose underlying value exceeds 25% of
its total assets, and no Portfolio will buy calls with a value exceeding 5% of
its total assets.
A Portfolio will not enter into futures contracts and related options for
which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Portfolio's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Portfolio may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the
Portfolio's futures and options positions may not prove to be perfectly or even
highly correlated with changes in the value of its portfolio securities.
Successful use of futures and related options is subject to a Portfolio
Advisor's ability to predict correctly movements in the direction of the
securities markets generally, which ability may require different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures and options contracts may only be closed out by entering into
offsetting transactions on the exchange where the position was entered into (or
a linked exchange), and as a result of daily price fluctuation limits there can
be no assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Portfolio may realize
a loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Portfolio may not
be able to close a futures or options position without incurring a loss in the
event of adverse price movements. For additional information, see "Futures
Contracts and Options on Futures Contracts" in the Statement of Additional
Information.
OPTIONS ON STOCK
Each Portfolio may write and purchase options on stocks. A call option gives
the purchaser of the option the right to buy, and obligates the writer to sell,
the underlying stock at the exercise price at any time during the option period.
Similarly, a put option gives the purchaser of the option the right to sell, and
obligates the writer to buy the underlying stock at the exercise price at any
time during the option period. A covered call option with respect to which the
Portfolio owns the underlying stock sold by the Portfolio exposes the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying stock or to possible
continued holding of a stock which might otherwise have been sold to protect
against depreciation in the market price of the stock. A covered put option sold
by the Portfolio exposes the Portfolio during the term of the option to a
decline in price of the underlying stock.
To close out a position when writing covered options, the Portfolio may make
a "closing purchase transaction" which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased. See also "Options on
Securities" in the Statement of Additional Information.
OPTIONS ON SECURITIES INDEXES
Each Portfolio may purchase and write put and call options on securities
indexes listed on domestic and, in the case of those Portfolios which may invest
in foreign securities, on foreign exchanges. A securities index fluctuates with
changes in the market values of the securities included in the index.
Options on securities indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the among, 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
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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 Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in price of a particular security. Accordingly, successful use by
a Portfolio of options on security indexes will be subject to the Portfolio
Advisor's ability to predict correctly movement in the direction of that
securities market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities. For further information regarding index options, see "Options on
Securities Indexes" in the Statement of Additional Information.
FORWARD CURRENCY CONTRACTS
Each Portfolio may hold currencies to meet settlement requirements for
foreign securities and may engage in currency exchange transactions in order to
protect against uncertainty in the level of future exchange rates between a
particular foreign currency and the U.S. dollar or between foreign currencies in
which the Portfolio's securities are or may be denominated. Forward currency
contracts are agreements to exchange one currency for another, for example, to
exchange a certain amount of U.S. dollars for a certain amount of French francs
at a future date. The date (which may be any agreed-upon fixed number of days in
the future), the amount of currency to be exchanged and the price at which the
exchange will take place will be negotiated with a currency trader and fixed for
the term of the contract at the time that the Portfolio enters into the
contract.
In hedging specific portfolio positions, a Portfolio may enter into a
forward contract with respect to either the currency in which the positions are
denominated or another currency deemed appropriate by the Portfolio Advisor. The
amount the Portfolio may invest in forward currency contracts is limited to the
amount of the Portfolio's aggregate investments in foreign currencies. Risks
associated with entering into forward currency contracts include the possibility
that the market for forward currency contracts may be limited with respect to
certain currencies and, upon a contract's maturity, the inability of a Portfolio
to negotiate with the dealer to enter into an offsetting transaction. Forward
currency contracts may be closed out only by the parties entering into an
offsetting contract. In addition, the correlation between movements in the
prices of those contracts and movements in the price of the currency hedged or
used for cover will not be perfect. There is no assurance that an active forward
currency contract market will always exist. These factors will restrict a
Portfolio's ability to hedge against the risk of devaluation of currencies in
which a Portfolio holds a substantial quantity of securities and are unrelated
to the qualitative rating that may be assigned to any particular security. See
also "Forward Currency Contracts" in the Statement of Additional Information for
further information concerning forward currency contracts.
ASSET COVERAGE
To assure that a Portfolio's use of futures and related options, as well as
when-issued and delayed-delivery transactions, forward currency contracts and
swap transactions, are not used to achieve investment leverage, the Portfolio
will cover such transactions, as required under applicable SEC interpretations,
either by owning the underlying securities or by establishing a segregated
account with the SA Trust's custodian containing high grade liquid debt
securities in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.
CERTAIN INVESTMENT RESTRICTIONS
The SA Trust, on behalf of each SAT Portfolio, has adopted certain
investment restrictions that are enumerated in detail in the Statement of
Additional Information. Among other restrictions, each SAT Portfolio may not,
with respect to 75% of its total assets taken at market value, invest more than
5% of its total assets in the securities of any one issuer, except U.S.
Government securities, or acquire more than 10% of any class of the outstanding
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voting securities of any one issuer. In addition, no Portfolio may invest more
than 25% of its total assets in securities of issuers in any one industry. Each
Portfolio may borrow money as a temporary measure from banks in an aggregate
amount not exceeding one-third of the value of the Portfolio's total assets to
meet redemptions and for other temporary or emergency purposes not involving
leveraging. Reverse repurchase agreements and forward roll transactions
involving mortgage-related securities will be aggregated with bank borrowings
for purposes of this calculation. No Portfolio may purchase securities while
borrowings exceed 5% of the value of the Portfolio's total assets. No Portfolio
will invest more than 15% of the value of its net assets in securities that are
illiquid, including certain government stripped mortgage related securities,
repurchase agreements maturing in more than seven days and that cannot be
liquidated prior to maturity and securities that are illiquid by virtue of the
absence of a readily available market. Securities that have legal or contractual
restrictions on resale but have a readily available market, such as certain Rule
144A securities, are deemed not illiquid for this purpose. No Portfolio may
invest more than 10% of its assets in restricted securities (excluding Rule 144A
securities). See "Illiquid Securities" and "Non-Publicly Traded ("Restricted")
Securities and Rule 144A Securities."
PORTFOLIO TURNOVER
Generally, the SAT Portfolios will not trade in securities for short-term
profits but, when circumstances warrant, securities may be sold without regard
to the length of time held. The SAT Portfolios may engage in active short-term
trading to benefit from yield disparities among different issues of securities,
to seek short-term profits during periods of fluctuating interest rates or for
other reasons. Active trading will increase a Portfolio's rate of turnover,
certain transaction expenses and the incidence of short-term capital gain
taxable as ordinary income. An annual turnover rate of 100% would occur when all
the securities held by the Portfolio are replaced one time during a period of
one year. The turnover rates of the Growth & Income Portfolio and the Bond
Portfolio for 1995 were 96% and 80%, respectively.
MANAGEMENT OF THE SA TRUST
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the SA Trust rests
with its Board of Trustees. The Trustees approve all significant agreements
between the SA Trust and the persons and companies that furnish services to the
SA Trust and the Portfolios, including agreements between the SA Trust and each
of the Custodian, the Advisor and the Administrator. Due to the services
provided by the Advisor and the Administrator, the Trust currently has no
employees and its officers are not required to devote their full time to the
affairs of the SA Trust. The Statement of Additional Information contains
background information regarding each Trustee and executive officer of the SA
Trust.
ADMINISTRATOR
Signature, located at 6 St. James Avenue, Boston Massachusetts 02116, serves
as administrator and fund accounting agent to the SA Trust pursuant to an
agreement (the "ADMINISTRATIVE SERVICES AND FUND ACCOUNTING AGREEMENT"). Under
the Administrative Services and Fund Accounting Agreement, Signature provides
the SA Trust with general office facilities and supervises the overall
administration of the SA Trust, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the SA Trust; the
preparation and filing of all documents required for compliance by the SA Trust
with applicable laws and regulations; and arranging for the maintenance of books
and records of the SA Trust.
For the services to be rendered and the facilities to be provided by
Signature, each SAT Portfolio shall pay to Signature an administrative services
and fund accounting fee computed and paid monthly that is equal on an annual
basis to a percentage of the average daily net assets of all registered
investment companies to which the Advisor (or an affiliate) and Signature
provide their respective services ranging from 0.20% to 0.05%, depending on the
total assets of all such investment companies. The fees so calculated will be
allocated among such investment companies in proportion to their respective
average daily net assets. See "Management of the Trust" in the VI Trust's
Statement of Additional Information.
43
<PAGE>
In addition, each SAT Portfolio is subject to a minimum annual
administrative services and fund accounting fee of $60,000 ($40,000 in the first
year of operations). In the case of the SAT Portfolios, this minimum fee is
subject to increases depending on how many investors the Portfolio has. See the
Statement of Additional Information for more information.
CUSTODIAN
Investors Bank & Trust Company, located at 89 South Street, Boston
Massachusetts 02111, serves as custodian of the SA Trust's investments (the
"CUSTODIAN").
SPONSOR
Touchstone Advisors, Inc., as Sponsor to the SA Trust pursuant to a Sponsor
Agreement, provides oversight of the various service providers to the SA Trust,
including the Administrator and the Custodian. As Sponsor to the SA Trust,
Touchstone Advisors reserves the right to receive a sponsor fee from each
Portfolio equal on an annual basis to 0.20% of the average daily net assets of
that Portfolio for its then current fiscal year. The Sponsor Agreement may be
terminated by the Sponsor as of the end of any calendar quarter after December
31, 1996 on not less than 30 days prior written notice. The SA Trust may
terminate the Sponsor Agreement at any time on not less than 30 days prior
written notice. The Sponsor has advised the SA Trust that it will waive all fees
under the Sponsor Agreement through April 30, 1997.
ALLOCATION OF EXPENSES OF THE PORTFOLIOS
Each SAT Portfolio bears its own expenses, which generally include all costs
not specifically borne by the Advisor, the SAT Portfolio Advisors and the
Administrator. Included among a Portfolio's expenses are: costs incurred in
connection with its organization; investment management and administration fees;
sponsor fees; fees for necessary professional and brokerage services; fees for
any pricing service; the costs of regulatory compliance; and costs associated
with maintaining the SA Trust's legal existence and shareholder relations. Under
separate agreements with the SA Trust, the Sponsor has agreed to reimburse each
SAT Portfolio to the extent that the aggregate operating expenses of the
Portfolio exceed agreed upon expense limitations (the "EXPENSE CAPS"). The
Sponsor's obligation to reimburse the SA Trust for such amounts may be
terminated by the Sponsor at the end of any calendar quarter after December 31,
1996. For more detailed information regarding the Expense Caps, see "Fee and
Expense Tables" and "Expenses of VIT Portfolios and SAT Portfolios; Expense
Caps."
PURCHASE AND VALUATION
PURCHASE
Interests in the Growth & Income and Bond Portfolios are not offered to the
public and are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. Investments in the Growth & Income and Bond Portfolios may be made only by
a limited number of insurance company separate accounts. This Prospectus and its
accompanying Statement of Additional Information do not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" (within the meaning
of the 1933 Act) of the Portfolios.
VALUATION
The net asset value of each SAT Portfolio is determined as of the close of
regular trading on the NYSE on each day on which the NYSE is open for trading,
by deducting the amount of the Portfolio's liabilities from the value of its
assets. At the close of each such business day, the value of each Sub-Account's
interest in the Portfolio will be determined by multiplying the net asset value
of the corresponding Portfolio by the percentage, effective for that day, that
represents the Sub-Account's share of the aggregate interests in that Portfolio.
Generally, a Portfolio's investments are valued at market value or, in the
absence of a market value, at fair value as determined by or under the direction
of the SA Trust's Board of Trustees.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges, except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees of the SA Trust. A security that is
44
<PAGE>
primarily traded on a domestic or foreign stock exchange is valued at the last
sales price on that exchange or, if no sales occurred during the day, at the
current quoted bid price. All short-term dollar-denominated investments that
mature in 60 days or less are valued on the basis of amortized cost (which
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment) when the Board
of Trustees of the SA Trust has determined that amortized cost represents fair
value. An option that is written by a Portfolio is generally valued at the last
sale price or, in the absence of the last sale price, the last offer price. An
option that is purchased by a Portfolio is generally valued at the last sale
price or, in the absence of the last sale price, the last bid price. The value
of a futures contract is equal to the unrealized gain or loss on the contract
that is determined by marking the contract to the current settlement price for a
like contract on the valuation date of the futures contract. A settlement price
may not be used if the market makes the maximum price change in a single trading
session permitted by an exchange (a "limit move") with respect to a particular
futures contract or if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price cannot be used, futures contracts will be valued at
their fair market value as determined by or under the direction of the Board of
Trustees of the SA Trust.
All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Board of Trustees of the SA
Trust. In carrying out the valuation policies of the Board of Trustees of the SA
Trust, independent pricing services may be consulted. Further information
regarding the SA Trust's valuation policies is contained in the Statement of
Additional Information.
ADDITIONAL INFORMATION
DESCRIPTION OF BENEFICIAL INTERESTS, VOTING RIGHTS AND LIABILITIES
Each investor in an SAT Portfolio, including the corresponding Sub-Account,
may add to or reduce its investment in the Portfolio on each day the Portfolio
determines its net asset value. At the close of each such business day, the
value of each investor's beneficial interest in the Portfolio will be determined
by multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected as of the close of business on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be re-computed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as of the close of business on the following business day.
The SA Trust was organized as a trust under the laws of the State of New
York pursuant to a Declaration of Trust dated February 7, 1994, at which time
the SAT Portfolios were established and designated as a separate series of this
SA Trust. The Declaration of Trust provides that the Sub-Account and other
entities investing in the Portfolios (E.G., other insurance company separate
accounts) will each be liable for all obligations of the corresponding
Portfolio. However, the risk of a Sub-Account incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the corresponding Portfolio itself was unable to meet its
obligations. Accordingly, the Trustees of the SA Trust believe that neither the
Sub-Account nor its Owners having Contract Value therein will for this reason be
adversely affected as a result of the Sub-Account investing in the Portfolios.
The interests in SA Trust are divided into separate series. No series of SA
Trust has any preference over any other series.
Each Sub-Account will be involved only in votes that affect the
corresponding SAT Portfolio. Owners investing in Sub-Accounts that are, in turn,
investing in the SAT Portfolios will, however, vote with other investors
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in all of the SA Trust's Portfolios (of which there are seven) to elect Trustees
of the SA Trust and for certain other matters. Under certain circumstances the
investors of one or more series of the SA Trust (including the SAT Portfolios)
could control the outcome of these votes. Holders of interests in each Portfolio
will vote separately on matters affecting only that Portfolio. Under certain
circumstances, other investors in a Portfolio could control the outcome of these
votes.
The Variable Account sends to each shareholder a semi-annual report and an
audited annual report. At least one such report in each year will include a list
of the investment securities held by the SAT Portfolios. See "Reports to
Contract Owners."
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Variable
Account's Statement of Additional Information and in the Variable Account's
official sales literature in connection with the offering of interests in the
Contracts, and if given or made, such other information or representations must
not be relied upon as having been authorized by the Variable Account. This
Prospectus does not constitute an offer in any state in which, or to any person
to whom, such offer may not lawfully be made.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Part I - Discussion Regarding the Variable Annuity Contracts................................................ 1
Part II - Discussion Regarding the Select Advisors Portfolios............................................... 5
Summary................................................................................................... 5
Investment Objectives, Techniques, Policies and Restrictions.............................................. 6
Investment Objectives................................................................................... 6
Investment Techniques................................................................................... 6
Investment Restrictions................................................................................. 21
Valuation of Securities; Redemption in Kind............................................................... 27
Management of the SA Trust................................................................................ 29
Organization of the SA Trust.............................................................................. 35
Taxation.................................................................................................. 36
Financial Statements...................................................................................... 37
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
MAY 1, 1996
<TABLE>
<S> <C>
SELECT ADVISORS TOUCHSTONE ADVISORS, INC.
VARIABLE INSURANCE 311 PIKE STREET
TRUST CINCINNATI, OHIO 45202
</TABLE>
- --------------------------------------------------------------------------------
Select Advisors Variable Insurance Trust (the "Trust") is an open-end,
investment management company providing investment vehicles (each, a
"Portfolio") for variable annuity contracts of various insurance companies. The
Trust is professionally managed by Touchstone Advisors, Inc. (the "Advisor" or
"Touchstone Advisors"). Each Portfolio benefits from discretionary advisory
services by one or more investment advisor(s) (each, a "Portfolio Advisor")
identified, retained, supervised and compensated by the Advisor.
The Trust is a series company that currently consists of the following
Portfolios:
TOUCHSTONE EMERGING GROWTH PORTFOLIO
TOUCHSTONE INTERNATIONAL EQUITY PORTFOLIO
TOUCHSTONE BALANCED PORTFOLIO
TOUCHSTONE INCOME OPPORTUNITY PORTFOLIO
TOUCHSTONE STANDBY INCOME PORTFOLIO
THE INCOME OPPORTUNITY PORTFOLIO MAY INVEST UP TO 100% OF ITS TOTAL ASSETS
IN NON-INVESTMENT GRADE BONDS, COMMONLY KNOWN AS "JUNK BONDS" ISSUED BY BOTH
U.S. AND FOREIGN ISSUERS, WHICH ENTAIL GREATER RISK OF UNTIMELY INTEREST AND
PRINCIPAL PAYMENTS, DEFAULT AND PRICE VOLATILITY THAN HIGHER RATED SECURITIES,
AND MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION. THE INTERNATIONAL EQUITY
PORTFOLIO AND THE INCOME OPPORTUNITY PORTFOLIO MAY INVEST UP TO 40% AND 65%,
RESPECTIVELY, OF ITS TOTAL ASSETS IN SECURITIES OF ISSUERS BASED IN EMERGING
MARKETS WHICH MAY PRESENT INCREASED RISK. INVESTORS SHOULD CAREFULLY CONSIDER
THESE RISKS PRIOR TO INVESTING. SEE "INVESTMENT OBJECTIVES, POLICIES AND RISKS"
ON PAGE 4; "RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES" ON PAGE 7; AND THE
APPENDIX ON PAGE A-1.
This Prospectus sets forth concisely certain information about the Trust,
including expenses, that prospective shareholders will find helpful in making an
investment decision. Shareholders are encouraged to read this Prospectus
carefully and retain it for future reference.
Additional information about the Trust is contained in a Statement of
Additional Information dated May 1, 1996, which is available upon request and
without charge by calling the Touchstone Variable Annuity Service Center at
1-800-669-2796 or writing the Trust at the address listed above. The Statement
of Addi-
tional Information, which has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated by reference into this Prospectus in its
entirety.
Shares of each Portfolio may only be purchased by the separate accounts of
insurance companies, for the purpose of funding variable annuity contracts.
Particular Portfolios may not be available in your state due to various
insurance regulations. Please check with the Touchstone Variable Annuity Service
Center for available Portfolios. Inclusion of a Portfolio in this Prospectus
which is not available in your state is not to be considered a solicitation.
This Prospectus should be read in conjunction with the prospectus of the
separate account of the specific insurance product which accompanies this
Prospectus.
THE SHARES OF EACH PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE TRUST'S
STATEMENT OF ADDITIONAL INFORMATION OR THE TRUST'S SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES, AND IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Table of Contents........................................................................................... 2
Financial Highlights........................................................................................ 3
Investment Objectives, Policies and Risks................................................................... 4
Risk Factors and Certain Investment Techniques.............................................................. 7
Advisor and Portfolio Advisors.............................................................................. 9
Additional Risks and Investment Techniques.................................................................. 12
Purchase and Redemption of Shares........................................................................... 20
Net Asset Value............................................................................................. 21
Management of the Trust..................................................................................... 22
Dividends, Distributions and Taxes.......................................................................... 23
Performance of the Portfolios............................................................................... 24
Additional Information...................................................................................... 25
Appendix.................................................................................................... A-1
</TABLE>
2
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FINANCIAL HIGHLIGHTS
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data for
each Portfolio for the period indicated and has been audited by Coopers &
Lybrand L.L.P., the Trust's independent accountants, whose report thereon
appears in the Trust's Annual Report which is included in the Trust's Statement
of Additional Information.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED DECEMBER 31,
1995 AND THE PERIOD ENDED DECEMBER 31, 1994
WERE AS FOLLOWS:
<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL BALANCED
PORTFOLIO EQUITY PORTFOLIO PORTFOLIO
------------------- ------------------- -------------------
1995 1994(A) 1995 1994(A) 1995 1994(A)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 10.00 $ 9.51 $ 10.00 $ 10.17 $ 10.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.11 0.04 0.04 -- 0.32 0.05
Net realized and unrealized gain
(loss) on investments 1.87 0.06 0.48 (0.49) 2.15 0.12
-------- -------- -------- -------- -------- --------
Total from investment operations 1.98 0.10 0.52 (0.49) 2.47 0.17
-------- -------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.15) -- (0.03) -- (0.37) --
Realized capital gain (0.66) -- -- -- (0.79) --
-------- -------- -------- -------- -------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.81) 0.00 (0.03) -- (1.16) --
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.27 $ 10.10 $ 10.00 $ 9.51 $ 11.48 $ 10.17
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN(B) 19.57% 2.99% 5.45% (34.72)% 24.56% 15.38%
RATIOS AND SUPPLEMENTAL DATA(C):
Net assets at end of period (000's) $ 2,615 $ 2,020 $ 5,215 $ 4,757 $ 2,895 $ 2,034
Ratios to average net assets:
Expenses 1.15% 1.15% 1.25% 1.25% 0.90% 0.90%
Net investment income 1.09% 3.67% 0.46% 1.23% 2.87% 4.26%
Expenses, without waiver and
reimbursement 3.73% 11.08% 3.69% 5.58% 3.46% 8.97%
Portfolio turnover 101% 0% 86% 0% 124% 3%
<CAPTION>
INCOME
OPPORTUNITY STANDBY INCOME
PORTFOLIO PORTFOLIO
------------------- -------------------
1995 1994(A) 1995 1994(A)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.42 $ 10.00 $ 10.03 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.22 0.12 0.56 0.05
Net realized and unrealized gain
(loss) on investments 0.79 (0.70) (0.01) 0.03
-------- -------- -------- --------
Total from investment operations 2.01 (0.58) 0.55 0.08
-------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1.34) -- (0.56) (0.05)
Realized capital gain -- -- -- --
-------- -------- -------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS (1.34) -- (0.56) (0.05)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 9.42 $ 10.02 $ 10.03
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN(B) 23.35% (39.78)% 5.90% 5.35%
RATIOS AND SUPPLEMENTAL DATA(C):
Net assets at end of period (000's) $ 2,602 $ 1,883 $ 5,790 $ 5,013
Ratios to average net assets:
Expenses 0.85% 0.85% 0.50% 0.50%
Net investment income 12.81% 11.24% 5.59% 4.90%
Expenses, without waiver and
reimbursement 3.54% 11.56% 1.73% 3.67%
Portfolio turnover 104% 45% 159% 56%
</TABLE>
- ------------------------------
(a) The Portfolios commenced operations on November 21, 1994.
(b) Total return is annualized for the period ended December 31, 1994. Total
return is calculated assuming a purchase of shares on the first day and a
sale of shares on the last day of the period, and includes reinvestment of
all dividends.
(c) Ratios are annualized. Portfolio turnover is not annualized.
3
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.
THE TRUST. The Trust is a management investment company providing a
convenient means of investing in separate Portfolios each with distinct
investment objectives and policies. The Trust consists of the following five
diversified Portfolios:
EMERGING GROWTH PORTFOLIO has a primary investment objective of capital
appreciation with income as a secondary investment objective. The Portfolio
attempts to achieve its investment objectives through investment primarily
in the common stocks of smaller, rapidly growing companies.
INTERNATIONAL EQUITY PORTFOLIO has an investment objective of long term
capital appreciation through investment primarily in equity securities of
companies based outside the United States.
BALANCED PORTFOLIO has an investment objective of growth of capital and
income through investment in common stocks and fixed-income securities.
INCOME OPPORTUNITY PORTFOLIO has an investment objective of high current
income through investment in high yield, non-investment grade debt
securities (commonly known as "junk bonds") of both U.S. and non-U.S.
issuers and in mortgage related securities. To the extent consistent with
its primary objective, the Portfolio will also seek capital appreciation.
STANDBY INCOME PORTFOLIO has an investment objective of high current income
to the extent consistent with relative stability of principal which it
attempts to achieve through investment in short term, investment grade debt
securities.
There can be no assurance that the investment objective of any Portfolio
will be achieved. The investment objectives of each Portfolio may be changed
without approval by investors, but not without thirty days prior notice. If
there is a change in the investment objectives of a Portfolio, shareholders
should consider whether the Portfolio remains an appropriate investment in light
of their then-current financial position and needs.
EMERGING GROWTH PORTFOLIO
The primary investment objective of the Portfolio is capital appreciation
with income as a secondary investment objective. The Portfolio attempts to
achieve its investment objectives through investment primarily in the common
stock of smaller, rapidly growing companies. With respect to the Emerging Growth
Portfolio, "emerging growth" companies are smaller companies with total market
capitalization less than the average of Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"), which is currently approximately $20 billion, which
the Portfolio Advisor believes have earnings that may be expected to grow faster
than the U.S. economy in general, because of new products, structural changes in
the economy or management changes.
Under normal circumstances, at least 65% of the Portfolio's total assets
will be invested in securities of emerging growth companies. In selecting
investments for the Portfolio, the Portfolio Advisor seeks emerging growth
companies that it believes are undervalued in the marketplace. These companies
typically possess a relatively high rate of return on invested capital so that
future growth can be financed from internal sources. Companies in which the
Portfolio is likely to invest may have limited product lines, markets or
financial resources and may lack management depth. The securities of these
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. A portion of the Portfolio's assets may be
invested in the securities of larger companies which the Portfolio Advisor
believes offer comparable appreciation or to ensure sufficient liquidity. Since
the Portfolio invests primarily in smaller companies, the Portfolio invests only
to a limited extent in larger companies in emerging industries.
In addition to common stocks, the Portfolio may invest in preferred stocks,
convertible bonds and other fixed-income instruments not issued by emerging
growth companies which present opportunities for capital appreciation as well as
income. Such instruments include U.S. Treasury obligations, corporate bonds,
debentures, mortgage related securities issued by various governmental agencies,
such as Government National Mortgage Association
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<PAGE>
("GNMA") and government related organizations, such as the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"), including collateralized mortgage obligations ("CMOs"), privately
issued mortgage related securities (including CMOs), stripped U.S. Government
and mortgage related securities, non-publicly registered securities, and asset
backed securities. The Portfolio will only invest in bonds and preferred stock
rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Corporation ("S&P") or, if unrated, determined by the
Portfolio Advisor to be of comparable quality. Bonds rated Baa or BBB possess
some speculative characteristics.
The Portfolio may invest up to 20% of its assets in foreign securities
principally traded outside the United States and in American Depositary Receipts
("ADRs"). The Portfolio may not invest more than 10% of its total assets in the
securities of companies based in an emerging market. See "Risk Factors and
Certain Investment Techniques -- Foreign Securities" and "-- Risks Associated
With 'Emerging Markets' Securities."
INTERNATIONAL EQUITY PORTFOLIO
The investment objective of the Portfolio is long term capital appreciation
by investing primarily in equity securities of companies based outside the
United States. The Portfolio expects that initially its investments will be
concentrated in Europe, Asia, the Far East, North and South America, Africa, the
Pacific Rim and Latin America.
The Portfolio may invest in securities of companies in emerging markets (see
"Risk Factors and Certain Investment Techniques -- Risks Associated With
'Emerging Markets' Securities"), but does not expect to invest more than 40% of
its total assets in securities of issuers in emerging markets. The Portfolio
will invest in issuers of companies from at least three countries outside the
United States.
Under normal market conditions, the Portfolio will invest a minimum of 80%
of its total assets in equity securities of non-U.S. issuers. With respect to
the International Equity Portfolio, "equity securities" means common stock and
preferred stock (including convertible preferred stock), bonds, notes and
debentures convertible into common or preferred stock, stock purchase warrants
and rights, equity interests in trusts and partnerships, and depository receipts
of companies.
The Portfolio may invest up to 20% of its total assets in debt securities
issued by U.S. or foreign banks, corporations or other business organizations,
or by U.S. or foreign governments or governmental entities (including
supranational organizations such as the International Bank for Reconstruction
and Development, I.E., the "World Bank"). The Portfolio may choose to take
advantage of opportunities for capital appreciation from debt securities by
reason of anticipated changes in such factors as interest rates, currency
relationships, or credit standing of individual issuers. The Portfolio will
invest less than 35% of its total assets in lower quality, high yielding
securities, commonly known as "junk bonds." See "Risk Factors and Certain
Investment Techniques -- Medium and Lower Rated ("Junk Bonds") and Unrated
Securities." The Portfolio will not invest in preferred stocks or debt
securities rated less than B by S&P and Moody's. Investing in securities issued
by foreign companies and governments involves considerations and potential risks
not typically associated with investing in obligations issued by the U.S.
government and domestic corporations. Investments in "emerging markets"
securities include the securities of issuers based in some of the world's
underdeveloped markets, including Eastern Europe. Investments in securities of
issuers based in underdeveloped countries entail all of the risks of investing
in foreign issuers to a heightened degree. See "Risk Factors and Certain
Investment Techniques -- Foreign Securities" and "-- Risks Associated With
'Emerging Markets' Securities."
The Portfolio will not invest in any illiquid securities except for Rule
144A securities. See "Additional Risks and Investment Techniques -- Illiquid
Securities" and "Non-Publicly Traded ("Restricted") Securities and Rule 144A
Securities."
BALANCED PORTFOLIO
The investment objective of the Portfolio is growth of capital and income
through investment in common stocks and fixed-income securities. Under normal
circumstances, the Advisor expects approximately 60% of the Portfolio's total
assets to be invested in equity securities and 40% of its total assets to be
invested in fixed-income securities. For this purpose, "equity securities"
includes warrants, preferred stock and securities convertible into
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<PAGE>
equity securities. The Portfolio will, under normal circumstances, invest at
least 25% of the Portfolio's total assets in fixed-income senior securities. For
purposes of this requirement, only the fixed-income component of a convertible
bond will be considered.
The Portfolio may invest in the types of fixed-income securities (including
preferred stock) rated at least B by S&P or by Moody's.
Up to one-third of the Portfolio's assets may be invested in foreign equity
or fixed-income securities. No more than 15% of the Portfolio's total assets
will be invested in the securities of issuers based in emerging markets. See
"Risk Factors and Certain Investment Techniques -- Foreign Securities" and
"--Risks Associated With 'Emerging Markets' Securities."
INCOME OPPORTUNITY PORTFOLIO
The investment objective of the Portfolio is high current income from
investment in a diversified portfolio of high yield, non-investment grade debt
securities of both U.S. and non-U.S. issuers and in mortgage related securities.
To the extent consistent with its primary objective, the Portfolio will also
seek Capital appreciation. The Portfolio intends to invest a portion of its
assets in high risk, low quality debt securities of both corporate and
government issuers, commonly referred to as "junk bonds," and regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation as well as
debt securities of issuers located in emerging market countries.
The Portfolio may invest in debt obligations (which may be denominated in
U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing authority)
or their agencies or instrumentalities, and debt obligations issued by U.S.
corporations denominated in non-U.S. currencies. These investments may include
debt obligations such as bonds (including sinking fund and callable bonds),
debentures and notes (including variable and floating rate instruments),
together with preferred stocks and zero coupon securities. The Portfolio may
also invest in loans, other direct debt obligations and loan participations.
Up to 100% of the assets of the Portfolio may be invested in foreign
fixed-income securities, but no more than 30% of the total assets of the
Portfolio may be invested in non-U.S. dollar-denominated securities. The
Portfolio may invest up to 65% of its total assets in debt securities of issuers
located in emerging market countries. See "Risk Factors and Certain Investment
Techniques -- Foreign Securities."
The Portfolio will generally invest in securities rated BBB or lower by S&P
or Baa or lower by Moody's or, if unrated, of comparable quality in the opinion
of the Portfolio Advisor. Securities rated BBB by S&P or Baa by Moody's possess
some speculative characteristics. See the Appendix hereto for a description of
Moody's and S&P ratings and "Risk Factors and Certain Investment Techniques --
Medium and Lower Rated ("Junk Bonds") and Unrated Securities" for a description
of certain risks associated with lower rated securities.
In addition to high yield corporate bonds, the Portfolio will also invest in
mortgage related securities which represent pools of mortgage loans assembled
for sale to investors by various governmental agencies, such as GNMA, and
government related organizations, such as FNMA and FHLMC, as well as by private
issuers, such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies.
The Portfolio may attempt to hedge against unfavorable changes in currency
exchange rates by engaging in forward currency transactions and trading currency
futures contracts and options thereon.
STANDBY INCOME PORTFOLIO
The investment objective of the Portfolio is high current income to the
extent consistent with relative stability of principal. Unlike money market
funds, however, the Portfolio does not attempt to maintain a constant $1.00 per
share net asset value.
Investments will be diversified among a broad range of money market
instruments including short term securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and repurchase agreements with
respect to those securities. The Portfolio may also invest in corporate bonds,
commercial paper, certificates of deposit ("CDs") and bankers' acceptances.
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Up to 50% of the Portfolio's total assets may be invested in U.S.
dollar-denominated Yankee Bonds or Eurodollar certificates of deposit issued by
U.S. banks. Yankee Bonds are instruments denominated in U.S. dollars which are
issued in the U.S. by foreign issuers. Eurodollar certificates of deposit are
dollar-denominated certificates of deposit which are issued in Europe. Up to 20%
of the Portfolio's total assets may be invested in fixed-income securities
denominated in foreign currencies. These securities include debt securities
issued by foreign banks, corporations, or other business organizations or by
foreign governments or governmental entities (including supra-national
organizations such as the World Bank). The value of securities denominated in
currencies other than the U.S. dollar will change in response to relative
currency values. See "Risk Factors and Certain Investment Techniques -- Foreign
Securities" and "-- Currency Exchange Rates."
The Portfolio invests only in investment grade securities (including foreign
securities) rated Baa or higher by Moody's or BBB or higher by S&P, or non-rated
securities which the Portfolio Advisor believes to be of comparable quality. The
Portfolio's dollar-weighted average maturity will normally be less than one
year. However, the Portfolio may invest in fixed-income corporate debt with
maturities of greater than twelve months; but, no individual security will have
a weighted average maturity (or average life in the case of mortgage backed
securities) of greater than five years. Bonds rated Baa by Moody's or BBB by S&P
have some speculative characteristics. See "Risk Factors and Certain Investment
Techniques."
RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES
FOREIGN SECURITIES. Investing in securities issued by foreign companies and
governments involves considerations and potential risks not typically associated
with investing in obligations issued by the U.S. government and domestic
corporations. Less information may be available about foreign companies than
about domestic companies and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions and
custody fees are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing contractual
obligations and could be subject to extended clearance and settlement periods.
RISKS ASSOCIATED WITH "EMERGING MARKETS" SECURITIES. "Emerging markets"
securities include the securities of issuers based in markets with developing
economies. These typically include countries where per capita GNP is less than
$8,355. Investments in securities of issuers based in underdeveloped countries
entail all of the risks of investing in foreign issuers outlined in this section
to a heightened degree. These heightened risks include: (i) expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) smaller markets for such securities and a low or nonexistent
volume of trading, resulting in a lack of liquidity and in price volatility;
(iii) certain national policies which may restrict a Portfolio's investment
opportunities including restrictions on investing in issuers in industries
deemed sensitive to relevant national interests; and (iv) in the case of Eastern
Europe, the absence of developed capital markets and legal structures governing
private or foreign investment and private property and the possibility that
recent favorable economic and political developments could be slowed or reversed
by unanticipated events.
