<PAGE> 1
[LOGO]
TOUCHSTONE
------------------------------------------------
Touchstone II Variable Annuity
- Emerging Growth
- International Equity
- Growth & Income
- Balanced
- Income Opportunity
- Bond
- Standby Income
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE> 2
This booklet contains the Annual Reports which reflect the results of the
TOUCHSTONE 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 II and the investment portfolios underlying
the Touchstone Variable Annuity. These Annual Reports are bound together for
your convenience.
<PAGE> 3
Dear Fellow Contract Owner:
The current "golden age" of moderate growth, low interest rates, low
inflation, and robust corporate earnings has been good for stocks. Keep in mind,
though, that this kind of market will not always be around. Certainly not when
there are so many unfamiliar situations surrounding us: the Asian currency
crisis, the year 2000 issue, tensions in the Middle East, or simply that stocks
have been so hot for so long. Simply speaking, there's nothing the market hates
more than uncertainty, and we've experienced a lot of it lately.
Most people attribute the stock market's exceptionally strong rise and
recent volatility to the huge flood of money that has poured into equity mutual
funds. The 1995-97 total of nearly $600 billion of new cash invested in equity
funds is an impressive figure. It has added 70% of the total assets accumulated
by the mutual fund industry over its entire 72 years of existence. But the
dominant reason why investors have wanted to put so much money into stocks is
that the last three years have been the most favorable for corporate profit
growth in well over 50 years.
It's times like these that the Touchstone brand of investment management
makes sense. Because the truth is, no matter where the markets go, there are
always good stocks available. At Touchstone, our portfolio managers look for
these companies one at a time, using every possible means of rigorous financial
analysis to hands-on, face-to-face research, in quest of an edge nobody else
has. That's how Touchstone helps investors get where they need to go.
We've been through volatile times before, and there's a good chance we'll
have to face them again. The particulars may change, but the commitment of each
and every member of the Touchstone administrative and portfolio team--and the
discipline they employ--remains the same.
Please review the enclosed financial statements for portfolio updates and
performance numbers for important information about the investment you have
chosen.
Going forward, I urge you to be reasonable in your expectations. Now, more
than ever, it's important to take a long-term view. So I ask that you carefully
review the shorter-term risks associated with your investments and make sure
they truly fit your comfort level. Your financial advisor can help you adjust
your investment strategy to meet any of your changing needs.
We appreciate your continued confidence and investment in the Touchstone
Family of Funds and Variable Annuities.(1)
Sincerely,
[Edward G. Harness Signature]
Edward G. Harness
President and Chief Executive Officer
Touchstone Family of Funds
P.S. Please 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, Touchstone Family of Funds and Variable
Annuities are distributed by Touchstone Securities, Inc., member NASD and
SIPC.
<PAGE> 4
[LOGO]
TOUCHSTONE
------------------------------------------------
Western-Southern Life
Assurance Company
------------------------
Separate Account 2
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE> 5
TOUCHSTONE II EMERGING GROWTH SUB-ACCOUNT
Over the course of the year ending December 31, 1997, 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 22.4% while the total return (net of fees and expenses)
for the Touchstone II Emerging Growth Sub-Account was 32.6%.
As the value-style manager of the Touchstone II Emerging Growth Portfolio, David
L. Babson's core strategy continued to stress bottom up fundamental analysis in
identifying low risk stocks with attractive return potential. The last part of
1997 demonstrated some of the benefits that come with this lower risk investment
style. When the markets tumbled in October, value stocks in the portfolio held
up well. Investment highlights in 1997 included good performance from Dime
Bancorp (+105%) and office furniture manufacturer Herman Miller (+93%). Babson
believes that future investment performance will increasingly depend on stock
selection capabilities. Going forward, Babson thinks the market environment will
be much more difficult and that only careful stock selection will produce
reasonable gains.
As the growth-style manager of the Touchstone II Emerging Growth Portfolio,
Westfield Capital Management continued to find companies with good growth
prospects. Delving a bit deeper, Westfield believes that the second half of 1997
was the beginning of a major reversal in relative performance, favoring
small-cap issues. On an annual basis, 1997 was the first time since 1993 that
smaller-cap indices outperformed their larger brethren; and not so
coincidentally, the majority of active managers also beat index funds. This
year's third quarter showed the Russell 2000 returning double the S&P 500 and
over four times the Dow Industrials. Unfortunately, the increased visibility of
various Asian troubles derailed this momentum. Westfield believes that the Asian
troubles were counter-intuitive and therefore temporary because the very names
being bought in this flight to quality are the companies with the heaviest
foreign profit exposures.
The Asian phenomenon did, however, prompt several sector shifts within the
Westfield portfolio. First, their exposure to semiconductor equipment,
semiconductors, and cellular handset infrastructure was quickly cut back.
Shortly thereafter Westfield almost completely moved out of the energy service
companies and boosted positions in REITS, consumer products, systems integration
service companies, and various broadcast arenas.
<TABLE>
<CAPTION>
Touchstone
II CDA/Wiesenberger
Measurement Emerging Small
Period Growth Russell Company
(Fiscal Year Sub- 2000 Growth
Covered) Account Index Average-VA
<S> <C> <C> <C>
Feb-95 10000 10000 10000
Mar-95 10100 10171 10294
Jun-95 10714 11125 11458
Sep-95 11637 12224 12955
Dec-95 11741 12488 12801
Mar-96 12300 13126 13501
Jun-96 12847 13782 14428
Sep-96 12574 13829 14705
Dec-96 12948 14548 14934
Mar-97 12562 13796 13808
Jun-97 14873 16032 16007
Sep-97 17207 18418 18439
Dec-97 17170 17801 17430
</TABLE>
TOUCHSTONE II INTERNATIONAL EQUITY SUB-ACCOUNT
Over the course of the year ending December 31, 1997, 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 2.0% while the total return (net of fees
and expenses) for the Touchstone II International Equity Sub-Account was 13.9%.
As the international equity manager of the Touchstone II International Equity
Portfolio, BEA Associates attributes the Fund's performance to primarily two
decisions. First, they were underweighted in Japan and developed Asia and,
secondly, they had an allocation to the emerging markets in Latin America.
At year-end, the Japan weighting in the portfolio was approximately one-third
that of MSCI EAFE. Given that nation's economic doldrums and the resulting drop
in equity prices, this approach proved fruitful (the Japanese market fell 24% in
1997). Stock selection in Japan, which emphasized globally oriented companies
(such as Sony, Honda, Nintendo and Toyota) and avoided most domestic sectors,
was also effective in adding value. BEA's relatively small exposure to most
other Asian markets contributed positively to performance as well, mainly in the
second half of the year.
A byproduct of reducing Asian positions was an increase in the portfolio's
allocation to Europe, which benefited from particularly good stock selection.
Holdings in France, Sweden, Italy, the Netherlands and Portugal performed best
throughout the year. As for emerging markets, their bias
3
<PAGE> 6
toward Latin America, specifically Brazil and Mexico, boosted the portfolio's
returns.
<TABLE>
<CAPTION>
Touchstone
II CDA/Wiesenberger
Measurement International International
Period Equity MSCI Equity
(Fiscal Year Sub- EAFE Average-
Covered) Account Index VA
<S> <C> <C> <C>
Feb-95 10000 10000 10000
Mar-95 10343 10623 10212
Jun-95 10774 10701 10913
Sep-95 11238 11147 11606
Dec-95 11283 11598 11789
Mar-96 11959 11933 12426
Jun-96 12205 12122 13063
Sep-96 12068 12107 13158
Dec-96 12476 12300 13713
Mar-97 12643 12107 13868
Jun-97 14043 13687 15521
Sep-97 14631 13600 16288
Dec-97 14203 12544 15468
</TABLE>
TOUCHSTONE II GROWTH & INCOME SUB-ACCOUNT
Over the course of the year ending December 31, 1997, 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 33.4% while the total return (net of fees and
expenses) for the Touchstone II Growth & Income Sub-Account was 18.9%.
As the growth and income manager of the Touchstone II Growth & Income Portfolio
II, Scudder Kemper Investments, Inc., focused exclusively on their relative
dividend yield discipline. This strategy requires Scudder to concentrate on
stocks that pay dividends, buy stocks when their yields are above the market
yield, and sell them when they fall below. This discipline, which is successful
in identifying when stocks are overvalued or undervalued, caused Scudder to
modestly underweight the healthcare sector, but to focus exclusively on
pharmaceutical stocks rather than the weaker performing HMO's or medical device
companies. The strategy paid off, as the Fund's pharmaceutical stocks were
exceptional performers, outperforming the sector and the broad market.
Electric and telephone utilities were also important contributors to the Fund's
performance, as a "flight to quality" later in the year, aided further by
declining interest rates and merger activity in the industry, led these stocks
to outperform the market. The Fund is overweighted in both electrics and
telephones. The largest sector exposure in the Fund is in financial stocks,
representing about 23% of the portfolio. This overweight added value, as finance
stocks were one of the stronger performing sectors of the market.
<TABLE>
<CAPTION>
Touchstone CDA/Wiesenberger
II Growth
Growth &
Measurement & Current
Period Income S&P Income
(Fiscal Year Sub- 500 Avg -
Covered) Account Index VA
<S> <C> <C> <C>
Feb-95 10000 10000 10000
Mar-95 10252 10295 10249
Jun-95 11008 11278 11017
Sep-95 11839 12174 11845
Dec-95 12534 12908 12386
Mar-96 13407 13600 12996
Jun-96 13705 14210 13423
Sep-96 13866 14649 13853
Dec-96 14291 15871 14856
Mar-97 13696 16298 14914
Jun-97 15231 19141 16913
Sep-97 16566 20575 18210
Dec-97 16996 21165 18411
</TABLE>
TOUCHSTONE II BALANCED SUB-ACCOUNT
Over the course of the year ending December 31, 1997, 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 500 Index, rose 33.4% and government and corporate bonds, as measured by the
Lehman Brothers Aggregate Index rose 9.7% while the total return (net of fees
and expenses) for the Touchstone II Balanced Sub-Account was 17.7%.
As the balanced fund manager of the Touchstone II Balanced Portfolio, OpCap
Advisors employed a disciplined, bottom-up approach to stock selection which has
not changed since their inception as manager of the Fund in April of 1997. Their
investment horizon is long-term, with an average holding period of 3 to 4 years.
An example of this long-term horizon is Shaw Industries, which has recently been
implementing a retail strategy with excellent prospects for the long term, but
which resulted in a $33 million fourth quarter charge against earnings for the
closing of approximately 100 retail stores. Profitability should now increase,
and the long-term strategy and financial prospects remain in place.
On the fixed income side of the portfolio, OpCap Advisors 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
4
<PAGE> 7
a variety of market scenarios. Their holdings were in well structured securities
that have particularly benefited during this annual period of declining interest
rates. OpCap continued to favor long-term non-government debt such as commercial
banking and public financing issues, believing that they offer superior return
prospects.
<TABLE>
<CAPTION>
Touchstone
Measurement II Lehman CDA/Wiesenberger
Period Balanced S&P Brothers Balanced
(Fiscal Year Sub- 500 Government/Corporate Avg -
Covered) Account Index Index VA
<S> <C> <C> <C> <C>
Feb-95 10000 10000 10000 10000
Mar-95 10288 10295 10061 10161
Jun-95 11279 11278 10674 10825
Sep-95 11954 12174 10884 11383
Dec-95 12018 12908 11348 11795
Mar-96 12412 13600 11147 12026
Jun-96 12545 14210 11210 12236
Sep-96 12954 14649 11417 12503
Dec-96 13922 15871 11760 13089
Mar-97 13808 16296 11695 12005
Jun-97 15170 19141 12125 14339
Sep-97 16097 20575 12530 15274
Dec-97 16382 21165 12895 15399
</TABLE>
TOUCHSTONE II INCOME OPPORTUNITY
SUB-ACCOUNT
Over the course of the year ending December 31, 1997, 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 12.8%; international bonds, as measured by the CDA/Wiesenberger Global
Income Variable Annuity Average rose 4.4% while corporate bonds in general, as
measured by the Lehman Brothers Corporate Bond Index, rose 10.2%. Total return
(net of fees and expenses) for the Touchstone II Income Opportunity Sub-Account
was 11.3%.
As the manager of the Touchstone II Income Opportunity Portfolio, Alliance
Capital Management continued to concentrate its portfolio strategy on
investments in emerging market corporates, emerging market sovereign and U.S.
corporate high yield debt. Alliance reports that during the second half of 1997,
U.S. economic activity remained healthy but started to slow from its rapid pace.
The Federal Reserve did not take any action regarding interest rates due to
improving inflation fundamentals and a stronger dollar coupled with turmoil in
Asian financial markets. Global economic growth suffered a setback in the fourth
quarter due to sharply devalued currencies and falling equity markets in
Southeast Asia and Hong Kong. The lack of clear and prompt responses to these
crises led many investors to re-evaluate the risk premiums associated with
emerging market debt. Many countries such as Brazil, Russia and Argentina faced
increased scrutiny and their debt came under pressure.
The portfolio's investments in emerging market debt were diversified across
Latin America, Southeast Asia and Eastern Europe with only two countries having
an exposure of over 6%. Alliance chose to invest in Southeast Asia and emerging
market corporates because they had been the best sources of yield in 1997. They
continue to closely monitor their small position in Thailand and also their
holdings in Indonesia, where they feel they own some of the stronger, more
diversified credits. Due, however, to the increased uncertainty and volatility
in emerging market debt, Alliance decided to increase the Fund's weighting in
U.S. corporate high yield to 40%. This high yield market continued to be driven
by new issuance and provided strong returns in the second half of the year. As
emerging market prices improve, Alliance will selectively sell down their
exposure there and continue to increase their U.S. high yield percentage.
