<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1997.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5
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) 361-7900
SUSAN C. MOSHER
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET, BOSTON, MASSACHUSETTS 02111
(Name and Address of Agent for Service)
copies to:
J. Leland Brewster, Esq. Edward G. Harness, Jr.
Frost & Jacobs LLP Touchstone Securities, Inc.
2500 East 5th Street 311 Pike Street
P.O. Box 5715 Cincinnati, Ohio 45202
Cincinnati, Ohio 45201-5715
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[x] on May 1, 1997 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 IS FILING THE NOTICE REQUIRED BY
RULE 24F-2 ON OR BEFORE FEBRUARY 28, 1997 FOR REGISTRANT'S FISCAL YEAR ENDED
DECEMBER 31, 1996.
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<PAGE>
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 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
<PAGE>
13. Investment Objectives and Policies. .Investment Objectives, Policies and
Restrictions
14. Management of the Fund. . . . . . . .Management of the Trust and the
Portfolio Trust
15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . .Management 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 Objectives, Policies and
Restrictions
18. Capital Stock and Other Securities. .Organization of the Trust and the
Portfolio Trust (See also Prospectus
-- "Dividends, Distributions and
Taxes")
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. . . . . . . . . . . . .Management of the Trust and the
Portfolio Trust (See also Prospectus
-- "Management of the Trust and the
Portfolio Trust")
22. Calculation of Performance
Information . . . . . . . . . . . . .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
--------------------------
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
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."
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,"
"RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES" AND THE APPENDIX.
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, 1997 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 NATIONAL CREDIT UNION SHARE INSURANCE FUND,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. MUTUAL FUNDS INVOLVE INVESTMENT
RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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.
TOUCHSTONE FAMILY OF FUNDS
311 PIKE STREET
CINCINNATI, OHIO 45202
(800) 669-2796
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PROSPECTUS & APPLICATION
MAY 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS & APPLICATION
MAY 1, 1997
<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.
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 and the Bond Fund are
declared and paid monthly. 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."
2
<PAGE>
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."
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,"
"Risk Factors and Certain Investment Techniques" and the Appendix.
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
TRANSACTION GROWTH EQUITY INCOME BALANCED OPPORTUNITY BOND INCOME
EXPENSES FUND C FUND C FUND C FUND C FUND C FUND C FUND
- -------------------------------------- --------- ------------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge(1)............... None None None None None None None
<CAPTION>
ANNUAL
OPERATING
EXPENSES
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory Fee.......................... 0.80% 0.95% 0.75% 0.70% 0.65% 0.55% 0.25%
Rule 12b-1 Fees....................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.00%
Other Expenses(2) (after waiver or
reimbursement)....................... 0.45% 0.40% 0.30% 0.40% 0.30% 0.10% 0.50%
--- --- --- --- --- --- ---
Total Operating Expenses(2) (after
waiver or reimbursement)............. 2.25% 2.35% 2.05% 2.10% 1.95% 1.65% 0.75%
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</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, 1997, 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.
For the year ended December 31, 1996, 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, 6.63%, 8.43%; International
Equity Fund, 4.21%, 6.16%; Growth & Income Fund, 11.04%, 12.79%; Balanced Fund,
6.09%, 7.79%; Income Opportunity Fund, 5.47%, 7.12%; Bond Fund, 15.30%, 16.85%;
and Standby Income Fund, 2.55%, 2.80%.
3
<PAGE>
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
GROWTH EQUITY INCOME BALANCED OPPORTUNITY BOND INCOME
FUND C FUND C FUND C FUND C FUND C FUND C FUND
--------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year....................... $ 23 $ 24 $ 21 $ 21 $ 20 $ 17 $ 8
3 Years...................... $ 70 $ 73 $ 64 $ 66 $ 61 $ 52 $ 24
5 Years...................... $ 120 $ 126 $ 110 $ 113 $ 105 $ 90 $ 42
10 Years..................... $ 258 $ 269 $ 238 $ 243 $ 227 $ 195 $ 93
</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. The Annual Report is available without charge and upon request by
calling (800) 669-2796.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31,
1996 AND DECEMBER 31, 1995 AND THE PERIOD ENDED DECEMBER 31, 1994 WERE AS
FOLLOWS:
[To Be Filed By Amendment]
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 Ratings Service,
a division of McGraw-Hill Companies ("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."
6
<PAGE>
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 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."
7
<PAGE>
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.
8
<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 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."
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.
9
<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.
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 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" below and "Investment
Restrictions" in the Statement of Additional Information.
Except as permitted by the SEC, 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.
10
<PAGE>
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, BBB and Baa,
respectively, although considered investment grade, may possess speculative
characteristics, and changes in economic or other conditions are more likely to
impair the ability of issuers of these securities to make interest and principal
payments than is the case with respect to issuers of higher grade bonds.
11
<PAGE>
Generally, medium or lower rated securities and unrated securities of
comparable quality, sometimes referred to as "junk bonds," offer a higher
current yield than is offered by higher rated securities, but also (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The yield of junk bonds will
fluctuate over time.
The market values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, medium and lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. Since the risk of
default is higher for lower rated debt securities, the Portfolio Advisor's
research and credit analysis are an especially important part of managing
securities of this type held by a Portfolio. In light of these risks, the Board
of Trustees has instructed the Portfolio Advisor, in evaluating the
creditworthiness of an issue, whether rated or unrated, to take various factors
into consideration, which may include, as applicable, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
medium and lower rated or unrated securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets may make it more difficult for the Portfolios to obtain accurate market
quotations for purposes of valuing their respective portfolios and calculating
their respective net asset values. Moreover, the lack of a liquid trading market
may restrict the availability of securities for the Portfolios to purchase and
may also have the effect of limiting the ability of a Portfolio to sell
securities at their fair value either to meet redemption requests or to respond
to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for shareholders. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by a Portfolio may decline relatively
proportionately more than a portfolio consisting of higher rated securities. If
a Portfolio experiences unexpected net redemptions, it may be forced to sell its
higher rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Portfolio and increasing the exposure of the Portfolio to
the risks of lower rated securities. Investments in zero coupon bonds may be
more speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
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, 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.
Touchstone Advisors 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
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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
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.
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 -- 0.80%;
Income Opportunity Portfolio -- 0.65%; Bond Portfolio -- 0.55%; and Standby
Income Fund -- 0.25%. 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% on the first $10 million
Company, Inc. 0.40% on 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
GROWTH & INCOME PORTFOLIO
Fort Washington Investment 0.45%
Advisors, Inc.
</TABLE>
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<TABLE>
<S> <C>
BALANCED PORTFOLIO
OpCap Advisors 0.60% on the first $20 million*
0.50% on the next $30 million*
0.40% on the next $950 million*
0.375% 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.
