<PAGE>
T O U C H S T O N E
------------------------------------------
TOUCHSTONE II VARIABLE ANNUITY
LOGO
( EMERGING GROWTH
( INTERNATIONAL EQUITY
( GROWTH & INCOME
( BALANCED
( INCOME OPPORTUNITY
( BOND
( STANDBY INCOME
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
THIS BOOKLET CONTAINS THE ANNUAL REPORTS WHICH REFLECT THE RESULTS OF THE
TOUCHSTONE II VARIABLE ANNUITY, A FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE
ANNUITY CONTRACT, ISSUED BY WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
("WESTERN-SOUTHERN"). INCLUDED IN THIS BOOKLET ARE THE ANNUAL REPORTS FOR
WESTERN-SOUTHERN'S SEPARATE ACCOUNT 2 AND THE INVESTMENT PORTFOLIOS UNDERLYING
THE TOUCHSTONE II VARIABLE ANNUITY. THESE ANNUAL REPORTS ARE BOUND TOGETHER FOR
YOUR CONVENIENCE.
<PAGE>
Dear Contract Owner:
Over the past two years, many have asked about the meaningfulness of the
Touchstone name. In a literal sense, the word TOUCHSTONE originated from the
testing stone. In order for the medieval alchemist to test the purity of gold,
it was often rubbed against a fine-grained, dark stone such as jasper in order
to see what kind of mark it left behind. In a more colloquial sense, though, the
word TOUCHSTONE has evolved and is defined as a test or criterion by which other
things are judged. The name, Touchstone, in other words reflects our commitment
to being a benchmark by which other investment managers can be compared.
Which segues me to my appraisal of the investment markets in 1996.
Unquestionably 1996 in many ways paralleled 1995, with equities generating
impressive returns. Stocks were again the place to be. The U.S. equity markets
maintained a rally that began in August and ran on through November as economic
signals pointed to a continuing moderate to slow growth scenario. Continued
strength on the corporate earnings front supported the elevated prices. The Dow
Jones Industrial Average, which closed at 5117 on December 31, 1995, closed at
the 6448 level on December 31, 1996. An annual return of 26% for the DJIA
illustrated the dominance of large capitalization companies which was also
discernible in the returns of the S&P 500, Russell 1000 and Russell 3000. Low
interest rates, low inflation, and significant cash flows into equity mutual
funds added combustion to the bull market. The fixed income markets also ended
the year on a positive note as bonds struggled to recover lost performance
suffered earlier in the year. Even Alan Greenspan's remarks about "irrational
exuberance" did very little to dampen the overall market fervor. But how long
these retail-friendly markets will continue is unknown, particularly if economic
conditions would begin to slow and corporate profitability comes under a strain.
1996 was also the year that the financial press discovered the Touchstone
Family of Funds and Variable Annuities. We were recognized in publications such
as the WALL STREET JOURNAL, BARRON'S, INVESTOR'S BUSINESS DAILY, KIPLINGER'S
PERSONAL FINANCE, BUSINESS WEEK, LOS ANGELES TIMES and CHICAGO TRIBUNE. This
favorable publicity brought us much attention among investment professionals and
individual investors alike.
While it is difficult to make general comments about the performance of a
family of asset classes as diverse as Touchstone, I encourage you to review the
enclosed financial statements and performance summaries for each Fund in the
Family. Although portfolio managers throughout the industry labored to equal the
performance of steadily rising market indices, our managers generally excelled
in adhering to their investment styles and objectives while exploiting growth
opportunities. However, the opportunity to improve always exits, and we will
aggressively pursue improvements in select areas as we move forward in 1997.
We appreciate your continued confidence and investment in the Touchstone
Family of Funds and Variable Annuities.(1)
Sincerely,
/s/ Edward G. Harness
Edward G. Harness
President and Chief Executive Officer
Touchstone Family of Funds
P.S. Visit us on the World Wide Web at WWW.TOUCHSTONEFUNDS.COM
(1)TOUCHSTONE VARIABLE ANNUITIES ARE UNDERWRITTEN BY WESTERN-SOUTHERN LIFE
ASSURANCE COMPANY, CINCINNATI, OHIO
<PAGE>
T O U C H S T O N E
------------------------------------------
WESTERN-SOUTHERN LIFE
LOGO
ASSURANCE COMPANY
-------------------------------------------------------
SEPARATE ACCOUNT 2
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
TOUCHSTONE II EMERGING GROWTH SUB-ACCOUNT
Over the course of the annual period ending December 31, 1996, several
investment management strategies and techniques materially affected Touchstone
II Emerging Growth Sub-Account's performance. Small capitalization stocks, as
measured by the Russell 2000, rose 16.5% while the total return (net of fees and
expenses) for the Touchstone II Emerging Growth Sub-Account was 10.3%. As the
value-style manager of the Touchstone Emerging Growth Portfolio, David L.
Babson's core strategy was to remain invested in leading companies where there
is the potential over the next three to five years to see improving
profitability and accelerating earnings growth. Babson remained committed to
this longer term strategy even though market conditions may not have been ideal
over the past year. Ultimately, though, Babson believes their value-style
approach to equity buying will perform well over a full market cycle. As the
growth-style manager of the Touchstone Emerging Growth Portfolio, Westfield
Capital Management continued to find companies with good growth prospects
selling at less than one times their growth rate. Overweighted positions in
energy, technology and financial services contributed strongly to the overall
portfolio return, while several retail and health service names lingered. Near
term, Westfield Capital expects the "goldilocks economy" of moderating growth
and low inflation will continue. Longer term, a decided shift to stronger
relative earnings growth in the small sector will be apparent.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOUCHSTONE II
VARIABLE CDA/WIESENBERGER
<S> <C> <C> <C>
Annuity Emerging Russell Small Company
Growth Sub-Account 2000 Index Growth Avg - VA
Feb. '95 $10,000 $10,000 $10,000
Mar. '95 10,081 10,171 10,213
Jun. '95 10,694 11,125 11,185
Sep. '95 11,616 12,224 12,568
Dec. '95 11,719 12,488 12,540
Mar. '96 12,277 13,125 13,248
Jun. '96 12,823 13,782 14,071
Sep. '96 12,574 13,829 14,353
Dec. '96 12,948 14,548 14,464
Aggregate Total Return
One Year Ended 12/31/96 10.3%
Inception to 12/31/96 29.5%
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
</TABLE>
TOUCHSTONE II INTERNATIONAL EQUITY SUB-ACCOUNT
Over the course of the annual period ending December 31, 1996, several
investment management strategies and techniques materially affected the
Touchstone II International Equity Sub-Account's performance. International
equity stocks, as measured by the MSCI EAFE Index, rose 6.4% while the total
return (net of fees and expenses) for the Touchstone II International Equity
Sub-Account was 10.6%. As the international equity manager of the Touchstone II
International Equity Portfolio, BEA Associates attributes the Fund's performance
to mix of country, currency and stock selection. The effect of country selection
was most pronounced in Latin America, where they benefited from an overweight in
Brazil and Mexico, and Asia where they gained from an underweight in both the
Japanese equity market and the Yen. Stock selection played the biggest role in
Europe, especially in their holdings in Italy, France and Sweden. In Asia
Ex-Japan, gains from both stock selections and overweights in Hong Kong,
Indonesia and Malaysia were offset by positions in Thailand and South Korea,
which were the weakest performing regions in 1996.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOUCHSTONE II
VARIABLE CDA/WIESENBERGER
<S> <C> <C> <C>
Annuity International International
Equity Sub-Account MSCI EAFE Index Equity Avg - VA
Feb. '95 $10,000 $10,000 $10,000
Mar. '95 10,415 10,626 10,241
Jun. '95 10,849 10,711 10,780
Sep. '95 11,316 11,167 11,289
Dec. '95 11,361 11,628 11,454
Mar. '96 12,042 11,973 12,053
Jun. '96 12,289 12,171 12,552
Sep. '96 12,068 12,048 12,518
Dec. '96 12,476 12,249 13,007
Aggregate Total Return
One Year Ended 12/31/96 10.6%
Inception to 12/31/96 24.8%
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
</TABLE>
3
<PAGE>
TOUCHSTONE II GROWTH & INCOME SUB-ACCOUNT
Over the course of the annual period ending December 31, 1996, several
investment management strategies and techniques materially affected the
Touchstone II Growth & Income Sub-Account's performance. Growth & Income stocks,
as measured by the S&P 500 Index, rose 22.8% while the total return (net of fees
and expenses) for the Touchstone II Growth & Income Sub-Account was 14.0%. As
the growth and income manager of the Touchstone Growth & Income Portfolio II,
Ft. Washington Investment Advisors continued to employ a strategy of staying
fully invested in a highly diversified portfolio. Their stock picking emphasis
was on out-of-favor stocks with stable to improving fundamentals. Throughout the
annual period, the fund consisted primarily of large capitalization stocks
managed with a relative value discipline. Their goal was to buy good quality
companies when the market put them on sale. In their daily research and
selection process, they tried to buy stocks that experienced significant price
declines. This approach created a difficult environment for value-based
strategies to outperform the market. The recovery of out-of-favor names in 1996
was incompatible with the robust market environment which favored momentum-based
strategies.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOUCHSTONE II VARIABLE CDA/WIESENBERGER
<S> <C> <C> <C>
Annuity Growth Growth & Current
& Income Sub-Account S&P 500 Index Income Avg - VA
Feb. '95 $10,000 $10,000 $10,000
Mar. '95 10,233 10,296 10,263
Jun. '95 10,989 11,273 11,092
Sep. '95 11,818 12,162 11,872
Dec. '95 12,511 12,893 12,421
Mar. '96 13,383 13,586 12,975
Jun. '96 13,683 14,190 13,353
Sep. '96 13,866 14,623 13,721
Dec. '96 14,291 15,838 14,656
Aggregate Total Return
One Year Ended 12/31/96 14.0%
Inception to 12/31/96 42.9%
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
</TABLE>
TOUCHSTONE II BALANCED SUB-ACCOUNT
Over the course of the annual period ended December 31, 1996, several investment
management strategies and techniques materially affected the Touchstone II
Balanced Sub-Account's performance. Growth and value stocks, as measured by the
S&P Index, rose 22.8% and government and corporate bonds, as measured by the
Lehman Brothers Government/Corporate Index rose 2.9% while the total return (net
of fees and expenses) for the Touchstone II Balanced Sub-Account was 15.9%. As
the core equity manager of the Touchstone II Balanced Portfolio, Harbor Capital
Management recorded excellent performance on both the growth and value sides of
the portfolio. Heavy exposure to technology, financial services, energy, and
large-capitalization, multinational issues contributed to the strong
performance. With technology, their emphasis was on the dominant market leaders
(Microsoft, Intel and IBM). Financial equities were weighted toward banks
(Citicorp and Chase) and asset accumulation vehicles (SunAmerica, Allmerica and
Travelers) which were benefiting from the huge inflow into annuities and mutual
funds. With the rise in crude oil prices, energy related equities also did well.
The energy sector of the portfolio included integrated oils (Amoco), exploration
and production companies (Unocal and Triton), natural gas (Enron) and drillers
(Diamond Offshore and Schlumberger). Finally, the market rewarded the big,
multinational global leaders such as American International Group, Boeing, GE,
Monsanto, Medtronic, Pfizer and Coca-Cola.
As the fixed income manager of the Touchstone Balanced Portfolio, Morgan
Grenfell Capital Management has remained focused on issue selection, believing
this to be the best way to consistently add value in the fixed income markets
over time. The fund was well diversified among sectors, issues and maturities
and was comprised of high quality securities that offer superior total return
prospects over a variety of market scenarios. Their holdings were in well
structured mortgage-backed securities that have particularly benefited during
this annual period of rising interest rates. Morgan Grenfell continues to favor
taxable municipal bonds over generic corporate issues, believing that they offer
superior return prospects.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOUCHSTONE II
VARIABLE LEHMAN BROTHERS
<S> <C> <C> <C>
Annuity Balanced Government/Corporate
Sub-Account S&P 500 Index Index
Feb. '95 $10,000 $10,000 $10,000
Mar. '95 10,260 10,296 10,067
Jun. '95 11,248 11,273 10,720
Sep. '95 11,921 12,162 10,925
Dec. '95 11,985 12,893 11,434
Mar. '96 12,378 13,586 11,167
Jun. '96 12,510 14,190 11,219
Sep. '96 12,954 14,623 11,417
Dec. '96 13,930 15,838 11,766
Aggregate Total Return
One Year Ended 12/31/96 15.9%
Inception to 12/31/96 39.3%
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
<CAPTION>
CDA/WIESENBERGER
<S> <C>
Balanced
Avg - VA
Feb. '95 $10,000
Mar. '95 10,179
Jun. '95 10,867
Sep. '95 11,419
Dec. '95 11,803
Mar. '96 12,055
Jun. '96 12,278
Sep. '96 12,558
Dec. '96 13,134
Aggregate Total Return
One Year Ended 12/31/96
Inception to 12/31/96
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
</TABLE>
4
<PAGE>
TOUCHSTONE II INCOME OPPORTUNITY SUB-ACCOUNT
Over the course of the annual period ending December 31, 1996, several
investment management strategies and techniques materially affected the
Touchstone II Income Opportunity Sub-Account's performance. Corporate high yield
bonds, as measured by the CDA/Wiesenberger Corporate High Yield Variable Annuity
Average, rose 12.9%; international bonds, as measured by the CDA/Wiesenberger
International Bond Variable Annuity Average rose 7.5% while corporate bonds in
general, as measured by the Lehman Brothers Corporate Bond Index, rose 3.3%.
Total return (net of fees and expenses) for the Touchstone II Income Opportunity
Sub-Account was 26.4%.
As the manager of the Touchstone Income Opportunity Portfolio, Alliance
Capital Management continued to concentrate its portfolio strategy on
investments in emerging market sovereign and corporate debt. As the year
progressed, however, spreads between sovereign and corporate debt tightened to
unrealistic levels, and Alliance increased their holdings in sovereign debt. In
another strategic move, Alliance added corporate investments in selected Asian
countries such as India and Thailand. At year-end the major investments in the
portfolio were in Russia, which obtained a Ba2 in 1996, Brazil, Mexico and
Thailand. Domestic high yield represented 31% of the portfolio at year-end.