<TABLE>
<CAPTION>
Touchstone CDA/Wiesenberger
II Lehman CDA/Wiesenberger Corporate
Measurement Income Brothers International High
Period Opportunity Corporate Bond Yield
(Fiscal Year Sub- Bond Avg - Avg -
Covered) Account Index VA VA
<S> <C> <C> <C> <C>
Feb-95 10000 10000 10000 10000
Mar-95 9785 10082 10161 10083
Jun-95 11268 10832 10727 10595
Sep-95 11958 11087 10908 10933
Dec-95 12573 11635 11304 11277
Mar-96 13264 11335 11214 11545
Jun-96 14072 11386 11359 11770
Sep-96 15151 11613 11712 12288
Dec-96 15887 12017 12067 12667
Mar-97 16217 11896 11855 12695
Jun-97 17308 12387 12213 13382
Sep-97 18124 12872 12523 14115
Dec-97 17673 13247 12592 14288
</TABLE>
TOUCHSTONE II BOND SUB-ACCOUNT
Over the course of the annual period ending December 31, 1997, 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 9.7% while the return of the
CDA/Wiesenberger Corporate Bond (Investment Grade) Variable Annuity Average
5
<PAGE> 8
rose 8.0%. Total return (net of fees and expenses) for the Touchstone II Bond
Sub-Account was 7.1%.
As the core fixed income manager of the Touchstone II Bond Portfolio, Fort
Washington Investment Advisors continued to emphasize overweightings in high
quality corporate bonds and underweightings in mortgage-backed securities. This
strategy should provide above market returns at current interest rate levels if
the mortgage sector continues to experience above average re-financing activity.
The last quarter of 1997, however, was one of tremendous dislocation and
transition for the U.S. Bond market. The currency and economic instability in
East Asia caused downgrades and large price deterioration in what were once high
quality, bellwether credits in the marketplace. Bonds of issuers in Korea, Hong
Kong, Malaysia and Thailand suffered serious price declines as investors
worldwide sold their bonds. This unprecedented plunge in highly rated securities
fueled a simultaneous flight to quality as investors repositioned their assets
in U.S. Treasury bonds.
<TABLE>
<CAPTION>
CDA/Wiesenberger
Measurement Touchstone Lehman Corporate
Period II Bond Brothers Bond
(Fiscal Year Sub- Aggregate Avg -
Covered) Account Index VA
<S> <C> <C> <C>
Feb-95 10000 10000 10000
Mar-95 10068 10061 10050
Jun-95 10702 10674 10651
Sep-95 10863 10884 10830
Dec-95 11309 11348 11216
Mar-96 11036 11147 11055
Jun-96 11048 11210 11087
Sep-96 11222 11417 11280
Dec-96 11506 11760 11606
Mar-97 11447 11695 11560
Jun-97 11794 12125 11935
Sep-97 12149 12530 12299
Dec-97 12322 12895 12530
</TABLE>
TOUCHSTONE II STANDBY INCOME SUB-ACCOUNT
Over the course of the annual period ending December 31, 1997, 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
Donoghue Money Market Average rose by 5.1%. Total return (net of fees and
expenses) for the Touchstone II Standby Income Sub-Account was 4.6%.
As the ultra-short fixed income manager of the Touchstone II 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. During the second half of 1997, Ft. Washington's portfolio
was overweighted in commercial paper and underweighted in asset-backed
securities and corporate bonds. This gave them liquidity as interest rates rose.
When Ft. Washington believed that interest rates had stabilized, they reacted by
buying longer maturity corporates and asset-backed securities. These types of
securities had become cheap, on a relative basis, as other investors began to
sell their positions in search of liquidity. Finally, as the Asian crisis
started to unfold and spreads began to widen in the corporate bond market,
asset-backed securities were in short supply and high demand. This sector
selection strategy protected principal and keep the fund liquid.
<TABLE>
<CAPTION>
Touchstone Merrill
II Lynch IBC CDA/Wiesenberger
Measurement Standby 91- Donoghue Money
Period Income Day Money Market
(Fiscal Year Sub- Treasury Market Avg -
Covered) Account Index Index VA
<S> <C> <C> <C> <C>
Feb-95 10000 10000 10000 10000
Mar-95 10059 10046 10051 10038
Jun-95 10135 10185 10202 10148
Sep-95 10223 10321 10347 10253
Dec-95 10365 10457 10499 10359
Mar-96 10469 10586 10628 10456
Jun-96 10582 10713 10765 10552
Sep-96 10701 10842 10914 10652
Dec-96 10820 10974 11056 10753
Mar-97 10925 11107 11197 10852
Jun-97 11049 11246 11350 10958
Sep-97 11191 11387 11502 11064
Dec-97 11315 11532 11646 11214
</TABLE>
6
<PAGE> 9
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
Statement of Net Assets
as of December 31, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
----------
<S> <C>
ASSETS:
Investments at current market value:
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio (16,789 shares, cost
$241,859) $ 258,550
International Equity Portfolio (12,427 shares, cost
$146,990) 149,242
Balanced Portfolio (12,033 shares, cost $163,434) 168,344
Income Opportunity Portfolio (93,037 shares, cost
$1,070,044) 1,026,196
Standby Income Portfolio (12,708 shares, cost
$127,125) 127,083
Select Advisors Portfolios
Growth & Income Portfolio II (0.574316% beneficial
interest, cost $245,237) 267,959
Bond Portfolio II (0.349594% beneficial interest,
cost $79,800) 86,322
----------
Total investments 2,083,696
----------
Total assets 2,083,696
----------
LIABILITIES:
Accounts payable to Western-Southern Life Assurance
Company 12
----------
Total net assets $2,083,684
==========
NET ASSETS:
Variable annuity contracts $2,082,623
Retained in the variable account by Western-Southern Life
Assurance Company 1,061
----------
Total net assets $2,083,684
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 10
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
Statement of Operations and Changes in Net Assets
For the year ended December 31, 1997
- - --------------------------------------------------------------------------------
<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 and capital gains $ 98,985 $ 13,867 $ 7,984 $ 12,525 $ 48,689 $ 15,920
Miscellaneous income (loss) 2,046 424 242 151 491 (21)
EXPENSES:
Mortality and expense risk, and
administrative charge 8,013 946 799 789 1,297 2,346
---------- -------- -------- -------- ---------- -----------
Net investment income (loss) 93,018 13,345 7,427 11,887 47,883 13,553
---------- -------- -------- -------- ---------- -----------
Net change in unrealized
appreciation (depreciation) on
investments (16,192) 15,477 (131) 1,715 (45,887) (43)
Realized gain (loss) on investments 15,346 7,624 4,509 2,405 1,824 (1,016)
---------- -------- -------- -------- ---------- -----------
Net realized and unrealized gain
(loss) on investments (846) 23,101 4,378 4,120 (44,063) (1,059)
---------- -------- -------- -------- ---------- -----------
Net increase in net assets resulting
from operations 92,172 36,446 11,805 16,007 3,820 12,494
---------- -------- -------- -------- ---------- -----------
Contract owners activity:
Payments received from contract 1,524,644 33,978 41,159 51,326 59,528 1,247,173
Net transfers between subaccounts
and/or fixed account -- 144,764 47,420 48,835 909,558 (1,310,153)
Withdrawals and surrenders (68,116) (9,166) (7,648) (2,812) (3,655) (36,193)
Contract maintenance charge (665) (126) (111) (118) (102) (37)
---------- -------- -------- -------- ---------- -----------
Net increase from contract activity 1,455,863 169,450 80,820 97,231 965,329 (99,210)
---------- -------- -------- -------- ---------- -----------
Net increase and decrease in net
assets 1,548,035 205,896 92,625 113,238 969,149 (86,716)
Net assets, at beginning of period 535,649 52,645 56,613 55,099 57,035 213,819
---------- -------- -------- -------- ---------- -----------
Net assets, at end of period $2,083,684 $258,541 $149,238 $168,337 $1,026,184 $ 127,103
========== ======== ======== ======== ========== ===========
<CAPTION>
GROWTH &
INCOME II BOND II
SUB-ACCOUNT SUB-ACCOUNT
----------- -----------
<S> <C> <C>
INCOME:
Dividends and capital gains $ -- $--
Miscellaneous income (loss) 719 40
EXPENSES:
Mortality and expense risk, and
administrative charge 1,413 423
-------- -------
Net investment income (loss) (694) (383)
-------- -------
Net change in unrealized
appreciation (depreciation) on
investments 8,426 4,251
Realized gain (loss) on investments -- --
-------- -------
Net realized and unrealized gain
(loss) on investments 8,426 4,251
-------- -------
Net increase in net assets resulting
from operations 7,732 3,868
-------- -------
Contract owners activity:
Payments received from contract 58,171 33,309
Net transfers between subaccounts
and/or fixed account 143,810 15,766
Withdrawals and surrenders (8,642) --
Contract maintenance charge (140) (31)
-------- -------
Net increase from contract activity 193,199 49,044
-------- -------
Net increase and decrease in net
assets 200,931 52,912
Net assets, at beginning of period 67,028 33,410
-------- -------
Net assets, at end of period $267,959 $86,322
======== =======
</TABLE>
Statement of Operations and Changes in Net Assets
For the year ended December 31, 1996
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends and capital gains $ 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
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 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 -- 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>
<S> <C> <C>
INCOME:
Dividends and capital gains $ -- $ --
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
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 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 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>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 11
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 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-accounts' values fluctuate on
a day to day basis depending on the investment performance of the Portfolio in
which each sub-account is invested. 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 deductions for administrative and risk charges are deducted from
the contract value, in order to compensate the Company for administrative
expenses and for the assumption of mortality and expense risks. These charges
are made daily at an annual effective rate of .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.
9
<PAGE> 12
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
Notes to Financial Statements
- - --------------------------------------------------------------------------------
6. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares and beneficial interests
of the portfolios purchased and proceeds from shares and beneficial interests of
the portfolios sold by the corresponding sub-accounts for the period January 1,
1997 to December 31, 1997.
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio $ 216,020 $ 33,218
International Equity Portfolio 117,300 29,051
Balanced Portfolio 125,037 15,914
Income Opportunity Portfolio 1,030,464 17,242
Standby Income Portfolio 2,347,595 2,433,278
Select Advisors Portfolios
Growth & Income Portfolio II 1,232,373 1,039,867
Bond Portfolio II 55,659 6,997
</TABLE>
7. UNIT VALUES
The following table shows a summary of units outstanding for variable
annuity contracts for the period January 1, 1997 to December 31, 1997.
<TABLE>
<CAPTION>
TRANSFERS
BEGINNING UNITS UNITS BETWEEN SUB- ENDING ENDING ENDING
UNIT PURCHASED REDEEMED ACCOUNTS UNITS UNIT VALUE VALUE
--------- --------- -------- ------------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth Sub-account 4,066 2,198 (575) 9,369 15,058 17.169847 258,541
International Equity
Sub-account 4,538 2,994 (546) 3,521 10,507 14.203413 149,238
Balanced Sub-account 3,958 3,325 (193) 3,186 10,276 16.382306 168,337
Income Opportunity Sub-account 3,590 3,496 (220) 51,198 58,064 17.673231 1,026,184
Standby Income Sub-account 19,762 111,534 (3,210) (116,853) 11,233 11.314893 127,103
Growth & Income Sub-account 4,690 3,720 (544) 7,900 15,766 16.995828 267,959
Bond Sub-account 2,904 2,824 (3) 1,280 7,005 12.322051 86,322
----------
$2,083,684
==========
</TABLE>
10
<PAGE> 13
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 2
Supplementary Information-Selected Per Unit Data and Ratios
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY GROWTH &
GROWTH EQUITY BALANCED OPPORTUNITY INCOME INCOME II BOND II
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(SELECTED DATA FOR A SHARE OF
ACCUMULATION UNIT OUTSTANDING
THROUGH OUT EACH YEAR)
FOR THE YEAR ENDED DECEMBER
31, 1997
Per share data
Investment income $ 0.929048 $ 0.771640 $ 1.317477 $ 2.241559 $ 0.594041 $ -- $ --
Expenses 0.118607 0.107978 0.120752 0.136658 0.088130 0.122934 0.094423
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment income-net 0.810441 0.663662 1.196725 2.104901 0.505911 (0.122934) (0.094423)
Net realized and unrealizable
gain (loss) on investments 3.411742 1.063784 1.263315 (0.318302) (0.010926) 2.827415 0.910882
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net asset value 4.222183 1.727446 2.460040 1.786599 0.494985 2.704481 0.816459
Beginning of year 12.947664 12.475967 13.922266 15.886632 10.819908 14.291347 11.505592
---------- ---------- ---------- ---------- ---------- ---------- ----------
End of year $17.169847 $14.203413 $16.382306 $17.673231 $11.314893 $16.995828 $12.322051
========== ========== ========== ========== ========== ========== ==========
Ratios
Ratio of operating expenses
to average net assets (%) 0.61% 0.78% 0.71% 0.24% 1.38% 0.84% 0.71%
Ratio of investment
income-net to average net
assets (%) 8.58% 7.22% 10.64% 8.84% 7.95% -0.41% -0.64%
(SELECTED DATA FOR A SHARE OF
ACCUMULATION UNIT OUTSTANDING
THROUGH OUT EACH YEAR)
FOR THE YEAR ENDED DECEMBER
31, 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
Per share data
Investment income $ 0.337947 $ 0.084052 $ 0.569146 $ 1.977620 $ 0.550219 $ -- $ --
Expenses 0.098968 0.095651 0.101787 0.113609 0.084812 0.108541 0.089697
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment income-net 0.238979 (0.011599) 0.467359 1.864011 0.465407 (0.108541) (0.089697)
Net realized and unrealizable
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 expenses
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)%
</TABLE>
The above information has been prepared using daily weighted-average units
outstanding.