</TABLE>
- ------------------------
* Includes assets of the Balanced Portfolio of the Portfolio Trust and the
Balanced Portfolio of the Select Advisors Variable Insurance Trust (a
portfolio for which OpCap also acts in an investment advisory capacity).
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 Sponsor Services, 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.
Performance information for each Portfolio Advisor is also shown below. This
information may assist a potential investor in making an investment decision.
The performance information represents the composite annual total return
information for other accounts (the "Composite Account") managed by the
Portfolio Advisor that have investment objectives, policies and strategies
substantially similar to those of the corresponding Portfolio. For comparison
purposes, performance information of an appropriate securities index is
included. The performance of each Composite Account was adjusted to reflect the
operating expenses of the corresponding Fund and Portfolio.
DAVID L. BABSON & COMPANY, INC. ("Babson") serves as one of two Portfolio
Advisors to EMERGING GROWTH PORTFOLIO. Babson is an 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, 1996, Babson and affiliates had assets
under management of $14.7 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, 1996, Westfield had assets under management of $1.2 billion.
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, 1996, BEA Associates had assets under management of $31.3
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 18 years
experience in the industry, ranging from 14 years to 25 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, 1996, Fort Washington had assets under management of $9.5
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.
OPCAP ADVISORS ("OpCap") serves as Portfolio Advisor to BALANCED PORTFOLIO.
OpCap is a majority-owned subsidiary of Oppenheimer Capital, a registered
investment advisor whose employees perform all investment advisory services
provided to the Portfolio by OpCap. Oppenheimer Capital has operated as an
investment advisor since 1968. As of December 31, 1996, Oppenheimer Capital and
its subsidiaries had assets under management of $48 billion. Oppenheimer
Financial Corp., a holding company, holds a one-third interest in Oppenheimer
Capital and Oppenheimer Capital, L.P., a Delaware limited partnership whose
units are traded on the New York Stock Exchange and of which Oppenheimer
Financial Corp. is the sole general partner, owns the remaining two-thirds
15
<PAGE>
interest. On February 13, 1997, PIMCO Advisors L.P., a registered investment
advisor, signed a definitive agreement with Oppenheimer Group, Inc. and its
subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals. Alan Gutmann is
primarily responsible for the day-to-day investment management of the equity
portion of the Portfolio and Robert J. Bluestone is primarily responsible for
the day-to-day management of the fixed-income portion of the Portfolio. Mr.
Gutmann joined Oppenheimer Capital in 1991 and is Vice President. Mr. Bluestone
joined Oppenheimer Capital in 1986 and is Managing Director. OpCap's principal
executive offices are located at Oppenheimer Tower, One World Financial Center,
New York, New York 10281.
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, 1996, Alliance had assets under management of $183 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. Ms. Fuller (CPA) has been with Alliance, and its predecessors, since 1985.
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 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. White is a CFA and has been with Western and Southern/Fort Washington
since 1993. Prior to 1993, Mr. White was with Ohio Casualty Insurance Co. for
six years, managing high yield and mortgage backed assets.
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.
PORTFOLIO ADVISOR PERFORMANCE INFORMATION
The performance information of each Composite Account has been prepared and
presented in compliance with the performance presentation standards of the
Association for Investment Management and Research. The relative sizes of the
Composite Accounts and the corresponding Portfolios are comparable. The
performance information of a Composite Account should not be interpreted as
indicative of the corresponding Portfolio's future performance. The accounts
included in each Composite Account are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Internal Revenue Code, which, if
applicable, may have adversely affected the performance results of the Composite
Account. The Statement of Additional Information contains additional information
about performance quotations and comparisons.
16
<PAGE>
THE TOUCHSTONE FAMILY OF FUNDS AND VARIABLE ANNUITIES
PORTFOLIO ADVISOR
COMPOSITE PERFORMANCE REPORT
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMERGING GROWTH
- -----------------------------------
David L. Babson & Co............... 23.10% 17.24% (4.45)% 17.17% 24.12% 44.30% (17.61)% 20.12% 31.85%
Westfield Capital Mgmt............. 10.56 32.99 (5.70) 12.02 13.10 85.35 (3.99) 39.35 N/A
Russell 2000....................... 16.49 28.47 (1.83) 18.89 18.42 46.04 (19.52) 16.24 24.89
INTERNATIONAL
- -----------------------------------
BEA Associates..................... 10.53 3.24 (10.10) 39.58 (3.00) 30.73 (32.73) 55.07 36.45
MSCI EAFE.......................... 6.36 11.55 8.06 32.94 (11.83) 12.47 (23.31) 10.80 28.60
GROWTH & INCOME
- -----------------------------------
Fort Washington Invt. Adv.......... 14.19 37.50 2.87 14.23 2.78 29.55 N/A N/A N/A
S&P 500............................ 22.96 37.58 1.32 10.09 7.62 30.45 (3.08) 31.55 16.56
BALANCED
- -----------------------------------
OpCap Advisors..................... 13.40 29.30 (2.00) 8.80 10.70 20.10 -2.10 16.90 12.50
60% S&P 500/40% LB Agg............. 14.91 29.60 (0.36) 9.98 7.58 24.74 1.79 24.70 13.02
INCOME OPPORTUNITY
- -----------------------------------
Alliance Capital................... 19.61 14.93 (4.48) 19.10 15.26 37.29 (5.37) 2.76 11.18
Salomon High Yield Index........... 11.29 19.71 (1.25) 17.37 17.86 40.24 (7.31) 1.83 15.22
BOND
- -----------------------------------
Fort Washington Invt. Adv.......... 0.79 20.96 (6.24) 12.07 7.88 17.58 N/A N/A N/A
LB Aggregate Index................. 3.61 18.48 (2.92) 9.75 7.40 15.98 8.95 14.53 7.89
<CAPTION>
1987
-------
<S> <C>
EMERGING GROWTH
- -----------------------------------
David L. Babson & Co............... (10.16)%
Westfield Capital Mgmt............. N/A
Russell 2000....................... (8.77)
INTERNATIONAL
- -----------------------------------
BEA Associates..................... 51.64
MSCI EAFE.......................... 24.93
GROWTH & INCOME
- -----------------------------------
Fort Washington Invt. Adv.......... N/A
S&P 500............................ 5.26
BALANCED
- -----------------------------------
OpCap Advisors..................... 2.00
60% S&P 500/40% LB Agg............. 5.63
INCOME OPPORTUNITY
- -----------------------------------
Alliance Capital................... 0.49
Salomon High Yield Index........... 4.56
BOND
- -----------------------------------
Fort Washington Invt. Adv.......... N/A
LB Aggregate Index................. 2.76
</TABLE>
17
<PAGE>
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.