In certain of these markets, the Communist Party, despite the fall of
Communist-dominated governments, continues to exercise a significant or, in some
countries, dominant role. So long as the situation continues or currently
controlling parties remain vulnerable to sudden removal from power, investments
in such countries will involve risk of nationalization, expropriation and
confiscatory taxation. The former communist governments of a number of Eastern
European countries expropriated large amounts of private property in the past,
and in many cases without adequate compensation, and there is no assurance that
such expropriation will not occur in the future. In the event of any such
expropriation, a Portfolio could lose a substantial portion of any investments
it has made in
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the affected countries. Finally, even though certain Eastern European currencies
may be convertible into U.S. dollars, the conversion rates may be artificial in
relation to the actual market values and may be adverse to Portfolio
shareholders.
CURRENCY EXCHANGE RATES. A Portfolio's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Portfolio's
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign
governments or central banks or by currency controls or political developments
in the United States or abroad.
MEDIUM AND LOWER RATED ("JUNK BONDS") AND UNRATED SECURITIES. Securities
rated in the fourth highest category by S&P or Moody's, although considered
investment grade, may possess speculative characteristics, and changes in
economic or other conditions are more likely to impair the ability of issuers of
these securities to make interest and principal payments than is the case with
respect to issuers of higher grade bonds.
Generally, medium or lower rated securities and unrated securities of
comparable quality, sometimes referred to as "junk bonds," offer a higher
current yield than is offered by higher rated securities, but also (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The yield of junk bonds will
fluctuate over time.
The market values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, medium and lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. Since the risk of
default is higher for lower rated debt securities, the Portfolio Advisor's
research and credit analysis are an especially important part of managing
securities of this type held by a Portfolio. In light of these risks, the Board
of Trustees has instructed the Portfolio Advisor, in evaluating the
creditworthiness of an issue, whether rated or unrated, to take various factors
into consideration, which may include, as applicable, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
medium and lower rated or unrated securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets may make it more difficult for the Portfolios to obtain accurate market
quotations for purposes of valuing their respective portfolios and calculating
their respective net asset values. Moreover, the lack of a liquid trading market
may restrict the availability of securities for the Portfolios to purchase and
may also have the effect of limiting the ability of a Portfolio to sell
securities at their fair value either to meet redemption requests or to respond
to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for shareholders. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by a Portfolio may decline relatively
proportionately more than a portfolio consisting of higher rated securities. If
a Portfolio experiences unexpected net redemptions, it may be forced to sell its
higher rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Portfolio and increasing the exposure of the Portfolio to
the risks of lower rated securities. Investments in zero coupon bonds may be
more speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
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Subsequent to its purchase by a Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Portfolio. Neither event will require sale of these securities by the
Portfolio, but the Portfolio Advisor will consider this event in its
determination of whether the Portfolio should continue to hold the securities.
ADVISOR AND PORTFOLIO ADVISORS
ADVISOR
Touchstone Advisors, Inc., located at 311 Pike Street, Cincinnati, Ohio
45202, serves as the investment advisor to the Trust and, accordingly, as
investment advisor to each of the Portfolios. The Advisor is a wholly-owned
subsidiary of IFS Financial Services, Inc., which is a wholly-owned subsidiary
of Western-Southern Life Assurance Company. Western-Southern Life Assurance
Company is a wholly-owned subsidiary of The Western and Southern Life Insurance
Company.
The Trust has entered into an investment advisory agreement (the "Advisory
Agreement") with the Advisor which, in turn, has entered into a portfolio
advisory agreement ("Portfolio Agreement") with each Portfolio Advisor selected
by the Advisor for the Portfolios. It is the Advisor's responsibility to select,
subject to the review and approval of the Board of Trustees of the Trust,
portfolio advisors who have distinguished themselves by able performance in
their respective areas of expertise in asset management and to review their
continued performance.
Subject to the supervision and direction of the Board of Trustees, the
Advisor provides investment management evaluation services principally by
performing initial due diligence on prospective Portfolio Advisors and
thereafter monitoring Portfolio Advisor performance through quantitative and
qualitative analysis as well as periodic in-person, telephonic and written
consultations with Portfolio Advisors. In evaluating prospective Portfolio
Advisors, the Advisor considers, among other factors, each Portfolio Advisor's
level of expertise; relative performance and consistency of performance over a
minimum period of five years; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. The Advisor has responsibility for communicating
performance expectations and evaluations to each Portfolio Advisor and
ultimately recommending to the Board of Trustees of the Trust whether the
Portfolio Advisor's contract should be renewed, modified or terminated. The
Advisor provides written reports to the Board of Trustees regarding the results
of its evaluation and monitoring functions. The Advisor is also responsible for
conducting all operations of the Portfolios except those operations
subcontracted to the Portfolio Advisors, or contracted by the Trust to the
custodian, transfer agent and administrator.
The Portfolio Advisor of each Portfolio makes all the day-to-day decisions
to buy or sell particular portfolio securities.
The Emerging Growth Portfolio will be managed by two Portfolio Advisors,
each managing a portion of the Portfolio's assets. The Advisor will allocate
varying percentages of the assets of the Portfolio to each Portfolio Advisor,
which percentages will be adjusted from time to time by the Advisor based on its
evaluation of each Portfolio Advisor.
The Balanced Portfolio will also be managed by two Portfolio Advisors. One
Portfolio Advisor will manage the Portfolio's equity investments, while the
second will manage the Portfolio's fixed-income and cash equivalents
investments. The Advisor may adjust from time to time the portion of the
Balanced Portfolio's assets invested in equities and fixed-income securities,
although the Portfolio is expected to remain relatively static in its investment
allocation between equities and fixed-income securities.
Each Portfolio pays the Advisor a fee for its services that is computed
daily and paid monthly at an annual rate equal to the percentage of the value of
the average daily net assets of the Portfolio as follows: Emerging Growth
Portfolio -- 0.80%; International Equity Portfolio -- 0.95%; Balanced Portfolio
- -- 0.70%; Income Opportunity Portfolio -- 0.65%; and Standby Income Portfolio --
0.25%. The investment advisory fee paid by the International
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Equity and Emerging Growth Portfolios is higher than that of most mutual funds.
The Advisor in turn pays each Portfolio Advisor a fee for its services provided
to the Portfolio that is computed daily and paid monthly at an annual rate equal
to the percentage specified below of the value of the average daily net assets
of the Portfolio:
<TABLE>
<S> <C>
EMERGING GROWTH PORTFOLIO
David L. Babson & Company, Inc. 0.50%
Westfield Capital Management 0.45% of the first $10 million
Company, Inc. 0.40% of the next $40 million
0.35% thereafter
INTERNATIONAL EQUITY PORTFOLIO
BEA Associates 0.85% on the first $30 million
0.80% on the next $20 million
0.70% on the next $20 million
0.60% thereafter
BALANCED PORTFOLIO
Harbor Capital Management 0.50% of the first $75 million
Company Inc. 0.40% of the next $75 million
0.30% thereafter
Morgan Grenfell Capital 0.35% on the first $40 million
Management, Inc. 0.30% thereafter
INCOME OPPORTUNITY PORTFOLIO
Alliance Capital Management L.P. 0.40% on the first $50 million
0.35% on the next $20 million
0.30% on the next $20 million
0.25% thereafter
STANDBY INCOME PORTFOLIO
Fort Washington Investment 0.15%
Advisors, Inc.
</TABLE>
Fort Washington Investment Advisors, Inc. is an affiliate of the Advisor,
and shareholders should be aware that the Advisor may be subject to a conflict
of interest when making decisions regarding the retention and compensation of
Fort Washington and may be subject to such a conflict concerning other
particular Portfolio Advisors. However, the Advisor's decisions, including the
identity of a Portfolio Advisor and the specific amount of the Advisor's
compensation to be paid to the Portfolio Advisor, are subject to review and
approval by a majority of the Board of Trustees and separately by a majority of
such Trustees who are not affiliated with the Advisor or any of its affiliates.
CONSULTANT TO THE INVESTMENT ADVISOR
RogersCasey Consulting, Inc. ("RogersCasey") located at One Parklands Drive,
Darien, Connecticut 06829, has been engaged in the business of rendering
portfolio advisor evaluations since 1976. The staff at RogersCasey is
experienced in acting as investment consultants and in developing, implementing
and managing multiple portfolio advisor programs. RogersCasey provides asset
management consulting services to various institutional and individual clients
and provides the Advisor with investment consulting services with respect to
development, implementation and management of the Trust's multiple portfolio
manager program. RogersCasey is employed by and its fees are paid by the Advisor
(not the Trust). As consultant, RogersCasey provides research concerning
registered investment advisors to be retained by the Advisor as Portfolio
Advisors, monitors and assists the Advisor with the periodic reevaluation of
existing Portfolio Advisors and makes periodic reports to the Advisor and the
Board of Trustees.
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PORTFOLIO ADVISORS
Subject to the supervision and direction of the Advisor and, ultimately, the
Board of Trustees, each Portfolio Advisor manages the securities held by the
Portfolio it serves in accordance with the Portfolio's stated investment
objective and policies, making investment decisions for the Portfolio and
placing orders to purchase and sell securities on behalf of the Portfolio.
The following sets forth certain information about each of the Portfolio
Advisors. The individuals employed by the Portfolio Advisor who are primarily
responsible for the day-to-day investment management of the Portfolio are named
below.
DAVID L. BABSON & COMPANY, INC. ("Babson") serves as one of two Portfolio
Advisors to EMERGING GROWTH PORTFOLIO. As of June 30, 1995, Babson became a
separate and distinct indirect subsidiary of MassMutual Holding Company. Babson
has been registered as an investment advisor under the Investment Advisers Act
of 1940, as amended, ("the Advisers Act"), since 1940. Babson provides
investment advisory services to individual and institutional clients. As of
December 31, 1995, Babson and affiliates had assets under management of $12.6
billion. Eugene H. Gardner, Jr., Peter C. Schliemann and Lance F. James are
primarily responsible for the day-to-day investment management of the portion of
the Portfolio's assets allocated to Babson by the Advisor. Mr. Gardner has been
with Babson since 1990; Mr. Schliemann has been with Babson since 1979; and Mr.
James has been with the firm since 1986. Babson's principal executive offices
are located at One Memorial Drive, Cambridge, Massachusetts 02142-1300.
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC. ("Westfield") serves as the
second Portfolio Advisor to EMERGING GROWTH PORTFOLIO. Westfield is owned 100%
by the active members of its professional staff. Westfield has been registered
as an investment advisor under the Advisers Act since 1989. Westfield provides
investment advisory services to individual and institutional clients. As of
December 31, 1995, Westfield had assets under management of $159 million.
Michael J. Chapman is primarily responsible for the day-to-day investment
management of the portion of the Portfolio's assets allocated to Westfield by
the Advisor. Mr. Chapman (CFA) has been with Westfield since 1990, after 9 years
with Eaton Vance Corporation in Boston, Massachusetts. Westfield's principal
executive offices are located at One Financial Center, Boston, Massachusetts
02111.
BEA ASSOCIATES serves as Portfolio Advisor to INTERNATIONAL EQUITY
PORTFOLIO. BEA Associates is a New York general partnership and is owned 80% by
Credit Swisse Capital Corporation and 20% by CS Advisors Corp., a New York
corporation which is a subsidiary of CS Capital. BEA Associates has been
registered as an investment advisor under the Advisers Act since 1968. BEA
Associates provides investment advisory services to individual and institutional
clients. As of December 31, 1995, BEA Associates had assets under management of
$27.4 billion. The Portfolio is managed using a team approach co-headed by
William Sterling and Emilio Bassini. Regional portfolio managers include Stephen
Swift, Steven Bleiberg and Richard Watt. The Managers have an average of 17
years experience in the industry, ranging from 13 years to 24 years. BEA
Associates' principal executive offices are located at 153 East 53rd Street, New
York, New York 10022.
HARBOR CAPITAL MANAGEMENT COMPANY, INC. ("Harbor") serves as Portfolio
Advisor to the equity portion of BALANCED PORTFOLIO. Harbor is 85% owned by the
employees of the firm and 15% by Baer Holding Limited of Zurich. Harbor has been
registered as an investment advisor under the Advisers Act since 1979. Harbor
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Harbor had assets under management of $3.6 billion.
Alan S. Fields and Ben Niedermeyer are primarily responsible for the day-to-day
investment management of the equity portion of the Portfolio. Mr. Fields has
been a Managing Director at Harbor since 1979 and Chairman of the Executive
Committee since 1993. Mr. Niedermeyer (CFA) has been a Vice President and
portfolio manager with Harbor since 1992. Harbor's principal executive offices
are located at 125 High Street, 26th Floor, Boston, Massachusetts 02110.
MORGAN GRENFELL CAPITAL MANAGEMENT, INC. ("Morgan Grenfell") serves as
Portfolio Advisor to the fixed-income portion of BALANCED PORTFOLIO. Morgan
Grenfell is owned 100% by Deutsche Bank. Morgan Grenfell has been registered as
an investment advisor under the Advisers Act since 1985. Morgan Grenfell
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Morgan Grenfell had assets under
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management of $7.9 billion. David W. Baldt is primarily responsible for the
day-to-day investment management of the fixed-income portion of the Portfolio.
Mr. Baldt (CFA) joined Morgan Grenfell in 1989. Morgan Grenfell's principal
executive offices are located at 885 Third Avenue, New York, New York 10022.
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance") serves as Portfolio Advisor to
INCOME OPPORTUNITY PORTFOLIO. Alliance is owned 8% by its employees and 59% by
wholly-owned subsidiaries of The Equitable Life Assurance Society of the United
States. The balance of its units are held by the public. Alliance has been
registered as an investment advisor under the Advisers Act since 1971. Alliance
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Alliance had assets under management of $146.5 billion.
Wayne Lyski and Vicki Fuller are primarily responsible for the day-to-day
investment management of the Portfolio. Mr. Lyski has been with Alliance since
1983 and has 22 years of investment experience. Ms. Fuller (CPA) has been with
Alliance, and its predecessors, since 1985 and has 15 years of investment
experience. Alliance's principal executive offices are located at 1345 Avenue of
the Americas, New York, New York 10105.
FORT WASHINGTON INVESTMENT ADVISORS, INC. ("Fort Washington") serves as
Portfolio Advisor to the STANDBY INCOME PORTFOLIO. Fort Washington is owned by
The Western and Southern Life Insurance Company. Fort Washington has been
registered as an investment advisor under the Advisers Act since 1990. Fort
Washington provides investment advisory services to individuals and
institutional clients. As of December 31, 1995, Fort Washington had assets under
management of $7.2 billion. Christopher J. Mahony is primarily responsible for
the day-to- day investment management of the Standby Income Portfolio. Mr.
Mahony joined Fort Washington in 1994 after eight years of investment experience
with Neuberger & Berman. Fort Washington's principal executive offices are
located at 420 East Fourth Street, Cincinnati, Ohio 45202.
ADDITIONAL RISKS AND INVESTMENT TECHNIQUES
The following are descriptions of types of securities invested in by the
Portfolios, certain investment techniques employed by those Portfolios and risks
associated with utilizing either the securities or the investment technique.
DERIVATIVES. The Portfolios may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset, or market index. Some "derivatives" such as certain
mortgage-related and other asset-backed securities are in many respects like any
other investment, although they may be more volatile or less liquid than more
traditional debt securities. There are, in fact, many different types of
derivatives and many different ways to use them. There is a range of risks
associated with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and as a
low cost method of gaining exposure to a particular securities market without
investing directly in those securities. However, some derivatives are used for
leverage, which tends to magnify the effects of an instrument's price changes as
market conditions change. Leverage involves the use of a small amount of money
to control a large amount of financial assets, and can in some circumstances,
lead to significant losses. A Portfolio Advisor will use derivatives only in
circumstances where the Portfolio Advisor believes they offer the most economic
means of improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be achieved
using only traditional investment securities or to acquire exposure to changes
in the value of assets or indexes that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative. A description of the derivatives that the Portfolios may use and
some of their associated risks is found below.
ADRS, EDRS AND CDRS. ADRs are U.S. dollar-denominated receipts typically
issued by domestic banks or trust companies that represent the deposit with
those entities of securities of a foreign issuer. ADRs are publicly traded on
exchanges or over-the-counter in the United States. European Depositary Receipts
("EDRs"), which are sometimes referred to as Continental Depositary Receipts
("CDRs"), may also be purchased by the Portfolios. EDRs and CDRs are generally
issued by foreign banks and evidence ownership of either foreign or domestic
securities. Certain institutions issuing ADRs or EDRs may not be sponsored by
the issuer of the underlying foreign securities. A non-sponsored depository may
not provide the same shareholder information that a sponsored depository is
required to provide under its contractual arrangements with the issuer of the
underlying foreign securities.
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FIXED-INCOME AND OTHER DEBT INSTRUMENT SECURITIES. Fixed-income and other
debt instrument securities include all bonds, high yield or "junk" bonds,
municipal bonds, debentures, U.S. Government securities, mortgage related
securities including government stripped mortgage related securities, zero
coupon securities and custodial receipts. The market value of fixed-income
obligations of the Portfolios will be affected by general changes in interest
rates which will result in increases or decreases in the value of the
obligations held by the Portfolios. The market value of the obligations held by
a Portfolio can be expected to vary inversely to changes in prevailing interest
rates. Shareholders also should recognize that, in periods of declining interest
rates, a Portfolio's yield will tend to be somewhat higher than prevailing
market rates and, in periods of rising interest rates, a Portfolio's yield will
tend to be somewhat lower. Also, when interest rates are falling, the inflow of
net new money to a Portfolio from the continuous sale of its shares will tend to
be invested in instruments producing lower yields than the balance of its
portfolio, thereby reducing the Portfolio's current yield. In periods of rising
interest rates, the opposite can be expected to occur. In addition, securities
in which a Portfolio may invest may not yield as high a level of current income
as might be achieved by investing in securities with less liquidity, less
creditworthiness or longer maturities.
Ratings made available by S&P and Moody's are relative and subjective and
are not absolute standards of quality. Although these ratings are initial
criteria for selection of portfolio investments, a Portfolio Advisor also will
make its own evaluation of these securities. Among the factors that will be
considered are the long term ability of the issuers to pay principal and
interest and general economic trends.
Fixed-income securities may be purchased on a when-issued or
delayed-delivery basis. See "When-Issued and Delayed-Delivery Securities" below.
U.S. GOVERNMENT SECURITIES. Each Portfolio may invest in U.S. Government
securities, which are obligations issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities. Some U.S. Government securities,
such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others are supported by: (i) the
right of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Home Loan Banks; (ii) the discretionary authority of the U.S. government
to purchase the agency's obligations, such as securities of the FNMA; or (iii)
only the credit of the issuer, such as securities of the Student Loan Marketing
Association. No assurance can be given that the U.S. Government will provide
financial support in the future to U.S. Government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities include: (i) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation interests in loans made to foreign
governments or other entities that are so guaranteed. The secondary market for
certain of these participation interests is limited and, therefore, may be
regarded as illiquid.
MORTGAGE RELATED SECURITIES. Each Portfolio may invest in mortgage related
securities. There are several risks associated with mortgage related securities
generally. One is that the monthly cash inflow from the underlying loans may not
be sufficient to meet the monthly payment requirements of the mortgage related
security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten
the term of the underlying mortgage pool for a mortgage related security. Early
returns of principal will affect the average life of the mortgage related
securities remaining in a Portfolio. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Portfolio. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Portfolio will have to reinvest the proceeds of prepayments at
lower interest rates than those at which the assets were previously invested. If
this occurs, a Portfolio's yield will correspondingly decline. Thus, mortgage
related securities may have less potential for capital appreciation in periods
of falling interest rates than other fixed-income securities of
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comparable maturity, although these securities may have a comparable risk of
decline in market value in periods of rising interest rates. To the extent that
a Portfolio purchases mortgage related securities at a premium, unscheduled
prepayments, which are made at par, will result in a loss equal to any
unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which a Portfolio invests, the investment may be subject to
a greater or lesser risk of prepayment than other types of mortgage related
securities.
Mortgage related securities may not be readily marketable. To the extent any
of these securities are not readily marketable in the judgment of the Portfolio
Advisor, the investment restriction limiting a Portfolio's investment in
illiquid instruments to not more than 15% of the value of its net assets will
apply.
STRIPPED MORTGAGE RELATED SECURITIES. These securities are either issued
and guaranteed, or privately-issued but collateralized by securities issued, by
GNMA, FNMA or FHLMC. These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage related certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the stripped
mortgage related securities represent all or part of the beneficial interest in
pools of mortgage loans. The Portfolio will invest in stripped mortgage related
securities in order to enhance yield or to benefit from anticipated appreciation
in value of the securities at times when its Portfolio Advisor believes that
interest rates will remain stable or increase. In periods of rising interest
rates, the expected increase in the value of stripped mortgage related
securities may offset all or a portion of any decline in value of the securities
held by the Portfolio.
Investing in stripped mortgage related securities involves the risks
normally associated with investing in mortgage related securities. See "Mortgage
Related Securities" above. In addition, the yields on stripped mortgage related
securities are extremely sensitive to the prepayment experience on the mortgage
loans underlying the certificates collateralizing the securities. If a decline
in the level of prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will be
accelerated, thereby reducing the yield to maturity on interest-only stripped
mortgage related securities and increasing the yield to maturity on
principal-only stripped mortgage related securities. Sufficiently high
prepayment rates could result in a Portfolio not fully recovering its initial
investment in an interest-only stripped mortgage related security. Under current
market conditions, the Portfolio expects that investments in stripped mortgage
related securities will consist primarily of interest-only securities. Stripped
mortgage related securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that the Portfolio will be able to effect a trade of a stripped mortgage related
security at a time when it wishes to do so. The Portfolio will acquire stripped
mortgage related securities only if a secondary market for the securities exists
at the time of acquisition. Except for stripped mortgage related securities
based on fixed rate FNMA and FHLMC mortgage certificates that meet certain
liquidity criteria established by the Board of Trustees, the Portfolios will
treat government stripped mortgage related securities and privately-issued
mortgage related securities as illiquid and will limit its investments in these
securities, together with other illiquid investments, to not more than 15% of
net assets.
ZERO COUPON SECURITIES. Zero coupon U.S. Government securities are debt
obligations that are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the security will
accrue and compound over the period until maturity or the particular interest
payment date at a rate of interest reflecting the market rate of the security at
the time of issuance. Zero coupon securities do not require the periodic payment
of interest. These investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government securities
that make regular payments of interest. A Portfolio accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations, in which case the Portfolio will forego the purchase
of additional income producing assets with these funds. Zero coupon securities
include STRIPS that is, securities underwritten by securities dealers or banks
that evidence ownership of future interest
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payments, principal payments or both on certain notes or bonds issued by the
U.S. government, its agencies, authorities or instrumentalities. They also
include Coupons Under Book Entry System ("CUBES"), which are component parts of
U.S. Treasury bonds and represent scheduled interest and principal payments on
the bonds.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. These are instruments in amounts
owed by a corporate, governmental or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables) or to other parties. Direct debt instruments purchased by a
Portfolio may have a maturity of any number of days or years, may be secured or
unsecured, and may be of any credit quality. Direct debt instruments involve the
risk of loss in the case of default or insolvency of the borrower. Direct debt
instruments may offer less legal protection to a Portfolio in the event of fraud
or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments also may include standby financing commitments that obligate a
Portfolio to supply additional cash to the borrower on demand at the time when a
Portfolio would not have otherwise done so, even if the borrower's condition
makes it unlikely that the amount will ever be repaid.
These instruments will be considered illiquid securities and so will be
limited, along with a Portfolio's other illiquid securities, to not more than
15% of the Portfolio's net assets.
SWAP AGREEMENTS. To help enhance the value of its portfolio or manage its
exposure to different types of investments, the Portfolios may enter into
interest rate, currency and mortgage swap agreements and may purchase and sell
interest rate "caps," "floors" and "collars."
In a typical interest rate swap agreement, one party agrees to make regular
payments equal to a floating interest rate on a specified amount (the "notional
principal amount") in return for payments equal to a fixed interest rate on the
same amount for a specified period. If a swap agreement provides for payment in
different currencies, the parties may also agree to exchange the notional
principal amount. Mortgage swap agreements are similar to interest rate swap
agreements, except that notional principal amount is tied to a reference pool of
mortgages.
In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile; depending
on how they are used, they may have a considerable impact on the Portfolio's
performance. Swap agreements involve risks depending upon the other party's
creditworthiness and ability to perform, as judged by the Portfolio Advisor, as
well as the Portfolio's ability to terminate its swap agreements or reduce its
exposure through offsetting transactions.
All swap agreements are considered as illiquid securities and, therefore,
will be limited, along with all of a Portfolio's other illiquid securities, to
15% of that Portfolio's net assets.
CUSTODIAL RECEIPTS. Custodial receipts or certificates, such as
Certificates of Accrual on Treasury Securities ("CATS"), Treasury Investors
Growth Receipts ("TIGRs") and Financial Corporation certificates ("FICO
Strips"), are securities underwritten by securities dealers or banks that
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies, authorities
or instrumentalities. The underwriters of these certificates or receipts
purchase a U.S. Government security and deposit the security in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon U.S. Government securities, described above. Although
typically under the terms of a custodial receipt a Portfolio is authorized to
assert its rights directly against the issuer of the underlying obligation, the
Portfolio may be required to assert through the custodian bank such rights as
may exist against the underlying issuer. Thus, if the underlying issuer fails to
pay principal and/or interest when due, a Portfolio may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Portfolio had
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purchased a direct obligation of the issuer. In addition, if the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
respect of any taxes paid.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, each Portfolio may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. A Portfolio will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Portfolio
may include securities purchased on a "when, as and if issued" basis under which
the issuance of the securities depends on the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization or debt restructuring.
Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
REPURCHASE AGREEMENTS. Each of the Portfolios may engage in repurchase
agreement transactions. Under the terms of a typical repurchase agreement, a
Portfolio would acquire an underlying debt obligation for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding period. A Portfolio may
enter into repurchase agreements with respect to U.S. Government securities with
member banks of the Federal Reserve System and certain non-bank dealers approved
by the Board of Trustees. Under each repurchase agreement, the selling
institution is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. The Portfolio
Advisor, acting under the supervision of the Advisor and the Board of Trustees,
reviews on an ongoing basis the value of the collateral and the creditworthiness
of those non-bank dealers with whom the Portfolio enters into repurchase
agreements. In entering into a repurchase agreement, a Portfolio bears a risk of
loss in the event that the other party to the transaction defaults on its
obligations and the Portfolio is delayed or prevented from exercising its rights
to dispose of the underlying securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or a part of
the income from the agreement. Repurchase agreements are considered to be
collateralized loans under the Investment Company Act of 1940, as amended (the
"1940 Act").
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS. The Portfolios
may enter into reverse repurchase agreements and forward roll transactions. In a
reverse repurchase agreement the Portfolio agrees to sell portfolio securities
to financial institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price. Forward roll transactions are
equivalent to reverse repurchase agreements but involve mortgage backed
securities and involve a repurchase of a substantially similar security. At the
time the Portfolio enters into a reverse repurchase agreement or forward roll
transaction it will place in a segregated custodial account cash, U.S.
Government securities or high grade, liquid debt obligations having a value
equal to the repurchase price, including accrued interest. Reverse repurchase
agreements and forward roll transactions involve the risk that the market value
of the securities sold by the Portfolio may decline below the repurchase price
of the securities. Reverse repurchase agreements and forward roll transactions
are considered to be borrowings by a Portfolio for purposes of the limitations
described in "Certain Investment Restrictions" below and in the Trust's
Statement of Additional Information.
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LENDING PORTFOLIO SECURITIES. To generate income for the purpose of helping
to meet its operating expenses, each Portfolio may lend securities to brokers,
dealers and other financial organizations. These loans, if and when made, may
not exceed 30% of a Portfolio's assets taken at value. A Portfolio's loans of
securities will be collateralized by cash, letters of credit or U.S. Government
securities. The cash or instruments collateralizing a Portfolio's loans of
securities will be maintained at all times in a segregated account with the
Portfolio's custodian, or with a designated subcustodian, in an amount at least
equal to the current market value of the loaned securities. In lending
securities to brokers, dealers and other financial organizations, a Portfolio is
subject to risks, which, like those associated with other extensions of credit,
include delays in recovery and possible loss of rights in the collateral should
the borrower fail financially.
ILLIQUID SECURITIES. No Portfolio may invest more than 15% of its net
assets in securities which are illiquid or otherwise not readily marketable. The
Trustees of the Trust have adopted a policy that the International Equity
Portfolio may not invest in illiquid securities other than Rule 144A securities.
If a security becomes illiquid after purchase by the Portfolio, the Portfolio
will normally sell the security unless to do so would not be in the best
interests of shareholders.
NON-PUBLICLY TRADED ("RESTRICTED") SECURITIES AND RULE 144A
SECURITIES. Each Portfolio may purchase securities in the United States that
are not registered for sale under federal securities laws but which can be
resold to institutions under SEC Rule 144A or under an exemption from such laws.
Provided that a dealer or institutional trading market in such securities
exists, these restricted securities or Rule 144A securities are treated as
exempt from the Portfolio's 15% limit on illiquid securities. The Board of
Trustees of the Trust, with advice and information from the respective Portfolio
Advisor, will determine the liquidity of restricted securities or Rule 144A
securities by looking at factors such as trading activity and the availability
of reliable price information and, through reports from such Portfolio Advisor,
the Board of Trustees of the Trust will monitor trading activity in restricted
securities. Because Rule 144A is relatively new, it is not possible to predict
how the markets for Rule 144A securities will develop. If institutional trading
in restricted securities or Rule 144A securities were to decline, a Portfolio's
illiquidity could be increased and the Portfolio could be adversely affected.
No Portfolio will invest more than 10% of its total assets in restricted
securities (including Rule 144A securities).
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when
the Portfolio Advisor of a Portfolio believes, in consultation with the Advisor,
that pursuing the Portfolio's basic investment strategy may be inconsistent with
the best interests of its shareholders, the Portfolio may invest its assets
without limit in the following money market instruments: U.S. Government
securities (including those purchased in the form of custodial receipts),
repurchase agreements, certificates of deposit and bankers' acceptances issued
by banks or savings and loan associations having assets of at least $500 million
as of the end of their most recent fiscal year and high quality commercial
paper.
In addition, for the same purposes the Portfolio Advisor of International
Equity Portfolio may invest without limit in obligations issued or guaranteed by
foreign governments or by any of their political subdivisions, authorities,
agencies or instrumentalities that are rated at least AA by S&P or Aa by Moody's
or, if unrated, are determined by the Portfolio Advisor to be of equivalent
quality. Each Portfolio also may hold a portion of its assets in money market
instruments or cash in amounts designed to pay expenses, to meet anticipated
redemptions or pending investments in accordance with its objectives and
policies. Any temporary investments may be purchased on a when-issued basis.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio may enter into
futures contracts and purchase and write (sell) options on these contracts,
including but not limited to interest rate, securities index and foreign
currency futures contracts and put and call options on these futures contracts.
These contracts will be entered into only upon the concurrence of the Portfolio
Advisor that such contracts are necessary or appropriate in the management of
the Portfolio's assets. These contracts will be entered into on exchanges
designated by the Commodity Futures Trading Commission ("CFTC") or, consistent
with CFTC regulations, on foreign exchanges. These transactions may be entered
into for bona fide hedging and other permissible risk management purposes
including protecting against anticipated changes in the value of securities a
Portfolio intends to purchase.
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No Portfolio will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition, no
Portfolio will buy futures or write puts whose underlying value exceeds 25% of
its total assets, and no Portfolio will buy calls with a value exceeding 5% of
its total assets.
A Portfolio will not enter into futures contracts and related options for
which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Portfolio's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Portfolio may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the
Portfolio's futures and options positions may not prove to be perfectly or even
highly correlated with changes in the value of its portfolio securities.
Successful use of futures and related options is subject to a Portfolio
Advisor's ability to predict correctly movements in the direction of the
securities markets generally, which ability may require different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures and options contracts may only be closed out by entering into
offsetting transactions on the exchange where the position was entered into (or
a linked exchange), and as a result of daily price fluctuation limits there can
be no assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Portfolio may realize
a loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Portfolio may not
be able to close a futures or options position without incurring a loss in the
event of adverse price movements.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio that may invest in foreign
securities may write covered put and call options and purchase put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of portfolio securities and against increases in the dollar
cost of securities to be acquired. The Portfolio may use options on currency to
cross-hedge, which involves writing or purchasing options on one currency to
hedge against changes in exchange rates for a different, but related currency.
As with other types of options, however, the writing of an option on foreign
currency will constitute only a partial hedge up to the amount of the premium
received, and the Portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the event of exchange rate movements
adverse to the Portfolio's position, it may not forfeit the entire amount of the
premium plus related transaction costs. In addition, the Portfolio may purchase
call options on currency when the Portfolio Advisor anticipates that the
currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-rated currency options. The Portfolio's
ability to terminate over-the-counter options ("OTC Options") will be more
limited than the exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
OPTIONS ON STOCK. Each Portfolio may write and purchase options on stocks.
A call option gives the purchaser of the option the right to buy, and obligates
the writer to sell, the underlying stock at the exercise price at any time
during the option period. Similarly, a put option gives the purchaser of the
option the right to sell, and obligates the writer to buy the underlying stock
at the exercise price at any time during the option period. A covered call
option with respect to which the Portfolio owns the underlying stock sold by the
Portfolio exposes the Portfolio during the
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term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying stock or to possible continued holding of a
stock which might otherwise have been sold to protect against depreciation in
the market price of the stock. A covered put option sold by the Portfolio
exposes the Portfolio during the term of the option to a decline in price of the
underlying stock.
To close out a position when writing covered options, the Portfolio may make
a "closing purchase transaction" which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased.
OPTIONS ON SECURITIES INDEXES. Each Portfolio may purchase and write put
and call options on securities indexes listed on domestic and, in the case of
those Portfolios which may invest in foreign securities, on foreign exchanges. A
securities index fluctuates with changes in the market values of the securities
included in the index.
Options on securities indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in securities
index options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
To the extent permitted by federal or state law, the International Equity
Portfolio may invest in options on foreign stock indexes in lieu of direct
investment in foreign securities. The Portfolio may also use foreign stock index
options for hedging purposes.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in price of a particular security. Accordingly, successful use by
a Portfolio of options on security indexes will be subject to the Portfolio
Advisor's ability to predict correctly movement in the direction of that
securities market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities.
FORWARD CURRENCY CONTRACTS. Each Portfolio that may invest in foreign
currency-denominated securities may hold currencies to meet settlement
requirements for foreign securities and may engage in currency exchange
transactions in order to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Portfolio's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another, for example, to exchange a certain amount of U.S. dollars for a
certain amount of French francs at a future date. The date (which may be any
agreed-upon fixed number of days in the future), the amount of currency to be
exchanged and the price at which the exchange will take place will be negotiated
with a currency trader and fixed for the term of the contract at the time that
the Portfolio enters into the contract.
In hedging specific portfolio positions, a Portfolio may enter into a
forward contract with respect to either the currency in which the positions are
denominated or another currency deemed appropriate by the Portfolio Advisor. The
amount the Portfolio may invest in forward currency contracts is limited to the
amount of the Portfolio's aggregate investments in foreign currencies. Risks
associated with entering into forward currency contracts include the possibility
that the market for forward currency contracts may be limited with respect to
certain currencies and,
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upon a contract's maturity, the inability of a Portfolio to negotiate with the
dealer to enter into an offsetting transaction. Forward currency contracts may
be closed out only by the parties entering into an offsetting contract. In
addition, the correlation between movements in the prices of those contracts and
movements in the price of the currency hedged or used for cover will not be
perfect. There is no assurance that an active forward currency contract market
will always exist. These factors will restrict a Portfolio's ability to hedge
against the risk of devaluation of currencies in which a Portfolio holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular security. See the Statement of Additional
Information for further information concerning forward currency contracts.