11
<PAGE> 14
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,
1997, and the related statements of operations, changes in net assets and
selected per unit data and ratios for the years ended December 31, 1997 and
1996. 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, 1997 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, 1997, the results of operations, the changes in its net assets and
the selected per unit data and ratios for the years ended December 31, 1997 and
1996, in conformity with generally accepted accounting principles.
Cincinnati, Ohio
January 16, 1998
<PAGE> 15
[LOGO]
TOUCHSTONE
------------------------------------------------
Touchstone Variable Annuity
--------------------------------------------------------------
Select Advisors Variable
Insurance Trust
- Emerging Growth Portfolio
- International Equity Portfolio
- Balanced Portfolio
- Income Opportunity Portfolio
- Standby Income Portfolio
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE> 16
EMERGING GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ------ -----------
<C> <S> <C>
COMMON STOCKS (88.3%)
ADVERTISING (0.4%)
8,800 Mastering*...................... $ 80,300
-----------
AUTOMOTIVE (2.4%)
4,800 Bandag, Class A................. 229,800
8,900 Exide........................... 230,288
-----------
460,088
-----------
BANKING (4.2%)
1,000 Bank United, Class A............ 48,938
9,600 Dime Bancorp.................... 290,400
12,600 Golden State Bancorp*........... 470,925
-----------
810,263
-----------
BEVERAGES, FOOD & TOBACCO (3.3%)
9,000 DiMon........................... 236,250
13,000 Ralcorp Holdings*............... 220,188
4,000 Robert Mondavi, Class A*........ 195,000
-----------
651,438
-----------
BUILDING MATERIALS (2.8%)
10,000 Calmat.......................... 278,750
7,100 Martin Marietta Materials....... 259,587
-----------
538,337
-----------
CHEMICALS (2.7%)
14,400 Calgon Carbon................... 154,800
7,400 Standard Products............... 189,625
11,500 Vivid Technologies*............. 182,563
-----------
526,988
-----------
COMMERCIAL SERVICES (8.9%)
6,000 Administaff*.................... 155,250
5,000 Advance Paradigm*............... 158,750
11,500 A. C. Nielson*.................. 280,313
9,000 Boron Lepore & Associates*...... 247,500
13,500 Metromail*...................... 241,313
3,700 National Service Industries..... 183,381
5,000 Stewart Enterprises............. 233,125
6,200 Wallace Computer Services....... 241,025
-----------
1,740,657
-----------
COMMUNICATIONS (2.0%)
6,700 Cable Design Technologies*...... 260,463
8,000 Geotel Communications Group*.... 125,000
-----------
385,463
-----------
COMPUTERS & INFORMATION (6.5%)
8,000 EMC*............................ 219,500
12,200 Gerber Scientific............... 242,475
25,300 Intergraph*..................... 253,000
5,500 Saville Systems, ADR*........... 228,250
18,500 Scitex*......................... 223,156
2,500 Sterling Commerce*.............. 96,094
-----------
1,262,475
-----------
COMPUTER SOFTWARE & PROCESSING
(9.7%)
5,000 Cambridge Technology
Partners*..................... 208,125
3,000 CBT Group*...................... 246,375
7,500 Devry*.......................... 239,063
5,000 HNC Software*................... 215,000
5,000 Keane*.......................... 203,125
4,100 Policy Management System*....... 285,206
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ------ -----------
<C> <S> <C>
COMPUTER SOFTWARE &
PROCESSING--CONTINUED
20,000 PSW Technologies*............... $ 290,000
5,000 Wind River Systems*............. 198,438
-----------
1,885,332
-----------
ELECTRONICS (3.6%)
3,900 Commscope*...................... 52,406
12,600 Magnetek*....................... 245,700
2,310 Sanmina*........................ 156,503
8,000 Sipex Corporation*.............. 242,000
-----------
696,609
-----------
ENTERTAINMENT & LEISURE (0.4%)
2,000 Cinar Films, Class B*........... 77,750
-----------
FINANCIAL SERVICES (5.1%)
5,375 First Security.................. 225,078
10,300 Life USA Holdings*.............. 173,813
5,600 Meditrust....................... 205,100
2,600 Seacor Smit*.................... 156,650
13,500 T&W Financial*.................. 224,438
-----------
985,079
-----------
HEALTH CARE PROVIDERS (0.6%)
12,000 Dianon Systems*................. 112,500
-----------
HEAVY INDUSTRY (2.9%)
13,000 Comfort Systems USA*............ 256,750
8,059 Flowserve....................... 225,148
5,200 Global Industrial
Technologies*................. 88,075
-----------
569,973
-----------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES (2.2%)
4,200 Herman Miller................... 229,163
4,600 LA-Z-Boy Chair.................. 198,375
-----------
427,538
-----------
INDUSTRIAL (3.3%)
8,000 CN Bioscience*.................. 200,000
6,000 General Cable................... 217,125
5,600 Wesley Jessen Visioncare*....... 218,400
-----------
635,525
-----------
INSURANCE (1.2%)
2,800 HSB Group....................... 154,525
6,100 Willis Coroon Group, ADR........ 75,106
-----------
229,631
-----------
MEDIA--BROADCASTING & PUBLISHING
(4.4%)
5,000 American Radio Systems*......... 266,563
2,300 Central Newspapers, Class A..... 170,056
17,600 Hollinger International......... 246,400
5,600 Lee Enterprises................. 165,550
-----------
848,569
-----------
MEDICAL (0.9%)
10,000 Atria Communities*.............. 171,250
-----------
MEDICAL SUPPLIES (2.0%)
7,500 EG&G............................ 156,094
14,400 Elsag Bailey*................... 237,600
-----------
393,694
-----------
METALS (0.9%)
4,100 Harsco.......................... 176,813
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 17
EMERGING GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ------ -----------
<C> <S> <C>
OIL & GAS (4.0%)
6,500 Equitable Resources............. $ 229,938
24,000 Grey Wolf*...................... 129,000
7,200 Nabors Industries*.............. 226,350
5,000 Natural Gas Clearinghouse....... 87,500
7,000 Quaker State.................... 99,750
-----------
772,538
-----------
PHARMACEUTICALS (2.1%)
7,700 Chirex*......................... 135,713
14,000 Digene*......................... 120,750
20,000 Sequus Pharmaceuticals*......... 148,750
-----------
405,213
-----------
REAL ESTATE (1.4%)
6,000 CCA Prison Realty Trust......... 267,750
-----------
RETAILERS (2.4%)
34,000 Charming Shoppes................ 159,375
6,800 Stanhome........................ 174,675
6,300 Zale............................ 144,900
-----------
478,950
-----------
TELEPHONE SYSTEMS (0.6%)
5,000 Startec Global Communication*... 111,875
-----------
TEXTILES, CLOTHING & FABRICS
(1.9%)
7,000 Albany International............ 161,000
18,200 Stride Rite..................... 218,400
-----------
379,400
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ------ -----------
<C> <S> <C>
TRANSPORTATION (5.5%)
6,400 Alexander & Baldwin............. $ 174,800
15,200 Fritz Companies*................ 211,850
10,400 JB Hunt Transportation
Services...................... 195,000
8,500 Knightsbridge Tankers........... 240,656
9,700 Newport News Shipbuilding....... 246,744
-----------
1,069,050
-----------
TOTAL COMMON STOCKS (COST $14,331,373)...
17,151,048
-----------
TOTAL INVESTMENTS AT VALUE (88.3%)
(COST $14,331,373) (a)................... 17,151,048
CASH AND OTHER ASSETS
NET OF LIABILITIES (11.7%)............... 2,265,902
-----------
NET ASSETS (100.0%)...................... $19,416,950
===========
</TABLE>
- - ------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes
is $14,331,750, resulting in gross unrealized appreciation and
depreciation of $3,081,914 and $262,616, respectively, and net
unrealized appreciation of $2,819,298.
ADR - American Depositary Receipt
- - --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (91.7%)
AUSTRALIA (0.5%)
1 Broken Hill Proprietary..... $ 9
1,900 Erste Banks*................ 94,688
-----------
94,697
-----------
BRAZIL (1.7%)
2,700 Centrais Electricas
Brasileiras, ADR.......... 68,950
3,900 Cia Paranaense Energy,
ADR....................... 53,381
8,200 Cia Vale Do Rio Doce........ 164,952
400 Telecomunicacoes
Brasileiras, ADR.......... 46,575
-----------
333,858
-----------
CANADA (3.2%)
1,695 BCE......................... 56,751
4,693 Canadian Imperial Bank...... 146,128
600 Newbridge Network*.......... 21,096
300 Northern Telecom............ 26,743
4,650 Petro-Canada................ 85,409
2,771 Royal Bank of Canada........ 146,863
2,900 Suncor...................... 99,430
1,410 Talisman Energy*............ 41,931
-----------
624,351
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
CHILE (1.0%)
2,195 Chilgener................... $ 56,066
4,495 Compania De
Telecomunicaciones........ 134,288
-----------
190,354
-----------
DENMARK (0.8%)
393 Den Danske Bank............. 52,386
6,755 Sas Danmark................. 98,623
-----------
151,009
-----------
FINLAND (0.7%)
3,918 Pohjola Insurance, Class
B......................... 145,295
-----------
FRANCE (12.7%)
674 Accor....................... 125,356
2,529 Alcatel Alsthom............. 321,563
3,044 AXA......................... 235,617
2,811 Banque National De Paris.... 149,462
2,547 Cap Gemini.................. 208,916
3,445 Credit Commercial De
France.................... 236,194
5,203 France Telecom*............. 188,783
3,423 Lagardere Groupe............ 113,218
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 18
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
FRANCE--CONTINUED
4,632 Renault*.................... $ 130,341
7,019 Rhone Poulenc............... 314,522
1,562 Societe National
Elf-Aquitaine............. 181,734
1,541 Suez Lyonnaise Des Eaux-
Dumex..................... 170,582
1,286 Total S.A., Series B........ 140,003
-----------
2,516,291
-----------
GERMANY (4.2%)
3,128 Bayerische Vereinsbank...... 204,764
510 Mannesmann.................. 257,836
3,660 Rhein-Westfael
Elektricitaet............. 196,435
1,693 Schering.................... 163,368
-----------
822,403
-----------
GREAT BRITAIN (28.2%)
3,300 Airtours.................... 67,238
10,300 Allied Irish Banks.......... 98,282
15,071 Amvesco..................... 128,963
71,109 Avis Europe................. 203,306
20,731 Boots....................... 298,572
9,794 British Aerospace........... 279,214
39,132 British Gas................. 176,182
16,773 British Petroleum........... 222,000
14,400 Compass Group............... 177,224
17,700 CRH......................... 205,331
3,940 GKN......................... 80,731
11,394 Glaxo Wellcome.............. 271,747
18,928 Great Universal Stores...... 238,549
13,530 JJB Sports.................. 146,063
19,879 Lloyds TSB Group............ 258,720
7,264 Mercury Assets Management... 202,939
12,124 National Westminster........ 202,801
17,817 Next........................ 203,457
15,614 Railtrack Group............. 248,095
31,163 Royal & Sun Alliance
Insurance Group........... 313,890
26,004 Sainsbury(J)................ 217,488
32,453 Shell Transport & Trading... 227,698
3,871 Siebe....................... 76,010
24,324 Tesco....................... 197,842
24,192 Unilever.................... 208,176
5,700 Virgin Express Holdings,
ADR*...................... 118,275
40,194 Vodafone Group.............. 289,937
44,887 WPP Group................... 197,666
-----------
5,556,396
-----------
IRELAND (1.2%)
15,150 Bank Of Ireland............. 232,507
-----------
ISRAEL (0.7%)
3,470 ECI Telecommunications...... 88,485
220 Geotek Communications....... 337
1,050 Teva Pharmaceutical
Industries, ADR........... 49,678
-----------
138,500
-----------
ITALY (5.8%)
9,275 Assicurazione Generali...... 228,365
90,762 Credito Italiano............ 280,910
192,863 Montedison.................. 173,009
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
ITALY--CONTINUED
30,221 Stet RISP................... $ 132,866
47,082 Telecom Italia Mobile....... 217,355
18,840 Telecom Italia.............. 120,585
-----------
1,153,090
-----------
JAPAN (8.4%)
900 Acom........................ 49,627
1,700 Aoyama Trading.............. 28,773
4,000 Bank of Tokyo............... 55,141
4,000 Bridgestone................. 86,693
3,000 Canon....................... 69,845
7,000 Fujitsu..................... 75,053
2,000 Fuji........................ 76,584
2,000 Honda Motor................. 73,368
4 Japan Tobacco............... 28,367
4,000 Kao......................... 57,591
1,100 Konami Company.............. 27,042
6,000 Minebea..................... 64,331
4,000 Mitsubishi Estate........... 43,500
5,000 Mitsubishi Trust............ 50,163
500 Nintendo.................... 49,397
4,000 Nippon Comsys............... 49,320
16 Nippon Telegraph and
Telephone................. 68,620
190 Nippon Television Network... 55,730
2,000 Nomura Securities........... 26,651
810 Promise Company............. 44,912
1,000 Rohm Company................ 101,857
1,000 Sankyo...................... 22,592
6,000 Sekisui House............... 38,553
900 Sony........................ 79,954
1,000 TDK......................... 75,359
3,000 Terumo...................... 44,113
2,800 Tokyo Elec Power............ 51,036
4,000 Toyota Motor................ 114,570
2,000 Yamanouchi Pharmaceutical... 42,887
-----------
1,651,629
-----------
MEXICO (3.2%)
17,108 Cemex, Class B*............. 90,940
28,895 Fomento Economico
Mexicano.................. 232,363
39,085 Kimberly-Clark Mexico,
Series A.................. 185,001
2,200 Telefonos De Mexico......... 123,338
-----------
631,642
-----------
NETHERLANDS (4.1%)
1,038 Ahrend...................... 32,628
2,226 Benckiser*.................. 92,160
5,717 Ing Groep................... 240,924
3,893 Koninklijke PTT Nederland
NV........................ 162,521
1,792 Philips Electronics......... 107,529
6,070 Verenigde Nederlandse....... 171,332
-----------
807,094
-----------
NORWAY (0.1%)
1,961 Sas Norge, Class B.......... 27,358
-----------
PORTUGAL (0.5%)
1,300 Portugal Telecom, ADR....... 61,100
800 Portugal Telecom............ 37,120
-----------
98,220
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 19
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
RUSSIA (0.8%)
550 AO Tatneft.................. $ 78,161
7,000 JSC Surgutneftegaz.......... 71,548
-----------
149,709
-----------
SOUTH AFRICA (0.0%)
1 South African Breweries,
ADR....................... 25
-----------
SPAIN (1.4%)
3,103 Banco Popular Espanola...... 216,915
1,370 Sol Melia................... 54,854
-----------
271,769
-----------
SWEDEN (3.3%)
1,658 Electrolux.................. 115,104
26,883 Nordbanken Holding*......... 152,082
2,941 Skandia Forsakrings......... 138,772
10,403 Sparbanken Sverige.......... 236,587
-----------
642,545
-----------
SWITZERLAND (8.4%)
30 Julius Baer Holdings........ 55,595
61 Kuoni Reisen Holdings....... 228,382
124 Liechtenstein Global
Trust..................... 76,739
239 Novartis.................... 388,813
276 Rentenenstalt............... 216,482
30 Roche Holding............... 148,784
109 Sairgroup*.................. 149,075
544 Schweizerische
Bankverein*............... 168,890
78 Swiss Reinsurance........... 145,722
60 Union Bank of Switzerland... 86,655
-----------
1,665,137
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
UNITED STATES (0.4%)
2,300 Lukoil Holdings............. $ 71,390
-----------
VENEZUELA (0.4%)
2,200 Cia Anonima Telef De
Venezuela................. 91,575
-----------
TOTAL COMMON STOCKS (COST $16,740,223)...
