As filed with the Securities and Exchange Commission on April 29, 1996
File Nos. 33-76146 and 811-8404
===============================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 2
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4
SELECT ADVISORS TRUST C
(Exact Name of Registrant as Specified in Charter)
311 PIKE STREET
CINCINNATI, OHIO
45202
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, including Area Code: (513) 684-1400
THOMAS M. LENZ
SIGNATURE FINANCIAL SERVICES, INC.
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
copies to:
J. Leland Brewster, Esq.
Frost & Jacobs Edward G. Harness, Jr.
2500 East 5th Street Touchstone Securities, Inc.
P.O. Box 5715 311 Pike Street
Cincinnati, Ohio 45201-5715 Cincinnati, Ohio
45202
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on April 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ]
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Select Advisors Portfolios has also executed this Registration
Statement.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF
BENEFICIAL INTEREST (PAR VALUE $0.00001 PER SHARE) PURSUANT TO RULE 24F-2 UNDER
THE INVESTMENT COMPANY ACT OF 1940. REGISTRANT FILED THE NOTICE REQUIRED BY RULE
24F-2 ON FEBRUARY 28, 1996 FOR REGISTRANT'S FISCAL YEAR ENDED DECEMBER 31, 1995.
===============================================================================
<PAGE>
IFS0017D
SELECT ADVISORS TRUST C
FORM N-1A
CROSS REFERENCE SHEET
Part A
ITEM NO. HEADINGS IN PROSPECTUS
1. Cover Page . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . .Summary; Summary of Funds' Expenses
3. Condensed Financial Information . . . .Financial Highlights
4. General Description of Registrant . . . .Cover Page; Summary; Investment
Objectives, Policies and Risks;
Advisor and Portfolio Advisors;
Management of the Trust and The
Portfolio Trust
5. Management of the Fund . . . . . . . . .Advisor and Portfolio Advisors;
Management of the Trust and The
Portfolio Trust
6. Capital Stock and Other Securities . . .Cover Page; Purchase of Shares;
Redemption of Shares; Dividends,
Distributions and Taxes; Management
of the Trust and The Portfolio
Trust; Performance Information;
Additional Information
7. Purchase of Securities Being Offered . .Purchase of Shares; Net Asset Value
8. Redemption or Repurchase . . . . . . . .Redemption of Shares; Net Asset
Value
9. Pending Legal Proceedings . . . . . . .Not applicable
Part B Headings in Statement of
ITEM NO. ADDITIONAL INFORMATION
10. Cover Page . . . . . . . . . . . . . . .Cover Page
11. Table of Contents . . . . . . . . . . .Table of Contents
12. General Information and History . . . .Not applicable
13. Investment Objectives and Policies . . .Investment Objective, Policies and
Restrictions
14. Management of the Fund . . . . . . . . .Management of the Trust and The
Portfolio Trust
Part B Headings in Statement of
ITEM NO. ADDITIONAL INFORMATION
15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . .Management of the Trust and The
Portfolio Trust (See also Prospectus
-- "Organization of the Trust and
the Portfolio Trust")
16. Investment Advisory and Other Services .Management of the Trust and The
Portfolio Trust
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . .Investment Objective, Policies and
Restrictions
18. Capital Stock and Other Securities . . .Organization of the Trust; see also
Prospectus -- "Dividends,
Distributions and Taxes" and
"Organization of the Trust and The
Portfolio Trust")
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . .Valuation of Securities; Redemption
in Kind
20. Tax Status . . . . . . . . . . . . . . .Taxation (see also Prospectus --
"Dividends, Distributions and
Taxes")
21. Underwriters . . . . . . . . . . . . . .See Prospectus -- "Management of the
Trust and The Portfolio Trust"
22. Calculations of Yield Quotations of
Money Market Funds . . . . . . . . .Performance Information
23. Financial Statements . . . . . . . . . .Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
T O U C H S T O N E
--------------------------
THE TOUCHSTONE FAMILY OF FUNDS
The Touchstone Family of Funds provide a convenient means of investing in
separate investment series (each a "Fund" and collectively, the "Funds"), each
with distinct investment objectives and policies. Each Fund (other than the
Standby Income Fund) invests in a corresponding Portfolio of Select Advisors
Portfolios (the "Portfolio Trust"), a New York trust registered as an open-end
diversified management investment company. Each Portfolio and the Standby Income
Fund are professionally managed by Touchstone Advisors, Inc. (the "Advisor" or
"Touchstone Advisors"). Each Portfolio and the Standby Income Fund benefits from
discretionary advisory services by one or more investment advisor(s) (the
"Portfolio Advisor") identified, retained, supervised and compensated by the
Advisor. Each Fund (other than the Standby Income Fund) is a separate series of
Select Advisors Trust C (the "Trust"), an open-end diversified management
investment company. The Standby Income Fund is a separate series of Select
Advisors Trust A, an open-end diversified management investment company.
This Prospectus relates to the following Funds:
TOUCHSTONE EMERGING GROWTH FUND C
TOUCHSTONE INTERNATIONAL EQUITY FUND C
TOUCHSTONE GROWTH & INCOME FUND C
TOUCHSTONE BALANCED FUND C
TOUCHSTONE INCOME OPPORTUNITY FUND C
TOUCHSTONE BOND FUND C
TOUCHSTONE STANDBY INCOME FUND
TOUCHSTONE MUNICIPAL BOND FUND C
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIOS
OF SECURITIES, EACH FUND (WITH THE EXCEPTION OF THE STANDBY INCOME FUND) SEEKS
TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL ITS INVESTABLE ASSETS
("ASSETS") IN A CORRESPONDING OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND (EACH A "PORTFOLIO" AND COLLECTIVELY, THE
"PORTFOLIOS"). THE FUNDS INVEST IN THEIR RESPECTIVE PORTFOLIOS THROUGH SIGNATURE
FINANCIAL GROUP, INC.'S HUB AND SPOKE-REGISTERED TRADEMARK- MASTER-FEEDER MUTUAL
FUND INVESTMENT SYSTEM ("HUB AND SPOKE-REGISTERED TRADEMARK- STRUCTURE"). HUB
AND SPOKE-REGISTERED TRADEMARK- IS A REGISTERED SERVICE MARK OF SIGNATURE
FINANCIAL GROUP, INC. SEE "SPECIAL INFORMATION CONCERNING HUB AND
SPOKE-REGISTERED TRADEMARK- STRUCTURE" ON PAGE 11.
THE INCOME OPPORTUNITY PORTFOLIO MAY INVEST UP TO 100% OF ITS TOTAL ASSETS IN
NON-INVESTMENT GRADE BONDS, COMMONLY KNOWN AS "JUNK BONDS" ISSUED BY BOTH U.S.
AND FOREIGN ISSUERS, WHICH ENTAIL GREATER RISK OF UNTIMELY INTEREST AND
PRINCIPAL PAYMENTS, DEFAULT AND PRICE VOLATILITY THAN HIGHER RATED SECURITIES,
AND MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION. THE INTERNATIONAL EQUITY
PORTFOLIO AND THE INCOME OPPORTUNITY PORTFOLIO MAY INVEST UP TO 40% AND 65%,
RESPECTIVELY, OF ITS TOTAL ASSETS IN SECURITIES OF ISSUERS BASED IN EMERGING
MARKETS WHICH MAY PRESENT INCREASED RISK. INVESTORS SHOULD CAREFULLY CONSIDER
THESE RISKS PRIOR TO INVESTING. SEE "INVESTMENT OBJECTIVES, POLICIES AND RISKS"
ON PAGE 6; "RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES" ON PAGE 12; AND THE
APPENDIX ON PAGE A-1.
This Prospectus sets forth concisely certain information about the Trust,
including expenses, that prospective shareholders will find helpful in making an
investment decision. Shareholders are encouraged to read this Prospectus
carefully and retain it for future reference.
Additional information about the Trust is contained in a Statement of Additional
Information dated May 1, 1996 which is available upon request and without charge
by calling or writing the Trust at the telephone number or address listed below.
The Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), is incorporated by reference
into this Prospectus in its entirety.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE TOUCHSTONE FAMILY OF FUNDS
311 PIKE STREET
CINCINNATI, OHIO 45202
(800) 669-2796
- --------------------------------------------------------------------------------
PROSPECTUS & APPLICATION
MAY 1, 1996
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.
THE TRUST. The Trust is a management investment company providing a
convenient means of investing in separate Funds each with distinct investment
objectives and policies. The Trust consists of the following seven diversified
Funds:
TOUCHSTONE EMERGING GROWTH FUND C (the "Emerging Growth Fund") has a primary
investment objective of capital appreciation with income as a secondary
investment objective. The Portfolio attempts to achieve its investment
objectives through investment primarily in the common stocks of smaller,
rapidly growing companies.
TOUCHSTONE INTERNATIONAL EQUITY FUND C (the "International Equity Fund") has
an investment objective of long-term capital appreciation through investment
primarily in equity securities of companies based outside the United States.
TOUCHSTONE GROWTH & INCOME FUND C (the "Growth & Income Fund") has an
investment objective of long-term capital appreciation and dividend income
through investment primarily in common stocks of high quality companies.
TOUCHSTONE BALANCED FUND C (the "Balanced Fund") has an investment objective
of growth of capital and income through investment in common stocks and
fixed-income securities.
TOUCHSTONE INCOME OPPORTUNITY FUND C (the "Income Opportunity Fund") has an
investment objective of high current income through investment in high
yield, non-investment grade debt securities of both U.S. and non-U.S.
issuers and in mortgage related securities. To the extent consistent with
its primary objective, the Portfolio will also seek capital appreciation.
TOUCHSTONE BOND FUND C (the "Bond Fund") has an investment objective of
providing high current income primarily through investment in investment
grade bonds.
TOUCHSTONE MUNICIPAL BOND FUND C (the "Municipal Bond Fund") has an
investment objective of providing a high level of current income, exempt
from regular federal income taxation, to the extent consistent with prudent
investment management and the preservation of capital.
This prospectus also relates to the TOUCHSTONE STANDBY INCOME FUND (the
"Standby Income Fund"), a series of Select Advisors Trust A which has an
investment objective of high current income to the extent consistent with
the relative stability of principal.
ADVISOR AND PORTFOLIO ADVISORS. Each Fund (other than the Standby Income
Fund) invests in a corresponding Portfolio professionally managed by the
Advisor. The Standby Income Fund will invest directly in securities chosen to
meet the investment objective of the Fund. Touchstone Advisors acts as the
investment advisor to the Portfolios and to the Standby Income Fund. Each of the
Portfolios and the Standby Income Fund benefit from discretionary advisory
services of one or more portfolio advisors (the "Portfolio Advisors")
identified, retained, supervised and compensated by the Advisor. The Advisor
monitors and evaluates the performance of each Portfolio Advisor and, with
respect to those Portfolios with two Portfolio Advisors, allocates the
Portfolios' assets among the Portfolio Advisors. See "Advisor and Portfolio
Advisors."
PURCHASE AND REDEMPTION OF SHARES. Shares of the Funds are offered for
purchase at their respective net asset values. The minimum initial investment is
$1,000 and subsequent investments must be at least $50. Shares may be redeemed
on any day on which the Trust calculates the Funds' net asset values. See
"Purchase of Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS. Each Fund intends to distribute annually to
its shareholders substantially all of its net income and its net realized long-
and short-term capital gains. Dividends from the net income of the Standby
Income Fund are declared daily and paid monthly. Dividends from the net income
of the Growth & Income Fund, the Income Opportunity Fund, the Bond Fund and the
Municipal Bond Fund are declared and paid monthly.
2
<PAGE>
Dividends from the net investment income of the Balanced Fund are declared and
paid quarterly. Dividends from the net income of the remaining Funds are
declared and paid annually. Distributions of any net realized long-term and
short-term capital gains earned by a Fund will be made annually. See "Dividends,
Distributions and Taxes."
RISK FACTORS. Investing in securities issued by foreign companies and
governments involves considerations and potential risks not typically associated
with investing in obligations issued by the U.S. government and domestic
corporations. Certain of the Portfolios and the Standby Income Fund invest in
foreign securities, including "emerging market" securities, which involve
heightened risks. See "Risk Factors and Certain Investment Techniques Foreign
Securities" and "-- Risks Associated with 'Emerging Markets' Securities" on page
12.
The Income Opportunity Portfolio may invest up to 100% of its total assets
in non-investment grade bonds, commonly known as "junk bonds" issued by both
U.S. and foreign issuers, which entail greater risk of untimely interest and
principal payments, default and price volatility than higher rated securities,
and may present problems of liquidity and valuation. The International Equity
Portfolio and the Income Opportunity Portfolio may invest up to 40% and 65%,
respectively, of its total assets in securities of issuers based in emerging
markets which may present increased risk. Investors should carefully consider
these risks prior to investing. See "Investment Objectives, Policies and Risks"
on page 6; "Risk Factors and Certain Investment Techniques" on page 12; and the
Appendix on page A-1.
SUMMARY OF EXPENSES
The following table provides (i) a summary of expenses related to the
purchases and sales of shares of each Fund and the aggregate operating expenses
of each Fund and any corresponding Portfolio as a percentage of average daily
net assets of that Fund and (ii) an example illustrating the dollar cost of such
expenses on a $1,000 investment in each Fund. THE TRUSTEES OF THE TRUST BELIEVE
THAT THE AGGREGATE PER SHARE EXPENSES OF EACH FUND (OTHER THAN THE STANDBY
INCOME FUND) AND THE CORRESPONDING PORTFOLIO WILL BE LESS THAN OR APPROXIMATELY
EQUAL TO THE EXPENSES WHICH THE FUND WOULD INCUR IF THE TRUST RETAINED THE
SERVICES OF AN INVESTMENT ADVISOR AND INVESTED THE FUND'S ASSETS DIRECTLY IN THE
TYPE OF SECURITIES BEING HELD BY THE CORRESPONDING PORTFOLIO.
<TABLE>
<CAPTION>
SHAREHOLDER EMERGING INTERNATIONAL GROWTH & INCOME STANDBY MUNICIPAL
TRANSACTION GROWTH EQUITY INCOME BALANCED OPPORTUNITY BOND INCOME BOND
EXPENSES FUND C FUND C FUND C FUND C FUND C FUND C FUND FUND C
- --------------------------- --------- ------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge(1).... None None None None None None None None
<CAPTION>
ANNUAL
OPERATING
EXPENSES
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory Fee............... 0.80% 0.95% 0.75% 0.70% 0.65% 0.55% 0.25% 0.55%
Rule 12b-1 Fees............ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.00% 1.00%
Other Expenses(2) (after
waiver or
reimbursement)............ 0.45% 0.40% 0.30% 0.40% 0.30% 0.10% 0.50% 0.25%
--- --- --- --- --- --- --- ---
Total Operating Expenses(2)
(after waiver or
reimbursement)............ 2.25% 2.35% 2.05% 2.10% 1.95% 1.65% 0.75% 1.80%
--- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- ---
</TABLE>
- ------------------------------
(1) On purchases of up to $1 million, a contingent deferred sales charge of
1.00% will be assessed on shares redeemed within one year of purchase. See
"Purchase of Shares."
(2) The "Total Operating Expenses" charged to each Fund and the corresponding
Portfolio will not exceed the percentages listed above. Touchstone
Advisors, as sponsor (the "Sponsor") of the Trust, has agreed to waive or
reimburse certain of the Operating Expenses of each Fund and the
corresponding Portfolio (the "Sponsor Agreement") (as used herein,
"Operating Expenses" includes amortization of organizational expenses but
is exclusive of interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses) such
that, after such waivers or reimbursements, the aggregate Operating
Expenses of each Fund and (except in the case of the Standby Income Fund)
the corresponding Portfolio will not exceed on an annual basis the "Total
Operating Expenses" listed in "Summary of Expenses" above (the "Expense
Caps"). An Expense Cap may be terminated with respect to a Fund by the
Sponsor as of the end of any calendar quarter after December 31, 1996, by
giving at least 30 days prior written notice, and the Sponsor Agreement
will terminate if Touchstone Advisors (or an affiliate that has assumed
such obligations) ceases to be the Sponsor of the Trust or the Advisor of
the Portfolio Trust.
3
<PAGE>
For the year ended December 31, 1995, without the Expense Caps, "Other
Expenses" and "Total Operating Expenses" of the Fund and any corresponding
Portfolio would have been the following respective percentages of the Fund's
average daily net assets: Emerging Growth Fund, 6.80%, 8.60%; International
Equity Fund, 3.77%, 5.72%; Growth & Income Fund, 36.74%, 38.49%; Balanced Fund,
6.59%, 8.29%; Income Opportunity Fund, 7.29%, 8.94%; Bond Fund, 35.98%, 37.53%;
Standby Income Fund, 2.56%, 2.81%; and Municipal Bond Fund, 6.96%, 8.51%.
For more information about each Fund's and each Portfolio's expenses see
"Advisor and Portfolio Advisors;" "Purchase of Shares;" "Redemption of Shares;"
and "Management of the Trust and the Portfolio Trust."
EXAMPLE. You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return; (2) the total operating expense ratio included in
the "Summary of Expenses" above; and (3) redemption at the end of each time
period:
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GROWTH & INCOME STANDBY MUNICIPAL
GROWTH EQUITY INCOME BALANCED OPPORTUNITY BOND INCOME BOND
FUND C FUND C FUND C FUND C FUND C FUND C FUND FUND C
--------- ----------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year............ $ 23 $ 24 $ 21 $ 21 $ 20 $ 17 $ 8 $ 18
3 Years........... $ 70 $ 73 $ 64 $ 66 $ 61 $ 52 $ 24 $ 57
5 Years........... $ 120 $ 126 $ 110 $ 113 $ 105 $ 90 $ 42 $ 97
10 Years.......... $ 258 $ 269 $ 238 $ 243 $ 227 $ 195 $ 93 $ 212
</TABLE>
The purpose of this table is to assist a shareholder in understanding the
various costs and expenses that a shareholder in a Fund will bear directly or
indirectly. This example should not be considered to be a representation of past
or future expenses; actual expenses may be greater or less than those shown.
Moreover, although the table assumes a 5% annual return, a Fund's actual
performance will vary and may result in an actual return greater or less than
5%. Because each Fund (other than the Standby Income Fund) makes payments under
a distribution and services plan in accordance with Rule 12b-1, a shareholder
who holds shares of a Fund (other than the Standby Income Fund) for an extended
period of time may pay a combination of sales load and 12b-1 fees in excess of
the economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data for
each Fund for the period indicated and has been audited by Coopers & Lybrand
L.L.P., the Trust's independent accountants, whose report thereon appears in the
Trust's Annual Report which is included in the Trust's Statement of Additional
Information.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED DECEMBER 31,
1995 AND THE PERIOD ENDED DECEMBER 31, 1994 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
TOUCHSTONE TOUCHSTONE TOUCHSTONE
EMERGING INTERNATIONAL GROWTH & TOUCHSTONE
GROWTH EQUITY INCOME BALANCED
FUND C FUND C FUND C FUND C
------------------- ------------------- ------------------- -------------------
1995 1994(A) 1995 1994(A) 1995(B) 1994(A) 1995 1994(A)
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.11 $10.00 $9.10 $10.00 $10.01 $10.00 $9.97 $10.00
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.02) 0.13 (0.05) -- (0.01) 0.82 0.25 0.07
Net realized and unrealized gain (loss)
on investments 2.16 0.12 0.47 (0.90) 3.51 (0.81) 1.98 (0.05)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 2.14 0.25 0.42 (0.90) 3.50 0.01 2.23 0.02
-------- -------- -------- -------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.01) (0.13) -- -- (0.42) -- (0.27) (0.05)
Net capital gain (0.82) (0.01) -- -- (0.51) -- (0.63) --
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (0.83) (0.14) -- -- (0.93) -- (0.90) (0.05)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $11.42 $10.11 $9.52 $ 9.10 $12.58 $10.01 $11.30 $ 9.97
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN(C) 21.15% 10.73% 4.62% (32.08)% 35.22% 0.41% 22.40% 0.82%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $ 1,279 $ 1,022 $ 2,482 $ 2,274 $328 $21 $ 1,380 $999
Ratios to average net assets(d)
Expenses 2.25% 2.50% 2.35% 2.60% 2.05% 2.30% 2.10% 2.35%
Net investment income (loss) (0.81)% 5.29% (0.63)% (1.10)% (0.07)% (0.15)% 1.63% 2.00%
<CAPTION>
TOUCHSTONE
INCOME TOUCHSTONE TOUCHSTONE
OPPORTUNITY TOUCHSTONE STANDBY MUNICIPAL BOND
FUND C BOND FUND C INCOME FUND (E) FUND C
------------------- ------------------- ------------------- -------------------
1995 1994(A) 1995 1994(A) 1995 1994(A) 1995 1994(A)
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.08 $10.00 $9.91 $10.00 $10.03 $10.00 $9.88 $10.00
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.14 0.21 0.54 0.87 0.55 0.11 0.47 0.11
Net realized and unrealized gain (loss)
on investments 0.74 (0.94) 1.03 (0.85) (0.02) 0.03 0.32 (0.14)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 1.88 (0.73) 1.57 0.02 0.53 0.14 0.79 (0.03)
-------- -------- -------- -------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1.16) (0.19) (0.90) (0.11) (0.55) (0.11) (0.49) (0.09)
Net capital gain -- -- (0.05) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (1.16) (0.19) (0.95) (0.11) -- (0.11) (0.49) (0.09)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.80 $ 9.08 $10.53 $ 9.91 $10.01 $10.03 $10.18 $ 9.88
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN(C) 22.18% (26.99)% 16.29% 0.78% 5.71% 4.81% 8.14% (1.27)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $1,203 $926 $340 $22 $5,910 $5,048 $1,134 $991
Ratios to average net assets(d)
Expenses 1.95% 2.20% 1.65% 1.90% 0.75% 1.00% 1.80% 2.05%
Net investment income (loss) 11.70% 7.83% 5.43% 5.12% 5.32% 4.54% 3.99% 3.65%
</TABLE>
- ------------------------------
(a) The Fund commenced operations on October 3, 1994.
(b) Per share amounts have been calculated using the average share method,
which more appropriately represents the per share data for the period since
the use of the undistributed method does not accord with the results of
operations.
(c) Total return is annualized for the period ended December 31, 1994. Total
return is calculated without a sales charge assuming a purchase of shares
on the first day and a sale of shares on the last day of the period.
(d) Ratios are annualized. Includes the Fund's proportionate share of any
corresponding Portfolio's expenses. If the waiver and reimbursement had not
been in place for the periods ended December 31, 1995 and 1994, and after
consideration of state expense limitations, the ratios of expenses to
average net assets would have been 2.50% for each Fund.
(e) The portfolio turnover rate of the Touchstone Standby Income Fund for 1995
was 142% and for the period ended 1994 it was 0%.
5
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Trust seeks to achieve the investment objective of each Fund by
investing all the Assets of the Fund (with the exception of the Standby Income
Fund) in the corresponding Portfolio, each of which has the same investment
objective as the corresponding Fund. The Standby Income Fund will invest
directly in securities designed to meet the investment objective of that Fund.
There can be no assurance that the investment objective of any Fund or Portfolio
will be achieved. The investment objectives of each Fund and Portfolio may be
changed without approval by investors, but not without thirty days prior notice.
If there is a change in the investment objectives of a Fund, such changes could
result in a Fund having investment objectives different than the objectives that
a shareholder considered appropriate at the time of investment. If a Fund's
investment objective is changed, shareholders should consider whether the Fund
remains an appropriate investment in light of their then-current financial
position and needs.
Since the investment characteristics of each Fund (with the exception of the
Standby Income Fund) will correspond directly to those of the corresponding
Portfolio, the following is a discussion of the various investment policies of
each Portfolio and of the Standby Income Fund. Further information about the
investment policies of each Portfolio and the Standby Income Fund, including a
list of those restrictions on its investment activities that are "fundamental"
(I.E., that cannot be changed without shareholder approval), appears in the
Statement of Additional Information of the Trust.
EMERGING GROWTH PORTFOLIO
The primary investment objective of the Portfolio is capital appreciation
with income as a secondary investment objective. The Portfolio attempts to
achieve its investment objectives through investment primarily in the common
stock of smaller, rapidly growing companies. With respect to the Emerging Growth
Portfolio, "emerging growth" companies are smaller companies with total market
capitalization less than the average of Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"), which is currently approximately $20 billion, which
the Portfolio Advisor believes have earnings that may be expected to grow faster
than the U.S. economy in general because of new products, structural changes in
the economy or management changes.
Under normal circumstances, at least 65% of the Portfolio's total assets
will be invested in securities of emerging growth companies. In selecting
investments for the Portfolio, the Portfolio Advisor seeks emerging growth
companies that it believes are undervalued in the marketplace. These companies
typically possess a relatively high rate of return on invested capital so that
future growth can be financed from internal sources. Companies in which the
Portfolio is likely to invest may have limited product lines, markets or
financial resources and may lack management depth. The securities of these
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. A portion of the Portfolio's assets may be
invested in the securities of larger companies which the Portfolio Advisor
believes offer comparable appreciation or to ensure sufficient liquidity. Since
the Portfolio invests primarily in smaller companies, the Portfolio invests only
to a limited extent in larger companies in emerging industries.
In addition to common stocks, the Portfolio may invest in preferred stocks,
convertible bonds and other fixed-income instruments not issued by emerging
growth companies which present opportunities for capital appreciation as well as
income. Such instruments include U.S. Treasury obligations, corporate bonds,
debentures, mortgage related securities issued by various governmental agencies,
such as Government National Mortgage Association ("GNMA") and government related
organizations, such as the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC"), including collateralized
mortgage obligations ("CMOs"), privately issued mortgage related securities
(including CMOs), stripped U.S. Government and mortgage related securities,
non-publicly registered securities, and asset backed securities. The Portfolio
will only invest in bonds and preferred stock rated at least Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or, if unrated, determined by the Portfolio Advisor to be of comparable
quality. Bonds rated Baa or BBB possess some speculative characteristics.
The Portfolio may invest up to 20% of its assets in foreign securities
principally traded outside the United States and in American Depositary Receipts
("ADRs"). The Portfolio may not invest more than 10% of its total assets in the
securities of companies based in an emerging market. See "Risk Factors and
Certain Investment Techniques -- Foreign Securities" and "-- Risks Associated
with 'Emerging Markets' Securities."
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INTERNATIONAL EQUITY PORTFOLIO
The investment objective of the Portfolio is long term capital appreciation
by investing primarily in equity securities of companies based outside the
United States. The Portfolio expects that initially its investments will be
concentrated in Europe, Asia, the Far East, North and South America, Africa, the
Pacific Rim and Latin America.
The Portfolio may invest in securities of companies in emerging markets (see
"Risk Factors and Certain Investment Techniques -- Risks Associated with
'Emerging Markets' Securities"), but does not expect to invest more than 40% of
its total assets in securities of issuers in emerging markets. The Portfolio
will invest in issuers of companies from at least three countries outside the
United States.
Under normal market conditions, the Portfolio will invest a minimum of 80%
of its total assets in equity securities of non-U.S. issuers. With respect to
the International Equity Portfolio, "equity securities" means common stock and
preferred stock (including convertible preferred stock), bonds, notes and
debentures convertible into common or preferred stock, stock purchase warrants
and rights, equity interests in trusts and partnerships, and depository receipts
of companies.
The Portfolio may invest up to 20% of its total assets in debt securities
issued by U.S. or foreign banks, corporations or other business organizations,
or by U.S. or foreign governments or governmental entities (including
supranational organizations such as the International Bank for Reconstruction
and Development, I.E., the "World Bank"). The Portfolio may choose to take
advantage of opportunities for capital appreciation from debt securities by
reason of anticipated changes in such factors as interest rates, currency
relationships, or credit standing of individual issuers. The Portfolio will
invest less than 35% of its total assets in lower quality, high yielding
securities, commonly known as "junk bonds." See "Risk Factors and Certain
Investment Techniques -- Medium and Lower Rated and Unrated Securities." The
Portfolio will not invest in preferred stocks or debt securities rated less than
B by S&P and Moody's. Investing in securities issued by foreign companies and
governments involves considerations and potential risks not typically associated
with investing in obligations issued by the U.S. government and domestic
corporations. Investments in "emerging markets" securities include the
securities of issuers based in some of the world's underdeveloped markets,
including Eastern Europe. Investments in securities of issuers based in
underdeveloped countries entail all of the risks of investing in foreign issuers
to a heightened degree. See "Risk Factors and Certain Investment Techniques --
Foreign Securities" and "-- Risks Associated with 'Emerging Markets'
Securities."
The portfolio will not invest in any illiquid securities except for Rule
144A securities. See "Additional Risks and Investment Techniques -- Illiquid
Securities" and "-- Non-Publicly Traded ("Restricted") Securities and Rule 144A
Securities."
GROWTH & INCOME PORTFOLIO
The investment objective of the Portfolio is long term capital appreciation
and dividend income by investing primarily in a diversified portfolio of common
stocks of high quality companies that, in the Portfolio Advisor's opinion, have
above average growth potential at the time of purchase. In general, these
securities are characterized as having above average dividend yields and below
average price earnings ratios relative to the stock market in general, as
measured by the S&P 500. Other factors, such as earnings and dividend growth
prospects as well as industry outlook and market share, also are considered.
Under normal conditions, at least 80% of the Portfolio's total assets will be
invested in common stocks and at least 65% of the Portfolio's total assets will
be invested in common stocks that, at the time of investment, will be expected
to pay regular dividends.
The Portfolio will generally invest a majority of its assets in common
stocks of issuers with total market capitalization of $1 billion or greater at
the time of purchase, but may invest in securities of companies having various
levels of market capitalization, including smaller companies whose securities
may be more volatile and less liquid than securities issued by larger companies
with higher levels of net worth. Investments will be in companies in various
industries.
The Portfolio may also invest up to 20% of its total assets in foreign
securities, including securities of foreign issuers in the form of ADRs. The
Portfolio may not invest more than 5% of its total assets in the securities of
companies based in an emerging market. See "Risk Factors and Certain Investment
Techniques -- Foreign Securities" and "-- Risks Associated with 'Emerging
Markets' Securities."
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The Portfolio may invest under normal circumstances up to 20% of its total
assets in preferred stock, convertible bonds and other fixed-income instruments
rated at least Baa by Moody's or BBB by S&P. The Portfolio may invest up to 5%
of its total assets in bonds rated below Baa by Moody's or BBB by S&P. See "Risk
Factors and Certain Investment Techniques -- Medium and Lower Rated ("Junk
Bonds") and Unrated Debt Securities."
BALANCED PORTFOLIO
The investment objective of the Portfolio is growth of capital and income
through investment in common stocks and fixed-income securities. Under normal
circumstances, the Advisor expects approximately 60% of the Portfolio's total
assets to be invested in equity securities and 40% of its total assets to be
invested in fixed-income securities. For this purpose, "equity securities"
includes warrants, preferred stock and securities convertible into equity
securities. The Portfolio will, under normal circumstances, invest at least 25%
of the Portfolio's total assets in fixed-income senior securities. For purposes
of this requirement, only the fixed-income component of a convertible bond will
be considered.
The Portfolio may invest in the types of fixed-income securities (including
preferred stock), with the same rating requirements, described below with
respect to the Bond Portfolio.
Up to one-third of the Portfolio's assets may be invested in foreign equity
or fixed-income securities. No more than 15% of the Portfolio's total assets
will be invested in the securities of issuers based in emerging markets. See
"Risk Factors and Certain Investment Techniques -- Foreign Securities" and "--
Risks Associated with 'Emerging Markets' Securities."
INCOME OPPORTUNITY PORTFOLIO
The investment objective of the Portfolio is high current income from
investment in a diversified portfolio of high yield, non-investment grade debt
securities of both U.S. and non-U.S. issuers and in mortgage related securities.
To the extent consistent with its primary objective, the Portfolio will also
seek capital appreciation. The Portfolio intends to invest a portion of its
assets in high risk, low quality debt securities of both corporate and
government issuers, commonly referred to as "junk bonds," and regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation as well as
debt securities of issuers located in emerging market countries.
The Portfolio may invest in debt obligations (which may be denominated in
U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing authority)
or their agencies or instrumentalities, and debt obligations issued by U.S.
corporations denominated in non-U.S. currencies. These investments may include
debt obligations such as bonds (including sinking fund and callable bonds),
debentures and notes (including variable and floating rate instruments),
together with preferred stocks and zero coupon securities. The Portfolio may
also invest in loans, other direct debt obligations and loan participations.
Up to 100% of the assets of the Portfolio may be invested in foreign
fixed-income securities, but no more than 30% of the total assets of the
Portfolio may be invested in non-U.S. dollar-denominated securities. The
Portfolio may invest up to 65% of its total assets in debt securities of issuers
located in emerging market countries. See "Risk Factors and Certain Investment
Techniques -- Foreign Securities."
The Portfolio will generally invest in securities rated BBB or lower by S&P
or Baa or lower by Moody's or, if unrated, of comparable quality in the opinion
of the Portfolio Advisor. Securities rated BBB by S&P or Baa by Moody's possess
some speculative characteristics. See the Appendix hereto for a description of
Moody's and S&P ratings and "Risk Factors and Certain Investment Techniques --
Medium and Lower Rated and Unrated Securities" for a description of certain
risks associated with lower rated securities.
In addition to high yield corporate bonds, the Portfolio will also invest in
mortgage related securities which represent pools of mortgage loans assembled
for sale to investors by various governmental agencies, such as GNMA, and
government related organizations, such as FNMA and FHLMC, as well as by private
issuers, such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies.
The Portfolio may attempt to hedge against unfavorable changes in currency
exchange rates by engaging in forward currency transactions and trading currency
futures contracts and options thereon.