Major investments included Goss Graphic, Transtexas Gas and Unisys.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOUCHSTONE II VARIABLE CDA/WIESENBERGER
<S> <C> <C> <C>
Annuity Income Lehman Brothers International Bond
Opportunity Sub-Account Corporate Bond Index Avg - VA
Feb. '95 $10,000 $10,000 $10,000
Mar. '95 9,776 10,082 10,222
Jun. '95 11,257 10,831 10,763
Sep. '95 11,946 11,087 10,924
Dec. '95 12,561 11,635 11,296
Mar. '96 13,251 11,334 11,228
Jun. '96 14,059 11,386 11,424
Sep. '96 15,151 11,613 11,778
Dec. '96 15,887 12,017 12,144
Aggregate Total Return
One Year Ended 12/31/96 26.4%
Inception to 12/31/96 58.9%
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
<CAPTION>
CDA/WIESENBERGER
<S> <C>
Corporate High
Yield Avg - VA
Feb. '95 $10,000
Mar. '95 10,087
Jun. '95 10,630
Sep. '95 10,976
Dec. '95 11,309
Mar. '96 11,588
Jun. '96 11,805
Sep. '96 12,341
Dec. '96 12,731
Aggregate Total Return
One Year Ended 12/31/96
Inception to 12/31/96
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
</TABLE>
TOUCHSTONE II BOND SUB-ACCOUNT
Over the course of the annual period ending December 31, 1996, several
investment management strategies and techniques materially affected the
Touchstone II Bond Sub-Account's performance. Corporate bonds, as measured by
the Lehman Brothers Aggregate Index, rose 3.6% while the return of the
CDA/Wiesenberger Corporate Bond Variable Annuity Average rose 3.3%. Total return
(net of fees and expenses) for the Touchstone II Bond Sub-Account was 1.7%.
As the core fixed income manager of the Touchstone Bond Portfolio II, Ft.
Washington Investment Advisors continued to emphasize overweighting sectors
within the market that they felt would exceed market expectation for total
return. This disciplined strategy achieved average returns in 1996 due to
overall market volatility and the fully valued nature of all fixed income
sectors. Ft. Washington maintained a fully invested status the majority of the
year with market overweights in the corporate and asset-backed sectors. Their
yield biased strategy away from treasuries was incorporated to provide cushion
in any market downturn and to take advantage of the positive fundamentals in
these sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOUCHSTONE II
VARIABLE CDA/WIESENBERGER
<S> <C> <C> <C>
Annuity Bond Lehman Brothers Corporate
Sub-Account Aggregate Index Bond Avg - VA
Feb. '95 $10,000 $10,000 $10,000
Mar. '95 10,008 10,061 10,063
Jun. '95 10,638 10,675 10,631
Sep. '95 10,599 10,884 10,794
Dec. '95 11,242 11,347 11,212
Mar. '96 10,970 11,146 11,015
Jun. '96 10,982 11,210 11,053
Sep. '96 11,222 11,417 11,264
Dec. '96 11,506 11,760 11,585
Aggregate Total Return
One Year Ended 12/31/96 1.7%
Inception to 12/31/96 15.1%
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
</TABLE>
5
<PAGE>
TOUCHSTONE II STANDBY INCOME SUB-ACCOUNT
Over the course of the annual period ending December 31, 1996, several
investment management strategies and techniques materially affected the
Touchstone II Standby Income Sub-Account's performance. Cash equivalents, as
measured by the Merrill Lynch 91-Day Treasury, rose 5.3% while the return of the
IBC Donoghue Money Market Average rose 5.0%. Total return (net of fees and
expenses) for the Touchstone II Standby Income Sub-Account was 4.4%.
As the ultra-short fixed income manager of the Touchstone Standby Income
Portfolio, Ft. Washington Investment Advisors maintained its core investment
strategy by maintaining a stable average maturity slightly longer than the
90-day Treasury bill. Throughout the annual period, Ft. Washington's portfolio
was heavily weighted in liquid and high yielding commercial paper. Secondary
weightings were in the asset-backed and corporate bond sectors. A dramatic
underweighting of U.S. Treasury paper was intentional due its lack of
incremental yield. This strategy protected principal and kept the fund liquid.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOUCHSTONE II
VARIABLE MERRILL LYNCH CDA/WIESENBERGER
<S> <C> <C> <C> <C>
Annuity Standby 91-Day IBC Donoghue Money Market
Income Sub-Account Treasury Index Money Market Index Avg - VA
Feb. '95 $10,000 $10,000 $10,000 $10,000
Mar. '95 10,052 10,051 10,046 10,038
Jun. '95 10,127 10,201 10,185 10,148
Sep. '95 10,216 10,347 10,321 10,252
Dec. '95 10,357 10,499 10,457 10,356
Mar. '96 10,462 10,628 10,586 10,454
Jun. '96 10,574 10,765 10,712 10,550
Sep. '96 10,701 10,914 10,842 10,651
Dec. '96 10,820 11,056 10,973 10,752
Aggregate Total Return
One Year Ended 12/31/96 4.4%
Inception to 12/31/96 8.2%
Growth of a $10,000 investment
Past performance is not predictive of future
performance.
</TABLE>
- --------------------------------------------------------------------------------
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
STATEMENT OF NET ASSETS
AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments at current market value:
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio (4,315 shares, cost $51,433) $ 52,646
International Equity Portfolio (5,114 shares, cost $54,232) 56,616
Balanced Portfolio (4,292 shares, cost $51,906) 55,100
Income Opportunity Portfolio (5,088 shares, cost $54,998) 57,037
Standby Income Portfolio (21,361 shares, cost $213,823) 213,823
Select Advisors Portfolios
Growth & Income Portfolio II (0.304956% beneficial interest $52,731) 67,028
Bond Portfolio II (0.223079% beneficial interest $31,138) 33,409
---------
Total assets 535,659
---------
LIABILITIES
Accounts payable to Western-Southern Life Assurance Company 10
---------
Total net assets $ 535,649
---------
---------
NET ASSETS
Variable annuity contracts $ 534,731
Retained in the variable account by Western-Southern Life Assurance Company 918
---------
Total net assets $ 535,649
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD FROM JANUARY 1, 1996 TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
TOTAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends $ 13,246 $ 1,359 $ 360 $ 1,880 $ 5,974 $ 3,673
Miscellaneous Income (loss) (5,239) (701) 360 456 (592) (105)
EXPENSES:
Mortality and expense risk and
administrative charge 2,391 289 282 297 311 563
--------- ------------- ------------- ------------- ------------- ------------
Net Investment income (loss) 5,616 369 438 2,039 5,071 3,005
--------- ------------- ------------- ------------- ------------- ------------
Net change in unrealized
appreciation (depreciation) on
investments 21,352 1,955 2,044 3,971 1,155 10
Realized gain (loss) on investments 3,881 1,042 1,102 (373) 2,141 (31)
--------- ------------- ------------- ------------- ------------- ------------
Net realized and unrealized gain
(loss) on investments 25,233 2,997 3,146 3,598 3,296 (21)
--------- ------------- ------------- ------------- ------------- ------------
Net increase (decrease) in net assets
resulting from operations 30,849 3,366 3,584 5,637 8,367 2,984
--------- ------------- ------------- ------------- ------------- ------------
Contract owners activity:
Payments received from contract
owners 439,270 11,499 14,417 24,407 19,051 332,926
Net transfers between sub-accounts
and/or fixed account -- 14,538 14,601 3,807 3,913 (42,365)
Withdrawals and surrenders (91,285) (291) (303) -- -- (90,691)
Contract maintenance charge (245) (47) (37) (34) (40) (7)
--------- ------------- ------------- ------------- ------------- ------------
Net increase from contract activity 347,740 25,699 28,678 28,180 22,924 199,863
--------- ------------- ------------- ------------- ------------- ------------
Net increase in net assets 378,589 29,065 32,262 33,817 31,291 202,847
Net assets, at beginning of period 157,060 23,580 24,351 21,282 25,744 10,972
--------- ------------- ------------- ------------- ------------- ------------
Net assets, at end of period $ 535,649 $ 52,645 $ 56,613 $ 55,099 $ 57,035 $ 213,819
--------- ------------- ------------- ------------- ------------- ------------
--------- ------------- ------------- ------------- ------------- ------------
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
------------- -------------
<S> <C> <C>
INCOME:
Dividends $ -- $ --
Miscellaneous Income (loss) (4,332) (325)
EXPENSES:
Mortality and expense risk and
administrative charge 435 214
------------- -------------
Net Investment income (loss) (4,767) (539)
------------- -------------
Net change in unrealized
appreciation (depreciation) on
investments 10,973 1,244
Realized gain (loss) on investments -- --
------------- -------------
Net realized and unrealized gain
(loss) on investments 10,973 1,244
------------- -------------
Net increase (decrease) in net assets
resulting from operations 6,206 705
------------- -------------
Contract owners activity:
Payments received from contract
owners 22,670 14,300
Net transfers between sub-accounts
and/or fixed account 5,337 169
Withdrawals and surrenders -- --
Contract maintenance charge (57) (23)
------------- -------------
Net increase from contract activity 27,950 14,446
------------- -------------
Net increase in net assets 34,156 15,151
Net assets, at beginning of period 32,872 18,259
------------- -------------
Net assets, at end of period $ 67,028 $ 33,410
------------- -------------
------------- -------------
</TABLE>
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD FROM FEBRUARY 23, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends and capital gains $ 4,981 $ 1,566 $ 68 $ 1,643 $ 1,407 $ 297
Miscellaneous Income (loss) 45 10 34 3 (1) (15)
EXPENSES:
Mortality and expense risk and
administrative charge 524 76 82 74 85 43
--------- ------------- ------------- ------------- ------------- ------------
Net investment income (loss) 4,502 1,500 20 1,572 1,321 239
--------- ------------- ------------- ------------- ------------- ------------
Net change in unrealized
appreciation (depreciation) on
investments 4,046 (742) 339 (777) 885 (10)
Realized gain (loss) on investments 178 6 85 19 69 (1)
--------- ------------- ------------- ------------- ------------- ------------
Net realized and unrealized gain
(loss) on investments 4,224 (736) 424 (758) 954 (11)
--------- ------------- ------------- ------------- ------------- ------------
Net increase in net assets resulting
from operations 8,726 764 444 814 2,275 228
--------- ------------- ------------- ------------- ------------- ------------
Contract owners activity:
Payments received from contract
owners 148,334 22,816 23,907 20,468 23,469 10,744
--------- ------------- ------------- ------------- ------------- ------------
Net increase from contract activity 148,334 22,816 23,907 20,468 23,469 10,744
--------- ------------- ------------- ------------- ------------- ------------
Net increase in net assets 157,060 23,580 24,351 21,282 25,744 10,972
Net assets, at beginning of period -- -- -- -- -- --
--------- ------------- ------------- ------------- ------------- ------------
Net assets, at end of period $ 157,060 $ 23,580 $ 24,351 $ 21,282 $ 25,744 $ 10,972
--------- ------------- ------------- ------------- ------------- ------------
--------- ------------- ------------- ------------- ------------- ------------
<CAPTION>
INCOME
<S> <C> <C>
Dividends and capital gains $ -- $ --
Miscellaneous Income (loss) 11 3
EXPENSES:
Mortality and expense risk and
administrative charge 101 63
------------- -------------
Net investment income (loss) (90) (60)
------------- -------------
Net change in unrealized
appreciation (depreciation) on
investments 3,324 1,027
Realized gain (loss) on investments -- --
------------- -------------
Net realized and unrealized gain
(loss) on investments 3,324 1,027
------------- -------------
Net increase in net assets resulting
from operations 3,234 967
------------- -------------
Contract owners activity:
Payments received from contract
owners 29,638 17,292
------------- -------------
Net increase from contract activity 29,638 17,292
------------- -------------
Net increase in net assets 32,872 18,259
Net assets, at beginning of period -- --
------------- -------------
Net assets, at end of period $ 32,872 $ 18,259
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Western-Southern Life Assurance Company Separate Account 2 (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 the individual variable annuity contracts and
commenced operations on February 23, 1995.
The variable annuity 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. The variable annuity contracts are
distributed across the United States through a network of broker-dealers and
wholesalers.
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 or of Select Advisors Portfolios, each of which is an open-ended
diversified management investment company. The sub-account's value fluctuates on
a day to day basis depending on the investment performance of the Portfolio in
which the sub-account is invested. 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.
Upon annuitization, the contract assets are transferred to the general
account of the Company. Accordingly, contract reserves are recorded by the
Company. See the related prospectus for a more detailed understanding of the
annuity contracts.
3. CONTRACT CHARGES
Certain deduction 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 .80% of the contract value.
The Company also deducts an annual contract maintenance charge of $35 from
the contract value on each contract anniversary and upon any full surrender.
4. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
5. TAXES
The Account is not taxed separately because the operations of the Account
are part of the total operations of the Company. The Company is taxed as a life
insurance company under the Internal Revenue Code. Under existing federal income
tax law, no taxes are payable on the investment income or on the capital gains
of the Account.
6. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares and beneficial interests
of Portfolios purchased and proceeds from shares and beneficial interests of the
portfolios sold by the corresponding sub-account for the period January 1, 1996
to December 31, 1996.
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -------
<S> <C> <C>
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio $ 61,972 $35,896
International Equity Portfolio 52,047 22,924
Balanced Portfolio 83,153 52,935
Income Opportunity Portfolio 68,984 40,990
Standby Income Portfolio 359,293 156,423
Select Advisors Portfolio
Growth & Income Portfolio II 188,341 165,149
Bond Portfolio II 57,593 43,685
</TABLE>
8
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. UNIT VALUES
The following table shows a summary of units outstanding for variable
annuity contracts for the period January 1, 1996 to December 31, 1996.
<TABLE>
<CAPTION>
TRANSFERS
BETWEEN
BEGINNING UNITS UNITS SUB- ENDING UNIT ENDING
UNITS PURCHASED REDEEMED ACCOUNTS UNITS VALUE VALUE
--------- --------- -------- ----------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth Sub-account 2,008 931 (29) 1,156 4,066 12.947664 $ 52,645
International Equity Sub-account 2,158 1,203 (29) 1,206 4,538 12.475967 56,613
Balanced Sub-account 1,771 1,913 (3) 277 3,958 13.922266 55,099
Income Opportunity Sub-account 2,048 1,293 (3) 252 3,590 15.886632 57,035
Standby Income Sub-account 1,059 31,065 (8,415) (3,947) 19,762 10.819908 213,819
Growth & Income Sub-account 2,623 1,694 (4) 377 4,690 14.291347 67,028
Bond Sub-account 1,615 1,276 (2) 15 2,904 11.505592 33,410
----------
$ 535,649
----------
----------
</TABLE>
9
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
SUPPLEMENTARY INFORMATION-SELECTED PER UNIT DATA AND RATIOS
(SELECTED DATA FOR A SHARE OF ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH
YEAR)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY GROWTH &
FOR THE YEAR ENDED DECEMBER GROWTH EQUITY BALANCED OPPORTUNITY INCOME INCOME BOND
31, 1996 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per unit data
Investment income $ 0.337947 $ 0.084052 $ 0.569146 $ 1.977619 $ 0.550218 $ -- $ --
Expenses 0.098968 0.095651 0.101787 0.113609 0.084812 0.108541 0.089697
------------ ------------ ------------ ------------ ------------ ------------ ------------
Investment income-net 0.238979 (0.011599) 0.467359 1.864010 0.465407 (0.108541) (0.089697)
Net realized and
unrealized gain (loss)
on investments 0.967583 1.204897 1.436884 1.449755 (0.010339) 1.865939 0.285772
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in net asset value 1.206562 1.193298 1.904243 3.313766 0.455068 1.757398 0.196075
Beginning of year 11.741102 11.282669 12.018023 12.572866 10.364840 12.533949 11.309517
------------ ------------ ------------ ------------ ------------ ------------ ------------
End of year $12.947664 $12.475967 $13.922266 $15.886632 $10.819908 $14.291347 $11.505592
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratios
Ratio of operating
expense to average
net assets (%) 0.76% 0.70% 0.78% 0.75% 0.50% 0.87% 0.83%
Ratio of investment
income-net to
average net assets (%) 0.97% 1.08% 5.34% 12.25% 2.67% (9.54)% (2.09)%
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 23, 1995
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Per share data
Investment income $ 0.789879 $ 0.033748 $ 1.125981 $ 1.550039 $ 0.483304 $ -- $ --
Expenses 0.073756 0.073298 0.076118 0.076165 0.068599 0.075378 0.071770
------------ ------------ ------------ ------------ ------------ ------------ ------------
Investment income-net 0.716123 (0.039550 ) 1.049863 1.473874 0.414705 (0.075378 ) (0.071770 )
Net realized and
unrealized gain (loss)
on investments 1.024979 1.322219 0.968160 1.098992 (0.049865 ) 2.609327 1.381287
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in net asset value 1.741102 1.282669 2.018023 2.572866 0.364840 2.533949 1.309517
Beginning of year 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
------------ ------------ ------------ ------------ ------------ ------------ ------------
End of year $ 11.741102 $ 11.282669 $ 12.018023 $ 12.572866 $ 10.364840 $ 12.533949 $ 11.309517
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratios
Ratio of operating
expense to average
net assets (%) 0.64% 0.67% 0.69% 0.66% 0.78% 0.62% 0.69%
Ratio of investment
income-net to
average net assets (%) 12.73% 0.17% 14.78% 10.26% 4.35% (0.55)% (0.66)%
</TABLE>
The above information was prepared using daily weighted-average units
outstanding.