ASSET COVERAGE. To assure that a Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery transactions, forward
currency contracts and swap transactions, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required under
applicable SEC interpretations, either by owning the underlying securities or by
establishing a segregated account with the Trust's custodian containing high
grade liquid debt securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.
CERTAIN INVESTMENT RESTRICTIONS
The Trust, on behalf of each Portfolio, has adopted certain investment
restrictions that are enumerated in detail in the Statement of Additional
Information. Among other restrictions, each Portfolio may not, with respect to
75% of its total assets taken at market value, invest more than 5% of its total
assets in the securities of any one issuer, except U.S. Government securities,
or acquire more than 10% of any class of the outstanding voting securities of
any one issuer. In addition, no Portfolio may invest more than 25% of its total
assets in securities of issuers in any one industry. Each Portfolio may borrow
money as a temporary measure from banks in an aggregate amount not exceeding
one-third of the value of the Portfolio's total assets to meet redemptions and
for other temporary or emergency purposes not involving leveraging. Reverse
repurchase agreements and forward roll transactions involving mortgage related
securities will be aggregated with bank borrowings for purposes of this
calculation. No Portfolio may purchase securities while borrowings exceed 5% of
the value of the Portfolio's total assets. No Portfolio will invest more than
15% of the value of its net assets in securities that are illiquid, including
certain government stripped mortgage related securities, repurchase agreements
maturing in more than seven days and that cannot be liquidated prior to
maturity, and securities that are illiquid by virtue of the absence of a readily
available market. Securities that have legal or contractual restrictions on
resale but have a readily available market, such as certain Rule 144A
securities, are deemed not illiquid for this purpose. No Portfolio may invest
more than 10% of its assets in restricted securities (excluding Rule 144A
securities). See "Risk Factors and Certain Investment Techniques -- Illiquid
Securities" and "-- Non-Publicly Traded ("Restricted") Securities and Rule 144A
Securities."
PORTFOLIO TURNOVER
No Portfolio, other than the Standby Income Portfolio will trade in
securities for short term profits but, when circumstances warrant, securities
may be sold without regard to the length of time held. An annual turnover rate
of 100% would occur when all the securities held by the Portfolio are replaced
one time during a period of one year. For the year ended December 31, 1995, the
annual turnover rate of each Portfolio is as follows: Emerging Growth Portfolio
- -- 101%; International Equity Portfolio -- 86%; Balanced Portfolio -- 124%
(equity investments -- 110%, fixed-income investments -- 145%); Income
Opportunity Portfolio -- 104%; and Standby Income Portfolio -- 159%. A portfolio
turnover rate of approximately 100% may be higher than those of other funds. A
Portfolio with a higher portfolio turnover rate will have higher brokerage
transaction expenses and a higher incidence of realized capital gains or losses.
See "Taxation" and "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
OPENING AN ACCOUNT
SINCE YOU MAY NOT PURCHASE A PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ
THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN
INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY CONTRACT.
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SHARE PRICE
The term "net asset value" or NAV refers to the worth of one share. The NAV
is computed by adding the value of each Portfolio's investments, cash and other
assets, deducting liabilities and dividing the result by the number of shares
outstanding. Each Portfolio is open for business each day the New York Stock
Exchange Inc. ("NYSE") is open. The price of one share is its NAV which is
normally calculated at the close of regular trading on the NYSE (currently 4:00
p.m. New York time).
INVESTMENTS
Investments in a Portfolio may be made only through separate accounts
established and maintained by insurance companies for the purpose of funding
variable contracts. Please refer to the prospectus of your insurance company's
separate account for information on how to invest in a variable annuity
contract, and how to direct your investments into subaccounts which invest in
the corresponding Portfolios.
Investments by separate accounts in each Portfolio are expressed in terms of
full and fractional shares of each Portfolio. All investments in the Portfolios
are credited to an insurance company's separate account immediately upon
acceptance of the investment by a Portfolio. Investments will be processed at
the NAV calculated after an order is received and accepted by a Portfolio.
The offering of shares of any Portfolio may be suspended for a period of
time and each Portfolio reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in the Advisor's opinion, they are of
a size that would disrupt the management of a Portfolio.
REDEMPTIONS
Shares of any Portfolio may be redeemed by the insurance company to make
benefit or surrender payments on any business day. Redemptions are effected at
the per share NAV next determined after receipt of the redemption request has
been accepted by a Portfolio. Redemption proceeds will normally be wired to the
insurance company on the next business day after receipt of the redemption
instructions by a Portfolio but in no event later than 7 days following receipt
of instructions. Each Portfolio may suspend redemptions or postpone payment
dates on days when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
NET ASSET VALUE
Each Portfolio's net asset value per share is calculated on each day, Monday
through Friday, except on days on which the NYSE is closed. Net asset value per
share is determined as of the close of regular trading on the NYSE (currently
4:00 p.m. New York time) and is computed by dividing the value of a Portfolio's
net assets by the total number of its shares outstanding. The net asset value of
each Portfolio is determined as of the close of regular trading on the NYSE on
each day on which the NYSE is open for trading, by deducting the amount of the
Portfolio's liabilities from the value of its assets.
Generally, a Portfolio's investments are valued at market value or, in the
absence of a market value, at fair value as determined by or under the direction
of the Board of Trustees.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges, except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees. A security that is primarily traded on a
domestic or foreign stock exchange is valued at the last sale price on that
exchange or, if no sales occurred during the day, at the current quoted bid
price. All short term dollar-denominated investments that mature in 60 days or
less are valued on the basis of amortized cost (which involves valuing an
investment at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the investment) which the Board of
Trustees has determined represents fair value. An option that is written by a
Portfolio is generally valued at the last sale price or, in the absence of the
last sale price, the last offer price. An option that is purchased by a
Portfolio is generally valued at the last sale price or, in the absence of the
last sale price, the last bid price. The value of a futures contract is equal to
the unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price
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for a like contract on the valuation date of the futures contract. A settlement
price may not be used if the market makes the maximum price change in a single
trading session permitted by an exchange (a "limit move") with respect to a
particular futures contract or if the securities underlying the futures contract
experience significant price fluctuations after the determination of the
settlement price. When a settlement price cannot be used, futures contracts will
be valued at their fair market value as determined by or under the direction of
the Board of Trustees.
All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Board of Trustees. In
carrying out the valuation policies of the Board of Trustees, independent
pricing services may be consulted. Further information regarding the valuation
policies is contained in the Statement of Additional Information.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust rests
with the Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons and companies that furnish services to the
Trust. See "Management of the Trust" in the Statement of Additional Information
for more information about the Trustees and officers of the Trust.
SPONSOR
Touchstone Advisors, as sponsor to the Trust (the "Sponsor"), pursuant to an
agreement (the "Sponsor Agreement") provides oversight of the various service
providers to the Trust, including the administrator and the custodian. As
Sponsor to the Trust, Touchstone Advisors reserves the right to receive a
sponsor fee from each Portfolio equal on an annual basis to 0.20% of the average
daily net assets of that Portfolio for its then-current fiscal year. The Sponsor
Agreement may be terminated by the Sponsor at the end of any calendar quarter
after December 31, 1996 or by the Trust on not less than 30 days prior written
notice. The Sponsor has advised the Trust that it will waive all fees under the
Sponsor Agreement through April 30, 1997.
ADMINISTRATOR
Signature Financial Services, Inc. ("Signature"), located at 6 St. James
Avenue, Boston Massachusetts 02116, serves as administrator and fund accounting
agent to the Trust (the "Administrator") pursuant to an agreement
("Administrative Services and Fund Accounting Agreement"). Pursuant to the
Administrative Services and Fund Accounting Agreement, Signature provides the
Trust with general office facilities and supervises the overall administration
of the Trust, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of, the
independent contractors and agents of the Trust; the preparation and filing of
all documents required for compliance by the Trust with applicable laws and
regulations; and arranging for the maintenance of books and records of the
Trust. Signature provides persons satisfactory to the Board of Trustees of the
Trust to serve as certain officers of the Trust. Such officers, as well as
certain other employees and Trustees of the Trust, may be directors, officers or
employees of Signature or its affiliates.
For the services to be rendered by Signature, each Portfolio shall pay to
Signature administrative services and fund accounting fees computed and paid
monthly that are equal, in the aggregate, to 0.16% on an annual basis of the
average daily net assets of all the Portfolios. After $100 million of total
assets, this fee is reduced according to an asset schedule down to a minimum of
0.05%. After the total fees owing to Signature are determined, each Portfolio
will be allocated its pro-rata share on the basis of average daily net assets.
In addition, each Portfolio is subject to a minimum annual administrative
services and fund accounting fee. See "Management of the Trust" in the Statement
of Additional Information.
DISTRIBUTOR
Touchstone Securities, Inc., an affiliate of the Advisor, acts as principal
underwriter of the shares of each Portfolio pursuant to a distribution agreement
with the Trust.
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CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT") is located at 89 South Street,
Boston, Massachusetts 02111, and serves as custodian of each Portfolio's
investments. IBT also serves as the Trust's transfer agent.
ALLOCATION OF EXPENSES OF THE PORTFOLIOS
Each Portfolio bears its own expenses, which generally include all costs not
specifically borne by the Advisor, the Portfolio Advisors and the Administrator.
Included among a Portfolio's expenses are: costs incurred in connection with its
organization; investment management and administration fees; fees for necessary
professional and brokerage services; fees for any pricing service; the costs of
regulatory compliance; and costs associated with maintaining the Trust's legal
existence and shareholder relations. Pursuant to the Sponsor Agreement, the
Sponsor has agreed to waive or reimburse certain fees and expenses of each
Portfolio such that after such waivers and reimbursements, the aggregate
Operating Expenses of each Portfolio (as used herein, "Operating Expenses"
include amortization of organizational expenses but is exclusive of interest,
taxes, brokerage commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses) do not exceed that Portfolio's expense
cap (the "Expense Cap"). Each Portfolio's Expense Cap is as follows: Emerging
Growth Portfolio -- 1.15%; International Equity Portfolio -- 1.25%; Balanced
Portfolio -- .90%; Income Opportunity Portfolio -- .85%; and Standby Income
Portfolio -- .50%. An Expense Cap may be terminated with respect to a Portfolio
upon 30 days prior written notice by the Sponsor at the end of any calendar
quarter after December 31, 1996.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income (I.E., income other than long and short term capital
gains) and net realized long and short term capital gains will be determined
separately for each Portfolio. Dividends derived from net investment income and
distributions of net realized long and short term capital gains paid by a
Portfolio to a shareholder will be automatically reinvested (at current net
asset value) in additional shares of that Portfolio (which will be deposited in
the shareholder's account) unless the shareholder instructs the Trust, in
writing, to pay all dividends and distributions in cash. Dividends attributable
to the net investment income of the Standby Income Portfolio will be declared
daily and paid monthly. Shareholders of that Portfolio receive dividends from
the day following the purchase up to and including the date of redemption.
Dividends attributable to the net investment income of the Income Opportunity
Portfolio are declared and paid monthly. Dividends attributable to the net
investment income of the Balanced Portfolio are declared and paid quarterly.
Dividends attributable to the net investment income of the Emerging Growth
Portfolio and International Equity Portfolio are declared and paid annually.
Distributions of any net realized long term and short term capital gains earned
by a Portfolio will be made annually.
TAXES
Because each Portfolio is treated as a separate entity for federal income
tax purposes, the amounts of net income and net realized capital gains subject
to tax will be determined separately for each Portfolio (rather than on a
Trust-wide basis).
Each Portfolio separately intends to qualify each year as a regulated
investment company for federal income tax purposes. The requirements for
qualification by a Portfolio may cause it, among other things, to restrict the
extent of its short term trading or its transactions in warrants, currencies,
options, futures or forward contracts and will cause each Portfolio to maintain
a diversified asset portfolio.
A regulated investment company will not be subject to federal income tax on
its net income and its capital gains that it distributes to shareholders, so
long as it meets certain overall distribution requirements and other conditions
under the Internal Revenue Code of 1986, as amended (the "Code"). Each Portfolio
intends to satisfy these overall distribution requirements and any other
required conditions. In addition, each Portfolio is subject to a 4%
nondeductible excise tax measured with respect to certain undistributed amounts
of ordinary income and capital gains. The Trust intends to have each Portfolio
pay additional dividends and make additional distributions as are necessary in
order to avoid application of the excise tax, if such payments and distributions
are determined to be in the best interest of the Portfolio's shareholders.
Dividends declared by a Portfolio in October, November or December of any
calendar year and payable to shareholders of record on a specified date in such
a month shall be
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deemed to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the Portfolio not later than such December 31
provided that such dividend is actually paid by the Portfolio during January of
the following year.
Dividends declared by a Portfolio of net income and distributions of a
Portfolio's net realized short term capital gains (including short term gains
from Portfolio investments in tax exempt obligations) will be taxable to
shareholders as ordinary income for federal income tax purposes, regardless of
how long shareholders have held their Portfolio shares and whether the dividends
or distributions are received in cash or reinvested in additional shares.
Distributions by a Portfolio of net realized long term capital gains (including
long term gains from Portfolio investments in tax exempt obligations) will be
taxable to shareholders as long term capital gains for federal income tax
purposes, regardless of how long a shareholder has held his Portfolio shares and
whether the distributions are received in cash or reinvested in additional
shares.
A portion of the dividends and all distributions of capital gains paid by
the Portfolios will not qualify for the dividend received deduction for
corporations. As a general rule, dividends paid by a Portfolio, to the extent
derived from dividends attributable to certain types of stock issued by U.S.
corporations, will qualify for the dividend received deduction for corporations.
Some states, if certain asset and diversification requirements are
satisfied, permit shareholders to treat their portions of a Portfolio's
dividends that are attributable to interest on U.S. Treasury securities and
certain U.S. Government securities as income that is exempt from state and local
income taxes. Dividends attributable to repurchase agreement earnings are, as a
general rule, subject to state and local taxation.
Net income or capital gains earned by a Portfolio investing in foreign
securities may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the Portfolios to a reduced rate of tax or exemption from tax on this
related income and gains. It is impossible to determine the effective rate of
foreign tax in advance since the amount of these Portfolios' assets to be
invested within various countries is not known. Furthermore, if a Portfolio
qualifies as a regulated investment company, if certain distribution
requirements are satisfied, and if more than 50% of the value of the Portfolio's
assets at the close of the taxable year consists of stocks or securities of
foreign corporations, the Portfolio may elect, for U.S. federal income tax
purposes, to treat foreign income taxes paid by the Portfolio that can be
treated as income taxes under U.S. income tax principles as paid by its
shareholders. The Trust anticipates that the International Equity Portfolio will
qualify for and make this election in most, but not necessarily all, of its
taxable years. If a Portfolio were to make an election, an amount equal to the
foreign income taxes paid by the Portfolio would be included in the income of
its shareholders and the shareholders would be entitled to credit their portions
of this amount against their U.S. tax liabilities, if any, or to deduct such
portions from their U.S. taxable income, if any. Shortly after any year for
which it makes an election, a Portfolio will report to its shareholders, in
writing, the amount per share of foreign tax that must be included in each
shareholder's gross income and the amount which will be available for deduction
or credit. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Certain limitations will be imposed on the extent
to which the credit (but not the deduction) for foreign taxes may be claimed.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Shareholders will also receive, if
appropriate, various written notices after the close of the Portfolios' taxable
year with respect to certain foreign taxes paid by the Portfolios and certain
dividends and distributions that were, or were deemed to be, received by
shareholders from the Portfolios during the Portfolios' prior taxable year.
PERFORMANCE OF THE PORTFOLIOS
PERFORMANCE
EACH PORTFOLIO'S PERFORMANCE MAY BE QUOTED IN ADVERTISING IN TERMS OF YIELD
AND TOTAL RETURN IF ACCOMPANIED BY PERFORMANCE OF THE INSURANCE COMPANY'S
SEPARATE ACCOUNT. Performance is based on historical results and not intended to
indicate future performance.
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YIELD
For the Income Opportunity Portfolio, the Balanced Portfolio and the Standby
Income Portfolio, from time to time, the Trust may advertise the 30-day "yield."
The yield of a Portfolio refers to the income generated by an investment in the
Portfolio over the 30-day period identified in the advertisement and is computed
by dividing the net investment income per share earned by the Portfolio during
the period by the net asset value per share on the last day of the period. This
income is "annualized" by assuming that the amount of income is generated each
month over a one-year period and is compounded semi-annually. The annualized
income is then shown as a percentage of the net asset value.
TOTAL RETURN
From time to time, the Trust may advertise a Portfolio's "average annual
total return" over various periods of time. This total return figure shows the
average percentage change in value of an investment in the Portfolio from the
beginning date of the measuring period to the ending date of the measuring
period. The figure reflects changes in the price of the Portfolio's shares and
assumes that any income, dividends and/or capital gains distributions made by
the Portfolio during the period are reinvested in shares of the Portfolio.
Figures will be given for recent one-, five-and ten-year periods (if applicable)
and may be given for other periods as well (such as from commencement of the
Portfolio's operations or on a year-by-year basis). When considering average
total return figures for periods longer than one year, shareholders should note
that a Portfolio's annual total return for any one year in the period might have
been greater or less than the average for the entire period. A Portfolio also
may use aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in the Portfolio's share price, the effect of
the maximum sales charge during the period and assuming reinvestment of
dividends and distributions). Aggregate total returns may be shown by means of
schedules, charts or graphs, and may indicate subtotals of the various
components of total return (that is, the change in value of initial investment,
income dividends and capital gains distributions). A Portfolio may also quote
non-standardized total return figures, such as non-annualized figures or figures
that do not reflect the maximum sales charge (provided that these figures are
accompanied by standardized total return figures calculated as described above).
GENERAL
It is important to note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Statement of Additional Information describes in more detail the method used to
determine a Portfolio's yield and total return.
YIELDS AND TOTAL RETURNS FOR THE PORTFOLIOS INCLUDE THE EFFECT OF DEDUCTING
EACH PORTFOLIO'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE
TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE PORTFOLIOS MAY ONLY BE
PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR
INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from
quotations of each Portfolio's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges when
comparing a Portfolio's performance to that of other mutual funds.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.00001
per share). The Trust currently consists of five series of shares. The shares of
each series participate equally in the earnings, dividends and assets of the
particular series. The Trust may create and issue additional series of shares.
The Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in a series. Each share represents an equal
proportionate interest in a series with each other share. Shares have no pre-
emptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each share held.
The Trust is not required to hold annual meetings of shareholders but the
Trust will hold special meetings of shareholders when in the judgement of the
Trustees it is necessary or desirable to submit matters for a shareholder
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vote. Shareholders have under certain circumstances the right to communicate
with other shareholders for the purpose of removing one or more Trustees. Upon
liquidation of a Portfolio, shareholders of that Portfolio would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
When matters are submitted for shareholder vote, shareholders of each
Portfolio will have one vote for each full share held and proportionate,
fractional vote for fractional shares held. A separate vote of each Portfolio is
required on any matter affecting a Portfolio on which shareholders are entitled
to vote. Shareholders of a Portfolio are not entitled to vote on Trust matters
that do not affect the Portfolio and do not require a separate vote of the
Portfolio. There normally will be no meeting of shareholders for the purpose of
electing Trustees of the Trust unless and until such time as less than a
majority of the Trust's Trustees holding office have been elected by
shareholders, at which time the Trust's Trustees then in office will call a
shareholder's meeting for the election of trustees. Any Trustee of the Trust may
be removed from office upon the vote of shareholders holding at least two-thirds
of the Trust's outstanding shares at a meeting called for that purpose. The
Trustees are required to call such a meeting upon the written request of
shareholders holding at least 10% of the Trust's outstanding shares. The Trust
will also assist shareholders in communicating with one another as provided for
in the 1940 Act.
The Trust sends to each shareholder a semi-annual report and an audited
annual report, each of which includes a list of the investment securities held
by the Portfolios.
26
<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 edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated. Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effect of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
A-1
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1, Ba-1 and B-1.
S&P'S BOND RATING
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from higher rated issues only in a small degree.
A. Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC and C. Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of these obligations. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is
being paid.
D. Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR. Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
A-2
<PAGE>
DISTRIBUTOR
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, Ohio 45202
(800) 669-2796 (press 3)
INVESTMENT ADVISOR & SPONSOR
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, Ohio 45202
VARIABLE ANNUITY SERVICE CENTER
Touchstone Variable Annuity Service Center
P.O. Box 419707
Kansas City, Missouri 64179-0819
(800) 669-2796 (press 2)
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
201 East Fourth Street
Cincinnati, Ohio 45202
LEGAL COUNSEL
Frost & Jacobs
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
T O U C H S T O N E
-----------------------------------------
FORM 7126-9605 THE MARK OF EXCELLENCE IN INVESTMENT MANAGEMENT-SM-
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but
contains information in addition to that set forth in the current prospectus
dated May 1, 1996 (the "Prospectus") for the variable annuity contracts
("CONTRACTS") offered by Western-Southern Life Assurance Company (the "COMPANY")
through its Separate Account 1 (the "VARIABLE ACCOUNT"), and should be read in
conjunction with the Prospectus. Unless otherwise noted, the terms used in this
Statement of Additional Information have the same meanings as those set forth in
the Prospectus.
A copy of the Prospectus may be obtained by calling the Touchstone
Variable Annuity Service Center at 1-800-669-2796 (press 2) or by written
request to the Company at 400 Broadway, Cincinnati, Ohio 45202.
The date of this
Statement of Additional Information
is
May 1, 1996
FORM 7135-9605
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PART I - DISCUSSION REGARDING THE VARIABLE ANNUITY
CONTRACTS.................................................................. 1
General.................................................................... 1
Administrative Services.................................................... 1
Safekeeping of Assets...................................................... 1
Distribution of the Contracts.............................................. 1
Sub-Account Performance.................................................... 2
Total Return............................................................... 2
Fixed Annuity Income Payments.............................................. 4
Independent Accountants.................................................... 5
PART II - DISCUSSION REGARDING THE SELECT ADVISORS
PORTFOLIOS................................................................. 5
SUMMARY.................................................................... 5
INVESTMENT OBJECTIVES, TECHNIQUES, POLICIES AND
RESTRICTIONS............................................................... 6
INVESTMENT OBJECTIVES...................................................... 6
INVESTMENT TECHNIQUES...................................................... 6
Certificates of Deposit and Bankers' Acceptances........................... 6
Commercial Paper........................................................... 6
Lower-Rated Debt Securities................................................ 7
Illiquid Securities........................................................ 7
Foreign Securities: Special Considerations Concerning Eastern Europe....... 8
Lending Portfolio Securities............................................... 9
Futures Contracts and Options on Futures Contracts......................... 10
General.................................................................... 10
Futures Contracts.......................................................... 10
Options on Futures Contracts............................................... 12
Options on Foreign Currencies.............................................. 13
Additional Risks of Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies.............................................. 14
Options on Securities...................................................... 16
Options on Securities Indexes.............................................. 18
Forward Currency Contracts................................................. 19
Rating Services............................................................ 20
i
<PAGE>
INVESTMENT RESTRICTIONS.................................................... 21
Fundamental Policies....................................................... 21
State and Federal Restriction.............................................. 22
Portfolio Transactions and Brokerage Commissions........................... 25
VALUATION OF SECURITIES; REDEMPTION IN KIND................................ 27
MANAGEMENT OF THE SA TRUST................................................. 29
Trustees of the SA Trust................................................... 29
Officers of the SA Trust................................................... 30
Trustee Compensation Table................................................. 31
Advisor, Portfolio Advisors, Administrator and Sponsor..................... 32
Advisor.................................................................... 32
Portfolio Advisors......................................................... 33
Administrator.............................................................. 33
Sponsor.................................................................... 34
Custodian.................................................................. 35
Counsel and Independent Accountants........................................ 35
ORGANIZATION OF THE SA TRUST............................................... 35
TAXATION................................................................... 35
Taxation of the Portfolios................................................. 35
Sub-Account Diversification................................................ 36
FINANCIAL STATEMENTS....................................................... 36
ii
<PAGE>
PART I - DISCUSSION REGARDING THE VARIABLE ANNUITY CONTRACTS
GENERAL
Except as otherwise indicated herein, all capitalized terms shall have
the meanings assigned to them in the Prospectus.
The Company is subject to regulation by the Ohio Department of
Insurance, which periodically examines its financial condition and operations.
The Company also is subject to the insurance laws and regulations of all
jurisdictions in which it offers Contracts. Copies of the Contract have been
filed with, and, where required, approved by, insurance regulators in those
jurisdictions. The Company must submit annual statements of its operations,
including financial statements, to such state insurance regulators so that they
may determine solvency and compliance with applicable state insurance laws and
regulations.
The Company and the Separate Account have filed a Registration
Statement regarding the Contracts with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933. The
Prospectus and this Statement of Additional Information do not contain all of
the information in the Registration Statement.
ADMINISTRATIVE SERVICES
The Company has entered into an agreement with Vantage Computer
Systems, Inc., 301 West 11th Street, Kansas City, Missouri 64105 ("VANTAGE").
Pursuant to this agreement, Vantage acts as recordkeeping agent for the Company
with respect to the Contracts and the Separate Account. Under the agreement,
Vantage maintains certain records regarding the Contracts and assists the
Company in administering the daily operations of the Variable Account and other
separate accounts of the Company. The Company paid Vantage $266,794 and $444,324
for services rendered during the years ended December 31, 1994 and December 31,
1995, respectively, pursuant to the terms of the agreement.
SAFEKEEPING OF ASSETS
The assets of the Variable Account are held by the Company, separate
from the Company's general account assets and any other separate accounts which
the Company has or will establish. The Company maintains records of all
purchases and redemptions of the interests in the Portfolios held by the
Sub-Accounts. The Company maintains fidelity bond coverage for the acts of its
officers and employees.
DISTRIBUTION OF THE CONTRACTS
As disclosed in the Prospectus, the Contracts are distributed through
Touchstone Securities, Inc. (the "DISTRIBUTOR"), which is a wholly-owned
subsidiary of IFS Financial Services, Inc. ("IFS"). IFS is a wholly-owned
subsidiary of the Company. The Distributor is
1
<PAGE>
a member of the National Association of Securities Dealers. The offering of the
Contracts is continuous, and the Company does not anticipate discontinuing
offering the Contracts, although it reserves the right to do so. Sales
commissions attributable to the Variable Account paid by the Company to the
Distributor for the period from February 23, 1995 to December 31, 1995 totalled
$159,807, and $26,967 of that amount was retained by the Distributor.
SUB-ACCOUNT PERFORMANCE
The performance of the Sub-Accounts may be quoted or advertised by the
Company in various ways. All performance information supplied by the Company in
advertising is based upon historical results of the Sub-Accounts and the
Portfolios and is not intended to indicate future performance of either one.
Total returns and other performance information may be quoted numerically or in
a table, graph or similar illustration. The value of an Accumulation Unit and
total returns fluctuate in response to market conditions, interest rates and
other factors.
TOTAL RETURN
"Total return" or "average annual total return" quoted in advertising
reflects all aspects of a Sub-Account's return, including the effect of
reinvestment by the Variable Account of Portfolio income and capital gain
distributions and any change in the Sub-Account's value over the applicable
period. Such quotations reflect Contract Maintenance, Contract Administration
and Mortality and Expense Risk Charges. Since the Contract is intended as a
long-term investment, total return calculations will assume that no partial
withdrawals from the hypothetical Contract occurred during the applicable
period, but that a Surrender Charge would be incurred upon the hypothetical
withdrawal at the end of the applicable period.
Average annual total returns are calculated by determining the average
annual compounded rates of return over one, five and ten year periods (or since
commencement of operations) that would equate an initial hypothetical investment
to the ending redeemable value according to the following formula:
P (1 + T)n = ERV
where:
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years and/or portion of a year
ERV = ending redeemable value of a hypothetical initial
Purchase Payment of $1,000 at the end of the
applicable period
If a Sub-Account has been in existence for less than one, five or ten years, the
time period since the date of the initial public offering will be substituted
for the periods stated.
2
<PAGE>
The following table sets forth the total return for each of the Sub-Accounts for
the period from the date of commencement of operations (February 23, 1995)
through December 31, 1995.
<TABLE>
<CAPTION>
Type of Emerging International Income Standby Growth &
Performance Growth Equity Balanced Opportunity Income Income Bond
DATA SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ---- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Return 6.4% 1.8% 9.1% 14.7% -7.3% 14.4% 2.1%
For Year
Total Return 16.7% 13.1% 19.3% 25.0% 3.1% 24.7% 12.0%
For Year*
(Change in
Accumulation
Unit Value)
</TABLE>
* Based on a commencement date of February 28, 1995. Calculated by
determining the change in the Accumulation Unit Value from the beginning of
the period to the end of the period and dividing such amount by the
Accumulation Unit Value at the end of the period.
While average annual total returns are convenient means of comparing
investment alternatives, investors should realize that any Sub-Account's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of any Sub-Account.
Any total return quotation provided for a Sub-Account should not be
considered as representative of the performance of the Sub-Account in the
future, since the net asset value will vary based not only on the type, quality
and maturities of the securities held in the corresponding Portfolio, but also
on changes in the current value of such securities and on changes in the
expenses of the Sub-Account and the corresponding Portfolio. These factors and
possible differences in the methods used to calculate total return should be
considered when comparing the total return of a Sub-Account to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.
Average annual total return is calculated as required by applicable
regulations. In addition to average annual total returns, a Sub-Account may
quote cumulative total returns reflecting the simple change in value of any
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount.
The Company may advertise examples of the effects of dollar cost averaging,
whereby an Owner periodically invests a fixed dollar amount in a Sub-Account,
thereby purchasing fewer Accumulation Units when prices are high and more
Accumulation Units when prices are low. While such a strategy does not assure a
profit nor guard against a loss in a declining market, the Owner's average cost
per Accumulation Unit can be lower than if fixed numbers of Accumulation Units
had been purchased at the same intervals. In evaluating dollar cost
3
<PAGE>
averaging, Owners should consider their ability to continue purchasing
Accumulation Units during periods of low price levels.
Performance information for any Sub-Account may be compared, in reports to
Owners and in advertising, to stock indices, other variable annuity separate
accounts or other products tracked by Lipper Analytical Services, or other
widely used independent research firms which rank variable annuities and
investment companies by overall performance, investment objectives and assets.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for annuity charges and investment management costs.
FIXED ANNUITY INCOME PAYMENTS
The Contracts provide only for fixed annuity income options. The amount of
such payments is calculated by applying the Surrender Value, less any applicable
premium tax, at annuitization to the income payment rates for the annuity payout
plan selected. Annuity income payments will be the larger of:
(a) the income based on the rates shown in the Contract's Annuity
Tables for the annuity payout plan chosen; and
(b) the income calculated by applying the proceeds as a single
premium at the Company's current rates in effect on the date of
the first income payment for the same plan.
Annuity income payments under any of the annuity payout plans will not
vary in dollar amount and will not be affected by the future investment
performance of the Variable Account.
If the Owner of the Contract dies before the entire interest in the
Contract is distributed, the Contract Value must be distributed as described
below so that the Contract qualifies as an annuity under the Internal Revenue
Code.
If death occurs on or after the Income Date, any remaining portion of
the interest in the Contract must be distributed at least as rapidly as under
the method of distribution being used as of the date of death. If death occurs
before the Income Date, the entire interest in the Contract must be distributed
within five years after the date of death, unless the following conditions are
met.
If an annuity payout option is selected by the Beneficiary and if
annuity income payments begin within one year of the Owner's death, the value of
the Contract may be distributed over the Beneficiary's life or a period not
exceeding the Beneficiary's life expectancy. However, for Qualified Contracts
where the Owner's spouse is the Beneficiary, annuity income payments need not
begin within one year after the Owner's death; rather, they need only begin on
or before April 1 of the calendar year in which the Owner would have attained
age 70-1/2.
4
<PAGE>
INDEPENDENT ACCOUNTANTS
The Statement of Net Assets of Western-Southern Life Assurance Company
Separate Account 1 as of December 31, 1995, the Statement of Operations and
Changes in Net Assets of Western-Southern Life Assurance Company Separate
Account 1 for the Year Ended December 31, 1995, and the Balance Sheets of the
Company as of December 31, 1994 and 1995, the Summaries of Operations,
Statements of Changes in Shareholder's Equity and Statements of Cash Flows of
the Company for each of the years ended December 31, 1993, 1994 and 1995,
included in this registration statement, have been included herein in reliance
on the report of Coopers & Lybrand LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
PART II - DISCUSSION REGARDING THE SELECT ADVISORS PORTFOLIOS
SUMMARY
Except as otherwise indicated herein, all capitalized terms have the
meanings assigned to them in the Prospectus.
As described in the Prospectus, the Variable Account seeks to achieve
the investment objectives of each Sub-Account by investing all the investable
assets of the Sub-Account in a diversified open-end management investment
company having the same investment objectives as such Sub-Account. These
investment companies are, respectively, Emerging Growth Portfolio, International
Equity Portfolio, Balanced Portfolio, Growth & Income Portfolio, Income
Opportunity Portfolio, Bond Portfolio and Standby Income Portfolio (each a
"PORTFOLIO" or, collectively, the "PORTFOLIOS"). Detailed information regarding
the Emerging Growth, International Equity, Balanced, Income Opportunity and
Standby Income Portfolios (the "VIT PORTFOLIOS") is contained in the separate
prospectus of the Select Advisors Variable Insurance Trust (the "VI TRUST") that
accompanies the Prospectus. Detailed information regarding the Bond Portfolio
and the Growth & Income Portfolio (the "SAT PORTFOLIOS") is contained in Part II
of the Prospectus and this Statement of Additional Information.
Since the investment characteristics of each Sub-Account will correspond
directly to those of the respective Portfolio in which the Sub-Account invests
all of its Assets, the following is a discussion of the various investments of
and techniques employed by the SAT Portfolios.
As disclosed in the Prospectus, Touchstone Advisors, Inc. (the
"ADVISOR") is the investment advisor of each Portfolio, and the specific
investments of each Portfolio are managed on a day-to-day basis by their
respective investment advisors (collectively, the "PORTFOLIO ADVISORS").
Signature Financial Services, Inc. ("SIGNATURE" or the "ADMINISTRATOR") serves
as administrator and fund accounting agent to each Portfolio.
5
<PAGE>
INVESTMENT OBJECTIVES, TECHNIQUES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective(s) of each Sub-Account is described in the
Prospectus. There can, of course, be no assurance that any Sub-Account will
achieve its investment objective(s).
See THE VI TRUST AND THE SA TRUST in the Prospectus.
The following provides additional information about certain of the
investment techniques employed by one or more of the SAT Portfolios. For further
information, refer to the discussion of investment techniques in the Prospectus.
INVESTMENT TECHNIQUES
Since the investment characteristics of each Sub-Account will correspond
directly to those of the corresponding SAT Portfolio, the following is a
discussion of certain investments of and techniques employed by the SAT
Portfolios.
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 timedraft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
6
<PAGE>
LOWER-RATED DEBT SECURITIES
While the market for high yield corporate debt securities (commonly
known as "junk bonds") 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, high risk 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 junk bonds 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, such lower-rated debt
securities will be valued in accordance with procedures establish by the Board
of Trustees of the SA Trust, including the use of outside pricing services.
Judgment plays a greater role in valuing high yield, high risk corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the ability of outside pricing services
to value lower-rated debt securities and the ability to dispose of these
securities.
In considering investments for the Portfolio, the Portfolio Advisor will
attempt to identify those issuers of high yielding debt securities ("junk
bonds") whose financial condition is adequate to meet future obligations, has
improved or is expected to improve in the future. The Portfolio Advisor's
analysis focuses on relative values based on such factors as interest on
dividend coverage, asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
A Portfolio may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to seek
to protect the interest of security holders if it determines this to be in the
best interest of the Portfolio.