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<PAGE>
BOND PORTFOLIO
The investment objective of the Portfolio is to provide high current income
primarily through investments in investment grade bonds. Investment grade bonds
are those rated at least Baa by Moody's or BBB by S&P or unrated bonds
considered by the Portfolio Advisor to be of comparable quality. Under normal
circumstances, at least 65% of the value of the Portfolio's total assets will be
invested in bonds or debentures (as described in the first sentence of the next
paragraph). The average maturity of the Portfolio will be between five and
fifteen years. The average maturity of the Portfolio's holdings may be shortened
in order to preserve capital if the Portfolio Advisor anticipates a rise in
interest rates. Conversely, the maturity may be lengthened to maximize returns
if interest rates are expected to decline.
The Portfolio invests in U.S. Treasury obligations, corporate bonds,
debentures, mortgage related securities issued by various governmental agencies,
such as GNMA and government related organizations, such as FNMA and FHLMC,
including CMOs, privately issued mortgage related securities (including CMOs),
stripped U.S. Government and mortgage related securities, non-publicly
registered securities, asset backed securities, and Eurodollar certificates of
deposit and Eurodollar bonds. It will also invest in preferred stock. No more
than 60% of the Portfolio's total assets will be invested in mortgage related
securities. The Portfolio will not invest in any bond rated lower than B by S&P
or by Moody's. The Portfolio will invest less than 35% of its assets in U.S. or
foreign non-investment grade (junk) bonds or preferred stock. High risk, lower
quality debt securities are regarded as predominantly speculative with respect
to the issuer's ability to pay interest and repay principal in accordance with
the terms of the obligation. Up to 20% of the Portfolio's assets may be invested
in fixed-income securities denominated in foreign currencies. These foreign
securities must meet the same rating and quality standards as the Portfolio's
U.S. dollar-denominated investments. See "Risk Factors and Certain Investment
Techniques -- Foreign Securities."
STANDBY INCOME FUND
The investment objective of the Fund is high current income to the extent
consistent with relative stability of principal. Unlike money market funds,
however, the Fund does not attempt to maintain a constant $1.00 per share net
asset value.
Investments will be diversified among a broad range of money market
instruments including short term securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and repurchase agreements with
respect to those securities. The Fund may also invest in corporate bonds,
commercial paper, certificates of deposit ("CDs") and bankers' acceptances.
Up to 50% of the Fund's total assets may be invested in U.S.
dollar-denominated Yankee Bonds or Eurodollar certificates of deposit issued by
U.S. banks. Yankee Bonds are instruments denominated in U.S. dollars which are
issued in the U.S. by foreign issuers. Eurodollar certificates of deposit are
dollar-denominated certificates of deposit which are issued in Europe. Up to 20%
of the Fund's total assets may be invested in fixed-income securities
denominated in foreign currencies. These securities include debt securities
issued by foreign banks, corporations, or other business organizations or by
foreign governments or governmental entities (including supra-national
organizations such as the World Bank). The value of securities denominated in
currencies other than the U.S. dollar will change in response to relative
currency values. See "Risk Factors and Certain Investment Techniques -- Foreign
Securities and -- Currency Exchange Rates."
The Fund invests only in investment grade securities (including foreign
securities) rated Baa or higher by Moody's or BBB or higher by S&P, or in
non-rated securities which the Advisor believes to be of comparable quality. The
Fund's dollar-weighted average maturity will normally be less than one year.
However, the Fund may invest in fixed-income corporate debt with maturities of
greater than twelve months; but, no individual security will have a weighted
average maturity (or average life in the case of mortgage backed securities) of
greater than five years. Bonds rated Baa by Moody's or BBB by S&P have some
speculative characteristics. See "Risk Factors and Certain Investment
Techniques."
MUNICIPAL BOND PORTFOLIO
The investment objective of the Portfolio is to provide a high level of
current income that is excluded from regular federal income taxation. The
Portfolio seeks to achieve its objective through investment in a diversified
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portfolio of general obligation, revenue and private activity bonds and notes
that are issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities, or multistate agencies or authorities, the
interest on which, in the opinion of counsel to the issuer of the instrument, is
excluded from gross income for regular federal income tax purposes ("Municipal
Obligations").
The Portfolio expects to maintain a weighted average maturity of five to ten
years. Portfolio composition generally covers a range of maturities with broad
geographic and issuer diversification.
The Portfolio limits its investments to investment grade Municipal
Obligations that are bonds rated at least Baa by Moody's or BBB by S&P and
municipal notes rated MIG-1 or MIG-2 by Moody's or SP-1+, SP-1 or SP-2 by S&P,
as well as in unrated securities determined to be of comparable investment grade
quality by the Portfolio Advisor. Bonds rated Baa by Moody's or BBB by S&P may
have speculative characteristics.
The Portfolio may also invest in variable rate Municipal Obligations, most
of which permit the holder thereof to receive the principal amount on demand
upon from one day to one year's notice.
For more information about Municipal Obligations see "Additional Risks and
Investment Techniques -- Municipal Obligations" and the Trust's Statement of
Additional Information.
It is a fundamental policy of the Portfolio that under normal circumstances
at least 80% of the Portfolio's total assets will be invested in Municipal
Obligations, and it is a non-fundamental "operating" policy that at least 65% of
its total assets will be invested in bonds or debentures. The Portfolio will not
invest more than 25% of its total assets in Municipal Obligations whose issuers
are located in the same state or more than 25% of its total assets in tax exempt
Municipal Obligations that are secured by revenues from entities in any one of
the following categories: hospitals and health facilities; ports and airports;
or colleges and universities. The Portfolio will also not invest more than 25%
of its total assets in private activity bonds of similar projects. The Portfolio
may, however, invest more than 25% of its total assets in Municipal Obligations
of one or more of the following types: turnpikes and toll roads; public housing
authorities, general obligations of states and localities; state and local
housing finance authorities; and municipal utilities systems.
The Portfolio reserves the right to invest without limit in private activity
bonds, although it does not currently expect to invest more than 20% of its
total assets in private activity bonds. Dividends attributable to interest
income on certain types of private activity bonds issued after August 7, 1986 to
finance nongovernmental activities are a specific tax preference item for
purposes of the federal individual and corporate alternative minimum taxes.
Dividends derived from interest income on all Municipal Obligations are a
component of the "current earnings" adjustment item for purposes of the federal
corporate alternative minimum tax.
When the Portfolio is maintaining a temporary defensive position, it may
invest in short term investments, some of which may not be tax exempt.
Securities eligible for short term investment by the Portfolio are tax exempt
notes of municipal issuers having, at the time of purchase, a rating within the
three highest grades of Moody's or S&P or, if not rated, having an issue of
outstanding Municipal Obligations rated within the three highest grades by
Moody's or S&P, and taxable short term instruments having quality
characteristics comparable to those for Municipal Obligations. The Portfolio may
invest in temporary investments for defensive reasons in anticipation of a
market decline. At no time will more than 20% of the Portfolio's total assets be
invested in temporary investments unless the Portfolio has adopted a defensive
investment policy. The Portfolio will purchase tax exempt or taxable temporary
investments pending the investment of the proceeds from the sale of the
securities held by the Portfolio or from the purchase of the Portfolio's shares
by shareholders or in order to have highly liquid securities available to meet
anticipated redemptions. To the extent that the Portfolio holds temporary
investments, it may not achieve its investment objective.
The Portfolio's investments in private activity bonds and taxable
instruments will not cause the Portfolio to have more than 25% of its total
assets invested in any one industry.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK- STRUCTURE
For purposes of the following discussion about Hub and
Spoke-Registered Trademark- Structure, the term "Fund" shall not include the
Standby Income Fund.
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<PAGE>
The Trust and the Portfolio Trust are utilizing certain proprietary rights,
know-how and financial services referred to as Hub and
Spoke-Registered Trademark- from Signature Financial Group, Inc. ("Signature
Financial"), of which Signature Financial Services, Inc. ("Signature" or the
"Administrator") is a wholly owned subsidiary. Hub and
Spoke-Registered Trademark- is a registered service mark of Signature Financial.
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, each Fund seeks to achieve its investment objective by
investing all of its Assets in the corresponding Portfolio, a series of a
separate registered investment company with the same investment objectives as
the Fund. In addition to selling a beneficial interest to a Fund, a Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in a Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, shareholders in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in a Portfolio. Such
differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in a Portfolio is available
from Touchstone Securities, Inc. ("Touchstone Securities" or the "Distributor")
at (800) 669-2796 (press 3). The Hub and Spoke-Registered Trademark- Structure
has been developed relatively recently, so shareholders should carefully
consider this investment approach.
The investment objective of a Fund may be changed without the approval of
the Fund's shareholders, but not without written notice thereof to shareholders
thirty days prior to implementing the change. If there were a change in a Fund's
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial positions and
needs. Shareholders shall receive thirty days prior written notice of any
changes in the Funds' or the Portfolios' investment objectives. For a
description of the investment objectives, policies and restrictions of the
Funds, see "Investment Objectives, Policies and Risks" on page 6 and "Investment
Restrictions" in the Statement of Additional Information.
Except as permitted by the Securities and Exchange Commission, whenever a
Fund is requested to vote on matters pertaining to the corresponding Portfolio,
the Fund will hold a meeting of shareholders of the Fund and will cast all of
its votes in the same proportion as the votes of the Fund's shareholders. Fund
shareholders who do not vote will not affect a Fund's vote at the Portfolio
meeting. The percentage of a Fund's votes representing Fund shareholders not
voting will be voted by the Trustees of the Trust in the same proportion as a
Fund's shareholders who do, in fact, vote. Even if the Trust votes all its
shares at the Portfolio meeting, funds with greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a larger
fund withdraws from a Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk.
(However, this possibility exists as well for traditionally structured funds
which have large or institutional investors.)
The Trust may withdraw its investment in a Portfolio as a result of certain
changes in a Portfolio's investment objective, policies or restrictions or if
the Board of Trustees of the Trust determines that it is in the best interests
of the Trust to do so. Any such withdrawal could result in a distribution "in
kind" of portfolio securities (as opposed to a cash distribution from the
Portfolio). If securities are distributed, a Fund could incur brokerage, tax or
other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of a Fund. Upon any such withdrawal, the Board
of Trustees of the Trust would consider what action might be taken, including
the investment of all the Assets of the Fund in another pooled investment entity
or the retention of an investment advisor to manage the Fund's Assets in
accordance with the investment policies described above with respect to the
corresponding Portfolio. In the event that the Trustees of the Trust were unable
to accomplish either, the Trustees will seek to determine the best course of
action.
For more information about each Portfolio's investment objectives, policies,
management and expenses, see "Investment Objectives, Policies and Risks,"
"Advisors and Portfolio Advisors" and "Management of the Trust and The Portfolio
Trust." For more information about each Portfolio's investment restrictions see
the Statement of Additional Information.
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RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES
For purposes of the following discussion under this caption, the term
"Portfolio" shall include the Standby Income Fund.
FOREIGN SECURITIES. Investing in securities issued by foreign companies and
governments involves considerations and potential risks not typically associated
with investing in obligations issued by the U.S. government and domestic
corporations. Less information may be available about foreign companies than
about domestic companies and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions and
custody fees are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing contractual
obligations and could be subject to extended clearance and settlement periods.
RISKS ASSOCIATED WITH "EMERGING MARKETS" SECURITIES. Investments in
"emerging markets" securities include the securities of issuers based in some of
the world's underdeveloped markets, including Eastern Europe. Investments in
securities of issuers based in underdeveloped countries entail all of the risks
of investing in foreign issuers outlined in this section to a heightened degree.
These heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the smaller size of the market for such securities and a low or nonexistent
volume of trading, resulting in a lack of liquidity and in price volatility;
(iii) certain national policies which may restrict a Portfolio's investment
opportunities including restrictions on investing in issuers in industries
deemed sensitive to relevant national interests; and (iv) in the case of Eastern
Europe, the absence of developed capital market and legal structures governing
private or foreign investment and private property and the possibility that
recent favorable economic and political developments could be slowed or reversed
by unanticipated events.
So long as the Communist Party continues to exercise a significant or, in
some cases, dominant role in Eastern European countries, investments in such
countries will involve risk of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, and in many cases
without adequate compensation, and there is no assurance that such expropriation
will not occur in the future. In the event of such expropriation, a Portfolio
could lose a substantial portion of any investments it has made in the affected
countries. Finally, even though certain Eastern European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial in
relation to the actual market values and may be adverse to Fund shareholders.
CURRENCY EXCHANGE RATES. A Portfolio's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Portfolio's
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign
governments or central banks or by currency controls or political developments
in the United States or abroad.
MEDIUM AND LOWER RATED ("JUNK BONDS") AND UNRATED SECURITIES. Securities
rated in the fourth highest category by S&P or Moody's, although considered
investment grade, may possess speculative characteristics, and changes in
economic or other conditions are more likely to impair the ability of issuers of
these securities to make interest and principal payments than is the case with
respect to issuers of higher grade bonds.
Generally, medium or lower rated securities and unrated securities of
comparable quality, sometimes referred to as "junk bonds," offer a higher
current yield than is offered by higher rated securities, but also (i) will
likely have
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some quality and protective characteristics that, in the judgment of the rating
organizations, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (ii) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. The yield of junk bonds will fluctuate over time.
The market values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, medium and lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. Since the risk of
default is higher for lower rated debt securities, the Portfolio Advisor's
research and credit analysis are an especially important part of managing
securities of this type held by a Portfolio. In light of these risks, the Board
of Trustees has instructed the Portfolio Advisor, in evaluating the
creditworthiness of an issue, whether rated or unrated, to take various factors
into consideration, which may include, as applicable, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
medium and lower rated or unrated securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets may make it more difficult for the Portfolios to obtain accurate market
quotations for purposes of valuing their respective portfolios and calculating
their respective net asset values. Moreover, the lack of a liquid trading market
may restrict the availability of securities for the Portfolios to purchase and
may also have the effect of limiting the ability of a Portfolio to sell
securities at their fair value either to meet redemption requests or to respond
to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for shareholders. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by a Portfolio may decline relatively
proportionately more than a portfolio consisting of higher rated securities. If
a Portfolio experiences unexpected net redemptions, it may be forced to sell its
higher rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Portfolio and increasing the exposure of the Portfolio to
the risks of lower rated securities. Investments in zero coupon bonds may be
more speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
Subsequent to its purchase by a Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Portfolio. Neither event will require sale of these securities by the
Portfolio, but the Portfolio Advisor will consider this event in its
determination of whether the Portfolio should continue to hold the securities.
ADVISOR AND PORTFOLIO ADVISORS
ADVISOR
Touchstone Advisors, Inc., located at 311 Pike Street, Cincinnati, Ohio
45202, serves as the investment advisor to the Portfolio Trust and, accordingly,
as investment advisor to each of the Portfolios and to the Standby Income Fund.
The Advisor is a wholly-owned subsidiary of IFS Financial Services, Inc., which
is a wholly-owned subsidiary of Western-Southern Life Assurance Company.
Western-Southern Life Assurance Company is a wholly-owned subsidiary of The
Western and Southern Life Insurance Company.
The Portfolio Trust (as to each of the Portfolios) and the Select Advisors
Trust A (only with respect to the Standby Income Fund) have entered into
investment advisory agreements (the "Advisory Agreements") with the Advisor
which, in turn, has entered into a portfolio advisory agreement ("Portfolio
Agreement") with each Portfolio Advisor selected by the Advisor for the
Portfolios and for the Standby Income Fund. It is the Advisor's responsibility
to select, subject to the review and approval of the Board of Trustees of the
Portfolio Trust and (in the case of the
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Standby Income Fund) the Board of Trustees of the Select Advisors Trust A,
portfolio advisors who have distinguished themselves by able performance in
their respective areas of expertise in asset management and to review their
continued performance.
Subject to the supervision and direction of the respective Board of
Trustees, the Advisor provides investment management evaluation services
principally by performing initial due diligence on prospective Portfolio
Advisors and thereafter monitoring Portfolio Advisor performance through
quantitative and qualitative analysis as well as periodic in-person, telephonic
and written consultations with Portfolio Advisors. In evaluating prospective
Portfolio Advisors, the Advisor considers, among other factors, each Portfolio
Advisor's level of expertise; relative performance and consistency of
performance over a minimum period of five years; level of adherence to
investment discipline or philosophy; personnel, facilities and financial
strength; and quality of service and client communications. The Advisor has
responsibility for communicating performance expectations and evaluations to
each Portfolio Advisor and ultimately recommending to the respective Board of
Trustees whether the Portfolio Advisor's contract should be renewed, modified or
terminated. The Advisor provides written reports to the respective Board of
Trustees regarding the results of its evaluation and monitoring functions. The
Advisor is also responsible for conducting all operations of the Portfolios and
Funds except those operations subcontracted to the Portfolio Advisors,
custodian, transfer agent and Administrator.
The Portfolio Advisor of each Portfolio and of the Standby Income Fund makes
all the day-to-day decisions to buy or sell particular portfolio securities.
The Emerging Growth Portfolio will be managed by two Portfolio Advisors,
each managing a portion of the Portfolio's assets. The Advisor will allocate
varying percentages of the assets of the Portfolio to each Portfolio Advisor,
which percentages will be adjusted from time to time by the Advisor based on its
evaluation of each Portfolio Advisor.
The Balanced Portfolio will also be managed by two Portfolio Advisors. One
Portfolio Advisor will manage the Portfolio's equity investments, while the
second will manage the Portfolio's fixed-income and cash equivalents
investments. The Advisor may adjust from time to time the portion of the
Balanced Portfolio's assets invested in equities and fixed-income securities,
although the Portfolio is expected to remain relatively static in its investment
allocation between equities and fixed-income securities.
Each Portfolio and the Standby Income Fund pays the Advisor a fee for its
services that is computed daily and paid monthly at an annual rate equal to the
percentage of the value of the average daily net assets of the Portfolio or Fund
as follows: Emerging Growth Portfolio -- 0.80%; International Equity Portfolio
- -- 0.95%; Growth & Income Portfolio -- 0.75%; Balanced Portfolio -- 0.70%;
Income Opportunity Portfolio -- 0.65%; Bond Portfolio -- 0.55%; Standby Income
Fund -- 0.25%; and Municipal Bond Portfolio -- 0.55%. The investment advisory
fee paid by the International Equity, Emerging Growth and Growth & Income
Portfolios is higher than that of most mutual funds. The Advisor in turn pays
each Portfolio Advisor a fee for its services provided to the Portfolio or Fund
that is computed daily and paid monthly at an annual rate equal to the
percentage specified below of the value of the average daily net assets of the
Portfolio or Fund managed by that Portfolio Advisor:
<TABLE>
<S> <C>
EMERGING GROWTH PORTFOLIO
David L. Babson & Company, Inc. 0.50%
Westfield Capital Management 0.45% of the first $10 million
Company, Inc. 0.40% of the next $40 million
0.35% thereafter
INTERNATIONAL EQUITY PORTFOLIO
BEA Associates 0.85% on the first $30 million
0.80% on the next $20 million
0.70% on the next $20 million
0.60% thereafter
</TABLE>
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<TABLE>
<S> <C>
GROWTH & INCOME PORTFOLIO
Fort Washington Investment 0.45%
Advisors, Inc.
BALANCED PORTFOLIO
Harbor Capital Management 0.50% of the first $75 million
Company Inc. 0.40% of the next $75 million
0.30% thereafter
Morgan Grenfell Capital 0.35% on the first $40 million
Management, Inc. 0.30% thereafter
INCOME OPPORTUNITY PORTFOLIO
Alliance Capital Management L.P. 0.40% on the first $50 million
0.35% on the next $20 million
0.30% on the next $20 million
0.25% thereafter
BOND PORTFOLIO
Fort Washington Investment 0.30%
Advisors, Inc.
STANDBY INCOME FUND
Fort Washington Investment 0.15%
Advisors, Inc.
MUNICIPAL BOND PORTFOLIO
Neuberger & Berman 0.25% of the first $100 million
0.20% of the next $100 million
0.15% thereafter
</TABLE>
Fort Washington Investment Advisors, Inc. is an affiliate of the Advisor,
and shareholders should be aware that the Advisor may be subject to a conflict
of interest when making decisions regarding the retention and compensation of
Fort Washington and may be subject to such a conflict concerning other
particular Portfolio Advisors. However, the Advisor's decisions, including the
identity of a Portfolio Advisor and the specific amount of the Advisor's
compensation to be paid to the Portfolio Advisor, are subject to review and
approval by a majority of the respective Board of Trustees and separately by a
majority of such Trustees who are not affiliated with the Advisor or any of its
affiliates.
CONSULTANT TO THE INVESTMENT ADVISOR
RogersCasey Consulting, Inc. ("RogersCasey") located at One Parklands Drive,
Darien, Connecticut 06829, has been engaged in the business of rendering
portfolio advisor evaluations since 1976. The staff at RogersCasey is
experienced in acting as investment consultants and in developing, implementing
and managing multiple portfolio advisor programs. RogersCasey provides asset
management consulting services to various institutional and individual clients
and provides the Advisor with investment consulting services with respect to
development, implementation and management of the Portfolio Trust's multiple
portfolio manager program. RogersCasey is employed by and its fees are paid by
the Advisor (not by any of the trusts). As consultant, RogersCasey provides
research concerning registered investment advisors to be retained by the Advisor
as portfolio advisors, monitors and assists the Advisor with the periodic
reevaluation of existing portfolio advisors and makes periodic reports to the
Advisor, and the respective Board of Trustees.
PORTFOLIO ADVISORS
Subject to the supervision and direction of the Advisor and, ultimately, the
respective Board of Trustees, each Portfolio Advisor manages the securities held
by the Portfolio or Fund it serves in accordance with the Portfolio's or Fund's
stated investment objective and policies, making investment decisions for the
Portfolio or Fund and placing orders to purchase and sell securities on behalf
of the Portfolio or Fund.
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The following sets forth certain information about each of the Portfolio
Advisors. The individuals employed by the Portfolio Advisor who are primarily
responsible for the day-to-day investment management of the Portfolio or Fund
are named below.
DAVID L. BABSON & COMPANY, INC. ("Babson") serves as one of two Portfolio
Advisors to EMERGING GROWTH PORTFOLIO. As of June 30, 1995, Babson became a
separate and distinct indirect subsidiary of MassMutual Holding Company. Babson
has been registered as an investment advisor under the Investment Advisers Act
of 1940, as amended, (the "Advisers Act"), since 1940. Babson provides
investment advisory services to individual and institutional clients. As of
December 31, 1995, Babson and affiliates had assets under management of $12.6
billion. Eugene H. Gardner, Jr., Peter C. Schlieman and Lance F. James are
primarily responsible for the day-to-day investment management of the portion of
the Portfolio's assets allocated to Babson by the Advisor. Mr. Gardner has been
with Babson since 1990; Mr. Schlieman has been with Babson since 1979; and Mr.
James has been with the firm since 1986. Babson's principal executive offices
are located at One Memorial Drive, Cambridge, Massachusetts 02142-1300.
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC. ("Westfield") serves as the
second Portfolio Advisor to EMERGING GROWTH PORTFOLIO. Westfield is owned 100%
by the active members of its professional staff. Westfield has been registered
as an investment advisor under the Advisers Act since 1989. Westfield provides
investment advisory services to individual and institutional clients. As of
December 31, 1995, Westfield had assets under management of $959 million.
Michael J. Chapman is primarily responsible for the day-to-day investment
management of the portion of the Portfolio's assets allocated to Westfield by
the Advisor. Mr. Chapman (CFA) has been with Westfield since 1990, after 9 years
with Eaton Vance Corporation in Boston, Massachusetts. Westfield's principal
executive offices are located at One Financial Center, Boston, Massachusetts
02111.
BEA ASSOCIATES serves as Portfolio Advisor to INTERNATIONAL EQUITY
PORTFOLIO. BEA Associates is a New York general partnership and is owned 80% by
Credit Suisse Capital Corporation and 20% by CS Advisors Corp., a New York
corporation which is a subsidiary of CS Capital. BEA has been registered as an
investment advisor under the Investment Advisers Act since 1968. BEA Associates
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, BEA Associates had assets under management of $27.4
billion. The portfolio is managed using a team approach co-headed by William
Sterling and Emilio Bassini. Regional portfolio managers include Stephen Swift,
Steven Bleiberg, and Richard Watt. The managers have an average of 17 years
experience in the industry, ranging from 13 years to 24 years. BEA Associates'
principal executive offices are located at 153 East 53rd Street, New York, New
York 10022.
FORT WASHINGTON INVESTMENT ADVISORS, INC. ("Fort Washington") serves as the
Portfolio Advisor to GROWTH & INCOME PORTFOLIO. Fort Washington is owned by The
Western and Southern Life Insurance Company. Fort Washington has been registered
as an investment advisor under the Advisers Act since 1990. Fort Washington
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Fort Washington had assets under management of $7.2
billion. John O'Connor is primarily responsible for the day-to-day investment
management of the Portfolio. Mr. O'Connor (CFA and CPA) joined Western and
Southern/Fort Washington in 1988 and is the Senior Portfolio Manager and
Director of Investment Research. Fort Washington's principal executive offices
are located at 420 East Fourth Street, Cincinnati, Ohio 45202.
HARBOR CAPITAL MANAGEMENT COMPANY, INC. ("Harbor") serves as Portfolio
Advisor to the equity portion of BALANCED PORTFOLIO. Harbor is 85% owned by the
employees of the firm and 15% by Baer Holding Limited of Zurich. Harbor has been
registered as an investment advisor under the Advisers Act since 1979. Harbor
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Harbor had assets under management of $3.6 billion.
Alan S. Fields and Ben Niedermeyer are primarily responsible for the day-to-day
investment management of the equity portion of the Portfolio. Mr. Fields has
been a Managing Director at Harbor since 1979 and Chairman of the Executive
Committee since 1993. Mr. Niedermeyer (CFA) has been a Vice President and
portfolio manager with Harbor since 1992. Harbor's principal executive offices
are located at 125 High Street, 26th Floor, Boston, Massachusetts 02110.
MORGAN GRENFELL CAPITAL MANAGEMENT, INC. ("Morgan Grenfell") serves as
Portfolio Advisor to the fixed-income portion of BALANCED PORTFOLIO. Morgan
Grenfell is owned 100% by Deutsche Bank. Morgan Grenfell has been registered as
an investment advisor under the Advisers Act since 1985. Morgan Grenfell
provides investment
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advisory services to individual and institutional clients. As of December 31,
1995, Morgan Grenfell had assets under management of $7.9 billion. David W.
Baldt is primarily responsible for the day-to-day investment management of the
fixed-income portion of the Portfolio. Mr. Baldt (CFA) joined Morgan Grenfell in
1989. Morgan Grenfell's principal executive offices are located at 885 Third
Avenue, New York, New York 10022.
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance") serves as Portfolio Advisor to
INCOME OPPORTUNITY PORTFOLIO. Alliance is owned 8% by its employees and 59% by
wholly-owned subsidiaries of The Equitable Life Assurance Society of the United
States. The balance of its units are held by the public. Alliance has been
registered as an investment advisor under the Advisers Act since 1971. Alliance
provides investment advisory services to individual and institutional clients.
As of December 31, 1995, Alliance had assets under management of $146.5 billion.
Wayne Lyski and Vicki Fuller are primarily responsible for the day-to-day
investment management of the Portfolio. Mr. Lyski has been with Alliance since
1983 and has 22 years of investment experience. Ms. Fuller (CPA) has been with
Alliance, and its predecessors, since 1985 and has 15 years of investment
experience. Alliance's principal executive offices are located at 1345 Avenue of
the Americas, New York, New York 10105.
FORT WASHINGTON also serves as Portfolio Advisor to the BOND PORTFOLIO and
the STANDBY INCOME FUND. Roger Lanham, Rance Duke and Brendan White are
primarily responsible for the day-to-day investment management of the Bond
Portfolio. Mr. Lanham is a CFA and has been with Western and Southern/Fort
Washington since 1980. Mr. Duke has been with Western and Southern/Fort
Washington since 1978. Mr. White is a CFA and has been with Western and
Southern/Fort Washington since 1993.
Christopher J. Mahony is primarily responsible for the day-to-day investment
management of the Standby Income Fund. Mr. Mahony joined Fort Washington in 1994
after eight years of investment experience with Neuberger & Berman.
NEUBERGER & BERMAN serves as Portfolio Advisor to MUNICIPAL BOND PORTFOLIO.
Neuberger & Berman is 100% employee owned. Neuberger & Berman has been
registered as an investment advisor under the Advisers Act since 1966. Neuberger
& Berman provides investment advisory services to individual and institutional
clients. As of December 31, 1995, Neuberger & Berman had assets under management
of $38 billion. Theresa Havell is primarily responsible for the day-to-day
investment management of the Portfolio. Ms. Havell has been affiliated with
Neuberger & Berman since 1986. Neuberger & Berman's principal executive offices
are located at 605 Third Avenue, New York, New York 10158-3698.
ADDITIONAL RISKS AND INVESTMENT TECHNIQUES
For purposes of the following discussion under this caption, the term
"Portfolio" shall include the Standby Income Fund.
DERIVATIVES. The Portfolios may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset, or market index. Some "derivatives" such as certain
mortgage-related and other asset-backed securities are in many respects like any
other investment, although they may be more volatile or less liquid than more
traditional debt securities. There are, in fact, many different types of
derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and as a
low cost method of gaining exposure to a particular securities market without
investing directly in those securities. However, some derivatives are used for
leverage, which tends to magnify the effects of an instrument's price changes as
market conditions change. Leverage involves the use of a small amount of money
to control a large amount of financial assets, and can in some circumstances,
lead to significant losses. A Portfolio Advisor will use derivatives only in
circumstances where the Portfolio Advisor believes they offer the most economic
means of improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be achieved
using only traditional investment securities or to acquire exposure to changes
in the value of assets or indexes that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative. A description of the derivatives that the Portfolios may use and
some of their associated risks is found below.
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<PAGE>
ADRS, EDRS AND CDRS. ADRs are U.S. dollar-denominated receipts typically
issued by domestic banks or trust companies that represent the deposit with
those entities of securities of a foreign issuer. ADRs are publicly traded on
exchanges or over-the-counter in the United States. European Depositary Receipts
("EDRs"), which are sometimes referred to as Continental Depositary Receipts
("CDRs"), may also be purchased by the Portfolios. EDRs and CDRs are generally
issued by foreign banks and evidence ownership of either foreign or domestic
securities. Certain institutions issuing ADRs or EDRs may not be sponsored by
the issuer of the underlying foreign securities. A non-sponsored depository may
not provide the same shareholder information that a sponsored depository is
required to provide under its contractual arrangements with the issuer of the
underlying foreign securities.
FIXED-INCOME AND OTHER DEBT INSTRUMENT SECURITIES. Fixed-income and other
debt instrument securities include all bonds, high yield or "junk" bonds,
municipal bonds, debentures, U.S. Government securities, mortgage related
securities including government stripped mortgage related securities, zero
coupon securities and custodial receipts. The market value of fixed-income
obligations of the Portfolios will be affected by general changes in interest
rates which will result in increases or decreases in the value of the
obligations held by the Portfolios. The market value of the obligations held by
a Portfolio can be expected to vary inversely to changes in prevailing interest
rates. Shareholders also should recognize that, in periods of declining interest
rates, a Portfolio's yield will tend to be somewhat higher than prevailing
market rates and, in periods of rising interest rates, a Portfolio's yield will
tend to be somewhat lower. Also, when interest rates are falling, the inflow of
net new money to a Portfolio from the continuous sale of its shares will tend to
be invested in instruments producing lower yields than the balance of its
portfolio, thereby reducing the Portfolio's current yield. In periods of rising
interest rates, the opposite can be expected to occur. In addition, securities
in which a Portfolio may invest may not yield as high a level of current income
as might be achieved by investing in securities with less liquidity, less
creditworthiness or longer maturities.
Ratings made available by S&P and Moody's are relative and subjective and
are not absolute standards of quality. Although these ratings are initial
criteria for selection of portfolio investments, a Portfolio Advisor also will
make its own evaluation of these securities. Among the factors that will be
considered are the long term ability of the issuers to pay principal and
interest and general economic trends.
Fixed-income securities may be purchased on a when-issued or
delayed-delivery basis. See "When-Issued and Delayed-Delivery Securities" below.
U.S. GOVERNMENT SECURITIES. Each Portfolio may invest in U.S. Government
securities, which are obligations issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities. Some U.S. Government securities,
such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others are supported by: (i) the
right of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Home Loan Banks; (ii) the discretionary authority of the U.S. government
to purchase the agency's obligations, such as securities of the FNMA; or (iii)
only the credit of the issuer, such as securities of the Student Loan Marketing
Association. No assurance can be given that the U.S. Government will provide
financial support in the future to U.S. Government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities include: (i) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation interests in loans made to foreign
governments or other entities that are so guaranteed. The secondary market for
certain of these participation interests is limited and, therefore, may be
regarded as illiquid.
MORTGAGE RELATED SECURITIES. Each Portfolio may invest in mortgage related
securities. There are several risks associated with mortgage related securities
generally. One is that the monthly cash inflow from the underlying loans may not
be sufficient to meet the monthly payment requirements of the mortgage related
security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten
the term of the underlying mortgage pool for a mortgage related security. Early
returns of principal will affect the average life of the mortgage related
securities remaining in a Portfolio. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
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<PAGE>
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Portfolio. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Portfolio will have to reinvest the proceeds of prepayments at
lower interest rates than those at which the assets were previously invested. If
this occurs, a Portfolio's yield will correspondingly decline. Thus, mortgage
related securities may have less potential for capital appreciation in periods
of falling interest rates than other fixed-income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that a Portfolio
purchases mortgage related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which a Portfolio invests, the investment may be subject to
a greater or lesser risk of prepayment than other types of mortgage related
securities.
Mortgage related securities may not be readily marketable. To the extent any
of these securities are not readily marketable in the judgment of the Portfolio
Advisor, the investment restriction limiting a Portfolio's investment in
illiquid instruments to not more than 15% of the value of its net assets will
apply.