10
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Contractholders 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 2 as of December 31, 1996, and the
related statements of operations, changes in net assets and selected per unit
data and ratios for the year ended December 31, 1996 and the period from
February 23, 1995 to December 31, 1995. These financial statements and per unit
data and ratios are the responsibility of the Separate Account'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 and per unit data
and ratios 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, 1996 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per unit data and
ratios referred to above present fairly, in all material respects, the financial
position of Western-Southern Life Assurance Company Separate Account 2 as of
December 31, 1996, the results of operations, the changes in its net assets and
the selected per unit data and ratios for the year ended December 31, 1996 and
the period from February 23, 1995 to December 31, 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Cincinnati, Ohio
January 9, 1997
11
<PAGE>
T O U C H S T O N E
------------------------------------------
TOUCHSTONE VARIABLE ANNUITY
LOGO
-------------------------------------------------------
SELECT ADVISORS VARIABLE
INSURANCE TRUST
( EMERGING GROWTH PORTFOLIO
( INTERNATIONAL EQUITY PORTFOLIO
( BALANCED PORTFOLIO
( INCOME OPPORTUNITY PORTFOLIO
( STANDBY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
EMERGING GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- -----------
COMMON STOCKS (83.1%)
BANKING & FINANCE (7.0%)
2,200 Arden Realty Group Inc............ $ 61,050
2,000 Bank United Corp Class A.......... 53,500
3,600 Dime Bancorp, Inc.*............... 53,100
1,850 First Security Corp............... 62,438
5,300 Glendale Federal Bank*............ 123,225
3,000 Monterey Resources Inc.*.......... 48,375
-----------
401,688
-----------
BROADCAST & MEDIA (2.2%)
1,600 Central Newspapers, Class A....... 70,400
2,400 Lee Enterprises, Inc.............. 55,800
-----------
126,200
-----------
CHEMICALS (0.5%)
1,350 Hanna (M.A.) Co................... 29,531
-----------
COMPUTER EQUIPMENT & DATA
PROCESSING (17.5%)
1,000 3Com Corp.*....................... 73,375
1,000 CBT Group PLC*.................... 54,250
800 Cisco Systems, Inc.*.............. 50,900
2,700 EG&G.............................. 54,338
2,200 EMC Corp.*........................ 72,875
1,200 Fiserv, Inc.*..................... 44,100
3,500 Gerber Scientific, Inc............ 52,063
1,500 HNC Software, Inc.*............... 47,063
1,500 IDX Systems Corp.*................ 42,938
2,800 Information Management Resources
Inc.*........................... 59,150
4,700 Intergraph Corp.*................. 48,175
1,000 Microchip Technology Inc.*........ 50,875
2,000 National Semiconductor Corp.*..... 48,750
2,200 Network General Corporation*...... 66,550
1,000 Parametric Technology Corp*....... 51,375
3,800 Scitex Corp....................... 36,100
1,574 Sterling Commerce Inc.*........... 55,484
800 Sterling Software, Inc.*.......... 25,300
2,100 Wallace Computer Services, Inc.... 72,450
-----------
1,006,111
-----------
CONSUMER PRODUCTS (0.8%)
3,000 Swisher International Group, Class
A*.............................. 47,625
-----------
CONSUMER & OFFICE PRODUCTS (3.6%)
800 Alberto Culver Co., Class A....... 33,000
900 APAC Teleservices Inc.*........... 34,538
3,900 Carson Inc.*...................... 54,113
1,800 Stanhome, Inc..................... 47,700
1,600 Sunbeam Corp...................... 41,200
-----------
210,551
-----------
ELECTRICAL EQUIPMENT (2.2%)
3,500 Elsag Bailey*..................... 65,625
1,600 National Service Industries....... 59,800
-----------
125,425
-----------
FOOD & BEVERAGES (2.7%)
1,800 Dean Foods Co..................... 58,050
3,100 Ralcorp Holdings Inc.*............ 65,488
1,500 Wholefoods Market Inc.*........... 33,750
-----------
157,288
-----------
HEALTHCARE (4.2%)
1,400 Centocor Inc.*.................... $ 50,050
3,100 Depotech Corp.*................... 50,763
1,300 ESC Medical Systems Ltd.*......... 33,150
1,200 HCIA, Inc.*....................... 41,400
1,500 Summit Care Corp.*................ 24,563
1,000 Vertex Pharmaceuticals, Inc.*..... 40,250
-----------
240,176
-----------
HEAVY INDUSTRY (11.5%)
2,500 Albany International Corp......... 57,813
2,000 BA Merchant Services Inc, Class
A*.............................. 35,750
1,200 Bandag, Inc. Class A.............. 54,900
4,000 BW/IP, Inc........................ 66,000
5,400 Calgon Carbon Corp................ 66,150
3,400 Calmat, Inc....................... 63,750
3,400 Global Industrial Technologies*... 75,225
900 Harsco Corp....................... 61,650
2,800 Martin Marietta Materials, Inc.... 65,100
1,800 Southdown, Inc.................... 56,025
1,600 Trinity Industries, Inc........... 60,000
-----------
662,363
-----------
INSURANCE (3.7%)
1,400 Arthur J. Galagher & Co........... 43,400
1,100 Hartford Steam Boiler Insurance... 51,005
3,400 Western National Corp............. 65,450
4,800 Willis Coroon Group ADR........... 55,200
-----------
215,055
-----------
MOTOR VEHICLES & EQUIPMENT (1.0%)
2,200 Standard Products Co.............. 56,100
-----------
OIL SERVICE (2.3%)
800 Halliburton, Co................... 48,200
2,900 Nabors Industries, Inc.*.......... 55,825
1,000 Weatherford Enterra, Inc.*........ 30,000
-----------
134,025
-----------
PETROLEUM & NATURAL GAS (4.4%)
2,800 Cabot Oil & Gas Corp., Class A.... 47,950
900 Equitable Resources, Inc.......... 26,775
2,500 National-Oilwell Inc*............. 76,875
2,400 Natural Gas Clearinghouse......... 55,800
3,400 Quaker State Corp................. 48,025
-----------
255,425
-----------
RETAIL (8.8%)
10,700 Charming Shoppes, Inc.*........... 54,169
3,600 DiMon, Inc........................ 83,250
3,100 Fingerhut Companies, Inc.......... 37,975
1,700 Fred Meyer, Inc.*................. 60,350
1,400 Herman Miller, Inc................ 79,275
1,800 LA-Z-Boy Chair Co................. 53,100
5,700 Stride Rite Corp.................. 57,000
1,400 Waban, Inc.*...................... 36,400
2,500 Zale Corp.*....................... 47,813
-----------
509,332
-----------
SERVICES (3.2%)
2,000 Cinar Films Inc., Class B*........ 52,000
1,200 Healthcare Compare Corp.*......... 50,850
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
EMERGING GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- -----------
SERVICES--CONTINUED
1,600 Republic Industries, Inc.*........ $ 49,900
800 Saville Systems Ireland-ADR*...... 32,500
-----------
185,250
-----------
TELECOMMUNICATIONS (5.8%)
1,000 Ascend Communications, Inc.*...... 62,125
1,300 Cincinnati Bell, Inc.............. 80,113
4,000 Geotel Communications Group*...... 52,000
1,300 Nokia Corp., ADR.................. 74,913
2,400 Octel Communication Corp.*........ 42,000
500 Videoserver, Inc.*................ 21,250
-----------
332,401
-----------
TRANSPORTATION (1.7%)
2,000 Alexander & Baldwin, Inc.......... 50,000
3,500 J.B. Hunt Transportation Services,
Inc............................. 49,000
-----------
99,000
-----------
TOTAL COMMON STOCKS (COST $4,171,610).......... $ 4,793,546
-----------
TOTAL INVESTMENTS AT VALUE (83.1%)
(COST $4,171,610) (A).......................... $ 4,793,546
CASH AND OTHER ASSETS
NET OF LIABILITIES (16.9%)..................... 977,787
-----------
NET ASSETS (100.0%)............................ $ 5,771,333
-----------
-----------
- --------------------------
* Non-income producing security.
(a) The aggregate identified cost for federal
income tax purposes is $4,182,952,
resulting in gross unrealized appreciation
and depreciation of $740,020 and $129,426,
respectively, and net unrealized
appreciation of $610,594.
ADR - American Depositary Receipt
- -------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- -----------
COMMON STOCKS (97.4%)
AUSTRALIA (1.8%)
6,124 Broken Hill Proprietary........... $ 87,221
1,720 CRA Ltd........................... 27,001
2,100 News Corp Ltd. ADR................ 43,838
-----------
158,060
-----------
BRAZIL (5.2%)
1,500 Cemig Cia Energy ADR.............. 51,102
400 Centrais Electricas Brasileiras
ADR............................. 7,430
2,100 Companhia Siderugica Nacional
ADR............................. 59,619
2,150 Comphanhia Vale do Rio Doce S.A.
ADR............................. 41,382
2,300 Refrigeracao Parana S.A. ADR*..... 26,008
2,600 Telecomunicacoes Brasileiras ADR.. 198,900
6,700 Usinas Siderugicas de Minas Gerais
ADR............................. 68,347
-----------
452,788
-----------
CANADA (0.6%)
986 Magna International Inc, Class
A............................... 54,967
-----------
DENMARK (0.4%)
687 Unidanmark A/S.................... 35,570
-----------
FINLAND (1.3%)
1,916 Nokia Corp., ADR.................. 110,410
-----------
FRANCE (10.8%)
287 Accor............................. 36,366
110 Air Liquide....................... 17,184
802 AXA............................... 51,043
1,250 Banque National De Paris.......... 48,409
1,647 Bertrand Faure.................... 64,196
318 Bic............................... 47,715
190 Carrefour Supermarche............. 123,711
435 Christian Dior S.A................ 70,221
FRANCE--CONTINUED
583 Companie Generale des Eaux........ $ 72,299
620 Credit Local de France............ 54,048
79 Legrand........................... 13,469
719 Michelin, Class B................. 38,841
600 Rhone Polenc...................... 20,471
200 Sanofi S.A........................ 19,904
700 SGS-Thompson Microelectronics*.... 49,000
1,180 Societe National Elf-Aquitaine.... 107,486
666 Technip S.A....................... 62,554
734 Valeo S.A......................... 45,300
-----------
942,217
-----------
GERMANY (7.6%)
829 Adidas AG, Ord.................... 71,665
1,420 Bayer AG.......................... 57,963
865 Commerzbank AG.................... 21,983
1,430 Daimler Benz AG*.................. 98,525
130 Degussa AG........................ 58,853
140 Gea Pref Shares................... 44,088
2,220 Hoechst AG........................ 104,903
100 Karstadt AG....................... 33,799
200 Mannesmann AG..................... 86,708
842 RWE AG............................ 35,683
131 Vokswagen AG...................... 54,495
-----------
668,665
-----------
GREAT BRITAIN (13.4%)
7,577 British Petroleum Co. PLC......... 90,926
510 British Sky Broadcasting PLC ADR.. 26,775
1,000 Cable & Wireless PLC ADR.......... 24,625
7,000 Cable & Wireless PLC.............. 58,220
4,582 Dixons Group PLC.................. 42,622
4,902 EMI Group PLC..................... 116,307
5,300 General Cable PLC ADR*............ 87,450
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- -----------
GREAT BRITAIN--CONTINUED
7,000 General Cable PLC*................ $ 23,384
4,600 Land Securities PLC............... 58,866
1,185 Reuters Holdings PLC ADR.......... 90,653
23,080 Rolls Royce PLC................... 101,811
6,124 Scottish & Newcastle PLC.......... 72,021
5,176 Standard Chartered Bank PLC....... 63,931
2,466 Unilever PLC...................... 59,840
4,654 United News & Media PLC........... 55,570
31,094 WPP Group PLC..................... 134,766
220 Zeneca Group PLC ADR.............. 18,480
2,072 Zeneca Group PLC.................. 58,479
-----------
1,184,726
-----------
HONG KONG (5.0%)
8,000 Cheung Kong Holdings, Ltd......... 71,110
9,000 Citic Pacific, Ltd................ 52,246
64,000 Henderson Investment, Ltd......... 76,540
3,312 HSBC Holdings PLC................. 70,869
7,000 New World Development Co.......... 47,288
4,000 Sun Hung Kai Properties, Ltd...... 49,001
7,300 Swire Pacific Ltd., Class A....... 69,607
-----------
436,661
-----------
INDIA (0.9%)
8,400 Morgan Stanley India Investment
Fund, Inc.*..................... 79,800
-----------
INDONESIA (1.8%)
33,500 PT Astra International............ 92,189
300 PT Telecomunikasi ADR............. 10,350
32,500 PT Telecomunikasi................. 56,070
-----------
158,609
-----------
ISRAEL (0.9%)