18,066,844
-----------
PREFERRED STOCKS (2.8%)
GERMANY (2.8%)
4,155 Henkel...................... 262,287
872 Sap AG Vorzug............... 285,413
-----------
TOTAL PREFERRED STOCKS (COST $458,852)...
547,700
-----------
TOTAL INVESTMENTS AT VALUE (94.5%) (COST
$17,199,075) (a)......................... 18,614,544
CASH AND OTHER ASSETS NET OF LIABILITIES
(5.5%)................................... 1,088,187
-----------
NET ASSETS (100.0%)...................... $19,702,731
===========
</TABLE>
- - ------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes
is $17,343,781, resulting in gross unrealized appreciation and
depreciation of $1,737,547 and $466,784, respectively, and net
unrealized appreciation of $1,270,763.
ADR - American Depositary Receipt
RISP - Risparmio (Italian "Savings Shares")
- - --------------------------------------------------------------------------------
BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (57.4%)
ADVERTISING (1.6%)
8,000 WPP Group................... $ 361,000
-----------
AEROSPACE & DEFENSE (3.1%)
6,100 Boeing...................... 298,519
3,900 Lockheed Martin............. 384,150
-----------
682,669
-----------
AIRLINES (1.6%)
2,800 AMR*........................ 359,800
-----------
BANKING (3.0%)
2,900 Citicorp.................... 366,669
900 Wells Fargo................. 305,494
-----------
672,163
-----------
BEVERAGES, FOOD & TOBACCO
(2.6%)
6,500 Diageo...................... 246,188
6,800 McDonald's.................. 324,700
-----------
570,888
-----------
CHEMICALS (2.4%)
13,000 Monsanto.................... 546,000
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
COMPUTERS & INFORMATION
(1.2%)
9,400 EMC*........................ $ 257,913
-----------
ELECTRONICS (9.0%)
8,900 Adaptec*.................... 330,413
3,800 Avnet....................... 250,800
20,133 Commscope*.................. 270,537
20,600 Nextlevel Systems*.......... 368,225
6,600 Solectron*.................. 274,313
12,900 Ucar International*......... 515,194
-----------
2,009,482
-----------
ENTERTAINMENT & LEISURE
(3.2%)
9,400 Polaroid.................... 457,663
4,000 Time Warner................. 248,000
-----------
705,663
-----------
FINANCIAL SERVICES (10.7%)
14,400 Countrywide Credit.......... 617,400
3,600 Federal National Mortgage
Association............... 205,425
8,000 Renaissancere Holdings...... 353,000
18,900 Sabre Group Holding*........ 545,738
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 20
BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
FINANCIAL
SERVICES--CONTINUED
9,200 Security Capital Group,
Class B*.................. $ 299,000
15,300 Security Capital Industrial
Trust..................... 380,588
-----------
2,401,151
-----------
HEALTH CARE PROVIDERS (1.8%)
11,800 Tenet Healthcare*........... 390,875
-----------
HEAVY INDUSTRY (3.4%)
4,900 Caterpillar................. 237,956
15,100 Lucasvarity................. 526,613
-----------
764,569
-----------
INDUSTRIAL (1.6%)
4,700 Armstrong World
Industries................ 351,325
-----------
LODGING (1.1%)
16,800 Homestead Village
Property*................. 253,050
-----------
METALS (1.1%)
9,300 Allegheny Teledyne.......... 240,630
-----------
OIL & GAS (2.3%)
8,500 Anadarko Petroleum.......... 515,844
-----------
REAL ESTATE (1.5%)
9,900 Oakwood Homes............... 328,556
-----------
TELEPHONE SYSTEMS (2.3%)
8,700 Sprint...................... 510,038
-----------
TEXTILES, CLOTHING & FABRICS
(2.9%)
34,200 Shaw Industries............. 397,575
6,000 Unifi....................... 244,125
-----------
641,700
-----------
TRANSPORTATION (1.0%)
8,300 Canadian Pacific............ 226,175
-----------
TOTAL COMMON STOCKS (COST $11,736,957)...
12,789,491
-----------
PRINCIPAL
AMOUNT
- - ----------
CORPORATE BONDS (12.4%)
BANKING (3.3%)
$ 100,000 Bankers Trust-NY, 7.125%,
03/15/06.................. 102,880
250,000 BB&T, 7.25%, 06/15/07....... 263,025
250,000 Chase Manhattan, 7.25%,
06/01/07.................. 262,096
806,615 Nykredit, 6.00%, 10/01/26... 114,797
-----------
742,798
-----------
BEVERAGES, FOOD & TOBACCO
(0.7%)
160,000 Coca-Cola Femsa, 8.95%,
11/01/06.................. 166,888
-----------
CHEMICALS (0.5%)
100,000 Belo, 6.875%, 06/01/02...... 101,704
-----------
ELECTRIC UTILITIES (1.0%)
215,000 Financiera Energy, 9.375%,
06/15/06.................. 216,679
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FINANCIAL SERVICES (3.4%)
$ 20,000 Access Financial, 7.10%,
05/15/21.................. $ 20,425
250,000 Bonos Del Tesoro, 8.75%,
05/09/02.................. 236,405
40,000 G.E. Capital Management
Service, 6.50%,
11/25/23.................. 36,903
44,500 G.E. Capital Management
Service, 6.50%,
03/25/24.................. 43,065
300,000 New Brunswick, 7.125%,
10/01/02.................. 312,396
120,000 Paine Webber Group, 7.00%,
03/01/00.................. 121,613
-----------
770,807
-----------
METALS (1.4%)
300,000 AK Steel, 9.125%,
12/15/06.................. 307,500
-----------
OIL & GAS (0.7%)
150,000 Petroleos Mexicanos, 8.85%,
09/15/07.................. 148,500
-----------
RETAILERS (1.4%)
300,000 Rite Aid, 7.125%,
01/15/07.................. 311,722
-----------
TOTAL CORPORATE BONDS (COST
$2,749,445).............................. 2,766,598
-----------
MORTGAGE BACKED SECURITIES (0.7%)
35,000 Federal National Mortgage
Association, 6.15%,
10/25/07.................. 34,984
9,359 Federal National Mortgage
Association, 5.00%,
10/25/03.................. 9,317
40,000 Merrill Lynch Mortgage
Investment, 7.09%,
12/26/25.................. 40,800
2,566 Merrill Lynch Mortgage
Investment, 9.70%,
07/15/10.................. 2,613
23,825 Merrill Lynch Mortgage
Investment, 7.65%,
01/15/12.................. 24,370
50,000 Prudential Home Mortgage
Securities, 6.25%,
04/25/24.................. 45,950
-----------
TOTAL MORTGAGE BACKED SECURITIES (COST
$154,006)................................ 158,034
-----------
MUNICIPAL BONDS (1.4%)
40,000 Baltimore Community
Development Financing,
8.20%, 08/15/07........... 44,000
15,000 Colorado Housing Finance
Authority, 8.00%,
08/01/02 ................. 15,009
20,000 Michigan State Job
Development Authority,
7.10%, 05/01/98........... 20,076
65,000 New York City, New York,
General Obligation, 0.00%,
11/15/14.................. 53,056
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 21
BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
MUNICIPAL BONDS--CONTINUED
$ 10,000 New York City, New York,
General Obligation, 9.75%,
08/15/12.................. $ 10,825
40,000 New York State Housing
Finance Agency Service,
7.50%, 09/15/03........... 41,050
50,000 Ohio Housing Financial
Agency, 7.90%, 10/01/14... 53,188
30,000 Oklahoma City Airport,
9.40%, 11/01/10........... 33,713
40,000 Oregon State General
Obligation, 6.90%,
01/01/00.................. 40,267
-----------
TOTAL MUNICIPAL BONDS (COST $293,618)....
311,184
-----------
SOVEREIGN GOVERNMENT OBLIGATIONS (2.1%)
AUSTRALIA (1.2%)
390,000 Treasury Corp of Victoria,
7.50%, 08/15/08........... 272,358
-----------
UNITED KINGDOM (0.9%)
105,000 UK Treasury, 8.00%,
12/07/15.................. 204,459
-----------
TOTAL SOVEREIGN GOVERNMENT OBLIGATIONS
(COST $494,167).......................... 476,817
-----------
U.S. TREASURY OBLIGATIONS (20.2%)
575,000 US Treasury Bond, 6.75%,
08/15/26.................. 633,213
175,000 US Treasury Bond, 7.25%,
08/15/22.................. 202,125
840,000 US Treasury Note, 7.25%,
08/15/04.................. 907,939
700,000 US Treasury Note, 5.75%,
08/15/03.................. 700,161
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--CONTINUED
605,000 US Treasury Note, 6.25%,
04/30/01.................. $ 614,347
300,000 US Treasury Note, 7.00%,
07/15/06.................. 323,906
765,000 US Treasury Note, 6.125%,
08/31/98.................. 767,547
345,000 US Treasury Note, 5.75%,
10/31/00.................. 345,321
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$4,385,300).............................. 4,494,559
-----------
<CAPTION>
UNITS
- - ----------
<C> <S> <C>
WARRANTS (0.0%)
FINANCIAL SERVICES (0.0%)
1,056 Security Capital Group,
0.00%..................... 5,544
-----------
TOTAL INVESTMENTS AT VALUE (94.2%) (COST
$19,813,493)(a).......................... 21,002,227
CASH AND OTHER ASSETS NET OF LIABILITIES
(5.8%)................................... 1,284,840
-----------
NET ASSETS (100.0%)...................... $22,287,067
===========
</TABLE>
- - ------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes
is $19,813,493, resulting in gross unrealized appreciation and
depreciation of $1,434,330 and $245,596, respectively, and net
unrealized appreciation of $1,188,734.