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
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<PAGE>
securities, such as U.S. Treasury bills, Treasury notes and Treasury bonds,
which differ only in their interest rates, maturities and times of issuance, are
supported by the full faith and credit of the United States. Others are
supported by: (i) the right of the issuer to borrow from the U.S. Treasury, such
as securities of the Federal Home Loan Banks; (ii) the discretionary authority
of the U.S. government to purchase the agency's obligations, such as securities
of the FNMA; or (iii) only the credit of the issuer, such as securities of the
Student Loan Marketing Association. No assurance can be given that the U.S.
Government will provide financial support in the future to U.S. Government
agencies, authorities or instrumentalities that are not supported by the full
faith and credit of the United States.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities include: (i) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation interests in loans made to foreign
governments or other entities that are so guaranteed. The secondary market for
certain of these participation interests is limited and, therefore, may be
regarded as illiquid.
MORTGAGE RELATED SECURITIES. Each Portfolio may invest in mortgage related
securities. There are several risks associated with mortgage related securities
generally. One is that the monthly cash inflow from the underlying loans may not
be sufficient to meet the monthly payment requirements of the mortgage related
security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten
the term of the underlying mortgage pool for a mortgage related security. Early
returns of principal will affect the average life of the mortgage related
securities remaining in a Portfolio. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Portfolio. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Portfolio will have to reinvest the proceeds of prepayments at
lower interest rates than those at which the assets were previously invested. If
this occurs, a Portfolio's yield will correspondingly decline. Thus, mortgage
related securities may have less potential for capital appreciation in periods
of falling interest rates than other fixed-income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that a Portfolio
purchases mortgage related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which a Portfolio invests, the investment may be subject to
a greater or lesser risk of prepayment than other types of mortgage related
securities.
Mortgage related securities may not be readily marketable. To the extent any
of these securities are not readily marketable in the judgment of the Portfolio
Advisor, the investment restriction limiting a Portfolio's investment in
illiquid instruments to not more than 15% of the value of its net assets will
apply.
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.
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<PAGE>
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.
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
20
<PAGE>
the same amount for a specified period. If a swap agreement provides for payment
in different currencies, the parties may also agree to exchange the notional
principal amount. Mortgage swap agreements are similar to interest rate swap
agreements, except that notional principal amount is tied to a reference pool of
mortgages.
In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile; depending
on how they are used, they may have 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
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<PAGE>
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 underlying
securities during the period in which the Portfolio seeks to assert its rights
to them, the risk of incurring expenses associated with asserting those rights
and the risk of losing all or a part of the income from the agreement.
Repurchase agreements are considered to be collateralized loans under the 1940
Act.
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS. The Portfolios
may enter into reverse repurchase agreements and forward roll transactions. In a
reverse repurchase agreement the Portfolio agrees to sell portfolio securities
to financial institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price. Forward roll transactions are
equivalent to reverse repurchase agreements but involve mortgage backed
securities and involve a repurchase of a substantially similar security. At the
time the Portfolio enters into a reverse repurchase agreement or forward roll
transaction it will place in a segregated custodial account cash or liquid
securities having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements and forward roll transactions involve
the risk that the market value of the securities sold by the 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. Each Portfolio may lend securities to
brokers, dealers and other financial organizations. These loans, if and when
made, may not exceed 30% of a Portfolio's assets taken at value. A Portfolio's
loans of securities will be collateralized by cash, letters of credit or U.S.
Government securities. The cash or instruments collateralizing a Portfolio's
loans of securities will be maintained at all times in a segregated account with
the Portfolio's custodian, or with a designated subcustodian, in an amount at
least equal to the current market value of the loaned securities. In lending
securities to brokers, dealers and other financial organizations, a Portfolio is
subject to risks, which, like those associated with other extensions of credit,
include delays in recovery and possible loss of rights in the collateral should
the borrower fail financially.
ILLIQUID SECURITIES. No Portfolio may invest more than 15% of its net
assets in securities which are illiquid or otherwise not readily marketable. The
Trustees of the 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. If
institutional trading in restricted securities or Rule 144A securities were to
decline, a Portfolio's illiquidity could be increased and the Portfolio could be
adversely affected.
No Portfolio will invest more than 10% of its total assets in restricted
securities (excluding Rule 144A securities).
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when
the Portfolio Advisor of a Portfolio believes, in consultation with the Advisor,
that pursuing the Portfolio's basic investment strategy may be inconsistent with
the best interests of its shareholders, the Portfolio may invest its assets
without limit in the
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following money market instruments: U.S. Government securities (including those
purchased in the form of custodial receipts), repurchase agreements,
certificates of deposit and bankers' acceptances issued by banks or savings and
loan associations having assets of at least $500 million as of the end of their
most recent fiscal year and high quality commercial paper.
In addition, for the same purposes the Portfolio Advisor of International
Equity Portfolio may invest without limit in obligations issued or guaranteed by
foreign governments or by any of their political subdivisions, authorities,
agencies or instrumentalities that are rated at least AA by S&P or Aa by Moody's
or, if unrated, are determined by the Portfolio Advisor to be of equivalent
quality. Each Portfolio also may hold a portion of its assets in money market
instruments or cash in amounts designed to pay expenses, to meet anticipated
redemptions or pending investments in accordance with its objectives and
policies. Any temporary investments may be purchased on a when-issued basis.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio may enter into
futures contracts and purchase and write (sell) options on these contracts,
including but not limited to interest rate, securities index and foreign
currency futures contracts and put and call options on these futures contracts.
These contracts will be entered into only upon the concurrence of the Portfolio
Advisor that such contracts are necessary or appropriate in the management of
the Portfolio's assets. These contracts will be entered into on exchanges
designated by the Commodity Futures Trading Commission ("CFTC") or, consistent
with CFTC regulations, on foreign exchanges. These transactions may be entered
into for bona fide hedging and other permissible risk management purposes
including protecting against anticipated changes in the value of securities a
Portfolio intends to purchase.
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.
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There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-rated currency options. The Portfolio's
ability to terminate over-the-counter options ("OTC Options") will be more
limited than the exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
OPTIONS ON STOCK. Each Portfolio 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 a 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 a 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, a 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, a 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.
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Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in price of a particular security. Accordingly, successful use by
a Portfolio of options on security indexes will be subject to the Portfolio
Advisor's ability to predict correctly movement in the direction of that
securities market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities.
FORWARD CURRENCY CONTRACTS. Each Portfolio that may invest in foreign
currency-denominated securities may hold currencies to meet settlement
requirements for foreign securities and may engage in currency exchange
transactions in order to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Portfolio's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another -- for example, to exchange a certain amount of U.S. dollars for a
certain amount of French francs at a future date. The date (which may be any
agreed-upon fixed number of days in the future), the amount of currency to be
exchanged and the price at which the exchange will take place will be negotiated
with a currency trader and fixed for the term of the contract at the time that
the Portfolio enters into the contract.