For a description of bond ratings, see the Appendix to the Prospectus.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 ACT"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as "private placements" or
"restricted securities" and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a
Portfolio
7
<PAGE>
might not be able to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A Portfolio might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Advisor and each Portfolio Advisor anticipate that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
Each Portfolio Advisor will monitor the liquidity of Rule 144A
securities in the respective Portfolio's portfolio under the supervision of the
Trust's Board of Trustees. In reaching liquidity decisions, each Portfolio
Advisor will consider, among other things, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers and
other potential purchasers wishing to purchase or sell the security; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and of the marketplace trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of the transfer).
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE
Investments in companies domiciled in Eastern European countries may be
subject to potentially greater risks than those of other foreign issuers. These
risks include: (i) potentially less social, political and economic stability;
(ii) the small current size of the markets for such securities and the low
volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Portfolios'
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure
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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).
In certain of these markets, the Communist Party, despite the fall of
communist dominated governments, continues to exercise a significant or, in some
countries, a dominant role. So long as this situation continues or currently
controlling parties remain vulnerable to sudden removal from power, investments
in such countries will involve risks of nationalization, expropriation and
confiscatory taxation. The former communist governments of a number of Eastern
European countries expropriated large amounts of private property in the past,
in many cases without adequate compensation, and there may be no assurance that
such expropriation will not occur in the future at the hands of either an
existing non-communist regime or upon the return to power of the Communist
Party. In the event of such expropriation, a Portfolio could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values and may be
adverse to the Portfolio's shareholders.
LENDING PORTFOLIO SECURITIES
By lending its securities, a Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. Each
Portfolio will adhere to the following conditions whenever its securities are
loaned: (i) the Portfolio must receive at least 100 percent cash collateral or
equivalent securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the securities loaned, including accrued
interest, rises above the value of the collateral; (iii) the Portfolio must be
able to terminate the loan at any time; (iv) the Portfolio must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any in crease in market value; (v)
the Portfolio may pay only reasonable custodian fees in connection with the
loan; and (vi) voting rights on the loaned securities may pass to the borrower;
provided, however, that if a material event adversely affecting the investment
occurs, the Board of Trustees must terminate the loan and regain the right to
vote the securities.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL
The successful use of futures contracts and options on futures contracts
draws upon the Portfolio Advisor's skill and experience with respect to such
instruments and usually depends on the Portfolio Advisor's ability to forecast
interest rate and currency exchange rate movements correctly. Should interest or
exchange rates move in an unexpected manner, an SAT Portfolio may not achieve
the anticipated benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if such strategies
had not been used. In addition, the correlation between movements in the price
of futures contracts or options on futures contracts and movements in the price
of the securities and currencies hedged or used for cover will not be perfect
and could produce unanticipated losses.
FUTURES CONTRACTS
An SAT Portfolio may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or foreign currencies, or contracts
based on financial indices including any index of U.S. Government securities,
foreign government securities or corporate debt securities. U.S. futures
contracts have been designed by exchanges which have been designated "contracts
markets" by the Commodity Futures Trading Commission ("CFTC"), and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. An SAT Portfolio may enter into futures contracts which are based on
debt securities that are backed by the full faith and credit of the U.S.
Government, such as long-term U.S. Treasury bonds, Treasury Notes, GNMA modified
pass-through mortgage-backed securities and three-month U.S. Treasury bills. An
SAT Portfolio may also enter into futures contracts which are based on bonds
issued by entities other than the U.S. Government.
At the same time a futures contract is purchased or sold, the SAT
Portfolio must allocate cash or securities as a deposit payment ("INITIAL
DEPOSIT"). It is expected that the initial deposit would be approximately 1-1/2%
to 5% of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline or increase in
the contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
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Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the SAT Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of an SAT Portfolio which holds or intends to acquire fixed-income
securities, is to attempt to protect the Portfolio from fluctuations in interest
or foreign exchange rates without actually buying or selling fixed-income
securities or foreign currencies. For example, if interest rates were expected
to increase, the Portfolio might enter into futures contracts for the sale of
debt securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio could
accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows the Portfolio to maintain a
defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, an SAT Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. When a Portfolio enters into a futures contract for any
purpose, the Portfolio will establish a segregated account with the Portfolio's
custodian to collateralize or "cover" the Portfolio's obligation consisting of
cash, cash equivalents or high grade liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and variation
margin payments made by the Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting
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transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate trends by the Portfolio Advisor may still not result in a
successful transaction.
In addition, futures contracts entail risks. Although each applicable
Portfolio Advisor believes that use of such contracts will benefit the
respective Portfolio, if the Portfolio Advisor's investment judgment about the
general direction of interest rates is incorrect, a Portfolio's overall
performance would be poorer than if it had not entered into any such contract.
For example, if an SAT Portfolio has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held in its portfolio and interest rates decrease instead, the
Portfolio will lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if a Portfolio has
insufficient cash, it may have to sell debt securities from its portfolio to
meet daily variation margin requirements. Such sales of bonds may be, but will
not necessarily be, at increased prices which reflect the rising market. An SAT
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
OPTIONS ON FUTURES CONTRACTS
Each SAT Portfolio may purchase and write options on futures contracts
for hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price of
the futures contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of futures
contracts, when an SAT Portfolio is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
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, an SAT Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Portfolio's holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
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of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.
The amount of risk an SAT Portfolio assumes when it purchases an option
on a futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased.
An SAT Portfolio will not enter into any futures contracts or options on
futures contracts if immediately thereafter the amount of margin deposits on all
the futures contracts of the Portfolio and premiums paid on outstanding options
on futures contracts owned by the Portfolio would exceed 5% of the market value
of the total assets of the Portfolio.
OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies are used for hedging purposes in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, are utilized. For example, a decline in the dollar value of a foreign
currency in which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the value of portfolio
securities, the Portfolio may purchase put options on the foreign currency. If
the value of the currency does decline, a Portfolio will have the right to sell
such currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, an SAT Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
Options on foreign currencies may be written for the same types of
hedging purposes. For example, where an SAT Portfolio anticipates a decline in
the dollar value of foreign currency
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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 SAT
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
Each SAT Portfolio may write covered call options on foreign currencies.
A call option written on a foreign currency by a Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government securities and other high quality liquid debt securities in a
segregated account with its custodian.
Each SAT Portfolio also may write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a security which
the Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. Government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES
Unlike transactions entered into by a Portfolio in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or
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(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 transaction. 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 an SAT Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery or
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. An SAT
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid
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securities. With respect to options written with primary dealers in U.S.
Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
OPTIONS ON SECURITIES
The SAT Portfolios may write (sell), to a limited extent, only covered
call and put options on a security then held in its portfolio ("COVERED
OPTIONS") in an attempt to increase income. However, the Portfolio may forgo the
benefits of appreciation on securities sold or may pay more than the market
price on securities acquired pursuant to call and put options written by the
Portfolio.
When an SAT Portfolio writes a covered call option, it gives the
purchaser of the option the right to buy the underlying security at the price
specified in the option (the "exercise price") by exercising the option at any
time during the option period. If the option expires unexercised, the Portfolio
will realize income in an amount equal to the premium received for writing the
option. If the option is exercised, a decision over which the SAT Portfolio has
no control, the Portfolio must sell the underlying security to the option holder
at the exercise price. By writing a covered call option, the Portfolio forgoes,
in exchange for the premium less the commission ("NET PREMIUM"), the opportunity
to profit during the option period from an increase in the market value of the
underlying security above the exercise price.
When an SAT Portfolio writes a covered put option, it gives the
purchaser of the option the right to sell the underlying security to the
Portfolio at the specified exercise price at any time during the option period.
If the option expires unexercised, the Portfolio will realize income in the
amount of the premium received for writing the option. If the put option is
exercised, a decision over which the SAT Portfolio has no control, the Portfolio
must purchase the underlying security from the option holder at the exercise
price. By writing a covered put option, the Portfolio, in exchange for the net
premium received, accepts the risk of a decline in the market value of the
underlying security below the exercise price. The SAT Portfolio will only write
put options involving securities that the Portfolio owns, or which the Portfolio
wishes to acquire at the exercise price.
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An SAT Portfolio may terminate its obligation as the writer of a call or
put option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a "closing
purchase transaction." Where the Portfolio cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When an SAT Portfolio writes an option, an amount equal to the net
premium received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the SAT Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written.
Securities against which options are written will be segregated on the
books of the custodian for the Portfolio. If the Portfolio does not own the
security on which the option is written, the Portfolio will "cover" its
obligation by placing high grade liquid debt securities in a segregated account
at the Portfolio's custodian.
An SAT Portfolio may purchase call and put options on any securities in
which it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The purchase
of a call option would entitle the Portfolio, in exchange for the premium paid,
to purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
An SAT Portfolio would normally purchase put options in anticipation of
a decline in the market value of securities in its portfolio ("PROTECTIVE PUTS")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
SAT Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the
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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 SAT Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The Portfolio's
activities in options may also be restricted by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
An SAT Portfolio may engage in over-the-counter options transactions
with broker-dealers who make markets in these options. At present, approximately
ten broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Portfolio Advisor will
monitor the creditworthiness of dealers with whom a Portfolio enters into such
options transactions under the general supervision of the Board of Trustees.
OPTIONS ON SECURITIES INDEXES
Options on securities indexes 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
SAT Portfolio generally will only purchase or write such an option if the
Portfolio Advisor believes the option can be closed out.
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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. An SAT Portfolio will not purchase such options unless
the Advisor and the respective Portfolio Advisor each believes the market is
sufficiently developed such that the risk of trading in such options is no
greater than the risk of trading in options on securities.
Price movements in an SAT Portfolio's portfolio may not correlate
precisely with movements in the level of an index and, therefore, the use of
options on indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Portfolio Advisor may be
forced to liquidate portfolio securities to meet settlement obligations.
When a Portfolio writes a put or call option on a securities index it
will cover the position by placing high grade liquid debt instruments in a
segregated asset account with the Portfolio's custodian.
FORWARD CURRENCY CONTRACTS
Because, when investing in foreign securities, a Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, such Portfolios from time to time may enter into forward currency
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. A Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward currency contracts to
purchase or sell foreign currencies.
A forward currency contract is an obligation by a Portfolio to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract. Forward currency contracts establish an
exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward currency contract generally has
no deposit requirement and is traded at a net price without commission. Each SAT
Portfolio maintains with its custodian a segregated account of high grade liquid
assets in an amount at least equal to its obligations under each forward
currency contract. Neither spot transactions nor forward currency contracts
eliminate fluctuations in the prices of the Portfolio's securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
An SAT Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into a Portfolio Advisor's long-term
investment decisions, an SAT Portfolio will not routinely enter into foreign
currency hedging transactions with respect to security transactions. However,
the Portfolio Advisors believe that it is important to have the flexibility to
enter into foreign currency hedging transactions when
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it determines that the transactions would be in a Portfolio's best interest.
Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward currency contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
the forward currency contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward currency contracts. In
such event the SAT Portfolio's ability to utilize forward currency contracts in
the manner set forth in the Prospectus may be restricted. Forward currency
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the
Portfolio than if it had not entered into such contracts. The use of foreign
currency forward contracts may not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the prices of or rates of return on a Portfolio's
foreign currency denominated portfolio securities and the use of such techniques
will subject a Portfolio to certain risks.
The matching of the increase in value of a forward currency contract and
the decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Portfolio may not always be able to enter into foreign
currency forward contracts at attractive prices and this will limit the SAT
Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a Portfolio's use of cross-hedges, there can be no
assurance that historical correlations between the movement of certain foreign
currencies relative to the U.S. dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of the foreign
currencies underlying a Portfolio's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Portfolio's assets that
are the subject of such cross-hedges are denominated.
RATING SERVICES
The ratings of rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings are an initial criterion for selection of
portfolio investments, the Portfolio Advisors also make their own evaluation of
these securities, subject to review by the Board of Trustees of the SA Trust.
After purchase by a Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio. Neither
event would require a Portfolio to eliminate the obligation from its portfolio,
but a Portfolio Advisor will consider such an event in its determination of
whether a Portfolio should continue to hold the obligation. A description of
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the ratings used herein and in the Funds' Prospectuses is set forth in the
Appendix to this Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions described below as "fundamental policies" of
each SAT Portfolio may not be changed with respect to any Portfolio without the
approval of a "majority of the outstanding voting securities" of the SAT
Portfolio. "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" under the Investment
Company Act of 1940, as amended (the "1940 ACT"), and as used in this Statement
of Additional Information and the Prospectus, means, with respect to the
Portfolio, the lesser of (i) 67% or more of the outstanding voting securities of
the Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present or represented by
proxy or (ii) more than 50% of the outstanding voting securities of the
Portfolio.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, no SAT Portfolio may (except that no
investment restriction of the Portfolio shall prevent a Portfolio from investing
all of its assets in an open-end investment company with substantially the same
investment objectives):
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that, in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money (including through reverse
repurchase agreements, forward roll transactions involving mortgage-backed
securities or other investment techniques entered into for the purpose of
leverage), and except that it may pledge, mortgage or hypothecate not more than
1/3 of such assets to secure such borrowings, provided that collateral
arrangements with respect to options and futures, including deposits of initial
deposit and variation margin, are not considered a pledge of assets for purposes
of this restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "State and Federal Restrictions"
below;
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in selling
a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
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(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (except
that the Portfolio may hold and sell, for its portfolio, real estate acquired as
a result of the Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the achievement
of a Portfolio's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) with respect to 75% of its total assets, taken at market value,
invest in assets other than cash and cashitems (including receivables), U.S.
Government securities, securities of other investment companies, and other
securities for purposes of this calculation limited in respect of any one issuer
to an amount not greater in value than 5% of the value of the total assets of
the Portfolio and to not more than 10% of the outstanding voting securities of
such issuer.
STATE AND FEDERAL RESTRICTIONS
In order to comply with certain state and federal statutes and policies,
neither SAT Portfolio will, as a matter of operating policy (changeable by the
respective Board of Trustees without a shareholder vote) (except that no
operating policy shall prevent a Portfolio from investing all of its assets in
an open-end investment company with substantially the same investment
objectives), do any of the following:
(i) borrow money (including through reverse repurchase agreements or
forward roll transactions involving mortgage-backed securities or
similar investment techniques entered into for leveraging purposes),
except that the Portfolio may borrow for temporary or emergency
purposes up to 10% of its total assets; provided, however, that no
Portfolio may purchase any security while outstanding borrowings
exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and
reverse repurchase agreements are not considered a pledge of assets
for purposes of this restriction;
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(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 Portfolio if such purchase at the time thereof
would cause: (a) more than 10% of the Portfolio's total assets (taken
at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Portfolio's total
assets (taken at the greater of cost or market value) to be invested
in any one investment company; or (c) more than 3% of the outstanding
voting securities of any such issuer to be held for the Portfolio;
provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of any
open-end investment company unless the Portfolio (1) waives the
investment advisory fee, with respect to assets invested in other
open-end investment companies and (2) incurs no sales charge in
connection with the investment;
(vii) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or
not readily marketable (defined as a security that cannot be sold in
the ordinary course of business within seven days at approximately
the value at which the Portfolio has valued the security) excluding
(a) Rule 144A securities determined to be liquid by the Board of
Trustees of the SA Trust; and (b) commercial paper that is sold under
Section 4(2) of the Securities Act of 1933 which: (i) is not traded
flat or in default as to interest or principal; and (ii) is rated in
one of the two highest categories by at least two nationally
recognized statistical rating organizations and the Board of Trustees
of the SA Trust have determined the commercial paper to be liquid; or
(iii) is rated in one of the two highest categories by one nationally
recognized statistical rating agency and the Board of Trustees of the
SA Trust have determined that the commercial paper is equivalent
quality and is liquid);
(viii) invest more than 5% of the Portfolio's total assets in securities
issued by issuers that (including the period of operation of any
predecessor or unconditional guarantor of such issuer) have been in
operation less than three years;
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(ix) invest more than 10% of the Portfolio's total assets in securities
that are restricted from being sold to the public without
registration under the Securities Act of 1933 (other than Rule 144A
securities deemed to be liquid by the Trustees of the SA Trust);
(x) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio to hold more than 10% of any class
of securities of such issuer, for which purposes all indebtedness of
an issuer shall be deemed a single class and all preferred stock of
an issuer shall be deemed a single class, except that futures or
option contracts shall not be subject to this restriction;
(xi) purchase or retain in the Portfolio's portfolio any securities issued
by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Portfolio, or is an officer
or partner of the Advisor, if after the purchase of the securities of
such issuer for the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all
taken at market value;
(xii) invest more than 5% of the Portfolio's net assets in warrants (valued
at the lower of cost or market) (other than warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of
purchase), but not more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the New York Stock Exchange Inc.
("NYSE") or the American Stock Exchange;
(xiii) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the
same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Portfolio's net assets (taken at
market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time
(the Portfolios have no current intention to engage in short
selling);
(xiv) purchase puts, calls, straddles, spreads and any combination thereof
if by reason thereof the value of the Portfolio's aggregate
investment in such classes of securities will exceed 5% of its total
assets;
(xv) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment policies of the Portfolio and the option is
issued by the Options Clearing Corporation, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities
or commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold
shall not exceed 50% of the Portfolio's net assets; (c) the
securities subject to the exercise of the call written by the
Portfolio must be
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owned by the Portfolio at the time the call is sold and must continue
to be owned by the Portfolio until the call has been exercised, has
lapsed, or the Portfolio has purchased a closing call, and such
purchase has been confirmed, thereby extinguishing the Portfolio's
obligation to deliver securities pursuant to the call it has sold;
and (d) at the time a put is written, the Portfolio establishes a
segregated account with its custodian consisting of cash or
short-term U.S. Government securities equal in value to the amount
the Portfolio will be obligated to pay upon exercise of the put (this
account must be maintained until the put is exercised, has expired,
or the Portfolio has purchased a closing put, which is a put of the
same series as the one previously written; and
(xvi) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons
and: (a) the options or futures are offered through the facilities of
a national securities association or are listed on a national
securities or commodities exchange, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such
options which are held at any time do not exceed 20% of the
Portfolio's total net assets; and (c) the aggregate margin deposits
required on all such futures or options thereon held at any time do
not exceed 5% of the Portfolio's total assets.
Each Portfolio also will comply with the applicable investment
limitations found in the state insurance and securities laws and regulations of
all states in which the corresponding Sub- Account investing in the Portfolio is
registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Portfolio Advisors for the SAT Portfolios are responsible for
decisions to buy and sell securities, futures contracts and options on such
securities and futures for each SAT Portfolio, the selection of brokers, dealers
and futures commission merchants to effect transactions and the negotiation of
brokerage commissions, if any. Broker-dealers may receive brokerage commissions
on portfolio transactions, including options, futures and options on futures
transactions and the purchase and sale of underlying securities upon the
exercise of options. Orders may be directed to any broker-dealer or futures
commission merchant, including to the extent and in the manner permitted by
applicable law, the Advisor, the Portfolio Advisors or their subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf of a
Portfolio are frequently placed by the Portfolio Advisor with the issuer or a
primary or secondary market-maker for these securities on a net basis, without
any brokerage commission being paid by the Portfolio. Trading does, however,
involve transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Purchases of underwritten
issues may be made which will include an underwriting fee paid to the
underwriter.
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The Portfolio Advisors seek to evaluate the overall reasonableness of
any brokerage commissions paid through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions. In placing orders for the purchase and sale
of securities for a Portfolio, the Portfolio Advisors take into account such
factors as price, commission (if any, negotiable in case of national securities
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker-dealer. The Portfolio Advisors review on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Portfolio Advisors are authorized, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Portfolio with a broker to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. A Portfolio Advisor may use this research
information in managing an SAT Portfolio's assets, as well as the assets of
other clients.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Board of Trustees may determine, the Portfolio Advisors may consider sales
of shares of the Trust and of other investment company clients of the Advisor or
the Portfolio Advisor as a factor in the selection of broker-dealers to execute
portfolio transactions. The Portfolio Advisor will make such allocations if
commissions are comparable to those charged by nonaffiliated, qualified
broker-dealers for similar services.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Portfolio and to the corresponding
Portfolio Advisor, it is the opinion of the management of the Portfolios that
such information is only supplementary to the Portfolio Advisor's own research
effort, since the information must still be analyzed, weighed and reviewed by
the Portfolio Advisor's staff. Such information may be useful to the Portfolio
Advisor in providing services to clients other than the SAT Portfolios, and not
all such information is used by the Portfolio Advisor in connection with such
Portfolios. Conversely, such information provided to the Portfolio Advisor by
brokers and dealers through whom other
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clients of the Portfolio Advisor effect securities transactions may be useful to
the Portfolio Advisor in providing services to the Portfolios.
In certain instances there may be securities which are suitable for an
SAT Portfolio as well as for one or more of the Advisor's other clients,
including Portfolios of the SAT Trust that are not available to the
Sub-Accounts. Investment decisions for a Portfolio and for the Portfolio
Advisor's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment advisor, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as a Portfolio
is concerned. however, it is believed that the ability of a Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.
For the period November 21, 1994 (commencement of operations) to
December 31, 1994, and for the fiscal year ended December 31, 1995, the
aggregate brokerage commissions paid by each Portfolio is as follows:
Growth & Income Bond
Aggregate Commissions Portfolio Portfolio
Period Ended December 31,
1994 $4,982 None
1995 $30,788 None
VALUATION OF SECURITIES; REDEMPTION IN KIND
The value of each security for which readily available market
quotations exists is based on a decision as to the broadest and most
representative market for such security. The value of such security is based
either on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on such
exchanges, or at the quoted bid price in the over-the-counter market. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market. Debt
securities are valued by a pricing service which determines valuations based
upon market transactions for normal, institutional-size trading units of similar
securities. Securities or other assets for which market quotations are not
readily available are valued at fair value in
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accordance with procedures established by the SA Trust. Such procedures include
the use of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are valued
at amortized cost, which approximates market.
The accounting records of the Portfolios are maintained in U.S.
dollars. The market value of investment securities, other assets and liabilities
and forward contracts denominated in foreign currencies are translated into U.S.
dollars at the prevailing exchange rates at the end of the period. Purchases and
sales of securities, income receipts, and expense payments are translated at the
exchange rate prevailing on the respective dates of such transactions. Reported
net realized gains and losses on foreign currency transactions represent net
gains and losses from sales and maturities of forward currency contracts,
disposition of foreign currencies, currency gains and losses realized between
the trade and settlement dates on securities transactions and the difference
between the amount of net investment income accrued and the U.S. dollar amount
actually received.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that an SAT Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
available, the Portfolio Advisor will value such securities based upon all
relevant factors as outlined in FRR 1.
Each SAT Portfolio reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase
order by making payment in whole or in part in readily marketable securities
chosen by the Trust or the Portfolio, as the case may be, and valued as they are
for purposes of computing the Portfolio's net asset value (a redemption in
kind). If payment is made in securities, an investor, including the
corresponding Sub-Account, may incur transactions expenses in converting these
securities into cash. The SA Trust, on behalf of each Portfolio, has elected,
however, to be governed by Rule 18f-1 under
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the 1940 Act as a result of which each Portfolio is obligated to redeem shares
or beneficial interests, as the case may be, with respect to any one investor
during any 90-day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Portfolio, as the case may be, at the beginning of
the period.
Each investor in an SAT Portfolio, including the corresponding
Sub-Account, may add to or reduce its investment in the Portfolio on each day
that the NYSE is open for business. As of 4:00 p.m., New York time, on each such
day, the value of each investor's interest in a Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage representing
that investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or reductions which are to be effected on that day will then be
effected. The investor's percentage of the aggregate beneficial interests in a
Portfolio will then be recomputed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the investor's investment in the
Portfolio effected on such day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of 4:00 p.m. on such day plus or
minus, as the case may be, the amount of net additions to or reductions in the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of 4:00 p.m. on the following day the
NYSE is open for trading.
MANAGEMENT OF THE SA TRUST
The Trustees and officers of the SA 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 SA Trust. Unless
otherwise indicated, the address of each Trustee and officer is 311 Pike Street,
Cincinnati, Ohio 45202.
TRUSTEES OF THE SA TRUST
*EDWARD G. HARNESS, JR., (Age 47) -- Trustee and President; Director,
President and Chief Executive Officer, Touchstone Advisors, Inc. (since
December, 1993); Director, President and Chief Executive Officer, Touchstone
Securities (since October, 1991); President, IFS Financial Services, Inc. (since
November, 1990); President Landmark Financial Corporation (prior to July, 1990).
*WILLIAM J. WILLIAMS, (Age 80) -- 400 Broadway, Cincinnati, OH 45202 --
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).
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JOSEPH S. STERN, JR., (Age 78), 3 Grandin Place, Cincinnati, OH 45208
- -- Trustee; Retired Professor Emeritus, College of Business, University of
Cincinnati.
PHILLIP R. COX, (Age 48), 4199 Crossgate Lane, Cincinnati, OH 45236 --
Trustee; President and Chief Executive Officer, Cox Financial Corp. (since
1972); Director, Federal Reserve Bank of Cleveland (since January, 1994);
Director, Cincinnati Bell Inc. (since March, 1993); Director, PNC Bank (since
October, 1992); Director, Cincinnati Gas & Electric Co. (since May, 1994).
ROBERT E. STAUTBERG, (Age 61), 4815 Drake Road, Cincinnati, OH 45243 --
Trustee; Director, Scripps Howard Broadcasting Company (since May, 1989);
Trustee, Good Samaritan Hospital (since January, 1988); Retired Partner and
Director, KPMG Peat Marwick (since December, 1987); Trustee and Director of
other not for profit organizations.
DAVID POLLAK, (Age 79), 1313 Kemper, Suite 111, Cincinnati, Ohio 45246
- -- Trustee; Retired President, The Ultimate Distributing Company (1986-1993);
Vice-Chairman, Continental Steel Corporation (1982-1985); Vice-Chairman, XTEK
Inc. (1972-1982); Director Emeritus, Fifth Third Bank.
OFFICERS OF THE SA TRUST
EDWARD S. HEENAN, (Age 52), 400 Broadway, Cincinnati, OH 45202 --
Treasurer; Vice President and Controller, Touchstone Advisors (since December,
1993); Director, Controller, Touchstone Securities (since October, 1991); Vice
President and Comptroller, The Western and Southern Life Insurance Company
(since 1987).
THOMAS M. LENZ, (Age 37), 6 St. James Avenue, Boston, Massachusetts
02116 -- Secretary; Senior Vice President and Associate General Counsel,
Signature Financial Group, Inc. ("SFG") (since November, 1989); Assistant
Secretary, Signature (since February, 1991); Attorney, Ropes & Gray (prior to
November, 1989).
DAVID G. DANIELSON, (Age 30), 6 St. James Avenue, Boston, Massachusetts
02116 -- Assistant Treasurer; Assistant Manager, SFG (since May, 1991); Graduate
Student, Northeastern University (April, 1990 to March, 1991); Tax Accountant
and Systems Analyst, Putnam Companies (prior to March, 1990).
JOHN R. ELDER, (Age 47), 6 St. James Avenue, Boston, Massachusetts
02116 -- Assistant Treasurer; Vice President, SFG (since April 1995); Treasurer,
Phoenix Family of Mutual Funds (prior to April, 1995); Audit Manager, Price
Waterhouse (prior to 1983).
BRIAN J. HALL, (Age 30), 6 St. James Avenue, Boston, Massachusetts 02116 --
Assistant Treasurer; Assistant Manager, SFG (since November, 1991); Senior State
Regulation Administrator, The Boston Company (prior to November, 1991).
30
<PAGE>
BRIAN J. MANLEY, (Age 32), Assistant Treasurer; Vice President and
Chief Financial Officer, Touchstone Advisors, Inc. (since December, 1993); Vice
President and Chief Financial Officer, Touchstone Securities (since November,
1991); Assistant Controller, The Union Central Life Insurance Company (prior to
1991).
DANIEL E. SHEA, (Age 33), 6 St. James Avenue, Boston Massachusetts
02116 -- Assistant Treasurer; Assistant Manager, SFG (since November, 1993);
Supervisor and Senior Technical Advisor, Putnam Investments (prior to November,
1993).
MOLLY S. MUGLER, (Age 44), 6 St. James Avenue, Boston, Massachusetts
02116 -- Assistant Secretary; Legal Counsel and Assistant Secretary, SFG (since
December, 1988); Assistant Secretary, Signature (since April, 1989).
LINDA T. GIBSON, (Age 30), 6 St. James Avenue, Boston, Massachusetts
02116 -- Assistant Secretary; Vice President, Global Product Management and
Assistant Secretary, SFG (since May, 1992); Assistant Secretary, Signature
(since October, 1992); student, Boston University School of Law (September, 1989
to May, 1992); Product Manager, SFG (January, 1989 to September, 1989).
ANDRES E. SALDANA, (Age 33), 6 St. James Avenue, Boston, Massachusetts
02116 -- Assistant Secretary; Legal Counsel, SFG (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992); law student, Yale
Law School (September, 1987 to May, 1990).
Messrs. Lenz, Danielson, Elder, Hall, Saldana and Shea and Mss. Gibson
and Mugler also hold similar positions for other investment companies for which
Signature or an affiliate serves as administrator or principal underwriter.
No director, officer or employee of the Advisor, the Portfolio
Advisors, the Distributor, the Administrator or any of their affiliates will
receive any compensation from the Trust or the Portfolio Trust for serving as an
officer or Trustee of the SA Trust. The SA Trust, the VI Trust and two
affiliated trusts of the SA Trust (the "Fund Complex") together pay each Trustee
who is not a director, officer or employee of the Advisor, the Portfolio
Advisors, the Distributor, the Administrator or any of their affiliates an
annual fee of $5,000 plus $1,000 per meeting attended and reimburses them for
travel and out-of-pocket expenses. The annual and meeting fees are allocated
among the four trusts in proportion to their respective net assets. For the year
ended December 31, 1995, the SA Trust incurred $22,222 in Trustee fees and
expenses.
31
<PAGE>
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation from the
NAME OF PERSON AGGREGATE COMPENSATION FROM SA TRUST FUND COMPLEX PAID TO TRUSTEES
- -------------- ------------------------------------ -----------------------------
<S> <C> <C>
Phillip R. Cox $5,787 $10,000
Trustee
David Pollak* $4,861 $9,000
Trustee
Robert E. Stautberg $5,787 $10,000
Trustee
Joseph S. Stern, Jr. $5,787 $10,000
Trustee
Edward G. Harness, Jr. none none
Trustee
William J. Williams none none
Trustee
</TABLE>
* Mr. Pollak was elected to the Board of Trustees on March 30, 1995.
As of April 1, 1996, the Trustees and officers of the SA Trust owned in
the aggregate less than 1% of the interests of any Portfolio or the SA Trust
(all series taken together, including series in which the Sub-Accounts do not
invest).
ADVISOR, PORTFOLIO ADVISORS, ADMINISTRATOR AND SPONSOR
ADVISOR
The Advisor provides service to each Portfolio of the SA Trust pursuant
to an Investment Advisory Agreement with the SA Trust (the "Advisory
Agreement"). The services provided by the Advisor consist of directing and
supervising each Portfolio Advisor, reviewing and evaluating the performance of
each Portfolio Advisor and determining whether or not any Portfolio Advisor
should be replaced. The Advisor furnishes at its own expense all facilities and
personnel necessary in connection with providing these services. The Advisory
Agreement will continue in effect if such continuance is specifically approved
at least annually by the Board of Trustees of the SA Trust and by a majority of
the Trustees who are not parties to the Advisory Agreement or interested persons
of any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement is terminable, with respect to a Portfolio,
without penalty on not more than 60 days' nor less than 30 days' written notice
by the SA Trust, when authorized either by majority vote of the investors in the
Portfolio (with the vote of each being in proportion to the amount of their
investment) or by a vote of a majority of the Board of Trustees or by the
Advisor, and will automatically terminate in the event of its assignment. The
Advisory Agreement provides that neither the Advisor nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in its services to the Portfolios,
except for willful misfeasance, bad faith or gross
32
<PAGE>
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement.
The Prospectus contains a description of fees payable to the Advisor
for services under the Advisory Agreement.
For the period November 21, 1994 (commencement of operations) to
December 31, 1994 and for the fiscal year ended December 31, 1995, each SAT
Portfolio incurred the following investment advisory fees equal on an annual
basis to the following percentages of the average daily net assets of the
Portfolio.
PORTFOLIO YEAR RATE AMOUNT
Growth & Income 1994 0.75% $8,015
1995 0.75% $88,934
Bond 1994 0.55% $6,064
1995 0.55% $61,568
For the period November 21, 1994 to December 31, 1994, and for the fiscal
year ended December 31, 1995, the Advisor, under the terms of the Sponsor
Agreement, reimbursed the Growth & Income Portfolio $14,346 and $85,300,
respectively, and reimbursed the Bond Portfolio $15,160 and $69,754,
respectively. See "Sponsor."
PORTFOLIO ADVISORS
The Advisor has, in turn, entered into a portfolio advisory agreement
(each a "Portfolio Agreement") with each Portfolio Advisor selected by the
Advisor for a Portfolio. Under the direction of the Advisor and, ultimately, of
the Board of Trustees of the SA Trust, each Portfolio Advisor is responsible for
making all of the day-to-day investment decisions for the respective Portfolio.
Each Portfolio Advisor furnishes at its own expense all facilities and
personnel necessary in connection with providing these services. Each Portfolio
Agreement contains provisions similar to those described above with respect to
the Advisory Agreement.
ADMINISTRATOR
Pursuant to an administrative services and fund accounting agreement
(the "Administrative Services Agreement"), Signature provides the SA Trust with
general office facilities and supervises the overall administration of the SA
Trust, including, among other responsibilities, the negotiation of contracts and
fees with, and the monitoring of performance and billings of, the independent
contractors and agents of the SA Trust; the preparation and filing of all
documents required for compliance by the Trust with applicable laws and
regulations; and arranging for the maintenance of books and records of the SA
Trust. The
33
<PAGE>
Administrator provides persons satisfactory to the Board of Trustees of the SA
Trust to serve as officers of the Trust. Such officers, as well as certain other
employees and Trustees of the SA Trust, may be directors, officers or employees
of the Administrator or its affiliates.
For the services to be rendered and the facilities to be provided by
Signature under the Administrative Services Agreement, the SA Trust shall pay to
Signature an administrative services and accounting fee from the assets of each
SAT Portfolio that is determined, on an annual basis (but calculated and paid
monthly), by (a) multiplying the average daily net assets of all Portfolios of
the SA Trust by a percentage derived as follows:
on the combined average daily net assets of all Portfolios of
the SA Trust up to $100 million -- 0.20%;
on the combined average daily net assets of all Portfolios of
the SA Trust from $100 million to $200 million -- 0.18%;
on the combined average daily net assets of all Portfolios of
the SA Trust from $200 million to $500 million -- 0.12%;
on the combined average daily net assets of all Portfolios of
the SA Trust from $500 million to $1 billion -- 0.08%;
on the combined average daily net assets of all Portfolios of
the SA Trust greater than $1 billion -- 0.05%; and
(b) allocating the resulting fee among the Portfolios in proportion to
their respect average daily net assets.
In addition each SAT Portfolio is subject to a minimum annual
administrative services and fund accounting fee of $60,000 ($40,000 in the first
year of operations). In the case of the SAT Portfolios, this minimum fee is
subject to increases depending on how many investors each Portfolio has.
For the period November 21, 1994 (commencement of operations) to
December 31, 1994, and for the fiscal year ended December 31, 1995, the Growth &
Income Portfolio incurred $4,384 and $46,743, respectively, in administrative
and fund accounting fees, including out-of-pocket expenses. For the same
periods, the Bond Portfolio incurred $4,384 and $47,124, respectively, in
administrative and fund accounting fees, including out-of-pocket expenses.