1,400 ECI Telecommunications Ltd........ 29,750
2,400 Geotek Communications, Inc.*...... 17,100
550 Teva Pharmaceutical Inds. Ltd.
ADR............................. 27,638
-----------
74,488
-----------
ITALY (3.2%)
13,000 Banca Fideuram SPA................ 28,573
5,200 Edison SPA........................ 32,802
6,700 Istituto Mobiliare Italiano....... 57,189
8,100 Stet RISP......................... 27,367
12,000 Stet.............................. 54,562
30,265 Telecom Italia Mobile SPA......... 76,761
-----------
277,254
-----------
JAPAN (9.2%)
2,000 Aoyama Trading Co................. 52,845
400 Bank of Tokyo, Ltd................ 7,426
2,000 Chugai Pharmaceutical Co., Ltd.... 16,752
1,000 Chugoku Bank, Ltd................. 14,679
2,000 Daiichi Pharmaceutical, Ltd....... 32,122
4,000 Daiwa House Industry Co., Ltd..... 51,464
1,000 Daiwa Securities Company, Ltd..... 8,894
2,000 Fuji Photo Film Comapny, Ltd...... 65,970
2,000 Higo Bank......................... 13,349
2,000 Hitachi Cable Limited............. 13,557
2,000 Hitachi, Ltd...................... 18,651
1,000 House Foods Industry.............. 16,147
JAPAN--CONTINUED
1,000 Kirin Brewery Company Limited..... $ 9,844
2,000 Kyushu Electric Power............. 38,857
1,000 Makita Corporation................ 13,988
3,000 Mitsubishi Electric Industrial
Co., Ltd........................ 17,874
3,000 Mitsubishi Steel Manufacturing
Co.*............................ 12,978
4,000 Mitsui Petrochemical Industries... 20,724
1,000 Nichicon Corp..................... 11,571
2,000 Nippon Meat Packers............... 25,904
5,000 Nippon Paper Industries Co.*...... 23,314
6,000 Nisshin Steel Co., Ltd............ 16,113
2,000 Seino Trasportation Co., Ltd...... 22,105
3,000 Sekisui Chemical Co............... 30,308
3,000 Sekisui House, Ltd................ 30,567
2,000 Shionogi & Co., Ltd............... 14,282
2,030 Tohoku Electric Power Company..... 40,316
3,000 Toppan Printing Co................ 37,562
7,000 Toshiba Corp...................... 44,003
1,000 Yakult Honsha..................... 10,362
1,000 Yamaguchi Bank.................... 14,679
4,000 Yamaichi Securities............... 17,788
2,000 Yamanouchi Pharmaceutical Co.,
Ltd............................. 41,102
-----------
806,097
-----------
KOREA (1.0%)
5,900 Korea Fund, Inc................... 88,500
-----------
MALAYSIA (4.2%)
16,000 Diversified Resources Berhad...... 59,236
42,000 Magnum Corp Berhad................ 81,489
7,400 Malayan Banking Berhad............ 82,043
18,000 Malaysian Resources Corp.......... 70,917
8,000 Resorts World Berhad.............. 36,428
7,000 YTL Corp. Berhad.................. 37,696
-----------
367,809
-----------
MEXICO (3.7%)
21,908 Cemex S.A. Class B................ 85,439
33,300 Grupo Financiero Banamex, Series
B*.............................. 70,221
19,400 Grupo Financiero Banamex, Series
L*.............................. 36,868
8,909 Grupo Modelo S.A., Series C....... 51,267
2,477 Kimberly Clark Mexico, Series A... 48,111
5,000 Sanluis Corp. S.A................. 30,996
-----------
322,902
-----------
NETHERLANDS (3.9%)
416 Akzo Dutch........................ 56,864
1,337 Ing Groep N.V..................... 48,168
300 Nutricia Verenigde Bedrijven...... 45,613
2,100 Philips Electronics NV............ 85,143
5,062 Verenigde Nederlandse............. 105,843
-----------
341,631
-----------
PERU (0.9%)
4,200 Telefonica Del Peru ADR........... 79,275
-----------
PHILIPPINES (1.0%)
48,900 Ayala Corp., Class B.............. 52,990
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- -----------
660 Philippine Long Distance Telephone
ADR............................. $ 33,660
-----------
86,650
-----------
PORTUGAL (1.3%)
1,000 Banco Totta & Acores - Reg B*..... 18,858
1,700 Cimentos De Portugal S.A.......... 36,599
1,130 Portugal Telecom S.A. ADR......... 31,923
800 Portugal Telecom S.A.............. 22,806
-----------
110,186
-----------
SINGAPORE (2.6%)
5,300 Overseas Chinese Banking Corp.,
Ltd............................. 65,904
3,400 Singapore Press Holdings, Ltd..... 67,062
9,000 Straits Steamship Land............ 28,814
6,000 United Overseas Bank, Ltd......... 66,891
-----------
228,671
-----------
SOUTH AFRICA (0.9%)
7,369 Amalgamated Banks of South
Africa.......................... 37,802
60 Anglo American Industrial Corp
Rights.......................... 314
1,198 Anglo American Industrial Corp.... 43,403
1 South African Breweries, Ltd.
ADR............................. 25
-----------
81,544
-----------
SPAIN (5.3%)
333 Acerinox S.A...................... 48,119
233 Banco Popular..................... 45,765
440 Bankinter S.A..................... 68,224
600 Empresa Nac De Electricidad....... 42,704
1,437 Repsol S.A. ADR................... 54,786
1,510 Sol Melia S.A.*................... 54,084
956 Telefonica De Espana S.A. ADR..... 66,203
7,925 Union Electrica Fenosa S.A........ 85,156
-----------
465,041
-----------
SWEDEN (4.8%)
2,049 Astra AB Fria..................... 101,302
1,975 Autoliv AB........................ 86,634
SWEDEN--CONTINUED
1,100 Electrolux AB..................... $ 63,905
2,854 Ericsson Telephone Co., ADR, Class
B............................... 86,155
584 Hennes & Mauritz Fria............. 80,878
-----------
418,874
-----------
SWITZERLAND (5.1%)
55 Asea Brown Boveri AG.............. 68,416
90 Holderbank Financial, Class B..... 64,281
145 Novartis AG*...................... 165,745
8 Roche Holding AG.................. 62,249
31 Swiss Reinsurance Co.............. 33,096
700 Tag Heuer International S.A.
ADR*............................ 11,288
44 Union Bank of Switzerland, Class
B............................... 38,560
-----------
443,635
-----------
UNITED STATES (0.6%)
2,083 International Cabletel, Inc.*..... 52,596
-----------
TOTAL COMMON STOCKS (COST $7,687,951).......... 8,527,626
-----------
PRINCIPAL
- -----------
BOND (0.0%)
CAYMAN ISLANDS (0.0%)
$ 50 HKR International Ltd, 6.00%,
06/26/00........................ 6
-----------
TOTAL BOND (COST $5)........................... 6
-----------
TOTAL INVESTMENTS AT VALUE (97.4%)
(COST $7,687,956) (A).......................... $ 8,527,632
CASH AND OTHER ASSETS NET OF
LIABILITIES (2.6%)............................. 230,648
-----------
NET ASSETS (100.0%)............................ $ 8,758,280
-----------
-----------
- --------------------------
* Non-income producing security.
(a) The aggregate identified cost for federal
income tax purposes is $7,698,613,
resulting in gross unrealized appreciation
and depreciation of $1,096,988 and
$267,969, respectively, and net unrealized
appreciation of $829,019.
ADR - American Depositary Receipt
RISP - Risparmio (Italian "Savings Shares")
- -------------------------------------------------------------------------------
BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- -----------
COMMON STOCKS (56.8%)
AIRCRAFT/DEFENSE MANUFACTURING
(3.3%)
700 Boeing Co......................... $ 74,463
1,000 General Dynamics.................. 70,500
3,000 Gulfstream Aerospace Corp.*....... 72,750
-----------
217,713
-----------
AIRLINES (1.7%)
4,000 Continental Airlines, Class B*.... 113,000
-----------
BANKING & FINANCE (6.7%)
1,200 Chase Manhattan Corp.............. $ 107,100
1,100 Citicorp.......................... 113,300
3,000 Federal National Mortgage
Association..................... 111,750
1,200 Nationsbank Corporation........... 117,300
-----------
449,450
-----------
CHEMICALS (1.3%)
2,200 Monsanto Co....................... 85,525
-----------
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- -----------
COMPUTER EQUIPMENT & DATA
PROCESSING (9.4%)
1,100 Computer Sciences Corp.*.......... $ 90,338
2,100 Electronic Data Systems Corp...... 90,825
800 IBM Corporation................... 120,800
1,000 Intel Corp........................ 130,938
800 Microsoft Corp.*.................. 66,100
2,700 Storage Technology Corp.*......... 128,588
-----------
627,589
-----------
CONSUMER PRODUCTS (4.6%)
900 Illinois Tool Works, Inc.......... 71,888
1,600 Johnson & Johnson................. 79,600
800 Magna International Inc, Class
A............................... 44,600
4,000 Mattel, Inc....................... 111,000
-----------
307,088
-----------
CONSUMER & OFFICE PRODUCTS (1.8%)
1,200 General Electric.................. 118,650
-----------
FOOD & BEVERAGES (0.4%)
500 Coca-Cola Company................. 26,313
-----------
HEALTHCARE (0.5%)
500 Medtronic, Inc.................... 34,000
-----------
HEAVY INDUSTRY (1.1%)
1,100 Harsco Corp....................... 75,350
-----------
INDUSTRIAL ENGINEERING (2.2%)
3,500 Thermo Electron Corp.............. 144,375
-----------
INSURANCE (5.1%)
3,200 Allmerica Financial Corp.......... 107,200
550 American International Group,
Inc............................. 59,538
1,600 SunAmerica, Inc................... 71,000
2,267 Travelers Group, Inc.............. 102,850
-----------
340,588
-----------
LEISURE & ENTERTAINMENT (0.6%)
600 Walt Disney Co.................... 41,775
-----------
PAPER & FOREST PRODUCTS (3.4%)
1,300 Alco Standard Corp................ 67,113
1,100 Kimberly-Clark Corp............... 104,775
1,000 Mead Corp......................... 58,125
-----------
230,013
-----------
PETROLEUM & NATURAL GAS (6.9%)
800 Amoco Corp........................ 64,400
1,800 Diamond Offshore Drilling,
Inc.*........................... 102,600
2,100 Enron Corp........................ 90,563
600 Schlumberger Ltd.................. 59,925
2,400 Triton Energy, Inc.*.............. 116,400
700 Unocal Corp....................... 28,430
-----------
462,318
-----------
PHARMACEUTICALS (2.5%)
700 Bristol-Myers Squibb Co........... 76,125
1,100 Pfizer, Inc....................... 91,163
-----------
167,288
-----------
REAL ESTATE INVESTMENT TRUSTS
(2.0%)
1,400 Beacon Properties Corp............ 51,275
REAL ESTATE INVESTMENT
TRUSTS--CONTINUED
1,000 Equity Residential Properties..... $ 41,250
1,000 Patriot American Hospitality...... 43,125
-----------
135,650
-----------
RETAIL (0.8%)
1,100 Home Depot........................ 55,138
-----------
TELECOMMUNICATIONS (2.5%)
2,500 GTE Corporation................... 113,750
700 Telecomunicacoes Brasileiras ADR.. 53,550
-----------
167,300
-----------
TOTAL COMMON STOCKS (COST $3,091,626).......... 3,799,123
-----------
PRINCIPAL
- -----------
ASSET BACKED SECURITIES (3.4%)
BANKING & FINANCE (3.4%)
$ 20,000 Access Financial Corp., 7.10%,
05/15/21........................ 19,913
44,500 G.E. Capital Management Service,
6.50%, 03/25/24................. 41,831
40,000 G.E. Capital Management Service,
6.50%, 11/25/23................. 34,860
37,082 Merrill Lynch Mortgage Inv. Inc,
7.65%, 01/15/12................. 37,827
12,462 Merrill Lynch Mortgage Inv. Inc,
9.70%, 07/15/10................. 12,794
40,000 Merrill Lynch Mortgage Inv. Inc.,
7.089%, 12/26/25................ 40,619
50,000 Prudential Home Mortgage
Securities, 6.25%, 04/25/24..... 42,874
-----------
TOTAL ASSET BACKED SECURITIES
(COST $227,972)................................ 230,718
-----------
MUNICIPAL BONDS (5.1%)
40,000 Baltimore Community Development
Financing, 8.20%, 08/15/07...... 42,700
15,000 Colorado Housing Finance Authority
Series B, 8.00%, 08/01/02....... 15,004
20,000 Michigan State Job Development
Authority MFM, 7.10%, 05/01/98.. 20,225
10,000 New York City, 9.75%, 08/15/12.... 11,075
65,000 New York City, New York, (Zero
Coupon until 11/15/01, 10.50%
thereafter), 11/15/14(b)........ 47,856
40,000 New York State HFA Service, 7.50%,
09/15/03........................ 40,200
40,000 New York State Job Development
Authority, Series A, 7.625%,
03/01/97........................ 40,071
50,000 Ohio Housing Financial Agency,
7.90%, 10/01/14................. 51,063
30,000 Oklahoma City Airport,, 9.40%,
11/01/10........................ 31,650
40,000 Oregon State General Obligation,
6.90%, 01/01/00................. 40,100
-----------
TOTAL MUNICIPAL BONDS (COST $332,910).......... 339,944
-----------
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
PRINCIPAL (NOTE 1)
- ----------- -----------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (25.5%)
$ 40,000 Federal National Mortgage
Association, 5.00%, 10/25/03.... $ 39,703
35,000 Federal National Mortgage
Association, 6.15%, 10/25/07.... 34,613
175,000 U.S. Treasury Bonds, 8.125%,
08/15/19........................ 202,347
860,000 U.S. Treasury Notes, 5.75%,
08/15/03........................ 834,097
250,000 U.S. Treasury Notes, 6.125%,
08/31/98........................ 251,125
337,000 U.S. Treasury Notes, 6.875%,
08/31/99........................ 344,037
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(COST $1,696,634).............................. 1,705,922
-----------
TOTAL INVESTMENTS AT VALUE (90.8%)
(COST $5,349,142) (A).......................... $ 6,075,707
CASH AND OTHER ASSETS
NET OF LIABILITIES (9.2%)...................... 618,985
-----------
NET ASSETS (100.0%)............................ $ 6,694,692
-----------
-----------
- --------------------------
* Non-income producing security.
(a) The aggregate identified cost for federal
income tax purposes is $5,349,595,
resulting in gross unrealized appreciation
and depreciation of $734,259 and $8,147,
respectively, and net unrealized
appreciation of $726,112.
(b) Zero or step coupon bond.