- - --------------------------------------------------------------------------------
INCOME OPPORTUNITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
CORPORATE BONDS (41.0%)
BEVERAGES, FOOD & TOBACCO
(1.5%)
$ 400,000 Specialty Foods, 11.125%,
10/01/02.................. $ 405,000
-----------
CASINOS (1.1%)
300,000 Trump Atlantic City, 11.25%,
05/01/06.................. 292,500
-----------
CHEMICALS (4.9%)
300,000 Climachem, 10.75%,
12/01/07.................. 309,000
500,000 Panoceanic Bulk, 12.00%,
12/15/07.................. 492,500
500,000 Perry-Judd, 10.625%,
12/15/07.................. 520,000
-----------
1,321,500
-----------
COMMERCIAL SERVICES (1.2%)
300,000 RCN, 10.00%, 10/15/07....... 311,250
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
COMPUTER SOFTWARE &
PROCESSING (1.1%)
$ 300,000 Details, 10.00%, 11/15/05... $ 306,750
-----------
ELECTRONICS (1.2%)
300,000 High Voltage Engineering,
10.50%, 08/15/04.......... 311,250
-----------
ENTERTAINMENT & LEISURE
(3.1%)
880,000 Pen-Tab Industries, 10.875%,
02/01/07.................. 844,800
-----------
FOOD RETAILERS (3.4%)
500,000 Pantry, 10.25%, 10/15/07.... 510,000
400,000 Richmont Marketing Special,
10.125%, 12/15/07......... 405,000
-----------
915,000
-----------
FOREST PRODUCTS & PAPER
(0.9%)
250,000 Riverwood International,
10.625%, 08/01/07......... 253,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 22
INCOME OPPORTUNITY PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
HEAVY INDUSTRY (2.0%)
$ 300,000 Advanced Accesory Systems,
9.75%, 10/01/07........... $ 294,750
250,000 United Auto Group, 11.00%,
07/15/07.................. 246,250
-----------
541,000
-----------
HOME CONSTRUCTION,
FURNISHINGS & APPLIANCES
(1.5%)
400,000 Sealy Mattress, 9.875%,
12/15/07.................. 410,000
-----------
INDUSTRIAL (6.9%)
300,000 Iowa Select Farms, 10.75%,
12/01/05.................. 307,875
300,000 Tuesday Morning, 11.00%,
12/15/07.................. 301,500
500,000 Viasystems, 9.75%,
06/01/07.................. 516,875
400,000 Walbro, 10.125%, 12/15/07... 410,000
300,000 Werner Holdings, 10.00%,
11/15/07.................. 307,500
-----------
1,843,750
-----------
MEDIA--BROADCASTING &
PUBLISHING (1.7%)
400,000 Frontiervision, 11.00%,
10/15/06.................. 444,000
-----------
OIL & GAS (3.1%)
500,000 Elgin National Industries,
11.00%, 11/01/07.......... 518,750
300,000 Panaco, 10.625%, 10/01/04... 303,000
-----------
821,750
-----------
RETAILERS (1.9%)
500,000 Big 5, 10.875%, 11/15/07.... 497,500
-----------
TELEPHONE SYSTEMS (5.5%)
350,000 Hyperion Telecom, 12.25%,
09/01/04.................. 386,750
300,000 Iridium LLC/Capital, 14.00%,
07/15/05.................. 325,500
400,000 Orion Network, 11.25%,
01/15/07.................. 454,000
300,000 Primus Telecommunications,
11.75%, 08/01/04.......... 322,500
-----------
1,488,750
-----------
TOTAL CORPORATE BONDS
(COST $10,737,381)....................... 11,008,550
-----------
EUROBONDS (19.3%)
BRAZIL (2.0%)
600,000 Paging Network De Brazil,
13.50%, 06/06/05.......... 546,000
-----------
DOMINICAN REPUBLIC (1.1%)
300,000 Tricom, 11.375%, 09/01/04... 291,750
-----------
ECUADOR (3.0%)
400,000 Conecel Holdings, 14.00%,
10/01/00.................. 400,000
400,000 Conecel, 14.00%, 05/01/02... 404,000
-----------
804,000
-----------
GREAT BRITAIN (1.1%)
300,000 Dialog, 11.00%, 11/15/07.... 311,250
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
HONG KONG (1.9%)
$ 600,000 GS Superhighway Holdings,
10.25%, 08/15/07.......... $ 522,000
-----------
INDIA (1.0%)
500,000 Nippon Denro Ispat, 3.00%,
04/01/01.................. 270,000
-----------
NETHERLANDS (6.9%)
500,000 DGS International Finance,
10.00%, 06/01/07.......... 425,000
750,000 Indah Kiat Fin Mauritius,
10.00%, 07/01/07.......... 630,000
500,000 Netia Holdings, 10.25%,
11/01/07.................. 477,500
500,000 PTC International Finance
(Zero Coupon until
07/01/02, 10.75%
thereafter)(c), 0.00%,
07/01/07.................. 325,000
-----------
1,857,500
-----------
PANAMA (1.6%)
500,000 CSN Iron, 9.125%, 06/01/07.. 423,390
-----------
THAILAND (0.7%)
1,750,000 NTS Steel Group Public,
4.00%, 12/16/08........... 175,000
-----------
TOTAL EUROBONDS
(COST $5,991,536)........................ 5,200,890
-----------
SOVEREIGN GOVERNMENT OBLIGATIONS (14.0%)
ARGENTINA (2.2%)
672,000 Argentina, 6.688%,
03/31/05.................. 601,440
-----------
NIGERIA (0.7%)
250,000 Central Bank of Nigeria,
6.25%, 11/15/20........... 173,450
-----------
RUSSIA (5.2%)
2,250,000 Russia-Principal Loan(b),
6.719%, 12/15/20.......... 1,392,300
-----------
TURKEY (1.9%)
500,000 Republic of Turkey, 10.00%,
09/19/07.................. 503,100
-----------
VENEZUELA (4.0%)
714,286 Republic of Venezuela, DCB,
6.81%, 12/18/07........... 640,143
500,500 Republic of Venezuela,
9.25%, 09/15/27........... 449,449
-----------
1,089,592
-----------
TOTAL SOVEREIGN GOVERNMENT OBLIGATIONS
(COST $3,550,655)........................ 3,759,882
-----------
YANKEE BONDS (10.0%)
BRAZIL (2.9%)
500,000 Tevecap, 12.625%,
11/26/04.................. 458,750
350,000 TV Filme, 12.878%,
12/15/04.................. 327,208
-----------
785,958
-----------
INDONESIA (1.4%)
500,000 FSW International, 12.50%,
11/01/06.................. 380,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 23
INCOME OPPORTUNITY PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
MEXICO (5.7%)
$ 700,000 Grupo Televisa (Zero Coupon
until 05/15/01, 13.25%
thereafter)(c), 0.00%,
05/15/08.................. $ 524,159
500,000 Innova S. de R.L, 12.875%,
04/01/07.................. 505,000
500,000 Transport Maritma, 10.00%,
11/15/06.................. 500,625
-----------
1,529,784
-----------
TOTAL YANKEE BONDS
(COST $2,845,862)........................ 2,695,742
-----------
BRADY BONDS (9.6%)
BULGARIA (3.2%)
550,000 Government of Bulgaria,
IAB(d), 6.69%, 07/28/11... 402,875
600,000 Government of Bulgaria(d),
6.69%, 07/28/24........... 462,000
-----------
864,875
-----------
ECUADOR (3.6%)
1,250,000 Republic of Ecuador(d),
3.50%, 02/28/25........... 682,750
387,000 Republic of Ecuador(d),
6.69%, 02/28/25........... 291,721
-----------
974,471
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
PERU (2.8%)
$1,250,000 Government of Peru, FLIRB,
3.25%, 03/07/17(d)........ $ 742,250
-----------
TOTAL BRADY BONDS
(COST $2,353,687)........................ 2,581,596
-----------
<CAPTION>
UNITS
- - ----------
<C> <S> <C>
WARRANTS (0.0%)
TELEPHONE SYSTEMS (0.0%)
300 Primus Telecommunications,
0.00%, 08/01/04........... 3,000
-----------
TOTAL INVESTMENTS AT VALUE (93.9%)
(COST $25,479,121)(a).................... 25,249,660
CASH AND OTHER ASSETS
NET OF LIABILITIES (6.1%)................ 1,629,751
-----------
NET ASSETS (100.0%)...................... $26,879,411
===========
</TABLE>
- - ------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) The aggregate identified cost for federal income tax purposes
is $25,479,121, resulting in gross unrealized appreciation and
depreciation of $883,918 and $1,113,379, respectively, and net
unrealized depreciation of $(229,461).
(b) A percentage of income is received in shares of certain
securities.
(c) Zero or step coupon.
(d) Interest rate shown reflects current rate on instrument with
variable or floating rates.
FLIRB - Front-Load Interest Reduction Bond
- - --------------------------------------------------------------------------------
STANDBY INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - --------- -----------
<C> <S> <C>
ASSET BACKED SECURITIES (16.6%)
$700,000 CS First Boston, 6.32%,
02/25/18.................... $ 698,236
479,055 Daimler-Benz, 5.85%,
07/20/03.................... 478,499
574,562 First Security Auto Grantor
Trust, 6.25%, 01/15/01...... 575,338
57,654 Honda Auto Receivables Grantor
Trust, 6.20%, 12/15/00...... 57,724
600,000 Olympic Auto Trust, 5.85%,
07/15/01.................... 598,446
497,672 Olympic Auto Trust, 6.95%,
06/15/01.................... 500,300
-----------
TOTAL ASSET BACKED SECURITIES (COST
$2,909,063)............................... 2,908,543
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - --------- -----------
<C> <S> <C>
CORPORATE BONDS (9.2%)
BANKING (4.0%)
$700,000 Credit Lyonnais (a), 6.75%,
09/19/49.................... $ 698,250
-----------
ELECTRIC UTILITIES (1.4%)
250,000 Boston Edison, 5.95%,
03/15/98.................... 249,845
-----------
TELEPHONE SYSTEMS (3.8%)
665,000 AT&T Capital, 5.87%,
08/28/98.................... 663,832
-----------
TOTAL CORPORATE BONDS (COST $1,611,610)...
1,611,927
-----------
COMMERCIAL PAPER (73.3%)
900,000 Autoliv, 5.94%, 01/16/98...... 890,348
840,000 Case Credit, 6.25%,
01/29/98.................... 833,729
625,000 Cinergy, 6.12%, 01/28/98...... 618,944
735,000 Comdisco, 5.83%, 02/03/98..... 724,525
800,000 Commonwealth Edison, 6.22%,
01/13/98.................... 795,992
830,000 Conagra, 6.40%, 01/07/98...... 827,639
850,000 Hanson Financial, 6.15%,
01/13/98.................... 845,063
250,000 ICI Chemical Delaware, 7.20%,
01/09/98.................... 249,150
800,000 IES Diversified, 6.18%,
01/30/98.................... 793,683
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 24
STANDBY INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - --------- -----------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
$525,000 JB Hunt Transport, 5.80%,
01/14/98.................... $ 518,995
785,000 Merrill Lynch, 6.03%,
01/09/98.................... 782,633
800,000 Minnesota Power & Light,
6.15%, 01/16/98............. 795,627
770,000 Occidental Petroleum, 6.40%,
01/15/98.................... 767,947
145,000 Pennsylvania Fuel, 7.00%,
01/13/98.................... 144,577
515,000 Pennsylvania Fuel, 6.12%,
01/22/98.................... 510,623
260,000 Pennsylvania Power & Light,
6.80%, 01/12/98............. 259,362
760,000 Ryder Systems, 5.80%,
03/06/98.................... 751,919
600,000 Safeway Stores, 6.13%,
01/07/98.................... 597,346
800,000 Textron Financial, 6.10%,
01/14/98.................... 795,524
380,000 US West Capital Funding,
6.15%, 01/16/98............. 377,663
-----------
TOTAL COMMERCIAL PAPER (COST
$12,881,288).............................. 12,881,289
-----------
TOTAL INVESTMENTS AT VALUE (99.1%) (COST
$17,401,961)(b)........................... 17,401,759
CASH AND OTHER ASSETS NET OF LIABILITIES
(0.9%).................................... 160,442
-----------
NET ASSETS (100.0%)....................... $17,562,201
===========
</TABLE>
- - ------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) Interest rate shown reflects current rate on instrument with
variable rate.
(b) The aggregate identified cost for federal income tax purposes
is $17,401,961, resulting in gross unrealized appreciation and
depreciation of $959 and $1,161, respectively, and net
unrealized depreciation of $(202).
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 25
SELECT ADVISORS VARIABLE INSURANCE TRUST
Statements of Assets and Liabilities
December 31, 1997
- - --------------------------------------------------------------------------------
<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) $17,151,048 $18,614,544 $21,002,227 $25,249,660 $17,401,759
Cash 2,116,582 2,230,160 1,108,532 2,234,737 1,846
Receivables for:
Investments sold 254,361 47,363 -- -- --
Fund shares sold 61,849 15,976 72,408 58,482 38,086
Dividends and interest 23,708 22,733 163,453 646,583 77,583
Foreign tax reclaim 110 13,968 373 -- --
Net unrealized gain on open forward
currency contracts (Note 1) -- 380 14,870 -- --
Deferred organization expenses (Note 1) 7,373 7,373 7,373 7,373 7,427
Reimbursement receivable from Sponsor (Note
3) 4,017 102,996 21,650 2,507 72,856
----------- ----------- ----------- ----------- -----------
Total assets 19,619,048 21,055,493 22,390,886 28,199,342 17,599,557
----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for investments purchased 157,619 1,287,072 65,025 1,277,510 --
Payable for fund shares redeemed -- -- -- -- 1,429
Other accrued expenses 44,479 65,690 38,794 42,421 35,927
----------- ----------- ----------- ----------- -----------
Total liabilities 202,098 1,352,762 103,819 1,319,931 37,356
----------- ----------- ----------- ----------- -----------
NET ASSETS: $19,416,950 $19,702,731 $22,287,067 $26,879,411 $17,562,201
=========== =========== =========== =========== ===========
Shares outstanding 1,260,959 1,640,973 1,592,899 2,439,073 1,755,724
=========== =========== =========== =========== ===========
Net asset value $ 15.40 $ 12.01 $ 13.99 $ 11.02 $ 10.00
=========== =========== =========== =========== ===========
(a) Cost of investments $14,331,373 $17,199,075 $19,813,493 $25,479,121 $17,401,961
=========== =========== =========== =========== ===========
</TABLE>
Statements of Operations
For the year ended December 31, 1997
- - --------------------------------------------------------------------------------
<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 $ 69,919 $ 81,871 $ 381,574 $1,973,709 $813,493
Dividends 105,090 197,309(a) 88,185 -- --
---------- ---------- ---------- ---------- --------
Total investment income 175,009 279,180 469,759 1,973,709 813,493
---------- ---------- ---------- ---------- --------
EXPENSES:
Investment advisory fees (Note 2) 98,956 135,300 103,999 108,452 34,222
Administration and fund accounting fees 64,999 80,001 64,999 64,999 64,999
Custody fees 32,476 158,281 31,889 25,360 30,809
Sponsor fee (Note 2) 24,658 28,492 26,691 33,342 27,365
Audit fees 17,020 18,618 11,939 17,633 10,920
Printing expense 13,232 16,785 12,737 15,533 17,763
Amortization of organization expenses (Note 1) 3,906 3,906 3,906 3,906 3,931
Trustee fees (Note 2) 2,101 1,895 1,857 2,159 1,947
Miscellaneous expense 12,065 10,586 14,432 14,622 10,900
---------- ---------- ---------- ---------- --------
Total expenses 269,413 453,864 272,449 286,006 202,856
Waiver of Sponsor fee (Note 2) (24,658) (28,492) (26,691) (33,342) (27,365)
Reimbursement from Sponsor (Note 3) (102,973) (247,296) (125,649) (110,959) (107,078)
---------- ---------- ---------- ---------- --------
Net expenses 141,782 178,076 120,109 141,705 68,413
---------- ---------- ---------- ---------- --------
NET INVESTMENT INCOME 33,227 101,104 349,650 1,832,004 745,080
---------- ---------- ---------- ---------- --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments 1,327,486 1,133,852(b) 1,435,996(b) 191,074 (8,448)
Net change in unrealized appreciation
(depreciation) on investments 2,197,739 577,604(c) 475,638(c) (528,803) (382)
---------- ---------- ---------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) 3,525,225 1,711,456 1,911,634 (337,729) (8,830)
---------- ---------- ---------- ---------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,558,452 $1,812,560 $2,261,284 $1,494,275 $736,250
========== ========== ========== ========== ========
</TABLE>
- - ---------------
(a) Net of foreign tax withholding of $22,995.