The Administrative Services Agreement provides that Signature may
render administrative services to others. The Administrative Services Agreement
also provides that neither the Administrator nor its personnel shall be liable
for any error of judgment or mistake of law or for any act or omission, except
for willful misfeasance, bad faith or gross negligence in the performance of its
or their duties or by reason of reckless disregard of its or their obligations
and duties under the Administrative Services Agreement.
34
<PAGE>
The Administrative Services Agreement terminates automatically if it is
assigned and may be terminated, with respect to a Portfolio, without penalty by
majority vote of the Sub-Account and the other investors in the Portfolio (with
the vote of each being in proportion to the amount of their investment) or by
either party on not more than 60 days' nor less than 30 days' written notice.
Signature is a wholly-owned subsidiary of Signature Financial Group,
Inc., a Delaware corporation.
SPONSOR
Touchstone Advisors, Inc. serves also (in addition to its services as
Advisor to each Portfolio of the SA Trust) as the sponsor ("SPONSOR") of each
SAT Portfolio pursuant to a sponsor agreement (the "SPONSOR AGREEMENT"). Under
each Sponsor Agreement, the Sponsor provides oversight of the various service
providers to each of the SA Trust and the SAT Portfolios, including the
Administrator and the Custodian. For its services in this regard, the Sponsor is
paid a fee, on an annual basis, equal to 0.20% of the average daily net assets
of each Portfolio. The Sponsor Agreement may be terminated by the Sponsor on not
less than 30 days prior written notice and by the SA Trust, as to any Portfolio.
The Sponsor has advised the SA Trust that it will waive all fees under the
Sponsor Agreement through April 30, 1997.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 89 South Street, Boston,
Massachusetts 02111, serves as custodian for the SA Trust and for each SAT
Portfolio pursuant to the custody agreement (the "Custodian"). As Custodian, it
holds each Portfolio's assets.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Frost & Jacobs, 2500 PNC Center, 201 East 5th Street, Cincinnati, Ohio
45202, serves as counsel to the SA Trust and each SAT Portfolio. Coopers &
Lybrand, L.L.P., One Post Office Square, Boston, Massachusetts 02109, acts as
independent accountants of the SA Trust and each SAT Portfolio.
ORGANIZATION OF THE SA TRUST
Interests in the SA Trust do not have cumulative voting rights, which
means that holders of more than 50% of such interests (which includes the
interests held by other investors in the SAT Portfolios (Growth & Income and
Bond) and the interests of other investors in Portfolios of the SA Trust that
are not available for investment by the Sub-Accounts) voting for the election of
Trustees can elect all Trustees. Accordingly, it is unlikely that Owners having
Contract Value in the Sub-Accounts that invest in the SAT Portfolios will be
able to control the election of any of the Trustees. Matters affecting the SAT
Portfolios are generally decided by separate
35
<PAGE>
vote of each SAT Portfolio, except with respect to the election of Trustees and
the ratification of the selection of independent accountants.
The SA Trust, in the Portfolios of which all of the assets of the
corresponding Sub- Accounts will be invested, is organized as a trust under the
laws of the State of New York. Each Sub-Account and other entity investing in an
SAT Portfolio (e.g., other investment companies, insurance company separate
accounts and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of a Sub-Account incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trust's Trustees believe that no Sub-Account
(or any Owner having Contract Value therein) will be adversely affected by
reason of the Sub-Account's investing in the corresponding Portfolio.
TAXATION
TAXATION OF THE PORTFOLIOS
Each of the Portfolios will be classified as a partnership for federal
income tax purposes. Furthermore, none of the Portfolios will be a "publicly
traded partnership" for purposes of Section 7704 of the Code. Consequently, the
Portfolios will not be subject to federal income taxation. Instead, each entity
that invests in a Portfolio must take into account, in computing its federal
income tax liability, its share of the Portfolio's income, gains, losses,
deductions, credits and tax preference items for the year, without regard to the
amount of cash distributions it has received during the year from the Portfolio.
Although no Portfolio will be subject to federal income tax, each will file
appropriate income tax returns as required by the Code.
SUB-ACCOUNT DIVERSIFICATION
Each Sub-Account that invests in a Portfolio will be treated as owning
a proportionate interest in the assets held by the Portfolio for purposes of
determining whether the Sub-Account is adequately diversified within the meaning
of Section 817(h) of the Code. The diversification requirement must be satisfied
in order for the Contract to be treated as an "annuity contract" under the Code.
36
<PAGE>
FINANCIAL STATEMENTS
The following financial statements for Western-Southern Life Assurance
Company Separate Account 1 for the fiscal periods indicated are attached hereto:
(1) Report of Coopers & Lybrand L.L.P. on the Financial Statements
of Western- Southern Life Assurance Company Separate Account
1.
(2) Statement of Net Assets of Western-Southern Life Assurance
Company Separate Account 1 as of December 31, 1995.
(3) Statement of Operations and Changes in Net Assets of
Western-Southern Life Assurance Company Separate Account 1 for
the Year Ended December 31, 1995.
The following financial statements for Western-Southern Life Assurance
Company for the fiscal periods indicated are attached hereto:
(1) Report of Coopers & Lybrand L.L.P. on the Financial Statements
of Western-Southern Life Assurance Company.
(2) Balance Sheets of Western-Southern Life Assurance Company as
of December 31, 1995 and 1994.
(3) Summaries of Operations for Western-Southern Life Assurance
Company for the Years Ended December 31, 1995, 1994 and 1993.
(4) Statements of Changes in Shareholder's Equity for
Western-Southern Life Assurance Company for the Years Ended
December 31, 1995, 1994 and 1993.
(5) Statements of Cash Flows for Western-Southern Life Assurance
Company for the Years Ended December 31, 1995, 1994 and 1993.
37
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
AUDIT OF FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 23, 1995 TO DECEMBER 31, 1995
<PAGE>
CONTENTS
Pages
Report of Independent Accountants ............................................1
Financial Statements:
Statement of Net Assets as of December 31, 1995 ..............................2
Statement of Operations and Changes in Net Assets
for the Period from February 23, 1995 (Commencement
of Operations) to December 31, 1995.................................3
Notes to Financial Statements.......................................4-5
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of
Directors of Western-Southern Life
Assurance Company
We have audited the accompanying statement of net assets of Western-Southern
Life Assurance Company Separate Account 1 as of December 31, 1995, and the
related statement of operations and changes in net assets for the period from
February 23, 1995 to December 31, 1995. These financial statements are the
responsibility of the Separate Account's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Western-Southern Life Assurance
Company Separate Account 1 as of December 31, 1995, the results of operations
and the changes in its net assets for the period then ended, in conformity with
generally accepted accounting principles.
/S/ COOPERS & LYBRAND L.L.P.
Cincinnati, Ohio
January 12, 1996
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Statement of Net Assets
December 31, 1995
Assets
Investments at current market value:
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio (15,522 shares, cost $181,201) $174,931
International Equity Portfolio (17,568 shares, cost $173,099) 175,675
Balanced Portfolio (29,612 shares, cost $357,516) 339,949
Income Opportunity Portfolio (24.853 shares, cost $244,344) 250,517
Standby Income Portfolio (44,283 shares, cost $443,608) 443,718
Select Advisors Portfolios
Growth & Income Portfolio II (2.580236% beneficial interest,
cost $333,757) 358,499
Bond Portfolio II (2.642403% beneficial interest, cost $310,788) 325,081
Total investments 2,068,370
Investment income receivable 93
Total assets 2,068,463
Liabilities
Accounts payable 252
Total net assets $2,068,211
Net assets
Variable Annuity Contracts 2,067,396
Retained in the variable account by Western-Southern Life Assurance
Company 815
Total net assets $2,068,211
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
Western-Southern Life Assurance Company Separate Account 1
Statement of Operations and Changes in Net Assets
for the period from February 23, 1995 (commencement of operations) to December 31, 1995
<S>
Selct Advisors Variable Insurance Trust Select Advisors Portfolios
------------------------------------------------------- ---------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Emerging International Income Standby Growth &
Total Growth Equity Balanced Opportunity Income Income II Bond II
---------- ---------- ------------ --------- ----------- ---------- ------------ ---------
Income
Dividends and Capital gains $ 52,003 $ 11,286 $ 491 $ 24,992 $ 9,264 $ 5,970 $ - $ -
Miscellaneous income (loss) 77 193 141 (227) 61 (129) 35 3
Expenses:
Mortality and expense risk, and
administrative charge 6,841 509 581 1,133 846 1,417 1,136 1,219
Net investment income (loss) 45,239 10,970 51 23,632 8,479 4,424 (1,101) (1,216)
Net change in unrealized appreciation
(depreciation) on investments 24,058 (6,269) 2,576 (17,568) 6,174 109 24,742 14,294
Realized gain (loss) on investments 556 427 30 91 50 (42) - -
Net realized and unrealized gain (loss)
on investments 24,614 (5,842) 2,606 (17,477) 6,224 67 24,742 14,294
Net increase in net assets resulting
from operations 69,853 5,128 2,657 6,155 14,703 4,491 23,641 13,078
Contract owners activity:
Payments received from contract owners 2,006,075 166,635 166,202 331,426 232,585 470,827 324,719 313,681
Net transfers between sub-accounts - 7,875 6,845 2,352 3,205 (31,775) 10,125 1,373
Withdrawals and surrenders (7,717) (4,656) - - - - - (3,061)
Net increase from contract activity 1,996,358 169,854 173,047 333,778 235,790 439,052 334,844 311,993
Net increase in net assets 2,068,211 174,982 175,704 339,933 250,493 443,543 358,485 325,071
Net assets, at beginning of period - - - - - - - -
Net assets, at end of period $2,068,211 $ 174,982 $ 175,704 $ 339,933 $ 250,493 $ 443,543 $ 358,485 $ 325,071
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Western-Southern Life Assurance Company
Separate Account 1
Notes to Financial Statements
1. Organization:
Western-Southern Life Assurance Company Separate Account I (the
"Account") is a unit investment trust registered under the Investment
Company Act of 1940 (the "1940 Act"), established by the
Western-Southern Life Assurance Company (the "Company"), a life
insurance company which is a wholly-owned subsidiary of the Western and
Southern Life Insurance Company ("Western & Southern"). The Account is a
funding vehicle for individual variable annuity contracts and commenced
operations on February 23, 1995.
2. Significant Accounting Policies:
The Account has seven investment sub-accounts each of which invests in
the corresponding portfolio ( a "Portfolio") of Select Advisors Variable
Insurance Trust (the "VI Trust"), each of which is an open-ended
diversified management investment company. A contractholder may also
allocate funds to the Fixed Account, which is part of the general
account of the Company. Due to exemptive and exclusionary provisions,
interests in the Fixed Account have not been registered under the
Securities Act of 1933 (the "1933 Act") and the Company's general
account has not been registered as an investment company under the 1940
Act. Sub-account transactions are recorded on the trade date and income
from dividends is recorded on the ex-dividend date. Realized gains and
losses on the sales of investments are computed on the basis of specific
identification.
3. Contract Charges:
Certain deductions for administrative and risk charges are deducted from
the contract value, in order to compensate the Company for
administrative expenses and for the assumption of mortality and expense
risks. These charges are made daily at an annual effective rate of
1.35%.
The Company also deducts an annual contract maintenance charge from the
contract value on each contract anniversary and upon any full surrender.
The contract maintenance charge in $35 for the first ten Contract Years
and the lesser of (a) $35 and (b) 0. 17% of the Contract Value after the
tenth Contract Anniversary.
Since no deduction for a sales charge is made from the payments received
from contract owners, a surrender charge is imposed on certain
surrenders and partial
withdrawals to cover expenses relating to promotion, sale and
distribution of the contracts. The surrender charge is assessed on each
payment received, except for certain amounts excluded from charges under
the contract. This charge ranges from 7% to 0% depending on age of
premium.
<PAGE>
4. Taxes:
For federal income tax purposes, the Account's operations are included
with those of the Company. The Company intends to make appropriate
charges against the Account in the future if and when tax liabilities
arise.
5. Purchases and Sales of Investments:
The following table shows aggregate cost of shares and beneficial
interests purchased and proceeds from sales of each sub-account for the
period February 23, 1995 (commencement of operations) to December 31,
1995.
Purchases Sales
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio $185,932 $5,158
lnternational Equity Portfolio 173,644 575
Balanced Portfolio 358,547 1,121
Income Opportunity Portfolio 245,131 837
Standby Income Portfolio 467,616 23,966
Select Advisors Portfolios
Growth & Income Portfolio II 334,879 1,122
Bond Portfolio II 315,056 4,268
6. Unit Values:
The following table shows a summary of units outstanding for variable
annuity contracts for the period February 23, 1995 (commencement of
operations) to December 31, 1995.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Transfers
Beginning Units Units Between Sub- Ending Unit Ending
Unit Purchased Redeemed Accounts Units Value Value
--------- --------- -------- ------------ ------- --------- ----------
Emerging Growth Sub-account 0 14,697 (415) 690 14,972 11.687169 $174,962
International Equity Sub-account 0 15,023 622 15,645 11.230830 175,704
Balanced Sub-account 0 28,218 198 28,416 11.962842 339,933
Income Opportunity Sub-account 0 19,749 266 20,015 12.515143 250,493
Standby Income Sub-account 0 46,097 (3,106) 42,991 10.317194 443,543
Growth & Income Sub-account 0 27,841 860 28,701 12.490239 358,485
Bond Sub-account 0 29,016 (278) 125 28,863 11.262524 325,071
$2,068,211
</TABLE>
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
CONTENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets
Summaries of Operations
Statements of Changes in Shareholder's Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of The Western and
Southern Life Insurance Company)
-------
REPORT ON AUDITS OF STATUTORY BASIS FINANCIAL
STATEMENTS for the years ended December 31, 1995,
1994, and 1993
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Western-Southern Life Assurance Company
We have audited the accompanying balance sheets (statutory basis) of
Western-Southern Life Assurance Company (a wholly-owned subsidiary of The
Western and Southern Life Insurance Company) as of December 31, 1995 and 1994,
and the related summaries of operations (statutory basis) and statements of
changes in shareholder's equity (statutory basis) and cash flows (statutory
basis) for the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by insurance regulatory
authorities.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western-Southern Life Assurance
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the three years in the period ended December 31, 1995 in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities, which practices are considered to be generally accepted
accounting principles for wholly-owned stock life subsidiaries of mutual life
insurance companies.
During 1995, the Company changed its method of accounting for mortgage-backed
securities in accordance with statutory guidelines as discussed in Note 2.
/S/ COOPERS & LYBRAND, L.L.P.
Cincinnati, Ohio
April 15, 1996
<PAGE>
<TABLE>
<CAPTION>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of The Western and
Southern Life Insurance Company)
BALANCE SHEETS
(Statutory Basis)
as of December 31, 1995 and 1994
(in thousands)
ASSETS
<S> <C> <C>
1995 1994
----------------------- -----------------------
Debt securities $2,031,627 $1,710,601
Preferred and common stocks 71,704 58,325
Mortgage loans 127,968 141,278
Policy loans 51,952 51,941
Cash and temporary investments 110,067 53,516
Other invested assets 38,483 35,937
----------------------- -----------------------
Cash and invested assets 2,431,801 2,051,598
Investment income due and accrued 31,268 26,965
Reinsurance due, held by parent 33,988 32,249
Other assets 3,430 2,142
Separate account assets 2,225 0
----------------------- -----------------------
Total assets $2,502,712 $2,112,954
======================= =======================
LIABILITIES
Policy reserves $2,199,476 $1,925,319
Policy claims in process of settlement 7,312 5,961
Federal income taxes payable 12,999 4,692
Amounts due to parent:
Reinsurance premiums 27,970 27,072
General expenses 6,310 5,261
Other 21,228 0
Liability for temporary investments held for affiliates 4,829 4,942
Other liabilities 17,158 13,228
Interest maintenance reserve 13,753 11,612
Asset valuation reserve 22,510 17,033
Separate account reserves 2,225 0
----------------------- -----------------------
Total liabilities $2,335,770 $2,015,120
----------------------- -----------------------
SHAREHOLDER'S EQUITY
Common stock, $1 par value, authorized 10,000,000
shares, issued and outstanding 1,500,000 shares $ 1,500 $ 1,500
Paid-in capital 220,000 160,000
Retained earnings (deficit) (54,558) (63,666)
----------------------- -----------------------
Total shareholder's equity 166,942 97,834
----------------------- -----------------------
Total liabilities and shareholder's equity $2,502,712 $2,112,954
======================= =======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of The Western and
Southern Life Insurance Company)
SUMMARIES OF OPERATIONS
(Statutory Basis)
for the years ended December 31, 1995, 1994 and 1993
(in thousands)
<S> <C> <C> <C>
1995 1994 1993
---------------------- ---------------------- -------------
Revenue:
Premiums $399,722 $496,525 $416,689
Net investment income 183,326 146,958 122,565
---------------------- ---------------------- -----------
583,048 643,483 539,254
---------------------- ---------------------- -----------
Policy benefits and expenses:
Death benefits 73,879 58,418 51,302
Annuity benefits 80,608 58,044 33,160
Surrender benefits 28,221 27,064 24,372
Other benefits 3,429 2,453 2,179
Increase in policy reserves 274,176 387,507 327,458
Net transfers to separate account 2,140 0 0
Commissions on premiums 36,845 44,817 42,501
General expenses 56,221 52,474 43,890
---------------------- ---------------------- -----------
555,519 630,777 524,862
---------------------- ---------------------- -----------
Gain from operations before federal income
taxes and net realized capital gain (loss) 27,529 12,706 14,392
Federal income taxes 9,263 5,324 6,579
---------------------- ---------------------- -----------
Net gain from operations before net
realized capital gain/(loss) 18,266 7,382 7,813
Realized capital gain/(loss), less federal
income tax/(benefit) of $2,884 in 1995,
$(2,225) in 1994, and $(374) in 1993 6 (314) (654)
---------------------- ---------------------- -----------
Net income $18,272 $7,068 $7,159
====================== ====================== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of The Western and
Southern Life Insurance Company)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(Statutory Basis)
for the years ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Shareholder's equity, beginning of year $97,834 $90,452 $60,425
Net income 18,272 7,068 7,159
Change in asset valuation reserve (5,477) (2,497) (1,220)
Change in net unrealized gains (losses):
Unaffiliated common stock 1,759 (918) 0
Subsidiaries (3,776) (3,332) (3,435)
Other invested assets 307 (1,235) (504)
Change in reserves on real estate and
mortgage loans (3,733) 46 (1,899)
Capital contribution from parent 60,000 10,000 30,000
Other changes, net 1,756 (1,750) (74)
--------------------- --------------------- ----------------------
Shareholder's Equity, end of year $166,942 $97,834 $90,452
===================== ===================== ======================
THE ACCOMPANING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of The Western and
Southern Life Insurance Company)
STATEMENTS OF CASH FLOWS
(Statutory Basis)
for the years ended December 31, 1995, 1994, and 1993
(in thousands)
<S> <C> <C> <C>
1995 1994 1993
-------------------- -------------------- --------------------
Net cash from operations:
Premium and annuity considerations $396,882 $493,630 $418,117
Net investment income received 175,087 140,579 116,565
Other income received 1,277 256 25
-------------------- -------------------- --------------------
$573,246 $634,465 534,707
Surrender and annuity benefits paid (108,886) (84,851) (58,101)
Death and other benefits to policyholders (78,355) (58,535) (52,678)
Commissions, other expenses and taxes paid (87,719) (93,899) (84,221)
Net increase in policy and other loans (6,069) (14,516) (4,920)
Federal income taxes paid to parent (3,840) (11,716) (4,726)
-------------------- ------------------- --------------------
Net cash from operations $288,377 $370,948 330,061
Proceeds from investments sold, matured, or repaid:
Debt securities 655,178 343,311 354,232
Stocks 17,503 10,149 87,647
Mortgage loans 13,229 7,047 27,949
Other invested assets 12,071 4,290 3,010
-------------------- ------------------- --------------------
Total investment proceeds 697,981 364,797 472,838
Capital contributions 60,000 10,000 30,000
Other sources 21,730 0 47,851
-------------------- ------------------- --------------------
Total cash provided 1,068,088 745,745 880,750
-------------------- ------------------- --------------------
Cost of investments acquired:
Debt securities 968,408 711,387 709,765
Stocks 30,194 41,271 89,099
Mortgage loans 10,295 1,628 13,468
Other invested assets 466 2,414 39
-------------------- ------------------- --------------------
Total investments acquired 1,009,363 756,700 812,371
Other cash applied, net 34 2,378 2,898
Net transfers to separate account 2,140 0 0
-------------------- ------------------- --------------------
Total cash applied 1,011,537 759,078 815,269
-------------------- ------------------- --------------------
Net change in cash and temporary investments 56,551 (13,333) 65,481
Cash and temporary investments:
Beginning of year 53,516 66,849 1,368
-------------------- ------------------- --------------------
End of year $110,067 $53,516 $66,849
==================== =================== ====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. PRINCIPAL ACCOUNTING POLICIES:
Western-Southern Life Assurance Company ("WSLAC") is a wholly-owned
subsidiary of The Western and Southern Life Insurance Company, a mutual
life insurance company.
WSLAC offers individual annuities and interest-sensitive life insurance
products through its parent company's agents and various financial
institutions. The Company is licensed in forty-two states and the District
of Columbia. However, approximately 49% of the gross statutory premiums
for the Company were derived from Ohio, Missouri, Texas and North
Carolina.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by insurance regulatory
authorities, which practices are considered to be generally accepted
accounting principles (GAAP) for wholly-owned stock life subsidiaries of
mutual life insurance companies.
In January 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 120, Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts. This
Statement, effective for fiscal years beginning after December 15, 1995,
extends the requirements of SFAS Nos. 60, 97, and 113 to mutual life
insurance companies. It also defers the effective date of Interpretation
40, previously issued by the FASB in 1993, to fiscal years beginning after
December 15, 1995. Interpretation 40 indicated that financial statements
of mutual life insurance companies prepared on a statutory basis will no
longer be considered in conformity with GAAP. In addition, the American
Institute of Certified Public Accountants has issued Statement of Position
(SOP) 95-1, Accounting for Certain Insurance Activities of Mutual Life
Insurance Enterprises, which is also effective for fiscal years beginning
after December 15, 1995. This SOP establishes accounting for certain
participating life insurance contracts. These statements apply to the
Company since it is a subsidiary of a mutual company.
The effect of initially applying SFAS No. 120, Interpretation 40, and SOP
95-1 is to be reported retroactively through restatement of all previously
issued annual financial statements presented for comparative purposes for
fiscal years beginning after December 15, 1992. The effect of
implementation of this statement has not yet been determined, although
management expects the implementation to have a positive impact on the
Company's shareholder's equity. Management plans to initiate the
accounting changes in 1996.
The following is a description of the principal accounting policies and
practices used in the preparation of these financial statements.
REVENUES AND EXPENSES
Premium revenues on fixed premium policies are recognized when due over
the premium paying period of the policies. Premium revenues on flexible
premium policies are recognized when received. Commissions and other costs
of acquiring the policies are charged to expense when incurred.
VALUATION OF INVESTMENTS
Debtsecurities and stock values are as prescribed by the National
Association of Insurance Commissioners (NAIC); debt securities
principally at amortized cost, preferred stock in good standing at
cost and all other stocks at market.
Investments in subsidiaries are recorded on the equity method, adjusted to
use only those assets that would constitute admitted assets if owned
directly by an insurance company.
The net income or loss of such subsidiaries is recorded directly to
retained earnings.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. PRINCIPAL ACCOUNTING POLICIES, CONTINUED
Mortgage loans not in default are carried at outstanding indebtedness adjusted
for unamortized premium or discount. Mortgage loans in default and
property acquired in satisfaction of debt are recorded at the lower of
the related indebtedness or fair market value.
Policy loan values are at outstanding indebtedness not in excess of policy
cash surrender value.
Realestate joint ventures and partnerships are accounted for on the equity
method, with the equity in earnings recorded through net investment income
and retained earnings for general and limited partnership interests,
respectively.
The asset valuation reserve serves to provide a reserve, recorded through
retained earnings, against fluctuations in the market values of debt
securities, stocks, mortgage loans, real estate, and other invested
assets. The interest maintenance reserve defers the recognition of
realized capital gains and losses resulting from changes in interest rates
on fixed income investments sold and amortizes the gains and losses into
investment income over the approximate remaining life of the investments
sold. The net gain (loss) deferred as a result of recording the interest
maintenance reserve was $4,500,000 and $(4,065,000) net of federal income
taxes (benefit) of $2,423,000 and $(2,189,000) in 1995 and 1994,
respectively.
Realized gains and losses from sales of securities are determined on the
basis of specific identification and recognized on the trade date.
Realized gains and losses, adjusted for the interest maintenance reserve,
are included in the determination of net income. Adjustments to fair
market value for permanent declines in value of mortgage loans, property
acquired in satisfaction of debt, and real estate are treated as realized
losses and are included in net income. Adjustments for declines which are
not permanent and for valuation reserves are treated as unrealized losses.
Unrealized gains and losses on all investments are reported as adjustments
to retained earnings.
POLICY RESERVES
Policy reserves for life insurance, annuity contracts, and supplemental
benefits are developed by using accepted actuarial methods and are
computed principally on the Commissioner's Reserve Valuation Method. The
following mortality tables and interest rates are used:
<TABLE>
PERCENTAGE OF RESERVES
<S> <C> <C>
1995 1994
----
Life insurance:
58 CSO and 80 CSO, 3 1/2% - 5 1/2% 36.9 % 40.2 %
Annuities:
Various, 2 1/2% - 8 1/4% 62.4 59.1
Supplemental benefits:
Various, 2 1/2% - 8 1/4% 0.7 0.7
------------------ ------------------
100.0% 100.0%
================== ==================
</TABLE>
The establishment of appropriate reserves is an inherently uncertain
process, and there can be no assurance that the ultimate liability will
not exceed the Company's policy reserves and have
an adverse effect on the Company's results of operations and financial
condition. Due to the inherent uncertainty of estimating reserves, it has
been necessary, and may over time continue to be necessary, to revise
estimated future liabilities as reflected in the Company's policy
reserves.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. PRINCIPAL ACCOUNTING POLICIES, CONTINUED
CASH AND TEMPORARY INVESTMENTS
The Company considers short-term investments with an original maturity of
three months or less to be temporary investments.
SEPARATE ACCOUNTS
The assets of the separate account shown in the balance sheet are based on
market value and represent funds which are segregated for variable annuity
contracts. Separate account income is offset by payments and provisions
for benefits and services, thus having no effect on net income or
policyholders' surplus.
FEDERAL INCOME TAXES
The Company's parent files a consolidated tax return with its eligible
subsidiaries, including the Company. The provision for federal income
taxes is allocated to the Company using a separate return method based
upon a written agreement. Under the agreement, the benefits from losses of
subsidiaries is not retained by the subsidiary companies but are allocated
among those companies in the consolidated group having taxable income.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
practices prescribed or permitted by insurance regulatory authorities
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statements of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments:
CASH AND TEMPORARY INVESTMENTS
The carrying amounts reported in the balance sheet for these instruments
approximate their fair values.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
DEBT SECURITIES
Fair values for debt securities are based on quoted market prices.
The amortized cost and estimated fair values of investments in debt
securities at December 31, 1995, and 1994, are as follows:
<TABLE>
1995
<S> <C> <C> <C>
---------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------- ------------------- ------------------- --------------------
(in thousands)
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 11,980 $ 396 $ 0 $12,376
Debt securities issued by states
of
the U.S. and political
subdivisions
of the states 111,554 8,070 0 119,624
Corporate securities 1,106,321 84,144 1,286 1,189,180
Mortgage-backed securities 801,772 30,317 4,056 828,032
------------------- ------------------- ------------------- -----------------
Total $2,031,627 $122,927 $5,342 $2,149,212
=================== =================== =================== =================
1994
-----------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
-------------------- --------------------- ------------------- ----------------
(in thousands)
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $16,640 $66 $613 $16,093
Debt securities issued by states
of
the U.S. and political
subdivisions
of the states 74,407 104 3,813 70,698
Corporate securities 938,137 12,013 53,479 896,671
Foreign governments 4,854 34 4,820
Mortgage-backed securities 676,563 1,590 51,040 627,113
-------------------- -----------
Total $1,710,601 $13,773 $108,979 $1,615,395
==================== ============ ================== ====================
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31,1995, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
<TABLE>
<S> <C> <C>
Amortized Estimated Market
Cost Value
---------------------------- ----------------------------
(in thousands)
Due in one year or less $19,698 $20,093
Due after one year through five years 280,834 298,923
Due after five years through ten years 755,850 813,796
Due after ten years 173,473 188,368
------------------- -------------------
1,229,855 1,321,180
Mortgage-backed securities 801,772 828,032
------------------- -------------------
Total $2,031,627 $2,149,212
=================== ===================
</TABLE>
Proceeds from sales of investments in debt securities during 1995, 1994,
and 1993 were $655,178,000, $343,311,000, and $354,232,000, respectively.
Gross gains of $14,839,000, $7,688,000, and $18,674,000 and gross losses
of $9,739,000, $13,698,000, and $430,000 were realized on those sales in
1995, 1994 and 1993, respectively.
During 1995, the company changed its method of accounting for
mortgage-backed securities in accordance with new statutory guidelines.
The company now takes into consideration prepayment assumptions when
valuing these securities. The recalculated effective yield will equate the
present value of the actual and anticipated cash flows with the original
cost of the investment. The current balance of the investment is increased
and decreased to the amount that would have resulted had the revised yield
been applied since inception, and investment income is correspondingly
decreased and increased. The net effect of this change was an increase to
investment income of $5,962,000.
PREFERRED AND COMMON STOCKS
Common stocks are carried in the balance sheet at their fair value.
Preferred stock, with a carrying amount of $20,034,000 and $28,717,000,
has an estimated fair value of $22,604,000 and $29,064,000 at December 31,
1995, and 1994, respectively.
MORTGAGE LOANS
The fair values for mortgage loans, consisting principally of commercial
real estate loans, are estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans
collateralized by properties with similar investment risk. The fair values
for mortgage loans in default are estimated at the lower of the fair
market value of the related underlying collateral or carrying value of the
loan. The carrying amounts and fair values of the Company's investments in
mortgage loans were as follows at December 31, 1995 and 1994:
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. FAIR VALUES OF FINANCIAL STATEMENTS, CONTINUED:
<TABLE>
1995 1994
---- ----
<S> <C> <C> <C> <C>
CARRYING Fair Carrying Fair
AMOUNT Value Amount Value
-------------------- --------------------- --------------------- --------------
(IN THOUSANDS)
Mortgage loans $127,968 $130,884 $141,278 $140,675
==================== ===================== ===================== ==============
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
1995 1994 1993
-------------- -------------- --------------
(IN THOUSANDS)
Balance, beginning of year $973 $1,153 $1,650
Provisions for temporary declines charged to surplus 3,733 0 1,853
Charge-offs and recoveries, net (973) (180) (2,350)
--------------- --------------- ---------------
Balance, end of year $3,733 $973 $1,153
=============== =============== ===============
</TABLE>
It is the opinion of management that adequate provisions have been made
for anticipated losses in the loan portfolio. Management's periodic
evaluations of the adequacy of the allowance is based on the Company's
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic
conditions. Changes in the overall economy may impact the allowance for
loan losses. At December 31, 1995, the recorded investment in loans for
which impairment has been recognized was immaterial to the Company's
financial statements.
POLICY LOANS
The Company believes it is not practicable to estimate the fair value of
policy loans. These assets, totaling $51,952,000 and $51,941,000 at
December 31, 1995, and 1994, respectively, are carried at their aggregate
unpaid principal balances. Estimation of the fair market value is not
practicable as the loans have no stated maturity and are an integral part
of the related insurance contracts.
RESERVES FOR INVESTMENT-TYPE INSURANCE CONTRACTS
Certain reserves for investment-type insurance contracts do not include
mortality or morbidity risk. Fair values for insurance reserves are not
required to be disclosed. However, the estimated fair values for all
insurance reserves and investment contracts are taken into consideration
in the Company's overall management of the interest rate risk.
The Company believes that all individual annuity contracts which are in
the cash value fund accumulation phase prior to annuitization represent
investment-type insurance contracts. The fair values for these contracts
have been estimated as the carrying values in the balance sheet less any
applicable surrender charges. It also believes the single premium
immediate annuities without life contingencies represent investment
contracts. The fair value of these annuities is estimated by recalculating
the reserve at a reinvestment interest rate determined from
Asset/Liability matching. At December 31, 1995, and 1994 the amounts are
as follows:
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. FAIR VALUES OF FINANCIAL STATEMENTS, CONTINUED:
<TABLE>
1995 1994
<S> <C> <C> <C> <C>
CARRYING Fair Carrying Fair
AMOUNT Value Amount Value
-------------------- --------------------- --------------------- --------------
(IN THOUSANDS) (in thousands)
Individual annuities $1,326,934 $1,304,166 $1,095,889 $1,076,109
==================== ===================== ===================== ==============
</TABLE>
Interest changes may have temporary effects on the sale and profitability
of annuity products offered by the Company. Although the rates offered by
the companies are adjustable in the long-term, in the short-term they may
be subject to contractual and competitive restrictions which may prevent
timely adjustment. The Company's management constantly monitors interest
rates with respect to a spectrum of durations and sells annuities that
permit flexible responses to interest rate changes as part of the
Company's management of interest spreads. However, adverse changes in
investment yields on invested assets will affect the earnings on those
products with a guaranteed return.
3. RELATED PARTY TRANSACTIONS
The Company has three modified coinsurance agreements under which it cedes
all of its universal life insurance business to its parent. Under the
terms of the agreement, the Company retains the reserves and related
assets. The Company also records in its summaries of operations premiums
less experience refunds, commissions, adjustments to reserves as specified
in the agreement, benefits incurred and other related expenses of this
business. The net effect of the agreements on operations of the Company
has been recorded as a reduction (increase) in general expenses of
$(1,633,000), $793,000 and $6,765,000 in 1995, 1994, and 1993,
respectively.
The Company also has a coinsurance agreement under which it assumes all of
its parent's flexible premium annuity business. Under the terms of this
agreement, the Company assumed reserves of $29,744,000 and $31,243,000
December 31, 1995, and 1994, respectively. Amounts included in the
summaries of operations resulting from this agreement are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
----
(IN THOUSANDS)
Premiums $1,150 $1,177 $493
Net investment income 2,015 1,916 2,171
Benefits and expenses 3,944 3,715 2,851
Decrease in policy reserves (1,499) (1,141) (187)
</TABLE>
The Company has no employees of its own and reimburses its parent for
management services and rent. Management services provided by the parent
amounted to $33,750,000, $32,291,000, and $30,971,000 in 1995, 1994, and
1993, respectively. Rent expense was $4,391,000, $4,126,000 and $3,858,000
in 1995, 1994, and 1993, respectively.
During 1995 and 1994, the Company made capital contributions of $2,900,000
and $3,225,000, respectively, to its wholly-owned subsidiary IFS Financial
Services (IFS). Additionally, the Company pays commissions to IFS for
sales made on behalf of the Company. These commissions totaled $1,148,000,
$1,858,000, and $1,099,000 in 1995, 1994, and 1993, respectively.
During 1995 and 1994, the Company's parent made capital contributions of
$60,000,000 and $10,000,000, respectively, to the Company.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. RELATED PARTY TRANSACTIONS, CONTINUED
At December 31, 1995, and 1994, the Company had $31,118,000 and
$28,732,000, respectively, invested in the Touchstone Funds, mutual funds
administered by Touchstone Advisors, Inc., a wholly-owned subsidiary of
IFS.