In hedging specific portfolio positions, a Portfolio may enter into a
forward contract with respect to either the currency in which the positions are
denominated or another currency deemed appropriate by the Portfolio Advisor. The
amount the Portfolio may invest in forward currency contracts is limited to the
amount of the Portfolio's aggregate investments in foreign currencies. Risks
associated with entering into forward currency contracts include the possibility
that the market for forward currency contracts may be limited with respect to
certain currencies and, 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
liquid 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, 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.
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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).
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 last two fiscal years ended December 31, 1996, the
annual turnover rate of each Portfolio was as follows: Emerging Growth Portfolio
- -- 117% and 109%; International Equity Portfolio -- 86% and 90%; Growth & Income
Portfolio -- 92% and 102%; Balanced Portfolio -- 88% and 121% (equity
investments -- % and 104%, fixed-income investments -- % and 149%); Income
Opportunity Portfolio -- 222% and 120%; Bond Portfolio -- 64% and 78% and
Standby Income Fund -- 26% and 142%. 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") and 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"), Savings Incentive Match Plan for Employees
("SIMPLE") IRAs, Simplified Employee Pension Plan ("SEP") IRAs and Section
403(b) Tax Sheltered Accounts that employ as custodian a bank acceptable to the
Distributor. The Distributor will establish Keogh or HR-10 Corporate Pension
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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.
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
and 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 and asset
allocation model number, if applicable, 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 Transfer Agent. To
purchase shares by wire, you should contact your bank and request it to wire
federal funds to the Transfer Agent. 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) on 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.
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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 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
the Transfer Agent or 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.
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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 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.
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
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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.
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 (press 1) 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.
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REINSTATEMENT PRIVILEGE
You may reinvest proceeds 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
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
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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.
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, 1997 or by the Trust on not less than 30
days' prior written notice. The Sponsor has advised the Trust that it will waive
all fees under the Sponsor Agreement through April 30, 1998.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("Investors Bank"), 89 South Street, Boston,
Massachusetts 02111, serves as administrator and fund accounting agent for the
Trust and the Portfolio Trust, as custodian for the Portfolio Trust and the
Standby Income Fund, and as transfer agent and dividend paying agent for the
Portfolio Trust. Investors Bank was organized in 1969 as a
Massachusetts-chartered trust company and is a wholly-owned subsidiary of
Investors Financial Services Corp., a publicly-held corporation and holding
company registered under the Bank Holding Company Act of 1956.
As administrator and fund accounting agent, Investors Bank provides, on
behalf of the Trust and the Portfolio Trust, accounting, clerical and
bookkeeping services; the daily calculation of net asset values; state
securities registration services (for the Trust only); corporate secretarial
services; assistance in the preparation of management reports; preparation and
filing of tax returns, registration statements, and reports to shareholders and
to the SEC. Investors Bank also provides personnel to serve as certain officers
of the Trust or the Portfolio Trust.
As custodian, Investors Bank holds cash, securities and other assets of the
Portfolio Trust and the Standby Income Fund as required by the Investment
Company Act of 1940.
Each Portfolio and the Standby Income Fund shall pay fees to Investors Bank,
which are computed and paid monthly. Such fees equal, in the aggregate, 0.12% on
an annual basis of the average daily net assets of all the Portfolios and Funds
for which Investors Bank acts as fund accounting agent and administrator up to
$1 billion in assets and 0.08% on an annual basis of average daily net assets
which exceed $1 billion, subject to certain annual minimum fees. As compensation
for its services as custodian to the Portfolio Trust and the Standby Income
Fund, Investors Bank receives fees, computed and paid monthly, in the aggregate,
of 0.03% on an annual basis of the average daily net assets of all the
Portfolios and Funds for which Investors Bank acts as custodian up to $500
million and 0.02% on an annual basis of such average daily net assets for the
next $500 million and 0.01% on an annual basis of such average daily net assets
which exceed $1 billion.
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State Street Bank and Trust Company serves as the Trust's Transfer Agent and
dividend paying agent and may be reached at P.O. Box 8518, Boston, Massachusetts
02266-8518.
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 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.
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, 1997.
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 and the 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.
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
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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, Standby Income Fund and the
Balanced Fund, from time to time, the Trust may advertise the 30-day "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.
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).
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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 six 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 was organized on November 9, 1994, as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
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
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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.
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APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's and S&P, which
represent their opinions as to the quality of the 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.
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser
A-2
<PAGE>
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
A-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY................................................................... 2
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
INVESTMENT OBJECTIVES, POLICIES AND RISKS................................. 8
RISK FACTORS AND CERTAIN INVESTMENT TECHNIQUES............................ 13
ADVISOR AND PORTFOLIO ADVISORS............................................ 14
ADDITIONAL RISKS AND INVESTMENT TECHNIQUES................................ 20
PURCHASE OF SHARES........................................................ 28
REDEMPTION OF SHARES...................................................... 31
NET ASSET VALUE........................................................... 33
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST........................... 34
DIVIDENDS, DISTRIBUTIONS AND TAXES........................................ 35
PERFORMANCE INFORMATION................................................... 36
ADDITIONAL INFORMATION.................................................... 37
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
ADMINISTRATOR, CUSTODIAN AND FUND ACCOUNTING AGENT
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 LLP
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 7038-9705
- -------------------------------------------------------------------------------
TOUCHSTONE
------------------------
z
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
PROSPECTUS &
APPLICATION
MAY 1, 1997
<PAGE>
IFS0023G STATEMENT OF
FORM 7051-9705 ADDITIONAL INFORMATION
May 1, 1997
THE TOUCHSTONE 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
The Select Advisors Trust C (the "Trust") is comprised of six 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") and Touchstone Bond Fund C (the "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
and 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"). Investors Bank & Trust
Company ("Investors Bank" or the "Administrator") serves as custodian,
administrator and fund accounting agent to each Fund and Portfolio.
The Prospectus, dated May 1, 1997, provides the basic information
investors should know before investing and may be obtained without charge by
calling the
<PAGE>
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
2
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS................... 4
PERFORMANCE INFORMATION................................................... 24
VALUATION OF SECURITIES; REDEMPTION IN KIND............................... 26
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST........................... 28
ORGANIZATION OF THE TRUST AND THE PORTFOLIO TRUST......................... 36
TAXATION.................................................................. 37
FINANCIAL STATEMENTS...................................................... 41
3
<PAGE>
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS AND RISKS
INVESTMENT OBJECTIVES
The investment objective(s) of each Fund is described in the Prospectus.
There can 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 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 Prospectus.
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.
4
<PAGE>
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, 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.
5
<PAGE>
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 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.
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.
6
<PAGE>
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.
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, Government National Mortgage Association
("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.
7
<PAGE>
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 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
8
<PAGE>
could be liquidated and the Portfolio could then buy debt securities on the
cash market.