STRIPPED MORTGAGE RELATED SECURITIES. These securities are either issued
and guaranteed, or privately-issued but collateralized by securities issued by,
GNMA, FNMA or FHLMC. These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage related certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the stripped
mortgage related securities represent all or part of the beneficial interest in
pools of mortgage loans. A Portfolio will invest in stripped mortgage related
securities in order to enhance yield or to benefit from anticipated appreciation
in value of the securities at times when its Portfolio Advisor believes that
interest rates will remain stable or increase. In periods of rising interest
rates, the expected increase in the value of stripped mortgage related
securities may offset all or a portion of any decline in value of the securities
held by the Portfolio.
Investing in stripped mortgage related securities involves the risks
normally associated with investing in mortgage related securities. See "Mortgage
Related Securities" above. In addition, the yields on stripped mortgage related
securities are extremely sensitive to the prepayment experience on the mortgage
loans underlying the certificates collateralizing the securities. If a decline
in the level of prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will be
accelerated, thereby reducing the yield to maturity on interest-only stripped
mortgage related securities and increasing the yield to maturity on
principal-only stripped mortgage related securities. Sufficiently high
prepayment rates could result in a Portfolio not fully recovering its initial
investment in an interest-only stripped mortgage related security. Stripped
mortgage related securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that the Portfolio will be able to effect a trade of a stripped mortgage related
security at a time when it wishes to do so. The Portfolio will acquire stripped
mortgage related securities only if a secondary market for the securities exists
at the time of acquisition. Except for government stripped mortgage related
securities based on fixed rate FNMA and FHLMC mortgage certificates that meet
certain liquidity criteria established by the respective Board of Trustees, the
Portfolios or Fund will treat government stripped mortgage related securities
and privately-issued mortgage related securities as illiquid and will limit its
investments in these securities, together with other illiquid investments, to
not more than 15% of net assets.
MUNICIPAL OBLIGATIONS. The term "Municipal Obligations" generally is
understood to include debt obligations issued to obtain funds for various public
purposes, the interest on which is, in the opinion of bond counsel to the
issuer, excluded from gross income for regular federal income tax purposes. In
addition, if the proceeds from private activity bonds are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, the interest paid on such bonds may be excluded from
gross income for federal income tax purposes, although current federal tax laws
place substantial limitations on the size of these issues.
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The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Sizable investments in revenue bonds could involve an
increased risk to the Portfolio should any of the related facilities experience
financial difficulties. Private activity bonds are in most cases revenue bonds
and do not generally carry the pledge of the credit of the issuing municipality.
There are, of course, variations in the security of Municipal Obligations, both
within a particular classification and between classifications.
ZERO COUPON SECURITIES. Zero coupon U.S. Government securities are debt
obligations that are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the security will
accrue and compound over the period until maturity or the particular interest
payment date at a rate of interest reflecting the market rate of the security at
the time of issuance. Zero coupon securities do not require the periodic payment
of interest. These investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government securities
that make regular payments of interest. A Portfolio accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations, in which case the Portfolio will forego the purchase
of additional income producing assets with these funds. Zero coupon securities
include STRIPS, that is, securities underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities. They also include Coupons Under Book Entry
System ("CUBES"), which are component parts of U.S. Treasury bonds and represent
scheduled interest and principal payments on the bonds.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. These are instruments in amounts
owed by a corporate, governmental or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables) or to other parties. Direct debt instruments purchased by a
Portfolio may have a maturity of any number of days or years, may be secured or
unsecured, and may be of any credit quality. Direct debt instruments involve the
risk of loss in the case of default or insolvency of the borrower. Direct debt
instruments may offer less legal protection to a Portfolio in the event of fraud
or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments also may include standby financing commitments that obligate a
Portfolio to supply additional cash to the borrower on demand at the time when a
Portfolio would not have otherwise done so, even if the borrower's condition is
unlikely that the amount will ever be repaid.
These instruments will be considered illiquid securities and so will be
limited, along with a Portfolio's other illiquid securities, to not more than
15% of the Portfolio's net assets.
SWAP AGREEMENTS. To help enhance the value of its portfolio or manage its
exposure to different types of investments, the Portfolios may enter into
interest rate, currency and mortgage swap agreements and may purchase and sell
interest rate "caps," "floors" and "collars."
In a typical interest rate swap agreement, one party agrees to make regular
payments equal to a floating interest rate on a specified amount (the "notional
principal amount") in return for payments equal to a fixed interest rate on the
same amount for a specified period. If a swap agreement provides for payment in
different currencies, the parties may also agree to exchange the notional
principal amount. Mortgage swap agreements are similar to interest rate swap
agreements, except that notional principal amount is tied to a reference pool of
mortgages.
In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
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Swap agreements may involve leverage and may be highly volatile; depending
on how they are used, they may have considerable impact on a Portfolio's
performance. Swap agreements involve risks depending upon the other party's
creditworthiness and ability to perform, as judged by the Portfolio Advisor, as
well as the Portfolio's ability to terminate its swap agreements or reduce its
exposure through offsetting transactions.
All swap agreements are considered as illiquid securities and, therefore,
will be limited, along with all of a Portfolio's other illiquid securities, to
15% of that Portfolio's net assets.
CUSTODIAL RECEIPTS. Custodial receipts or certificates, such as
Certificates of Accrual on Treasury Securities ("CATS"), Treasury Investors
Growth Receipts ("TIGRs") and Financial Corporation certificates ("FICO
Strips"), are securities underwritten by securities dealers or banks that
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies, authorities
or instrumentalities. The underwriters of these certificates or receipts
purchase a U.S. Government security and deposit the security in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon U.S. Government securities, described above. Although
typically under the terms of a custodial receipt a Portfolio is authorized to
assert its rights directly against the issuer of the underlying obligation, the
Portfolio may be required to assert through the custodian bank such rights as
may exist against the underlying issuer. Thus, if the underlying issuer fails to
pay principal and/or interest when due, a Portfolio may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Portfolio had purchased a direct obligation of the issuer. In addition, if
the trust or custodial account in which the underlying security has been
deposited is determined to be an association taxable as a corporation, instead
of a non-taxable entity, the yield on the underlying security would be reduced
in respect of any taxes paid.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, each Portfolio may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. A Portfolio will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Portfolio
may include securities purchased on a "when, as and if issued" basis under which
the issuance of the securities depends on the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization or debt restructuring.
Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
REPURCHASE AGREEMENTS. Each of the Portfolios may engage in repurchase
agreement transactions. Under the terms of a typical repurchase agreement, a
Portfolio would acquire an underlying debt obligation for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding period. A Portfolio may
enter into repurchase agreements with respect to U.S. Government securities with
member banks of the Federal Reserve System and certain non-bank dealers approved
by the respective Board of Trustees. Under each repurchase agreement, the
selling institution is required to maintain the value of the securities subject
to the repurchase agreement at not less than their repurchase price. The
Portfolio Advisor, acting under the supervision of the Advisor and the
respective Board of Trustees, reviews on an ongoing basis the value of the
collateral and the creditworthiness of those non-bank dealers with whom the
Portfolio enters into repurchase agreements. In entering into a repurchase
agreement, a Portfolio bears a risk of loss in the event that the other party to
the transaction defaults on its obligations and the Portfolio is delayed or
prevented from exercising its rights to dispose of the underlying securities,
including the risk of a possible decline in the value of the
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underlying securities during the period in which the Portfolio seeks to assert
its rights to them, the risk of incurring expenses associated with asserting
those rights and the risk of losing all or a part of the income from the
agreement. Repurchase agreements are considered to be collateralized loans under
the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS. With the
exception of the Municipal Bond Portfolio, the Portfolios may enter into reverse
repurchase agreements and forward roll transactions. In a reverse repurchase
agreement the Portfolio agrees to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price. Forward roll transactions are equivalent to
reverse repurchase agreements but involve mortgage backed securities and involve
a repurchase of a substantially similar security. At the time the Portfolio
enters into a reverse repurchase agreement or forward roll transaction it will
place in a segregated custodial account cash, U.S. Government securities or high
grade, liquid debt obligations having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements and forward roll
transactions involve the risk that the market value of the securities sold by
the Portfolio may decline below the repurchase price of the securities. Reverse
repurchase agreements and forward roll transactions are considered to be
borrowings by a Portfolio for purposes of the limitations described in "Certain
Investment Restrictions" below and in the Trust's Statement of Additional
Information.
LENDING PORTFOLIO SECURITIES. To generate income for the purpose of helping
to meet its operating expenses, each Portfolio other than Municipal Bond
Portfolio may lend securities to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed 30% of a
Portfolio's assets taken at value. A Portfolio's loans of securities will be
collateralized by cash, letters of credit or U.S. Government securities. The
cash or instruments collateralizing a Portfolio's loans of securities will be
maintained at all times in a segregated account with the Portfolio's custodian,
or with a designated subcustodian, in an amount at least equal to the current
market value of the loaned securities. In lending securities to brokers, dealers
and other financial organizations, a Portfolio is subject to risks, which, like
those associated with other extensions of credit, include delays in recovery and
possible loss of rights in the collateral should the borrower fail financially.
ILLIQUID SECURITIES. No Portfolio may invest more than 15% of its net
assets in securities which are illiquid or otherwise not readily marketable. The
Trustees of the Portfolio Trust have adopted a policy that the International
Equity Portfolio may not invest in illiquid securities other than Rule 144A
securities. If a security becomes illiquid after purchase by the Portfolio, the
Portfolio will normally sell the security unless to do so would not be in the
best interests of shareholders.
NON-PUBLICLY TRADED ("RESTRICTED") SECURITIES AND RULE 144A
SECURITIES. Each Portfolio may purchase securities in the United States that
are not registered for sale under federal securities laws but which can be
resold to institutions under SEC Rule 144A or under an exemption from such laws.
Provided that a dealer or institutional trading market in such securities
exists, these restricted securities or Rule 144A securities are treated as
exempt from the Portfolio's 15% limit on illiquid securities. The respective
Board of Trustees, with advice and information from the respective Portfolio
Advisor, will determine the liquidity of restricted securities or Rule 144A
securities by looking at factors such as trading activity and the availability
of reliable price information and, through reports from such Portfolio Advisor,
the Board of Trustees will monitor trading activity in restricted securities.
Because Rule 144A is relatively new, it is not possible to predict how the
markets for Rule 144A securities will develop. If institutional trading in
restricted securities or Rule 144A securities were to decline, a Portfolio's
illiquidity could be increased and the Portfolio could be adversely affected.
No Portfolio will invest more than 10% of its total assets in restricted
securities (including Rule 144A securities).
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when
the Portfolio Advisor of a Portfolio believes, in consultation with the Advisor,
that pursuing the Portfolio's basic investment strategy may be inconsistent with
the best interests of its shareholders, the Portfolio may invest its assets
without limit in the following money market instruments: U.S. Government
securities (including those purchased in the form of custodial receipts),
repurchase agreements, certificates of deposit and bankers' acceptances issued
by banks or savings and loan associations having assets of at least $500 million
as of the end of their most recent fiscal year and high quality commercial
paper.
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In addition, for the same purposes the Portfolio Advisor of International
Equity Portfolio may invest without limit in obligations issued or guaranteed by
foreign governments or by any of their political subdivisions, authorities,
agencies or instrumentalities that are rated at least AA by S&P or Aa by Moody's
or, if unrated, are determined by the Portfolio Advisor to be of equivalent
quality. Each Portfolio also may hold a portion of its assets in money market
instruments or cash in amounts designed to pay expenses, to meet anticipated
redemptions or pending investments in accordance with its objectives and
policies. Any temporary investments may be purchased on a when-issued basis.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio may enter into
futures contracts and purchase and write (sell) options on these contracts,
including but not limited to interest rate, securities index and foreign
currency futures contracts and put and call options on these futures contracts.
These contracts will be entered into only upon the concurrence of the Portfolio
Advisor that such contracts are necessary or appropriate in the management of
the Portfolio's assets. These contracts will be entered into on exchanges
designated by the Commodity Futures Trading Commission ("CFTC") or, consistent
with CFTC regulations, on foreign exchanges. These transactions may be entered
into for bona fide hedging and other permissible risk management purposes
including protecting against anticipated changes in the value of securities a
Portfolio intends to purchase.
No Portfolio will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition, no
Portfolio will buy futures or write puts whose underlying value exceeds 25% of
its total assets, and no Portfolio will buy calls with a value exceeding 5% of
its total assets.
A Portfolio will not enter into futures contracts and related options for
which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Portfolio's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Portfolio may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the
Portfolio's futures and options positions may not prove to be perfectly or even
highly correlated with changes in the value of its portfolio securities.
Successful use of futures and related options is subject to a Portfolio
Advisor's ability to predict correctly movements in the direction of the
securities markets generally, which ability may require different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures and options contracts may only be closed out by entering into
offsetting transactions on the exchange where the position was entered into (or
a linked exchange), and as a result of daily price fluctuation limits there can
be no assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Portfolio may realize
a loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Portfolio may not
be able to close a futures or options position without incurring a loss in the
event of adverse price movements.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio that may invest in foreign
securities may write covered put and call options and purchase put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of portfolio securities and against increases in the dollar
cost of securities to be acquired. The Portfolio may use options on currency to
cross-hedge, which involves writing or purchasing options on one currency to
hedge against changes in exchange rates for a different, but related currency.
As with other types of options, however, the writing of an option on foreign
currency will constitute only a partial hedge up to the amount of the premium
received, and the Portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the event of exchange rate movements
adverse to the Portfolio's position, it may not forfeit the entire amount of the
premium plus related transaction costs. In addition, the Portfolio may purchase
call options on currency when the Portfolio Advisor anticipates that the
currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire. Similarly, if the Portfolio is unable to effect a closing sale
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transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-rated currency options. The Portfolio's
ability to terminate over-the-counter options ("OTC Options") will be more
limited than the exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
OPTIONS ON STOCK. The Portfolio may write and purchase options on stocks.
Each Portfolio which invests in equity securities may write or purchase options
on stock. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy the underlying
stock at the exercise price at any time during the option period. A covered call
option with respect to which the Portfolio owns the underlying stock sold by the
Portfolio exposes the Portfolio during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
stock or to possible continued holding of a stock which might otherwise have
been sold to protect against depreciation in the market price of the stock. A
covered put option sold by the Portfolio exposes the Portfolio during the term
of the option to a decline in price of the underlying stock.
To close out a position when writing covered options, the Portfolio may make
a "closing purchase transaction" which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased.
OPTIONS ON SECURITIES INDEXES. Each Portfolio may purchase and write put
and call options on securities indexes listed on domestic and, in the case of
those Portfolios which may invest in foreign securities, on foreign exchanges. A
securities index fluctuates with changes in the market values of the securities
included in the index.
Options on securities indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in securities
index options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
To the extent permitted by U.S. federal or state securities laws, the
International Equity Portfolio may invest in options on foreign stock indexes in
lieu of direct investment in foreign securities. The Portfolio may also use
foreign stock index options for hedging purposes.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in price of a particular security. Accordingly,
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successful use by a Portfolio of options on security indexes will be subject to
the Portfolio Advisor's ability to predict correctly movement in the direction
of that securities market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual securities.
FORWARD CURRENCY CONTRACTS. Each Portfolio that may invest in foreign
currency-denominated securities may hold currencies to meet settlement
requirements for foreign securities and may engage in currency exchange
transactions in order to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Portfolio's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another -- for example, to exchange a certain amount of U.S. dollars for a
certain amount of French francs at a future date. The date (which may be any
agreed-upon fixed number of days in the future), the amount of currency to be
exchanged and the price at which the exchange will take place will be negotiated
with a currency trader and fixed for the term of the contract at the time that
the Portfolio enters into the contract.
In hedging specific portfolio positions, a Portfolio may enter into a
forward contract with respect to either the currency in which the positions are
denominated or another currency deemed appropriate by the Portfolio Advisor. The
amount the Portfolio may invest in forward currency contracts is limited to the
amount of the Portfolio's aggregate investments in foreign currencies. Risks
associated with entering into forward currency contracts include the possibility
that the market for forward currency contracts may be limited with respect to
certain currencies and, upon a contract's maturity, the inability of a Portfolio
to negotiate with the dealer to enter into an offsetting transaction. Forward
currency contracts may be closed out only by the parties entering into an
offsetting contract. In addition, the correlation between movements in the
prices of those contracts and movements in the price of the currency hedged or
used for cover will not be perfect. There is no assurance that an active forward
currency contract market will always exist. These factors will restrict a
Portfolio's ability to hedge against the risk of devaluation of currencies in
which a Portfolio holds a substantial quantity of securities and are unrelated
to the qualitative rating that may be assigned to any particular security. See
the Statement of Additional Information for further information concerning
forward currency contracts.
ASSET COVERAGE. To assure that a Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery transactions, forward
currency contracts and swap transactions, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required under
applicable SEC interpretations, either by owning the underlying securities or by
establishing a segregated account with the Portfolio's custodian containing high
grade liquid debt securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.
CERTAIN INVESTMENT RESTRICTIONS
Each Portfolio has adopted certain investment restrictions that are
enumerated in detail in the Statement of Additional Information. Among other
restrictions, each Portfolio may not, with respect to 75% of its total assets
taken at market value, invest more than 5% of its total assets in the securities
of any one issuer, except U.S. Government securities, or acquire more than 10%
of any class of the outstanding voting securities of any one issuer. In
addition, except as described above with respect to the Municipal Bond
Portfolio, each Portfolio may not invest more than 25% of its total assets in
securities of issuers in any one industry. Each Portfolio may borrow money as a
temporary measure from banks in an aggregate amount not exceeding one-third of
the value of the Portfolio's total assets to meet redemptions and for other
temporary or emergency purposes not involving leveraging. Reverse repurchase
agreements and forward roll transactions involving mortgage related securities
will be aggregated with bank borrowings for purposes of this calculation. No
Portfolio may purchase securities while borrowings exceed 5% of the value of the
Portfolio's total assets. No Portfolio will invest more than 15% of the value of
its net assets in securities that are illiquid, including certain government
stripped mortgage related securities, repurchase agreements maturing in more
than seven days and that cannot be liquidated prior to maturity and securities
that are illiquid by virtue of the absence of a readily available market.
Securities that have legal or contractual restrictions on resale but have a
readily available market, such as certain 144A securities, are deemed not
illiquid for this purpose. No Portfolio may invest more than 10% of its assets
in restricted securities (excluding 144A securities).
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PORTFOLIO TURNOVER
No Portfolio, other than the Standby Income Fund, will trade in securities
for short term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held. An annual turnover rate of 100% would
occur when all the securities held by the Portfolio are replaced one time during
a period of one year. For the year ended December 31, 1995 the annual turnover
rate of each Portfolio was as follows: Emerging Growth Portfolio -- 109%;
International Equity Portfolio -- 90%; Growth & Income Portfolio -- 102%;
Balanced Portfolio -- 121% (equity investments -- 104%, fixed-income investments
- -- 149%); Income Opportunity Portfolio -- 120%; Bond Portfolio -- 78%; Standby
Income Fund -- 142%; and Municipal Bond Portfolio -- 54%. A portfolio turnover
rate of approximately 100% may be higher than those of other mutual funds. A
Portfolio with a higher portfolio turnover rate will have higher brokerage
transaction expenses and a higher incidence of realized capital gains or losses.
See "Taxation" and "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information.
PURCHASE OF SHARES
For purposes of the following discussion under this caption, the term
"Trust" shall include the Select Advisors Trust A as it relates to the Standby
Income Fund.
GENERAL
Shares of a Fund may be purchased at the net asset value next determined
after an order is transmitted to the Trust's transfer agent, State Street Bank
and Trust Company (the "Transfer Agent"), and accepted on behalf of the
Distributor. Shares of a Fund may be purchased at the net asset value through a
securities broker or bank or other financial institution which has a sales
agreement with the Distributor (a "Dealer").
Purchase orders for shares of a Fund received prior to the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m.,
New York time) on any day that a Fund's net asset value is calculated are priced
according to the net asset value determined on that day. Purchase orders
received after the close of regular trading on the NYSE are priced as of the
time the net asset value per share is next determined. See "Net Asset Value"
below for a description of the times at which a Fund's net asset value per share
is determined. The Distributor reserves the right to reject any purchase order.
Certificates for shares will not be issued. Each shareholder's account will
be maintained by a broker or the Transfer Agent. Shares of the Funds may be
purchased only in those states where they may be lawfully sold.
INVESTMENT MINIMUMS/MAXIMUMS
The minimum initial investment is $1,000. However, the initial minimum is
reduced to $250 for retirement plan investments and custodial accounts under the
Uniform Gifts/Transfers to Minors Act ("UGTMA"), to $50 for purchases through
the Automatic Investment Plan and through the Direct Deposit Purchase Plan. The
minimum for any subsequent investment is $50. For further information regarding
retirement plans, see "Retirement Plans," and for additional information
concerning the Automatic Investment Plan, see "Investment Options." The Trust
reserves the right to vary the initial and subsequent minimums at any time. The
maximum initial "combined" investment with respect to shares of Select Advisors
Trust C is restricted to $1 million.
RETIREMENT PLANS
The Funds' shares are designed for use with certain types of tax qualified
retirement plans including defined benefit and defined contribution plans. You
may invest in each Fund through various retirement plans including Individual
Retirement Accounts ("IRAs"), Simplified Employee Plans ("SEPs") IRAs and
Section 403(b) Tax Sheltered Accounts for which the Custodian acts as trustee or
custodian. The Distributor will establish Keogh or HR-10 Corporate Pension and
Profit Sharing retirement plans in the future to facilitate investment in the
Funds. For further information about any of the plans, agreements, applications
and annual fees, contact the Distributor or your dealer. To determine which
retirement plan is appropriate for you, please contact your tax advisor.
HOW TO PURCHASE SHARES
You may purchase shares of any Fund directly from the Trust through its
Transfer Agent or through your Dealer. Account applications can be obtained from
the Transfer Agent or your Dealer.
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All funds received by the Trust are invested in full and fractional shares
of the respective Fund(s). The Trust maintains records of each record owner's
holdings of Fund shares. Certain dealers maintain records of their customers'
accounts. Each shareholder will receive statements of transactions, holdings and
dividends. Shares of the Trust may be purchased only in those states where they
may lawfully be sold.
An investment may be made using any of the following methods:
BY MAIL. Investors should contact their Dealer for further instructions.
Checks are accepted subject to collection at full value. Shares will be issued
upon receipt of payment by the Trust of the net asset value of the shares.
If you wish to purchase Fund shares by mail your check should be in U.S.
dollars and made payable to the Touchstone Family of Funds, or State Street Bank
& Trust Company. Third party checks which are payable to an existing shareholder
of the Touchstone Funds who is a natural person (as opposed to a corporation or
partnership) and endorsed over to the Touchstone Family of Funds or State Street
Bank and Trust Company will be accepted. When purchases are made by check or
automatic investment plan, redemptions will not be allowed until the investment
being redeemed has been in the account for 15 business days. Send your check
with the completed account application to the address indicated on the
application.
You may make subsequent investments in any Fund by completing the subsequent
investment form at the bottom of a recent account statement, making your check
payable to the Touchstone Family of Funds, writing your account number on the
check and mailing it in the envelope provided with your account statement.
Subsequent investments may also be made by mailing your check directly to your
Dealer's address printed on your account statement. Your Dealer is responsible
for forwarding payment promptly to the Transfer Agent.
Each Fund reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. The Trust reserves the right to
cancel any purchase order for which payment has not been received by the fifth
business day following the investment.
BY WIRE. Investments may be made directly through the use of wire transfers
of federal funds. Share purchases by wire will be effected at the net asset
value next determined after acceptance of the order by the Distributor. To
purchase shares by wire, you should contact your bank and request it to wire
federal funds to the Trust. In most cases, a bank will either be a member of the
Federal Reserve Banking System or have a relationship with a bank that is a
member. Banks will normally charge a fee for handling wire transfers. You should
contact the Transfer Agent or your Dealer for further instructions.
For an initial purchase of shares of a Fund by wire, you must first
telephone the Transfer Agent at (800) 669-2796 (press 1) between the hours of
8:00 a.m. and 4:00 p.m. (New York time) on a day when the NYSE is open for
normal trading to receive an account number. The following information will be
requested: your name, address, tax identification number, dividend distribution
election, amount being wired and wiring bank. Instructions should then be given
by you to your bank to transfer funds by wire to the Transfer Agent, State
Street Bank and Trust Company, P.O. Box 8518, Boston, Massachusetts 02266-8518,
ABA Number 011000028, DDA Number 9905-036-1. Attention: Mutual Funds Division,
specifying on the wire the name of the Fund, the account number assigned by the
Transfer Agent and your name. If you arrange for receipt by the Transfer Agent
of federal funds prior to the close of trading (currently 4:00 p.m., New York
time) of the NYSE on a day the NYSE is open for normal trading, you may purchase
shares of a Fund as of that day. Your bank may charge a fee for wiring money on
your behalf.
In making a subsequent purchase order by wire, you should wire funds to the
Transfer Agent in the manner described above and be sure that the wire specifies
the name of the Fund, your name and the account number. However, it is not
necessary to call the Transfer Agent to make subsequent purchase orders
utilizing federal funds.
PURCHASES THROUGH PROCESSING ORGANIZATIONS
Shares of the Funds may also be purchased through a "Processing
Organization," which is a broker-dealer, bank or other financial institution
that purchases shares for its customers. When shares are purchased this way, the
Processing Organization, rather than its customer, may be the shareholder of
record of the shares. The minimum initial and subsequent investments in the
Funds for shareholders who invest through a Processing Organization
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generally will be set by the Processing Organization. Processing Organizations
may also impose other charges and restrictions in addition to or different from
those applicable to investors who remain the shareholder of record of their
shares. Thus, an investor contemplating investing with the Funds through a
Processing Organization should read materials provided by the Processing
Organization in conjunction with this Prospectus.
Although Processing Organizations will sell and redeem shares at net asset
value, they may charge their customers a fee in connection with services offered
to customers. Shares held through a Processing Organization may be transferred
into the investor's name following procedures established by the investor's
Processing Organization and the Funds' Transfer Agent. Certain Processing
Organizations may receive compensation from the Funds, the Funds' Transfer
Agent, the Advisor or their affiliates.
INVESTMENT OPTIONS
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly
investments in each Fund through automatic withdrawals of $50 or more from your
bank account once an automatic investment plan is established. See the account
application for further details about this service or call the Transfer Agent at
(800) 669-2796 (press 1).
AUTOMATIC REINVESTMENT. Dividends and capital gain distributions are
reinvested in additional shares (without becoming subject to the contingent
deferred sales charge), unless you indicate otherwise on the account
application. You may elect to have dividends or capital gain distributions paid
in cash.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security
checks, private payroll checks, pension payouts or any other pre-authorized
government or private recurring payments of $50 or more on a monthly basis.
DOLLAR COST AVERAGING. With respect to any Funds described in this
Prospectus, you may Dollar Cost Average a minimum of $50 per month per Fund
automatically from one Fund to any other Fund(s).
CROSS-REINVESTMENT. You may cross-reinvest dividends and/or capital gain
distributions paid by one Fund into shares of another Fund, subject to
conditions outlined in the Statement of Additional Information. Cross-
reinvestment of dividends and capital gain distributions may also be made from
and to the Standby Income Fund. Generally, to use this service the value of your
account in the Fund which paid the dividend or capital gain distribution must
equal at least $5,000.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged without payment of any exchange fee for
shares of another Fund described herein at their respective net asset values. An
exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. Shareholders exchanging shares of a Fund for shares of another
Fund should review the disclosure provided herein relating to the exchanged-for
shares carefully prior to making an exchange. The exchange privilege is
available to shareholders residing in any state in which Trust shares being
acquired may be legally sold.
For further information regarding the exchange privilege, you should contact
your Dealer. The Distributor reserves the right to reject any exchange request
and the exchange privilege may be modified or terminated after 60 days' written
notice to shareholders.
REDEMPTION OF SHARES
REDEMPTIONS IN GENERAL
Shares of a Fund may be redeemed at no charge (except as described below
with respect to redemptions made within one year from the date of purchase) on
any day that the Fund calculates its net asset value as described below under
"Net Asset Value." Redemption requests received in proper form by a Dealer and
transmitted to the Trust's Transfer Agent (who accepts the redemption request on
behalf of the Distributor) prior to the close of regular trading on the NYSE
will be effected at the net asset value per share determined on that day.
Redemption requests received after the close of regular trading on the NYSE will
be effected at the net asset value next determined. A Fund is required to
transmit redemption proceeds for credit to the shareholder or to the
shareholder's account at a
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Dealer at no charge within seven days after receipt of a redemption request.
Generally, funds remitted to a Dealer will not be invested for the shareholder's
benefit without specific instruction and the Dealer will benefit from the use of
temporarily uninvested funds.
A shareholder who pays for Fund shares by personal check will be credited
with the proceeds of a redemption of those shares when the purchase check has
been collected, which may take up to 15 days. Shareholders who anticipate the
need for more immediate access to their investment should purchase shares by
federal funds or bank wire or by a certified or cashier's check.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
Shares of any Fund may be purchased without an initial sales charge.
However, (with the exception of Standby Income Fund) you will bear your
proportionate share of payments made pursuant to the Trust's distribution and
service plan described hereunder under the caption "Distribution and Service
Plan." Such payments will affect the net asset value of shares in each Fund. In
addition, with the exception of Standby Income Fund, a CDSC of 1.0% applies to
redemptions of shares made within one year after the date of their purchase. No
such charge is imposed if the shares redeemed have been acquired through the
reinvestment of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account above the amount
of the purchase payments. In determining whether a CDSC is payable, it is
assumed that the redemption is made from the earliest purchase payments(s) that
remain invested in the Funds. To determine if amounts are available for
redemption free of any CDSC, all of your purchase payments (reduced by any
amounts previously withdrawn) are aggregated, and the current value of all
shares to be redeemed is aggregated. All CDSC's are paid to the Distributor.
The CDSC is waived for redemptions of shares by: (1) current or retired
directors, trustees partners, officers and employees of a Trust, the Portfolio
Trust, the Distributor, the Advisor or any Portfolio Advisor, certain family
members of the above persons, and trusts or plans primarily for such persons;
(2) trustees or other fiduciaries purchasing shares for certain retirement plans
and (3) participants in certain pension, profit-sharing or employee benefit
plans that are sponsored by the Distributor and its affiliates.
The CDSC is also waived for exchanges of shares (except if shares acquired
by exchange are then redeemed within 12 months of the initial purchase); for
redemptions in connection with mergers, acquisitions and exchange offers; for
distributions from qualified retirement plans and other employee benefit plans;
for distributions from custodial accounts under Section 403(b)(7) of the
Internal Revenue Code of 1986, as amended (the "Code"), or IRAs due to death,
disability or attainment of age 59 1/2; for tax-free returns of excess
contributions to IRAs; and for any partial or complete redemptions following the
death or disability of a shareholder, provided the redemption is made within one
year of death or initial determination of disability.
A shareholder who pays for Fund shares by personal check will be credited
with the proceeds of a redemption of those shares when the purchase check has
been collected, which may take up to 15 days. Shareholders who anticipate the
need for more immediate access to their investment should purchase shares by
federal funds or bank wire or by a certified or cashier's check.
REDEMPTION PROCEDURES
You may redeem shares of any Fund by writing to the Transfer Agent. Specify
the name of the Fund, the number of shares or dollar amount to be sold and your
name and account number. Shares may also be redeemed by contacting your Dealer,
who may charge you for this service. Shares held in street name must be redeemed
through your Dealer.
If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be implemented. If the proceeds of the
redemption exceed $50,000, are to be paid to a person other than the record
owner, are to be sent to an address other than the address on the Transfer
Agent's records, or are to be paid to a corporation, partnership, trust or
fiduciary, the signature(s) on the redemption request and on the certificates,
if any, or stock powers must be guaranteed by an "eligible guarantor," which
includes a bank or savings and loan association that is federally insured or a
member firm of a national securities exchange.
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REDEMPTION PAYMENTS BY WIRE
Redemption proceeds are generally paid to you by check. However, at your
request, redemption proceeds of $1,000 or more may be wired by the Transfer
Agent to your bank account provided you have completed the appropriate
information on the New Account application form. Requests for redemption by wire
may also be initiated by completing a Touchstone Wire Transfer Form or by
written request. Any written request should include the name, location and ABA
or bank routing number (if known) of your designated bank and your account
number. Payment will be made within seven days after receipt by the Transfer
Agent of the written request, except as indicated below. Such payment may be
postponed or the right of redemption suspended at times when the NYSE is closed
for other than customary weekends and holidays, when trading on the NYSE is
restricted, when an emergency exists as a result of which disposal by a
Portfolio of securities owned by it is not reasonably practicable or when it is
not reasonably practicable for the Portfolio fairly to determine the value of
its net assets, or during any other period when the SEC, by order, so permits.
Payment for redemption of recently purchased shares will be delayed until the
Transfer Agent has been advised that the purchase check has been honored, up to
15 calendar days from the time of receipt of the purchase check by the Transfer
Agent. Such delay may be avoided by purchasing shares by federal funds or bank
wire or by a certified or cashier's check.
TELEPHONE REDEMPTIONS
All shareholders of any Fund have telephone redemption and exchange
privileges unless the shareholder has specifically declined these privileges. If
you do not wish to have telephone privileges for your account, you must mark the
appropriate section of the New Account Application Form. If you have telephone
redemption privileges, you may redeem shares of a Fund by telephoning the
Transfer Agent at (800) 669-2796 or, from outside the United States, (617)
774-3435, or by sending the Transfer Agent a facsimile at (617) 774-2354 between
the hours of 8:00 a.m. and 4:00 p.m. (New York time) on a day when the NYSE is
open for normal trading. Redemption requests received by the Transfer Agent
before 4:00 p.m. (New York time) on a day when the NYSE is open for normal
trading will be processed that day. Otherwise processing will occur on the next
business day. You should realize that by electing the telephone redemption
option you may be giving up a measure of security that you may have had if you
were to redeem your shares in writing. Furthermore, interruptions in telephone
service may mean that you will be unable to effect a redemption by telephone
when desired. When telephone redemptions are difficult to implement, you should
mail or send by overnight delivery a written redemption request to the Transfer
Agent. The Trust reserves the right to refuse any request made by telephone and
to modify or terminate this privilege at any time on 60 days' notice to
shareholders. A telephone redemption request may be refused for such reasons as
the Trust's belief that the person requesting the telephone redemption is
neither the record owner of the shares nor otherwise authorized by the
shareholder to make the request. Shareholders will be promptly notified of any
refused request for a telephone redemption.