ADR - American Depositary Receipt
HFA - Housing Financing Authority
- -------------------------------------------------------------------------------
INCOME OPPORTUNITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
PRINCIPAL (NOTE 1)
- ----------- -----------
CORPORATE BONDS (26.7%)
BANKING & FINANCE (6.2%)
$ 500,000 Goss Graphic Systems Inc.,
12.00%, 10/15/06............. $ 515,000
---------
BROADCAST & MEDIA (0.9%)
150,000 Cai Wireless Systems, 12.25%,
09/15/02..................... 72,375
---------
CHEMICALS (2.6%)
200,000 Kaiser Aluminum & Chemicals,
10.875%, 10/15/06............ 212,000
---------
COMMUNICATIONS (1.3%)
100,000 Phonetel Technologies, 12.00%,
12/15/06..................... 103,500
---------
FOOD & BEVERAGES (1.2%)
100,000 Specialty Foods, 11.125%,
10/01/02..................... 95,000
---------
HEAVY CONSTRUCTION (8.0%)
250,000 Ivaco Inc., 11.50%, 09/15/05... 248,125
150,000 Unison Healthcare Corp.,
12.25%, 11/01/06............. 153,750
250,000 Unisys Corp., 12.00%,
04/15/03..................... 267,500
---------
669,375
---------
OIL & GAS (3.3%)
250,000 Trans Texas Gas, 11.50%,
06/15/02..................... 270,312
---------
SERVICES (3.2%)
250,000 Alliance Gaming, 12.875%,
06/30/03..................... 265,000
---------
TOTAL CORPORATE BONDS (COST $2,193,970)... 2,202,562
---------
EUROBONDS (12.1%)
BRAZIL (1.4%)
$ 100,000 RBS Participacoes S.A, 14.00%,
12/15/03..................... $ 112,000
---------
INDIA (3.2%)
500,000 Nippon Denro Ispat Ltd, 3.00%,
04/01/01..................... 262,500
---------
MEXICO (1.5%)
200,000 Grupo Mex Desarollo, 8.25%,
02/17/01..................... 119,750
---------
THAILAND (6.0%)
1,750,000 NTS Steel Group Public, 4.00%,
12/16/08..................... 507,500
---------
TOTAL EUROBONDS (COST $992,923)........... 1,001,750
---------
SOVEREIGN GOVERNMENT BONDS AND NOTES (17.2%)
ARGENTINA (4.1%)
314,000 Argentina Bocon Pre 4, 5.375%,
09/01/02(c).................. 337,393
---------
RUSSIA (11.4%)
1,000,000 Russian Fed GKO-Linked Notes,
0.00%, 05/23/97+............. 942,665
---------
BRAZIL (1.7%)
192,740 Republic of Brazil, 8.00%,
04/15/14(c).................. 142,146
---------
TOTAL SOVEREIGN GOVERNMENT BONDS AND NOTES
(COST $1,334,774)......................... 1,422,204
---------
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
INCOME OPPORTUNITY PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
PRINCIPAL (NOTE 1)
- ----------- -----------
YANKEE BONDS (14.0%)
BRAZIL (3.7%)
$ 300,000 Tevecap S.A., 12.625%,
11/26/04..................... $ 306,750
---------
INDONESIA (3.2%)
250,000 APP International Finance,
11.75%, 10/01/05............. 267,188
---------
MEXICO (7.1%)
400,000 Grupo Televisa S.A. (Zero
Coupon until 05/15/2001,
13.25% thereafter),
05/15/08(b).................. 266,500
350,000 Tolmex S.A., 8.375%,
11/01/03..................... 319,375
---------
585,875
---------
TOTAL YANKEE BONDS (COST $1,132,632)...... 1,159,813
---------
BRADY BONDS (16.7%)
BULGARIA (2.3%)
200,000 Government of Bulgaria,
6.6875%, 07/28/11............ 101,500
150,000 Government of Bulgaria,
6.6875%, 07/28/24............ 84,750
---------
186,250
---------
ECUADOR (3.2%)
387,000 Republic of Ecuador, 6.50%,
02/28/25..................... 266,063
---------
NIGERIA (2.1%)
250,000 Central Bank of Nigeria, 6.25%,
11/15/20..................... 170,625
---------
PANAMA (3.8%)
405,103 Panama--PDI, 6.75%,
07/17/16(c).................. 316,486
---------
VENEZUELA (5.3%)
$ 500,000 Republic of Venezuela, 6.50%,
12/18/07..................... $ 440,625
---------
TOTAL BRADY BONDS (COST $1,217,002)....... 1,380,049
---------
PREFERRED STOCK (3.1%)
BANKING & FINANCE (3.1%)
5,000 Chevy Chase Bank............... 253,750
---------
TOTAL PREFERRED STOCK (COST $250,000)..... 253,750
---------
WARRANTS (0%)
250 Central Bank of Nigeria
Warrants, expires 11/15/20
(Cost $0).................... 0
---------
TOTAL INVESTMENTS AT VALUE (89.8%)
(COST $7,121,301)(A)...................... $7,420,128
---------
CASH AND OTHER ASSETS
NET OF LIABILITIES (10.2%)................ 848,004
---------
NET ASSETS (100.0%)....................... $8,268,132
---------
---------
- --------------------------
+ Restricted security (Note 5)
(a) The aggregate identified cost for
federal income tax purposes is
$7,121,301, resulting in gross
unrealized appreciation and
depreciation of $401,967 and $103,140,
respectively, and net unrealized
appreciation of $298,827.
(b) Step coupon bond.
(c) A percentage of income is received in
additional shares at the discretion of
the issuer.
- -------------------------------------------------------------------------------
STANDBY INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
PRINCIPAL (NOTE 1)
- ----------- -----------
ASSET BACKED (10.8%)
$ 118,732 Advanta Mortgage Loan trust,
6.14%, 10/25/08.............. $ 118,486
77,548 Daimler Benz Grantor Trust,
3.90%, 10/15/98.............. 77,191
176,843 GMAC 1993, 4.15%, 03/16/98..... 176,714
123,016 Honda Auto Receivables Grantor
Trust, 6.20%, 12/15/00....... 123,633
154,018 Navot 1995, 5.94%, 10/15/98.... 154,190
122,961 The Money Store Home Equity
Trade, 6.775%, 09/15/07...... 122,911
208,763 The Money Store Home Equity 96,
6.61%, 11/15/04.............. 208,715
---------
TOTAL ASSET BACKED (COST $980,058)........ 981,840
---------
CORPORATE BONDS (9.8%)
BANKING & FINANCE (9.8%)
350,000 Advanta National Bank, 5.763%,
09/18/97 (a)................. 350,000
350,000 First USA Bank, 5.844%,
03/24/97 (a)................. 350,152
190,000 Paccar Financial Corporation,
5.06%, 04/10/97.............. 189,787
---------
TOTAL CORPORATE BONDS (COST $889,529)..... $889,939
---------
U.S. GOVERNMENT OBLIGATIONS (7.3%)
420,000 U.S. Treasury Notes, 5.625%,
11/30/98..................... 417,767
250,000 U.S. Treasury Notes, 5.875%,
10/31/98..................... 249,688
---------
TOTAL U.S. GOVERNMENT OBLIGATIONS (COST
$669,467)................................. 667,455
---------
COMMERCIAL PAPER (71.9%)
400,000 Comdisco Incorporated, 5.82%,
01/30/97..................... 398,124
420,000 Commonwealth Edison, 5.75%,
01/24/97..................... 418,457
340,000 Conagra Incorporated, 5.55%,
01/21/97..................... 338,952
365,000 Crown Cork & Seal Company
Incorporated, 5.65%,
01/15/97..................... 364,198
335,000 First Credit Corporation,
6.00%, 01/06/97.............. 334,721
345,000 Hanson Financial, 5.60%,
03/14/97..................... 341,136
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
STANDBY INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
PRINCIPAL (NOTE 1)
- ----------- -----------
COMMERCIAL PAPER--CONTINUED
$ 380,000 IES Diversified Incorporation,
5.43%, 01/06/97.............. $ 379,714
425,000 J.B. Hunt Transportation
Services, Inc., 5.50%,
02/10/97..................... 422,403
425,000 MCN Investment Corporation,
5.52%, 02/19/97.............. 421,807
195,000 Mid Atlantic Fuel Company,
5.55%, 02/03/97.............. 194,008
380,000 Minnesota Power & Light, 5.65%,
01/17/97..................... 379,046
350,000 Pacificorp, 5.52%, 01/30/97.... 348,444
425,000 Pacificorp, 5.72%, 02/26/97.... 421,218
300,000 Pennsylvania Fuel Corporation,
6.25%, 01/21/97.............. 298,958
385,000 Pennsylvania Power & Light,
5.53%, 03/03/97.............. 381,392
345,000 Public Service Company of
Colorado, 5.60%, 01/17/97.... 344,141
425,000 Public Service Electric & Gas
Company, 5.95%, 01/09/97..... 424,438
COMMERCIAL PAPER--CONTINUED
$ 335,000 UOP, 5.75%, 02/26/97........... $ 332,004
---------
TOTAL COMMERCIAL PAPER (COST
$6,543,161)............................... 6,543,161
---------
TOTAL INVESTMENTS AT VALUE (99.8%)
(COST $9,082,215)(B)...................... $9,082,395
---------
CASH AND OTHER ASSETS NET OF LIABILITIES
(0.2%).................................... 22,738
---------
NET ASSETS (100.0%)....................... $9,105,133
---------
---------
- --------------------------
(a) Interest rate shown reflects current
rate on instrument with variable rate.
(b) The aggregate identified cost for
federal income tax purposes is
$9,082,215, resulting in gross
unrealized appreciation and
depreciation of $2,627 and $2,447,
respectively, and net unrealized
appreciation of $180.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value (Note 1) (a) $4,793,546 8,527,632 $6,075,707 $7,420,128 $9,082,395
Cash 844,824 722,950 516,983 661,842 9,638
Receivables for:
Investments sold 123,070 727 14,427 -- --
Fund shares sold 2,895 4,974 32,572 9,782 --
Dividends and interest 8,599 9,055 56,006 134,034 12,481
Foreign tax reclaim 41 10,042 22 -- --
Open forward currency contracts -- 72 -- -- --
Deferred organization expenses (Note 1) 11,279 11,279 11,279 11,279 11,358
Reimbursement receivable from Sponsor (Note 3) 19,207 26,766 14,342 65,195 16,961
--------- ----------- --------- ----------- ---------
Total assets 5,803,461 9,313,497 6,721,338 8,302,260 9,132,833
--------- ----------- --------- ----------- ---------
LIABILITIES:
Payable for investments purchased -- 507,081 -- -- --
Payable for fund shares repurchased 37 40 40 40 3,250
Payable to Administrator (Note 2) 4,981 4,981 4,981 4,981 3,381
Other accrued expenses 27,110 43,115 21,625 29,107 21,069
--------- ----------- --------- ----------- ---------
Total liabilities 32,128 555,217 26,646 34,128 27,700
--------- ----------- --------- ----------- ---------
NET ASSETS: $5,771,333 $8,758,280 $6,694,692 $8,268,132 $9,105,133
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
Shares outstanding 473,013 791,521 521,224 737,841 910,034
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
Net asset value $ 12.20 $ 11.07 $ 12.84 $ 11.21 $ 10.01
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
(a) Cost of investments $4,171,610 $7,687,956 $5,349,142 $7,121,301 $9,082,215
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1)
Interest $ 23,082 $ 30,235 $ 118,145 $ 545,440 $ 387,917
Dividends 38,427 108,355(a) 35,673 2,089 --
----------- ----------- ----------- ----------- ---------
Total investment income 61,509 138,590 153,818 547,529 387,917
----------- ----------- ----------- ----------- ---------
EXPENSES:
Administration and fund accounting fees 27,620 28,589 29,793 27,265 27,061
Investment advisory fees (Note 2) 28,916 62,256 29,360 27,962 17,132
Auditing fees 27,689 32,382 20,639 34,928 17,192
Custody fees 8,970 37,344 5,909 4,546 4,876
Sponsor fee (Note 2) 7,454 13,107 8,389 8,604 13,706
Amortization of organization expenses (Note 1) 3,916 3,916 3,916 3,916 3,942
Trustee fees (Note 2) 1,074 1,872 1,211 1,284 1,990
Printing 11,642 13,370 11,825 11,638 13,746
Miscellaneous 3,076 5,770 3,256 3,020 6,145
----------- ----------- ----------- ----------- ---------
Total expenses 120,357 198,606 114,298 123,163 105,790
Waiver of Sponsor fee (Note 2) (7,454) (13,107) (8,389) (8,604) (13,706)
Reimbursement from Sponsor (Note 3) (70,043) (103,586) (68,161) (77,994) (57,820)
----------- ----------- ----------- ----------- ---------
Net expenses 42,860 81,913 37,748 36,565 34,264
----------- ----------- ----------- ----------- ---------
NET INVESTMENT INCOME 18,649 56,677 116,070 510,964 353,653
----------- ----------- ----------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 46,078 142,359(b) 138,439 339,888 3,871
Net change in unrealized appreciation
(depreciation) on investments 352,244 523,196 470,231 196,298 (14,556)
----------- ----------- ----------- ----------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS): 398,322 665,555 608,670 536,186 (10,685)
----------- ----------- ----------- ----------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 416,971 $ 722,232 $ 724,740 $1,047,150 $ 342,968
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
- ------------------------------
(a) Net of foreign tax withholding of $13,174.