When a Portfolio enters into a futures contract for any purpose, the
Portfolio will establish a segregated account with the Portfolio's custodian
to collateralize or "cover" the Portfolio's obligation consisting of cash or
liquid securities from its portfolio in an amount equal to the difference
between the fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made by the
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 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,
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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 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.
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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 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 and liquid 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
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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 liquid 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 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
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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 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 ("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
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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.
A Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a "closing
purchase transaction." Where the Portfolio cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold
underlying securities until an option is exercised or expires.
When 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.
When a Portfolio writes a call option, it will "cover" its obligation by
segregating the underlying security on the books of the Portfolio's custodian
or by placing liquid securities in a segregated account at the Portfolio's
custodian. When a Portfolio writes a put option, it will "cover" its
obligation by placing liquid 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
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to offset or hedge 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 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.
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Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included
in the index is interrupted. 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 liquid securities 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 liquid
securities in an amount at least equal to its obligations under each forward
currency contract. Neither spot transactions nor forward currency contracts
eliminate fluctuations in the prices of the 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
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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 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
forward currency contracts at attractive prices and this will limit the
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.
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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 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 "Additional 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);
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(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 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.
ADDITIONAL RESTRICTIONS. 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 is not traded flat or in default as to interest or principal
and either (i) is rated in one of the two highest categories by at
least two nationally recognized statistical rating organizations
and the Portfolio's (Fund's) Board of Trustees have determined the
commercial paper to be liquid; or (ii) is rated in one of the two
highest categories by one nationally recognized statistical rating
agency and the Portfolio's (Fund's) Board of Trustees have
determined that the commercial paper is equivalent quality and is
liquid;
(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);
20
<PAGE>
(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 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 OCC, except for put and call options issued
by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold
shall not exceed 50% of the 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
21
<PAGE>
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 liquid securities equal in value to
the amount the Portfolio will be obligated to pay upon exercise of
the put (this account must be maintained until the put is
exercised, has expired, or the Portfolio has purchased a closing
put, which is a put of the same series as the one previously
written); and
(xvi) buy and sell puts and calls on securities, stock index
futures or options on stock index futures, or financial futures or
options on financial futures unless such options are written by
other persons and: (a) the options or futures are offered through
the facilities of a national securities association or are listed
on a national securities or commodities exchange, except for put
and call options issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the aggregate premiums
paid on all such options which are held at any time do not exceed
20% of the Portfolio's total net assets; and (c) the aggregate
margin deposits required on all such futures or options thereon
held at any time do not exceed 5% of the Portfolio's total assets.
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 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
22
<PAGE>
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 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
23
<PAGE>
several clients receive investment advice from the same investment advisor,
particularly when the same security is suitable for the investment objectives
of more than one client. When two or more clients are simultaneously engaged
in the purchase or sale of the same security, the securities are allocated
among clients in a manner believed to be equitable to each. It is recognized
that in some cases this system could have a detrimental effect on the price
or volume of the security as far as a Portfolio is concerned. However, it is
believed that the ability of a Portfolio to participate in volume
transactions will produce better executions for the Portfolio.
The Portfolios and Standby Income Fund paid the following brokerage
commissions for the periods indicated:
<TABLE>
<CAPTION>
Emerging International Growth & Income Standby
Aggregate Growth Equity Income Balanced Opportunity Bond Income
Commission Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund
<S> <C> <C> <C> <C> <C> <C> <C>
For the
Year Ended
12/31/96
For the
Year Ended
12/31/95 $9,127 $21,883 $34,430 $4,519 $0 $0 $0
For the
Period
10/3/94* to
12/31/94 $7,691 $23,432 $3,440 $2,106 $0 $0 $0
</TABLE>
____________
* Commencement of operations
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 purposes
of yield quotations in accordance with standardized methods applicable
to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the
purpose of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by
24
<PAGE>
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, 1996, the Funds' yields were as follows:
Income Standby
Balanced Opportunity Bond Income
Fund C Fund C Fund C Fund
1.12% 10.02% 5.21% 4.96%
For the 7-day period ended December 31, 1996, the Standby Income Fund's
yield was 5.01%.
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>
<CAPTION>
AVERAGE Emerging International Growth & Income Standby
ANNUAL TOTAL Growth Equity Income Balanced Opportunity Bond Income
RETURN Fund C Fund C Fund C Fund C Fund C Fund C Fund
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended 12/31/96 16.16% 10.71% 23.45% 20.03% 29.99% 2.22% 4.38%
For the Period
10/3/94*to
12/31/96 17.72% 2.37% 25.67% 18.76% 18.74% 8.07% 5.01%
AGGREGATE
TOTAL RETURN
For the Year
Ended 12/31/96 16.16% 10.71% 23.45% 20.03% 29.99% 2.22% 4.38%
</TABLE>
________________________
* Commencement of operations
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
25
<PAGE>
securities and on 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 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.
26
<PAGE>
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.
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
27
<PAGE>
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. The Trustees and officers
of the Trust and the Portfolio Trust also serve in the same positions with
the Select Advisors Trust A and Select Advisors Variable Insurance Trust.
TRUSTEES OF THE TRUST AND THE PORTFOLIO TRUST
*EDWARD G. HARNESS, JR. (age 48) - Chairman of the Board of Trustees,
President and Chief Executive Officer; Director, President and Chief
Executive Officer, Touchstone Advisors, Inc. (since December, 1993);
Director, Chief Executive Officer, Touchstone Securities, Inc. (since
October, 1991); President, Touchstone Securities, Inc. (since March, 1996);
President, IFS Financial Services, Inc. (since November, 1990); President IFS
Systems Inc. (since August, 1991).
*WILLIAM J. WILLIAMS (age 81) - Trustee; Chairman of the Board of
Directors, The Western and Southern Life Insurance Company (since March,
1984); Chief Executive Officer, The Western and Southern Life Insurance
Company (from March, 1984 to March, 1994). His address is 400 Broadway,
Cincinnati, OH 45202.
JOSEPH S. STERN, JR. (age 79) - Trustee; Retired Professor Emeritus,
College of Business, University of Cincinnati. His address is 3 Grandin
Place, Cincinnati, OH 45208.
PHILLIP R. COX (age 49) - Trustee; President and Chief Executive Officer,
Cox Financial Corp. (since 1972); Director, Federal Reserve Bank of
Cleveland; Director, Cincinnati Bell, Inc.; Director, PNC Bank;
Director, Cinergy Corporation. His address is 105 East Fourth Street,
Cincinnati, OH 45202.
28
<PAGE>
ROBERT E. STAUTBERG (age 62) - Trustee; Retired Partner and Director,
KPMG Peat Marwick; Chairman of the Board of Trustees, Good Samaritan
Hospital. His address is 4815 Drake Road, Cincinnati, OH 45243.