4. FEDERAL INCOME TAXES
In 1987, the Company's parent recorded an assessment from the Internal
Revenue Service relating to an audit of the 1982 and 1983 consolidated tax
returns in which the Company was included. The assessment related to the
Company amounted to $71,725,000 and included interest in the amount of
$26,380,000. The issue involved in the assessment was the disallowance of
certain deductions relating to life reserves of the Company's universal
life products taken in excess of such reserves computed for statutory
purposes. The assessment was paid in order to litigate the issue as the
Company maintained that the original deductions were proper and in
accordance with the Internal Revenue Code. In 1994, the U. S. District
Court issued a summary judgment which stated the original deductions were
proper, entitling the Company's parent to a refund of all related
assessments paid including interest. This judgment was appealed by the
IRS, and in 1995, the IRS settled this issue through a refund totaling $81
million, including interest of $53 million. The effect of the resolution
of this matter was recorded by the Company's parent in accordance with the
tax sharing agreement.
Following is a reconciliation between the amount of tax computed at the
federal statutory rate of 35% and the federal income tax provision (exclusive of
taxes related to capital gains or losses) reflected in the summary of
operations:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
--------------------- --------------------- --------------------
(IN THOUSANDS)
Income tax computed at statutory rate $9,635 $4,447 $5,037
Increase (decrease) in taxes resulting from:
Adjustments to statutory reserves for tax 1,652 2,999 680
purposes
Deferred acquisition costs recorded for tax 721 1,400 1,475
purposes
Reclassification of capital gains to ordinary 401 231 213
income
Mortgage loan writedowns recorded in prior
years
through shareholder's equity (1,307) (30) (649)
Bond discount accrual (1,273) (899) (398)
Difference between book and tax income from
investments in partnerships (279) 439 770
Change in deferred and uncollected (15) (368) (558)
Guaranty fund assessment accrued at year end 531 (216) 525
Amortization of interest maintenance reserve (826) (679) (520)
Changes in prior period estimates (1,594)
Other 23 (406) 4
---------------- ----------------- ----------------
Federal income taxes $9,263 $5,324 $6,579
================ ================= ================
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. SUBSIDIARIES:
The following represents combined capsule information for the Company's
wholly-owned subsidiaries, IFS Financial Services, Inc., and Courtyard
Nursing Care, Inc., for the years ended December 31, 1995, and 1994:
<TABLE>
<S> <C> <C>
1995 1994
--------------------- ---------------------
(in thousands)
Assets $3,326 $3,694
Liabilities 2,867 983
Net revenues 2,401 2,696
Net loss (4,780) (2,457)
</TABLE>
6. PERMITTED STATUTORY ACCOUNTING PRACTICES:
The Company, which is domiciled in Ohio, prepares its statutory financial
statements in accordance with accounting principles and practices
prescribed or permitted by the State of Ohio Department of Insurance.
Prescribed statutory accounting practices include state laws, regulations,
and general administrative rules, as well as a variety of publications of
the National Association of Insurance Commissioners (NAIC). Permitted
statutory accounting practices encompass all accounting practices that are
not prescribed; such practices differ from state to state, may differ from
company to company within a state, and may change in the future.
The Company received written approval from the State of Ohio Department of
Insurance to record Guaranty Fund Assessments when billed and defer the
amount on the balance sheet to the extent that they are recoverable
through premium tax credits. When the tax credits are realized, the
deferred tax assessment is removed from the balance sheet as a charge to
premium tax expense. There is no prescribed statutory accounting treatment
for these transactions.
The Company also received approval to record all taxes, including
interest, assessments, settlements and corrections through the Summary of
Operations, rather than as a direct charge to shareholder's equity. There
is no prescribed accounting treatment for these transactions.
7. CONTINGENCY
Various lawsuits have arisen in the ordinary course of the Company's
business. In each of the matters, the Company believes its defenses are
meritorious and that the eventual outcome will not have a material effect
on the Company's financial position.
8. REGULATORY RESTRICTIONS
The Company is required by statutory regulations to meet minimum
risked-based capital standards. Risk-based capital is a method of
measuring the minimum amount of capital appropriate for an insurance
company to support its overall business operations in consideration of its
size and risk profile. At December 31, 1995 and 1994, the Company
substantially exceeded the minimum risk-based capital standards required.
State regulatory authorities have powers relating to granting and revoking
licenses to transact business, the licensing of agents, the regulation of
premium rates and trade practices, the form and content of insurance
policies, the content of advertising material, financial statements and
the nature of permitted practices.
DISTRIBUTOR
Touchstone Securities, Inc. SUB-ACCOUNTS
311 Pike Street
Cincinnati, Ohio 45202 oEmerging Growth
(800) 669-2796 (press 3) oInternational Equity
oGrowth & Income
INVESTMENT ADVISOR; SPONSOR oBalanced
oIncome Opportunity
Touchstone Advisors, Inc. oBond
311 Pike Street oStandby Income
Cincinnati, Ohio 45202
VARIABLE ANNUITY SERVICE CENTER
Touchstone Variable Annuity Service Center
P.O. Box 419707
Kansas City, Missouri 64179-0819
(800) 669-2796 (press 2)
CUSTODIAN
Investors Bank & Trust Company STATEMENT OF
89 South Street ADDITIONAL INFORMATION
Boston, Massachusetts 02111 May 1, 1996
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
201 East Fourth Street
Cincinnati, Ohio 45202
LEGAL COUNSEL
Frost & Jacobs
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
0287805.04
<PAGE>
PART C
ITEM 24 -- FINANCIAL STATEMENTS AND EXHIBITS
(a) There are no financial statements included in Part A. The following
Financial Statements and Financial Statement Schedules of
Western-Southern Life Assurance Company Separate Account 1 and
Western-Southern Life Assurance Company are omitted from Part C and
instead included in Part B:
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
(1) Report of Coopers & Lybrand on the Financial Statements of
Western-Southern Life Assurance Company Separate Account 1.
(2) Statement of Net Assets of Western-Southern Life Assurance Company
Separate Account 1 as of December 31, 1995.
(3) Statement of Operations and Changes in Net Assets of Western-Southern
Life Assurance Company Separate Account 1 for the Year Ended December
31, 1995.
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(1) Report of Coopers & Lybrand on the Financial Statements of
Western-Southern Life Assurance Company.
(2) Balance Sheets of Western-Southern Life Assurance Company as of December
31, 1995 and 1994.
(3) Summaries of Operations for Western-Southern Life Assurance Company for
the Years Ended December 31, 1995, 1994 and 1993.
(4) Statements of Changes in Shareholder's Equity for Western-Southern Life
Assurance Company for the Years Ended December 31, 1995, 1994 and 1993.
(5) Statements of Cash Flows for Western-Southern Life Assurance Company for
the Years Ended December 31, 1995, 1994 and 1993.
(b) Exhibits:
(1) Resolutions of Board of Directors of Western-Southern Life
Assurance Company (the "Company") establishing Western-Southern Life
Assurance Company Separate Account 1 incorporated herein by reference to the
Registration Statement filed with the Securities and Exchange Commission
("SEC") on March 17, 1994 (File No. 33-76582).
(2) Not Applicable.
<PAGE>
(3) (a) Distributor Agreement between the Company (on behalf of
Separate Account 1) and Touchstone Securities, Inc. incorporated
herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on November 14, 1994 (File
No. 33- 76582).
(b) Commission Schedule incorporated herein by reference to Pre-
Effective Amendment No. 2 to the Registration Statement filed with
the SEC on November 14, 1994 (File No. 33-76582).
(c) Specimens of agreements between Touchstone Securities, Inc. and its
dealers incorporated herein by reference to Pre-Effective Amendment
No. 2 to the Registration Statement filed with the SEC on November
14, 1994 (File No. 33-76582).
(4) (a) Specimen Variable Annuity Contract incorporated herein by
reference to Pre-Effective Amendment No. 2 to the Registration
Statement filed with the SEC on November 14, 1994 (File No. 33-
76582).
(b) Specimen Endorsements for Qualified Contracts incorporated herein by
reference to Pre-Effective Amendment No. 2 to the Registration
Statement filed with the SEC on November 14, 1994 (File No. 33-
76582).
(c) Specimen Waiver of Surrender Charge Endorsement incorporated herein
by reference to Pre-Effective Amendment No. 2 to the Registration
Statement filed with the SEC on November 14, 1994 (File No.
33-76582).
(5) Specimen Application Form for Variable Annuity Contract incorporated
herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on November 14, 1994 (File
No. 33-76582).
(6) (a) Amended Articles of Incorporation of the Company.
(b) Amended Code of Regulations of the Company.
(7) Not Applicable.
(8) (a) (i) Administrative Services Agreement between the Company and
Vantage Computer Systems, Inc. incorporated herein by reference to
Pre-Effective Amendment No. 2 to the Registration Statement filed
with the SEC on November 14, 1994 (File No. 33-76582).
<PAGE>
(ii) Administrative Services and Fund Accounting Agreement between
Signature Financial Services, Inc. and Select Advisors Portfolios
incorporated herein by reference to Pre- Effective Amendment No. 2
to the Registration Statement filed with the SEC on November 14,
1994 (File No. 33- 76582).
(b) Investment Advisory Agreement between Touchstone Advisors, Inc. and
Select Advisors Portfolios.
(c) Portfolio Advisory Agreements -- between Touchstone Advisors, Inc.
and
(i) Fort Washington Investment Advisors, Inc. (Growth & Income).
(ii) Fort Washington Investment Advisors, Inc. (Bond).
(d) Custodian Agreement between Select Advisors Portfolios and
Investors Bank & Trust Company incorporated herein by reference to
Pre-Effective Amendment No. 2 to the Registration Statement filed
with the SEC on November 14, 1994 (File No. 33-76582).
(e) (i) Sponsor Agreement between Select Advisors Variable Insurance
Trust and Touchstone Advisors, Inc. incorporated herein by reference
to Pre-Effective Amendment No. 2 to the Registration Statement filed
with the SEC on November 14, 1994 (File No. 33-76582).
(ii) Sponsor Agreement between Select Advisors Portfolios and
Touchstone Advisors, Inc. incorporated herein by reference to
Pre-Effective Amendment No. 2 to the Registration Statement filed
with the SEC on November 14, 1994 (File No. 33-76582).
(f) Fund Participation Agreement between Select Advisors Portfolios and
Touchstone Advisors, Inc. incorporated herein by reference to
Pre-Effective Amendment No. 2 to the Registration Statement filed
with the SEC on November 14, 1994 (File No. 33-76582).
(9) Opinion and consent of Donald B. Wuebbling, Esq. as to legality of
securities being issued incorporated herein by reference to the
Registration Statement filed with the SEC on March 17, 1994 (File
No. 33-76582).
(10) Written consent of Coopers & Lybrand.
<PAGE>
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for Computation of Performance Quotations provided in
Registration Statement in response to Item 21.
(15) (a) Powers of Attorney -- Directors of the Company.
(b) Powers of Attorney -- Trustees of Select Advisors Portfolios.
ITEM 25. -- DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and officers of the Company are:
William J. Williams Chairman of the Board and Director
John F. Barrett Director, Chief Executive Officer and
President
James N. Clark Director, Executive Vice President and
Treasurer
William D. Atteberry Director
1500 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
Dr. J. Harold Kotte Director
Dr. Lawrence C. Hawkins Director
Omni-Man, Inc.
3909 Reading Road
Cincinnati, Ohio 45229
Carl A. Kroch Director
Kroch's & Brentano's
29 South Wabash Avenue
Chicago, Illinois 60603
<PAGE>
Eugene P. Ruehlmann Director
Vorys, Sater, Seymour and Pease
Suite 2100 Atrium Two
221 East Fourth Street
Cincinnati, Ohio 45202
Charles M. Williams Director
Thomas L. Williams Director
North American Properties
212 East Third Street
Suite 300
Cincinnati, Ohio 45202
Robert A. Bodeker Vice President
Herbert R. Brown Vice President
James W. Carpenter Vice President and Senior Counsel
Keith T. Clark Vice President and Medical Director
Charles W. Craig Vice President and Chief Technology
Officer
Bryan C. Dunn Senior Vice President and Chief Marketing
Officer
David G. Ennis Vice President and Auditor
Noreen J. Hayes Vice President
Edward S. Heenan Vice President and Comptroller
Dale P. Hennie Vice President
Carroll R. Hutchinson Senior Vice President and Chief Actuary
Donald W. Kaplan Vice President and Actuary
William F. Ledwin Senior Vice President and Chief
Investment Officer
Harold V. Lyons Vice President and Actuary
J. J. Miller Senior Vice President
<PAGE>
Kenneth A. Palmer Senior Vice President
Margaret A. Parks Secretary
Mario J. San Marco Vice President
Stephen G. Scheurer Vice President
Thomas M. Stapleton Vice President
Robert H. Starnes Vice President
Richard K. Taulbee Vice President
Donald J. Wuebbling Vice President and General Counsel
G. H. Schellpeper Vice President
8901 Indian Hills Drive
Omaha, Nebraska 68144
Unless otherwise noted, the principal business address of all persons
listed in Item 25 is 400 Broadway, Cincinnati, Ohio 45202.
ITEM 26. -- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Western and Southern Life Insurance Company ("WSLIC")
Western-Southern Life Assurance Company ("WSLAC"); 100% owned by
WSLIC
Courtyard Nursing Care, Inc.; Ohio corporation; 100% owned by
WSLAC; ownership and operation of real estate.
IFS Financial Services, Inc. ("IFS"); Ohio corporation; 100%
owned by WSLAC; development and marketing of financial products
for distribution through financial institutions.
IFS Systems, Inc.; Delaware corporation; 100% owned by IFS;
development, marketing and support of software systems.
IFS Insurance Agency, Inc.; Ohio corporation; 99% owned by IFS,
1% owned by William F. Ledwin; general insurance agency.
Touchstone Securities, Inc.; Nebraska corporation; 100% owned by
IFS; securities broker-dealer.
<PAGE>
Touchstone Advisors, Inc.; Ohio corporation; 100% owned by IFS;
registered investment adviser.
IFS Agency Services, Inc.; Pennsylvania corporation; 100% owned
by IFS; general insurance agency.
IFS Agency, Inc.; Texas corporation; 100% owned by an
individual; general insurance agency.
IFS General Agency, Inc.; Pennsylvania corporation; 100% owned
by William F. Ledwin; general insurance agency.
Seasons Congregate Living, Inc.; Ohio corporation; 100% owned by
WSLIC; ownership and operation of real estate.
Latitudes at the Moors, Inc.; Florida corporation; 100% owned by
WSLIC; ownership and operation of real estate.
WestAd Inc.; Ohio corporation; 100% owned by WSLIC, general
advertising, book-selling and publishing.
Fort Washington Investment Advisors, Inc.; Ohio corporation;
100% owned by WSLIC; registered investment adviser.
Columbus Life Insurance Company; Ohio corporation; 100% owned by
WSLIC; insurance.
Colmain Properties, Inc.; Ohio corporation; 100% owned by
Columbus Life Insurance Company; acquiring, owning, managing,
leasing, selling real estate.
Colpick, Inc.; Ohio corporation; 100% owned by Colmain
Properties, Inc.; acquiring, owning, managing, leasing and
selling real estate.
CAI Holding Company, Inc.; Ohio corporation; 100% owned by
Columbus Life Insurance Company; holding company.
Capital Analysts Incorporated; Delaware corporation; 100% owned
by CAI Holding Company; securities broker-dealer.
Capital Analysts Agency, Inc.; Ohio corporation; 99% owned by
Capital Analysts Incorporated, 1% owned by William F. Ledwin;
general insurance agency.
<PAGE>
Capital Analysts Agency, Inc.; Texas corporation; 100% owned by
an individual who is a resident of Texas, but under contractual
association with Capital Analysts Incorporated; general
insurance agency.
Capital Analysts Insurance Agency, Inc.; Massachusetts
corporation; 100% owned by Capital Analysts Incorporated;
general insurance agency.
CLIC Company I; Delaware corporation; 100% owned by Columbus
Life Insurance Company; holding company.
CLIC Company II; Delaware corporation; 100% owned by Columbus
Life Insurance Company; holding company.
Eagle Properties, Inc.; Ohio corporation; 100% owned by WSLIC;
ownership, development and management of real estate.
Seasons Management Company; Ohio corporation; 100 % owned by
Eagle Properties, Inc.; management of real estate.
Continental General Corporation; Nebraska corporation; 100%
owned by WSLIC; holding company.
Continental Agency Services, Inc.; Nebraska corporation; 100%
owned by Continental General Corporation.
Continental General Insurance Company; Nebraska corporation;
100% owned by Continental General Corporation; insurance.
Continental Print & Photo Co.; Nebraska corporation; 100% owned
by Continental General Corporation; printing.
Waslic Company II; Delaware corporation; 100% owned by WSLIC;
holding company.
WestTax, Inc.; Ohio corporation, 100% owned by WSLIC;
preparation and electronic filing of tax returns.
Florida Outlet Marts, Inc.; Florida corporation; 100% owned by
WSLIC; ownership and operation of real estate.
AM Concepts Inc.; Delaware corporation, 100% owned by WSLIC;
venture capital investment in companies engaged in alternative
marketing of financial products.
<PAGE>
Western-Southern Agency, Inc.; Ohio corporation; 99% owned by
WSLIC; 1% owned by William F. Ledwin; general insurance agency.
Western-Southern Agency Services, Inc.; Pennsylvania
corporation; 100% owned by WSLIC; general insurance agency.
W-S Agency of Texas, Inc.; Texas corporation; 100% owned by an
individual; general insurance agency.
ITEM 27. -- NUMBER OF CONTRACT OWNERS
As of March 1, 1996, there were 57 owners of Qualified Contracts and 46
owners of Non-Qualified contracts of the Variable Account.
ITEM 28. -- INDEMNIFICATION
The Amended Code of Regulations of the Company provides that, to the
fullest extent not prohibited by applicable law, the Company shall
indemnify each director, officer and employee against any and all costs
and expenses (including attorney fees, judgments, fines, penalties,
amounts paid in settlement, and other disbursements) actually and
reasonably incurred by or imposed upon such director, officer or
employee in connection with any action, suit, investigation or
proceedings (or any claim or other matter therein), whether civil,
criminal, administrative or otherwise in nature, including any
settlements thereof of any appeals therein, with respect to which such
director, officer or employee is named or otherwise becomes or is
threatened to be made a party by reason of being or at any time having
been a director, officer or employee of the Company, or, at the
direction or request of the Company, a director, trustee, officer,
administrator, manager, employee, adviser or other agent of or fiduciary
for any other corporation, partnership, trust, venture or other entity
or enterprise including any employee benefit plan; provided, however,
that no person shall be indemnified to the extent, if any, that the
directors of the Company, acting at a meeting at which a quorum of
directors who are not parties to or threatened with any such action,
suit, investigation or proceeding, determine that such indemnification
is contrary to applicable law.
Any director of the Company who is a party to or threatened with any
such action, suit, investigation or proceeding shall not be qualified to
vote; and if for this reason a quorum of directors, who are not
disqualified from voting by reason of being parties to or threatened
with such action, suit, investigation or proceeding, cannot be obtained,
such determination shall be made by three attorneys at law, who have not
theretofore represented the Company in any matter and who shall be
selected by all of the officers and directors of the Company who are not
parties to or threatened with any such action, suit, investigation or
proceeding. If there are no officers or directors who are qualified to
make such selection, the selection shall be made by a Judge of the Court
of Common Pleas of Hamilton County, Ohio. Such indemnification shall not
be deemed exclusive of any other right to which such director, officer
or employee may be entitled
<PAGE>
under the Company's articles of incorporation, code of regulations, any
agreement, any insurance purchased by the Company, vote of shareholders
or otherwise.
The Board of Directors of the Company also may, in its discretion,
secure and maintain insurance policies against any liability asserted
against and incurred by any of the Company's directors, officers or
employees.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a trustee, director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted
by such trustee, director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issues.
ITEM 29. -- PRINCIPAL UNDERWRITERS
(a) Touchstone Securities, Inc. ("Touchstone") acts as distributor
for Contracts issued under Western-Southern Life Assurance
Company Separate Account 1 and as distributor for the shares of
several series (Funds) of Select Advisors Trust A and Select
Advisors Trust C, each of which is affiliated with the
Depositor.
(b) Set forth below are the names, principal business addresses and
positions of each director and officer of Touchstone. Unless
otherwise noted, the principal business address of these
individuals is Touchstone Securities, Inc., 311 Pike Street,
Cincinnati, Ohio 45202. Unless otherwise specified, none of the
officers and directors of Touchstone serves as an officer or
Trustee of the SA Trust.
NAME POSITION/OFFICE WITH DISTRIBUTOR
James N. Clark(1) Director
Edward G. Harness, Jr. Director and Chief Executive Officer
Trustee and President, SA Trust
Edward S. Heenan(1) Director and Controller
Treasurer, SA Trust
William F. Ledwin(1) Director
<PAGE>
Donald J. Wuebbling(1) Director
Brian Manley Vice President and Chief Financial
Officer,Assistant Treasurer, SA Trust
Richard K. Taulbee(1) Vice President
Carl A. Ramsey(2) Vice President
E. Duane Clay(2) Vice President
Robert F. Morand(1) Secretary
Patricia Wilson Chief Compliance Officer
(1) 400 Broadway
Cincinnati, Ohio 45202
(2) 8901 Indian Hills Drive
Omaha, Nebraska 68114
(c)
<TABLE>
<CAPTION>
Net Underwriting
Name of Principal Discounts and Compensation Brokerage
UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
Touchstone Securities, $26,967 $0 $0 $0
Inc.
</TABLE>
ITEM 30. -- LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained by the Company at 400 Broadway,
Cincinnati, Ohio 45202, and the Company's administrative services
agent, Vantage Computer Systems, Inc., at 301 West 11th Street, Kansas
City, Missouri 64105.
ITEM 31. -- MANAGEMENT SERVICES
Not Applicable.
<PAGE>
ITEM 32. -- UNDERTAKINGS
Registrant undertakes to:
(a) file a post-effective amendment to this Registration Statement
as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never
more than 16 months old for so long as payments under the
Contracts may be accepted;
(b) include either (1) as part of any application to purchase a
Contract offered by the Prospectus, a space that an applicant
can check to request a Statement of Additional Information, or
(2) a postcard or similar written communication affixed to or
included in the Prospectus that the applicant can remove to
send for a Statement of Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under this
Form promptly upon written or oral request directed to the
address or telephone number contained in the Prospectus.
Registrant represents that it is relying upon a "no-action" letter
issued to the American Council of Life Insurance concerning that
conflict between the redeemability requirements of sections 22(e),
27(c)(1) and 27(d) of the Investment Company Act of 1940 and the limits
on the redeemability of variable annuities imposed by Section
403(b)(11) of the Internal Revenue Code. Registrants have included
disclosure concerning the 403(b)(11) restrictions in their prospectus
and sales literature, and established a procedure whereby each plan
participant will sign a statement acknowledging these restrictions
before a Contract is issued. Sales representatives have been instructed
to bring the restrictions to the attention of potential plan
participants.
0287801.04
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Depositor, on behalf of itself and the
Registrant, certifies that it is filing this Registration Statement on Form N-4
(the "Registration Statement") pursuant to Rule 486(b) of the Securities Act of
1933 to update its financial statements and other information, and that no
material event requiring disclosure in the prospectus has occurred since the
filing of its most recent post-effective amendment, and has duly caused this
Post-Effective Amendment No. 2 to the Registration Statement (the
"Post-Effective Amendment") to be signed on its behalf, in the City of
Cincinnati and State of Ohio on the 29 day of April, 1996.
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY SEPARATE ACCOUNT 1
by
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY
By /S/ EDWARD S. HEENAN
Edward S. Heenan, Vice President and
Controller
As required by the Securities Act of 1933, this Post-Effective Amendment
has been signed below by the following persons in the capacities and on the date
indicated below.
PRINCIPAL EXECUTIVE OFFICER:
/S/JOHN F. BARRETT April 29, 1996
John F. Barrett, President, Director
and Chief Executive Officer
Principal Financial and
ACCOUNTING OFFICER:
Edward S. Heenan, Vice
President and Controller
By/S/EDWARD S. HEENAN
Edward S. Heenan, as Principal
DIRECTORS: Financial and Accounting
Officer and as attorney-in fact
WILLIAM D. ATTEBERRY
JAMES N. CLARK
LAWRENCE C. HAWKINS
J. HAROLD KOTTE
CARL A. KROCH
EUGENE P. RUEHLMANN April 29, 1996
CHARLES M. WILLIAMS
THOMAS L. WILLIAMS
WILLIAM J. WILLIAMS
<PAGE>
SIGNATURES
Select Advisors Portfolios (the "Portfolios") has duly caused this
Post-Effective Amendment No. 2 to the Registration Statement on Form N-4 (the
"Post-Effective Amendment") of Western-Southern Life Assurance Company Separate
Account 1 (the "Separate Account") to be signed on its behalf, in the City of
Cincinnati and State of Ohio on the 29th day of April, 1996.
SELECT ADVISORS PORTFOLIOS
By /S/EDWARD G. HARNESS, JR.
Edward G. Harness, Jr., President
The Post-Effective Amendment has also been signed below by the following
persons in the capacities indicated on the 29th day of April, 1996.
PRINCIPAL EXECUTIVE OFFICER:
/S/EDWARD G. HARNESS, JR. April 29, 1996
- -------------------------------
Edward G. Harness, Jr.
Trustee and President
Principal Financial and
ACCOUNTING OFFICER:
Edward S. Heenan
Treasurer By: /S/EDWARD S. HEENAN
Edward S. Heenan, as Principal
Financial and Accounting
Officer and as attorney-in fact
TRUSTEES:
PHILIP R. COX
ROBERT E. STAUTBERG April 29, 1996
JOSEPH S. STERN, JR.
DAVID POLLAK
WILLIAM J. WILLIAMS
0287801.04
EXHIBIT 6(A)
WESTERN-SOUTHERN
LIFE ASSURANCE COMPANY
WILLIAM J. WILLIAMS Chairman of the Board
AMENDED ARTICLES OF INCORPORATION
CINCINNATI, OHIO 45202
AMENDED ARTICLES OF INCORPORATION
OF
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
L.
The name of this Corporation shall be Western-Southern Life Assurance Company.
II.
The principal office and place of business of this Corporation shall be
located in the City of Cincinnati, in the County of Hamilton and State of Ohio.
III.
The purpose of this Corporation shall be to make insurance upon the lives
of individuals and every type of insurance appertaining thereto or connected
therewith; to grant, purchase and dispose of annuities; to take risks connected
with or appertaining to making insurance on life or against accident to persons,
sickness, or temporary or permanent physical disability; to do all things
necessary, convenient or incidental to the foregoing purposes.
IV.
The corporate powers shall be exercised by, and its business and affairs
shall be under the control of, a board of not less than five nor more than
twenty-one directors elected at the first meeting of shareholders and thereafter
at each annual meeting. The first Board of Directors shall be elected at the
first meeting of shareholders and each year thereafter the Board of Directors
shall be elected at the annual meeting of shareholders. Directors shall hold
office for one year and until their successors are elected and qualified.
Vacancies of the Board may be filled for the unexpired term by a majority vote
of the remaining Directors.
V.
The officers of the corporation shall be a president, one or more vice
presidents, a secretary and a treasurer. The Board may elect or appoint other
officers with appropriate titles. Officers shall be elected at the first meeting
of the Board of Directors. Thereafter, officers shall be elected in the manner
provided by the laws of the State of Ohio or the regulations of the corporation.
A majority of the officers shall be citizens of Ohio.
VI.
The amount of capital with which the corporation shall begin business is
$1,500,000. The contributed surplus shall be $2,500,000. The number of shares
which the corporation is authorized to have outstanding is 20,000 shares, all of
which shall be common shares with a par value of $75 a share. The shares of
capital stock shall be common shares with a par value of $75 a share. The shares
of capital stock shall be nonassessable and no stockholder shall be liable
thereon beyond the liability of his subscription price. Each share shall have
one vote. No holder of shares of the common stock of the corporation shall be
entitled as of right to purchase any shares of any class of the corporation
whether such shares or such class are now or hereafter authorized.
AMENDMENT
The following amendment to Article VI was adopted at the meeting of
shareholders held on September 18, 1984:
RESOLVED:
A. That the presently authorized 20,000 common shares having a par value of
$75 each, all of which have been issued, be changed into 1,500,000 common shares
at a par value of $1 each.
B. That the terms of the change shall be 75 shares of new $1 par value
common shares for each share of the presently issued $75 par value common
shares.
C. That the authorized shares of the Corporation shall be increased to
10,000,000 common shares, $1 par value.
Exhibit 6(b)
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
WILLIAM J. WILLIAMS Chairman of the Board
AMENDED CODE OF REGULATIONS
CINCINNATI, OHIO 45202
CODE OF REGULATIONS
OF
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
ARTICLE I
Meetings of Shareholders
Section 1. Annual Meetings. The annual meeting of shareholders, for the
election of directors, for the consideration of any reports and for the
transaction of such other business as may properly come before the meeting,
shall be held on the second Tuesday in March of each year or on such other date
as may be designated by the Board of Directors.
Section 2. Special Meetings. Special meetings of the shareholders may be
called by the Chief Executive Officer, by the Secretary, by a majority of the
members of the Board of Directors acting with or without a meeting, or by the
holders of at least twenty-five percent of the shares then outstanding and
entitled to vote at a shareholders' meeting. Upon delivery of the request in
writing to the Chief Executive Officer or the Secretary, the one to whom the
request is delivered shall give notice to shareholders of the meeting in
accordance with the Code of Regulations. If the request is refused, or is not
given within 15 days after the delivery or mailing of the request, the persons
making the request may call a meeting of the shareholders by giving such notice.
Section 3. Place of Meetings. All meetings of shareholders shall be held at
the principal office of the corporation unless another place is designated by a
vote of the majority of the Directors. Meetings may be held at any place within
or without the State of Ohio.
Section 4. Notice of Meetings. A written or printed notice of every meeting
of shareholders, whether annual or special, stating the time, place and the
purpose or purposes for which the meeting is called, shall be given by the Chief
Executive Officer or the Secretary by personal delivery or by mail not more than
sixty nor less than seven days before such meeting to each shareholder of record
entitled to notice thereof. If mailed, such notice shall be addressed to the
shareholder at his address as it appears upon the records of the corporation. If
a meeting is adjourned to another time or place, no further notice as to such
adjourned meeting need be given if the time and place to which it is adjourned
are fixed and announced at such meeting. In the event of a transfer of shares
after notice has been given and prior to the holding of the meeting, it shall
not be necessary to serve notice on the transferee. Nothing herein contained
shall prevent the setting of a record date in the manner provided by law for the
determination of the shareholders who are entitled to receive notice of or to
vote at any meeting of shareholders or for any purpose permitted by law.
Section 5. Waiver of Notice. Notice of the time, place and purpose or
purposes of any meeting of shareholders may be waived in writing, either before
or after the holding of such meeting, by any shareholder, which writing shall be
filed with or entered upon the records of such meeting. The attendance of any
shareholder, in person or by proxy, at any such meeting without protesting the
lack of proper notice prior to or at the commencement of the meeting shall be
deemed to be a waiver by such shareholder of notice of such meeting.
Section 6. Action Without Meeting. Any action which may be authorized or
taken at a meeting of shareholders, may be authorized or taken without a meeting
if authorized in a writing signed by all the shareholders who would be entitled
to notice of a meeting of shareholders held for such purpose.
Section 7. Quorum. At any meeting of shareholders, the holders of a
majority in amount of the shares of the corporation then outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for such meeting, but no action required by law, the
Articles of Incorporation or this Code of Regulations to be authorized or taken
by the holders of a designated proportion of the shares of any particular class,
or of each class, may be authorized or taken by a lesser proportion. The holders
of a majority of the voting shares represented at a meeting may adjourn such
meeting from time to time, and at such adjourned meeting any business may be
transacted as if the meeting had been held as originally called.
Section 8. Order of Business. The order of business at any meeting of
shareholders shall be determined by the presiding officer unless otherwise
determined by a vote of a majority in interest of the shareholders present and
entitled to vote at such meeting.
Section 9. Shareholders Entitled to Vote. Every shareholder of record shall
be entitled at each meeting of shareholders to one vote for each share standing
in his or her name on the books of the corporation.
A corporation owning shares in this corporation may vote the same by its
Chief Executive Officer, its Secretary or its Treasurer, and any such officer
shall conclusively be deemed to have authority to vote such shares and to
execute any proxies and written waivers and consents in relation thereto,
unless, before a vote is taken or a consent or waiver is acted upon, it shall be
made to appear by a certified copy of the regulations, by-laws or resolution of
the Board of Directors of the corporation owning such shares that such authority
does not exist or is vested in some other officer or person.
Section 10. Votes Necessary. At all elections of directors the candidates
receiving the greatest number of votes shall be elected. All other questions
shall be determined by a majority vote of the shares entitled to vote and
represented at the meeting in person or by proxy, unless for any particular
purpose the vote of a greater proportion of the shares, or of any particular
class of shares, or of each class, is otherwise required by law, the Articles of
Incorporation of this Code or Regulations.
Section 11. Proxies. At meetings of the shareholders any shareholder of
record entitled to vote thereat may be represented and may vote by a proxy or
proxies appointed by an instrument in writing, but such instrument shall be
filed with the secretary of the meeting before the person holding such proxy
shall be allowed to vote thereunder. No proxy shall be valid after the
expiration of eleven months after the date of its execution, unless the
shareholder executing it shall have specified therein the length of time it is
to continue in force.
ARTICLE II
Board of Directors
Section 1. Powers, Qualification, Number, Term. All the capacity of the
corporation shall be vested in and all its power and authority, except as
otherwise provided by law, shall be exercised by, and its business and affairs
shall be conducted and its property managed under the direction of a Board of
Directors of not less than five (5) nor more than twenty-one (21) persons as the
shareholders shall by resolution determine at each annual meeting or at a
special meeting called for the purpose of electing directors.
Section 2. Vacancies. In case of any vacancy among the directors, the
remaining directors, though less than a quorum, by an affirmative vote of the
majority thereof, may elect a director to fill such vacancy, and such newly
elected director shall hold office until the next annual meeting or a special
meeting of shareholders called for the purpose of electing directors and until
his successor shall be elected and qualified.
Section 3. By-laws. The Board of Directors may adopt and amend from time to
time by-laws to govern its own proceedings consistent with the Articles of
Incorporation, the Code of Regulations and Ohio law.
Section 4. Quorum and Manner of Acting. A majority of all the directors
then in office shall be present in person at any meeting of directors in order
to constitute a quorum for the transaction of business at such meeting, but in
the absence of a quorum a majority of those present may adjourn a meeting from
time to time. Any business may be transacted at an adjourned meeting as if the
meeting had been held as originally called. Except as otherwise provided by law,
the Articles of Incorporation or this Code of Regulations, the act of the
majority of the directors present at any meeting of directors at which a quorum
is present shall be the act of the Board of Directors. Any action which may be
taken by the directors at a meeting may be taken without a meeting if authorized
by a writing signed by all directors.
Section 5. Removal of Directors. Any director may be removed, with or
without cause, at any time by the affirmative vote of a majority of the
shareholders entitled to vote at a special meeting of shareholders called for
that purpose. If any direct or is removed, the vacancy may be filled by the
shareholders at the same meeting.
Section 6. Meetings. After each annual election of directors the newly
elected directors shall meet as soon as practicable for the purpose of
organization, the election and appointment of officers and the transaction of
other business. The directors shall hold such other meetings from time to time
as they may deem necessary, and such meetings as may from time to time be called
by the Chief Executive Officer, Secretary or any two directors. Meetings shall
be held at the principal office of the corporation, or at such other place
within or without the State of Ohio as the Chief Executive Officer or a majority
of the directors may determine.