The Trust will not be liable for following instructions received by
telephone that it reasonably believes to be genuine. The Trust has established
certain procedures, some of which are described below, to confirm that telephone
instructions are genuine. If it does not follow such procedures in a particular
case it may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures that the Trust may follow include requiring a form
of personal identification before acting upon telephone instructions, making
redemption checks requested by telephone payable only to the owner(s) of the
account shown on the Trust's records, mailing such redemption checks only to the
account address shown on the Trust's records, directing wire redemptions
requested by telephone only to the bank account shown on the Trust's records,
and providing written confirmation of any transaction requested by telephone.
The Trust will normally tape record any instructions received by telephone.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to receive or send to a third party monthly, quarterly or
annual withdrawals of $50 or more if your account value is at least $5,000.
There is no special fee for this service and no minimum value is required for
retirement plans.
REINSTATEMENT PRIVILEGE
You may reinvest proceeds becoming subject from a redemption of Fund shares
or a dividend or capital gain distribution with respect to Fund shares without a
CDSC, in any of the Funds. Send written request and a check to the Transfer
Agent within 90 days after the date of the redemption, dividend or distribution.
Reinvestment will be
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at the next calculated net asset value after receipt. The tax status of a gain
realized on a redemption will not be affected by exercise of the reinstatement
privilege, but a loss may be nullified if you reinvest in the same Fund within
30 days.
INVOLUNTARY REDEMPTIONS
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem an account (excluding retirement accounts and
custodian accounts under UGTMA) having a current value of $1,000 or less as a
result of redemptions, (but not as a result of a fluctuation in a Fund's net
asset value), but only after the shareholder has been given at least 30 days in
which to increase the account balance to more than that amount. Proceeds of an
involuntary redemption will be sent to the shareholder of record unless the
Distributor is instructed to the contrary by the shareholder. Shareholders
should be aware that involuntary redemptions may result in the liquidation of
Fund holdings at a time when the value of those holdings is lower than the
shareholder's cost of the investment or may result in the realization of taxable
capital gains.
NET ASSET VALUE
Each Fund's net asset value per share is calculated on each day, Monday
through Friday, except on days on which the NYSE is closed. Net asset value per
share is determined as of the close of regular trading on the NYSE (currently
4:00 p.m. New York time) and is computed by dividing the value of a Fund's net
assets by the total number of its shares outstanding. Since each Fund (except
the Standby Income Fund) will invest all of its Assets in a corresponding
Portfolio, the value of each such Fund's assets will be equal to the value of
its beneficial interest in the corresponding Portfolio. The net asset value of
each Portfolio is determined as of the close of regular trading on the NYSE on
each day on which the NYSE is open for trading, by deducting the amount of the
Portfolio's liabilities from the value of its assets. At the close of each such
business day, the value of each Fund's beneficial interest in the corresponding
Portfolio will be determined by multiplying the net asset value of that
Portfolio by the percentage, effective for that day, which represents the Fund's
share of the aggregate beneficial interests in that Portfolio.
Generally, a Portfolio's (or the Standby Income Fund's) investments are
valued at market value or, in the absence of a market value, at fair value as
determined by or under the direction of the respective Board of Trustees.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges, except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the respective Board of Trustees. A security that is primarily
traded on a domestic or foreign stock exchange is valued at the last sale price
on that exchange or, if no sales occurred during the day, at the current quoted
bid price. All short-term dollar-denominated investments that mature in 60 days
or less are valued on the basis of amortized cost (which involves valuing an
investment at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the investment) which the respective Board
of Trustees has determined represents fair value. An option that is written by a
Portfolio is generally valued at the last sale price or, in the absence of the
last sale price, the last offer price. An option that is purchased by a
Portfolio is generally valued at the last sale price or, in the absence of the
last sale price, the last bid price. The value of a futures contract is equal to
the unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price for a like contract on the valuation
date of the futures contract. A settlement price may not be used if the market
rises or falls to the maximum allowed amount with respect to a particular
futures contract or if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price cannot be used, futures contracts will be valued at
their fair market value as determined by or under the direction of the
respective Board of Trustees.
All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the respective Board of
Trustees. In carrying out the valuation policies of the Boards of Trustees,
independent pricing services may be consulted. Further information regarding the
Portfolio Trust's valuation policies is contained in the Statement of Additional
Information.
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MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
Throughout the remainder of this Prospectus, the term "Trust" shall include
the Select Advisors Trust A.
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Portfolio Trust rests with their respective Board of Trustees. The Trustees
approve all significant agreements between either the Trust or the Portfolio
Trust, as the case may be, and the persons and companies that furnish services
to the Trust or the Portfolio Trust.
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are trustees of the Trust and of the
Portfolio Trust, up to and including creating a separate board of trustees. See
"Management of the Trust and the Portfolio Trust" in the Statement of Additional
Information for more information about the Trustees and officers of the Trust
and the Portfolio Trust.
SPONSOR
Touchstone Advisors, as Sponsor to the Trust pursuant to Sponsor Agreements
provides oversight of the various service providers to the Trust, including the
Trust's Administrator, custodian and Transfer Agent. As Sponsor to the Trust,
Touchstone Advisors reserves the right to receive a sponsor fee from each Fund
equal on an annual basis to 0.20% of the average daily net assets of that Fund.
The Sponsor Agreement may be terminated by the Sponsor at the end of any
calender quarter after December 31, 1996 or by the Trust on not less than 30
days' prior written notice. The Sponsor has advised the Trust that it will waive
all fees under the Sponsor Agreement through April 30, 1997.
ADMINISTRATOR
Signature, located at 6 St. James Avenue, Boston Massachusetts 02116, serves
as administrator and fund accounting agent to both the Trust and the Portfolio
Trust pursuant to separate agreements ("Administrative Services and Fund
Accounting Agreements"). Pursuant to the Administrative Services and Fund
Accounting Agreements, Signature provides the Trust and the Portfolio Trust with
general office facilities and supervises the overall administration of the Trust
and the Portfolio Trust, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Trust or the
Portfolio Trust; the preparation and filing of all documents required for
compliance by the Trust or the Portfolio Trust with applicable laws and
regulations; and arranging for the maintenance of books and records of the Trust
and the Portfolio Trust. Signature provides persons satisfactory to the Board of
Trustees of the Trust or the Portfolio Trust to serve as certain officers of the
Trust or the Portfolio Trust. Such officers, as well as certain other employees
and Trustees of the Trust or the Portfolio Trust, may be directors, officers or
employees of Signature or its affiliates.
For the services to be rendered by Signature, each Portfolio and the Standby
Income Fund shall pay to Signature administrative services and fund accounting
fees computed and paid monthly that are equal, in the aggregate, to 0.20% (0.16%
in the case of the Standby Income Fund) on an annual basis of the average daily
net assets of all the Portfolios and other funds for which the Advisor and
Signature provide their respective services. After $100 million of total assets,
this fee is reduced according to an asset schedule down to a minimum of 0.05%.
After the total fees owing to Signature are determined, each Portfolio and
the Standby Income Fund will be allocated its pro rata share on the basis of
average daily net assets. In addition each Portfolio is subject to a minimum
annual administrative services and fund accounting fee. See "Management of the
Trust and the Portfolio Trust" in the Trust's Statement of Additional
Information.
DISTRIBUTION AND SERVICE PLAN
The Distributor acts as principal underwriter of the shares of each Fund
pursuant to a distribution agreement with the respective Trust. The Board of
Trustees of the Trust has adopted a distribution and service plan (the
"Distribution Plan") with respect to each Fund (other than the Standby Income
Fund) in accordance with
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Rule 12b-1 under the 1940 Act. The Board of Trustees adopted the Distribution
Plan after determining that there is a reasonable likelihood that the
Distribution Plan will benefit each Fund (other than the Standby Income Fund)
and its shareholders.
Each Fund (other than the Standby Income Fund) will pay a distribution fee
to the Distributor at an annual rate of up to 0.75% of the Fund's average daily
net assets. Distribution fees are accrued daily and are charged as expenses of
each Fund as accrued. The distribution fee is designed to enable an investor to
purchase shares of a Fund through broker-dealers without the assessment of a
front-end sales load and at the same time to permit the Distributor to
compensate broker-dealers in connection with the sale of Fund shares.
In addition to the distribution fee each Fund (other than the Standby Income
Fund) will pay a service fee to the Distributor at an annual rate of up to 0.25%
of the average daily net assets of each Fund. This fee reimburses the
Distributor for its payments to broker-dealers or other persons to compensate
them for providing personal services and maintaining shareholder accounts.
Shareholder service fees are accrued daily and paid quarterly.
The Distributor may also use the distribution fees received from each Fund
to otherwise promote the sale of shares of the Funds such as by paying for the
preparation, printing and distribution of prospectuses for other than current
shareholders and sales literature or other promotional activities.
No Fund is obligated under the Distribution Plan to pay any distribution or
shareholder service expense in excess of the fees described above. Expenses
incurred by the Distributor in one fiscal year in excess of the fees received
from a Fund in that fiscal year do not give rise to any obligation on the part
of a Fund to the Distributor with respect to any future fiscal year. Thus, if
the Distribution Plan were terminated or not continued, no amounts (other than
current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor. Under arrangements with dealers and others, the Distributor will
pay compensation upon the sale of Fund shares. To finance such payments, the
Distributor may utilize funds obtained from the Advisor which, in turn, may
borrow funds from affiliated or unaffiliated parties. Such borrowings may be
repaid or secured by an assignment of fees payable pursuant to the Distribution
Plan.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT") is located at 89 South Street,
Boston, Massachusetts 02111, and serves as custodian of each Portfolio's and the
Standby Income Fund's investments. IBT also serves as transfer agent to the
Portfolio Trust.
State Street Bank and Trust Company may be reached at P.O. Box 8518, Boston,
Massachusetts 02266-8518, and serves as the Trust's Transfer Agent and dividend
paying agent.
ALLOCATION OF EXPENSES OF THE FUNDS AND THE PORTFOLIOS
Each Fund and Portfolio bears its own expenses, which generally include all
costs not specifically borne by the Advisor, the Portfolio Advisors and the
Administrator. Included among a Fund's or a Portfolio's expenses are: costs
incurred in connection with its organization; investment management and
administration fees; sponsor fees; fees for necessary professional and brokerage
services; fees for any pricing service; the costs of regulatory compliance; and
costs associated with maintaining the Trust's or the Portfolio Trust's legal
existence and shareholder relations. The Sponsor of the Trust has agreed to
waive or reimburse certain fees and expenses of each Fund or each Portfolio, as
the case may be, such that after such waivers and reimbursements, the aggregate
Operating Expenses of each Fund and the corresponding Portfolio do not exceed
that Fund's Expense Cap. A Fund's Expense Cap may be terminated with respect to
a Fund upon 30 days' prior written notice by the Sponsor at the end of any
calendar quarter after December 31, 1996.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For purposes of the following discussion under this caption, the term
"Portfolio" shall include the Standby Income Fund.
DIVIDENDS AND DISTRIBUTIONS
Net investment income (I.E., income other than long- and short-term capital
gains) and net realized long- and short-term capital gains will be determined
separately for each Fund. Dividends derived from net investment
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income and distributions of net realized long- and short-term capital gains paid
by a Fund to a shareholder will be automatically reinvested (at current net
asset value) in additional shares of that Fund (which will be deposited in the
shareholder's account) unless the shareholder instructs the Trust, in writing,
to pay all dividends and distributions in cash or to invest them in another
Fund. See "Investment Options -- Cross-Reinvestment" herein. Dividends
attributable to the net investment income of the Standby Income Fund will be
declared daily and paid monthly. Shareholders of that Fund receive dividends
from the day following the purchase up to and including the date of redemption.
Dividends attributable to the net investment income of the Growth & Income Fund,
the Income Opportunity Fund, the Bond Fund and the Municipal Bond Fund are
declared and paid monthly. Dividends attributable to the net investment income
of the Balanced Fund are declared and paid quarterly. Dividends attributable to
the net investment income of the Emerging Growth Fund and International Equity
Fund are declared and paid annually. Distributions of any net realized long-term
and short-term capital gains earned by a Fund will be made annually.
TAXES
Because each Fund is treated as a separate entity for federal income tax
purposes, the amounts of net income and net realized capital gains subject to
tax will be determined separately for each Fund (rather than on a Trust-wide
basis).
Each Fund separately intends to qualify each year as a regulated investment
company for federal income tax purposes. The requirements for qualification by a
Fund may cause the corresponding Portfolio, among other things, to restrict the
extent of its short-term trading or its transactions in warrants, currencies,
options, futures or forward contracts and will cause each Portfolio to maintain
a diversified asset portfolio.
A regulated investment company will not be subject to federal income tax on
its net income and its capital gains that it distributes to shareholders, so
long as it meets certain overall distribution requirements and other conditions
under the Code. Each Fund intends to satisfy these overall distribution
requirements and any other required conditions. In addition, each Fund is
subject to a 4% nondeductible excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gains. The Trust intends to
have each Fund pay additional dividends and make additional distributions as are
necessary in order to avoid application of the excise tax, if such payments and
distributions are determined to be in the best interest of the Fund's
shareholders. Dividends declared by a Fund in October, November or December of
any calendar year and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such December 31 provided that such dividend is actually paid by the Fund
during January of the following year.
Dividends declared by a Fund of net income and distributions of a Fund's net
realized short-term capital gains (including short-term gains from Portfolio
investments in tax exempt obligations) will be taxable to shareholders as
ordinary income for federal income tax purposes, regardless of how long
shareholders have held their Fund shares and whether the dividends or
distributions are received in cash or reinvested in additional shares.
Distributions by a Fund of net realized long-term capital gains (including
long-term gains from Portfolio investments in tax exempt obligations) will be
taxable to shareholders as long-term capital gains for federal income tax
purposes, regardless of how long a shareholder has held his Fund shares and
whether the distributions are received in cash or reinvested in additional
shares.
A portion of the dividends and all of the distributions of capital gains
paid by the Funds will not qualify for the dividend received deduction for
corporations. As a general rule, dividends paid by a Fund, to the extent derived
from dividends attributable to certain types of stock issued by U.S.
corporations, will qualify for the dividend received deduction for corporations.
Some states, if certain asset and diversification requirements are
satisfied, permit shareholders to treat their portions of a Fund's dividends
that are attributable to interest on U.S. Treasury securities and certain U.S.
Government securities as income that is exempt from state and local income
taxes. Dividends attributable to repurchase agreement earnings are, as a general
rule, subject to state and local taxation.
Dividends paid by the Municipal Bond Fund that are derived from interest
earned on qualifying tax-exempt obligations are expected to be "exempt-interest"
dividends that shareholders may exclude from their gross incomes
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for federal income tax purposes if the Municipal Bond Portfolio satisfies
certain asset percentage requirements. To the extent that the Municipal Bond
Portfolio invests in bonds, the interest on which is a specific tax preference
item for federal income tax purposes ("AMT-Subject Bonds"), any exempt-interest
dividends derived from interest on AMT-Subject Bonds will be a specific tax
preference item for purposes of the federal individual and corporate alternative
minimum taxes. In any event, all exempt-interest dividends will be a component
of the "current earnings" adjustment item for purposes of the federal corporate
alternative minimum income tax and corporate shareholders may incur a larger
federal 0.12% environmental tax liability through the receipt of dividends and
distributions of the Municipal Bond Fund.
Net income or capital gains earned by any Fund investing in foreign
securities may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the Portfolios to a reduced rate of tax or exemption from tax on this
related income and gains. It is impossible to determine the effective rate of
foreign tax in advance since the amount of these Portfolios' assets to be
invested within various countries is not known. Furthermore, if a Fund qualifies
as a regulated investment company, if certain distribution requirements are
satisfied, and if more than 50% of the value of the corresponding Portfolio's
assets at the close of the taxable year consists of stocks or securities of
foreign corporations, the Fund may elect, for U.S. federal income tax purposes,
to treat foreign income taxes paid by the corresponding Portfolio that can be
treated as income taxes under U.S. income tax principles as paid by its
shareholders. The Trust anticipates that the International Equity Fund will
qualify for and make this election in most, but not necessarily all, of its
taxable years. If a Fund were to make an election, an amount equal to the
foreign income taxes paid by the Fund would be included in the income of its
shareholders and the shareholders would be entitled to credit their portions of
this amount against their U.S. tax liabilities, if any, or to deduct such
portions from their U.S. taxable income, if any. Shortly after any year for
which it makes an election, a Fund will report to its shareholders, in writing,
the amount per share of foreign tax that must be included in each shareholder's
gross income and the amount which will be available for deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Shareholders will also receive, if
appropriate, various written notices after the close of the Funds' taxable year
with respect to certain foreign taxes paid by the Funds and certain dividends
and distributions that were, or were deemed to be, received by shareholders from
the Funds during the Funds' prior taxable year. Shareholders should consult with
their own tax advisors with specific reference to their own tax situations.
PERFORMANCE INFORMATION
YIELD
For the Income Opportunity Fund, Bond Fund, Municipal Bond Fund, Standby
Income Fund and the Balanced Fund, from time to time, the Trust may advertise
the 30-day "yield" and, with respect to the Municipal Bond Fund, the "equivalent
taxable yield." The yield of a Fund refers to the income generated by an
investment in the Fund over the 30-day period identified in the advertisement
and is computed by dividing the net investment income per share earned by the
Fund during the period by the net asset value per share on the last day of the
period. This income is "annualized" by assuming that the amount of income is
generated each month over a one-year period and is compounded semi-annually. The
annualized income is then shown as a percentage of the net asset value.
EQUIVALENT TAXABLE YIELD
The equivalent taxable yield of the Municipal Bond Fund demonstrates the
yield on a taxable investment necessary to produce an after-tax yield equal to
the Fund's tax-exempt yield. It is calculated by increasing the yield shown for
the Fund calculated as described above, to the extent necessary to reflect the
payment of specified tax rates. Thus, the equivalent taxable yield always will
exceed the Fund's yield.
The Appendix of the Statement of Additional Information contains a table
which shows individual taxpayers how to translate the tax savings from
investments such as the Fund into an equivalent return from a taxable
investment. The yields on the table are for illustration only and are not
intended to represent current or future
35
<PAGE>
yields for the Fund, which may be higher or lower than those shown. The federal
tax rates shown in the table are those currently in effect for 1995 and are
subject to change. The calculations assume that no income will be subject to the
federal individual alternative minimum tax.
TOTAL RETURN
From time to time, the Trust may advertise a Fund's "average annual total
return" over various periods of time. This total return figure shows the average
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the ending date of the measuring period. The figure
reflects changes in the price of the Fund's shares and assumes that any income,
dividends and/or capital gains distributions made by the Fund during the period
are reinvested in shares of the Fund. Figures will be given for recent one-,
five- and ten-year periods (if applicable) and may be given for other periods as
well (such as from commencement of the Fund's operations or on a year-by-year
basis). When considering average total return figures for periods longer than
one year, shareholders should note that a Fund's annual total return for any one
year in the period might have been greater or less than the average for the
entire period. A Fund also may use aggregate total return figures for various
periods, representing the cumulative change in value of an investment in the
Fund for the specific period (again reflecting changes in the Fund's share
price, and assuming reinvestment of dividends and distributions). Aggregate
total returns may be shown by means of schedules, charts or graphs, and may
indicate subtotals of the various components of total return (that is, the
change in value of initial investment, income dividends and capital gains
distributions). A Fund may also quote non-standardized total return figures,
such as non-annualized figures or figures that do not reflect the maximum sales
charge (provided that these figures are accompanied by standardized total return
figures calculated as described above).
GENERAL
It is important to note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Statement of Additional Information describes in more detail the method used to
determine a Fund's yield and total return.
RATING INDEXES
In reports or other communications to shareholders or in advertising
material, a Fund may compare its performance with that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
independent services that monitor the performance of mutual funds or with other
appropriate indexes of investment securities, such as the S&P 500, the Dow Jones
Industrial Average or the Frank Russell indexes. The performance information
also may include evaluations of the Funds published by nationally recognized
ranking services and by financial publications that are nationally recognized.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.00001
per share). The Trust currently consists of seven series of shares. The shares
of each series participate equally in the earnings, dividends and assets of the
particular series. The Trust may create and issue additional series of shares.
The Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in a series. Each share represents an equal
proportionate interest in a series with each other share. Shares have no
pre-emptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each share held.
The Trust is not required to hold annual meetings of shareholders but the
Trust will hold special meetings of shareholders when in the judgement of the
Trustees it is necessary or desirable to submit matters for a shareholder vote.
Shareholders have under certain circumstances the right to communicate with
other shareholders for the purpose of removing one or more Trustees. Upon
liquidation of a Fund, shareholders of that Fund would be entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for
36
<PAGE>
its obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust was organized as a trust under the laws of the State of
New York pursuant to a Declaration of Trust dated February 7, 1994, at which
time the Portfolios were established and designated as separate series of the
Portfolio Trust. The Portfolio Trust's Declaration of Trust provides that the
Funds and other entities investing in a Portfolio (E.G., other investment
companies, insurance company separate accounts and common and commingled trust
funds) will each be liable for all obligations of the corresponding Portfolio.
However, the risk of a Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Trustees of the Trust believe that neither the Trust nor its shareholders will
be adversely affected by reason of the Funds' investing in the Portfolios.
Each investor in a Portfolio, including the corresponding Fund, may add to
or reduce its investment in the Portfolio on each day the Portfolio determines
its net asset value. At the close of each such business day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected as of the close of business on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be re-computed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as of the close of business on the following business day.
When matters are submitted for shareholder vote, shareholders of each Fund
will have one vote for each full share held and a proportionate fractional vote
for each fractional share held. A separate vote of each Fund is required on any
matter affecting a Fund on which shareholders are entitled to vote. Shareholders
of a Fund are not entitled to vote on Trust matters that do not affect the Fund
and do not require a separate vote of the Fund. There normally will be no
meeting of shareholders for the purpose of electing Trustees of the Trust unless
and until such time as less than a majority of the Trust's Trustees holding
office have been elected by shareholders, at which time the Trust's Trustees
then in office will call a shareholder's meeting for the election of trustees.
Any Trustee of the Trust may be removed from office upon the vote of
shareholders holding at least two-thirds of the Trust's outstanding shares at a
meeting called for that purpose. The Trustees are required to call such a
meeting upon the written request of shareholders holding at least 10% of the
Trust's outstanding shares. The Trust will also assist shareholders in
communicating with one another as provided for in the 1940 Act.
Each Fund will be involved only in votes that affect the corresponding
Portfolio. Shareholders of all of the Funds will, however, vote together to
elect Trustees of the Portfolio Trust and for certain other matters. Under
certain circumstances the shareholders of one or more series could control the
outcome of these votes. The series of the Portfolio Trust will vote separately
or together in the same manner as the series of the Trust. Under certain
circumstances, the investors in one or more series of the Portfolio Trust could
control the outcome of these votes.
The Trust sends to each shareholder a semi-annual report and an audited
annual report, each of which includes a list of the investment securities held
by the Portfolios.
37
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY................................................................... 2
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
INVESTMENT OBJECTIVES, POLICIES AND RISKS................................. 6
RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES............................ 12
ADVISOR AND PORTFOLIO ADVISORS............................................ 13
ADDITIONAL RISKS AND INVESTMENT TECHNIQUES................................ 17
PURCHASE OF SHARES........................................................ 26
REDEMPTION OF SHARES...................................................... 28
NET ASSET VALUE........................................................... 31
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST........................... 32
DIVIDENDS, DISTRIBUTIONS AND TAXES........................................ 33
PERFORMANCE INFORMATION................................................... 35
ADDITIONAL INFORMATION.................................................... 36
APPENDIX.................................................................. A-1
</TABLE>
DISTRIBUTOR
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, Ohio 45202
INVESTMENT ADVISOR OF EACH PORTFOLIO
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, Ohio 45202
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8518
Boston, Massachusetts 02266-8518
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Frost & Jacobs
2500 PNC Center
201 East 5th Street
Cincinnati, Ohio 45202
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Trust's
Statement of Additional Information or the Trust's official sales literature in
connection with the offering of shares, and if given or made, such other
information or representations must not be relied upon as having been authorized
by the Trust, the Advisor or the Distributor. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
Form 7038-9605
- -------------------------------------------------------------------------------
TOUCHSTONE
------------------------
THE TOUCHSTONE FAMILY OF FUNDS
TOUCHSTONE EMERGING GROWTH FUND C
TOUCHSTONE INTERNATIONAL EQUITY FUND C
TOUCHSTONE GROWTH & INCOME FUND C
TOUCHSTONE BALANCED FUND C
TOUCHSTONE INCOME OPPORTUNITY FUND C
TOUCHSTONE BOND FUND C
TOUCHSTONE STANDBY INCOME FUND
TOUCHSTONE MUNICIPAL BOND FUND C
PROSPECTUS &
APPLICATION
MAY 1, 1996
<PAGE>
APPENDIX
BOND, COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS RATINGS
Set forth below are descriptions of the ratings of Moody's and S&P, which
represent their opinions as to the quality of the Municipal Obligations and
securities which they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
MOODY'S BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated. Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
A-1
<PAGE>
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1, Ba-1 and B-1.
S&P'S BOND RATING
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A. Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, and C. Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is
being paid.
D. Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR. Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS:
AAA -- Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to remain,
substantial, stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA -- High Grade -- The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
A-2
<PAGE>
A -- Good Grade -- Principal and interest payments on bonds in this category
are regarded as safe although the bonds are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. This rating describes the third strongest capacity
for payment of debt service. Regarding municipal bonds, the rating differs from
the two higher ratings because:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appearance appears adequate.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA rating category.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Moody's may apply the numerical modifier in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
within its generic rating classification possesses the strongest investment
attributes.
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS:
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, or -2) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG-2/VMIG-2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
A-3
<PAGE>
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
<PAGE>
IFS0023G STATEMENT OF
FORM 7051-9605 ADDITIONAL INFORMATION
MAY 1, 1996
THE TOUCHSTONE FUNDS oTouchstone Emerging Growth Fund C oTouchstone
International Equity Fund C oTouchstone Growth & Income Fund C oTouchstone
Balanced Fund C oTouchstone Income Opportunity Fund C oTouchstone Bond Fund C
oTouchstone Standby Income Fund oTouchstone Municipal Bond Fund C
The Select Advisors Trust C (the "Trust") is comprised of seven funds:
Touchstone Emerging Growth Fund C (the "Emerging Growth Fund"), Touchstone
International Equity Fund C (the "International Equity Fund"), Touchstone Growth
& Income Fund C (the "Growth & Income Fund"), Touchstone Balanced Fund C (the
"Balanced Fund"), Touchstone Income Opportunity Fund C (the "Income Opportunity
Fund"), Touchstone Bond Fund C (the "Bond Fund") and Touchstone Municipal Bond
Fund C (the "Municipal Bond Fund") (each, a "Fund"). Each of the Funds is a
series of Select Advisors Trust C. Touchstone Standby Income Fund (the "Standby
Income Fund") is a series of Select Advisors Trust A. For convenience,
throughout the remainder of this Statement of Additional Information, the terms
"Trust" and "Fund(s)" shall include, where applicable, the Select Advisors Trust
A or Standby Income Fund. The Trust is an open-end management investment company
formed as a Massachusetts business trust.
As described in the prospectus of the Trust (the "Prospectus"), the
Trust seeks to achieve the investment objectives of each Fund (other than
Standby Income Fund) by investing all the investable assets ("Assets") of the
Fund in a diversified open-end management investment company having the same
investment objectives as such Fund. These investment companies are,
respectively, Emerging Growth Portfolio, International Equity Portfolio, Growth
& Income Portfolio, Balanced Portfolio, Income Opportunity Portfolio, Bond
Portfolio and Municipal Bond Portfolio (collectively, the "Portfolios"). For
convenience, throughout the remainder of this Statement of Additional
Information, the term "Portfolio(s)" shall include, where applicable, the
Standby Income Fund. Each Portfolio is a series of Select Advisors Portfolios
(the "Portfolio Trust").
Since (except in the case of Standby Income Fund) the investment
characteristics of the Funds will correspond directly to those of the respective
Portfolio in which the Fund invests all of its Assets, the following is a
discussion of the various investments of and techniques employed by the
Portfolios.
Shares of the Funds are sold by Touchstone Securities, Inc.
("Touchstone Securities" or the "Distributor"), the Trust's
Distributor. Touchstone Advisors, Inc. ("Touchstone" or the
"Advisor") is the investment advisor of each Portfolio and
Standby Income Fund and the specific investments of each
Portfolio are managed on a day-to-day basis by their respective
investment advisors (collectively, the "Portfolio Advisors").
Signature Financial Services, Inc. ("Signature" or the
"Administrator") serves as administrator and fund accounting
agent to each Fund and Portfolio.
The Prospectus , dated May 1, 1996, provides the basic information
investors should know before investing and may be obtained without charge by
calling the Trust at the telephone number listed below. This Statement of
Additional Information, which is not a prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
the Portfolio Trust and should be read in conjunction with the Prospectus. This
Statement of Additional Information is not an offer of any Fund for which an
investor has not received a Prospectus. Capitalized terms not otherwise defined
in this Statement of Additional Information have the meanings accorded to them
in the Prospectus.
TOUCHSTONE ADVISORS, INC.
INVESTMENT ADVISOR OF EACH PORTFOLIO
TOUCHSTONE SECURITIES, INC.
DISTRIBUTOR
311 Pike Street Cincinnati, Ohio (800) 669-2796
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS... ......... 4
PERFORMANCE INFORMATION............................................. 26
VALUATION OF SECURITIES; REDEMPTION IN KIND......................... 28
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST..................... 29
ORGANIZATION OF THE TRUST AND THE PORTFOLIO TRUST................... 37
TAXATION............................................................ 38
FINANCIAL STATEMENTS................................................ 43
APPENDIX ......................................................... A-1
3
<PAGE>
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS
INVESTMENT OBJECTIVES
The investment objective(s) of each Fund is described in the Prospectus.
There can, of course, be no assurance that any Fund will achieve its investment
objective(s).
INVESTMENT POLICIES, PRACTICES, RESTRICTIONS AND RISKS
Since the investment characteristics of each Fund (other than
Standby Income Fund) will correspond directly to those of the corresponding
Portfolio, the following is a discussion of the various investments of and
techniques employed by each Portfolio.
The following provides additional information about the investment
policies employed by one or more Portfolios . Please refer to the Prospectus for
information as to which investment techniques are employed by which Portfolios .
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a
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time draft drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then "accepted" by
a bank that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
LOWER-RATED DEBT SECURITIES. While the market for high yield corporate
debt securities has been in existence for many years and has weathered previous
economic downturns, the 1980's brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructuring.
Past experience may not provide an accurate indication of future performance of
the high yield bond market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Trustees of the Portfolio Trust, including the use
of outside pricing services. Judgment plays a greater role in valuing high yield
corporate debt securities than is the case for securities for which more
external sources for quotations and last sale information is available. Adverse
publicity and changing investor perception may affect the ability of outside
pricing services to value lower-rated debt securities and the ability to dispose
of these securities.
In considering investments for the Portfolio, the Portfolio Advisor will
attempt to identify those issuers of high yielding debt securities whose
financial condition is adequate to meet future obligations, has improved or is
expected to improve in the future. The Portfolio Advisor's analysis focuses on
relative values based on such factors as interest or dividend coverage,
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asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
A Portfolio may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to seek
to protect the interest of security holders if it determines this to be in the
best interest of the Portfolio.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933 (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as "private placements" or
"restricted securities" and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and an
investment company might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. An investment company might
also have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Advisor and each Portfolio Advisor anticipates that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of
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domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
Each Portfolio Advisor will monitor the liquidity of Rule 144A
securities in the respective Portfolio's portfolio under the supervision of the
Portfolio Trust's Board of Trustees. In reaching liquidity decisions, each
Portfolio Advisor will consider, among other things, the following factors:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers and other potential purchasers wishing to purchase or sell the security;
(3) dealer undertakings to make a market in the security and (4) the nature of
the security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE.
Investments in companies domiciled in Eastern European countries may be subject
to potentially greater risks than those of other foreign issuers. These risks
include: (i) potentially less social, political and economic stability; (ii) the
small current size of the markets for such securities and the low volume of
trading, which result in less liquidity and in greater price volatility; (iii)
certain national policies which may restrict the Portfolios' investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; (v) the absence
of developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries, or in the
Commonwealth of Independent States (formerly the Union of Soviet Socialist
Republics).
So long as the Communist Party continues to exercise a significant or,
in some cases, dominant role in Eastern European countries, investments in such
countries will involve risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in many cases
without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such expropriation,
a Portfolio could lose a substantial portion of any investments it has made in
the affected countries. Further, no accounting standards exist in Eastern
European countries. Finally, even though certain Eastern European currencies may
be convertible into U.S. dollars, the conversion rates may be artificial in
relation to the actual market values and may be adverse to the Fund's
shareholders.
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LENDING OF PORTFOLIO SECURITIES. By lending its securities, a Portfolio
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid by the borrower when
U.S. Government obligations are used as collateral. There may be risks of delay
in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. Each Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive at
least 100 percent cash collateral or equivalent securities from the borrower;
(ii) the borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(iii) the Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities.