DAVID POLLAK (age 79) - Trustee; President, The Ultimate Distributing
Company (1986 to 1993); Drector Emeritus, Fifth Third Bank. 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 53) - Treasurer; Vice President and Controller,
Touchstone Advisors, Inc. (since December, 1993); Director, Controller,
Touchstone Securities, Inc. (since October, 1991); Vice President and
Comptroller, The Western and Southern Life Insurance Company (since 1987).
His address is 400 Broadway, Cincinnati, OH 45202.
SUSAN C. MOSHER (age 42) - Secretary; Director, Fund Administration -
Legal and Regulatory, Investors Bank (since August, 1995); Associate Counsel,
440 Financial Group of Worcester, Inc. (January, 1993 to August, 1995);
Partner, Gallagher, Callahan & Gartrell, P.A. (prior to September, 1992). Her
address is 89 South Street/ADF29, Boston, MA 02111.
KEVIN M. CONNERTY (age 32) - Assistant Treasurer; Director, Fund
Administration - Reporting and Compliance, Investors Bank (since October,
1992); Assistant Manager of Financial Reporting, The Boston Company (prior to
October, 1992). His address is 89 South Street/ADF29, Boston, MA 02111.
PAUL J. JASINSKI (age 50) - Assistant Treasurer; Managing Director - Fund
Administration, Investors Bank (since July, 1985). His address is 89 South
Street/ADF29, Boston, MA 02111.
BRIAN J. MANLEY (age 33) - Assistant Treasurer; Vice President and Chief
Financial Officer, Touchstone Advisors, Inc. (since December, 1993); Vice
President and Chief Financial Officer, Touchstone Securities, Inc.
Ms. Mosher and Messrs. Connerty and Jasinski also hold similar positions
for other investment companies for which Investors Bank serves as
administrator.
29
<PAGE>
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") pay, 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, plus $1,000, respectively, per meeting attended and
reimburses them for travel and out-of-pocket expenses. For the year ended
December 31, 1996, the Trust incurred $2,884 in Trustee fees and expenses.
For the same period, the Portfolio Trust incurred $15,050 in Trustee fees and
expenses, of which approximately $ was allocated to the Trust.
TRUSTEE COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST AND FUND COMPLEX
NAME OF PERSON AND POSITION FROM TRUST PAID TO TRUSTEES
Joseph S. Stern, Jr.,
Trustee of Trust
and Portfolio Trust $___ $______
Phillip R. Cox, $___ $______
Trustee of Trust
and Portfolio Trust
Robert E. Stautberg, $___ $______
Trustee of Trust
and Portfolio Trust
David Pollak, $___ $______
Trustee of Trust
and Portfolio Trust
As of February 1, 1997, 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).
30
<PAGE>
As of February 4, 1997, (i) Western-Southern Life Assurance Company,
400 Broadway, Cincinnati, Ohio 45202 ("Western Southern") was the record
owner of 74.12%, 82.03% and 51.11% of the outstanding shares of the Emerging
Growth Fund, International Equity Fund and Income Opportunity Fund,
respectively; (ii) Western Southern and J. Philip Carter, as Trustee,
Holiday, Florida 34690 (the "Carter Trust") were the record owners of 12.62%
and 6.31%, respectively, of the Growth & Income Fund; (iii) Western Southern
and the Carter Trust were the record owners of 70.16% and 5.30%,
respectively, of the Balanced Fund; (iv) Western Southern; Mark J. Dominick,
Metairie, Louisiana 70003; State Street Bank and Trust Company ("State
Street"), as custodian for the rollover IRA of Preston Fowlkes, Jr.,
Mechanicsville, Virginia 23116 (the "Fowlkes IRA"); and Germaine Gallagher,
Maple Heights, Ohio 44137, were the record owners of 19.20%, 8.27%, 7.20% and
5.90%, respectively, of the outstanding shares of the Bond Fund; (iv) the
Fowlkes IRA; Ariadne Polanco/Edelmira Riosuthen, Coral Springs, Florida
33067; State Street, as custodian for the rollover IRA of Edmund C. Root,
Oklahoma City, Oklahoma 73122; State Street, as custodian for the rollover
IRA of John D. Mayor, Minnetonka, Minnesota 55343; State Street, as custodian
for the rollover IRA of Barbara P. Mayor, Minnetonka, Minnesota 55343; State
Street, as custodian for the rollover IRA of Elaine Hare, Langhorne,
Pennsylvania 19047; David K. Martin, Signal Mountain, Tennessee 37377; and
John K. Roosa and Helen Roosa, as Trustees, Citrus Springs, Florida 34434,
were the record owners of 8.53%, 7.89%, 7.52%, 7.07%, 6.54%, 6.50%, 5.68%
and 5.45%, respectively, of the outstanding shares of the Standby Income Fund.
ADVISOR, PORTFOLIO ADVISORS, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT 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, a 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 Advisory Agreement
31
<PAGE>
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.
<TABLE>
<CAPTION>
Emerging International Growth & Income Standby
Growth Equity Income Balanced Opportunity Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.75% 0.80% 0.65% 0.55% 0.25%
For the
Year Ended
12/31/96 $35,755 $55,448 $138,167 $24,065 $28,495 $70,808 $15,674
For the
Year Ended
12/31/95 $26,169 $43,963 $94,187 $16,553 $13,479 $62,478 $13,725
For the
Period
10/3/94*
to
12/31/94 $3,865 $11,150 $18,075 $3,365 $3,073 $13,392 $3,066
</TABLE>
____________
* Commencement of operations
For the periods indicated, the Advisor voluntarily agreed to reimburse
each Portfolio the following amounts:
32
<PAGE>
<TABLE>
<CAPTION>
Emerging International Growth & Income Standby
Growth Equity Income Balanced Opportunity Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund
<S> <C> <C> <C> <C> <C> <C> <C>
For the
Year Ended
12/31/96 $54,720 $76,640 $57,911 $59,645 $57,865 $55,817 $114,916
For the
Year Ended
12/31/95 $65,261 $102,137 $37,425 $67,859 $69,419 $42,920 $101,543
For the
Period
10/3/94*
to
12/31/94 $23,152 $16,652 $18,075 $24,761 $24,966 $13,392 $29,765
</TABLE>
____________
* Commencement of operations
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.
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, CUSTODIAN, FUND ACCOUNTING AGENT AND TRANSFER AGENT
Pursuant to Administration and Fund Accounting Agreements, Investors Bank
supervises the overall administration of the Trust, including but not limited
to, accounting, clerical and bookkeeping services; daily calculation of net
asset values; preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations. Investors Bank also
provides persons to serve as officers of the Trust. As custodian, Investors
Bank holds cash, securities and other assets of the Trust.
The Trust's Prospectus contains a description of fees payable to
Investors Bank for its services as administrator, fund accounting agent and
custodian.
Prior to December 1, 1996, Signature Financial Services, Inc.