(b) Includes foreign currency transaction losses of $12,274.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO
---------------------- ----------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1996 1995
- ----------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 18,649 $ 24,559 $ 56,677 $ 22,179
Net realized gain (loss) on
investments 46,078 120,237 142,359 (315,865)
Net change in unrealized
appreciation (depreciation) on
investments 352,244 258,146 523,196 554,467
---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations 416,971 402,942 722,232 260,781
---------- ---------- ---------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (18,684) (32,317) (54,999) (14,558)
Realized capital gains (130,830) (142,245) -- --
Distribution in excess of net
investment income -- -- (2,423) --
---------- ---------- ---------- ----------
Total dividends and distributions (149,514) (174,562) (57,422) (14,558)
---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 3,109,043 199,651 3,190,175 199,905
Reinvestment of dividends 149,514 174,562 57,422 14,558
Cost of shares redeemed (369,358) (7,420) (368,758) (3,472)
---------- ---------- ---------- ----------
Net increase from investor's
transactions 2,889,199 366,793 2,878,839 210,991
---------- ---------- ---------- ----------
Total changes in net assets 3,156,656 595,173 3,543,649 457,214
---------- ---------- ---------- ----------
NET ASSETS
Beginning of period 2,614,677 2,019,504 5,214,631 4,757,417
---------- ---------- ---------- ----------
End of period $5,771,333 $2,614,677 $8,758,280 $5,214,631
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET ASSETS CONSIST OF:
Paid-in capital $5,255,597 $2,366,398 $8,087,315 $5,206,596
Undistributed net investment income 384 595 (363) 5,617
Accumulated net realized gain on
investments (106,584) (22,008) (166,470) (312,184)
Net unrealized appreciation of
investments 621,936 269,692 837,798 314,602
---------- ---------- ---------- ----------
Net assets applicable to shares
outstanding $5,771,333 $2,614,677 $8,758,280 $5,214,631
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SHARES OUTSTANDING (NOTE 4):
Shares sold 259,365 17,137 298,741 20,307
Reinvestment of dividends 12,297 15,452 5,288 1,456
---------- ---------- ---------- ----------
271,662 32,589 304,029 21,763
Shares redeemed (30,567) (663) (33,902) (361)
---------- ---------- ---------- ----------
Net increase 241,095 31,926 270,127 21,402
Beginning of year 231,918 199,992 521,394 499,992
---------- ---------- ---------- ----------
End of year 473,013 231,918 791,521 521,394
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED INCOME OPPORTUNITY STANDBY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------- ---------------------- ----------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1996 1995 1996 1995
- ----------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 116,070 $ 69,070 $ 510,964 $ 271,025 $ 353,653 $ 295,090
Net realized gain (loss) on
investments 138,439 209,370 339,888 18,334 3,871 (2,779)
Net change in unrealized
appreciation (depreciation) on
investments 470,231 229,338 196,298 170,448 (14,556) 2,114
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations 724,740 507,778 1,047,150 459,807 342,968 294,425
---------- ---------- ---------- ---------- ---------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (115,048) (78,513) (466,250) (296,140) (353,721) (295,796)
Realized capital gains (113,645) (185,230) (266,446) -- -- --
Distribution in excess of net
investment income -- -- -- -- (1,813) --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (228,693) (263,743) (732,696) (296,140) (355,534) (295,796)
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 3,195,328 355,130 4,765,192 261,593 4,294,599 473,149
Reinvestment of dividends 228,693 263,743 732,696 296,140 355,535 329,384
Cost of shares redeemed (120,136) (2,298) (145,810) (3,177) (1,322,371) (24,010)
---------- ---------- ---------- ---------- ---------- ----------
Net increase from investor's
transactions 3,303,885 616,575 5,352,078 554,556 3,327,763 778,523
---------- ---------- ---------- ---------- ---------- ----------
Total changes in net assets 3,799,932 860,610 5,666,532 718,223 3,315,197 777,152
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS
Beginning of period 2,894,760 2,034,150 2,601,600 1,883,377 5,789,936 5,012,784
---------- ---------- ---------- ---------- ---------- ----------
End of period $6,694,692 $2,894,760 $8,268,132 $2,601,600 $9,105,133 $5,789,936
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS CONSIST OF:
Paid-in capital $5,920,017 $2,616,131 $7,950,387 $2,553,526 $9,106,065 $5,778,443
Undistributed net investment income 1,153 199 -- 69 -- 68
Accumulated net realized gain on
investments 46,957 22,096 18,918 (54,524) (1,112) (3,311)
Net unrealized appreciation of
investments 726,565 256,334 298,827 102,529 180 14,736
---------- ---------- ---------- ---------- ---------- ----------
Net assets applicable to shares
outstanding $6,694,692 $2,894,760 $8,268,132 $2,601,600 $9,105,133 $5,789,936
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
SHARES OUTSTANDING (NOTE 4):
Shares sold 260,657 29,352 427,096 26,665 429,003 47,228
Reinvestment of dividends 18,270 23,008 66,234 31,633 35,510 32,806
---------- ---------- ---------- ---------- ---------- ----------
278,927 52,360 493,330 58,298 464,513 80,034
Shares redeemed (9,856) (199) (13,441) (338) (132,107) (2,398)
---------- ---------- ---------- ---------- ---------- ----------
Net increase 269,071 52,161 479,889 57,960 332,406 77,636
Beginning of year 252,153 199,992 257,952 199,992 577,628 499,992
---------- ---------- ---------- ---------- ---------- ----------
End of year 521,224 252,153 737,841 257,952 910,034 577,628
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
SELECT ADVISORS VARIABLE INSURANCE TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOUCHSTONE EMERGING TOUCHSTONE INTERNATIONAL
GROWTH EQUITY TOUCHSTONE BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994(A) 1996 1995 1994(A) 1996 1995 1994(A)
------- ------ ------- ------- ------ ------- ------- ------ -------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.27 $10.10 $10.00 $ 10.00 $ 9.51 $10.00 $ 11.48 $10.17 $10.00
------- ------ ------- ------- ------ ------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.04 0.11 0.04 0.06 0.04 -- 0.30 0.32 0.05
Net realized and unrealized gain on
investments 1.22 1.87 0.06 1.08 0.48 (0.49) 1.60 2.15 0.12
------- ------ ------- ------- ------ ------- ------- ------ -------
Total from investment operations 1.26 1.98 0.10 1.14 0.52 (0.49) 1.90 2.47 0.17
------- ------ ------- ------- ------ ------- ------- ------ -------
LESS: DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.04) (0.15) -- (0.07) (0.03) -- (0.30) (0.37) --
Realized capital gains (0.29) (0.66) -- -- -- -- (0.24) (0.79) --
------- ------ ------- ------- ------ ------- ------- ------ -------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.33) (0.81) -- (0.07) (0.03) -- (0.54) (1.16) --
------- ------ ------- ------- ------ ------- ------- ------ -------
NET ASSET VALUE, END OF PERIOD $ 12.20 $11.27 $10.10 $ 11.07 $10.00 $ 9.51 $ 12.84 $11.48 $10.17
------- ------ ------- ------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ ------- ------- ------ -------
TOTAL RETURN (B) 11.16% 19.57% 1.00% 11.47% 15.45% (4.90)% 16.78% 24.56% 1.70%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $ 5,771 $2,615 $2,020 $ 8,758 $5,215 $4,757 $ 6,695 $2,895 $2,034
Ratios to average net assets:
Expenses 1.15% 1.15% 1.15%(c) 1.25% 1.25% 1.25%(c) 0.90% 0.90% 0.90%(c)
Net investment income 0.50% 1.09% 3.67%(c) 0.86% 0.46% 1.23%(c) 2.76% 2.87% 4.26%(c)
Expenses, without waiver and
reimbursement 3.22% 3.73% 11.08%(c) 3.03% 3.69% 5.58%(c) 2.72% 3.46% 8.97%(c)
Portfolio Turnover 89% 101% 0% 90% 86% 0% 75% 124% 3%
Average commission rate (d) $0.0568 -- -- $0.0266 -- -- $0.0664 -- --
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE INCOME TOUCHSTONE STANDBY
OPPORTUNITY INCOME
PORTFOLIO PORTFOLIO
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994(A) 1996 1995 1994(A)
------- ------ ------- ------- ------ -------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.09 $ 9.42 $10.00 $ 10.02 $10.03 $10.00
------- ------ ------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 1.17 1.22 0.12 0.52 0.56 0.05
Net realized and unrealized gain on
investments 1.45 0.79 (0.70) (0.01) (0.01) 0.03
------- ------ ------- ------- ------ -------
Total from investment operations 2.62 2.01 (0.58) 0.51 0.55 0.08
------- ------ ------- ------- ------ -------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1.17) (1.34) -- (0.52) (0.56) (0.05)
Realized capital gains (0.33) -- -- -- -- --
------- ------ ------- ------- ------ -------
TOTAL DIVIDENDS AND DISTRIBUTIONS (1.50) (1.34) -- (0.52) (0.56) (0.05)
------- ------ ------- ------- ------ -------
NET ASSET VALUE, END OF PERIOD $ 11.21 $10.09 $ 9.42 $ 10.01 $10.02 $10.03
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
TOTAL RETURN (B) 27.37% 23.35% (5.80)% 5.18% 5.90% 0.30%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $ 8,268 $2,602 $1,883 $ 9,105 $5,790 $5,013
Ratios to average net assets:
Expenses 0.85% 0.85% 0.85%(c) 0.50% 0.50% 0.50%(c)
Net investment income 11.85% 12.81% 11.24%(c) 5.15% 5.59% 4.90%(c)
Expenses, without waiver and
reimbursement 2.85% 3.54% 11.56%(c) 1.54% 1.73% 3.67%(c)
Portfolio Turnover 213% 104% 45% 143% 159% 56%
Average commission rate (d) -- -- -- -- -- --
</TABLE>
- ------------------------------
(a) The Portfolios commenced operations on November 21, 1994.
(b) Total return is not annualized. Total return is calculated assuming a
purchase of shares on the first day and a sale of the shares on the last day
of the period, and reinvestment of all dividends.
(c) Ratios are annualized.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary between periods and
funds depending on the volume and character of trades executed in various
markets where trading practices and comission rate structures may differ.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Select Advisors Variable Insurance Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended as an open-end management
investment company organized as a Massachusetts business trust on February 7,
1994. The Trust consists of five Portfolios: Emerging Growth Portfolio,
International Equity Portfolio, Balanced Portfolio, Income Opportunity Portfolio
and Standby Income Portfolio ("Portfolios").
The Trust offers shares of beneficial interest of each portfolio to separate
accounts of Western-Southern as a funding vehicle for certain variable annuity
contracts issued by Western-Southern through the separate accounts.
As of December 31, 1996, Touchstone Advisers, Inc., a subsidiary of
Western-Southern Life Assurance Company ("Western-Southern"), and
Western-Southern owned 100% of the Variable Insurance Trust.
The accounting policies are in conformity with generally accepted accounting
principles (GAAP) for investment companies. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the related amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies of the
Portfolios:
a) INVESTMENT VALUATION. Securities for which market quotations are
readily available are valued at 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 quoted in foreign currencies are translated into U.S. Dollars
at the current exchange rate. 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 good faith in accordance with procedures established by the Trustees
using 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 debt securities with a remaining maturity of less than 60
days are valued at amortized cost, which approximates market.
b) FOREIGN CURRENCY TRANSLATION. 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 effects of changes in foreign currency
exchange rates on investments in securities are not segregated in the Statement
of Operations from the effects of changes in market prices of these securities,
but are included with the net realized and unrealized gain or loss on
investments.
c) INVESTMENT INCOME. Dividend income is recorded on ex-dividend date
except that certain dividends from foreign securities where ex-dividend date has
passed are recorded as soon as the fund is informed of the ex-dividend date.
Interest income, which includes the amortization of premium and accretion of
discount, if any, is recorded on an accrual basis. Dividend and interest income
is recorded net of foreign taxes where recovery of such taxes is not assured.
d) DIVIDENDS AND DISTRIBUTIONS. Distributions to shareholders for the
Emerging Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
and Income Opportunity Portfolio are recorded by the Portfolio on the
ex-dividend date. It is the policy of the Standby Income Portfolio to record
income dividends daily and distribute them monthly. Distributions to
shareholders of net realized capital gains, if any, are declared and paid
annually.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital. These
differences are primarily due to differing treatments for foreign currency
transactions, passive foreign (PFIC), and losses deferred due to wash sales and
excise tax regulations.
e) FEDERAL TAXES. Each Portfolio of the Trust is treated as a separate
entity for federal income tax purposes. Each Portfolio's policy is to comply
with the provisions of the Internal Revenue Code of 1986, as amended,
25
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
applicable to regulated investment companies and to distribute substantially all
its income, including net realized capital gains, if any, within the prescribed
time periods. Accordingly, no provision for a federal income tax is necessary.
The following Portfolios have capital loss carryforwards expiring December 2003.
<TABLE>
<S> <C>
International Equity Portfolio $ 79,763
Standby Income Portfolio $ 1,112
</TABLE>
Additionally, at December 31, 1996, the following funds have net capital
losses attributable to security transactions incurred after October 31, 1996,
which are treated as arising on the first day of the fund's next taxable year.
<TABLE>
<S> <C>
Emerging Growth Fund $ 95,242
International Equity Fund $ 76,413
</TABLE>
f) FORWARD CURRENCY CONTRACTS. Each Portfolio may enter into forward
foreign currency contracts to protect securities and related receivables and
payables against fluctuations in foreign currency rates. A forward contract is
an agreement to buy or sell currencies of different countries on a specified
future date at a specified rate.
Risks associated with such contracts include the movement in the value of
the foreign currency relative to the U.S. dollar and the ability of the
counterparty to perform. The market value of the contract will fluctuate with
changes in currency exchange rates. Contracts are valued daily based on
procedures established by and under the general supervision of the Trustees of
the Portfolio Trust and the change in the market value is recorded by the
Portfolios as unrealized appreciation or depreciation of forward foreign
currency contracts. As of December 31, 1996, the Touchstone International Equity
Portfolio had an open forward foreign currency contract to deliver $9,424 on
January 2, 1997, in exchange for 64,726 Swedish Krona. As of December 31, 1996,
the market value of this contract was $9,496, resulting in unrealized
appreciation of $72.
g) ORGANIZATION EXPENSE. Organization expenses were deferred and are being
amortized by each Portfolio on a straight-line basis over a five-year period
from commencement of operations. The amount paid by the Trust on any redemption
by Touchstone Advisors, Inc. or, any other then-current holder of the
organizational seed capital shares ("Initial Shares") of the Portfolio, will be
reduced by a portion of any unamortized organization expenses of the Portfolio
determined by the proportion of the number of the Initial Shares of the
Portfolio redeemed to the number of the Initial Shares of the Portfolio
outstanding after taking into account any prior redemptions of the Initial
Shares of the Portfolio.
h) OTHER. Securities transactions are recorded on a trade date basis. For
financial and tax reporting purposes, realized gains and losses are determined
on the basis of specific lot identification.
2. TRANSACTIONS WITH AFFILIATES
a) SPONSOR. Touchstone Advisors, Inc. ("Sponsor"), a subsidiary of
Western-Southern, as sponsor to the Trust, pursuant to a Sponsor Agreement
provides oversight of the various service providers to the Trust, including the
Trust's Administrator, Custodian and Transfer Agent. As Sponsor to the Trust,
Touchstone Advisors reserves the right to receive a sponsor fee from each
portfolio on an annual basis up to 0.20% of average daily net assets of that
Portfolio. The Sponsor Agreement may be terminated by the Sponsor or by the
Trust on not less than 30 days prior written notice. The Sponsor has advised the
Trust that it will waive all fees under the Sponsor Agreement through April 30,
1998.
b) INVESTMENT ADVISOR. The Trust has an investment advisory agreement with
the Sponsor. Under the terms of the investment advisory agreement, each
Portfolio pays an investment advisory fee that is computed daily and paid
monthly. For the year ended December 31, 1996, each Portfolio incurred
investment advisory fees equal on an annual basis to the following percentages
of the average daily net assets of the Portfolio.
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.70% 0.65% 0.25%
</TABLE>
Fort Washington Investment Advisors, Inc., an affiliate of the Sponsor, is
the sub-advisor for the Standby Income Portfolio.
c) TRUSTEES. Each Trustee who is not an "interested person," (as defined
in the Act), of the Trust, receives in aggregate $5,000 annually plus $1,000 per
meeting attended, as well as reimbursement for reasonable out-of-pocket
expenses, from the Trust and from Select Advisors Trust A, Select Advisors Trust
C, and Select Advisors Portfolios, which are included in separate reports.
26
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. EXPENSE REIMBURSEMENTS
The Sponsor has agreed to waive fees and reimburse each Portfolio so that,
following such waiver of fees and reimbursement, the aggregate total operating
expenses (excluding interest, taxes, brokerage commissions and extraordinary
expenses) of each Portfolio are not greater, on an annualized basis, than the
percentage of average daily net assets of the Portfolio listed below.
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Voluntary expense limit 1.15% 1.25% 0.90% 0.85% 0.50%
</TABLE>
Included in the reimbursement receivable from the Sponsor for the Income
Opportunity Portfolio is an amount of $44,783 related to an overaccrual of
interest income for the year ended December 31, 1996. The Sponsor has agreed to
reimburse the Portfolio for this amount. This amount did not have a material
impact on the total return for the year ended December 31, 1996.