MUNICIPAL OBLIGATIONS - MUNICIPAL BOND PORTFOLIO
MUNICIPAL BONDS. Municipal bonds generally fund longer-term
capital needs than municipal notes and have maturities exceeding
one year when issued. The Municipal Bond
Portfolio may invest in municipal bonds. Municipal bonds
include:
GENERAL OBLIGATION BONDS. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
REVENUE BONDS. The principal security for a revenue bond is generally
the net revenues derived from a particular facility, group of facilities or, in
some cases, the proceeds of a special excise tax or other specific revenue
source. Revenue bonds are issued to finance a wide variety of capital projects,
including electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund that may be used
to make principal and
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interest payments on the issuer's obligations. Housing finance authorities have
a wide range of security, including partially or fully insured mortgages, rent
subsidized and/or collateralized mortgages, certificates of deposit and/or the
net revenues from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund.
PRIVATE ACTIVITY BONDS. Private activity bonds, which are considered
Municipal Obligations if the interest paid thereon is excluded from gross income
for federal income tax purposes but is a specific tax preference item for
federal individual and corporate alternative minimum tax purposes, are issued by
or on behalf of public authorities to raise money to finance various
privately-operated facilities such as manufacturing facilities, certain hospital
and university facilities and housing projects. These bonds are also used to
finance public facilities such as airports, mass transit systems and ports. The
payment of the principal and interest on these bonds is dependent solely on the
ability of the facility's user to meet its financial obligations generally and
the pledge, if any, of real and personal property so financed as security for
payment.
MUNICIPAL NOTES. Municipal notes generally fund short-term
capital needs. Municipal notes, include:
TAX ANTICIPATION NOTES. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as income, sales, use and
business taxes, and are payable from these specific future taxes.
REVENUE ANTICIPATION NOTES. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as federal revenues
available under federal revenue sharing programs.
BOND ANTICIPATION NOTES. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds provide funds for the repayment of these notes.
MISCELLANEOUS, TEMPORARY AND ANTICIPATORY INSTRUMENTS. These instruments
may include notes issued to obtain interim financing pending entering into
alternate financial arrangements, such as receipt of anticipated federal, state
or other grants or aid, passage of increased legislative authority to issue
longer-term instruments or obtaining other refinancing.
CONSTRUCTION LOAN NOTES. Construction loan notes are sold
to provide construction financing. Permanent financing, the
proceeds of which are applied to the payment of construction loan
notes, is sometimes provided by a commitment of the Government
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National Mortgage Association ("GNMA") to purchase the loan, accompanied by a
commitment by the Federal Housing Administration to insure mortgage advances
thereunder. In other instances, permanent financing is provided by commitments
of banks to purchase the loan. The Municipal Bond Portfolio will only purchase
construction loan notes that are subject to permanent GNMA or bank purchase
commitments.
TAX-EXEMPT COMMERCIAL PAPER. Tax-exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is issued by agencies
of state and local governments to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term financing.
STANDBY COMMITMENTS. The Portfolio may acquire standby commitments or
"puts" solely to facilitate portfolio liquidity; the Portfolio intends to
exercise its rights thereunder for trading purposes. The maturity of a Municipal
Obligation is not to be considered shortened by any standby commitment to which
the obligation is subject. Thus, standby commitments do not affect the
dollar-weighted average maturity of the Portfolio.
When Municipal Obligations are subject to puts separate from the
underlying securities, no value is assigned to the put. Because of the
difficulty of evaluating the likelihood of exercise or the potential benefit of
a put, the Board of Trustees has determined that puts shall have a fair market
value of zero, regardless of whether any direct or indirect consideration was
paid.
Since the value of the put is partly dependent on the ability of the put
writer to meet its obligation to repurchase, the Portfolio's policy is to enter
into put transactions only with put writers who are approved by the Portfolio
Advisor. It is the Portfolio's general policy to enter into put transactions
only with those put writers which are determined to present minimal credit
risks. In connection with this determination, the Board of Trustees will review
regularly the Portfolio Advisor's list of approved put writers, taking into
consideration, among other things, the ratings, if available, of their equity
and debt securities, their reputation in the municipal securities markets, their
net worth, their efficiency in consummating transactions and any collateral
arrangements, such as letters of credit securing the puts written by them.
Commercial banks normally will be members of the Federal Reserve System, and
other dealers will be members of the National Association of Securities Dealers,
Inc. or members of a national securities exchange. Other put writers will have
outstanding debt rated Aa or better by Moody's Investors Service, Inc.
("Moody's") or AA or better by Standard & Poor's Corporation ("S&P"), or will be
of comparable quality in the Portfolio Advisor's opinion, or such put writers'
obligations will be collateralized and of comparable quality in the Portfolio
Advisor's opinion. The Board of Trustees has directed each Portfolio Advisor not
to enter into put
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transactions with any put writer that, in the judgment of the Portfolio Advisor
using the above-described criteria, is or becomes a recognizable credit risk.
The Trust is unable to predict whether all or any portion of any loss sustained
could subsequently be recovered from a put writer in the event that a put writer
should default on its obligation to repurchase an underlying security.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The successful use of such instruments draws upon the Portfolio
Advisor's skill and experience with respect to such instruments and usually
depends on the Portfolio Advisor's ability to forecast interest rate and
currency exchange rate movements correctly. Should interest or exchange rates
move in an unexpected manner, a Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or may realize
losses and thus will be in a worse position than if such strategies had not been
used. In addition, the correlation between movements in the price of futures
contracts or options on futures contracts and movements in the price of the
securities and currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
FUTURES CONTRACTS. A Portfolio may enter into contracts for the purchase
or sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indexes including any index of U.S. Government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts trade on a number
of exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
A Portfolio may enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. A Portfolio may
also enter into futures contracts which are based on bonds issued by entities
other than the U.S. Government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a
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contract, adjustments are made to recognize differences in value arising from
the delivery of securities with a different interest rate from that specified in
the contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of a Portfolio which holds or intends to acquire fixed-income securities,
is to attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase,
the Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an equivalent
value of the debt securities owned by the Portfolio. If interest rates did
increase, the value of the debt security in the Portfolio would decline, but the
value of the futures contracts to the Portfolio would increase at approximately
the same rate, thereby keeping the net asset value of the Portfolio from
declining as much as it otherwise would have. The Portfolio could accomplish
similar results by selling debt securities and investing in bonds with short
maturities when interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of futures contracts
as an investment technique allows the Portfolio to maintain a defensive position
without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Portfolio could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market.
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When a Portfolio enters into a futures contract for any purpose, the
Portfolio will establish a segregated account with the Portfolio's custodian to
collateralize or "cover" the Portfolio's obligation consisting of cash, cash
equivalents or high grade liquid debt securities from its portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contracts and the aggregate value of the initial and variation margin payments
made by the Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Portfolio Advisor may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although each applicable
Portfolio Advisor believes that use of such contracts will benefit the
respective Portfolio, if the Portfolio Advisor's investment judgment about the
general direction of interest rates is incorrect, a Portfolio's overall
performance would be poorer than if it had not entered into any such contract.
For example, if a Portfolio has hedged against the possibility of an increase in
interest rates which would adversely affect the price of debt securities held in
its portfolio and interest rates decrease instead, the Portfolio will lose part
or all of the benefit of the increased value of its debt securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if a Portfolio has insufficient cash, it may have
to sell debt securities from its portfolio to meet daily variation margin
requirements. Such sales of bonds may be, but will not necessarily be, at
increased prices which reflect the rising market. A Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase
and write options on futures contracts for hedging purposes. The
purchase of a call option on a futures contract is similar in
some respects to the purchase of a call option on an individual
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security. Depending on the pricing of the option compared to either the price of
the futures contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of futures
contracts, when a Portfolio is not fully invested it may purchase a call option
on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Portfolio will not enter into any futures contracts or options on
futures contracts if immediately thereafter the amount of margin deposits on all
the futures contracts of the Portfolio and premiums paid on outstanding options
on futures contracts owned by the Portfolio would exceed 5% of the market value
of the total assets of the Portfolio.
OPTIONS ON FOREIGN CURRENCIES. Options on foreign currencies
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are used for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, are utilized. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, the Portfolio may
purchase put options on the foreign currency. If the value of the currency does
decline, a Portfolio will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the adverse
effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
Options on foreign currencies may be written for the same types of
hedging purposes. For example, where a Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained
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from favorable movements in exchange rates.
Certain Portfolios intend to write covered call options on foreign
currencies. A call option written on a foreign currency by a Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Portfolio in cash, U.S. Government securities and other high quality liquid
debt securities in a segregated account with its custodian.
Certain Portfolios also intend to write call options on foreign
currencies that are not covered for cross-hedging purposes. A call option on a
foreign currency is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of a
security which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with its custodian, cash or U.S.
Government securities or other high quality liquid debt securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by a Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due
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to the margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. A
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies
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may be traded on foreign exchanges. Such transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by: (i)
other complex foreign political and economic factors; (ii) lesser availability
than in the United States of data on which to make trading decisions; (iii)
delays in the Portfolio's ability to act upon economic events occurring in
foreign markets during nonbusiness hours in the United States; (iv) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States; and (v) lesser trading volume.
OPTIONS ON SECURITIES. The respective Portfolios may write (sell), to a
limited extent, only covered call and put options on a security then held in its
portfolio ("covered options") in an attempt to increase income. However, the
Portfolio may forgo the benefits of appreciation on securities sold or may pay
more than the market price on securities acquired pursuant to call and put
options written by the Portfolio.
When a Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
When a Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Portfolio will only write put options involving
securities that the Portfolio owns, or which the Portfolio wishes to acquire at
the exercise price.
A Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise
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price and expiration date as the option previously written. This transaction is
called a "closing purchase transaction." Where the Portfolio cannot effect a
closing purchase transaction, it may be forced to incur brokerage commissions or
dealer spreads in selling securities it receives or it may be forced to hold
underlying securities until an option is exercised or expires.
When a Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written.
Securities against which options are written will be segregated on the
books of the custodian for the Portfolio. If the Portfolio does not own the
security on which the option is written, the Portfolio will "cover" its
obligation by placing high grade liquid debt securities in a segregated account
at the Portfolio's custodian.
A Portfolio may purchase call and put options on any securities in which
it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The purchase
of a call option would entitle the Portfolio, in exchange for the premium paid,
to purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
A Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge
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against a decline in the market value of the Portfolio's portfolio securities.
Put options also may be purchased by the Portfolio for the purpose of
affirmatively benefiting from a decline in the price of securities which the
Portfolio does not own. The Portfolio would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities remained
at or above the exercise price. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
Each Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The Portfolio's
activities in options may also be restricted by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
A Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Portfolio Advisor will
monitor the creditworthiness of dealers with whom a Portfolio enters into such
options transactions under the general supervision of the Board of Trustees.
OPTIONS ON SECURITIES INDEXES. Such options give the holder the right to
receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the index. Such options
will be used for the purposes described above under "Options on Securities" or,
to
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the extent allowed by law, as a substitute for investment in
individual securities.
Options on securities indexes entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indexes is more likely to occur, although the
Portfolio generally will only purchase or write such an option if the Portfolio
Advisor believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Portfolio will not purchase such options unless
the Advisor and the respective Portfolio Advisor each believes the market is
sufficiently developed such that the risk of trading in such options is no
greater than the risk of trading in options on securities.
Price movements in a Portfolio's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indexes cannot serve as a complete hedge. Because options on securities indexes
require settlement in cash, the Portfolio Advisor may be forced to liquidate
portfolio securities to meet settlement obligations.
When a Portfolio writes a put or call option on a securities index it
will cover the position by placing high grade liquid debt instruments in a
segregated asset account with the Portfolio's custodian.
FORWARD CURRENCY CONTRACTS. Because, when investing in foreign
securities, a Portfolio buys and sells securities denominated in currencies
other than the U.S. dollar and receives interest, dividends and sale proceeds in
currencies other than the U.S. dollar, such Portfolios from time to time may
enter into forward currency transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. A Portfolio either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market or
uses forward currency contracts to purchase or sell foreign currencies.
A forward currency contract is an obligation by a Portfolio to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract. Forward currency contracts establish an
exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward currency contract generally has
no deposit requirement and is traded at a net price without commission. Each
Portfolio maintains with its custodian a segregated account of high grade liquid
assets in an amount at least equal to its obligations under each forward
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currency contract. Neither spot transactions nor forward currency contracts
eliminate fluctuations in the prices of the Portfolio's securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
A Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into a Portfolio Advisor's long-term
investment decisions, a Portfolio will not routinely enter into foreign currency
hedging transactions with respect to security transactions; however, the
Portfolio Advisors believe that it is important to have the flexibility to enter
into foreign currency hedging transactions when it determines that the
transactions would be in a Portfolio's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of the hedged currency increase. The precise
matching of the forward currency contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward currency
contract is entered into and the date it matures. The projection of currency
market movements is extremely difficult, and the successful execution of a
hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward currency contracts. In
such event the Portfolio's ability to utilize forward currency contracts in the
manner set forth in the Prospectus may be restricted. Forward currency contracts
may reduce the potential gain from a positive change in the relationship between
the U.S. dollar and foreign currencies. Unanticipated changes in currency prices
may result in poorer overall performance for the Portfolio than if it had not
entered into such contracts. The use of foreign currency forward currency
contracts may not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the prices of or rates of return on a Portfolio's foreign
currency denominated portfolio securities and the use of such techniques will
subject a Portfolio to certain risks.
The matching of the increase in value of a forward currency contract and
the decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Portfolio may not always be able to enter into foreign
currency forward currency contracts at attractive prices and this will limit the
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Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a Portfolio's use of cross-hedges, there can be no
assurance that historical correlations between the movement of certain foreign
currencies relative to the U.S. dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of the foreign
currencies underlying a Portfolio's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Portfolio's assets that
are the subject of such cross-hedges are denominated.
RATING SERVICES
The ratings of rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings are an initial criterion for selection of
portfolio investments, the Portfolio Advisors also make their own evaluation of
these securities, subject to review by the Board of Trustees of the Portfolio
Trust. After purchase by a Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require a Portfolio to eliminate the obligation from its
portfolio, but a Portfolio Advisor will consider such an event in its
determination of whether a Portfolio should continue to hold the obligation. A
description of the ratings used herein and in the Funds' Prospectuses is set
forth in the Appendix to the Prospectus.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of each
Fund and each Portfolio and may not be changed with respect to the Fund or the
Portfolio without the approval of a "majority of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be. "Majority of the
outstanding voting securities" under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in this Statement of Additional
Information and the Prospectus, means, with respect to the Fund (Portfolio), the
lesser of (i) 67% or more of the outstanding voting securities of the Fund
(Portfolio) present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund (Portfolio) are present or represented
by proxy or (ii) more than 50% of the outstanding voting securities of the Fund
(Portfolio).
As a matter of fundamental policy, no Portfolio (Fund) may (except that
no investment restriction of a Fund shall prevent a Fund from investing all of
its Assets in an open-end investment company with substantially the same
investment objectives):
(1) borrow money or mortgage or hypothecate assets of the
Portfolio (Fund), except that in an amount not to exceed 1/3 of
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the current value of the Portfolio's (Fund's) net assets, it may borrow money
(including through reverse repurchase agreements, forward roll transactions
involving mortgage-backed securities or other investment techniques entered into
for the purpose of leverage), and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings, provided
that collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a pledge of
assets for purposes of this restriction and except that assets may be pledged to
secure letters of credit solely for the purpose of participating in a captive
insurance company sponsored by the Investment Company Institute; for additional
related restrictions, see clause (i) under the caption "State and Federal
Restrictions" below;
(2) underwrite securities issued by other persons except insofar as the
Portfolios (Trust or the Funds) may technically be deemed an underwriter under
the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's (Fund's) total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities of
types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (except
that the Portfolio (Trust) may hold and sell, for the Portfolio's (Fund's)
portfolio, real estate acquired as a result of the Portfolio's (Fund's)
ownership of securities);
(5) concentrate its investments in any particular industry
(excluding U.S. Government securities), but if it is deemed
appropriate for the achievement of a Portfolio's (Fund's)
investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) with respect to 75% of its total assets taken
at market value, invest in assets other than cash and cash items
(including receivables), U.S. Government securities, securities
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of other investment companies and other securities for purposes of this
calculation limited in respect of any one issuer to an amount not
greater in value
than 5% of the value of the total assets of the Portfolio (Fund) and to not more
than 10% of the outstanding voting securities of such issuer.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies, each Portfolio (or Trust, on behalf of each
Fund) will not, as a matter of "operating policy" (changeable by the respective
Board of Trustees without a shareholder vote) (except that no operating policy
shall prevent a Fund from investing all of its Assets in an open-end investment
company with substantially the same investment objectives):
(i) borrow money (including through reverse repurchase
agreements or forward roll transactions involving
mortgage-backed securities or similar investment
techniques entered into for leveraging purposes),
except that the Portfolio (Fund) may borrow for
temporary or emergency purposes up to 10% of its
total assets; provided, however, that no Portfolio
(Fund) may purchase any security while outstanding
borrowings exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in
excess of 10% of the Portfolio's (Fund's)
total assets (taken at market value), provided
that collateral arrangements with respect to
options and futures, including deposits of initial
deposit and variation margin, and reverse
repurchase agreements are not considered a pledge
of assets for purposes of this restriction;
(iii) purchase any security or evidence of interest
therein on margin, except that such short-term
credit as may be necessary for the clearance of
purchases and sales of securities may be obtained
and except that deposits of initial deposit and
variation margin may be made in connection with
the purchase, ownership, holding or sale of
futures;
(iv) sell any security which it does not own unless by
virtue of its ownership of other securities it has
at the time of sale a right to obtain securities,
without payment of further consideration,
equivalent in kind and amount to the securities
sold and provided that if such right is
conditional the sale is made upon the same
conditions;
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(v) invest for the purpose of exercising control or
management;
(vi) purchase securities issued by any investment
company except by purchase in the open market
where no commission or profit to a sponsor or
dealer results from such purchase other than the
customary broker's commission, or except when such
purchase, though not made in the open market, is
part of a plan of merger or consolidation;
provided, however, that securities of any
investment company will not be purchased for the
Portfolio (Fund) if such purchase at the time
thereof would cause: (a) more than 10% of the
Portfolio's (Fund's) total assets (taken at the
greater of cost or market value) to be invested in
the securities of such issuers; (b) more than 5%
of the Portfolio's (Fund's) total assets (taken at
the greater of cost or market value) to be
invested in any one investment company; or
(c) more than 3% of the outstanding voting
securities of any such issuer to be held for the
Portfolio (Fund); provided further that, except in
the case of a merger or consolidation, the
Portfolio (Fund) shall not purchase any securities
of any open-end investment company unless the
Portfolio (Fund) (1) waives the investment
advisory fee, with respect to assets invested in
other open-end investment companies and (2) incurs
no sales charge in connection with the investment;
(vii) invest more than 15% of the Portfolio's (Fund's)
net assets (taken at the greater of cost or market
value) in securities that are illiquid or not
readily marketable (defined as a security that
cannot be sold in the ordinary course of business
within seven days at approximately the value at
which the Portfolio (Fund) has valued the
security) not including (a) Rule 144A securities
that have been determined to be liquid by the
Board of Trustees; and (b) commercial paper that
is sold under section 4(2) of the 1933 Act which:
(i) is not traded flat or in default as to
interest or principal; and (ii) is rated in one of
the two highest categories by at least two
nationally recognized statistical rating
organizations and the Portfolio's (Fund's) Board
of Trustees have determined the commercial paper
to be liquid; or (iii) is rated in one of the two
highest categories by one nationally recognized
statistical rating agency and the Portfolio's
(Fund's) Board of Trustees have determined that
the commercial paper is equivalent quality and is
liquid;
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(viii) invest more than 5% of the Portfolio's (Fund's) total assets in
securities issued by issuers which (including the period of
operation of any predecessor or unconditional guarantor of such
issuer) have been in operation less than three years;
(ix) invest more than 10% of the Portfolio's (Fund's) total assets in
securities that are restricted from being sold to the public
without registration under the 1933 Act (other than Rule 144A
Securities deemed liquid by the Portfolio's (Fund's) Board of
Trustees;
(x) purchase securities of any issuer if such purchase
at the time thereof would cause the Portfolio
(Fund) to hold more than 10% of any class of
securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single
class and all preferred stock of an issuer shall
be deemed a single class, except that futures or
option contracts shall not be subject to this
restriction;
(xi) purchase or retain in the Portfolio's (Fund's)
portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security
holders is an officer or Trustee of the Portfolio
(Trust), or is an officer or partner of the
Advisor, if after the purchase of the securities
of such issuer for the Portfolio (Fund) one or
more of such persons owns beneficially more than
1/2 of 1% of the shares or securities, or both,
all taken at market value, of such issuer, and
such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially
more than 5% of such shares or securities, or
both, all taken at market value;
(xii) invest more than 5% of the Portfolio's (Fund's)
net assets in warrants (valued at the lower of
cost or market) (other than warrants acquired by
the Portfolio (Fund) as part of a unit or attached
to securities at the time of purchase), but not
more than 2% of the Portfolio's (Fund's) net
assets may be invested in warrants not listed on
the New York Stock Exchange Inc. ("NYSE") or the
American Stock Exchange;
(xiii) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an
equal amount of such
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securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of
the same issue and equal in amount to, the securities sold short,
and unless not more than 10% of the Portfolio's (Fund's) net
assets (taken at market value) is represented by such securities,
or securities convertible into or exchangeable for such
securities, at any one time (the Portfolios (Funds) have no
current intention to engage in short selling);
(xiv) purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of the Portfolio's
aggregate investment in such classes of securities will exceed 5%
of its total assets;
(xv) write puts and calls on securities unless each of
the following conditions are met: (a) the
security underlying the put or call is within the
investment policies of the Portfolio and the
option is issued by the Options Clearing
Corporation, except for put and call options
issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the
aggregate value of the obligations underlying the
puts determined as of the date the options are
sold shall not exceed 50% of the Portfolio's net
assets; (c) the securities subject to the exercise
of the call written by the Portfolio must be owned
by the Portfolio at the time the call is sold and
must continue to be owned by the Portfolio until
the call has been exercised, has lapsed, or the
Portfolio has purchased a closing call, and such
purchase has been confirmed, thereby extinguishing
the Portfolio's obligation to deliver securities
pursuant to the call it has sold; and (d) at the
time a put is written, the Portfolio establishes a
segregated account with its custodian consisting
of cash or short-term U.S. Government securities
equal in value to the amount the Portfolio will be
obligated to pay upon exercise of the put (this
account must be maintained until the put is
exercised, has expired, or the Portfolio has
purchased a closing put, which is a put of the
same series as the one previously written); and
(xvi) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options
on financial futures unless such options are written by other
persons and: (a) the options or futures are
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offered through the facilities of a national securities
association or are listed on a national securities or commodities
exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate premiums paid on all such options
which are held at any time do not exceed 20% of the Portfolio's
total net assets; and (c) the aggregate margin deposits required
on all such futures or options thereon held at any time do not
exceed 5% of the Portfolio's total assets.
Each Fund will comply with the state securities laws and regulations of all
states in which it is registered. Each Portfolio will comply with the applicable
investment limitations found in the state securities laws and regulations of all
states in which the corresponding Fund, or any registered investment company
investing in the Portfolio is registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Portfolio Advisors are responsible for decisions to buy and sell
securities, futures contracts and options on such securities and futures for
each Portfolio, the selection of brokers, dealers and futures commission
merchants to effect transactions and the negotiation of brokerage commissions,
if any. Broker-dealers may receive brokerage commissions on portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon the exercise of options.
Orders may be directed to any broker-dealer or futures commission merchant,
including to the extent and in the manner permitted by applicable law, the
Advisor, the Portfolio Advisors or their subsidiaries or affiliates. Purchases
and sales of certain portfolio securities on behalf of a Portfolio are
frequently placed by the Portfolio Advisor with the issuer or a primary or
secondary market-maker for these securities on a net basis, without any
brokerage commission being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers reflect
the spread between the bid and asked prices. Purchases of underwritten issues
may be made which will include an underwriting fee paid to the underwriter.
The Portfolio Advisors seek to evaluate the overall reasonableness of
the brokerage commissions paid through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. In placing
29
<PAGE>
orders for the purchase and sale of securities for a Portfolio, the Portfolio
Advisors take into account such factors as price, commission (if any, negotiable
in the case of national securities exchange transactions), size of order,
difficulty of execution and skill required of the executing broker-dealer. The
Portfolio Advisors review on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Portfolio Advisors are authorized, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Portfolio with a broker to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. A Portfolio Advisor may use this research
information in managing a Portfolio's assets, as well as the assets of other
clients.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Board of Trustees may determine, the Portfolio Advisors may consider sales
of shares of the Trust as a factor in the selection of broker-dealers to execute
portfolio transactions. The Portfolio Advisor will make such allocations if
commissions are comparable to those charged by nonaffiliated, qualified
broker-dealers for similar services.
Except for implementing the policies stated above, there is no intention
to place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Portfolio and to the corresponding
Portfolio Advisor, it is the opinion of the management of the Portfolios that
such information is only
30
<PAGE>
supplementary to the Portfolio Advisor's own research effort, since the
information must still be analyzed, weighed and reviewed by the Portfolio
Advisor's staff. Such information may be useful to the Portfolio Advisor in
providing services to clients other than the Portfolios, and not all such
information is used by the Portfolio Advisor in connection with the Portfolios.
Conversely, such information provided to the Portfolio Advisor by brokers and
dealers through whom other clients of the Portfolio Advisor effect securities
transactions may be useful to the Portfolio Advisor in providing services to the
Portfolios.
In certain instances there may be securities which are suitable for a
Portfolio as well as for one or more of the respective Portfolio Advisor's other
clients. Investment decisions for a Portfolio and for the Portfolio Advisor's
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment advisor, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as a Portfolio in
concerned. However, it is believed that the ability of a Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.
The Portfolios and Standby Income Fund paid the following brokerage
commissions for the periods indicated:
31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging International Growth & Income Standby Municipal
Growth Equity Income Balanced Opportunity Bond Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund Portfolio
For the Year $9,127 $21,883 $34,430 $4,519 $0 $0 $0 $0
Ended 12/31/95
For the Period $7,691 $23,432 $3,440 $2,106 $0 $0 $0 $0
10/3/94*
to 12/31/94
- ------------
* Commencement of operations
</TABLE>
PERFORMANCE INFORMATION
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
YIELD: Yields for a Fund used in advertising are computed
by dividing the Fund's interest and dividend income for a given 30-day
or one-month period, net of expenses, by the average number of shares
entitled to receive distributions during the period, dividing this
figure by the Fund's net asset value per share at the end of the period,
and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purpose of
yield quotations in accordance with standardized methods applicable to
all stock and bond mutual funds. Dividends from equity investments are
treated as if they were accrued on a daily basis, solely for the purpose
of yield calculations. In general, interest income is reduced with
respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation.
Income calculated for the purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding
assumed in yield calculations, the yield quoted for a Fund may differ
from the rate of distributions of the Fund paid over the same period or
the rate of income reported in the Fund's financial statements. For the
30-day period ended December 31, 1995, the Funds' yields were as
follows:
32
<PAGE>
Income Municipal Standby
Balanced Opportunity Bond Bond Income
Fund A Fund A Fund A Fund A Fund
1.30% 9.14% 4.78% 2.83% 3.76%
For the 7-day period ended December 31, 1995, the Standby Income Fund's
yield was 5.18%.
** 1 TAXABLE-EQUIVALENT YIELD: A Fund's taxable-equivalent
30-day yield is calculated by dividing that portion of the
Fund's 30-day yield that is tax exempt by one minus a stated income tax
rate and adding the result to any portion of the Fund's yield that is
not tax exempt. For the period ended December 31, 1995, Municipal Bond
Fund's tax equivalent yield for an investor in the 28% tax bracket was
3.93%.
** 2 TOTAL RETURN: A Fund's standardized average annual total return is
calculated for certain periods by determining the average annual
compounded rates of return over those periods that would cause an
investment of $1,000 (with all distributions reinvested) to reach the
value of that investment at the end of the periods. A Fund may also
calculate non-standardized total return figures which represent
aggregate (not annualized) performance over any period or year-by-year
performance, such as the following.
<TABLE>
Averages Emerging International Growth & Income Standby Municipal
Annual Total Growth Equity Income Balanced Opportunity Bond Income Bond
Return Fund C Fund C Fund C Fund C Fund C Fund C Fund Fund C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended
12/31/95 21.15% 4.62% 35.22% 22.40% 22.18% 16.29% 5.71% 8.14%
For the Period
10/3/94* to
12/31/95 19.04% (3.88) 27.55% 17.79% 10.45% 13.04% 5.53% 6.19%
AGGREGATE
TOTAL RETURN
For the 3-Month
Period
Ended
3/31/96 4.20% 16.24% 7.16% 3.27% 5.25% (2.35)% 1.04% (0.85)%
For the 12-Month
Period
Ended
3/31/96 21.78% 15.35% 31.73% 20.15% 36.31% 7.97% 5.42% 4.36%
* Commencement of operations
</TABLE>
PERFORMANCE RESULTS: Any total return quotation provided for a Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value of shares of the Fund will
vary based not only on the type, quality and maturities of the
securities held in the corresponding Portfolio, but also on changes in
the current value of such securities and on
33
<PAGE>
changes in the expenses of the Fund and the corresponding Portfolio.
These factors and possible differences in the methods used to calculate
total return should be considered when comparing the total return of a
Fund to total returns published for other investment companies or other
investment vehicles. Total return reflects the performance of both
principal and income.
COMPARISON OF FUND PERFORMANCE
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indexes. The performance figures of unmanaged indexes may assume
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs. Evaluations of a Fund's performance made by
independent sources may also be used in advertisements concerning the Fund.
Sources for a Fund's performance information could include ASIAN WALL STREET
JOURNAL, BARRON'S, BUSINESS WEEK, CHANGING TIMES, THE KIPLINGER MAGAZINE,
CONSUMER DIGEST, FINANCIAL TIMES, FINANCIAL WORLD, FORBES, FORTUNE, GLOBAL
INVESTOR, INVESTOR'S DAILY, LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND
PERFORMANCE ANALYSIS, MONEY, THE NEW YORK TIMES, PERSONAL INVESTING NEWS,
PERSONAL INVESTOR, SUCCESS, U.S. NEWS AND WORLD REPORT, THE WALL STREET JOURNAL
AND CDA/WEISENBERGER INVESTMENT COMPANIES SERVICES .
VALUATION OF SECURITIES; REDEMPTION IN KIND
The value of each security for which readily available market quotations
exists is based on a decision as to the broadest and most representative market
for such security. The value of such security is based either on the last sale
price on a national securities exchange, or, in the absence of recorded sales,
at the readily available closing bid price on such exchanges, or at the quoted
bid price in the over-the-counter market. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the time net
assets are valued. Unlisted securities are valued at the average of the quoted
bid and asked prices in the over-the-counter market. Debt securities are valued
by a pricing service which determines valuations based upon market transactions
for normal, institutional-size trading units of similar securities. Securities
or other assets for which market quotations are not
34
<PAGE>
readily available are valued at fair value in accordance with procedures
established by the Portfolio Trust. Such procedures include the use of
independent pricing services, which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. All portfolio securities
with a remaining maturity of less than 60 days are valued at amortized cost,
which approximates market.
The accounting records of the Portfolios are maintained in U.S. dollars.
The market value of investment securities, other assets and liabilities and
forward contracts denominated in foreign currencies are translated into U.S.
dollars at the prevailing exchange rates at the end of the period. Purchases and
sales of securities, income receipts, and expense payments are translated at the
exchange rate prevailing on the respective dates of such transactions. Reported
net realized gains and losses on foreign currency transactions represent net
gains and losses from sales and maturities of forward currency contracts,
disposition of foreign currencies, currency gains and losses realized between
the trade and settlement dates on securities transactions and the difference
between the amount of net investment income accrued and the U.S. dollar amount
actually received.
The problems inherent in making a good faith determination of the value
of restricted securities are recognized in the codification effected by SEC
Financial Reporting Release No. 1 ("FRR 1" (formerly Accounting Series Release
No. 113)) which concludes that there is "no automatic formula" for calculating
the value of restricted securities. It recommends that the best method simply is
to consider all relevant factors before making any calculation. According to FRR
1 such factors would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
available, the Portfolio Advisor will value such securities based upon all
relevant factors as outlined in FRR 1.
35
<PAGE>
Each Fund and each Portfolio reserves the right, if conditions exist
which make cash payments undesirable, to honor any request for redemption or
repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, or the Portfolio, as the case may be, and valued
as they are for purposes of computing the Fund's or the Portfolio's net asset
value, as the case may be (a redemption in kind). If payment is made in
securities, an investor, including the Fund, may incur transaction expenses in
converting these securities into cash. The Trust, on behalf of each Fund, has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which each Fund is obligated to redeem shares or beneficial interests, as the
case may be, with respect to any one investor during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period.
Each investor in a Portfolio, including the corresponding Fund, may add
to or reduce its investment in the Portfolio on each day that the NYSE is open
for business. As of 4:00 p.m., New York time, on each such day, the value of
each investor's interest in a Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage representing that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions or
reductions which are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in a Portfolio will
then be recomputed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Portfolio as of 4:00
p.m. on such day plus or minus, as the case may be, the amount of net additions
to or reductions in the investor's investment in the Portfolio effected on such
day and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as of 4:00 p.m. on the following day the NYSE is open for trading.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The Trustees and officers of the Trust and the Portfolio Trust and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate those Trustees who
are "interested persons" (as defined in the 1940 Act) of the Trust and the
Portfolio Trust. Unless otherwise indicated, the address of each Trustee and
officer is 311 Pike Street, Cincinnati, Ohio.
TRUSTEES OF THE TRUST AND THE PORTFOLIO TRUST
36
<PAGE>
*EDWARD G. HARNESS, JR. (age 47) -- Trustee and President;
Director, President and Chief Executive Officer, Touchstone
(since December, 1993); Director, Chief Executive Officer,
Touchstone Securities (since October, 1991); President, IFS
Financial Services, Inc. (since November, 1990); President,
Landmark Financial Corporation (prior to July, 1990).