(b) Includes foreign currency transactions gains (losses) of ($93,168) for the
International Equity Portfolio and $26,135 for the Balanced Portfolio.
(c) Includes change in unrealized gain on foreign currency transactions and
other assets of $1,811 for International Equity Portfolio and $13,469 for
Balanced Portfolio.
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 26
SELECT ADVISORS VARIABLE INSURANCE TRUST
Statements of Changes in Net Assets
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO
------------------------- -------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1997 1996
- - ---------------------------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 33,227 $ 18,649 $ 101,104 $ 56,677
Net realized gain (loss) on investments 1,327,486 46,078 1,133,852 142,359
Net change in unrealized appreciation
(depreciation) on investments 2,197,739 352,244 577,604 523,196
----------- ---------- ----------- ----------
Net increase in net assets resulting from
operations 3,558,452 416,971 1,812,560 722,232
----------- ---------- ----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (30,394) (18,684) (70,264) (54,999)
Net realized capital gains (1,012,609) (130,830) (995,634) --
Distribution in excess of net investment income -- -- -- (2,423)
Distribution in excess of capital gains -- -- -- --
----------- ---------- ----------- ----------
Total dividends and distributions (1,043,003) (149,514) (1,065,898) (57,422)
----------- ---------- ----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 12,538,066 3,109,043 10,372,680 3,190,175
Reinvestment of dividends 1,043,003 149,514 1,065,898 57,422
Cost of shares redeemed (2,450,901) (369,358) (1,240,789) (368,758)
----------- ---------- ----------- ----------
Net increase from investors' transactions 11,130,168 2,889,199 10,197,789 2,878,839
----------- ---------- ----------- ----------
Total changes in net assets 13,645,617 3,156,656 10,944,451 3,543,649
----------- ---------- ----------- ----------
NET ASSETS:
Beginning of period 5,771,333 2,614,677 8,758,280 5,214,631
----------- ---------- ----------- ----------
End of period $19,416,950 $5,771,333 $19,702,731 $8,758,280
=========== ========== =========== ==========
NET ASSETS CONSIST OF:
Paid-in capital $16,385,765 $5,255,597 $18,285,104 $8,087,315
Undistributed (distribution in excess of) net
investment income 3,217 384 (56,246) (363)
Accumulated net realized gain (loss) on investments 208,293 (106,584) 58,471 (166,470)
Net unrealized appreciation (depreciation) of
investments 2,819,675 621,936 1,415,402 837,798
----------- ---------- ----------- ----------
Net assets applicable to shares outstanding $19,416,950 $5,771,333 $19,702,731 $8,758,280
=========== ========== =========== ==========
SHARES OUTSTANDING (NOTE 1):
Shares sold 892,720 259,365 858,524 298,741
Reinvestment of dividends 69,673 12,297 89,196 5,288
----------- ---------- ----------- ----------
962,393 271,662 947,720 304,029
Shares redeemed (174,447) (30,567) (98,268) (33,902)
----------- ---------- ----------- ----------
Net increase 787,946 241,095 849,452 270,127
Beginning of period 473,013 231,918 791,521 521,394
----------- ---------- ----------- ----------
End of period 1,260,959 473,013 1,640,973 791,521
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 27
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED INCOME OPPORTUNITY STANDBY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------------------- ---------------------------
1997 1996 1997 1996 1997 1996
----------- ---------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 349,650 $ 116,070 $ 1,832,004 $ 510,964 $ 745,080 $ 353,653
1,435,996 138,439 191,074 339,888 (8,448) 3,871
475,638 470,231 (528,803) 196,298 (382) (14,556)
----------- ---------- ----------- ---------- ------------ -----------
2,261,284 724,740 1,494,275 1,047,150 736,250 342,968
----------- ---------- ----------- ---------- ------------ -----------
(350,429) (115,048) (1,814,515) (466,250) (745,079) (353,721)
(1,314,627) (113,645) (227,491) (266,446) -- --
(5,844) -- -- -- -- (1,813)
-- -- (496,586) -- -- --
----------- ---------- ----------- ---------- ------------ -----------
(1,670,900) (228,693) (2,538,592) (732,696) (745,079) (355,534)
----------- ---------- ----------- ---------- ------------ -----------
13,559,392 3,195,328 19,127,540 4,765,192 19,020,895 4,294,599
1,670,900 228,693 2,538,593 732,696 743,655 355,535
(228,301) (120,136) (2,010,537) (145,810) (11,298,653) (1,322,371)
----------- ---------- ----------- ---------- ------------ -----------
15,001,991 3,303,885 19,655,596 5,352,078 8,465,897 3,327,763
----------- ---------- ----------- ---------- ------------ -----------
15,592,375 3,799,932 18,611,279 5,666,532 8,457,068 3,315,197
----------- ---------- ----------- ---------- ------------ -----------
6,694,692 2,894,760 8,268,132 2,601,600 9,105,133 5,789,936
----------- ---------- ----------- ---------- ------------ -----------
$22,287,067 $6,694,692 $26,879,411 $8,268,132 $ 17,562,201 $ 9,105,133
=========== ========== =========== ========== ============ ===========
$20,922,008 $5,920,017 $27,592,868 $7,950,387 $ 17,571,962 $ 9,106,065
14,838 1,153 543 -- 1,366 --
148,018 46,957 (484,024) 18,918 (10,925) (1,112)
1,202,203 726,565 (229,976) 298,827 (202) 180
----------- ---------- ----------- ---------- ------------ -----------
$22,287,067 $6,694,692 $26,879,411 $8,268,132 $ 17,562,201 $ 9,105,133
=========== ========== =========== ========== ============ ===========
967,476 260,657 1,651,438 427,096 1,900,755 429,003
120,806 18,270 224,056 66,234 74,322 35,510
----------- ---------- ----------- ---------- ------------ -----------
1,088,282 278,927 1,875,494 493,330 1,975,077 464,513
(16,607) (9,856) (174,262) (13,441) (1,129,387) (132,107)
----------- ---------- ----------- ---------- ------------ -----------
1,071,675 269,071 1,701,232 479,889 845,690 332,406
521,224 252,153 737,841 257,952 910,034 577,628
----------- ---------- ----------- ---------- ------------ -----------
1,592,899 521,224 2,439,073 737,841 1,755,724 910,034
=========== ========== =========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 28
- - --------------------------------------------------------------------------------
SELECT ADVISORS VARIABLE INSURANCE TRUST
Financial Highlights
- - --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the years ended December 31:
<TABLE>
<CAPTION>
TOUCHSTONE EMERGING GROWTH PORTFOLIO
---------------------------------------
1997 1996 1995 1994(a)
------- ------- ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.20 $ 11.27 $10.10 $10.00
------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.04 0.11 0.04
Net realized and unrealized gain on investments 4.06 1.22 1.87 0.06
------- ------- ------ ------
Total from investment operations 4.09 1.26 1.98 0.10
------- ------- ------ ------
Less dividends and distributions to shareholders from:
Net investment income (0.03) (0.04) (0.15) --
Realized capital gains (0.86) (0.29) (0.66) --
------- ------- ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.89) (0.33) (0.81) --
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 15.40 $ 12.20 $11.27 $10.10
======= ======= ====== ======
TOTAL RETURN (b) 33.67% 11.16% 19.57% 1.00%
RATIOS AND SUPPLEMENTAL DATA (c):
Net assets at end of period (000's) $19,417 $ 5,771 $2,615 $2,020
Ratios to average net assets:
Net expenses 1.15% 1.15% 1.15% 1.15%
Net investment income 0.27% 0.50% 1.09% 3.67%
Expenses, without waiver and reimbursement from Sponsor 2.19% 3.22% 3.73% 11.08%
Portfolio Turnover 88% 89% 101% 0%
Average commission rate (d) $0.0572 $0.0568 -- --
</TABLE>
Selected data for a share outstanding throughout the years ended December 31:
<TABLE>
<CAPTION>
TOUCHSTONE INCOME OPPORTUNITY PORTFOLIO
------------------------------------------
1997 1996 1995 1994(a)
-------- -------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.21 $ 10.09 $ 9.42 $10.00
------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.20 1.17 1.22 0.12
Net realized and unrealized gain (loss) on investments 0.11 1.45 0.79 (0.70)
------- ------- ------ ------
Total from investment operations 1.31 2.62 2.01 (0.58)
------- ------- ------ ------
Less dividends and distributions to shareholders from:
Net investment income (1.19) (1.17) (1.34) --
Realized capital gains (0.31) (0.33) -- --
------- ------- ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS (1.50) (1.50) (1.34) --
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 11.02 $ 11.21 $10.09 $ 9.42
======= ======= ====== ======
TOTAL RETURN (b) 12.03% 27.37% 23.35% (5.80)%
RATIOS AND SUPPLEMENTAL DATA (c):
Net assets at end of period (000's) $26,879 $ 8,268 $2,602 $1,883
Ratios to average net assets:
Net expenses 0.85% 0.85% 0.85% 0.85%
Net investment income 10.93% 11.85% 12.81% 11.24%
Expenses, without waiver and reimbursement from Sponsor 1.72% 2.85% 3.54% 11.56%
Portfolio Turnover 189% 213% 104% 45%
</TABLE>
- - ------------------------------
(a) The Fund commenced operations on November 21, 1994.
(b) Total return would have been lower had certain expenses not been reimbursed
or waived during the periods shown. (Note 2)
(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 commission rate structures may differ.
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 29
<TABLE>
<CAPTION>
TOUCHSTONE INTERNATIONAL EQUITY PORTFOLIO
-------------------------------------------
1997 1996 1995 1994(A)
--------- --------- -------- --------
<S> <C> <C> <C>
$ 11.07 $ 10.00 $ 9.51 $10.00
------- ------- ------ ------
0.07 0.06 0.04 --
1.56 1.08 0.48 (0.49)
------- ------- ------ ------
1.63 1.14 0.52 (0.49)
------- ------- ------ ------
(0.05) (0.07) (0.03) --
(0.64) -- -- --
------- ------- ------ ------
(0.69) (0.07) (0.03) --
------- ------- ------ ------
$ 12.01 $ 11.07 $10.00 $ 9.51
======= ======= ====== ======
14.76% 11.47% 15.45% (4.90)%
$19,703 $ 8,758 $5,215 $4,757
1.25% 1.25% 1.25% 1.25%
0.71% 0.86% 0.46% 1.23%
3.19% 3.03% 3.69% 5.58%
149% 90% 86% 0%
$0.0359 $0.0266 -- --
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE STANDBY INCOME PORTFOLIO
------------------------------------
1997 1996 1995 1994(A)
------- ------- ------ -------
<S> <C> <C> <C>
$ 10.01 $ 10.02 $10.03 $10.00
------- ------- ------ ------
0.54 0.52 0.56 0.05
(0.01) (0.01) (0.01) 0.03
------- ------- ------ ------
0.53 0.51 0.55 0.08
------- ------- ------ ------
(0.54) (0.52) (0.56) (0.05)
-- -- -- --
------- ------- ------ ------
(0.54) (0.52) (0.56) (0.05)
------- ------- ------ ------
$ 10.00 $ 10.01 $10.02 $10.03
======= ======= ====== ======
5.41% 5.18% 5.90% 0.30%
$17,562 $ 9,105 $5,790 $5,013
0.50% 0.50% 0.50% 0.50%
5.42% 5.15% 5.59% 4.90%
1.48% 1.54% 1.73% 3.67%
251% 143% 159% 56%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE BALANCED PORTFOLIO
------------------------------------
1997 1996 1995 1994(A)
------- ------- ------ -------
<S> <C> <C> <C>
$ 12.84 $ 11.48 $10.17 $10.00
------- ------- ------ ------
0.31 0.30 0.32 0.05
2.05 1.60 2.15 0.12
------- ------- ------ ------
2.36 1.90 2.47 0.17
------- ------- ------ ------
(0.32) (0.30) (0.37) --
(0.89) (0.24) (0.79) --
------- ------- ------ ------
(1.21) (0.54) (1.16) --
------- ------- ------ ------
$ 13.99 $ 12.84 $11.48 $10.17
======= ======= ====== ======
18.61% 16.78% 24.56% 1.70%
$22,287 $ 6,695 $2,895 $2,034
0.90% 0.90% 0.90% 0.90%
2.61% 2.76% 2.87% 4.26%
2.04% 2.72% 3.46% 8.97%
86% 75% 124% 3%
$0.0345 $0.0664 -- --
</TABLE>
27
<PAGE> 30
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, and was 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 Declaration of Trust permits the Trust to issue an unlimited number of
shares of beneficial interest. The Trust offers shares of beneficial interest of
each portfolio to separate accounts of Western-Southern Life Assurance Company
("Western-Southern") as a funding vehicle for certain variable annuity contracts
issued by Western-Southern through the separate accounts.
As of December 31, 1997, Touchstone Advisors, Inc., a subsidiary of
Western-Southern, and Western-Southern owned 100% of the outstanding shares of
the 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 currency 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 statements 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
for such dividend except that certain dividends from foreign securities where
the ex-dividend date has passed are recorded upon notification 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 GAAP. Permanent book and tax basis
differences relating to shareholder distributions will
28
<PAGE> 31
SELECT ADVISORS VARIABLE INSURANCE TRUST
Notes to Financial Statements
- - --------------------------------------------------------------------------------
result in reclassifications to paid in capital. These differences which may
result in distribution reclassifications are primarily due to differing
treatments for foreign currency transactions, passive foreign investment
companies (PFIC), and losses deferred due to wash sales, paydown gains and
losses on certain securities and excise tax regulations. Undistributed net
investment income and accumulated net realized gains and losses may include
temporary book and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is distributed
in the following year.