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
Investment transactions (excluding purchases and sales of U.S. government
obligations, U.S. government agency obligations and short-term investments) for
the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
---------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cost of purchases $5,021,258 $ 8,330,569 $3,332,225 $12,901,448 $9,493,879
Proceeds from sales 2,920,726 5,439,968 1,953,793 8,602,638 3,930,458
</TABLE>
Purchase and sales of U.S. government obligations for the year ended
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
BALANCED INCOME OPPORTUNITY STANDBY INCOME
------------ ------------------ --------------
<S> <C> <C> <C>
Cost of purchases $ 2,399,174 $ 89,874 $ 2,160,516
Proceeds from sales 1,006,723 85,624 $ 380,000
</TABLE>
5. As of December 31, 1996, Income Opportunity Portfolio held the following
restricted security:
<TABLE>
<CAPTION>
ACQUISITION MARKET % OF
DATE COST VALUE NET ASSETS
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Russian Fed GKO-Linked
Note 10/15/96 $ 947,791 $ 942,665 11.4%
</TABLE>
6. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trust to issue an unlimited number of
full and fractional shares of beneficial interest.
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
For corporate shareholders, a portion of the ordinary dividends paid during
the fund's year ended December 31, 1996, qualified for the dividends received
deduction, as follows:
<TABLE>
<CAPTION>
EMERGING
GROWTH BALANCED
---------- ----------
<S> <C>
100% 20%
</TABLE>
The funds below paid distributions from long-term capital gains. Pursuant to
section 852 of the Internal Revenue Code, the fund designates the foloowing
capital gain dividends as noted:
<TABLE>
<CAPTION>
EMERGING INCOME
GROWTH BALANCED OPPORTUNITY
---------- ---------- -----------
<S> <C> <C> <C>
Long-term capital
gains distributions
per share 0.2673 0.20 0.135
Capital gain
dividends $ 122,439 $ 94,739 $ 94,945
</TABLE>
27
<PAGE>
SELECT ADVISORS VARIABLE INSURANCE TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Investors and Trustees of
the Select Advisors Variable Insurance Trust:
We have audited the accompanying statements of assets and liabilities of the
Select Advisors Variable Insurance Trust (consisting of Emerging Growth
Portfolio, International Equity Portfolio, Balanced Portfolio, Income
Opportunity Portfolio and Standby Income Portfolio), including the schedules of
investments, as of December 31, 1996, the related statements of operations for
the year then ended, and the statements of changes in net assets for each of the
two years in the period then ended and financial highlights for each of the two
years in the period then ended and for the period November 21, 1994
(commencement of operations) to December 31, 1994. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 and financial
highlights 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, 1996 by correspondence with the custodian and brokers. 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.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Select Advisors Variable Insurance Trust as of December 31, 1996, the results of
its operations for the year then ended, and the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the two years in the period then ended and for the period November 21,
1994 (commencement of operations) to December 31 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 20, 1997
28
<PAGE>
T O U C H S T O N E
------------------------------------------
TOUCHSTONE VARIABLE ANNUITY
LOGO
-------------------------------------------------------
SELECT ADVISORS PORTFOLIOS
( GROWTH & INCOME PORTFOLIO II
( BOND PORTFOLIO II
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
GROWTH & INCOME PORTFOLIO II
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- ------------
COMMON STOCKS (93.0%)
AIRLINES (1.1%)
15,000 America West Airlines Class B*... $ 238,125
------------
BANKING & FINANCE (16.9%)
20,000 Bank of Rhode Island*............ 200,000
5,000 Beneficial Corp.................. 316,875
15,000 Beverly Bancorporation........... 270,938
7,900 Federal National Mortgage
Association.................... 294,275
5,000 First Chicago NBD Corp........... 268,750
7,500 First Commerce Corp.............. 291,563
10,000 First Hawaiian Inc............... 350,000
5,000 Glendale Federal Bank,*.......... 116,250
2,500 Great Western Financial.......... 72,500
10,500 HomeCorp, Inc.*.................. 200,813
9,000 Imperial Bancorp*................ 216,000
15,000 Mercury Financial Co............. 183,750
11,000 North Folk Bancorp............... 391,875
2,500 Summit Bancorp................... 109,375
3,000 UnionBanCal Corp................. 159,000
5,650 Webster City Federal Savings..... 77,681
11,000 WFS Financial, Inc............... 218,625
------------
3,738,270
------------
CHEMICALS (2.6%)
7,000 Englehard Corp................... 133,875
6,000 Hercules, Inc.................... 259,500
5,000 TIG Holdings Inc................. 169,375
------------
562,750
------------
COMPUTER EQUIPMENT & DATA
PROCESSING (8.3%)
7,500 AMP Inc.......................... 287,813
6,800 Automatic Data Processing,
Inc............................ 291,550
3,000 Computer Sciences Corp.*......... 246,375
5,000 Durion, Inc...................... 135,625
6,000 Electronic Data Systems Corp..... 259,500
2,800 First Data Corp.................. 102,200
9,000 National Semiconductor Corp.*.... 219,375
3,000 Thomas & Betts Corp.............. 133,125
20,000 Ultradata Corp.*................. 82,500
2,500 VLSI Technology, Inc.*........... 59,688
------------
1,817,751
------------
CONSUMER & OFFICE PRODUCTS (8.4%)
667 Acnielson Corp.*................. 10,083
10,000 Bausch & Lomb,Inc................ 350,000
7,000 Ceridian Corp.*.................. 283,500
4,310 General Electric................. 426,151
4,700 Johnson Controls................. 389,513
3,500 Proctor & Gamble Co.............. 376,250
------------
1,835,497
------------
FOOD & BEVERAGES (6.7%)
5,400 Anheuser Busch................... 216,000
1,500 CPC International, Inc........... 116,250
5,000 H. J. Heinz Co................... 178,750
7,500 McDonald's Corp.................. 339,375
6,100 Nabisco Holding Corp., Class A... 237,138
8,750 Pepsico, Inc..................... 255,938
4,000 Sysco Corp....................... 130,500
------------
1,473,951
------------
HEALTHCARE (6.2%)
2,000 Cognizant Corp.*................. $ 66,000
8,900 Columbia/HCA Healthcare Corp..... 362,675
9,000 Coventry Corporation*............ 83,390
20,000 Metra Biosystems, Inc.*.......... 95,000
14,000 Physician Corp. of America*...... 140,000
10,000 Physician Health Services,
Inc.*.......................... 147,500
8,500 St. Jude Medical, Inc.*.......... 362,313
10,000 United American Healthcare
Corp.*......................... 58,750
5,000 Wellcare Management Group,
Inc.*.......................... 39,375
------------
1,355,003
------------
HEAVY INDUSTRY (4.4%)
12,500 Goulds Pumps, Inc................ 286,719
1,060 Newport News Shipbuilding*....... 15,900
5,300 Tenneco Inc.*.................... 239,163
10,000 Trinity Industries, Inc.......... 375,000
15,000 Weirton Steel*................... 52,500
------------
969,282
------------
INSURANCE (6.6%)
4,700 Aetna Inc........................ 376,000
2,250 American International Group,
Inc............................ 243,563
9,000 Chubb Corp....................... 483,750
10,000 Healthsource Inc.*............... 131,250
2,000 St. Paul Companies............... 117,250
4,000 United Companies Financial
Corp........................... 106,500
------------
1,458,313
------------
LEISURE & ENTERTAINMENT (1.8%)
4,000 Readers Digest Association,
Inc............................ 161,000
6,500 Viacom, Inc. Class B*............ 226,688
------------
387,688
------------
OIL SERVICE (7.2%)
7,000 Apache Corp...................... 247,625
5,000 Ashland Inc...................... 219,375
493 El Paso Natural Gas Co........... 24,891
5,000 Kerr-McGee Corp.................. 360,000
3,000 Mobil Corp....................... 366,750
10,000 Union Texas Petroleum Holdings... 223,750
6,100 USX-Marathon Group............... 145,638
------------
1,588,029
------------
PHARMACEUTICALS (9.0%)
6,000 Abott Laboratories............... 304,500
7,000 Amgen, Inc.*..................... 380,625
15,000 Genzyme Corp.*................... 326,250
4,000 Merck & Co., Inc................. 317,000
8,000 Pharmacia & Upjohn, Inc.......... 317,000
5,000 SmithKline Beecham PLC ADR....... 340,000
------------
1,985,375
------------
SERVICES (3.2%)
2,000 Dun & Bradstreet Corp............ 47,500
25,000 Hollinger International Inc...... 287,500
15,000 Katz Media Group*................ 168,750
6,000 Manpower, Inc.................... 195,000
------------
698,750
------------
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
GROWTH & INCOME PORTFOLIO II
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
- ----------- ------------
TELECOMMUNICATIONS (9.2%)
10,000 360 Communications Co.*.......... $ 231,250
30,000 American Paging, Inc.*........... 140,625
10,000 Atlantic Tele-Network*........... 152,500
3,800 Cincinnati Bell, Inc............. 234,175
9,500 Comcast Corp..................... 169,219
5,000 Emmis Broadcasting Corp., Class
A*............................. 163,750
972 Lucent Technologies.............. 44,955
2,500 SBC Communications, Inc.......... 129,375
1,750 TCI Satellite Entertainment,
Class A*....................... 17,281
17,500 Tele-Comunications, Inc., Class
A*............................. 228,594
5,700 Telephone & Data System, Inc..... 206,625
10,000 Western Wireless Corp., Class
A*............................. 138,750
6,000 Worldcom, Inc.*.................. 156,375
------------
2,013,474
------------
TRANSPORTATION (0.7%)
5,000 Illinois Central Corp............ 160,000
------------
UTILITIES (0.7%)
7,500 Southwest Gas Co................. 144,375
------------
TOTAL COMMON STOCKS (COST $18,073,896)........ 20,426,633
------------
VALUE
PRINCIPAL (NOTE 1)
- ----------- ------------
CONVERTIBLE BONDS (1.1%)
$ 300,000 Softkey 5.50%, due 11/01/2000.... $ 247,500
------------
TOTAL CONVERTIBLE BONDS (COST $274,682)....... 247,500
------------
SHARES
- -----------
PREFERRED STOCKS (1.9%)
2,500 Microsoft Corporation NIB, Class
A*............................. 200,313
4,400 Allstate Corp., 6.76%
Convertible.................... 207,900
------------
TOTAL PREFERRED STOCKS (COST $349,288)........ 408,213
------------
TOTAL INVESTMENTS AT VALUE (96.0%)
(COST $18,697,866) (A)........................ $ 21,082,346
CASH AND OTHER ASSETS NET OF LIABILITIES
(4.0%)........................................ 888,614
------------
NET ASSETS (100.0%)........................... $ 21,970,960
------------
------------
- --------------------------
* Non-income producing security.
** The aggregate identified cost for federal
income tax purposes is $18,712,205,
resulting in gross unrealized appreciation
and depreciation of $3,621,673 and
$1,251,532, respectively, and net
unrealized appreciation of $2,370,141.
ADR - American Depositary Receipt
- -------------------------------------------------------------------------------
BOND PORTFOLIO II
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
VALUE
PRINCIPAL (NOTE 1)
- ----------- ------------
ASSET BACKED SECURITIES (20.7%)
$ 500,000 Advanta Mortgage Loan, 6.03%,
08/25/11....................... $ 492,598
344,585 Chase Manhattan Grantor Trust,
5.20%, 04/15/02................ 341,953
500,000 Chemical Credit Card Master
Trust, 5.98%, 09/15/08......... 474,490
300,000 Discover Card Mastertrust I,
6.05%, 08/18/08................ 284,079
500,000 Ford Credit Auto Loan Master
Trust, 6.50%, 08/15/02......... 502,185
500,000 Ford Motor Credit Co, 6.25%,
11/08/00....................... 495,284
500,000 Navistar Financial 1996-A, 6.35%,
11/15/02....................... 503,185
------------
TOTAL ASSET BACKED SECURITIES (COST
$3,077,673)................................... 3,093,774
------------
CORPORATE BONDS (34.7%)
BANKING & FINANCE (15.6%)
500,000 Bank of New York, 8.50%,
12/15/04....................... 547,024
250,000 CIT Group Holdings, 6.25%,
11/22/01....................... 246,868
350,000 First Union Corporation, 6.55%,
10/15/35....................... 339,753
250,000 GMAC, 6.30%, 09/10/97............ 250,938
500,000 Key Bank N.A., 7.125%, 08/15/06.. 501,213
BANKING & FINANCE--CONTINUED
$ 350,000 Mellon Bank N.A., 6.50%,
08/01/05....................... $ 338,353
99,592 Mercantile Safe Deposit,+
12.125%, 01/02/01.............. 109,859
------------
2,334,008
------------
BROADCAST & MEDIA (1.9%)
250,000 News America Holdings, Inc.,
10.125%, 10/15/12.............. 287,764
------------
COMMERCIAL SERVICES (6.8%)
500,000 Harris Corporation, 6.65%,
08/01/06....................... 502,306
500,000 Kroger Company, 8.15%, 07/15/06.. 519,217
------------
1,021,523
------------
COMPUTER EQUIPMENT & DATA
PROCESSING (1.6%)
250,000 IBM Corporation, 7.00%,
10/30/25....................... 239,688
------------
FOOD & BEVERAGES (4.1%)
600,000 Conagra Incorporated, 7.125%,
10/01/26....................... 611,495
------------
HEAVY CONSTRUCTION (1.3%)
200,000 Comdisco Incorporated, 6.375%,
11/30/01....................... 196,837
------------
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
BOND PORTFOLIO II
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1996
VALUE
PRINCIPAL (NOTE 1)
- ----------- ------------
INSURANCE (3.4%)
$ 500,000 Travelers/Aetna P&C, 6.75%,
04/15/01....................... $ 502,214
------------
TOTAL CORPORATE BONDS
(COST $5,118,340)............................. 5,193,529
------------
MORTGAGE BACKED (10.7%)
468,350 FGLMC, 7.00%, 10/01/25........... 459,840
493,259 FGLMC, 7.00%, 12/01/25........... 484,296
65,021 Government National Mortgage
Association, 10.25%,
07/15/12....................... 65,021
589,475 Government National Mortgage
Association, 7.00%, 02/15/09... 593,706
------------
TOTAL MORTGAGE BACKED (COST $1,588,107)....... 1,602,863
------------
U.S. TREASURY OBLIGATIONS (20.6%)
400,000 U.S. Treasury Notes, 5.75%,
08/15/03....................... 388,000
600,000 U.S. Treasury Notes, 6.125%,
03/31/98....................... 601,306
500,000 U.S. Treasury Notes, 6.125%,
09/30/00....................... 499,688
500,000 U.S. Treasury Notes, 6.75%,
04/30/00....................... 509,531
300,000 U.S. Treasury Notes, 6.75%,
05/31/99....................... 305,063
750,000 U.S. Treasury Notes, 7.50%,
11/15/01....................... 789,609
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $3,038,926)............................. 3,093,197
------------
YANKEE BONDS (4.0%)
600,000 Province of Quebec, 7.50%,
07/15/23....................... 598,949
------------
TOTAL YANKEE BONDS (COST $585,507)............ 598,949
------------
AGENCY FOR INTERNATIONAL DEVELOPMENT BONDS (5.9%)+
$ 150,000 Central America Intl Dev Bonds,
Series F, 10.00%, 12/01/11..... $ 172,996
150,000 Central America Intl Dev Bonds,
Series G, 10.00%, 12/01/11..... 172,996
150,000 Central America Intl Dev Bonds,
Series H, 10.00%, 12/01/11..... 172,996
100,000 Republic of Honduras Intl Dev
Bonds Series D, 13.00%,
06/01/11....................... 142,243
82,927 Republic of Honduras Intl Dev
Bonds, Series B, 13.00%,
06/01/01....................... 91,788
100,000 Republic of Honduras Intl Dev
Bonds, Series C, 13.00%,
06/01/06....................... 130,391
------------
TOTAL AGENCY FOR INTERNATIONAL DEVELOPMENT
BONDS (COST $732,927)......................... 883,410
------------
TOTAL INVESTMENTS AT VALUE (96.6%)
(COST $14,141,480) (A)........................ 14,465,722
CASH AND OTHER ASSETS NET OF LIABILITIES
(3.4%)........................................ 513,676
------------
NET ASSETS (100.0%)........................... $ 14,979,398
------------
------------
- --------------------------
(a) The aggregate identified cost for federal
income tax purposes is $14,141,480,
resulting in gross unrealized appreciation
and depreciation of $376,120 and $51,878,
respectively, and net unrealized
appreciation of $324,242.