("Signature") served as administrator and fund accounting agent to the Trust.
The Portfolios and Standby Income Fund incurred the following
administrative and fund accounting fees for the periods indicated:
33
<PAGE>
<TABLE>
<CAPTION>
Emerging International Growth & Income Standby
Growth Equity Income Balanced Opportunity Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended
12/31/96* $56,789 $59,008 $56,966 $59,985 $56,674 $56,716 $24,289
For the Year
Ended
12/31/95 $47,425 $56,773 $46,643 $47,446 $45,723 $47,775 $28,885
For the
Period
10/3/94**to
12/31/94 $9,753 $9,753 $9,753 $9,753 $9,753 $9,753 $6,096
</TABLE>
___________
* Includes administrative and fund accounting fees paid to Signature and to
Investors Bank
** Commencement of operations
Each of the Administration, Fund Accounting and Custodian Agreements
(collectively, the "Agreements") provide that neither Investors Bank nor its
personnel shall be liable for any error of judgment or mistake of law or for
any act or omission, except for wilful misfeasance, bad faith or negligence
(gross negligence in respect of the Custodian Agreement) in the performance
of its or their duties or by reason of disregard (reckless disregard in
respect of the Custodian Agreement) of its or their obligations and duties
under the Agreements.
Each Agreement may not be assigned without the consent of the
non-assigning party, and may be terminated after its Initial Term, with
respect to a Portfolio, without penalty by majority vote of the shareholders
of the Portfolio or by either party on not more than 60 days' written notice.
State Street Bank and Trust Company ("State Street") serves as transfer
agent of the Trust pursuant to a transfer agency agreement. Under its
transfer agency agreement with the Trust, 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.
DISTRIBUTOR
The Trustees of the Trust have adopted a Distribution and Services Plan
(the "Distribution Plan") with respect to each Fund (except the Standby
Income Fund) after having concluded that there was a reasonable likelihood
that the Distribution Plan would benefit each such Fund and its shareholders.
The Distribution Plan is designed to promote sales, thereby increasing the
net assets of the Fund. Such an increase may reduce the expense ratio to the
extent the Fund's fixed costs are spread over a larger net asset base. In
addition, an increase in net assets may lessen the adverse effects that could
result were the Fund required to liquidate portfolio securities to meet
redemptions. Of course, there is no assurance that the net assets of the Fund
will increase or that the other benefits referred to above will be realized.
34
<PAGE>
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 disinterested 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. No disintersted
Trustee has any financial interest in the Distribution Plan or in any related
agreement. The Distributor will preserve copies of any plan, agreement or
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 paid the following fees pursuant to the Distribution Plan for
the periods indicated:
<TABLE>
<CAPTION>
Emerging International Growth & Income
Distribution Growth Equity Income Balanced Opportunity Bond
Fee Fund C Fund C Fund C Fund C Fund C Fund C
<S> <C> <C> <C> <C> <C> <C>
For the
Year Ended
12/31/96 $14,754 $27,806 $7,493 $16,100 $18,778 $5,285
For the
Year Ended
12/31/95 $11,478 $23,027 $1,704 $11,667 $10,240 $1,704
For the
Period
10/3/94*
to 12/31/94 $2,395 $5,822 $41 $2,388 $2,354 $41
</TABLE>
__________________
* Commencement of operations
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 continuous offering of shares of the Trust.
35
<PAGE>
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.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Frost & Jacobs LLP, 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, providing audit
services, tax return preparation and assistance and consultation in
connection with the review of filings with the SEC.
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.
36
<PAGE>
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 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
37
<PAGE>
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To prevent application
of the excise tax, the Fund intends to make its distributions in accordance
with the calendar year distribution requirement.
Each Fund shareholder will 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. 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 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 TAXES. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. It is impossible to determine the
effective rate of foreign tax in advance since the amount of each applicable
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.
38
<PAGE>
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will
be taxable to a U.S. shareholder as ordinary income. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the shareholder has held the
Fund's shares, and are not eligible for the dividends-received deduction.
Shareholders receiving distributions in the form of additional shares, rather
than cash, generally will have a cost basis in each such share equal to the
net asset value of a share of the Fund on the reinvestment date.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions.
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.
39
<PAGE>
FOREIGN WITHHOLDING TAXES
Income received by a Portfolio from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING
A Fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders
and certain other shareholders specified in the Code generally are exempt
from such backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability.
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.
40
<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, 1996
Statement of Operations, for the year ended December 31, 1996
Statement of Changes in Net Assets, for the years ended December 31, 1996 and
December 31, 1995
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
TOUCHSTONE STANDBY INCOME FUND
Schedule of Investments, December 31, 1996
Statement of Assets and Liabilities, December 31, 1996
Statement of Operations, for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended December 31, 1996
and December 31, 1995
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
SELECT ADVISORS PORTFOLIOS
Schedule of Investments, December 31, 1996
Statement of Assets and Liabilities, December 31, 1996
Statement of Operations, for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended December 31, 1996 and
December 31, 1995
Notes to Financial Statements
Supplementary Data
Report of Independent Accountants
41
<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
INVESTMENT ADVISOR OF EACH PORTFOLIO * Touchstone Income Opportunity Fund C
* Touchstone Bond Fund C
Touchstone Advisors, Inc. * Touchstone Standby Income Fund
311 Pike Street
Cincinnati, Ohio 45202
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8518
Boston, Massachusetts 02266-8518
ADMINISTRATOR, CUSTODIAN AND
FUND ACCOUNTING AGENT
Investors Bank & Trust Company STATEMENT OF ADDITIONAL INFORMATION
89 South Street
Boston, Massachusetts 02111 May 1, 1997
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Frost & Jacobs LLP
2500 PNC Center
201 East 5th Street
Cincinnati, Ohio 45202
42
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART B
FOR THE REGISTRANT:
[TO BE FILED BY AMENDMENT]
FOR TOUCHSTONE STANDBY INCOME FUND
[TO BE FILED BY AMENDMENT]
FOR SELECT ADVISORS PORTFOLIOS:
[TO BE FILED BY AMENDMENT]
(b) EXHIBITS:
(1) Amended Declaration of Trust of the Trust.4
(2) By-Laws of the Trust.4
(3) Inapplicable.
<PAGE>
(4) Inapplicable.
(5A) Form of Portfolio Advisory Agreement with respect to
Touchstone Balanced Fund C.5
(5B) Amended Investment Advisory Agreement.5
(6) Distribution Agreement.2
(7) Inapplicable.
(8) Custody Agreement.2
(9A) Administration Agreement.5
(9B) Transfer Agency Agreement.2
(9C) Sponsor Agreement.2
(9D) Amendment No. 1 to the Sponsor Agreement.3
(9E) Fund Accounting Agreement.5
(10) Opinion of counsel.2
(11) Consent of independent accountants.6
(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.5
(27) Financial Data Schedules.6
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.