Section 7. Notice of Meetings. The Chief Executive Officer or the Secretary
shall cause telegraphic or written notice of the time and place of all meetings
of the directors, regular and special, to be duly served upon or sent to each
director not less than three days nor more than twenty days before the meeting,
except that a regular meeting of the directors may be held without notice
immediately after the annual meeting of shareholders, at the same place as such
annual meeting was held, for the purpose of electing or appointing officers for
the ensuing year and for the transaction of such other business as may properly
come before such meeting. No notice of adjourned meetings need be given. Notice
of the time and place of any meeting of the directors may be waived in writing,
either before or after the holding of such meeting, by any director, which
writing shall be filed with or entered upon the records of such meeting. The
attendance of any director at any such meeting without protesting the lack of
proper notice prior to or at the commencement of the meeting shall be deemed to
be a waiver by him of notice of such meeting.
Section 8. Compensation. Directors shall be entitled to receive as
compensation for services and expenses, such amount as the Board of Directors
may determine.
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ARTICLE III
Committees
Section 1. Creation. The Board of Directors may create an Executive
Committee and any other committee of directors consisting of not less than three
(3) directors, and may delegate to each such committee any of the authority of
directors other than the filling of vacancies on the Board of Directors or in
any committee of directors. Each such committee shall serve at the pleasure of
the Board of Directors, shall act only in the intervals between meetings of the
directors and shall be subject to the control and direction of the directors.
The directors may appoint one or more directors as alternate members of any
committee. An alternate member may take the place of any absent member at any
meeting of such committee.
Section 2. Authority and Manner of Acting. Any such committee may act
by majority of its members at a meeting or by a writing signed by all of its
members. Any act or authorization of an act or transaction of business by any
such committee within the authority delegated to it shall be as effective for
all purposes as the act or authorization of the directors.
ARTICLE IV
Officers
Section 1. Officers. The officers of the corporation shall be a Chief
Executive Officer, President, one or more Vice Presidents, a Treasurer and a
Secretary and such other officers or assistant officers as the Board of
Directors may from time to time elect or appoint. The Chief Executive Officer
shall be a member of the Board of Directors. In addition, the Board of Directors
may elect a Chairman from among themselves. More than one office may be held by
the same person. A majority of the officers must be citizens of the State of
Ohio.
Section 2. Tenure of Office. Officers shall hold their respective
offices for one year or until their successors are elected or appointed and
qualified. Any officer may be removed or suspended at any time without cause and
without notice by an affirmative vote of the whole Board.
Section 3. Duties of Officers.
(a) Chairman of the Board: The Chairman of the Board of Directors
shall preside at all meetings of the Board and perform such other duties as may
be delegated to him from time to time by the Board.
(b) Chief Executive Officer: The Chief Executive Officer shall be the chief
executive officer of the corporation. He shall have general supervision and
control of the business of the corporation. All other officers shall act under
his direction and he may assign or distribute duties or authority among officers
and employees. The Chief Executive Officer may designate the officer who shall
act in his place in his absence.
(c) President: The President shall be the chief operating officer of the
corporation. He shall have general and active management of the business of the
corporation as determined by the Chief Executive Officer.
(d) Vice Presidents: The Vice Presidents, under the direction of the Chief
Executive Officer, shall assist in the management of the corporation and perform
such duties as may be assigned to them.
(e) Secretary: The Secretary shall keep the minutes of the meetings of
the Board and of policyholders and record them in a book kept for that purpose.
He shall perform such other duties as may be assigned to him.
(f) Treasurer: The Treasurer shall perform the usual duties of such office
and such other duties as may be assigned to him.
(g) All other officers and assistant officers shall perform such
duties as may from time to time be delegated to them.
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ARTICLE V
Shares
Section 1. Certificates. Certificates evidencing the ownership of
shares of the corporation shall be issued to those entitled to them. Each
certificate for shares shall bear a distinguishing number, the signatures of the
Chief Executive Officer, the President or a Vice President and of the Secretary
or an Assistant Secretary, and such recitals as may be required by law. The
certificates for shares shall be of such tenor and design as the Board of
Directors may from time to time adopt. A record shall be kept by the Secretary
of the name of each person owning the shares represented by each certificate,
the number of shares represented thereby, the date thereof and, in case of
cancellation, the date of cancellation.
Section 2. Transfers. Shares may be transferred on the proper books of
the corporation by the registered holders thereof, or by their attorneys or
their legal representatives, by surrender of the certificates therefor for
cancellation and a written assignment of the shares evidenced thereby. The Board
of Directors may appoint one or more transfer agents and one or more registrars
for the shares of the corporation.
Section 3. Lost Certificates. The Board of Directors may order a new
certificate or certificates of shares to be executed and delivered in place of
any certificate or certificates alleged to have been lost, stolen or destroyed,
but, in every case, the owner of the lost, stolen or destroyed certificate or
certificates shall first cause to be given to the corporation a bond, with
surety or sureties satisfactory to the corporation, in such sum as the Board of
Directors may, in its discretion, deem sufficient as indemnity against any loss
or liability that the corporation may incur by reason of the issuance of such
new certificates; but the Board of Directors may, in its discretion, refuse to
issue such new certificates, save upon the order of some court and one having
jurisdiction in such matters, pursuant to the statute made and provided.
Section 4. Record Date. The Board of Directors may fix a date, not
more than 60 days nor less than ten days preceding the date of any meeting of
shareholders or the date for payment of any dividend, or the date for allotment
of rights, or the date when any change or conversion or exchange of shares shall
go into effect, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, any such meeting, or entitled to receive
payment of any such dividend or to any such allotment or rights, or to exercise
the rights in respect to any such change, conversion or exchange. Only such
shareholders of record on the date so fixed shall be entitled to receive notice
of, and to vote at such meeting, or to receive payment of such dividend or to
receive such allotment or rights or to exercise such rights, as the case may be,
notwithstanding any transfer of any share on the books of the corporation after
such record date. If the Board of Directors does not fix a date, the record date
shall be the date next proceeding the 15th day prior to the date of such
meeting, payment, or other event, or if such date is a legal holiday the last
business day next preceding such date.
ARTICLE VI
Indemnification and Insurance
Section 1. Indemnification. To the fullest extent not prohibited by
applicable law, the corporation shall indemnify each director, officer and
employee against any and all costs and expenses (including attorney fees,
judgments, fines, penalties, amounts paid in settlement, and other
disbursements) actually and reasonably incurred by or imposed upon such
director, officer or employee in connection with any action, suit, investigation
or proceeding (or any claim or other matter therein), whether civil, criminal,
administrative or otherwise in nature, including any settlements thereof or any
appeals therein, with respect to which such director, officer or employee is
named or otherwise becomes or is threatened to be made a party by reason of
being or at any time having been a director, officer or employee of the
corporation, or, at the direction or request of the corporation, a director,
trustee, officer, administrator, manager, employee, adviser or other agent of or
fiduciary for any other corporation, partnership, trust, venture or other entity
or enterprise including any employee benefit plan; provided, however, that no
person shall be indemnified to the extent, if any, that the directors, acting at
a meeting at which a quorum of directors who are not parties to or threatened
with any such action, suit, investigation or proceeding, determine that such
indemnification is contrary to applicable law.
Any director who is a party to or threatened with any such action,
suit, investigation or proceeding shall not be qualified to vote; and if for
this reason a quorum of directors, who are not disqualified from voting by
reason of being parties to or threatened with such action, suit, investigation
or proceeding, cannot be obtained, such determination shall be made by three
attorneys at law, who have not theretofore represented the corporation in any
matter and who shall be selected by all of the officers and directors of the
corporation who are not parties to or threatened with any such action, suit,
investigation or proceeding. If there are no officers or directors who are
qualified to make such selection, the selection shall be made by a Judge of
<PAGE>
the Court of Common Pleas of Hamilton County, Ohio. Such indemnification shall
not be deemed exclusive of any other right to which such director, officer or
employee may be entitled under the Articles of Incorporation, this Code of
Regulations, any agreement, any insurance purchased by the corporation, vote of
shareholders or otherwise.
Section 2. Insurance. The Board of Directors of the corporation may
secure and maintain such policies of insurance as it may consider appropriate to
insure any person who is serving or has served as a director, officer or
employee of the corporation, or who is serving or has served at the request of
the corporation as a director, trustee, officer, manager, employee, adviser or
other agent of or fiduciary for any other corporation, partnership, trust,
venture, or other entity or enterprise including any employee benefit plan
against any liability asserted against and incurred by such person.
ARTICLE VII
Seal
The seal of the corporation shall be circular, about two inches in
diameter, with the name of the corporation engraved around the margin and the
word "SEAL" engraved across the center.
ARTICLE VIII
Amendments
Section 1. Meeting of Shareholders. This Code of Regulations may be
changed, added to or repealed by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of the corporation at
any annual meeting of the shareholders or at any special meeting of the
shareholders called for that purpose, provided that at any special meeting the
intention to consider such amendments must be stated in the notices or waivers
of notice for such special meeting.
Section 2. Amendment Without Meeting. This Code of Regulations may be
amended without a meeting of shareholders by the written consent of the holders
of record of shares entitling them to exercise a majority of the voting power of
the corporation.
Exhibit 8(b)
EXHIBIT 8(B)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of September 9, 1994, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and SELECT
ADVISORS PORTFOLIOS, a New York master trust created pursuant to a Declaration
of Trust dated February 7, 1994, as amended from time to time (the "Trust").
WHEREAS, the Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act"); and
WHEREAS, interests in the Trust are divided into separate subtrusts
(each, along with any subtrust which may in the future be established, a
"Portfolio"); and
WHEREAS, the Trust desires to avail itself of the services,
information, advice, assistance and facilities of an investment advisor and to
have an investment advisor perform for it various investment advisory and
research services and other management services; and
WHEREAS, the Advisor is an investment Advisor registered under the
Investment Advisers Act of 1940, as amended, and desires to provide investment
advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. The Trust hereby employs the Advisor to
manage the investment and reinvestment of the assets of each Portfolio subject
to the control and direction of the Trust's Board of Trustees, for the period on
the terms hereinafter set forth. The Advisor hereby accepts such employment and
agrees during such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The Advisor shall for all
purposes herein be deemed to be independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
2. OBLIGATIONS AND SERVICES TO BE PROVIDED BY THE ADVISOR. In
providing the services and assuming the obligations set forth herein, the
Advisor may, at its expense, employ one or more subadvisors for any Portfolio.
Any agreement between the Advisor and a subadvisor shall be subject to the
renewal, termination and amendment provisions of paragraph 10 hereof. The
Advisor undertakes to provide the following services and to assume the following
obligations:
a)
The Advisor will manage the investment and reinvestment of the assets
of each Portfolio, subject to and in accordance with the respective
investment objectives and policies of each Portfolio and any
directions which the Trust's Board of Trustees may issue from time to
time. In pursuance of the foregoing, the Advisor may engage separate
investment advisors ("Portfolio Advisor(s)") to make all
determinations with respect to the investment of the assets of each
Portfolio, to effect the purchase and sale of portfolio securities and
to take such steps as may be necessary to implement the same. Such
determination and services by each Portfolio Advisor shall also
include determining the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining to the
portfolio securities shall be
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exercised. The Advisor shall, and shall cause each Portfolio Advisor
to, render regular reports to the Trust's Board of Trustees concerning
the Trust's and each Portfolio's investment activities.
b)
The Advisor shall, or shall cause the respective Portfolio Advisor(s)
to place orders for the execution of all portfolio transactions, in
the name of the respective Portfolio and in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be amended from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Advisor shall create and maintain (or cause the
Portfolio Advisors to create and maintain) all necessary brokerage
records for each Portfolio, which records shall comply with all
applicable laws, rules and regulations, including but not limited to
records required by Section 31(a) of the 1940 Act. All records shall
be the property of the Trust and shall be available for inspection and
use by the Securities and Exchange Commission (the "SEC"), the Trust
or any person retained by the Trust. Where applicable, such records
shall be maintained by the Advisor (or Portfolio Advisor) for the
periods and in the places required by Rule 31a-02 under the 1940 Act.
c. In the event of any reorganization or other change in the Advisor, its
investment principals, supervisors or members of its investment (or
comparable) committee, the Advisor shall give the Trust's Board of
Trustees written notice of such reorganization or change within a
reasonable time (but not later than 30 days) after such reorganization
or change.
d) The Advisor shall bear its expenses of providing
services to the Trust pursuant to this Agreement
except such expenses as are undertaken by the Trust.
In addition, the Advisor shall pay the salaries and
fees, if any, of all Trustees, officers and employees
of the Trust who are affiliated persons, as defined
in Section 2(a)(3) of the 1940 Act, of the Advisor.
e) The Advisor will manage, or will cause the Portfolio
Advisors to manage, the Portfolio Assets and the
investment and reinvestment of such assets so as to
comply with the provisions of the 1940 Act and with
Subchapter M of the Internal Revenue Code of 1986, as
amended.
3. EXPENSES. The Trust shall pay the expenses of its operation,
including but not limited to (i) charges and expenses for Trust accounting,
pricing and appraisal services and related overhead, (ii) the charges and
expenses of the Portfolio's auditor's; (iii) the charges and expenses of any
custodian, transfer agent, plan agent, dividend disbursing agent and registrar
appointed by the Trust with respect to the Portfolios; (iv) brokers'
commissions, and issue and transfer taxes, chargeable to the Trust in connection
with securities transactions to which the Trust is a party; (v) insurance
premiums, interest charges, dues and fees for Trust membership in trade
associations and all taxes and fees payable by the Trust to federal, state or
other governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the Trust and/or interests in the Trust with the
SEC, state or blue sky securities agencies and foreign countries, including the
preparation of Prospectuses and Statements of Additional Information for filing
with the SEC; (vii) all expenses of meetings of Trustees and of interest holders
of the Trust and of preparing, printing and distributing prospectuses, notices,
proxy statements and all reports to shareholders and to governmental agencies;
(viii) charges and expenses of legal counsel to the Trust; (ix) compensation of
Trustees of the Trust; (x) the cost of preparing and printing share
certificates; and (xi) interest on borrowed money, if any.
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4. COMPENSATION OF THE ADVISOR.
a) As compensation for the services rendered and obligations assumed
hereunder by the Advisor, the Trust shall pay to the Advisor monthly a fee that
is equal on an annual basis to that percentage of the average daily net assets
of each Portfolio set forth on Schedule 1 attached hereto (and with respect to
any future Portfolio, such percentage as the Trust and the Advisor may agree to
from time to time). Such fee shall be computed and accrued daily. If the Advisor
serves as investment advisor for less than the whole of any period specified in
this Section 4a, the compensation to the Advisor shall be prorated. For purposes
of calculating the Advisor's fee, the daily value of each Portfolio's net assets
shall be computed by the same method as the Trust uses to compute the net asset
value of that Portfolio.
b) The Advisor will pay all fees owing to each Portfolio
Advisor, and the Trust shall not be obligated to the
Portfolio Advisors in any manner with respect to the
compensation of such Portfolio Advisors.
c) The Advisor reserves the right to waive all or a part of its fee.
5. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. It is understood that the Trustees and
officers of the Trust are or may become interested in the Advisor as
stockholders, officers or otherwise, and that stockholders and officers of the
Advisor are or may become similarly interested in the Trust, and that the
Advisor may become interested in the Trust as a shareholder or otherwise.
6. USE OF NAMES. The Trust will not use the name of the Advisor in any
prospectus, sales literature or other material relating to the Trust in any
manner not approved prior thereto by the Advisor; except that the Trust may use
such name in any document which merely refers in accurate terms to its
appointment hereunder or in any situation which is required by the SEC or a
state securities commission; and provided further, that in no event shall such
approval be unreasonably withheld. The Advisor will not use the name of the
Trust in any material relating to the Advisor in any manner not approved prior
thereto by the Trust; except that the Advisor may use such name in any document
which merely refers in accurate terms to the appointment of the Advisor
hereunder or in any situation which is required by the SEC or a state securities
commission. In all other cases, the parties may use such names to the extent
that the use is approved by the party named, it being agreed that in no event
shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that, in consideration
of the Advisor's assumption of certain organization expenses of the Trust and of
the various Portfolios, the Advisor has reserved for itself the rights to the
name "Select Advisors Portfolios" (or any similar names) and that use by the
Trust of such name shall continue only with the continuing consent of the
Advisor, which consent may be withdrawn at any time, effective immediately, upon
written notice thereof to the Trust.
7. LIMITATION OF LIABILITY OF THE ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Advisor, the Advisor shall not be subject to liability to the Trust
or to any holder of an interest in any Portfolio for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be
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sustained in the purchase, holding or sale of any security. As used in this
Section 7, the term "Advisor" shall include Touchstone Advisors, Inc. and/or any
of its affiliates and the directors, officers and employees of Touchstone
Advisors, Inc. and/or of its affiliates.
b. The Trust will indemnify the Advisor against, and hold it
harmless from, any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from acts or omissions of the Trust. Indemnification shall be made only
after: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the Trust was liable for
the damages claimed or (ii) in the absence of such a decision, a
reasonable determination based upon a review of the facts, that the
Trust was liable for the damages claimed, which determination shall be
made by either (a) the vote of a majority of a quorum of Trustees of
the Trust who are neither "interested persons" of the Trust nor parties
to the proceeding ("disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties hereto, whose
determination shall be set forth in a written opinion. The Advisor
shall be entitled to advances from the Trust for payment of the
reasonable expenses incurred by it in connection with the matter as to
which it is seeking indemnification in the manner and to the fullest
extent that would be permissible under the applicable provisions of the
General Corporation Law of Ohio. The Advisor shall provide to the Trust
a written affirmation of its good faith belief that the standard of
conduct necessary for indemnification under such law has been met and a
written undertaking to repay any such advance if it should ultimately
be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be
met: (a) the Advisor shall provide security in form and amount
acceptable to the Trust for its undertaking; (b) the Trust is insured
against losses arising by reason of the advance; or (c) a majority of a
quorum of the Trustees of the Trust, the members of which majority are
disinterested non-party Trustees, or independent legal counsel in a
written opinion, shall have determined, based on a review of facts
readily available to the Trust at the time the advance is proposed to
be made, that there is reason to believe that the Advisor will
ultimately be found to be entitled to indemnification.
8. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder in any case shall be limited to the Trust and to its
assets and that the Advisor shall not seek satisfaction of any such obligation
from the holders of the interests in any Portfolio nor from any Trustee,
officer, employee or agent of the Trust.
9. FORCE MAJEURE. The Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Advisor shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
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10. RENEWAL, TERMINATION AND AMENDMENT.
a) This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, for a period of twelve months from the date hereof and it
shall continue indefinitely thereafter as to each Portfolio, provided that such
continuance is specifically approved by the parties hereto and, in addition, at
least annually by (i) the vote of holders of a majority of the outstanding
voting securities of the affected Portfolio or by vote of a majority of the
Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who
are not parties to this Agreement or interested persons of the Advisor, cast in
person at a meeting called for the purpose of voting on such approval.
b) This Agreement may be terminated at any time, with
respect to any Portfolio(s), without payment of any
penalty, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting
securities of the affected Portfolio(s) upon 60 days'
prior written notice to the Advisor and by the
Advisor upon 60 days' prior written notice to the
Trust.
c) This Agreement may be amended at any time by the
parties hereto, subject to approval by the Trust's
Board of Trustees and, if required by applicable SEC
rules and regulations, a vote of the majority of the
outstanding voting securities of any Portfolio
affected by such change. This Agreement shall
terminate automatically in the event of its
assignment.
d) The terms "assignment," "interested persons" and
"majority of the outstanding voting securities" shall
have the meaning set forth for such terms in the 1940
Act.
11. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions, in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered inn their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
Pursuant to the Trust's Declaration of Trust, dated as of February 7, 1994, the
obligations of this Agreement are not binding upon any of the Trustees or
interestholders of the Trust individually, but bind only the Trust estate.
SELECT ADVISORS PORTFOLIOS
By /S/ EDWARD G. HARNESS JR.
Name, President
Attest:
/S/ THERESA MASSONG
TOUCHSTONE ADVISORS, INC.
By /S/ JILL T. MCGRUDER
Name, President
Attest:
/S/ THERESA MASSONG
0103544.02/0299046.01
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SCHEDULE 1
Emerging Growth Portfolio 0.80%
International Equity Portfolio 0.95%
Growth & Income Portfolio 0.75%
Growth & Income Portfolio II 0.75%
Balanced Portfolio 0.70%
Income Opportunity 0.65%
Bond Portfolio 0.55%
Bond Portfolio II 0.55%
Municipal Bond Portfolio 0.55%
0103544.04/0299046.01
7
EXHIBIT 8(C)(I)
EXHIBIT 8(C)(I)
PORTFOLIO ADVISORY AGREEMENT
GROWTH & INCOME PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of September 9, 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
Fort Washington Investment Advisors, Inc., an Ohio corporation (the "Portfolio
Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Portfolios (the "Trust"), a New York trust organized pursuant to a
Declaration of Trust dated February 7, 1994 and registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act") to provide investment advisory services to the Growth & Income
Portfolio and the Growth & Income II Portfolio (herein together called the
"Portfolio"); and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO ADVISOR. In accordance with and subject
to the Investment Advisory Agreement between the Trust and the Advisor, attached
hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Portfolio Advisor to manage the investment and reinvestment of those assets of
the Portfolio allocated to it by the Advisor (the "Portfolio Assets"), subject
to the control and direction of the Advisor and the Trust's Board of Trustees,
for the period and on the terms hereinafter set forth. The Portfolio Advisor
hereby accepts such employment and agrees during such period to render the
services and to perform the duties called for by this Agreement for the
compensation herein provided. The Portfolio Advisor shall at all times maintain
its registration as an investment advisor under the Investment Advisers Act of
1940 and shall otherwise comply in all material respects with all applicable
laws and regulations, both state and federal. The Portfolio Advisor shall for
all purposes herein be deemed an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust or the Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide the
following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the assets of the Portfolio Assets, subject to and in
accordance with the investment objectives, policies and restrictions of
the Portfolio and any directions which the Advisor or the Trust's Board
of Trustees may give from time to time with respect to the Portfolio.
In furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of the assets of the
Portfolio and the purchase and sale of portfolio securities and shall
take such steps as may be necessary or advisable to implement the same.
The Portfolio Advisor also will determine the manner in which voting
rights, rights to consent to corporate action and any other
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rights pertaining to the portfolio securities will be exercised. The
Portfolio Advisor will render regular reports to the Trust's Board of
Trustees, to the Advisor and to Rogers, Casey Consulting, Inc. (or such
other advisor or advisors as the Advisor shall engage to assist it in
the evaluation of the performance and activities of the Portfolio
Advisor). Such reports shall be made in such form and manner and with
respect to such matters regarding the Portfolio and the Portfolio
Advisor as the Trust, the Advisor or Rogers, Casey Consulting, Inc.
shall from time to time request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor as the same is applicable
to the Portfolio, and (iii) access to the individual(s) responsible for
day-to-day management of the Portfolio for marketing conferences,
teleconferences and other activities involving the promotion of the
Portfolio, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Portfolio
Advisor and individual manager(s), and (v) permission to use the names
of clients to which the Portfolio Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
c. The Portfolio Advisor will, in the name of the Portfolio,
place orders for the execution of all portfolio transactions in
accordance with the policies with respect thereto set forth in the
Trust's registration statements under the 1940 Act and the Securities
Act of 1933, as such registration statements may be in effect from time
to time. In connection with the placement of orders for the execution
of portfolio transactions, the Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio in accordance
with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the 1940 Act. All
records shall be the property of the Trust and shall be available for
inspection and use by the Securities and Exchange Commission (the
"SEC"), the Trust or any person retained by the Trust. Where
applicable, such records shall be maintained by the Advisor for the
periods and in the places required by Rule 31a-2 under the 1940 Act.
When placing orders with brokers and dealers, the Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Portfolio Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to pay a broker or dealer who
provides research services to the Portfolio Advisor an amount of
commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting such transaction, in recognition of such additional research
services rendered by the broker or dealer, but only if the Portfolio
Advisor determines in good faith that the excess commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of the
particular transaction or the Portfolio Advisor's overall
responsibilities with respect to discretionary accounts that it
manages, and that the Portfolio derives or will derive a reasonably
significant benefit from such research services. The Portfolio Advisor
will present a written
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report to the Board of Trustees of the Trust, at least quarterly,
indicating total brokerage expenses, actual or imputed, as well as the
services obtained in consideration for such expenses, broken down by
broker-dealer and containing such information as the Board of Trustees
reasonably shall request.
d. In the event of any reorganization or other change in the
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio Advisor shall
give the Advisor and the Trust's Board of Trustees written notice of
such reorganization or change within a reasonable time (but not later
than 30 days) after such reorganization or change.
e. The Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Portfolio Advisor will manage the Portfolio Assets and
the investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio Advisor a monthly fee equal on an annual basis to 0.45%
of the average daily net assets of the Portfolio. Such fee shall be
computed and accrued daily. If the Portfolio Advisor serves in such
capacity for less than the whole of any period specified in this
Section 3a, the compensation to the Portfolio Advisor shall be
prorated. For purposes of calculating the Portfolio Advisor's fee, the
daily value of the Portfolio's net assets shall be computed by the same
method as the Trust uses to compute the net asset value of the
Portfolio for purposes of purchases and redemptions of interests
thereof.
b. The Portfolio Advisor reserves the right to waive all or a part of its
fees hereunder.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio Advisor will report
to the Board of Trustees of the Trust (at regular quarterly meetings and at such
other times as such Board of Trustees reasonably shall request) (i) the
financial condition and prospects of the Portfolio Advisor, (ii) the nature and
amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding any
potential conflicts of interest arising by reason of its continuing provision of
advisory services to the Portfolio and to its other accounts, and (iv) such
other information as the Board of Trustees shall reasonably request regarding
the Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to providing
future services to the Portfolio and its other accounts. At least annually, the
Portfolio Advisor shall report to the Trustees the total number and type of such
other accounts and the approximate total asset value thereof (but not the
identities of the beneficial owners of such accounts). The Portfolio Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Portfolio and its other clients.
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<PAGE>
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio Advisor's statement of financial condition) and will hereafter supply
to the Advisor, promptly upon the preparation thereof, copies of all amendments
or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Portfolio Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Portfolio Advisor; provided, however, that the Portfolio Advisor will
approve all uses of its name which merely refer in accurate terms to its
appointment hereunder or which are required by the SEC or a state securities
commission; and provided further, that in no event shall such approval be
unreasonably withheld. The Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio Advisor in any
manner not approved in advance by the Advisor or the Trust, as the case may be;
provided, however, that the Advisor and the Trust shall each approve all uses of
their respective names which merely refer in accurate terms to the appointment
of the Portfolio Advisor hereunder or which are required by the SEC or a state
securities commission; and, provided further, that in no event shall such
approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE PORTFOLIO ADVISOR.
a. Absent willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on
the part of the Portfolio Advisor, the Portfolio Advisor shall not be
subject to liability to the Advisor, the Trust or to any holder of an
interest in the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. As used
in this Section 6, the term "Portfolio Advisor" shall include the
Portfolio Advisor and/or any of its affiliates and the directors,
officers and employees of the Portfolio Advisor and/or any of its
affiliates.
b. The Advisor will indemnify the Portfolio Advisor
against, and hold it harmless from, any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from acts or omissions of the Advisor and/or the
Trust. Indemnification shall be made only after: (i) a final decision
on the merits by a court or other body before whom the proceeding was
brought that the Trust or the Advisor was liable for the damages
claimed or (ii) in the absence of such a decision, a reasonable
determination based upon a review of the facts, that the Trust or the
Advisor was liable for the damages claimed, which determination shall
be made by either (a) the vote of a majority of a quorum of Trustees of
the Trust who are neither "interested persons" of the Trust nor parties
to the proceeding ("disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties hereto, whose
determination shall be set forth in a written opinion. The Portfolio
Advisor shall be entitled to advances from the Trust for payment of the
reasonable expenses incurred by it in connection with the matter as to
which it is seeking indemnification in the manner and to the fullest
extent that would be permissible under the indemnification provisions
of the General Corporation Law of Ohio. The Portfolio Advisor shall
provide to the Trust a written affirmation of its good faith belief
that the standard of conduct necessary for indemnification under such
law has been met and a written undertaking to repay any such advance if
it should ultimately be determined that the standard of conduct has not
been met. In addition, at least one of the following additional
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<PAGE>
conditions shall be met: (a) the Portfolio Advisor shall provide
security in form and amount acceptable to the Trust for its
undertaking; (b) the Trust is insured against losses arising by reason
of the advance; or (c) a majority of a quorum of the Trustees of the
Trust, the members of which majority are disinterested non-party
Trustees, or independent legal counsel in a written opinion, shall have
determined, based on a review of facts readily available to the Trust
at the time the advance is proposed to be made, that there is reason to
believe that the Portfolio Advisor will ultimately be found to be
entitled to indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio Advisor acknowledges
that it has received notice of and accepts the limitations upon the Trust's
liability set forth in its Declaration of Trust. The Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio Advisor shall not be liable for delays
or errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Portfolio Advisor shall take reasonable steps to
minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, for a period of 12 months from the
date hereof; and it shall continue thereafter provided that such
continuance is specifically approved by the parties and, in addition,
at least annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Portfolio or
by vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the Portfolio
Advisor, cast in person at a meeting called for the purpose of voting
on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio Advisor upon not less than 60 days' prior written notice to
the Advisor and the Trust. This Agreement shall terminate automatically
in the event of its assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Portfolio affected
by such change.
d. The terms "assignment," "interested persons" and "majority"
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
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10. SEVERABILITY. If any provision of this Agreement shall become or shall
be found to be invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 318 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be 550 East 4th Street, Cincinnati, Ohio
45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
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
Attest:
/S/ JILL T. MCGRUDER
Secretary
FORT WASHINGTON INVESTMENT ADVISORS, INC.
By /S/ WILLIAM F. LEDWIN
Name, President
Attest:
/S/ CONNIE M. BARONI
Secretary
0111982.02/0299046.01
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<PAGE>
Exhibit A
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of September 9, 1994, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and SELECT
ADVISORS PORTFOLIOS, a New York master trust created pursuant to a Declaration
of Trust dated February 7, 1994, as amended from time to time (the "Trust").
WHEREAS, the Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act"); and
WHEREAS, interests in the Trust are divided into separate subtrusts
(each, along with any subtrust which may in the future be established, a
"Portfolio"); and
WHEREAS, the Trust desires to avail itself of the services,
information, advice, assistance and facilities of an investment advisor and to
have an investment advisor perform for it various investment advisory and
research services and other management services; and
WHEREAS, the Advisor is an investment Advisor registered under the
Investment Advisers Act of 1940, as amended, and desires to provide investment
advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. The Trust hereby employs the Advisor to
manage the investment and reinvestment of the assets of each Portfolio subject
to the control and direction of the Trust's Board of Trustees, for the period on
the terms hereinafter set forth. The Advisor hereby accepts such employment and
agrees during such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The Advisor shall for all
purposes herein be deemed to be independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
2. OBLIGATIONS AND SERVICES TO BE PROVIDED BY THE ADVISOR. In providing
the services and assuming the obligations set forth herein, the Advisor may, at
its expense, employ one or more subadvisors for any Portfolio. Any agreement
between the Advisor and a subadvisor shall be subject to the renewal,
termination and amendment provisions of paragraph 10 hereof. The Advisor
undertakes to provide the following services and to assume the following
obligations:
a) The Advisor will manage the investment and reinvestment of the assets of
each Portfolio, subject to and in accordance with the respective investment
objectives and policies of each Portfolio and any directions which the Trust's
Board of Trustees may issue from time to time. In pursuance of the foregoing,
the Advisor may engage separate investment advisors ("Portfolio Advisor(s)") to
make all determinations with respect to the investment of the assets of each
Portfolio, to effect the purchase and sale of portfolio securities and to take
such steps as may be necessary to implement the same. Such determination and
services by each Portfolio Advisor shall also include determining the manner in
which voting rights, rights to consent to corporate
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action and any other rights pertaining to the
portfolio securities shall be exercised. The Advisor
shall, and shall cause each Portfolio Advisor to,
render regular reports to the Trust's Board of
Trustees concerning the Trust's and each Portfolio's
investment activities.
b) The Advisor shall, or shall cause the respective Portfolio Advisor(s) to
place orders for the execution of all portfolio transactions, in the name of the
respective Portfolio and in accordance with the policies with respect thereto
set forth in the Trust's registration statements under the 1940 Act and the
Securities Act of 1933, as such registration statements may be amended from time
to time. In connection with the placement of orders for the execution of
portfolio transactions, the Advisor shall create and maintain (or cause the
Portfolio Advisors to create and maintain) all necessary brokerage records for
each Portfolio, which records shall comply with all applicable laws, rules and
regulations, including but not limited to records required by Section 31(a) of
the 1940 Act. All records shall be the property of the Trust and shall be
available for inspection and use by the Securities and Exchange Commission (the
"SEC"), the Trust or any person retained by the Trust. Where applicable, such
records shall be maintained by the Advisor (or Portfolio Advisor) for the
periods and in the places required by Rule 31a-02 under the 1940 Act.
c. In the event of any reorganization or other change in
the Advisor, its investment principals, supervisors
or members of its investment (or comparable)
committee, the Advisor shall give the Trust's Board
of Trustees written notice of such reorganization or
change within a reasonable time (but not later than
30 days) after such reorganization or change.
d) The Advisor shall bear its expenses of providing
services to the Trust pursuant to this Agreement
except such expenses as are undertaken by the Trust.
In addition, the Advisor shall pay the salaries and
fees, if any, of all Trustees, officers and employees
of the Trust who are affiliated persons, as defined
in Section 2(a)(3) of the 1940 Act, of the Advisor.
e) The Advisor will manage, or will cause the Portfolio
Advisors to manage, the Portfolio Assets and the
investment and reinvestment of such assets so as to
comply with the provisions of the 1940 Act and with
Subchapter M of the Internal Revenue Code of 1986, as
amended.
3. EXPENSES. The Trust shall pay the expenses of its operation,
including but not limited to (i) charges and expenses for Trust accounting,
pricing and appraisal services and related overhead, (ii) the charges and
expenses of the Portfolio's auditor's; (iii) the charges and expenses of any
custodian, transfer agent, plan agent, dividend disbursing agent and registrar
appointed by the Trust with respect to the Portfolios; (iv) brokers'
commissions, and issue and transfer taxes, chargeable to the Trust in connection
with securities transactions to which the Trust is a party; (v) insurance
premiums, interest charges, dues and fees for Trust membership in trade
associations and all taxes and fees payable by the Trust to federal, state or
other governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the Trust and/or interests in the Trust with the
SEC, state or blue sky securities agencies and foreign countries, including the
preparation of Prospectuses and Statements of Additional Information for filing
with the SEC; (vii) all expenses of meetings of Trustees and of interest holders
of the Trust and of preparing, printing and distributing prospectuses, notices,
proxy statements
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and all reports to shareholders and to governmental agencies; (viii) charges and
expenses of legal counsel to the Trust; (ix) compensation of Trustees of the
Trust; (x) the cost of preparing and printing share certificates; and (xi)
interest on borrowed money, if any.
4. COMPENSATION OF THE ADVISOR.
a) As compensation for the services rendered and obligations assumed
hereunder by the Advisor, the Trust shall pay to the Advisor monthly a fee that
is equal on an annual basis to that percentage of the average daily net assets
of each Portfolio set forth on Schedule 1 attached hereto (and with respect to
any future Portfolio, such percentage as the Trust and the Advisor may agree to
from time to time). Such fee shall be computed and accrued daily. If the Advisor
serves as investment advisor for less than the whole of any period specified in
this Section 4a, the compensation to the Advisor shall be prorated. For purposes
of calculating the Advisor's fee, the daily value of each Portfolio's net assets
shall be computed by the same method as the Trust uses to compute the net asset
value of that Portfolio.
b) The Advisor will pay all fees owing to each Portfolio
Advisor, and the Trust shall not be obligated to the
Portfolio Advisors in any manner with respect to the
compensation of such Portfolio Advisors.
c) The Advisor reserves the right to waive all or a part of its fee.
5. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. It is understood that the Trustees and
officers of the Trust are or may become interested in the Advisor as
stockholders, officers or otherwise, and that stockholders and officers of the
Advisor are or may become similarly interested in the Trust, and that the
Advisor may become interested in the Trust as a shareholder or otherwise.
6. USE OF NAMES. The Trust will not use the name of the Advisor in any
prospectus, sales literature or other material relating to the Trust in any
manner not approved prior thereto by the Advisor; except that the Trust may use
such name in any document which merely refers in accurate terms to its
appointment hereunder or in any situation which is required by the SEC or a
state securities commission; and provided further, that in no event shall such
approval be unreasonably withheld. The Advisor will not use the name of the
Trust in any material relating to the Advisor in any manner not approved prior
thereto by the Trust; except that the Advisor may use such name in any document
which merely refers in accurate terms to the appointment of the Advisor
hereunder or in any situation which is required by the SEC or a state securities
commission. In all other cases, the parties may use such names to the extent
that the use is approved by the party named, it being agreed that in no event
shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that, in consideration
of the Advisor's assumption of certain organization expenses of the Trust and of
the various Portfolios, the Advisor has reserved for itself the rights to the
name "Select Advisors Portfolios" (or any similar names) and that use by the
Trust of such name shall continue only with the continuing consent of the
Advisor, which consent may be withdrawn at any time, effective immediately, upon
written notice thereof to the Trust.
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7. LIMITATION OF LIABILITY OF THE ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Advisor, the Advisor shall not be subject to liability to the Trust
or to any holder of an interest in any Portfolio for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. As used in this Section 7, the term
"Advisor" shall include Touchstone Advisors, Inc. and/or any of its
affiliates and the directors, officers and employees of Touchstone
Advisors, Inc. and/or of its affiliates.
b. The Trust will indemnify the Advisor against, and hold it
harmless from, any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from acts or omissions of the Trust. Indemnification shall be made only
after: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the Trust was liable for
the damages claimed or (ii) in the absence of such a decision, a
reasonable determination based upon a review of the facts, that the
Trust was liable for the damages claimed, which determination shall be
made by either (a) the vote of a majority of a quorum of Trustees of
the Trust who are neither "interested persons" of the Trust nor parties
to the proceeding ("disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties hereto, whose
determination shall be set forth in a written opinion. The Advisor
shall be entitled to advances from the Trust for payment of the
reasonable expenses incurred by it in connection with the matter as to
which it is seeking indemnification in the manner and to the fullest
extent that would be permissible under the applicable provisions of the
General Corporation Law of Ohio. The Advisor shall provide to the Trust
a written affirmation of its good faith belief that the standard of
conduct necessary for indemnification under such law has been met and a
written undertaking to repay any such advance if it should ultimately
be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be
met: (a) the Advisor shall provide security in form and amount
acceptable to the Trust for its undertaking; (b) the Trust is insured
against losses arising by reason of the advance; or (c) a majority of a
quorum of the Trustees of the Trust, the members of which majority are
disinterested non-party Trustees, or independent legal counsel in a
written opinion, shall have determined, based on a review of facts
readily available to the Trust at the time the advance is proposed to
be made, that there is reason to believe that the Advisor will
ultimately be found to be entitled to indemnification.
8. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder in any case shall be limited to the Trust and to its
assets and that the Advisor shall not seek satisfaction of any such obligation
from the holders of the interests in any Portfolio nor from any Trustee,
officer, employee or agent of the Trust.
9. FORCE MAJEURE. The Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Advisor shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
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10. RENEWAL, TERMINATION AND AMENDMENT.
a) This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, for a period of twelve months from the date hereof and it
shall continue indefinitely thereafter as to each Portfolio, provided that such
continuance is specifically approved by the parties hereto and, in addition, at
least annually by (i) the vote of holders of a majority of the outstanding
voting securities of the affected Portfolio or by vote of a majority of the
Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who
are not parties to this Agreement or interested persons of the Advisor, cast in
person at a meeting called for the purpose of voting on such approval.
b) This Agreement may be terminated at any time, with
respect to any Portfolio(s), without payment of any
penalty, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting
securities of the affected Portfolio(s) upon 60 days'
prior written notice to the Advisor and by the
Advisor upon 60 days' prior written notice to the
Trust.
c) This Agreement may be amended at any time by the
parties hereto, subject to approval by the Trust's
Board of Trustees and, if required by applicable SEC
rules and regulations, a vote of the majority of the
outstanding voting securities of any Portfolio
affected by such change. This Agreement shall
terminate automatically in the event of its
assignment.
d) The terms "assignment," "interested persons" and
"majority of the outstanding voting securities" shall
have the meaning set forth for such terms in the 1940
Act.
11. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions, in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered inn their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
Pursuant to the Trust's Declaration of Trust, dated as of February 7, 1994, the
obligations of this Agreement are not binding upon any of the Trustees or
interestholders of the Trust individually, but bind only the Trust estate.
SELECT ADVISORS PORTFOLIOS
By ________________________________
Edward G. Harness, Jr., President
Attest:
- ---------------------------
TOUCHSTONE ADVISORS, INC.
By ____________________________
Jill T. McGruder, Vice President
Attest:
- ---------------------------
0103544.02/0299046.01
6
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SCHEDULE 1
Emerging Growth Portfolio 0.80%
International Equity Portfolio 0.95%
Growth & Income Portfolio 0.75%
Growth & Income Portfolio II 0.75%
Balanced Portfolio 0.70%
Income Opportunity 0.65%
Bond Portfolio 0.55%
Bond Portfolio II 0.55%
Municipal Bond Portfolio 0.55%
0103544.04/0299046.01
7
EXHIBIT 8(C)(II)
PORTFOLIO ADVISORY AGREEMENT
BOND PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of September 9, 1994, by
and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
Fort Washington Investment Advisors, Inc., an Ohio corporation (the "Portfolio
Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Portfolios (the "Trust"), a New York trust organized pursuant to a
Declaration of Trust dated February 7, 1994 and registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act") to provide investment advisory services to the Bond Portfolio and
the Bond II Portfolio (herein together called the "Portfolio"); and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE PORTFOLIO ADVISOR. In accordance with and subject
to the Investment Advisory Agreement between the Trust and the Advisor, attached
hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Portfolio Advisor to manage the investment and reinvestment of those assets of
the Portfolio allocated to it by the Advisor (the "Portfolio Assets"), subject
to the control and direction of the Advisor and the Trust's Board of Trustees,
for the period and on the terms hereinafter set forth. The Portfolio Advisor
hereby accepts such employment and agrees during such period to render the
services and to perform the duties called for by this Agreement for the
compensation herein provided. The Portfolio Advisor shall at all times maintain
its registration as an investment advisor under the Investment Advisers Act of
1940 and shall otherwise comply in all material respects with all applicable
laws and regulations, both state and federal. The Portfolio Advisor shall for
all purposes herein be deemed an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust or the Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide the
following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the assets of the Portfolio Assets, subject to and in
accordance with the investment objectives, policies and restrictions of
the Portfolio and any directions which the Advisor or the Trust's Board
of Trustees may give from time to time with respect to the Portfolio.
In furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of
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the assets of the Portfolio and the purchase and sale of portfolio
securities and shall take such steps as may be necessary or advisable
to implement the same. The Portfolio Advisor also will determine the
manner in which voting rights, rights to consent to corporate action
and any other rights pertaining to the portfolio securities will be
exercised. The Portfolio Advisor will render regular reports to the
Trust's Board of Trustees, to the Advisor and to Rogers, Casey
Consulting, Inc. (or such other advisor or advisors as the Advisor
shall engage to assist it in the evaluation of the performance and
activities of the Portfolio Advisor). Such reports shall be made in
such form and manner and with respect to such matters regarding the
Portfolio and the Portfolio Advisor as the Trust, the Advisor or
Rogers, Casey Consulting, Inc. shall from time to time request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor as the same is applicable
to the Portfolio, and (iii) access to the individual(s) responsible for
day-to-day management of the Portfolio for marketing conferences,
teleconferences and other activities involving the promotion of the
Portfolio, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Portfolio
Advisor and individual manager(s), and (v) permission to use the names
of clients to which the Portfolio Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
c. The Portfolio Advisor will, in the name of the Portfolio,
place orders for the execution of all portfolio transactions in
accordance with the policies with respect thereto set forth in the
Trust's registration statements under the 1940 Act and the Securities
Act of 1933, as such registration statements may be in effect from time
to time. In connection with the placement of orders for the execution
of portfolio transactions, the Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio in accordance
with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the 1940 Act. All
records shall be the property of the Trust and shall be available for
inspection and use by the Securities and Exchange Commission (the
"SEC"), the Trust or any person retained by the Trust. Where
applicable, such records shall be maintained by the Advisor for the
periods and in the places required by Rule 31a-2 under the 1940 Act.
When placing orders with brokers and dealers, the Portfolio Advisor's
primary objective shall be to obtain the most favorable price and
execution available for the Portfolio, and in placing such orders the
Portfolio Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Portfolio
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Portfolio Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to pay a broker or dealer who
provides research services to the Portfolio Advisor an amount of
commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting such transaction, in recognition of such additional research
services rendered by the broker or dealer, but only if the Portfolio
Advisor determines in good faith that the excess commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of the
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particular transaction or the Portfolio Advisor's overall
responsibilities with respect to discretionary accounts that it
manages, and that the Portfolio derives or will derive a reasonably
significant benefit from such research services. The Portfolio Advisor
will present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio Advisor shall
give the Advisor and the Trust's Board of Trustees written notice of
such reorganization or change within a reasonable time (but not later
than 30 days) after such reorganization or change.
e. The Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
f. The Portfolio Advisor will manage the Portfolio Assets and
the investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE PORTFOLIO ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio Advisor a monthly fee equal on an annual basis to 0.30%
of the average daily net assets of the Portfolio. Such fee shall be
computed and accrued daily. If the Portfolio Advisor serves in such
capacity for less than the whole of any period specified in this
Section 3a, the compensation to the Portfolio Advisor shall be
prorated. For purposes of calculating the Portfolio Advisor's fee, the
daily value of the Portfolio's net assets shall be computed by the same
method as the Trust uses to compute the net asset value of the
Portfolio for purposes of purchases and redemptions of interests
thereof.
b. The Portfolio Advisor reserves the right to waive all or a part of its
fees hereunder.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio Advisor will report
to the Board of Trustees of the Trust (at regular quarterly meetings and at such
other times as such Board of Trustees reasonably shall request) (i) the
financial condition and prospects of the Portfolio Advisor, (ii) the nature and
amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding any
potential conflicts of interest arising by reason of its continuing provision of
advisory services to the Portfolio and to its other accounts, and (iv) such
other information as the Board of Trustees shall reasonably request regarding
the Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to providing
future services to the Portfolio and its other accounts. At least annually, the
Portfolio Advisor shall report to the Trustees the total number and type of such
other accounts and the approximate total asset value thereof (but not the
identities of the
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beneficial owners of such accounts). The Portfolio Advisor agrees to submit to
the Trust a statement defining its policies with respect to the allocation of
business among the Portfolio and its other clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies
of its Form ADV with all exhibits and attachments thereto (including the
Portfolio Advisor's statement of financial condition) and will hereafter supply
to the Advisor, promptly upon the preparation thereof, copies of all amendments
or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Portfolio Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Portfolio Advisor; provided, however, that the Portfolio Advisor will
approve all uses of its name which merely refer in accurate terms to its
appointment hereunder or which are required by the SEC or a state securities
commission; and provided further, that in no event shall such approval be
unreasonably withheld. The Portfolio Advisor shall not use the name of the
Advisor or the Trust in any material relating to the Portfolio Advisor in any
manner not approved in advance by the Advisor or the Trust, as the case may be;
provided, however, that the Advisor and the Trust shall each approve all uses of
their respective names which merely refer in accurate terms to the appointment
of the Portfolio Advisor hereunder or which are required by the SEC or a state
securities commission; and, provided further, that in no event shall such
approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE PORTFOLIO ADVISOR.
a. Absent willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on
the part of the Portfolio Advisor, the Portfolio Advisor shall not be
subject to liability to the Advisor, the Trust or to any holder of an
interest in the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. As used
in this Section 6, the term "Portfolio Advisor" shall include the
Portfolio Advisor and/or any of its affiliates and the directors,
officers and employees of the Portfolio Advisor and/or any of its
affiliates.
b. The Advisor will indemnify the Portfolio Advisor
against, and hold it harmless from, any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from acts or omissions of the Advisor and/or the
Trust. Indemnification shall be made only after: (i) a final decision
on the merits by a court or other body before whom the proceeding was
brought that the Trust or the Advisor was liable for the damages
claimed or (ii) in the absence of such a decision, a reasonable
determination based upon a review of the facts, that the Trust or the
Advisor was liable for the damages claimed, which determination shall
be made by either (a) the vote of a majority of a quorum of Trustees of
the Trust who are neither "interested persons" of the Trust nor parties
to the proceeding ("disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties hereto, whose
determination shall be set forth in a written opinion. The Portfolio
Advisor shall be entitled to advances from the Trust for payment of the
reasonable expenses incurred by it in connection with the matter as to
which it is seeking indemnification in the manner and to the fullest
extent that would be permissible under the indemnification provisions
of the General Corporation Law
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of Ohio. The Portfolio Advisor shall provide to the Trust a written
affirmation of its good faith belief that the standard of conduct
necessary for indemnification under such law has been met and a written
undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition,
at least one of the following additional conditions shall be met: (a)
the Portfolio Advisor shall provide security in form and amount
acceptable to the Trust for its undertaking; (b) the Trust is insured
against losses arising by reason of the advance; or (c) a majority of a
quorum of the Trustees of the Trust, the members of which majority are
disinterested non-party Trustees, or independent legal counsel in a
written opinion, shall have determined, based on a review of facts
readily available to the Trust at the time the advance is proposed to
be made, that there is reason to believe that the Portfolio Advisor
will ultimately be found to be entitled to indemnification.
7. LIMITATION OF TRUST'S LIABILITY. The Portfolio Advisor acknowledges
that it has received notice of and accepts the limitations upon the Trust's
liability set forth in its Declaration of Trust. The Portfolio Advisor agrees
that (i) the Trust's obligations to the Portfolio Advisor under this Agreement
(or indirectly under the Advisory Agreement) shall be limited, in any event to
the assets of the Portfolio and (ii) the Portfolio Advisor shall not seek
satisfaction of any such obligation from the holders of interests in the
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Portfolio Advisor shall not be liable for delays
or errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Portfolio Advisor shall take reasonable steps to
minimize service interruptions but shall have no liability with respect thereto.
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9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, for a period of 12 months from the
date hereof; and it shall continue thereafter provided that such
continuance is specifically approved by the parties and, in addition,
at least annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Portfolio or
by vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the Portfolio
Advisor, cast in person at a meeting called for the purpose of voting
on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Portfolio, in any such case upon not less than 60
days' prior written notice to the Portfolio Advisor and (ii) by the
Portfolio Advisor upon not less than 60 days' prior written notice to
the Advisor and the Trust. This Agreement shall terminate automatically
in the event of its assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Portfolio affected
by such change.
d. The terms "assignment," "interested persons" and "majority"
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall
be found to be invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 318 Broadway, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be 550 East 4th Street, Cincinnati, Ohio
45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
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.
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TOUCHSTONE ADVISORS, INC.
By /S/ EDWARD G. HARNESS, JR.
Edward G. Harness, Jr.
President
Attest:
/S/ JILL T. MCGRUDER
Secretary
FORT WASHINGTON INVESTMENT ADVISORS, INC.
By /S/ WILLIAM T. LEDWIN
Name, President
Attest:
/S/ CONNIE M. BARONI
Secretary
0111983.03/0299046.01
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Exhibit A
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of September 9, 1994, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and SELECT
ADVISORS PORTFOLIOS, a New York master trust created pursuant to a Declaration
of Trust dated February 7, 1994, as amended from time to time (the "Trust").
WHEREAS, the Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act"); and
WHEREAS, interests in the Trust are divided into separate subtrusts
(each, along with any subtrust which may in the future be established, a
"Portfolio"); and
WHEREAS, the Trust desires to avail itself of the services,
information, advice, assistance and facilities of an investment advisor and to
have an investment advisor perform for it various investment advisory and
research services and other management services; and
WHEREAS, the Advisor is an investment Advisor registered under the
Investment Advisers Act of 1940, as amended, and desires to provide investment
advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. The Trust hereby employs the Advisor to
manage the investment and reinvestment of the assets of each Portfolio subject
to the control and direction of the Trust's Board of Trustees, for the period on
the terms hereinafter set forth. The Advisor hereby accepts such employment and
agrees during such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The Advisor shall for all
purposes herein be deemed to be independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
2. OBLIGATIONS AND SERVICES TO BE PROVIDED BY THE ADVISOR. In providing
the services and assuming the obligations set forth herein, the Advisor may, at
its expense, employ one or more subadvisors for any Portfolio. Any agreement
between the Advisor and a subadvisor shall be subject to the renewal,
termination and amendment provisions of paragraph 10 hereof. The Advisor
undertakes to provide the following services and to assume the following
obligations:
a) The Advisor will manage the investment and reinvestment of the assets of
each Portfolio, subject to and in accordance with the respective investment
objectives and policies of each Portfolio and any directions which the Trust's
Board of Trustees may issue from time to time. In pursuance of the foregoing,
the Advisor may engage separate investment advisors ("Portfolio Advisor(s)") to
make all determinations with respect to the investment of the assets of each
Portfolio, to effect the purchase and sale of portfolio securities and to take
such steps as may be necessary to implement the same. Such determination and
services by each Portfolio Advisor shall also include determining the manner in
which voting rights, rights to consent to corporate action and any other rights
pertaining to the portfolio securities shall be exercised.
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The Advisor shall, and shall cause each Portfolio
Advisor to, render regular reports to the Trust's
Board of Trustees concerning the Trust's and each
Portfolio's investment activities.
b) The Advisor shall, or shall cause the respective Portfolio Advisor(s) to
place orders for the execution of all portfolio transactions, in the name of the
respective Portfolio and in accordance with the policies with respect thereto
set forth in the Trust's registration statements under the 1940 Act and the
Securities Act of 1933, as such registration statements may be amended from time
to time. In connection with the placement of orders for the execution of
portfolio transactions, the Advisor shall create and maintain (or cause the
Portfolio Advisors to create and maintain) all necessary brokerage records for
each Portfolio, which records shall comply with all applicable laws, rules and
regulations, including but not limited to records required by Section 31(a) of
the 1940 Act. All records shall be the property of the Trust and shall be
available for inspection and use by the Securities and Exchange Commission (the
"SEC"), the Trust or any person retained by the Trust. Where applicable, such
records shall be maintained by the Advisor (or Portfolio Advisor) for the
periods and in the places required by Rule 31a-02 under the 1940 Act.
c. In the event of any reorganization or other change in
the Advisor, its investment principals, supervisors
or members of its investment (or comparable)
committee, the Advisor shall give the Trust's Board
of Trustees written notice of such reorganization or
change within a reasonable time (but not later than
30 days) after such reorganization or change.
d) The Advisor shall bear its expenses of providing
services to the Trust pursuant to this Agreement
except such expenses as are undertaken by the Trust.
In addition, the Advisor shall pay the salaries and
fees, if any, of all Trustees, officers and employees
of the Trust who are affiliated persons, as defined
in Section 2(a)(3) of the 1940 Act, of the Advisor.
e) The Advisor will manage, or will cause the Portfolio
Advisors to manage, the Portfolio Assets and the
investment and reinvestment of such assets so as to
comply with the provisions of the 1940 Act and with
Subchapter M of the Internal Revenue Code of 1986, as
amended.
3. EXPENSES. The Trust shall pay the expenses of its operation,
including but not limited to (i) charges and expenses for Trust accounting,
pricing and appraisal services and related overhead, (ii) the charges and
expenses of the Portfolio's auditor's; (iii) the charges and expenses of any
custodian, transfer agent, plan agent, dividend disbursing agent and registrar
appointed by the Trust with respect to the Portfolios; (iv) brokers'
commissions, and issue and transfer taxes, chargeable to the Trust in connection
with securities transactions to which the Trust is a party; (v) insurance
premiums, interest charges, dues and fees for Trust membership in trade
associations and all taxes and fees payable by the Trust to federal, state or
other governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the Trust and/or interests in the Trust with the
SEC, state or blue sky securities agencies and foreign countries, including the
preparation of Prospectuses and Statements of Additional Information for filing
with the SEC; (vii) all expenses of meetings of Trustees and of interest holders
of the Trust and of preparing, printing and distributing prospectuses, notices,
proxy statements and all reports to shareholders and to governmental agencies;
(viii) charges and expenses of legal
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counsel to the Trust; (ix) compensation of Trustees of the Trust; (x) the cost
of preparing and printing share certificates; and (xi) interest on borrowed
money, if any.
4. COMPENSATION OF THE ADVISOR.
a) As compensation for the services rendered and obligations assumed
hereunder by the Advisor, the Trust shall pay to the Advisor monthly a fee that
is equal on an annual basis to that percentage of the average daily net assets
of each Portfolio set forth on Schedule 1 attached hereto (and with respect to
any future Portfolio, such percentage as the Trust and the Advisor may agree to
from time to time). Such fee shall be computed and accrued daily. If the Advisor
serves as investment advisor for less than the whole of any period specified in
this Section 4a, the compensation to the Advisor shall be prorated. For purposes
of calculating the Advisor's fee, the daily value of each Portfolio's net assets
shall be computed by the same method as the Trust uses to compute the net asset
value of that Portfolio.
b) The Advisor will pay all fees owing to each Portfolio
Advisor, and the Trust shall not be obligated to the
Portfolio Advisors in any manner with respect to the
compensation of such Portfolio Advisors.
c) The Advisor reserves the right to waive all or a part of its fee.
5. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. It is understood that the Trustees and
officers of the Trust are or may become interested in the Advisor as
stockholders, officers or otherwise, and that stockholders and officers of the
Advisor are or may become similarly interested in the Trust, and that the
Advisor may become interested in the Trust as a shareholder or otherwise.
6. USE OF NAMES. The Trust will not use the name of the Advisor in any
prospectus, sales literature or other material relating to the Trust in any
manner not approved prior thereto by the Advisor; except that the Trust may use
such name in any document which merely refers in accurate terms to its
appointment hereunder or in any situation which is required by the SEC or a
state securities commission; and provided further, that in no event shall such
approval be unreasonably withheld. The Advisor will not use the name of the
Trust in any material relating to the Advisor in any manner not approved prior
thereto by the Trust; except that the Advisor may use such name in any document
which merely refers in accurate terms to the appointment of the Advisor
hereunder or in any situation which is required by the SEC or a state securities
commission. In all other cases, the parties may use such names to the extent
that the use is approved by the party named, it being agreed that in no event
shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that, in consideration
of the Advisor's assumption of certain organization expenses of the Trust and of
the various Portfolios, the Advisor has reserved for itself the rights to the
name "Select Advisors Portfolios" (or any similar names) and that use by the
Trust of such name shall continue only with the continuing consent of the
Advisor, which consent may be withdrawn at any time, effective immediately, upon
written notice thereof to the Trust.
3
<PAGE>
7. LIMITATION OF LIABILITY OF THE ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of
the Advisor, the Advisor shall not be subject to liability to the Trust
or to any holder of an interest in any Portfolio for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. As used in this Section 7, the term
"Advisor" shall include Touchstone Advisors, Inc. and/or any of its
affiliates and the directors, officers and employees of Touchstone
Advisors, Inc. and/or of its affiliates.
b. The Trust will indemnify the Advisor against, and hold it
harmless from, any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from acts or omissions of the Trust. Indemnification shall be made only
after: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the Trust was liable for
the damages claimed or (ii) in the absence of such a decision, a
reasonable determination based upon a review of the facts, that the
Trust was liable for the damages claimed, which determination shall be
made by either (a) the vote of a majority of a quorum of Trustees of
the Trust who are neither "interested persons" of the Trust nor parties
to the proceeding ("disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties hereto, whose
determination shall be set forth in a written opinion. The Advisor
shall be entitled to advances from the Trust for payment of the
reasonable expenses incurred by it in connection with the matter as to
which it is seeking indemnification in the manner and to the fullest
extent that would be permissible under the applicable provisions of the
General Corporation Law of Ohio. The Advisor shall provide to the Trust
a written affirmation of its good faith belief that the standard of
conduct necessary for indemnification under such law has been met and a
written undertaking to repay any such advance if it should ultimately
be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be
met: (a) the Advisor shall provide security in form and amount
acceptable to the Trust for its undertaking; (b) the Trust is insured
against losses arising by reason of the advance; or (c) a majority of a
quorum of the Trustees of the Trust, the members of which majority are
disinterested non-party Trustees, or independent legal counsel in a
written opinion, shall have determined, based on a review of facts
readily available to the Trust at the time the advance is proposed to
be made, that there is reason to believe that the Advisor will
ultimately be found to be entitled to indemnification.
8. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder in any case shall be limited to the Trust and to its
assets and that the Advisor shall not seek satisfaction of any such obligation
from the holders of the interests in any Portfolio nor from any Trustee,
officer, employee or agent of the Trust.
9. FORCE MAJEURE. The Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Advisor shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
4
<PAGE>
10. RENEWAL, TERMINATION AND AMENDMENT.
a) This Agreement shall continue in effect, unless sooner terminated as
hereinafter provided, for a period of twelve months from the date hereof and it
shall continue indefinitely thereafter as to each Portfolio, provided that such
continuance is specifically approved by the parties hereto and, in addition, at
least annually by (i) the vote of holders of a majority of the outstanding
voting securities of the affected Portfolio or by vote of a majority of the
Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who
are not parties to this Agreement or interested persons of the Advisor, cast in
person at a meeting called for the purpose of voting on such approval.
b) This Agreement may be terminated at any time, with
respect to any Portfolio(s), without payment of any
penalty, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting
securities of the affected Portfolio(s) upon 60 days'
prior written notice to the Advisor and by the
Advisor upon 60 days' prior written notice to the
Trust.
c) This Agreement may be amended at any time by the
parties hereto, subject to approval by the Trust's
Board of Trustees and, if required by applicable SEC
rules and regulations, a vote of the majority of the
outstanding voting securities of any Portfolio
affected by such change. This Agreement shall
terminate automatically in the event of its
assignment.
d) The terms "assignment," "interested persons" and
"majority of the outstanding voting securities" shall
have the meaning set forth for such terms in the 1940
Act.
11. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions, in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered inn their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
Pursuant to the Trust's Declaration of Trust, dated as of February 7, 1994, the
obligations of this Agreement are not binding upon any of the Trustees or
interestholders of the Trust individually, but bind only the Trust estate.
SELECT ADVISORS PORTFOLIOS
By _______________________________
Edward G. Harness, Jr., President
Attest:
- ---------------------------
TOUCHSTONE ADVISORS, INC.
By ___________________________
Jill T. McGruder, Vice President
Attest:
- ---------------------------
0103544.02/0299046.01
6
<PAGE>
SCHEDULE 1
Emerging Growth Portfolio 0.80%
International Equity Portfolio 0.95%
Growth & Income Portfolio 0.75%
Growth & Income Portfolio II 0.75%
Balanced Portfolio 0.70%
Income Opportunity 0.65%
Bond Portfolio 0.55%
Bond Portfolio II 0.55%
Municipal Bond Portfolio 0.55%
0103544.04/0299046.01
7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-4
(File No. 33-76582) of our report, dated April 15, 1996, on our audits of the
financial statements of Western- Southern Life Assurance Company and our report,
dated January 12, 1996, on our audit of the financial statements of
Western-Southern Life Assurance Company Separate Account 1. We also consent to
the reference to our firm under the caption "Experts".
/S/ COOPERS & LYBRAND, L.L.P.
Cincinnati, Ohio
April 23, 1996
<TABLE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
TOTAL RETURN*
FOR THE PERIOD FROM FEBRUARY 23, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Beginn- Units Ending Ending Contract Surr- Ending Number of Average
Purchase ing Unit Purch- Unit Value Maintenance ender Redeemable of Years Annual
Value ased Value Before Charge Charge Value Total Return
------------------------------------------------------------------------------------------------------
P BUV UP EUV PEV CMC SC ERV n T
=P/BUV =UP*EUV =PEV-CMC-SC =(ERV/P) 1/n-1
Select Advisors Variable Insurance
Trust
Emerging Growth Portfolio $1,000.00 10.000000 100 11.687169 $1,168.72 $35.00 $70.00 $1,063.72 1 6.37%
International Equity Portfolio $1,000.00 10.000000 100 11.230830 $1,123.08 $35.00 $70.00 $1,018.08 1 1.81%
Balanced Portfolio $1,000.00 10.000000 100 11.962842 $1,196.28 $35.00 $70.00 $1,091.28 1 9.13%
Income Opportunity Portfolio $1,000.00 10.000000 100 12.515143 $1,251.51 $35.00 $70.00 $1,146.51 1 14.65%
Standby Income Portfolio $1,000.00 10.000000 100 10.317194 $1,031.72 $35.00 $70.00 $ 926.72 1 -7.33%
Select Advisors Portfolios
Growth & Income Portfolio II $1,000.00 10.000000 100 12.490239 $1,249.02 $35.00 $70.00 $1,144.02 1 14.40%
Bond Portfolio II $1,000.00 10.000000 100 11.262524 $1,126.25 $35.00 $70.00 $1,021.25 1 2.13%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
TOTAL RETURN**
FOR THE PERIOD FROM FEBRUARY 28, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
Initial Beginning Ending Change Average Annual
Purchase Unit Unit In Unit Annual
Value Value Value Total Return
-----------------------------------------------------------------------------------
P BUV EUV CUV T
=EUV-BUV =CUV/BUV
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio $1,000.00 10.017726 11.687169 1.669443 16.7%
International Equity Portfolio $1,000.00 9.930209 11.230830 1.300621 13.1%
Balanced Portfolio $1,000.00 10.026808 11.962842 1.936034 19.3%
Income Opportunity Portfolio $1,000.00 10.009052 12.515143 2.506091 25.0%
Standby Income Portfolio $1,000.00 10.006418 10.317194 0.310776 3.1%
Select Advisors Portfolios
Growth & Income Portfolio II $1,000.00 10.018000 12.490239 2.472239 24.7%
Bond Portfolio II $1,000.00 10.060000 11.262524 1.202524 12.0%
</TABLE>
EXHIBIT 15(A)
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ WILLIAM D. ATTEBERRY
William D. Atteberry
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ DR. J. HAROLD KOTTE
Dr. J. Harold Kotte
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald
J. Wuebbling, Esq. and Edward S. Heenan, and each of them individually, his
attorney in fact, for him and in his name, place and stead and in his office and
capacity with the Company, to execute and file such post-effective amendment,
including prospectus, statement of additional information and exhibits, and
thereafter to execute and file any amended Registration Statement or statements,
amended prospectus or prospectuses and amended statement or statements of
additional information, or any supplements to any of the foregoing, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ DR. LAWRENCE C. HAWKINS
Dr. Lawrence C. Hawkins
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ CARL A. KROCH
Carl A. Kroch
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ EUGENE P. RUEHLMANN
Eugene P. Ruehlmann
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ CHARLES M. WILLIAMS
Charles M. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ THOMAS L. WILLIAMS
Thomas L. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ WILLIAM J. WILLIAMS
William J. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald
J. Wuebbling, Esq. and Edward S. Heenan, and each of them individually, his
attorney in fact, for him and in his name, place and stead and in his office and
capacity with the Company, to execute and file such post-effective amendment,
including prospectus, statement of additional information and exhibits, and
thereafter to execute and file any amended Registration Statement or statements,
amended prospectus or prospectuses and amended statement or statements of
additional information, or any supplements to any of the foregoing, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ JOHN F. BARRETT
John F. Barrett
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Post-Effective Amendment
No. 2 to Registration Statement No. 33-76582, amending such Registration
Statement and the included prospectus and statement of additional information
with respect to the Company's Separate Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such post-effective amendment, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effective only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th
day of March, 1996.
/S/ JAMES N. CLARK
James N. Clark
EXHIBIT 15(B)
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the
"Portfolios"), proposes to file with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, as amended, and the rules
and regulations thereunder, and the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder, a Post-Effective Amendment No. 2 to
Registration Statement No. 33-76582 amending such Registration Statement and the
included prospectus and statement of additional information; and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to execute and file such
post-effective amendment, including prospectus, statement of additional
information and exhibits, and thereafter to execute and file any additional
amended registration statement or statements, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing, hereby giving and granting
to said attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effect only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st
day of March, 1996.
/S/ JOSEPH S. STERN, JR.
Joseph S. Stern, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the
"Portfolios"), proposes to file with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, as amended, and the rules
and regulations thereunder, and the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder, a Post-Effective Amendment No. 2 to
Registration Statement No. 33-76582 amending such Registration Statement and the
included prospectus and statement of additional information; and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to execute and file such
post-effective amendment, including prospectus, statement of additional
information and exhibits, and thereafter to execute and file any additional
amended registration statement or statements, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing, hereby giving and granting
to said attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effect only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st
day of March, 1996.
/S/ ROBERT E. STAUTBERG
Robert E. Stautberg
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the
"Portfolios"), proposes to file with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, as amended, and the rules
and regulations thereunder, and the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder, a Post-Effective Amendment No. 2 to
Registration Statement No. 33-76582 amending such Registration Statement and the
included prospectus and statement of additional information; and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to execute and file such
post-effective amendment, including prospectus, statement of additional
information and exhibits, and thereafter to execute and file any additional
amended registration statement or statements, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing, hereby giving and granting
to said attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effect only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st
day of March, 1996.
/S/ PHILIP R. COX
Philip R. Cox
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the
"Portfolios"), proposes to file with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, as amended, and the rules
and regulations thereunder, and the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder, a Post-Effective Amendment No. 2 to
Registration Statement No. 33-76582 amending such Registration Statement and the
included prospectus and statement of additional information; and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to execute and file such
post-effective amendment, including prospectus, statement of additional
information and exhibits, and thereafter to execute and file any additional
amended registration statement or statements, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing, hereby giving and granting
to said attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effect only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st
day of March, 1996.
/S/ WILLIAM J. WILLIAMS
William J. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the
"Portfolios"), proposes to file with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, as amended, and the rules
and regulations thereunder, and the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder, a Post-Effective Amendment No. 2 to
Registration Statement No. 33-76582 amending such Registration Statement and the
included prospectus and statement of additional information; and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Portfolios, to execute and file such post-effective amendment,
including prospectus, statement of additional information and exhibits, and
thereafter to execute and file any additional amended registration statement or
statements, amended prospectus or prospectuses, amended statement or statements
of additional information, amended exhibits or any supplements to any of the
foregoing, hereby giving and granting to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effect only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st
day of March, 1996.
/S/ EDWARD G. HARNESS, JR.
Edward G. Harness, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the
"Portfolios"), proposes to file with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, as amended, and the rules
and regulations thereunder, and the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder, a Post-Effective Amendment No. 2 to
Registration Statement No. 33-76582 amending such Registration Statement and the
included prospectus and statement of additional information; and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to execute and file such
post-effective amendment, including prospectus, statement of additional
information and exhibits, and thereafter to execute and file any additional
amended registration statement or statements, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing, hereby giving and granting
to said attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery
of such post-effective amendment and included documents and, unless earlier
revoked by me or expressly extended by me in writing, shall remain in force and
effect only until such post-effective amendment shall have been declared
effective by the Securities and Exchange Commission and in any event not later
than June 1, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st
day of March, 1996.
/S/ DAVID POLLAK
David Pollak