*WILLIAM J. WILLIAMS (age 80) -- Trustee; Chairman of the Board of
Directors, The Western and Southern Life Insurance Company (since 1984). His
address is 400 Broadway, Cincinnati, OH 45202.
JOSEPH S. STERN, JR. (age 78) -- Trustee; Retired Professor
Emeritus, College of Business, University of Cincinnati. His
address is 3 Grandin Place, Cincinnati, OH 45208.
PHILLIP R. COX (age 48) -- Trustee; President and Chief
Executive Officer, Cox Financial Corp. (prior to 1989); Director,
Federal Reserve Bank of Cleveland (since January, 1994);
Director, Cincinnati Bell, Inc. (since March, 1993); Director,
PNC Bank (since October, 1992); Director, CINergy (since
May, 1994). His address is 4199 Crossgate Lane, Cincinnati, OH
45236.
ROBERT E. STAUTBERG (age 61) -- Trustee; Director, Scripps Howard
Broadcasting Co. (since May, 1989); Retired Partner, KPMG Peat Marwick (prior to
1989); Trustee, Good Samaritan Hospital (since January, 1988); Trustee and
Director of other not for profit organizations. His address is 4815 Drake Road,
Cincinnati, OH 45243.
DAVID POLLAK (age 79) -- Trustee; Retired; President, Ultimate
Distributing Company (prior to 1994); Vice Chairman and Director, Continental
Steel (prior to 1986); Director Emeritus, Fifth Third Bank; Trustee Emeritus,
Cornell University; Trustee and officer of other not for profit organizations.
His address is 1313 Kemper Road, Suite 111, Cincinnati, OH 45246.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Portfolio.
EDWARD S. HEENAN (age 52) -- Treasurer; Vice President and Controller,
Touchstone (since December, 1993); Director, Controller, Touchstone Securities
(since October, 1991); Vice President and Comptroller, The Western and Southern
Life Insurance Company (since 1987). His address is 400 Broadway,
37
<PAGE>
Cincinnati, OH 45202.
THOMAS M. LENZ (age 37) -- Secretary; Senior Vice President
and Associate General Counsel, Signature Financial Group, Inc.
("SFG") (since November, 1989); Attorney, Ropes & Gray (prior to
November, 1989). His address is 6 St. James Avenue, Boston,
Massachusetts 02116.
DAVID G. DANIELSON (age 31) -- Assistant Treasurer; Assistant Manager,
SFG (since May, 1991); Graduate Student, Northeastern University (from April,
1990 to March, 1991); Tax Accountant & Systems Analyst, Putnam Companies (prior
to March, 1990). His address is 6 St. James Avenue, Boston, Massachusetts 02116.
JOHN R. ELDER (age 47) -- Assistant Treasurer; Vice
President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995); Audit Manager, Price
Waterhouse (prior to 1983).
His address is 6 St.
James Avenue, Boston, Massachusetts 02116.
BRIAN J. HALL (age 30) -- Assistant Treasurer; Assistant
Manager, SFG (since November, 1991); Senior State Regulation
Administrator (prior to November, 1991) The Boston Company. His
address is 6 St. James Avenue, Boston, MA 02116.
BRIAN J. MANLEY (age 32) -- Assistant Treasurer; Vice President and
Chief Financial Officer, Touchstone (since December, 1993); Vice President and
Chief Financial Officer, Touchstone Securities (since November, 1991); Assistant
Controller, The Union Central Life Insurance Company (prior to 1991).
DANIEL E. SHEA (age 33) -- Assistant Treasurer; Assistant
Manager, SFG (since November 1993); Supervisor and Senior
Technical Advisor, Putnam Investments (prior to November 1993).
His address is 6 St. James Avenue, Boston, Massachusetts 02116.
LINDA T. GIBSON (age 30) -- Assistant Secretary; Vice President, Global
Product Management and Assistant Secretary, SFG (since May, 1992); student,
Boston, University School of Law (September, 1989 to May, 1992) . Her address is
6 St.
James Avenue, Boston, Massachusetts 02116.
MOLLY S. MUGLER (age 44) -- Assistant Secretary; Legal
Counsel and Assistant Secretary, SFG (since December, 1988). Her
address is 6 St. James Avenue, Boston, Massachusetts 02116.
ANDRES E. SALDANA (age 33) -- Assistant Secretary; Legal
38
<PAGE>
Counsel, SFG (since November, 1992); Attorney, Ropes & Gray (September, 1990 to
November, 1992) . His address is 6 St. James Avenue, Boston, Massachusetts
02116.
Messrs. Danielson, Elder, Hall, Lenz, Saldana and Shea
and Mss. Gibson and Mugler also hold similar positions for
affiliates of SFG and for other investment companies for which
SFG or an affiliate serves as administrator or principal
underwriter.
No director, officer or employee of the Advisor, the Portfolio Advisors,
the Distributor, the Administrator or any of their affiliates will receive any
compensation from the Trust or the Portfolio Trust for serving as an officer or
Trustee of the Trust or the Portfolio Trust. The Trust, Portfolio Trust, Select
Advisors Trust A and Select Advisors Variable Insurance Trust (the "Fund
Complex") pays, in the aggregate, each Trustee who is not a director, officer or
employee of the Advisor, the Portfolio Advisors, the Distributor, the
Administrator or any of their affiliates an annual fee of $5,000, respectively,
per annum plus $1,000, respectively, per meeting attended and reimburses them
for travel and out-of-pocket expenses. For the year ended December 31, 1995, the
Trust incurred $3,038 in Trustee fees and expenses. For the same period, the
Portfolio Trust incurred $15,849 in Trustee fees and expenses.
TRUSTEE COMPENSATION TABLE
TOTAL COMPENSATION TABLE
Aggregate Total Compensatiosn
Name of Persons and Position Compensation from Trust and Fund Complex
from Trust Paid to Trustees
Joseph S. Stern, Jr.,
Trustee of Trust
and Portfolio Trust $675 $10,000
Phillip R. Cox, $675 $10,000
Trustee of Trust
and Portfolio Trust
Robert E. Stautberg, $675 $10,000
Trustee of Trust
and Portfolio Trust
39
<PAGE>
David Pollak, $1,014 $9,000
Trustee of Trust
and Portfolio Trust
As of April 1, 1996, the Trustees and officers of the Trust and the
Portfolio Trust owned in the aggregate less than 1% of the shares of any Fund or
the Trust (all series taken together).
ADVISOR, PORTFOLIO ADVISORS, ADMINISTRATOR AND DISTRIBUTOR
ADVISOR
Touchstone Advisors provides service to each Portfolio and the Standby
Income Fund pursuant to Investment Advisory Agreements with the Portfolio Trust
and the Trust (the "Advisory Agreements"). The services provided by the Advisor
consist of directing and supervising each Portfolio Advisor, reviewing and
evaluating the performance of each Portfolio Advisor and determining whether or
not any Portfolio Advisor should be replaced. The Advisor furnishes at its own
expense all facilities and personnel necessary in connection with providing
these services. Each respective Advisory Agreement will continue in effect if
such continuance is specifically approved at least annually by the respective
Board of Trustees and by a majority of the respective Trustees who are not
parties to the Advisory Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Advisory Agreement.
Each Advisory Agreement is terminable, with respect to a Portfolio or
Standby Income Fund, without penalty on not more than 60 days' nor less than 30
days' written notice by the Portfolio Trust or the Trust, as the case may be,
when authorized either by, in the case of a Portfolio, majority vote of the
corresponding Fund and of the other investors in the Portfolio (with the vote of
each being in proportion to the amount of their investment) or, in the case of
Standby Income Fund, by a majority vote of the Fund's shareholders, or by a vote
of a majority of the respective Board of Trustees or by the Advisor, and will
automatically terminate in the event of its assignment. Each
40
<PAGE>
Advisory Agreement provides that neither the Advisor nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in its services to the
Portfolios, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its or their obligations and duties under the Advisory
Agreement.
The Trust's Prospectus contains a description of fees payable to the
Advisor for services under the Advisory Agreements.
For the periods indicated, each Portfolio and Standby Income Fund
incurred the following investment advisory fees equal on an annual basis to the
following percentages of the average daily net assets of each Portfolio and
Standby Income Fund.
41
<PAGE>
<TABLE>
Emerging International Growth & Income Standby Municipal
Growth Equity Income Balanced Opportunity Bond Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.75% 0.70% 0.65% 0.55% 0.25% 0.55%
For the Year $26,169/95 $43,963 $94,187 $16,553 $13,479 $62,478 $13,725 $12,393
Ended
12/31/95
For the Period $3,865 $11,150 $18,075 $3,365 $3,073 $13,392 $3,066 $2,657
10/3/94* to
12/31/94
- ------------
* Commencement of operations
</TABLE>
For the periods indicated, the Advisor voluntarily agreed to reimburse
each Portfolio the following amounts:
<TABLE>
Emerging International Growth & Income Standby Municipal
Growth Equity Income Balanced Opportunity Bond Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year $65,261 $102,137 $37,425 $67,859 $69,419 $42,920 $101,543 $67,966
Ended
12/31/95
For the $23,152 $16,652 $18,075 $24,761 $24,966 $13,392 $29,765 $25,324
Period
10/3/94*
to 12/31/94
- ------------
* Commencement of operations
</TABLE>
PORTFOLIO ADVISORS
The Advisor has, in turn, entered into a portfolio advisory agreement
(each a "Portfolio Agreement") with each Portfolio Advisor selected by the
Advisor for a Portfolio or Standby Income Fund. Under the direction of the
Advisor and, ultimately, of the Board of Trustees of the Portfolio Trust, each
Portfolio Advisor is responsible for making all of the day-to-day investment
decisions for the respective Portfolio (or portion of a Portfolio) or Fund.
42
<PAGE>
Each Portfolio Advisor furnishes at its own expense all facilities and
personnel necessary in connection with providing these services. Each Portfolio
Agreement contains provisions similar to those described above with respect to
the Advisory Agreements. ADMINISTRATOR
Pursuant to the administrative services and fund accounting agreements
(the "Administrative Services Agreements"), Signature provides the Trust and the
Portfolio Trust with general office facilities and supervises the overall
administration of the Trust and the Portfolio Trust, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Trust or the Portfolio Trust; the preparation and filing of all documents
required for compliance by the Trust and the Portfolio Trust with applicable
laws and regulations; and arranging for the maintenance of books and records of
the Trust and the Portfolio Trust. The Administrator provides persons
satisfactory to the Board of Trustees of the Trust or the Portfolio Trust to
serve as officers of the Trust or the Portfolio Trust. Such officers, as well as
certain other employees and Trustees of the Trust or the Portfolio Trust, may be
directors, officers or employees of the Administrator or its affiliates.
Each Administrative Services Agreement provides that Signature shall
receive from each Portfolio administrative and fund accounting fees equal, in
the aggregate, on an annual basis to the following:
0.20% of the average daily net assets of all Select Advisory Portfolios
(as defined below) up to $100 million; 0.18% of the average daily net assets of
all Select Advisory Portfolios from $100 million to $200 million; 0.12% of the
average daily net assets of all Select Advisory Portfolios from $200 million to
$500 million; 0.08% of the average daily net assets of all Select Advisory
Portfolios from $500 million to $1 billion; and 0.05% of the average daily net
assets of all Select Advisory Portfolios greater than $1 billion.
(As used above, the term "Select Advisory Portfolios" includes all
registered investment companies (or series thereof) the securities issued by
which are not registered under the 1933 Act and which invest in a portfolio of
securities, as opposed to investing all or most of their Assets in another
registered investment company, with which the Advisor has an investment advisory
agreement and with which Signature has an administrative services and fund
accounting agreement.)
Standby Income Fund's Administrative Services Agreement
43
<PAGE>
provides that Standby Income Fund and all other Select Stand Alone
Funds (as defined below) will pay administrative services fees equal, in the
aggregate, to the following:
0.16% of the average daily net assets of all Select Stand Alone Funds
(as defined below) up to $100 million; 0.14% of the average daily net assets of
all Select Stand Alone Funds from $100 million to $200 million; 0.10% of the
average daily net assets of all Select Stand Alone Funds from $200 million to
$500 million; 0.06% of the average daily net assets of all Select Stand Alone
Funds from $500 million to $1 billion;and 0.05% of the average daily net assets
of all Select Stand Alone Funds greater than $1 billion.
As used above, the term "Select Stand Alone Funds" includes all
registered investment companies (or series thereof) shares of which are
registered under the 1933 Act and which invest in a portfolio of securities with
which the Advisor has an investment advisory agreement and with which Signature
has an administrative services and fund accounting agreement.
In addition, each Portfolio is subject to a minimum annual
administrative services and fund accounting fee of $60,000 ($40,000 in the first
year of operations). Standby Income Fund is subject to a minimum administration
and fund accounting fee of $25,000. In the case of the Portfolios, this minimum
fee is subject to increases depending on how many investors a Portfolio has. The
Portfolios and Standby Income Fund incurred the following administrative and
fund accounting fees for the periods indicated:
<TABLE>
Emerging International Growth & Income Standby Municipal
Growth Equity Income Balanced Opportunity Bond Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year $47,425 $56,773 $46,643 $47,446 $45,723 $47,775 $28,885 $50,027
Ended 12/31/95
For the $9,753 $9,753 $9,753 $9,753 $9,753 $9,753 $6,096 $9,753
Period
10/3/94*
to 12/31/94
- -----------
* Commencement of operations
</TABLE>
Each Administrative Services Agreement provides that Signature may
render administrative services to others. Each Administrative Services Agreement
also provides that neither the Administrator nor its personnel shall be liable
for any error of judgment or mistake of law or for any act or omission, except
for wilful misfeasance, bad faith or gross negligence in the performance of its
or their duties or by reason of reckless disregard of its or their obligations
and duties under the Administrative Services Agreement.
44
<PAGE>
The respective Administrative Services Agreement terminates
automatically if it is assigned and may be terminated, with respect to a
Portfolio, without penalty by majority vote of the Fund and the other investors
in the Portfolio (with the vote of each being in proportion to the amount of
their investment) or with respect to Standby Income Fund, by majority vote of
the outstanding shares of the Fund or by either party on not more than 60 days'
nor less than 30 days' written notice.
Signature is a wholly-owned subsidiary of SFG, a Delaware corporation.
DISTRIBUTOR
The Trust has adopted a Distribution and Services Plan (the
"Distribution Plan") with respect to each Fund except the Standby Income Fund
which provides that the Trust may pay the Distributor a fee not to exceed 0.75%
per annum of each Fund's average daily net assets in anticipation of, or as
reimbursement for, costs and expenses incurred in connection with the
distribution and sales of shares of the Trust such as payments to broker-dealers
who advise shareholders regarding the purchase, sale or retention of shares of
the Trust, payments to employees of the Distributor, advertising expenses and
the expenses of printing and distributing prospectuses and reports used for
sales purposes, expenses of preparing and printing sales literature and other
distribution-related expenses. In addition, the Trust may also pay the
Distributor service fees not to exceed on 0.25% per annum of each Fund's average
daily net assets in connection with providing (or causing to be provided)
personal service and shareholder account maintenance services.
The Distribution Plan will continue in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
majority of the Trust's Trustees and a majority of the Trust's Trustees who are
not "interested persons of the Trust" and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in any agreement
related to such Plan ("Qualified Trustees"). The Distributor will provide to the
Trustees of the Trust a quarterly written report of amounts expended by it under
the Distribution Plan and the purposes for which such expenditures were made.
The Distribution Plan further provides that the selection and nomination of the
Trust's Qualified Trustees shall be committed to the discretion of the
disinterested Trustees of the Trust. The Distribution Plan may be terminated at
any time by a vote of a majority of the Trust's Qualified Trustees or by a vote
of the shareholders of the Trust. The Distribution Plan may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of shareholders and may not be materially amended in any case without a
vote of the majority of both the Trust's Trustees and the Trust's Qualified
Trustees. The Distributor will preserve copies of any plan, agreement or
45
<PAGE>
report made pursuant to the Distribution Plan for a period of not less than six
(6) years from the date of the Distribution Plan, and for the first two (2)
years the Distributor will preserve such copies in an easily accessible place.
The Trust has entered into a Distribution Agreement with the
Distributor. Under the Distribution Agreement, the Distributor acts as the agent
of the Trust in connection with the offering of shares of the Trust.
The Distributor has agreed that if in any fiscal year the aggregate
expenses of any Fund and its respective Portfolio (including fees pursuant to
the Advisory Agreement, but excluding interest, taxes, brokerage and, if
permitted by the relevant state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over a Fund, the
Distributor will reimburse the Fund for the excess expense to the extent
required by state law. As of the date of this Statement of Additional
Information, the most restrictive annual expense limitation applicable to any
Fund is 2.50% of the Fund's first $30 million of average annual net assets,
2.00% of the next $70 million of average annual net assets and 1.50% of the
remaining average annual net assets.
The Trust paid the following fees pursuant to the Distribution Plan for
the periods indicated:
<TABLE>
Emerging International Growth & Income Municipal
Distribution Growth Equity Income Balanced Opportunity Bond Bond
Fee Fund C Fund C Fund C Fund C Fund C Fund C Fund C
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended $11,478 $23,027 $1,704 $11,667 $10,240 $1,704 $10,467
12/31/95
For the Period $2,395 $5,822 $41 $2,388 $2,354 $41 $2,388
10/3/94* to
12/31/94
- ------------------
* Commencement of operations
</TABLE>
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT"), 89 South Street, Boston,
Massachusetts 02111, serves as custodian for the Trust and for each Portfolio
pursuant to a custody agreement. As custodian, IBT holds the Funds' and each
Portfolio's assets. IBT also serves as the Portfolio Trust's transfer agent.
State Street Bank and Trust Company ("State Street"), P.O. Box 8518,
Boston, Massachusetts 02266-8518, serves as transfer agent of the Trust pursuant
to a transfer agency agreement. Under its transfer agency agreement with the
Trust,
46
<PAGE>
State Street maintains the shareholder account records for each Fund,
handles certain communications between shareholders and the Trust and causes to
be distributed any dividends and distributions payable by the Trust. State
Street may be reimbursed by the Trust for its out-of-pocket expenses.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Frost & Jacobs, 2500 PNC Center, 201 East 5th Street, Cincinnati, Ohio
45201-5715, serves as counsel to the Trust and each Portfolio. Coopers & Lybrand
L.L.P., One Post Office Square, Boston, Massachusetts 02109, acts as independent
accountants of the Trust and each Portfolio.
ORGANIZATION OF THE TRUST AND THE PORTFOLIO TRUST
Shares of the Trust do not have cumulative voting rights,which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by the Trust, the shareholder paying the liability will
be entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
TAXATION
TAXATION OF THE FUNDS
The Trust intends to qualify annually and to elect each Fund to be
treated as a regulated investment company under the Code.
To qualify as a regulated investment company, each Fund must, among
other things: (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments
47
<PAGE>
with respect to securities loans and gains from the sale or other
disposition of stock, securities or foreign currencies or other income derived
with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of certain assets (namely, in the case of the Fund, (i) stock or
securities; (ii) options, futures, and forward contracts (other than those on
foreign currencies); and (iii) foreign currencies (including options, futures,
and forward currency contracts on such currencies) not directly related to the
Fund's principal business of investing in stock or securities (or options and
futures with respect to stocks or securities)) held less than three months (the
30% Limitation"); (c) diversify its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
is represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.
As a regulated investment company, each Fund will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute during each calendar year an amount equal
to the sum of: (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year; (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the one-year period ending on October 31
of the calendar year; and (3) any ordinary income and capital gains for previous
years that was not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
the Fund in October, November or December with a record date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the
48
<PAGE>
calendar year in which the distributions are received. To prevent
application of the excise tax, the Fund intends to make its distributions in
accordance with the calendar year distribution requirement.
Investment in the Municipal Bond Fund would not be suitable for
tax-exempt institutions, qualified retirement plans, H.R. 10 plans and
individual retirement accounts since such investors would not gain any
additional tax benefit from the receipt of tax-exempt income.
Because the Municipal Bond Fund will distribute exempt-interest
dividends, all or a portion of any interest on indebtedness incurred by a
shareholder to purchase or carry shares of these Funds will not be deductible
for federal personal income tax purposes. In addition, the Code may require a
shareholder of this Fund, if he receives exempt-interest dividends, to treat as
taxable income a portion of certain otherwise nontaxable social security and
railroad retirement benefit payments. Furthermore, that portion of any
exempt-interest dividend paid by this Fund which represents income from private
activity bonds held by the Fund may not retain its tax-exempt status in the
hands of a shareholder who is a "substantial user" of a facility financed by
such bonds, or a "related person" thereof. Moreover, as noted in the Prospectus
of this Fund, (i) some or all of a Fund's dividends and distributions may be
specific preference items, or a component of an adjustment item, for purposes of
the federal individual and corporate alternative minimum taxes and (ii) the
receipt of a Fund's dividends and distributions may affect a corporate
shareholder's federal "environmental" tax liability. In addition, the receipt of
Fund dividends and distributions may affect a foreign corporate shareholder's
federal "branch profits" tax liability and a Subchapter S corporate
shareholder's federal "excess net passive income" tax liability. Shareholders
should consult their own tax advisors as to whether they are (i) "substantial
users" with respect to a facility or "related" to such users within the meaning
of the Code and (ii) subject to a federal alternative minimum tax, the federal
"environmental" tax, the federal "branch profits" tax or the federal "excess net
passive income" tax.
Each Fund shareholder will also receive, if appropriate, various
written notices after the close of the Fund's prior taxable year as to the
federal income status of his dividends and distributions which were received
from the Fund during the Fund's prior taxable year. In the case of the Municipal
Bond Fund, these statements will also designate the amount of exempt-interest
dividends that is a specific preference item for purposes of the federal
individual and corporate alternative minimum taxes. Shareholders should consult
their tax advisors as to any state and local taxes that may apply to these
dividends and distributions. The dollar amount of dividends excluded from
federal income taxation and the dollar amount subject to such
49
<PAGE>
income taxation, if any, will vary for each shareholder depending upon
the size and duration of each shareholder's investment in the Fund. To the
extent that the Fund earns taxable net investment income, the Fund intends to
designate as taxable dividends the same percentage of each dividend as its
taxable net investment income bears to its total net investment income earned.
Therefore, the percentage of each dividend designated as taxable, if any, may
vary.
FOREIGN SECURITIES. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to determine
the effective rate of foreign tax in advance since the amount of each applicable
Portfolio's assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be treated as
having been paid directly by shareholders of the entities, such as the
corresponding Fund, which have invested in the Portfolio. Pursuant to such
election, the amount of foreign taxes paid will be included in the income of the
corresponding Fund's shareholders, and such Fund shareholders (except tax-exempt
shareholders) may, subject to certain limitations, claim either a credit or
deduction for the taxes. Each such Fund shareholder will be notified after the
close of the Portfolio's taxable year whether the foreign taxes paid will "pass
through" for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid to each such country and (b) the
portion which represents income derived from sources within each such country.
The amount of foreign taxes for which a shareholder may claim a credit
in any year will generally be subject to a separate limitation for "passive
income," which includes, among other items of income, dividends, interest and
certain foreign currency gains. Because capital gains realized by the Portfolio
on the sale of foreign securities will be treated as U.S.-source income, the
available credit of foreign taxes paid with respect to such gains may be
restricted by this limitation.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will
be taxable to a U.S. shareholder as ordinary income. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the shareholder has held the
Fund's shares, and are not eligible for the dividends-received deduction.
Shareholders receiving distributions in the form of additional shares, rather
than cash, generally will have a cost basis in each such share equal to the net
asset value of a share of the Fund on the
50
<PAGE>
reinvestment date. Shareholders will be notified annually as to the U.S. federal
tax status of distributions.
TAXATION OF THE PORTFOLIOS
The Portfolios are not subject to federal income taxation. Instead, the
Fund and other investors investing in a Portfolio must take into account, in
computing their federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Distributions received by a Fund from the corresponding Portfolio
generally will not result in the Fund recognizing any gain or loss for federal
income tax purposes, except that: (1) gain will be recognized to the extent that
any cash distributed exceeds the Fund's basis in its interest in the Portfolio
prior to the distribution; (2) income or gain may be realized if the
distribution is made in liquidation of the Fund's entire interest in the
Portfolio and includes a disproportionate share of any unrealized receivables
held by the Portfolio; and (3) loss may be recognized if the distribution is
made in liquidation of the Fund's entire interest in the Portfolio and consists
solely of cash and/or unrealized receivables. A Fund's basis in its interest in
the corresponding Portfolio generally will equal the amount of cash and the
basis of any property which the Fund invests in the Portfolio, increased by the
Fund's share of income from the Portfolio, and decreased by the amount of any
cash distributions and the basis of any property distributed from the Portfolio.
SALE OF SHARES
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of Fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
FOREIGN WITHHOLDING TAXES
Income received by a Portfolio from sources within foreign
51
<PAGE>
countries may be subject to withholding and other taxes imposed by such
countries.
BACKUP WITHHOLDING
A Fund may be required to withhold U.S. federal income taxat the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in a
Fund may be different from those described herein. Foreign shareholders are
advised to consult their own tax advisors with respect to the particular tax
consequences to them of an investment in a Fund.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
The Portfolio Trust is organized as a common law trust under the laws
of the State of New York but is treated as a partnership for tax purposes. The
Portfolio Trust is not subject to any income or franchise tax in the
Commonwealth of Massachusetts.
Fund shareholders may be subject to state and local taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in a Fund.
52
<PAGE>
FINANCIAL STATEMENTS
The following financial statements for the Trust, Standby Income Fund
and the Portfolio Trust at and for the fiscal periods indicated are incorporated
herein by reference from their current reports to shareholders filed with the
SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. A copy
of each such report will be provided, without charge, to each person receiving
this Statement of Additional Information.
SELECT ADVISORS TRUST C
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
Statement of Changes in Net Assets, for the year ended December 31, 1995
and the period from October 3, 1994 to December 31, 1994
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
TOUCHSTONE STANDBY INCOME FUND
Schedule of Investments, December 31, 1995
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
Statement of Changes in Net Assets for the year ended December
31, 1995 and the period from October 3, 1994 to December 31, 1994
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
SELECT ADVISORS PORTFOLIOS
Schedule of Investments, December 31, 1995
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
Statement of Changes in Net Assets for the year ended December
31, 1995 and the period from October 3, 1994 to December 31, 1994
Notes to Financial Statements
Supplementary Data
Report of Independent Accountants
53
<PAGE>
TAXABLE EQUIVALENT YIELD TABLE (Under Federal
Personal Income Tax Law and Rates for 1995)
The table shows the approximate taxable bond yields which are
equivalent to tax-exempt bond yields from 2% to 6% under 1995 federal personal
income tax laws. SUCH YIELDS MAY DIFFER UNDER THE LAWS APPLICABLE TO SUBSEQUENT
YEARS IF THE EFFECT OF ANY SUCH LAW IS TO CHANGE ANY TAX BRACKET OR THE AMOUNT
OF TAXABLE INCOME WHICH IS APPLICABLE TO A TAX BRACKET. Separate calculations,
showing the applicable taxable income brackets, are provided for investors who
file joint returns and for those investors who file individual returns.
<TABLE>
Taxable Income Income TAX-EXEMPT YIELD
Tax
Single Return Joint Return Bracket 2% 3% 4% 5% 6%
Equivalent-Taxable Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 22,750 $ 0 - $ 38,000 15.00% 2.4 3.5 4.7 5.9 7.1
$ 22,751 - $ 55,100 $ 38,001 - $ 91,850 28.00% 2.8 4.2 5.6 6.9 8.3
$ 55,101 - $115,000 $ 91,851 - $140,000 31.00% 2.9 4.4 5.8 7.2 8.7
$115,001 - $250,000 $140,001 - $250,000 36.00% 3.1 4.7 6.3 7.8 9.4
Over $250,000 Over $250,000 39.60% 3.3 5.0s 6.6 8.3 9.9
</TABLE>
*Net amount subject to federal personal income tax after deductions and
exemptions.
While it is expected that a substantial portion of the dividends paid
to the shareholders of the Fund will be exempt from federal personal income
taxes, portions of such dividends from time to time may be subject to federal
income taxes.
NOTE: The information in the table is presented as of March 31, 1996.
A-1
<PAGE>
IFS0023G
DISTRIBUTOR
Touchstone Securities, Inc. THE TOUCHSTONE FUNDS
311 Pike Street Touchstone Emerging Growth Fund C
Cincinnati, Ohio 45202 Touchstone International Equity Fund C
Touchstone Growth & Income Fund C
Touchstone Balanced Fund C
Touchstone Income Opportunity Fund C
Touchstone Bond Fund C
Touchstone Standby Income Fund
Touchstone Municipal Bond Fund C
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8518
Boston, Massachusetts 02266-8518
CUSTODIAN
Investors Bank & Trust Company STATEMENT OF ADDITIONAL
89 South Street INFORMATION
Boston, Massachusetts 02111
MAY 1, 1996
<PAGE>
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Frost & Jacobs
2500 PNC Center
201 East 5th Street
Cincinnati, Ohio 45202
IFS0017D
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART B
FOR THE REGISTRANT:
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
Statement of Changes in Net Assets, for the period October 3, 1994
(commencement of operations) to December 31, 1994 and the year ended
December 31, 1995
Financial Highlights, for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
FOR TOUCHSTONE STANDBY INCOME FUND
Schedule of Investments, December 31, 1995
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
Statement of Changes in Net Assets, for the period October 3, 1994
(commencement of operations) to December 31, 1994 and the year ended
December 31, 1995
Financial Highlights, for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
FOR SELECT ADVISORS PORTFOLIOS:
Schedule of Investments, December 31, 1995
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, for the year ended December 31, 1995
Statement of Changes in Net Assets, for the period October 3, 1994
(commencement of operations) to December 31, 1994 and the year ended
December 31, 1995
Financial Highlights, for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
(b) EXHIBITS:
(1) Amended Declaration of Trust of the Trust.4
(2) By-Laws of the Trust.4
(3) Inapplicable.
(4) Inapplicable.
(5) Inapplicable.
(6) Distribution Agreement.2
(7) Inapplicable.
(8) Custody Agreement.2
(9A) Administration Services and Fund Accounting Agreement.2
(9B) Transfer Agency Agreement.2
(9C) Sponsor Agreement.2
(9D) Amendment No. 1 to the Sponsor Agreement.3
(10) Opinion of counsel.2
(11) Consent of independent accountants.4
(12) Inapplicable.
(13) Investment letter of initial shareholder.2
(14) Inapplicable.
(15) Distribution and Service Plan.2
(16) Method of computation of performance information.2
(17) Powers of Attorney.2
(27) Financial Data Schedules.4
1 Incorporated herein by reference from the registration
statement of the Registrant on Form N-1A as originally filed
with the Securities and Exchange Commission ("SEC") on March
7, 1994.
2 Incorporated herein by reference from pre-effective amendment
No. 1 to the Registration Statement as filed with the SEC on
September 23, 1994.
3 Incorporated herein by reference from post-effective amendment
No. 1 to the Registration Statement as filed with the SEC on
March 30, 1995.
4 Filed herein.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record
TITLE OF CLASS HOLDERS
(as of March 31,
1995)
Emerging Growth Fund C 83
International Equity Fund C 92
Growth & Income Fund C 94
Balanced Fund C 83
Income Opportunity Fund C 96
Bond Fund C 79
Standby Income Fund 121
Municipal Bond Fund C 8
ITEM 27. INDEMNIFICATION.
Under Article XI, Section 2 of the Trust's Declaration of Trust, any past
or present Trustee or officer of the Trust (including persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise
[hereinafter referred to as a "Covered Person"]) is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or otherwise involved by reason of his being or having been a Covered
Person. This provision does not authorize indemnification when it is determined,
in the manner specified in the Declaration of Trust, that such Covered Person
has not acted in good faith in the reasonable belief that his actions were in or
not opposed to the best interests of the Trust. Moreover, this provision does
not authorize indemnification when it is determined, in the manner specified in
the Declaration of Trust, that such Covered Person would otherwise be liable to
the Trust or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. Expenses may be paid by the
Trust in advance of the final disposition of any action, suit or proceeding upon
receipt of an undertaking by such Covered Person to repay such expenses to the
Trust in the event that it is ultimately determined that indemnification of such
expenses is not authorized under the Declaration of Trust and either (i) the
Covered Person provides security for such undertaking, (ii) the Trust is insured
against losses from such advances or (iii) the disinterested Trustees or
independent legal counsel determines, in the manner specified in the Declaration
of Trust, that there is reason to believe the Covered Person will be found to be
entitled to indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of the Trust pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Trust of expenses incurred or
paid by a Trustee, officer or controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered, the
Trust will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Inapplicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Touchstone Securities, Inc. ("Touchstone"), the distributor of the
Shares of the Trust, also serves as principal underwriter for other
investment companies.
(b) Set forth below are the names, principal business addresses and
positions of each director and officer of Touchstone. Unless otherwise
noted, the principal business address of these individuals is Touchstone
Securities, Inc., 311 Pike Street, Cincinnati, Ohio 45202. Unless otherwise
specified, none of the officers and directors of
Touchstone serve as officers and Trustees of the Trust.
Position and Offices Position and Offices
NAME WITH TOUCHSTONE WITH THE REGISTRANT
James N. Clark* Director none
Edward G. Harness, Jr. Director and Chief Chairman of the Board,
Executive Officer President and Chief Executive
Officer
Edward S. Heenan* Director and ControllerTreasurer
William F. Ledwin* Director none
Donald J. Wuebbling* Director none
Brian Manley Vice President and Assistant Treasurer
Chief Financial Officers
Richard K. Taulbee* Vice President none
Carl A. Ramsey*** Vice President none
E. Duane Clay*** Vice President none
Position and Offices Position and Offices
NAME WITH TOUCHSTONE WITH THE REGISTRANT
Patricia Wilson Chief Compliance none
Officer
J. Thomas Lancaster* Treasurer none
Robert F. Morand* Secretary none
* Principal business address is 400 Broadway, Cincinnati, Ohio 45202.