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, 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
Standby Income Portfolio has the following capital loss carryforwards that
expire as noted below:
<TABLE>
<S> <C> <C>
December 31, 2003 $1,112
December 31, 2005 $3,712
</TABLE>
Additionally, at December 31, 1997, the following Portfolios have net
capital losses attributable to security transactions incurred after October 31,
1997, which are treated as arising on the first day of the Portfolio's next
taxable year.
<TABLE>
<S> <C> <C>
International Equity Portfolio $ 22,354
Balanced Portfolio $ 37,583
Income Opportunity Portfolio $490,314
Standby Income Portfolio $ 6,101
</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 foreign
currency 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 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, 1997, the following Funds had the following open forward
currency contracts:
<TABLE>
<CAPTION>
CONTRACTS TO IN EXCHANGE UNREALIZED
FUND NAME MATURITY DELIVER FOR VALUE GAIN/LOSS
--------- ------------- ------------ --------------- -------- ----------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY
PORTFOLIO
Sales 1/6/98 GBP 583 $ 968 $ 957 $ 11
1/2/98 SEK 132,407 17,053 16,684 369
-------
$ 380
=======
BALANCED PORTFOLIO
Sales 3/3/98 AUD 415,000 $281,163 $269,670 $11,493
1/9/98 DKK 718,000 107,458 104,879 2,579
3/19/98 GBP 122,000 200,495 199,697 798
-------
$14,870
=======
</TABLE>
AUD =Australian Dollar, GBP = Great British Pound, SEK = Swedish Krona,
DKK = Danish Krone.
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.
29
<PAGE> 32
SELECT ADVISORS VARIABLE INSURANCE TRUST
Notes to Financial Statements
- - --------------------------------------------------------------------------------
h) Securities Transactions. 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. The Sponsor 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 December 31, 1998.
b) Investment Advisor. The Trust also has an investment advisory
agreement with the Sponsor. Under the terms of the investment advisory
agreement, each Portfolio pays a fee that is computed daily and paid monthly.
For the year ended December 31, 1997, each Portfolio incurred investment
advisory fees equal on an annual basis to the following percentages of the
average daily net assets of the Portfolio. The Balanced Portfolio's advisory fee
changed on May 1, 1997, from 0.70% to 0.80%.
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
-------- ------------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.77% 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 an aggregate of $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. For
the year ended December 31, 1997, the Trust incurred $9,959 in Trustee fees.
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%
Amount of Reimbursement $102,973 $247,296 $125,649 $110,959 $107,078
</TABLE>
The Sponsor has advised the trust that it will continue to waive fees and
reimburse each portfolio as described above through December 31, 1998.
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 period ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
----------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cost of purchases $18,376,280 $27,002,868 $19,944,975 $47,229,551 $7,713,760
Proceeds from sales 9,544,004 18,719,039 9,675,798 29,499,769 1,502,093
</TABLE>
Purchase and sales of U.S. government obligations for the period ended
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
BALANCED STANDBY INCOME
---------- --------------
<S> <C> <C>
Cost of purchases $3,880,424 $2,038,234
Proceeds from sales 1,116,083 2,709,760
</TABLE>
30
<PAGE> 33
SELECT ADVISORS VARIABLE INSURANCE TRUST
Notes to Financial Statements
- - --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
Pursuant to Section 852 of the Internal Revenue Code, the Portfolios
designate the following capital gain dividends for the year ended December 31,
1997.
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME
GROWTH EQUITY BALANCED OPPORTUNITY
-------- ------------- -------- -----------
<S> <C> <C> <C> <C>
28% Rate gains $ 60,808 $242,458 $ 92,841 $23,661
20% Rate gains $157,210 $327,221 $398,119 $13,550
</TABLE>
31
<PAGE> 34
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 the Emerging Growth
Portfolio, International Equity Portfolio, Balanced Portfolio, Income
Opportunity Portfolio and Standby Income Portfolio), including the schedules of
investments, as of December 31, 1997, the related statements of operations for
the year then ended, 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 three
years in the period then ended and for the period from November 21, 1994
(commencement of operations) to December 31, 1994. These financial statements
and financial highlights are the responsibility of the Select Advisors Variable
Insurance 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, 1997 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, 1997, the results of
its operations for the year then ended, 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 three years in the period then ended and for the period from 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 13, 1998
<PAGE> 35
[LOGO]
TOUCHSTONE
------------------------------------------------
Touchstone Variable Annuity
---------------------------------
Select Advisors Portfolios
- Growth & Income Portfolio II
- Bond Portfolio II
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE> 36
GROWTH & INCOME PORTFOLIO II
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - --------- -----------
<C> <S> <C>
COMMON STOCKS (93.1%)
AEROSPACE & DEFENSE (3.0%)
9,200 Rockwell International........ $ 480,700
17,100 T R W......................... 912,713
-----------
1,393,413
-----------
AUTOMOTIVE (5.3%)
12,100 Dana.......................... 574,750
9,400 Echlin........................ 340,163
18,500 Ford Motor.................... 900,719
13,466 Meritor Automotive............ 283,628
6,700 Paccar........................ 351,750
-----------
2,451,010
-----------
BANKING (11.5%)
3,500 Banc One...................... 190,094
1,700 Centura Banks................. 117,300
8,000 Chase Manhattan............... 876,000
2,700 First American................ 134,325
11,000 First Commerce................ 739,750
1,800 First Tennessee National...... 120,150
11,700 Firstar....................... 496,519
11,900 Key........................... 842,669
13,800 Nationsbank................... 839,213
15,000 North Folk Bancorp............ 503,438
4,900 US Bancorp.................... 548,494
-----------
5,407,952
-----------
BEVERAGES, FOOD & TOBACCO
(7.4%)
6,000 General Mills................. 429,750
20,100 Heinz (H. J.)................. 1,021,331
21,700 Philip Morris Companies....... 983,281
16,500 Unilever, ADR................. 1,030,219
-----------
3,464,581
-----------
CHEMICALS (7.5%)
4,600 Akzo NV, ADR*................. 399,625
7,300 Betzdearborn.................. 445,756
3,500 Dow Chemical Company.......... 355,250
8,200 Eastman Chemical Company...... 488,413
10,000 Hercules...................... 500,625
13,600 Imperial Chemical Industries,
ADR......................... 883,150
9,300 Olin.......................... 435,938
-----------
3,508,757
-----------
COMMERCIAL SERVICES (5.6%)
2,600 Browning-Ferris Industries.... 96,200
15,400 Cinergy....................... 590,013
8,900 CMS Energy.................... 392,156
14,700 Duke Energy................... 814,013
13,300 Pacificorp.................... 363,256
11,900 Unicom Corporation............ 365,925
-----------
2,621,563
-----------
COSMETICS & PERSONAL CARE
(0.9%)
6,800 Avon Products................. 417,350
-----------
ELECTRIC UTILITIES (1.3%)
9,400 Entergy....................... 281,413
3,500 Southern...................... 90,563
7,900 Wisconsin Energy.............. 227,125
-----------
599,101
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - --------- -----------
<C> <S> <C>
ELECTRONICS (1.3%)
7,200 AMP........................... $ 302,400
6,500 Thomas & Betts................ 307,125
-----------
609,525
-----------
FINANCIAL SERVICES (8.0%)
8,300 Corestates Financial.......... 664,519
4,100 Federal National Mortgage
Association................. 233,956
7,700 First Union................... 394,625
3,100 Fleet Financial Group......... 232,306
15,750 HomeCorp*..................... 460,688
2,700 J P Morgan.................... 304,763
8,700 Meditrust..................... 318,638
9,200 Nationwide Health
Properties.................. 234,600
9,200 Old Kent Financial............ 364,550
19,900 Security Capital Industrial
Trust....................... 495,013
-----------
3,703,658
-----------
FOREST PRODUCTS & PAPER (6.4%)
7,600 Boise Cascade................. 229,900
7,400 Georgia-Pacific (Timber
Group)...................... 167,888
7,900 Georgia-Pacific*.............. 479,925
14,500 Kimberly-Clark................ 715,031
7,400 Louisiana Pacific............. 140,600
20,000 Mead.......................... 560,000
8,900 Westvaco...................... 279,794
8,000 Weyerhauser................... 392,500
-----------
2,965,638
-----------
HOME CONSTRUCTION, FURNISHINGS
& APPLIANCES (0.9%)
7,600 Whirlpool..................... 418,000
-----------
INSURANCE (2.9%)
6,600 Exel Limited.................. 418,275
8,200 Lincoln National.............. 640,625
5,100 Mid Ocean..................... 276,675
-----------
1,335,575
-----------
MEDICAL SUPPLIES (0.7%)
6,600 Baxter International.......... 332,888
-----------
METALS (2.2%)
14,900 Allegheny Teledyne............ 385,538
10,200 Freeport McMoran Copper
& Gold...................... 156,188
13,700 Oregon Steel Mills............ 291,981
2,700 Phelps Dodge.................. 168,075
-----------
1,001,782
-----------
OFFICE EQUIPMENT (2.2%)
13,600 Xerox......................... 1,003,850
-----------
OIL & GAS (7.3%)
10,800 Elf Aquitaine, ADR............ 633,150
6,700 MCN Energy Group.............. 270,513
12,800 Texaco........................ 696,000
9,800 Total S.A., ADR............... 543,900
24,600 Williams Companies............ 698,025
15,700 YPF Sociedad Anonima ADR...... 536,744
-----------
3,378,332
-----------
PHARMACEUTICALS (3.9%)
8,800 American Home Products........ 673,200
6,500 Merck......................... 690,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE> 37
GROWTH & INCOME PORTFOLIO II
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - --------- -----------
<C> <S> <C>
PHARMACEUTICALS--CONTINUED
4,200 Zeneca Group, ADR............. $ 453,600
-----------
1,817,425
-----------
RETAILERS (4.5%)
8,300 J.C. Penney Company........... 500,594
6,100 May Department Stores......... 321,394
7,900 Mercantile Stores............. 480,913
6,400 Rite Aid...................... 375,600
8,700 Sears Roebuck................. 393,675
-----------
2,072,176
-----------
TELEPHONE SYSTEMS (9.5%)
11,300 Alltel........................ 464,006
7,800 Bell Atlantic................. 709,800
8,800 Bellsouth..................... 495,550
15,700 Frontier...................... 377,770
16,500 GTE........................... 862,125
14,600 SBC Communications............ 1,069,450
8,100 Sprint........................ 474,863
-----------
4,453,564
-----------
TRANSPORTATION (0.8%)
7,000 CSX........................... 378,000
-----------
TOTAL COMMON STOCKS
(COST $40,506,097)........................ 43,334,140
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - --------- -----------
<C> <S> <C>
CONVERTIBLE CORPORATE BONDS
(COST $374,000) (0.8%)
ENTERTAINMENT & LEISURE (0.8%)
$374,000 Loews, 3.125%, 09/15/07....... $ 370,260
-----------
INVESTMENT TRUST (COST $1,297,379) (2.8%)
13,550 S&P 500 Depository Receipt.... 1,313,503
-----------
TOTAL INVESTMENTS AT VALUE (96.7%) (COST
$42,177,476) (a).......................... $45,017,903
CASH AND OTHER ASSETS
NET OF LIABILITIES (3.3%)................. 1,545,079
-----------
NET ASSETS (100.0%)....................... $46,562,982
===========
</TABLE>
- - ------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes
is $42,177,476, resulting in gross unrealized appreciation and
depreciation of $4,295,376 and $1,454,949, respectively, and
net unrealized appreciation of $2,840,427.