+ Restricted and Board valued security (Note 5).
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
SELECT ADVISORS PORTFOLIOS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH &
INCOME BOND
PORTFOLIO PORTFOLIO
II II
---------- ----------
<S> <C> <C>
ASSETS:
Investments, at value (Note 1)* $21,082,346 $14,465,722
Cash 843,579 313,972
Receivables for:
Securities sold 59,748 --
Dividends 41,692 --
Interest 6,646 210,026
Deferred organization expenses 23,520 23,520
Reimbursement receivable from Sponsor (Note 3) -- 4,293
---------- ----------
Total assets 22,057,531 15,017,533
---------- ----------
LIABILITIES:
Payable to Sponsor (Note 2) 48,005 --
Payable to Administrator (Note 2) 9,754 9,754
Other accrued expenses 28,812 28,381
---------- ----------
Total liabilities 86,571 38,135
---------- ----------
NET ASSETS:
Applicable to investors' beneficial interests $21,970,960 $14,979,398
---------- ----------
---------- ----------
*Cost of investments $18,697,866 $14,141,480
---------- ----------
---------- ----------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH &
INCOME BOND
PORTFOLIO PORTFOLIO
II II
----------- -----------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1):
Interest $ 48,621 $ 908,567
Dividends 279,498 --
----------- -----------
Total investment income 328,119 908,567
----------- -----------
EXPENSES:
Investment advisory fees (Note 2) 127,974 72,116
Administration and fund accounting fees 61,786 61,396
Sponsor fee (Note 2) 34,126 26,224
Printing 18,354 17,599
Auditing fees 23,591 26,590
Amortization of organization expenses (Note 1) 8,165 8,165
Custody fees 4,224 2,961
Trustee fees (Note 2) 4,977 3,778
Insurance 12,286 10,490
Miscellaneous 1,975 1,559
----------- -----------
Total expenses 297,458 230,878
Waiver of Sponsor fee (Note 2) (34,126) (26,224)
Reimbursement from Advisor (Note 3) (118,296) (106,315)
----------- -----------
Net expenses 145,036 98,339
----------- -----------
NET INVESTMENT INCOME 183,083 810,228
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 2,614,611 52,355
Net change in unrealized appreciation (476,749) (481,003)
----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS): 2,137,862 (428,648)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,320,945 $ 381,580
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
SELECT ADVISORS PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME BOND
PORTFOLIO II PORTFOLIO II
-------------------------- --------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1996 1995
------------ ------------ ------------ ------------
OPERATIONS:
Net investment income 183,083 150,761 810,228 773,047
Net realized gain on investments 2,614,611 1,554,207 52,355 315,080
Net change in unrealized appreciation (depreciation) on
investments (476,749) 1,902,447 (481,003) 777,621
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations 2,320,945 3,607,415 381,580 1,865,748
------------ ------------ ------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 6,012,563 363,297 2,347,375 335,196
Withdrawals (256,085) -- (54,047) --
------------ ------------ ------------ ------------
Net increase from investors' transactions 5,756,478 363,297 2,293,328 335,196
------------ ------------ ------------ ------------
TOTAL CHANGES IN NET ASSETS 8,077,423 3,970,712 2,674,908 2,200,944
NET ASSETS
Beginning of year 13,893,537 9,922,825 12,304,490 10,103,546
------------ ------------ ------------ ------------
End of year $ 21,970,960 $ 13,893,537 $ 14,979,398 $ 12,304,490
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND
GROWTH & INCOME PORTFOLIO
PORTFOLIO II II
------------------------------------ -----------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994(A) 1996
---------- ----- ----------- -----
RATIOS TO AVERAGE NET ASSETS (B):
Expenses 0.85% 0.85% 0.85% 0.75%
Net investment income 1.07% 1.27% 2.06% 6.18%
Expenses, without waiver and reimbursement 1.74% 1.77% 2.94% 1.76%
Portfolio turnover 82% 96% 0% 79%
Average commission rate (c) $ 0.0571 -- -- --
<CAPTION>
<S> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994(A)
----- -----------
RATIOS TO AVERAGE NET ASSETS (B):
Expenses 0.75% 0.75%
Net investment income 6.91% 6.76%
Expenses, without waiver and reimbursement 1.58% 2.67%
Portfolio turnover 80% 0%
Average commission rate (c) -- --
</TABLE>
- ------------------------------
(a) The portfolios commenced operations on November 21, 1994.
(b) Ratios are annualized. Portfolio turnover is not annualized.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary between periods and
funds depending on the volume and character of trades executed in various
markets where trading practices and comission rate structures may differ.
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
SELECT ADVISORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Select Advisors Portfolios (the "Portfolio Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company organized as a New York master trust fund on February 7, 1994. There are
nine subtrusts of the Portfolio Trust (each a "Portfolio"), each having distinct
investment objectives and policies. The Portfolios are Emerging Growth
Portfolio, International Equity Portfolio, Growth & Income Portfolio, Balanced
Portfolio, Income Opportunity Portfolio, Bond Portfolio, Municipal Bond
Portfolio, Growth & Income Portfolio II, and Bond Portfolio II. Only Growth &
Income Portfolio II and Bond Portfolio II are included in this report. The other
portfolios are included in a separate report.
As of December 31, 1996, Touchstone Advisers, Inc., a subsidiary of
Western-Southern Life Assurance Company ("Western-Southern"), and
Western-Southern owned 100% of the Portfolios.
The accounting policies are in conformity with generally accepted accounting
principles ("GAAP") for investment companies. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the related amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies of the
Portfolios:
a) INVESTMENT VALUATION. Securities for which market quotations are
readily available are valued at 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 quoted in foreign currencies are translated into U.S. Dollars
at the current exchange rate. 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 good faith in accordance with procedures established by the Trustees of
the Portfolio Trust using 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 debt securities with a remaining
maturity of less than 60 days are valued at amortized cost, which approximates
market.
b) FOREIGN CURRENCY TRANSLATION. 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 effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statement of Operations from the effects of
changes in market prices of these securities, but are included with the net
realized and unrealized gain or loss on investments.
c) INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date
except that certain dividends from foreign securities where the ex-dividend date
has passed are recorded as soon as the Portfolio Trust is informed of the
ex-dividend date. Interest income, which includes the amortization of premium
and accretion of discount, if any, is recorded on an accrual basis. Dividend and
interest income is recorded net of foreign taxes where recovery of such taxes is
not assured.
d) FEDERAL TAXES. Each Portfolio is treated as a partnership for federal
income tax purposes. As such, each investor in each Portfolio is subject to
taxation on its share of that Portfolio's ordinary income and capital gains.
Accordingly, no provision has been made for federal income taxes. It is intended
that each Portfolio's assets will be managed in such a way that an investor in
the Portfolio will be able to satisfy the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended.
e) FORWARD CURRENCY CONTRACTS. Each Portfolio may enter into forward
foreign currency contracts to protect securities and related receivables and
payables against fluctuations in foreign currency rates. A forward contract is
an agreement to buy or sell currencies of different countries on a specified
future date at a specified rate.
Risks associated with such contracts include the movement in the value of
the foreign currency relative to the U.S. dollar and the ability of the
counterparty to perform. The market value of the contract will fluctuate with
changes in currency exchange rates. Contracts are valued daily based on
procedures established by and under the general supervision of the Trustees of
the Portfolio Trust and the change in the market value is recorded by the
Portfolio as unrealized appreciation or depreciation of forward foreign currency
contracts.
f) ORGANIZATION EXPENSE. Organization expenses were deferred and are being
amortized by each Portfolio on a straight-line basis over a five-year period
from commencement of operations. The amount paid by the Trust on any withdrawal
by Touchstone Advisors, Inc. or any other then-current holder of the Initial
Interests in the
35
<PAGE>
SELECT ADVISORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Portfolio will be reduced by a portion of any unamortized organization expenses
of the Portfolio, determined by the proportion of the amount of the Initial
Interests in the Portfolio withdrawn to the amount of the Initial Interests in
the Portfolio then outstanding after taking into account any prior withdrawals
of the Initial Interests in the Portfolio.
g) OTHER. Securities transactions are recorded on a trade date basis. For
financial and tax reporting purposes, realized gains and losses are determined
on the basis of specific lot identification.
2. TRANSACTIONS WITH AFFILIATES
a) SPONSOR. Touchstone Advisors, Inc. ("Sponsor"), a subsidiary of
Western-Southern Life Assurance Company ("Western-Southern"), as sponsor to the
Trust, pursuant to a Sponsor Agreement provides oversight of the various service
providers to the Trust, including the Trust's Administrator, Custodian and
Transfer Agent. 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 average daily net assets of that Portfolio for its then-current fiscal year.
The Sponsor Agreement may be terminated by the Sponsor or by the Trust on not
less than 30 days prior written notice. The Sponsor has advised the Trust that
it will waive all fees under the Sponsor Agreement through April 30, 1998.
(b) INVESTMENT ADVISOR. The Portfolio Trust has an investment advisory
agreement with Touchstone Advisors, Inc. ("Advisor"), a subsidiary of
Western-Southern. Under the terms of the investment advisory agreement, each
Portfolio pays an investment advisory fee that is computed daily and paid
monthly. Investment advisory fees to Growth & Income Portfolio II and Bond
Portfolio II are equal on an annual basis to 0.75% and 0.55%, respectively, of
the average daily net assets of each Portfolio.
Fort Washington Investment Advisors, Inc., an affiliate of the Advisor, is
the sub-advisor for the Growth & Income Portfolio II and the Bond Portfolio II.
(d) TRUSTEES. Each Trustee who is not an "interested person," (as defined
in the Act), of the Portfolio Trust, receives in aggregate $5,000 annually plus
$1,000 per meeting attended, as well as, reimbursement for reasonable
out-of-pocket expenses from the Portfolio and from Select Advisors Trust A,
Select Advisors Trust C and Select Advisors Variable Insurance Trust.
3. EXPENSE REIMBURSEMENT
The Sponsor has agreed to reimburse each Portfolio so that, following such
reimbursement the aggregate total operating expenses (excluding interest, taxes,
brokerage commission and extraordinary expenses) of each Portfolio are not
greater, on an annualized basis, than 0.85% and 0.75% of average daily net
assets of Growth & Income Portfolio II and Bond Portfolio II, respectively.
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
For the year ended December 31, 1996, the cost of investment securities
purchased was $18,887,819 and $9,625,705, and the proceeds from sales of
investment securities sold were $13,765,520 and $5,744,524, for Growth & Income
Portfolio II and Bond Portfolio II, respectively, excluding U.S. government
obligations and short-term investments. Purchases and sales of U.S. government
obligations were $3,774,990 and $4,145,828, respectively, for Bond Portfolio II.
5. RESTRICTED SECURITIES
Restricted securities may be difficult to dispose of and involve the
consuming negotiation and expense. Prompt sale of these securities may involve
the seller taking a discount to the security's stated market value. As of
December 31, 1996, Bond Portfolio II held restricted securities valued at
$993,267, representing 6.63% of net assets. Acquisition date and cost of each
are as follows:
<TABLE>
<CAPTION>
ACQUISITION
DATE COST
-------------- ----------
<S> <C> <C>
Mercantile Safe Deposit.......................................... 3/28/85 $ 105,508
Central America, Series F........................................ 8/1/86 150,000
Central America, Series G........................................ 8/1/86 150,000
Central America, Series H........................................ 8/1/86 150,000
Republic of Honduras, Series B................................... 5/1/88 92,683
Republic of Honduras, Series C................................... 5/1/88 100,000
Republic of Honduras, Series D................................... 5/1/88 100,000
</TABLE>
Bond Portfolio II received these securities from Western-Southern on
November 21, 1994 in exchange for a proportionate interest in the portfolio.
36
<PAGE>
SELECT ADVISORS PORTFOLIOS
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Investors and Trustees of
the Select Advisors Portfolios:
We have audited the accompanying statements of assets and liabilities of the
Select Advisors Portfolios (consisting of Growth and Income Portfolio II and
Bond Portfolio II), including the schedules of investments, as of December 31,
1996, the related statements of operations for the year then ended, and the
statements of changes in net assets for each of the two years in the period then
ended and supplementary data for each of the two years in the period then ended
and for the period November 21, 1994 (commencement of operations) to December
31, 1994. These financial statements and supplementary data are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and supplementary data 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 and supplementary
data 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, 1996 by correspondence with the custodian. 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.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of the
Select Advisors Portfolios as of December 31, 1996, the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended and the supplementary data for for
each of the two years in the period then ended and for the period November 21,
1994 (commencement of operations) to December 31, 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 20, 1997
37
<PAGE>
DISTRIBUTOR
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, Ohio 45202
(800) 669-2796
INVESTMENT ADVISOR OF EACH PORTFOLIO
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, Ohio 45202
ADMINISTRATOR OF THE SEPARATE ACCOUNT
Continuum-Vantage
301 West 11th Street
Kansas City, Missouri 64105
TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
ADMINISTRATOR AND CUSTODIAN OF EACH PORTFOLIO
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One International Place
Boston, Massachusetts 02110
LEGAL COUNSEL
Frost & Jacobs
2500 PNC Center
201 East 5th Street
Cincinnati, Ohio 45202
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T O U C H S T O N E
---------------------------------------------
FORM 7142-9612 THE MARK OF EXCELLENCE IN INVESTMENT MANAGEMENTSM