** Principal business address is 1165 Northchase Parkway, Suite 300, Marietta,
Georgia 30067.
s*** Principal Business address is 8901 Indian Hills Drive, Omaha, Nebraska
68114.
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Select Advisors Trust C
311 Pike Street
Cincinnati, OH 45202
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, OH 45202
Signature Financial Services, Inc.
6 St. James Avenue
Boston, MA 02116
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, OH 45202
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that
it meets all requirements for effectiveness of this amendment to its
Registration Statement on Form N-1A (the "Registration Statement") pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 29th day of April, 1996.
SELECT ADVISORS TRUST C
By: THOMAS M. LENZ
Thomas M. Lenz, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities indicated on April 29, 1996
.
SIGNATURE TITLE
EDWARD G. HARNESS, JR.* Trustee, President, Chief
Edward G. Harness, Jr. Executive Officer and
Chairman of the Board
WILLIAM J. WILLIAMS* Trustee
William J. Williams
JOSEPH S. STERN, JR.* Trustee
Joseph S. Stern, Jr.
PHILLIP R. COX* Trustee
Phillip R. Cox
ROBERT E. STAUTBERG* Trustee
Robert E. Stautberg
EDWARD S. HEENAN* Treasurer (Principal Financial
Edward S. Heenan Officer and Principal Accounting
Officer)
*By THOMAS M. LENZ
Thomas M. Lenz, as Attorney-in-fact
pursuant to power of attorney previously filed
SIGNATURES
Select Advisors Portfolios has duly caused this Registration Statement on
Form N-1A (the "Registration Statement") of Select Advisors Trust C (the
"Trust") to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 29th day of April, 1996.
SELECT ADVISORS PORTFOLIOS
By: THOMAS M. LENZ
Thomas M. Lenz, Secretary
This Registration Statement of Select Advisors Trust C has been signed
below by the following persons in the capacities indicated on
April 29, 1996.
SIGNATURE TITLE
EDWARD G. HARNESS, JR.* Trustee, President, Chief
Edward G. Harness, Jr. Executive Officer and Chairman
of the Board of Select Advisors
Portfolios
WILLIAM J. WILLIAMS* Trustee of Selects Portfolios
Advisors William J. Williams
JOSEPH S. STERN, JR.* Trustee of Select Portfolios
Advisors Joseph S. Stern, Jr.
PHILLIP R. COX* Trustee of Select Portfolios
Advisors Phillip R. Cox
ROBERT E. STAUTBERG* Trustee of Select Portfolios
Advisors Robert E. Stautberg
EDWARD S. HEENAN* Treasurer (Principal Financial
Edward S. Heenan Officer and Principal Accounting
Officer) of Select Advisors
Portfolios
*By:THOMAS M. LENZ
Thomas M. Lenz, as Attorney-in-Fact
pursuant to power of attorney previously filed
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(1) Amended Declaration of Trust of the Trust.
(2) By-Laws of the Trust.
(11) Consent of Coopers & Lybrand L.L.P., independent accountants to the
Registrant and Select
Advisors Portfolios.
(27) Financial Data Schedules.
IFS0008
IFS TRUST II
----------------------------
DECLARATION OF TRUST
Dated as of February 7, 1994
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C> <C>
ARTICLE I--NAME AND DEFINITIONS 1
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II--TRUSTEES 3
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 3
Section 2.4 Vacancies 3
Section 2.5 Delegation of Power to Other Trustees 4
ARTICLE III--POWERS OF TRUSTEES 4
Section 3.1 General 4
Section 3.2 Investments 5
Section 3.3 Legal Title 6
Section 3.4 Issuance and Repurchase of Securities 6
Section 3.5 Borrowing Money; Lending Trust Property 6
Section 3.6 Delegation; Committees 6
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 7
Section 3.9 Manner of Acting; By-Laws 7
Section 3.10 Miscellaneous Powers 7
Section 3.11 Principal Transactions 8
Section 3.12 Trustees and Officers as Shareholders 8
ARTICLE IV--INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER
AGENT AND SHAREHOLDER SERVICING AGENTS 9
Section 4.1 Investment Adviser 9
Section 4.2 Distributor 9
Section 4.3 Administrator 9
Section 4.4 Transfer Agent and Shareholder Servicing Agents 10
Section 4.5 Parties to Contract 10
ARTICLE V--LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS 10
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc. 10
Section 5.2 Non-Liability of Trustees, etc. 11
Section 5.3 Mandatory Indemnification; Insurance 11
Section 5.4 No Bond Required of Trustees 13
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 13
i
<PAGE>
Section 5.6 Reliance on Experts, etc. 13
ARTICLE VI--SHARES OF BENEFICIAL INTEREST 13
Section 6.1 Beneficial Interest 13
Section 6.2 Rights of Shareholders 14
Section 6.3 Trust Only 14
Section 6.4 Issuance of Shares 14
Section 6.5 Register of Shares 14
Section 6.6 Transfer of Shares 15
Section 6.7 Notices 15
Section 6.8 Voting Powers 15
Section 6.9 Series Designation 16
ARTICLE VII--REDEMPTIONS 18
Section 7.1 Redemptions 18
Section 7.2 Suspension of Right of Redemption 19
Section 7.3 Disclosure of Holding 19
Section 7.4 Redemptions of Accounts of Less than
Minimum Amount 20
ARTICLE VIII--DETERMINATION OF NET ASSET VALUE, NET INCOME AND
DISTRIBUTIONS 20
ARTICLE IX--DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC 20
Section 9.1 Duration 20
Section 9.2 Termination of Trust 20
Section 9.3 Amendment Procedure 21
Section 9.4 Merger, Consolidation and Sale of Assets 22
Section 9.5 Incorporation, Reorganization 23
Section 9.6 Incorporation or Reorganization of Series 23
ARTICLE X--REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 24
ARTICLE XI--MISCELLANEOUS 24
Section 11.1 Filing 24
Section 11.2 Governing Law 24
Section 11.3 Counterparts 24
Section 11.4 Reliance by Third Parties 24
Section 11.5 Provisions in Conflict with Law or Regulations 25
Section 11.6 Principal Office 25
APPENDIX I--SERIES DESIGNATION
ii
</TABLE>
<PAGE>
IFS0005A
DECLARATION OF TRUST
OF
IFS TRUST II
----------------------------
Dated as of February 7, 1994
----------------------------
WHEREAS, the Trustees desire to establish a trust for the investment
and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable Shares of Beneficial Interest (par value
$0.00001 per share) ("Shares") issued in one or more series as hereinafter
provided; and
NOW THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the Shares issued
hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
--------------------
SECTION 1.1. NAME. The name of the trust created hereby is " IFS TRUST
II".
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "ADMINISTRATOR" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.3 hereof.
(b) "BY-LAWS" means the By-laws referred to in Section 3.9 hereof, as
from time to time amended.
(c) "COMMISSION" has the meaning given that term in the 1940 Act.
(d) "CUSTODIAN" means a party employed by the Trust to furnish services
as described in Article X of the By-Laws.
(e) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION", "HEREOF",
"HEREIN", and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
<PAGE>
2
(f) "DISTRIBUTOR" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.2 hereof.
(g) "INTERESTED PERSON" has the meaning given that term in the 1940
Act.
(h) "INVESTMENT ADVISER" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(i) "MAJORITY SHAREHOLDER VOTE" has the same meaning as the phrase
"vote of a majority of the outstanding voting securities" as defined in the 1940
Act, except that such term may be used herein with respect to the Shares of the
Trust as a whole or the Shares of any particular series, as the context may
require.
(j) "1940 ACT" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, as amended from time to time.
(k) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof, whether domestic or foreign.
(l) "SHAREHOLDER" means a record owner of outstanding Shares.
(m) "SHARES" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series of Shares established by the Trustees
pursuant to Section 6.9 hereof, equal proportionate transferable units into
which such series of Shares shall be divided from time to time. The term
"Shares" includes fractions of Shares as well as whole Shares.
(n) "SHAREHOLDER SERVICING AGENT" means a party furnishing services to
the Trust pursuant to any shareholder servicing contract described in Section
4.4 hereof.
(o) "TRANSFER AGENT" means a party furnishing services to the Trust
pursuant to any transfer agency contract described in Section 4.4 hereof.
(p) "TRUST" means the trust created hereby.
(q) "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees, including, without limitation, any and all property
allocated or belonging to any series of Shares pursuant to Section 6.9 hereof.
(r) "TRUSTEES" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected or appointed,
qualified and serving as Trustees in accordance with the provisions hereof, and
reference herein to a Trustee or the Trustees shall refer to such person or
persons in their capacity as trustees hereunder.
<PAGE>
3
ARTICLE II
TRUSTEES
--------
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a majority of the Trustees,
provided, however, that the number of Trustees shall in no event be less than
three nor more than 15.
SECTION 2.2. TERM OF OFFICE OF TRUSTEES. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided; except
that (a) any Trustee may resign his trust (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the other
Trustees, which shall take effect upon such delivery or upon such later date as
is specified therein; (b) any Trustee may be removed with cause, at any time by
written instrument signed by at least two-thirds of the remaining Trustees,
specifying the date when such removal shall become effective; (c) any Trustee
who has attained a mandatory retirement age established pursuant to any written
policy adopted form time to time by at least two thirds of the Trustees shall,
automatically and without action of such Trustee or the remaining Trustees, be
deemed to have retired in accordance with the terms of such policy, effective as
of the date determined in accordance with such policy; (d) any Trustee who has
become incapacitated by illness or injury as determined by a majority of the
other Trustees, may be retired by written instrument signed by a majority of the
other Trustees, specifying the date of his retirement; and (e) a Trustee may be
removed at any meeting of Shareholders by a vote of two thirds of the
outstanding Shares. For purposes of the foregoing clause (b), the term "cause"
shall include, but not be limited to, failure to comply with such written
policies as may from time to time be adopted by at least two thirds of the
Trustees with respect to the conduct of Trustees and attendance at meetings.
Upon the resignation, retirement or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property held in the name of the resigning,
retiring or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
SECTION 2.3. RESIGNATION AND APPOINTMENT OF TRUSTEES. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, a majority of the remaining Trustees shall fill such
vacancy by appointing such other individual as they in their discretion shall
see fit. Any such appointment shall not become effective, however, until the
person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. The power of appointment is subject to the provisions of Section
16(a) of the 1940 Act.
SECTION 2.4. VACANCIES. The death, declination, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall not
<PAGE>
4
operate to annul the Trust or to revoke any existing agency created pursuant to
the terms of this Declaration. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.3, the
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by the Declaration.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two Trustees personally exercise the powers granted to the Trustees
under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
------------------
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have full
power and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall not in any way
be bound or limited by present or future laws or customs in regard to Trust
investments, but shall have full authority and power to make any and all
investment which they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust.
The Trust shall be of the type commonly called a Massachusetts business
trust, and, without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
<PAGE>
5
SECTION 3.2. INVESTMENTS. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment
company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of U.S. and foreign currencies, any form of gold
or other precious metal, commodity contracts, any form of option contract,
contracts for the future acquisition or delivery of fixed income or other
securities, shares of, or any other interest in, any investment company as
defined in the Investment Company Act of 1940, and securities and related
derivatives of every nature and kind, including, without limitation, all types
of bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed or sponsored by any and all
Persons, including, without limitation,
(A) states, territories and possessions of the United States and the
District of Columbia and any political subdivision, agency or instrumentality of
any such Person,
(B) the U.S. Government, any foreign government, any political
subdivision or any agency or instrumentality of the U.S. Government, any foreign
government or any political subdivision of the U.S. Government or any foreign
government,
(C) any international or supranational instrumentality,
(D) any bank or savings institution, or
(E) any corporation, trust, partnership or other organization organized
under the laws of the United States or of any state, territory or possession
thereof, or under any foreign law;
or in "when issued" contracts for any such securities, to retain Trust assets in
cash and from time to time to change the securities or obligations in which the
assets of the Trust are invested; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect of
any of said investments; and
(iii) to hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either in
its own name or in the name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual practice of
Massachusetts trust companies or investment companies.
(iv) to definitively interpret the investment objective, policies and
limitations of the Trust or any series.
<PAGE>
6
(v) to carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary, proper or desirable for
the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in securities or
obligations maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made by
fiduciaries.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
SECTION 3.3. LEGAL TITLE. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person or nominee, on such terms as the Trustees may determine. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee, such Trustee shall automatically
cease to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds of the Trust or other Trust Property whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST PROPERTY. The Trustees
shall have power to borrow money or otherwise obtain credit and to secure the
same by mortgaging, pledging or otherwise subjecting as security the Trust
Property, to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust Property.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees,
independent contractors or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient.
<PAGE>
7
Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
SECTION 3.7. COLLECTION AND PAYMENT. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
SECTION 3.8. EXPENSES. Subject to Section 6.9 hereof, the Trustees
shall have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees shall be reimbursed from the Trust estate
or the assets belonging to the appropriate series for their expenses and
disbursements and for all losses and liabilities by them incurred in
administering the Trust; and for the payment of such expenses, disbursements,
losses and liabilities, the Trustees shall have a lien on the assets belonging
to the appropriate series prior to any rights of interests of the Shareholders
thereto.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees or any
committee of the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees at which a quorum (as determined in the By-Laws) is
present, including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of a majority of the
Trustees or any committee of the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, the Administrator, Trustees,
officers, employees, agents, the Investment Adviser, the Distributor, selected
dealers or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not constituting negligence, or
<PAGE>
8
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust; (f) to the extent permitted by law, indemnify any person
with whom the Trust has dealings, including any Investment Adviser,
Administrator, Custodian, Distributor, Transfer Agent, Shareholder Servicing
Agent, any dealer, or any other agent or independent contractor, to such extent
as the Trustees shall determine; (g) guarantee indebtedness or contractual
obligations of others; (h) determine and change the fiscal year of the Trust and
the method by which its accounts shall be kept; and (i) adopt a seal for the
Trust, provided, that the absence of such seal shall not impair the validity of
any instrument executed on behalf of the Trust.
SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions permitted
by the 1940 Act, or any order of exemption issued by the Commission, the
Trustees shall not, on behalf of the Trust, buy any securities (other than
Shares) from or sell any securities (other than Shares) to, or lend any assets
of the Trust to, any Trustee or officer of the Trust or any firm of which any
such Trustee or officer is a member acting as principal, or have any such
dealings with any Investment Adviser, Administrator, Shareholder Servicing
Agent, Custodian (other than repurchase agreements), Distributor or Transfer
Agent or with any Interested Person of such Person; but the Trust may, upon
customary terms, employ any such Person, or firm or company in which such Person
is an Interested Person, as broker, legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian.
SECTION 3.12. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Except as
hereinafter provided, no officer, Trustee or member of any advisory board of the
Trust, and no member, partner, officer, director or trustee of the Investment
Adviser, Administrator or of the Distributor, and no Investment Adviser,
Administrator or Distributor of the Trust, shall take long or short positions in
the securities issued by the Trust. The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for Shares received by the Distributor and
provided that orders to purchase from the Trust are entered with the Trust or
the Custodian promptly upon receipt by the Distributor of purchase orders for
Shares, unless the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of
the Trust;
(c) The purchase from the Trust or from the Distributor of Shares by
any officer, Trustee or member of any advisory board of the Trust or by any
member, partner, officer, director or trustee of the Investment Adviser or of
the Distributor at a price not lower than the net asset value of the Shares at
the moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the current prospectus or statement of
additional information for the Shares being purchased; or
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9
(d) The Investment Adviser, the Distributor, the Administrator, or any
of their officers, partners, directors or trustees from purchasing Shares prior
to the effective date of the Trust's Registration Statement under the Securities
Act of 1933, as amended, relating to the Shares.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
--------------------------------------------------------------
AND SHAREHOLDER SERVICING AGENTS
--------------------------------
SECTION 4.1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote
of the Shares of each series affected thereby, the Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts whereby the other party to each such contract shall
undertake to furnish the Trust such management, investment advisory, statistical
and research facilities and services, promotional activities, and such other
facilities and services, if any, with respect to one or more series of Shares,
as the Trustees shall from time to time consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provision of the Declaration, the Trustees may delegate to
the Investment Adviser authority (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect purchases,
sales, loans or exchanges of assets of the Trust on behalf of the Trustees or
may authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Investment Adviser (and
all without further action by the Trustees). Any of such purchases, sales, loans
or exchanges shall be deemed to have been authorized by all the Trustees. Such
services may be provided by one or more Persons.
SECTION 4.2. DISTRIBUTOR. The Trustees may in their discretion from
time to time enter into one or more distribution contracts providing for the
sale of Shares whereby the Trust may either agree to sell the Shares to the
other party to any such contract or appoint any such other party its sales agent
for such Shares. In either case, any such contract shall be on such terms and
conditions as the Trustees may in their discretion determine, provided that such
terms and conditions are not inconsistent with the provisions of the Declaration
or the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer and sales agreements with
registered securities dealers and depository institutions to further the purpose
of the distribution or repurchase of the Shares. Such services may be provided
by one or more Persons.
SECTION 4.3. ADMINISTRATOR. The Trustees may in their discretion from
time to time enter into one or more administrative services contracts whereby
the other party to each such contract shall undertake to furnish such
administrative services to the Trust as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may in
their discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws. Such
services may be provided by one or more Persons.
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10
SECTION 4.4. TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS. The
Trustees may in their discretion from time to time enter into one or more
transfer agency and shareholder servicing contracts whereby the other party to
each such contract shall undertake to furnish such transfer agency and/or
shareholder services to the Trust or to shareholders of the Trust as the
Trustees shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine, provided that such
terms and conditions are not inconsistent with the provisions of this
Declaration or the By-Laws. Such services may be provided by one or more
Persons. Except as otherwise provided in the applicable shareholder servicing
contract, a Shareholder Servicing Agent shall be deemed to be the record owner
of outstanding Shares beneficially owned by customers of such Shareholder
Servicing Agent for whom it is acting pursuant to such shareholder servicing
contract.
SECTION 4.5. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or any Custodian
contract as described in Article X of the By-Laws may be entered into with any
Person, although one or more of the Trustees or officers of the Trust may be an
officer, partner, director, trustee, shareholder, or member of such other party
to the contract, and no such contract shall be invalidated or rendered voidable
by reason of the existence of any such relationship; nor shall any Person
holding such relationship be liable merely by reason of such relationship for
any loss or expense to the Trust under or by reason of any such contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract when entered into was not inconsistent with the provisions of
this Article IV or the By-Laws. The same Person may be the other party to
contracts entered into pursuant to Sections 4.1, 4.2, 4.3 and 4.4 above or any
Custodian contract as described in Article X of the By-Laws, and any individual
may be financially interested or otherwise affiliated with Persons who are
parties to any or all of the contracts mentioned in this Section 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
-----------------------------------------
TRUSTEES AND OTHERS
-------------------
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer or employee of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust and
all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer or employee, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability, he shall not, on
account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and liabilities
to which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
<PAGE>
11
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein. Notwithstanding any other provision of this
Declaration to the contrary, no Trust Property shall be used to indemnify or
reimburse any Shareholder of any Shares of any series other than Trust Property
allocated or belonging to that series.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer or
employee of the Trust shall be liable to the Trust or to any Shareholder,
Trustee, officer, employee, or agent thereof for any action or failure to act
(including without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust), or for any error of judgement or
mistake of fact or law, except for his own bad faith, wilful misfeasance, gross
negligence or reckless disregard of his duties.
SECTION 5.3. MANDATORY INDEMNIFICATION; INSURANCE. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust, to the fullest extent permitted by law
(including the 1940 Act) as currently in effect or as hereafter amended, against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim", "action", "suit", or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason of
a final adjudication by the court or other body before which the proceeding was
brought that he engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b) (i) or (b) (ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or by a
<PAGE>
12
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter); or
(B) by written opinion of independent legal counsel.
(c) Subject to the provisions of the 1940 Act, the Trust may maintain
insurance for the protection of the Trust Property, its present of former
Shareholders, Trustees, officers, employees, independent contractors and agents
in such amount as the Trustees shall deem adequate to cover possible tort
liability (whether or not the Trust would have the power to indemnify such
Persons against such liability), and such other insurance as the Trustees in
their sole judgment shall deem advisable.
(d) The rights of indemnification herein provided shall be severable,
shall not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to be such a
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any rights
to indemnification to which personnel other than Trustees and officers may be
entitled by contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3 a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
As used in this Section 5.3, the term "independent legal counsel" means
an attorney who is independent in all respects from the Trust and from the
<PAGE>
13
person or persons who seek indemnification hereunder and in any event means an
attorney who has not been retained by or performed services for the Trust or any
person to be so indemnified within the five years prior to the initial request
for indemnification pursuant hereto.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender, Shareholder Servicing Agent, Transfer Agent or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking, and every other act or thing whatsoever executed in
connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacity as Trustees under the
Declaration or in their capacity as officers, employees or agents of the Trust.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or undertaking made or issued by the Trustees shall recite
that the same is executed or made by them not individually, but as Trustees
under the Declaration, and that the obligations of any such instrument are not
binding upon any of the Trustees or Shareholders individually, but bind only the
trust estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind any of
the Trustees or Shareholders individually. The Trustees shall at all times
maintain insurance for the protection of the Trust Property, Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, any Shareholder Servicing Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
-----------------------------
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder may be divided into transferable Shares, which may be divided into one
or more series as provided in Section 6.9 hereof. Each such series shall have
<PAGE>
14
such class or classes of Shares as the Trustees may from time to time determine.
The number of Shares authorized hereunder is unlimited. The Trustees may divide
or combine the Shares into a greater of lesser number, and may classify or
reclassify any unissued Shares into one or more series or classes of Shares. All
Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any series
of Shares. Every Shareholder by virtue of having become a Shareholder shall be
held expressly to have assented and agreed to the terms of this Declaration and
to have become a party hereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the Trust nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust.
SECTION 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and the
Shareholders. It is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association, corporation, bailment
or any form of legal relationship other than a trust. Nothing in the Declaration
shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint stock association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, and on such terms as the Trustees may deem best, and may in such
manner acquire other assets (including the acquisition of assets subject to, and
in connection, with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares. The
Trustees may from time to time divide or combine the Shares of any series into a
greater or lesser number without thereby changing their proportionate beneficial
interests in Trust Property allocated or belonging to such series. Contributions
to the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or fractions of a Share.
SECTION 6.5. REGISTER OF SHARES. A register or registers shall be kept
at the principal office of the Trust or at an office of the Transfer Agent
(and/or any sub-transfer agent which may be a Shareholder Servicing Agent) which
<PAGE>
15
register or registers, taken together, shall contain the names and addresses of
the Shareholders and the number of Shares held by them respectively and a record
of all transfers thereof. Such register or registers shall be conclusive as to
who are the holders of the Shares and who shall be entitled to receive dividends
or distributions or otherwise to exercise or enjoy the rights of Shareholders.
No Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent, a sub-transfer
agent, or such other officer or agent of the Trustees as shall keep the said
register for entry thereon. It is not contemplated that certificates will be
issued for the Shares; however, the Trustees, in their discretion, may authorize
the issuance of Share certificates and promulgate appropriate rules and
regulations as to their use.
The Trust shall be entitled to treat the holder of record of any Share
or Shares as the holder in fact thereof, and shall not be bound to recognize any
equitable or other claim of interest in such Share or Shares on the part of any
other person except as may be otherwise expressly provided by law.
SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees, the Transfer Agent or
a sub-transfer agent, of a duly executed instrument of transfer, together with
any certificate or certificates (if issued) for such Shares and such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent, a sub-transfer agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees, the Transfer
Agent or a sub-transfer agent; but until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes
hereunder and neither the Trustees nor any Transfer Agent, sub-transfer agent or
registrar nor any officer or agent of the Trust shall be affected by any notice
of such death, bankruptcy or incompetence, or other operation of law.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 16 of the 1940 Act,
(or any other applicable current or successor provision), (ii) for the removal
of Trustees as provided in Section 2.2 hereof, (iii) with respect to any
investment advisory or management contract as provided in Section 4.1 hereof,
<PAGE>
16
(iv) with respect to termination of the Trust as provided in Section 9.2 hereof,
(v) with respect to any amendment of this Declaration to the extent and as
provided in Section 9.3 hereof, (vi) with respect to any merger, consolidation
or sale of assets as provided in Sections 9.4 and 9.6 hereof, (vii) with respect
to incorporation of the Trust or any series to the extent and as provided in
Sections 9.5 and 9.6 hereof, (viii) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (ix) with
respect to such additional matters relating to the Trust as may be required by
the 1940 Act, the Declaration, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted. Shares shall be voted by individual
series on any matter submitted to a vote of the Shareholders of the Trust except
as provided in Section 6.9(g) hereof. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, the Declaration
or the By-Laws to be taken by Shareholders. At any meeting of Shareholders of
the Trust or of any series of the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are not otherwise represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by beneficial owners of all
shares otherwise represented at the meeting in person or by proxy as to which
such Shareholder Servicing Agent is the agent of record. Any shares so voted by
a Shareholder Servicing Agent will be deemed represented at the meeting for
quorum purposes. The By-Laws may include further provisions for Shareholder
votes and meetings and related matters.
SECTION 6.9. SERIES DESIGNATION. As set forth in Appendix I hereto, the
Trustees have authorized the division of Shares into series, as designated and
established pursuant to the provisions of Appendix I and this Section 6.9. The
Trustees, in their discretion, may authorize the division of Shares into one or
more additional series, and the different series shall be established and
designated, and the variations in the relative rights, privileges and
preferences as between the different series shall be fixed and determined by the
Trustees upon and subject to the following provisions:
(a) All Shares shall be identical except that there may be such
variations as shall be fixed and determined by the Trustees between different
series as to purchase price, right of redemption and the price, terms and manner
of redemption, and special and relative rights as to dividends and on
liquidation.
(b) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
<PAGE>
17
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issuance or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income and earnings thereon,
profits therefrom, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income, earnings, profits,
proceeds, funds or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them to and among any one or
more of the series established and designated from time to time in such manner
and on such basis as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all series for all purposes. No Shareholder of any
particular series shall have any claim on or right to any assets allocated or
belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
costs, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees, in their sole discretion, deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. Under no circumstances shall the assets allocated
or belonging to any particular series be charged with liabilities, expenses,
costs, charges or reserves attributable to any other series. All Persons who
have extended credit which has been allocated to a particular series, or who
have a claim or contract which has been allocated to any particular series,
shall look only to the assets of that particular series for payment of such
credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section 3.2
hereof unless otherwise provided in the instrument of the Trustees establishing
such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the
net assets allocated or belonging to such series only, and such interest shall
not extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series may be paid with such frequency as the Trustees
may determine, which may be monthly or otherwise, pursuant to a standing vote or
<PAGE>
18
votes adopted only once or with such frequency as the Trustees may determine, to
the Shareholders of that series only, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed PRO RATA to the Shareholders of that series in proportion
to the number of Shares of that series held by such Shareholders at the date and
time of record established for the payment of such dividends or distributions.
Shares of any particular series of the Trust may be redeemed solely out of Trust
Property allocated or belonging to that series. Upon liquidation or termination
of a series of the Trust, Shareholders of such series shall be entitled to
receive a PRO RATA share of the net assets of such series only.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders of the Trust, all Shares then entitled
to vote shall be voted by individual series, except that (i) when required by
the 1940 Act to be voted in the aggregate, Shares shall not be voted by
individual series, and (ii) when the Trustees have determined that the matter
affects only the interests of Shareholders of one or more series or classes of
Shares of a series, only Shareholders of such series or class shall be entitled
to vote thereon.
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument, or upon
a resolution adopted by a majority of the Trustees and the execution by an
officer of the Trust on behalf of the Trustees of an instrument setting forth
such establishment and designation and the relative rights and preferences of
such series, or as otherwise provided in such instrument. At any time that there
are no Shares outstanding of any particular series previously established and
designated, the Trustees may by an instrument executed by a majority of their
number abolish that series and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
to this Declaration.
(i) Notwithstanding anything in this Declaration to the contrary, the
Trustees may, in their discretion, authorize the division of Shares of any
series into Shares of one or more classes or subseries of such series. All
Shares of a class or a subseries shall be identical with each other and with the
Shares of each other class or subseries of the same series except for such
variations between classes or subseries as may be approved by the Board of
Trustees and be permitted under the 1940 Act or pursuant to any exemptive order
issued by the Commission.
ARTICLE VII
REDEMPTIONS
-----------
SECTION 7.1 REDEMPTIONS. In case any Shareholder at any time desires to
dispose of his Shares, he may deposit his certificate or certificates therefor,
duly endorsed in blank or accompanied by an instrument of transfer executed in
<PAGE>
19
blank, or if the Shares are not represented by any certificate, a written
request or other such form of request as the Trustees may from time to time
authorize, at the office of the Transfer Agent, the Shareholder Servicing Agent
which is the agent of record for such Shareholder, or at the office of any bank
or trust company, either in or outside of the Commonwealth of Massachusetts,
which is a member of the Federal Reserve System and which the said Transfer
Agent or the said Shareholder Servicing Agent has designated in writing for that
purpose, together with an irrevocable offer in writing in a form acceptable to
the Trustees to sell the Shares represented thereby to the Trust at the net
asset value per Share thereof (less any applicable redemption fee or sales
charge), next determined after such deposit as provided in Section 8.1 hereof.
Payment (which may be in cash or in kind) for said Shares shall be made to the
Shareholder within seven days after the date on which the deposit is made,
unless (i) the date of payment is postponed pursuant to Section 7.2 hereof, or
(ii) the receipt, or verification of receipt, of the purchase price for the
Shares to be redeemed is delayed, in either of which events payment may be
delayed beyond seven days.
SECTION 7.2 SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment of the
redemption proceeds for the whole or any part of any period (i) during which the
New York Stock Exchange is closed other than customary week-end and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (iv) during which the Commission for the protection of
Shareholders by order permits the suspension of the right of redemption or
postponement of the date of payment of the redemption proceeds; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii) or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment of the
redemption proceeds until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
SECTION 7.3. DISCLOSURE OF HOLDING. The Shareholders of the Trust shall
upon demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares of the Trust as the Trustees deem
necessary to comply with the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), or to comply with the requirements of any other authority.
Upon the failure of a Shareholder to disclose such information and to comply
with such demand of the Trustees, the Trust shall have the power to redeem such
Shares at a redemption price determined in accordance with Section 7.1 hereof.
<PAGE>
20
SECTION 7.4 REDEMPTIONS OF ACCOUNTS OF LESS THAN MINIMUM AMOUNT. The
Trustees shall have the power, and any Shareholder Servicing Agent with whom the
Trust has so agreed (or a subcontractor of such Shareholder Servicing Agent)
shall have the power, at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.l hereof if at such
time the aggregate net asset value of the Shares owned by such Shareholder is
less than a minimum amount as determined from time to time and disclosed in a
prospectus of the Trust or in the Shareholder Servicing Agent's (or sub-
contractor's) agreement with its customer. A Shareholder shall be notified that
the aggregate value of his Shares is less than such minimum amount and allowed
60 days to make an additional investment before redemption is processed.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
---------------------------------
NET INCOME AND DISTRIBUTIONS
----------------------------
(a) The Trustees may from time to time declare and pay dividends and
other distributions. The Trustees, in their absolute discretion, may prescribe
and shall set forth in the By-Laws or in a duly adopted vote or votes of the
Trustees such bases and times for determining the per Share net asset value of
the Shares or net income, or the declaration and payment of dividends and
distributions, as they may deem necessary or desirable.
(b) Dividends and other distributions may be declared pursuant to a
standing resolution or resolutions adopted only once or with such frequency as
the Trustees may determine, and may be payable in Shares of that series or class
thereof, as appropriate, at the election of each Shareholder of that series or
class. All dividends and distributions on Shares of a particular series shall be
distributed pro rata to the holders of that series in proportion to the number
of Shares of that series held by such payment of such dividends or
distributions, except that such dividends and distributions shall approximately
reflect expenses allocated to a particular class of such series.
(c) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a "stock dividend" pro rata
among the Shareholders of a particular series or of a class thereof as of the
record date of that series.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
-------------------------------
AMENDMENT; MERGERS, ETC.
------------------------
SECTION 9.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust may be terminated (i)
by a Majority Shareholder Vote of its Shareholders, or (ii) by the Trustees by
written notice to the Shareholders. Any series of the Trust may be terminated
(i) by a Majority Shareholder Vote of the Shareholders of that series, or (ii)
<PAGE>
21
by the Trustees by written notice to the Shareholders of that series. Upon the
termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business except
for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust, collect the assets of the Trust or series of the Trust, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property of the Trust or series of the Trust to one or more
Persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
the liabilities of the Trust or series of the Trust, and to do all other acts
appropriate to liquidate the business of the Trust or series of the Trust;
provided, that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all of the Trust Property of the Trust or
series of the Trust shall require Shareholder approval in accordance with
Section 9.4 or 9.6 hereof, respectively; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property of the Trust or series of the Trust, in
cash or in kind or partly in cash and partly in kind, among the Shareholders of
the Trust or series of the Trust according to their respective rights.