ADR - American Depositary Receipt
- - --------------------------------------------------------------------------------
BOND PORTFOLIO II
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
ASSET BACKED SECURITIES (6.7%)
$ 196,111 Chase Manhattan Grantor
Trust, 5.20%, 02/15/02.... $ 194,652
900,000 Chemical Credit Card Master
Trust, 5.98%, 09/15/08.... 886,482
332,679 Navistar Financial, 6.35%,
11/15/02.................. 333,754
250,000 World Omni Auto Lease,
6.18%, 11/25/03........... 250,058
-----------
TOTAL ASSET BACKED SECURITIES (COST
$1,614,829).............................. 1,664,946
-----------
CORPORATE BONDS (32.7%)
AUTOMOTIVE (0.8%)
200,000 Ford Motor, 6.75%,
05/15/05.................. 202,200
-----------
BANKING (4.8%)
500,000 Bank of New York, 8.50%,
12/15/04.................. 557,869
500,000 Credit Suisse-London, 7.90%,
05/01/07.................. 527,551
85,875 Mercantile Safe Deposit,+
12.125%, 01/02/01......... 90,960
-----------
1,176,380
-----------
BEVERAGES, FOOD & TOBACCO
(2.5%)
600,000 Rykoff Sexton, 8.875%,
11/01/03.................. 619,500
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
COMMERCIAL SERVICES (2.0%)
$ 500,000 MCN Financing, 6.305%,
06/01/37.................. $ 500,000
-----------
COMMUNICATIONS (2.1%)
500,000 Harris Corporation, 6.65%,
08/01/06.................. 511,561
-----------
ELECTRIC UTILITIES (2.0%)
500,000 AES, 8.50%, 11/01/07........ 500,000
-----------
FINANCIAL SERVICES (6.4%)
250,000 CIT Group Holdings, 6.25%,
11/22/01.................. 249,407
300,000 Discover Card Mastertrust,
6.05%, 08/18/08........... 295,329
350,000 First Union, 6.55%,
10/15/35.................. 352,706
650,000 Safeco Capital, 8.027%,
07/15/37.................. 681,466
-----------
1,578,908
-----------
FOREST PRODUCTS & PAPER
(2.6%)
250,000 Georgia Pacific, 9.50%,
05/15/22.................. 284,201
350,000 Sweetheart Cup, 9.625%,
09/01/00.................. 344,750
-----------
628,951
-----------
INSURANCE (1.0%)
250,000 Travelers Capital, 7.75%,
12/01/36.................. 259,128
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE> 38
BOND PORTFOLIO II
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
MEDIA -- BROADCASTING &
PUBLISHING (3.3%)
$ 250,000 News America Holdings,
10.125%, 10/15/12......... $ 295,678
500,000 Viacom, 7.75%, 06/01/05..... 510,091
-----------
805,769
-----------
OIL & GAS (3.1%)
750,000 Enterprice Oil, 6.70%,
09/15/07.................. 768,690
-----------
TRANSPORTATION (2.1%)
500,000 CSX, 7.45%, 05/01/07........ 530,525
-----------
TOTAL CORPORATE BONDS (COST
$7,819,083).............................. 8,081,612
-----------
CONVERTIBLE CORPORATE BONDS (COST
$427,109) (1.8%)
MEDIA BROADCASTING &
PUBLISHING (1.8%)
500,000 Scholastic, 5.00%,
08/15/05.................. 438,125
-----------
MORTGAGE BACKED SECURITIES (15.4%)
500,000 Advanta Mortgage Loan Trust,
6.03%, 08/25/11........... 497,350
430,505 Federal Government Loan
Mortgage Corporation,
7.00%, 10/01/25........... 435,279
452,345 Federal Government Loan
Mortgage Corporation,
7.00%, 12/01/25........... 457,361
63,268 Government National Mortgage
Association, 10.25%,
07/15/12.................. 63,268
1,100,000 Government National Mortgage
Association, 7.50%,
12/15/27.................. 1,126,468
519,663 Government National Mortgage
Association, 7.00%,
02/15/09.................. 529,868
669,624 Government National Mortgage
Association, 7.50%,
12/15/25.................. 685,736
11,350 Government National Mortgage
Association, 7.50%,
07/15/23.................. 11,623
-----------
TOTAL MORTGAGE BACKED SECURITIES (COST
$3,740,660).............................. 3,806,953
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS
(26.9%)
425,000 US Treasury Note, 6.125%,
12/31/01.................. 430,711
750,000 US Treasury Note, 6.50%,
05/31/02.................. 772,031
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- - ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- CONTINUED
$1,000,000 US Treasury Note, 5.875%,
11/15/99.................. $ 1,003,437
500,000 US Treasury Note, 6.75%,
04/30/00.................. 511,406
750,000 US Treasury Note, 7.50%,
11/15/01.................. 795,469
750,000 US Treasury Note, 5.75%,
11/30/02.................. 750,703
1,275,000 US Treasury Note, 6.125%,
08/15/07.................. 1,310,460
1,000,000 US Treasury Note, 6.375%,
08/15/27.................. 1,054,375
-----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (COST $6,535,307)............ 6,628,592
-----------
YANKEE BONDS (4.6%)
CANADA (2.7%)
600,000 Province of Quebec, 7.50%,
07/15/23.................. 646,944
-----------
KOREA (1.9%)
600,000 Pohang Iron & Steel, 7.50%,
08/01/02.................. 476,407
-----------
TOTAL YANKEE BONDS (COST $1,198,161).....
1,123,351
-----------
AGENCY FOR INTERNATIONAL
DEVELOPMENT BONDS+ (3.1%)
CENTRAL AMERICA (2.0%)
140,000 Central America
International Development,
Series F, 10.00%,
12/01/11.................. 164,068
140,000 Central America
International Development,
Series G, 10.00%,
12/01/11.................. 164,068
140,000 Central America
International Development,
Series H, 10.00%,
12/01/11.................. 164,068
-----------
492,204
-----------
HONDURAS (1.1%)
100,000 Republic of Honduras
International Development,
Series D, 13.00%,
06/01/11.................. 145,729
100,000 Republic of Honduras
International Development,
Series C, 13.00%,
06/01/06.................. 130,265
-----------
275,994
-----------
TOTAL AGENCY FOR INTERNATIONAL
DEVELOPMENT BONDS (COST $620,000)........ 768,198
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE> 39
BOND PORTFOLIO II
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- - ---------- -----------
<C> <S> <C>
PREFERRED STOCKS (3.8%)
INDUSTRIAL (0.6%)
5,400 Appalachian Power........... $ 139,050
-----------
OIL & GAS (3.2%)
29,900 Transcanada Pipelines....... 788,613
-----------
TOTAL PREFERRED STOCKS
(COST $903,875).......................... 927,663
-----------
TOTAL INVESTMENTS AT VALUE (95.0%) (COST
$22,859,024) (a)......................... $23,439,440
CASH AND OTHER ASSETS
NET OF LIABILITIES (5.0%)................ 1,244,934
-----------
NET ASSETS (100.0%)...................... $24,684,374
===========
</TABLE>
- - ------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
+ Restricted and Board valued security (Note 5).
(a) The aggregate identified cost for federal income tax purposes
is $22,859,024, resulting in gross unrealized appreciation and
depreciation of $730,263 and $149,847, respectively, and net
unrealized appreciation of $580,416.
The accompanying notes are an integral part of the financial statements.
37
<PAGE> 40
SELECT ADVISORS PORTFOLIOS
Statements of Assets and Liabilities
December 31, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH &
INCOME BOND
PORTFOLIO II PORTFOLIO II
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at value (Note 1)(a) $45,017,903 $23,439,440
Cash 1,043,721 905,504
RECEIVABLES FOR:
Securities sold 620,056 --
Dividends 94,836 15,048
Interest 7,236 317,670
Reimbursement receivable from Sponsor (Note 3) -- 36,096
Deferred organization expenses (Note 1) 14,812 14,812
----------- -----------
Total assets 46,798,564 24,728,570
----------- -----------
LIABILITIES:
Investment advisory fees payable 50,222 --
Payable for securities purchased 120,878 --
Other accrued expenses 64,482 44,196
----------- -----------
Total liabilities 235,582 44,196
----------- -----------
NET ASSETS:
Applicable to investors' beneficial interests $46,562,982 $24,684,374
=========== ===========
(a) Cost of investments $42,177,476 $22,859,024
=========== ===========
</TABLE>
Statements of Operations
For the year ended December 31, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH &
INCOME BOND
PORTFOLIO II PORTFOLIO II
------------ ------------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1):
Interest $ 102,429 $1,271,056
Dividends 585,789 49,383
---------- ----------
Total investment income 688,218 1,320,439
---------- ----------
EXPENSES:
Investment advisory fees (Note 2) 248,984 103,585
Administration and fund accounting fees 79,501 79,501
Sponsor fee (Note 2) 64,647 37,562
Printing expense 45,804 25,993
Audit fees 15,548 15,532
Amortization of organization expenses (Note 1) 8,707 8,707
Custody fees 43,019 33,640
Trustee fees (Note 2) 4,975 2,949
Insurance expense 7,829 4,063
Miscellaneous expense 11,195 6,568
---------- ----------
Total expenses 530,209 318,100
Waiver of Sponsor fee (Note 2) (64,647) (37,562)
Reimbursement from Sponsor (Note 3) (190,812) (139,681)
---------- ----------
Net expenses 274,750 140,857
---------- ----------
NET INVESTMENT INCOME 413,468 1,179,582
---------- ----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 5,279,721 42,062
Net change in unrealized appreciation 455,947 256,174
---------- ----------
NET REALIZED AND UNREALIZED GAIN: 5,735,668 298,236
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,149,136 $1,477,818
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE> 41
SELECT ADVISORS PORTFOLIOS
Statements of Changes in Net Assets
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME BOND
PORTFOLIO II PORTFOLIO II
-------------------------- --------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1997 1996
- - -------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 413,468 $ 183,083 $ 1,179,582 $ 810,228
Net realized gain on investments 5,279,721 2,614,611 42,062 52,355
Net change in unrealized appreciation
(depreciation) on investments 455,947 (476,749) 256,174 (481,003)
----------- ----------- ----------- -----------
Net increase in net assets resulting from
operations 6,149,136 2,320,945 1,477,818 381,580
----------- ----------- ----------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 21,726,669 6,012,563 8,615,620 2,347,375
Withdrawals (3,283,783) (256,085) (388,462) (54,047)
----------- ----------- ----------- -----------
Net increase from investors' transactions 18,442,886 5,756,478 8,227,158 2,293,328
----------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS 24,592,022 8,077,423 9,704,976 2,674,908
NET ASSETS:
Beginning of period 21,970,960 13,893,537 14,979,398 12,304,490
----------- ----------- ----------- -----------
End of period $46,562,982 $21,970,960 $24,684,374 $14,979,398
=========== =========== =========== ===========
</TABLE>
SUPPLEMENTARY DATA
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME BOND
PORTFOLIO II PORTFOLIO II
------------------------------------- -------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1994(a) 1997 1996 1995 1994(a)
- - --------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS(b):
Net expenses 0.85% 0.85% 0.85% 0.85% 0.75% 0.75% 0.75% 0.75%
Net investment income 1.28% 1.07% 1.27% 2.06% 6.28% 6.18% 6.91% 6.76%
Expenses, without waiver and
reimbursement 1.64% 1.74% 1.77% 2.94% 1.69% 1.76% 1.58% 2.67%
Portfolio turnover 153% 82% 96% 0% 79% 79% 80% 0%
Average commission rate(c) $0.0551 $0.0571 -- -- -- -- -- --
</TABLE>
- - ---------------
(a) The portfolios commenced operations on November 21, 1994.
(b) Ratios are 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 commission rate structures may differ.
The accompanying notes are an integral part of the financial statements.
39
<PAGE> 42
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 and was organized as a New York master trust fund on February 7, 1994.
There are eight 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, 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, 1997, Touchstone Advisors, Inc., a subsidiary of
Western-Southern Life Assurance Company ("Western-Southern"), and
Western-Southern owned 100% of the interest in 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 statements 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
40
<PAGE> 43
SELECT ADVISORS PORTFOLIOS
Notes to Financial Statements
- - --------------------------------------------------------------------------------
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
organizational seed capital investment ("Initial Interests") in the Portfolio
will be reduced by a portion of any unamortized organization expenses of the
Portfolio, determined by the proportion of the amount of the 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) Securities Transactions. 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"), 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. The Sponsor receives a sponsor fee from each portfolio equal on
an annual basis 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 December 31, 1998.
(b) Investment Advisor. The Portfolio Trust also has an investment
advisory agreement with Touchstone Advisors, Inc. Under the terms of the
investment advisory agreement, each Portfolio pays a fee that is computed daily
and paid monthly. Investment advisory fees for Bond Portfolio II is equal on an
annual basis to 0.55% of the average daily net assets. Investment advisory fees
for the Growth & Income Portfolio II was equal to 0.75% of average daily net
assets until September 17, 1997 and changed to 0.80% thereafter.
Fort Washington Investment Advisors, Inc., an affiliate of the Advisor, is
the sub-advisor for the Bond Portfolio II and was the sub-advisor for the Growth
& Income Portfolio II until August 31, 1997. Scudder, Kemper Investments, Inc.
became the sub-advisor for Growth & Income Portfolio II as of September 1, 1997.
(c) Trustees. Each Trustee who is not an "interested person," (as defined
in the Act), of the Portfolio Trust, receives an aggregate of $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. For the
year ended December 31, 1997, the Growth & Income Portfolio II incurred $4,975
in Trustee Fees and the Bond Portfolio II incurred $2,949 in Trustee Fees.
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) 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. The sponsor has advised
the Trust that it will continue to waive fees and reimburse each Portfolio as
described above through December 31, 1998. For the year ended December 31, 1997,
the sponsor reimbursed $190,812 and $139,681 to the Growth & Income Portfolio II
and Bond Portfolio II, respectively.
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
For the period ended December 31, 1997, the cost of investment securities
purchased was $64,401,153 and $14,407,462, and the proceeds from sales of
investment securities sold were $45,597,935 and $8,802,455, for Growth & Income
Portfolio II and Bond Portfolio II, respectively, excluding U.S. government
obligations and US government agency obligations and short-term investments.
Purchases and sales of U.S. government obligations were $7,954,271 and
$4,512,070, respectively, for Bond Portfolio II.
41
<PAGE> 44
SELECT ADVISORS PORTFOLIOS
Notes to Financial Statements
- - --------------------------------------------------------------------------------
5. RESTRICTED SECURITIES
Restricted securities may be difficult to dispose of and involve time
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, 1997, Bond Portfolio II held restricted securities valued at
$859,157 by the Trustees, representing 3.48% 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 $ 85,838
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 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.
42
<PAGE> 45
SELECT ADVISORS PORTFOLIOS
Report of Independent Accountants
- - --------------------------------------------------------------------------------
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 & Income Portfolio II and Bond
Portfolio II), including the schedules of investments, as of December 31, 1997,
the related statements of operations for the year then ended, 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 three years in the period then ended and for
the period from November 21, 1994 (commencement of operations) to December 31,
1994. These financial statements and supplementary data are the responsibility
of the Select Advisors 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, 1997 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 supplementary data referred to
above present fairly, in all material respects, the financial position of the
Select Advisors Portfolios (consisting of Growth & Income Portfolio II and Bond
Portfolio II) as of December 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the three years in the
period then ended and for the period from 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 13, 1998
<PAGE> 46
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
P.O. Box 8518
Boston, Massachusetts 02117
ADMINISTRATOR AND CUSTODIAN OF EACH PORTFOLIO
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
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
TOUCHSTONE
-------------------------------------------
THE MARK OF EXCELLENCE IN INVESTMENT MANAGEMENT(TM)
FORM 7142-9706