(b) After termination of the Trust or series of the Trust and
distribution to the Shareholders of the Trust or series of the Trust as herein
provided, a majority of the Trustees shall execute and lodge among the records
of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder with respect to the Trust or series of the
Trust, and the rights and interests of all Shareholders of the Trust or series
of the Trust shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. All rights granted to Shareholders
hereunder are granted subject to a right to amend this Declaration, except as
otherwise provided. (a) This Declaration may be amended by a Majority
Shareholder Vote of the Shareholders or by any instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by the holders of
not less than a majority of the Shares of the Trust. The Trustees may also amend
this Declaration without the vote or consent of Shareholders to designate series
in accordance with Section 6.9 hereof, to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or to conform this Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Code or to (i) change the
state or other jurisdiction designated herein as the state or other jurisdiction
whose laws shall be the governing law hereof, (ii) effect such changes herein as
<PAGE>
22
the Trustees find to be necessary or appropriate (A) to permit the filing of
this Declaration under the laws of such state or other jurisdiction applicable
to trusts or voluntary associations, (B) to permit the Trust to elect to be
treated as a "regulated investment company" under the applicable provisions of
the Code or (C) to permit the transfer of shares (or to permit the transfer of
any other beneficial interests or shares in the Trust, however denominated), and
(iii) in conjunction with any amendment contemplated by the foregoing clause (i)
or the foregoing clause (ii) to make any and all such further changes or
modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees referred to in the foregoing clause
(ii) or clause (iii) to be conclusively evidenced by the execution of any such
amendment by a majority of the Trustees, but the Trustees shall not be liable
for failing so to do.
(b) No amendment which the Trustees have determined would affect the
rights, privileges or interests of holders of a particular series of Shares, but
not the rights, privileges or interests of holders of all series of Shares
generally, and which would otherwise require a Majority Shareholder Vote under
paragraph (a) of this Section 9.3, may be made except with the vote or consent
by a Majority Shareholder Vote of Shareholders of such series.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
(d) Notwithstanding any other provision hereof, no amendment may be
made under this Section 9.3 which would change any rights with respect to the
Shares, or any series of Shares, by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the Majority Shareholder Vote of the Shares or
that series of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid, and executed by a majority of the Trustees, shall be
conclusive evidence of such amendment when lodged among the records of the
Trust.
(f) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be amended in any respect by the affirmative vote of a
majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
<PAGE>
23
Trust Property (or all or substantially all of the Trust Property allocated or
belonging to a particular series of the Trust) including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for such purpose by the vote of the holders
of two-thirds of the outstanding Shares of all series of the Trust voting as a
single class, or of the affected series of the Trust, as the case may be, or by
an instrument or instruments in writing without a meeting, consented to by the
vote of the holders of two-thirds of the outstanding Shares of all series of the
Trust voting as a single class, or of the affected series of the Trust, as the
case may be; provided, however, that if such merger, consolidation, sale, lease
or exchange is recommended by the Trustees, the vote or written consent by
Majority Shareholder Vote shall be sufficient authorization; and any such
merger, consolidation, sale, lease or exchange shall be deemed for all purposes
to have been accomplished under and pursuant to the statutes of the Commonwealth
of Massachusetts. Nothing contained herein shall be construed as requiring
approval of Shareholders for any sale of assets in the ordinary course of the
business of the Trust.
SECTION 9.5. INCORPORATION, REORGANIZATION. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. Subject to Section 9.4 hereof, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained in this Section 9.5 shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
SECTION 9.6. INCORPORATION OR REORGANIZATION OF SERIES. With the
approval of a Majority Shareholder Vote of any series, the Trustees may sell,
lease or exchange all of the Trust Property allocated or belonging to that
series, or cause to be organized or assist in organizing a corporation or
corporations under the laws of any other jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization, to take over
all of the Trust Property allocated or belonging to that series and to sell,
convey and transfer such Trust Property to any such corporation, trust, unit
investment trust, partnership, association, or other organization in exchange
for the shares or securities thereof or otherwise.
<PAGE>
24
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
------------------------------------------------------
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XI
MISCELLANEOUS
-------------
SECTION 11.1. FILING. This Declaration and any amendment hereto shall
be filed in the office of the Secretary of the Commonwealth of Massachusetts and
in such other place or places as may be required under the laws of the
Commonwealth of Massachusetts and may also be filed or recorded in such other
places as the Trustees deem appropriate. Each amendment shall be signed a
majority of the Trustees or shall be accompanied by a certificate of an
appropriate officer of the Trust stating that such amendment was properly
approved. Unless such amendment or certificate sets forth a later date on which
it shall take effect, any amendment shall take effect as of its approval. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees and shall be conclusive evidence of
all amendments contained therein and may thereafter be referred to in lieu of
this original Declaration and the various amendments thereto.
SECTION 11.2. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in the Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
SECTION 11.3. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, is a Trustee hereunder
certifying to: (i) the number or identity of Trustees or Shareholders, (ii) the
due authorization of the execution of any instrument or writing, (iii) the form
of any vote passed at a meeting of Trustees or Shareholders, (iv) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (v) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (vi) the existence of any fact or facts which in any manner relates
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
<PAGE>
25
SECTION 11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any such provision is in conflict
with the 1940 Act, the regulated investment company provisions of the Code or
with other applicable laws and regulations, the conflicting provision shall be
deemed never to have constituted a part of this Declaration; provided however,
that such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
SECTION 11.6. PRINCIPAL OFFICE. The principal office of the Trust is 6
St. James Avenue, 9th Floor, Boston, Massachusetts, 02116 or such other address
determined by the Trustees.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 7th day of February, 1994.
/S/ THOMAS M. LENZ
--------------------------------
Thomas M. Lenz
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
/S/ LINDA T. GIBSON
--------------------------------
Linda T. Gibson
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
/S/ SUZAN M. BARRON
--------------------------------
Suzan M. Barron
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
IFS0008
<PAGE>
IFS0008 Appendix I
IFS TRUST II
Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.00001 per share)
Dated as of February 7, 1994
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
February 7, 1994 (the "Declaration of Trust"), of IFS Trust II (the "Trust"),
the Trustees of the Trust hereby establish and Designate the initial series of
Shares (as defined in the Declaration of Trust), (each a "Fund" and collectively
the "Funds") to have the following special and relative rights:
1. The Funds shall be designated as follows:
Municipal Bond Fund
Bond Fund
Balanced Fund
Growth & Income Fund
Income Opportunity Fund
Emerging Growth Fund
International Equity Fund
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such Fund. Each Share of a Fund shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional share)
on matters on which Shares of the Fund shall be entitled to vote, shall
represent a PRO RATA beneficial interest in the assets allocated or belonging to
the Fund, and shall be entitled to receive its PRO RATA share of the net assets
of the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of a Fund, together with
any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and expenses,
<PAGE>
to change the designation of any Fund now or hereafter created, or otherwise to
change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 7th day of February, 1994.
/S/ THOMAS M. LENZ
--------------------------------
Thomas M. Lenz
/S/ LINDA T. GIBSON
--------------------------------
Linda T. Gibson
/S/ SUZAN M. BARRON
--------------------------------
Suzan M. Barron
IFS0008
<PAGE>
IFS0008 Appendix I
SELECT ADVISORS TRUST II
(formerly IFS Trust II)
Amendment No. 1 to Declaration of Trust and
First Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.00001 per share)
Dated as of April 11, 1994
The undersigned, being the Trustees of IFS Trust II, a Massachusetts
business trust (the "Trust"), acting pursuant to Article IX, Sections 9.3(a) and
9.3(f) of the Trust's Declaration of Trust, dated as of February 7, 1994 (the
"Declaration"), hereby amend and restate the first sentence of Section 1.1. of
the Declaration to read in its entirety "The name of the trust is "Select
Advisors Trust II"."
Pursuant to Article VI, Section 6.9 of the Declaration, the Trustees of
the Trust hereby amend and restate the Establishment and Designation of Series
appended to the Declaration to change the names of the seven initial series of
Shares (as defined in the Declaration) (each a "Fund" and collectively the
"Funds") of the Trust.
1. The Funds shall be redesignated, respectively, as follows:
Touchstone Municipal Bond Fund II
Touchstone Bond Fund II
Touchstone Balanced Fund II
Touchstone Growth & Income Fund II
Touchstone Income Opportunity Fund II
Touchstone Emerging Growth Fund II
Touchstone International Equity Fund II
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such Fund. Each Share of a Fund shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional share)
on matters on which Shares of the Fund shall be entitled to vote, shall
represent a PRO RATA beneficial interest in the assets allocated or belonging to
the Fund, and shall be entitled to receive its PRO RATA share of the net assets
of the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration. The proceeds of sales of Shares of a Fund, together with any income
and gain thereon, less any diminution or expenses thereof, shall irrevocably
belong to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
<PAGE>
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
Funds as set forth in Section 6.9 of the Declaration.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration, the Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses, to
change the designation of any Fund or any other series hereafter created, or
otherwise to change the special and relative rights of any Fund or any such
other series.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 11th day of April, 1994. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/S/ THOMAS M. LENZ
--------------------------------
Thomas M. Lenz
/S/ LINDA T. GIBSON
--------------------------------
Linda T. Gibson
/S/ SUZAN M. BARRON
--------------------------------
Suzan M. Barron
<PAGE>
IFS0008 Appendix I
SELECT ADVISORS TRUST C
(formerly Select Advisors Trust II)
Amendment No. 2 to Declaration of Trust and
First Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.00001 per share)
Dated as of August 1, 1994
The undersigned, being the Trustees of Select Advisors Trust II, a
Massachusetts business trust (the "Trust"), acting pursuant to Article IX,
Sections 9.3(a) and 9.3(f) of the Trust's Declaration of Trust, dated as of
February 7, 1994 (the "Declaration"), hereby amend and restate the first
sentence of Section 1.1. of the Declaration to read in its entirety "The name of
the trust is "Select Advisors Trust C"."
Pursuant to Article VI, Section 6.9 of the Declaration, the Trustees of
the Trust hereby amend and restate the Establishment and Designation of Series
appended to the Declaration to change the names of the seven initial series of
Shares (as defined in the Declaration) (each a "Fund" and collectively the
"Funds") of the Trust.
1. The Funds shall be redesignated, respectively, as follows:
Touchstone Municipal Bond Fund C Touchstone Bond Fund C
Touchstone Balanced Fund C Touchstone Growth & Income Fund C
Touchstone Income Opportunity Fund C Touchstone Emerging
Growth Fund C Touchstone International Equity Fund C
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such Fund. Each Share of a Fund shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional share)
on matters on which Shares of the Fund shall be entitled to vote, shall
represent a PRO RATA beneficial interest in the assets allocated or belonging to
the Fund, and shall be entitled to receive its PRO RATA share of the net assets
of the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration. The proceeds of sales of Shares of a Fund, together with any income
and gain thereon, less any diminution or expenses thereof, shall irrevocably
belong to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
<PAGE>
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
Funds as set forth in Section 6.9 of the Declaration.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration, the Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses, to
change the designation of any Fund or any other series hereafter created, or
otherwise to change the special and relative rights of any Fund or any such
other series.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 1st day of August, 1994. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/S/ EDWARD G. HARNESS, JR.
--------------------------------
Edward G. Harness, Jr.
/S/ WILLIAM J. WILLLIAMS
--------------------------------
William J. Williams
/S/ PHILLIP R. COX
--------------------------------
Phillip R. Cox
/S/ JOSEPH S. STERN,JR.
--------------------------------
Joseph S. Stern, Jr.
/S/ ROBERT E. STAUTBERG
--------------------------------
Robert E. Stautberg
BY-LAWS OF IFS TRUST II
ARTICLE I
DEFINITIONS
The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT
ADVISER", "MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES",
"TRANSFER AGENT", "TRUST", "TRUST PROPERTY" and "TRUSTEES" have the respective
meanings given them in the Declaration of Trust of IFS TRUST II dated as of
February 7, 1994.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the Commonwealth as the Trustees may from time
to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. A meeting of Shareholders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request, which shall specify the purpose or purposes for which such
meeting is to be called, of Shareholders holding in the aggregate not less than
10% of the outstanding Shares entitled to vote on the matters specified in such
written request. Any such meeting shall be held within or without the
Commonwealth of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of a majority of outstanding Shares entitled to vote
present in person or by proxy shall constitute a quorum at any meeting of the
Shareholders. In the absence of a quorum, a majority of outstanding Shares
entitled to vote present in person or by proxy may adjourn the meeting from time
to time until a quorum shall be present.
Whenever a matter is required to be voted by Shareholders of the Trust
in the aggregate under Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration, the Trust may either hold a meeting of Shareholders of all series,
as defined in Section 6.9 of the Declaration, to vote on such matter, or hold
separate meetings of shareholders of each of the individual series to vote on
such matter, PROVIDED THAT (i) such separate meetings shall be held within one
year of each other, (ii) a quorum consisting of the holders of the majority of
outstanding Shares of the individual series entitled to vote present in person
or by proxy shall be present at each such separate meeting and (iii) a quorum
consisting of the holders of a majority of all Shares of the Trust entitled to
vote present in person or by proxy shall be present in the aggregate at such
separate meetings, and the votes of Shareholders at all such separate meetings
<PAGE>
2
shall be aggregated in order to determine if sufficient votes have been cast for
such matter to be voted.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least 10 days and
not more than 60 days before the meeting. Only the business stated in the notice
of the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of his current address or
if a written waiver of notice, executed before or after the meeting by the
Shareholder or his attorney thereunto authorized, is filed with the records of
the meeting.
Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, notice
of each such separate meeting shall be provided in the manner described above in
this Section 2.
SECTION 3. RECORD DATE. For the purpose of determining the Shareholders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the Trustees may from
time to time close the transfer books for such period, not exceeding 30 days, as
the Trustees may determine; or without closing the transfer books the Trustees
may fix a date not more than 60 days prior to the date of any meeting of
Shareholders or distribution or other action as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, the
record date of each such separate meeting shall be determined in the manner
described above in this Section 3.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a vote of a majority of the Trustees, proxies may be solicited in
the name of the Trust or one or more Trustees or officers of the Trust. Only
Shareholders of record shall be entitled to vote. Each full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
<PAGE>
3
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person as regards the charge or management of such Share,
such Share may be voted by such guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. Unless
otherwise specifically limited by their terms, proxies shall entitle the holder
thereof to vote at any adjournment of a meeting.
SECTION 5. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
SECTION 6. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the Chairman or
by any Trustee. Notice of the time and place of each meeting other than regular
or stated meetings shall be given by the Secretary or an Assistant Secretary or
by the officer or Trustee calling the meeting and shall be mailed to each
Trustee at least two days before the meeting, or shall be telegraphed, cabled,
or wirelessed to each Trustee at his business address, or personally delivered
to him at least one day before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A notice or waiver of notice need not specify the
purpose of any meeting. The Trustees may meet by means of a telephone conference
circuit or similar communications equipment by means of which all persons
participating in the meeting can hear each other, which telephone conference
meeting shall be deemed to have been held at a place designated by the Trustees
at the meeting. Any action required or permitted to be taken at any meeting of
the Trustees may be taken by the Trustees without a meeting if a majority of the
Trustees consent to the action in writing and the written consents are filed
with the records of the Trustees' meetings. Such consents shall be treated as a
vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall constitute a quorum for the transaction of business at any regular or
special meeting of the Trustees and (except as otherwise required by law, the
<PAGE>
4
Declaration or these By-Laws) the act of a majority of the Trustees present at
any such meeting, at which a quorum is present, shall be the act of the
Trustees. In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be present. Notice of
an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three Trustees to hold office at the
pleasure of the Trustees. While the Trustees are not in session, the Executive
Committee shall have the power to conduct the current and ordinary business of
the Trust, including the purchase and sale of securities and the designation of
securities to be delivered upon redemption of Shares of the Trust, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
the Executive Committee except those powers which by law, the Declaration or
these By-Laws the Trustees are prohibited from so delegating. The Trustees may
also elect from their own number other Committees from time to time, the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a chairman of any such Committee. In the absence of such designation a
Committee may elect its own chairman. The Trustees may abolish any Committee at
any time. The Trustees shall have power to rescind any action of any Committee,
but no such rescission shall have retroactive effect.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING. The Trustees may (i)
provide for stated meetings of any Committee, (ii) specify the manner of calling
and notice required for special meetings of any Committee, (iii) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (iv) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (v) authorize the members of a Committee to meet by means
of a telephone conference circuit. Unless the Trustees so provide, all the
Committees shall be governed by the same rules as the full Board is.
Each Committee may, but is not required to, keep regular minutes of its
meetings and records of decisions taken without a meeting and cause them to be
recorded in a book designated for that purpose and kept in the office of the
Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board
to consist in the first instance of not less than three members. Members of such
Advisory Board shall not be Trustees or officers and need not be Shareholders. A
member of such Advisory Board shall hold office for such period as the Trustees
may by vote provide and may resign therefrom by a written instrument signed by
him which shall take effect upon its delivery to the Trustees. The Advisory
Board shall have no legal powers and shall not perform the functions of Trustees
<PAGE>
5
in any manner, such Advisory Board being intended merely to act in an advisory
capacity. Such Advisory Board shall meet at such times and upon such notice as
the Trustees may by vote provide.
SECTION 4. CHAIRMAN. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to hold office until his
successor shall have been duly elected and qualified. The Chairman shall not
hold any other office. The Chairman may be, but need not be, a Shareholder. The
Chairman shall preside at all meetings of the Trustees and shall have such other
duties as from time to time may be assigned to him by the Trustees.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, each of whom shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, one or
more Assistant Treasurers, and one or more Assistant Secretaries. The Trustees
may delegate to any officer or committee the power to appoint any subordinate
officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the Treasurer
and the Secretary shall hold office until his respective successor shall have
been duly elected and qualified, and all other officers shall hold office at the
pleasure of the Trustees. The Secretary and Treasurer may be the same person. A
Vice President and the Treasurer or a Vice President and the Secretary may be
the same person, but the offices of Vice President, Secretary and Treasurer
shall not be held by the same person. Except as above provided, any two offices
may be held by the same person. Any officer may be, but does not need be, a
Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause by a vote of a
majority of the Trustees. Any officer or agent appointed by any officer or
committee may be removed with or without cause by such appointing officer or
committee.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President, unless
the Chairman, if any, is so appointed by the Trustees, shall be the principal
executive officer of the Trust. Subject to the control of the Trustees and any
committee of the Trustees, the President shall at all times exercise a general
supervision and direction over the affairs of the Trust. The President shall
have the power to employ attorneys and counsel for the Trust and to employ such
subordinate officers, agents, clerks and employees as he may find necessary to
transact the business of the Trust. The President shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust. The President shall have such other powers and duties
as, from time to time, may be conferred upon or assigned to him by the Trustees.
<PAGE>
6
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there are more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require. The
Treasurer shall be responsible for the general supervision of the Trust's funds
and property and for the general supervision of the Trust's custodian.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Shareholders in proper books provided for
that purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust; and shall have charge of the Share transfer
books, lists and records unless the same are in the charge of the Transfer
Agent. The Secretary shall attend to the giving and serving of all notices by
the Trust in accordance with the provisions of these By-Laws and as required by
law; and subject to these By-Laws, shall in general perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each Assistant Treasurer shall
give a bond for the faithful discharge of his duties, if required to do so by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any committee of officers upon whom such power may be conferred by the Trustees.
<PAGE>
7
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
SECTION 11. EXECUTION OF PAPERS. Except as the Trustees may generally
or in particular cases authorize, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be executed by the President, any Vice President, or the
Treasurer, or by whomever else shall be designated for that purpose by the
Trustees, and need not bear the seal of the Trust.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be determined by the Trustees,
provided, however, that the Trustees may from time to time change the fiscal
year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed for the purposes of these By-Laws when it has been
delivered to a representative of any telegraph, cable or wireless company with
instruction that it be telegraphed, cabled or wirelessed. Any notice shall be
deemed to be given at the time when the same shall be mailed, telegraphed,
cabled or wirelessed.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a bank or trust company having a capital, surplus and undivided profits
of at least $5,000,000 as custodian with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in the Declaration, these By-Laws and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver
the same upon written order;
(ii) to receive and receipt for any monies due to the Trust
and deposit the same in its own banking department or
<PAGE>
8
elsewhere as the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting
services; and
(v) if authorized by the Trustees, to compute the net income
of the Trust and the net asset value of Shares;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust (1) in
a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, pursuant to which system
all securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust or its custodian; or (2) with such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The following provisions
shall apply to the employment of a custodian pursuant to this Article X and to
any contract entered into with the custodian so employed:
(a) The Trustees shall cause to be delivered to the custodian all
securities owned by the Trust or to which it may become entitled, and shall
order the same to be delivered by the custodian only upon completion of a sale,
exchange, transfer, pledge, or other disposition thereof, and upon receipt by
the custodian of the consideration therefor or a certificate of deposit or a
receipt of an issuer or of its Transfer Agent, all as the Trustees may generally
<PAGE>
9
or from time to time require or approve, or to a successor custodian; and the
Trustees shall cause all funds owned by the Trust or to which it may become
entitled to be paid to the custodian, and shall order the same disbursed only
for investment against delivery of the securities acquired, or in payment of
expenses, including management compensation, and liabilities of the Trust,
including distributions to Shareholders, or to a successor custodian; provided,
however, that nothing herein shall prevent delivery of securities for
examination to the broker purchasing the same in accord with the "street
delivery" custom whereby such securities are delivered to such broker in
exchange for a delivery receipt exchanged on the same day for an uncertified
check of such broker to be presented on the same day for certification.
(b) In case of the resignation, removal or inability to serve of any
such custodian, the Trust shall promptly appoint another bank or trust company
meeting the requirements of this Article X as successor custodian. The agreement
with the custodian shall provide that the retiring custodian shall, upon receipt
of notice of such appointment, deliver all Trust Property in its possession to
and only to such successor, and that pending appointment of a successor
custodian, or a vote of the Shareholders to function without a custodian, the
custodian shall not deliver any Trust Property to the Trust, but may deliver all
or any part of the Trust Property to a bank or trust company doing business in
Boston, Massachusetts, of its own selection, having an aggregate capital,
surplus and undivided profits (as shown in its last published report) of at
least $5,000,000; provided that arrangements are made for the Trust Property to
be held under terms similar to those on which they were held by the retiring
custodian.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted (a) by the Shareholders by a Majority Shareholder
Vote, or (b) by the Trustees, provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration or these By-Laws, a vote of the
Shareholders.
IFS0008
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Select Advisors Trust C:
We consent to the inclusion in Post-Effective Amendment No. 2 to the
Registration Statement of Select Advisors Trust C on Form N-1A (File No.
33-76146) of our reports dated February 16, 1996 on our audits of the financial
statements and financial highlights of the Touchstone Emerging Growth Fund C,
Touchstone International Equity Fund C, Touchstone Growth & Income Fund C,
Touchstone Balanced Fund C, Touchstone Income Opportunity Fund C, Touchstone
Bond Fund C, and Touchstone Municipal Bond Fund C, seven series of Select
Advisors Trust C, and Touchstone Standby Income Fund, a series of Select
Advisors Trust A, all as of December 31, 1995, which reports are included in the
Statement of Additional Information; and our report dated February 16, 1996 on
our audits of the financial statements and supplemental data of the Emerging
Growth Portfolio, International Equity Portfolio, Growth & Income Portfolio,
Balanced Portfolio, Income Opportunity Portfolio, Bond Portfolio and Municipal
Bond Portfolio, seven series of the Select Advisors Portfolios, as of December
31, 1995, which report is included in the Statement of Additional Information.
We also consent to the reference to our firm under the headings "Financial
Highlights" and "Counsel and Independent Accountants".
/S/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 26, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains financial summary information extracted from The
Touchstone Balanced Fund C Annual Report dated December 31, 1995 and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000925596
<NAME> SELECT ADVISORS TRUST C
<SERIES>
<NUMBER> 4
<NAME> TOUCHSTONE BALANCED FUND C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,259,152
<INVESTMENTS-AT-VALUE> 1,383,894
<RECEIVABLES> 28,189
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,345
<TOTAL-ASSETS> 1,447,428
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,854
<TOTAL-LIABILITIES> 67,854
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,248,718
<SHARES-COMMON-STOCK> 122,129
<SHARES-COMMON-PRIOR> 100,206
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,114
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 124,742
<NET-ASSETS> 1,379,574
<DIVIDEND-INCOME> 10,048
<INTEREST-INCOME> 33,470
<OTHER-INCOME> 0
<EXPENSES-NET> 24,500
<NET-INVESTMENT-INCOME> 19,018
<REALIZED-GAINS-CURRENT> 83,548
<APPREC-INCREASE-CURRENT> 122,824
<NET-CHANGE-FROM-OPS> 225,390
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28,268
<DISTRIBUTIONS-OF-GAINS> 72,034
<DISTRIBUTIONS-OTHER> 8
<NUMBER-OF-SHARES-SOLD> 13,903
<NUMBER-OF-SHARES-REDEEMED> 848
<SHARES-REINVESTED> 8,868
<NET-CHANGE-IN-ASSETS> 380,622
<ACCUMULATED-NII-PRIOR> 2,027
<ACCUMULATED-GAINS-PRIOR> (5,286)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 96,507
<AVERAGE-NET-ASSETS> 1,163,511
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 1.98
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0.63
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.30
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from The
Touchstone Bond Fund C Annual Report dated December 31, 1995 and is qualified
in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000925596
<NAME> SELECT ADVISORS TRUST C
<SERIES>
<NUMBER> 6
<NAME> TOUCHSTONE BOND FUND C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 331,561
<INVESTMENTS-AT-VALUE> 342,994
<RECEIVABLES> 29,742
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,345
<TOTAL-ASSETS> 408,081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,813
<TOTAL-LIABILITIES> 67,813
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,774
<SHARES-COMMON-STOCK> 32,315
<SHARES-COMMON-PRIOR> 2,227
<ACCUMULATED-NII-CURRENT> 24
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,037
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,433
<NET-ASSETS> 340,268
<DIVIDEND-INCOME> 165
<INTEREST-INCOME> 11,891
<OTHER-INCOME> 0
<EXPENSES-NET> 2,812
<NET-INVESTMENT-INCOME> 9,244
<REALIZED-GAINS-CURRENT> 2,742
<APPREC-INCREASE-CURRENT> 11,846
<NET-CHANGE-FROM-OPS> 23,472
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,040
<DISTRIBUTIONS-OF-GAINS> 1,597
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,389
<NUMBER-OF-SHARES-REDEEMED> 1,166
<SHARES-REINVESTED> 1,865
<NET-CHANGE-IN-ASSETS> 318,197
<ACCUMULATED-NII-PRIOR> 1,686
<ACCUMULATED-GAINS-PRIOR> (74)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63,773
<AVERAGE-NET-ASSETS> 169,929
<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 1.03
<PER-SHARE-DIVIDEND> 0.90
<PER-SHARE-DISTRIBUTIONS> 0.05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains financial summary information extracted from The
Touchstone Emerging Growth Fund C Annual Report dated December 31, 1995 and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000925596
<NAME> SELECT ADVISORS TRUST C
<SERIES>
<NUMBER> 1
<NAME> TOUCHSTONE EMERGING GROWTH FUND C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,118,005
<INVESTMENTS-AT-VALUE> 1,283,474
<RECEIVABLES> 28,729
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,345
<TOTAL-ASSETS> 1,347,548
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,758
<TOTAL-LIABILITIES> 68,758
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,128,184
<SHARES-COMMON-STOCK> 111,990
<SHARES-COMMON-PRIOR> 101,154
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14,863)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 165,469
<NET-ASSETS> 1,278,790
<DIVIDEND-INCOME> 12,090
<INTEREST-INCOME> 4,410
<OTHER-INCOME> 0
<EXPENSES-NET> 25,826
<NET-INVESTMENT-INCOME> (9,326)
<REALIZED-GAINS-CURRENT> 104,176
<APPREC-INCREASE-CURRENT> 122,679
<NET-CHANGE-FROM-OPS> 217,529
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 484
<DISTRIBUTIONS-OF-GAINS> 85,973
<DISTRIBUTIONS-OTHER> 29
<NUMBER-OF-SHARES-SOLD> 3,921
<NUMBER-OF-SHARES-REDEEMED> 655
<SHARES-REINVESTED> 7,570
<NET-CHANGE-IN-ASSETS> 256,530
<ACCUMULATED-NII-PRIOR> 484
<ACCUMULATED-GAINS-PRIOR> (30,782)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 98,425
<AVERAGE-NET-ASSETS> 1,144,631
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 2.16
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0.82
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.42
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from The
Touchstone Growth & Income Fund C Annual Report dated December 31, 1995
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000925596
<NAME> SELECT ADVISORS TRUST C
<SERIES>
<NUMBER> 3
<NAME> TOUCHSTONE GROWTH & INCOME FUND C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 296,852
<INVESTMENTS-AT-VALUE> 330,762
<RECEIVABLES> 30,623
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,345
<TOTAL-ASSETS> 396,730
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,940
<TOTAL-LIABILITIES> 68,940
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 291,949
<SHARES-COMMON-STOCK> 26,053
<SHARES-COMMON-PRIOR> 2,055
<ACCUMULATED-NII-CURRENT> 90
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,841
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,910
<NET-ASSETS> 327,790
<DIVIDEND-INCOME> 2,937
<INTEREST-INCOME> 435
<OTHER-INCOME> 0
<EXPENSES-NET> 3,493
<NET-INVESTMENT-INCOME> (121)
<REALIZED-GAINS-CURRENT> 14,625
<APPREC-INCREASE-CURRENT> 33,698
<NET-CHANGE-FROM-OPS> 48,202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,566
<DISTRIBUTIONS-OF-GAINS> 12,661
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,514
<NUMBER-OF-SHARES-REDEEMED> 1,202
<SHARES-REINVESTED> 1,686
<NET-CHANGE-IN-ASSETS> 307,222
<ACCUMULATED-NII-PRIOR> 1,676
<ACCUMULATED-GAINS-PRIOR> (123)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 65,413
<AVERAGE-NET-ASSETS> 169,966
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 3.51
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0.51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.58
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains financial summary information extracted from The
Touchstone Income Opportunity Fund C Annual Report dated December 31, 1995
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000925596
<NAME> SELECT ADVISORS TRUST C
<SERIES>
<NUMBER> 5
<NAME> TOUCHSTONE INCOME OPPORTUNITY FUND C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,159,738
<INVESTMENTS-AT-VALUE> 1,207,818
<RECEIVABLES> 28,881
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,345
<TOTAL-ASSETS> 1,272,044
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,782
<TOTAL-LIABILITIES> 68,782
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,204,380
<SHARES-COMMON-STOCK> 122,785
<SHARES-COMMON-PRIOR> 102,050
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49,198)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48,080
<NET-ASSETS> 1,203,262
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 139,458
<OTHER-INCOME> 0
<EXPENSES-NET> 19,968
<NET-INVESTMENT-INCOME> 119,490
<REALIZED-GAINS-CURRENT> 3,125
<APPREC-INCREASE-CURRENT> 88,462
<NET-CHANGE-FROM-OPS> 211,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 128,334
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 406
<NUMBER-OF-SHARES-SOLD> 8,235
<NUMBER-OF-SHARES-REDEEMED> 1,353
<SHARES-REINVESTED> 13,853
<NET-CHANGE-IN-ASSETS> 276,809
<ACCUMULATED-NII-PRIOR> 1,756
<ACCUMULATED-GAINS-PRIOR> (74)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 91,301
<AVERAGE-NET-ASSETS> 1,021,187
<PER-SHARE-NAV-BEGIN> 9.08
<PER-SHARE-NII> 1.14
<PER-SHARE-GAIN-APPREC> 0.74
<PER-SHARE-DIVIDEND> 1.16
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains financial summmary information extracted from The
Touchstone International Equity C Fund Annual Report dated December 31, 1995
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000925596
<NAME> SELECT ADVISORS TRUST C
<SERIES>
<NUMBER> 2
<NAME> TOUCHSTONE INTERNATIONAL EQUITY FUND C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2,356,948
<INVESTMENTS-AT-VALUE> 2,486,345
<RECEIVABLES> 30,186
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,345
<TOTAL-ASSETS> 2,551,876
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,578
<TOTAL-LIABILITIES> 69,578
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,568,084
<SHARES-COMMON-STOCK> 260,836
<SHARES-COMMON-PRIOR> 249,917
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (215,183)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 129,397
<NET-ASSETS> 2,482,298
<DIVIDEND-INCOME> 30,999
<INTEREST-INCOME> 8,585
<OTHER-INCOME> 0
<EXPENSES-NET> 54,113
<NET-INVESTMENT-INCOME> (14,529)
<REALIZED-GAINS-CURRENT> (212,994)
<APPREC-INCREASE-CURRENT> 334,278
<NET-CHANGE-FROM-OPS> 106,755
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,845
<NUMBER-OF-SHARES-REDEEMED> 926
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 208,095
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5,261)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131,369
<AVERAGE-NET-ASSETS> 2,296,413
<PER-SHARE-NAV-BEGIN> 9.10
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains financial summary information extracted from The
Touchstone Municipal Bond Fund C Annual Report dated December 31, 1995 and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000925596
<NAME> SELECT ADVISORS TRUST C
<SERIES>
<NUMBER> 7
<NAME> TOUCHSTONE MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,108,051
<INVESTMENTS-AT-VALUE> 1,137,500
<RECEIVABLES> 29,219
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,345
<TOTAL-ASSETS> 1,201,864
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,270
<TOTAL-LIABILITIES> 68,270
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,106,474
<SHARES-COMMON-STOCK> 111,382
<SHARES-COMMON-PRIOR> 100,299
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,129)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,249
<NET-ASSETS> 1,133,594
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60,562
<OTHER-INCOME> 0
<EXPENSES-NET> 18,842
<NET-INVESTMENT-INCOME> 41,720
<REALIZED-GAINS-CURRENT> (2,102)
<APPREC-INCREASE-CURRENT> 41,510
<NET-CHANGE-FROM-OPS> 81,128
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 50,774
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 114
<NUMBER-OF-SHARES-SOLD> 6,054
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 5,029
<NET-CHANGE-IN-ASSETS> 142,634
<ACCUMULATED-NII-PRIOR> 2,020
<ACCUMULATED-GAINS-PRIOR> (27)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 88,818
<AVERAGE-NET-ASSETS> 1,043,869
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> 0.49
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