<PAGE>
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 Incorporated herein by reference from post-effective amendment
No. 2 to the Registration Statement as filed with the SEC on
April 29, 1996.
5 Filed herein.
6 To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE TRUST.
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<S> <C>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS
(as of February 10, 1997)
Emerging Growth Fund C 259
International Equity Fund C 260
Growth & Income Fund C 303
Balanced Fund C 224
Income Opportunity Fund C 296
Bond Fund C 175
Standby Income Fund 93
</TABLE>
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,
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICES POSITION AND OFFICES
NAME WITH TOUCHSTONE WITH THE REGISTRANT
<S> <C> <C>
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 Controller Treasurer
William F. Ledwin* Director none
Donald J. Wuebbling* Director none
Brian Manley Vice President and Assistant Treasurer
Chief Financial Officer
Richard K. Taulbee* Vice President none
Carl A. Ramsey** Vice President none
E. Duane Clay** Vice President none
Patricia Wilson Chief Compliance none
Officer
J. Thomas Lancaster* Treasurer none
Robert F. Morand* Secretary none
</TABLE>
* Principal business address is 400 Broadway, Cincinnati, Ohio 45202.
** 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
(investment advisor)
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(administrator, custodian and fund accounting agent)
<PAGE>
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
Inverstment Company Act of 1940, as amended, the Registrant certifies
that it has duly caused this amendment to its Registration Statement
on Form N-1A (the "Registration Statement") to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 26th day of February, 1997.
SELECT ADVISORS TRUST C
By: /S/SUSAN C. MOSHER
Susan C. Mosher, 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 February 26, 1997.
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: SUSAN C. MOSHER
Susan C. Mosher, as Attorney-in-Fact
pursuant to power of attorney filed herein
<PAGE>
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 26th day of February, 1997.
SELECT ADVISORS PORTFOLIOS
By: /S/SUSAN C. MOSHER
Susan C. Mosher, Secretary
This Registration Statement of Select Advisors Trust C has been signed
below by the following persons in the capacities indicated on February 26,
1997.
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 Select Advisors
William J. Williams Portfolios
JOSEPH S. STERN, JR.* Trustee of Select Advisors
Joseph S. Stern, Jr. Portfolios
PHILLIP R. COX* Trustee of Select Advisors
Phillip R. Cox Portfolios
ROBERT E. STAUTBERG* Trustee of Select Advisors
Robert E. Stautberg Portfolios
EDWARD S. HEENAN* Treasurer (Principal Financial
Edward S. Heenan Officer and Principal Accounting
Officer) of Select Advisors
Portfolios
*By: SUSAN C. MOSHER
Susan C. Mosher, as Attorney-in-Fact
pursuant to power of attorney filed herein
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(5A) Form of Portfolio Advisory Agreement with respect to Touchstone Balanced
Fund C.
(5B) Amended Investment Advisory Agreement.
(9A) Administration Agreement.
(9E) Fund Accounting Agreement.
(17) Powers of Attorney
<PAGE>
Exhibit 5A
PORTFOLIO ADVISORY AGREEMENT
SELECT ADVISORS PORTFOLIOS
BALANCED PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the ____ day of ________,
1997, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the
"Advisor"), and OpCap Advisors, a subsidiary of Oppenheimer Capital
__________, a ______________ (the "Portfolio Advisor").
WHEREAS, the Advisor has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940, as amended, and
has been retained by Select Advisors Portfolios (the "Trust"), a New York
trust organized pursuant to a Declaration of Trust dated February 7, 1994 and
registered as an open-end management investment company under the Investment
Company Act of 1940 (the "1940 Act") to provide investment advisory services
to the Balanced Portfolio (herein the "Portfolio"); and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Portfolio Advisor to furnish
it with portfolio management services in connection with the Advisor's
investment advisory activities on behalf of the Portfolio, and the Portfolio
Advisor is willing to furnish such services to the Advisor and the Portfolio;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Portfolio Advisor. In accordance with and subject
to the Investment Advisory Agreement between the Trust and the Advisor,
attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby
appoints the Portfolio Advisor to manage the investment and reinvestment of
those assets of the Portfolio allocated to it by the Advisor (the "Portfolio
Assets"), subject to the control and direction of the Advisor and the Trust's
Board of Trustees, for the period and on the terms hereinafter set forth.
The Portfolio Advisor hereby accepts such employment and agrees during such
period to render the services and to perform the duties called for by this
Agreement for the compensation herein provided. The Portfolio Advisor shall
at all times maintain its registration as an investment advisor under the
Investment Advisers Act of 1940 and shall otherwise comply in all material
respects with all applicable laws and regulations, both state and federal.
The Portfolio Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether
herein or otherwise), have no authority to act for or represent the Trust in
any way or otherwise be deemed an agent of the Trust or the Portfolio.
<PAGE>
2. Duties of the Portfolio Advisor. The Portfolio Advisor will
provide the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and
reinvestment of the assets of the Portfolio Assets, subject to and in
accordance with the investment objectives, policies and restrictions of
the Portfolio and any directions which the Advisor or the Trust's Board
of Trustees may give from time to time with respect to the Portfolio.
In furtherance of the foregoing, the Portfolio Advisor will make all
determinations with respect to the investment of the assets of the
Portfolio and the purchase and sale of portfolio securities and shall
take such steps as may be necessary or advisable to implement the same
The Portfolio Advisor also will determine the manner in which voting
rights, rights to consent to corporate action and any other rights
pertaining to the portfolio securities will be exercised. The Portfolio
Advisor will render regular reports to the Trust's Board of Trustees, to
the Advisor and to RogersCasey Consulting, Inc. (or such other advisor
or advisors as the Advisor shall engage to assist it in the evaluation
of the performance and activities of the Portfolio Advisor). Such
reports shall be made in such form and manner and with respect to such
matters regarding the Portfolio and the Portfolio Advisor as the Trust,
the Advisor or RogersCasey Consulting, Inc. shall from time to time
request.
b. The Portfolio Advisor shall provide support to the Advisor
with respect to the marketing of the Portfolio, including but not
limited to: (i) permission to use the Portfolio Advisor's name as
provided in Section 5, (ii) permission to use the past performance and
investment history of the Portfolio Advisor as the same is applicable to
the Portfolio, and (iii) access to the individual(s) responsible for
day-to-day management of the Portfolio for marketing conferences,
teleconferences and other activities involving the promotion of the
Portfolio, subject to the reasonable request of the Advisor, (iv)
permission to use biographical and historical data of the Portfolio
Advisor and individual manager(s), and (v) permission to use the names
of clients to which the Portfolio Advisor provides investment management
services, subject to any restrictions imposed by clients on the use of
such names.
c. The Portfolio Advisor will, in the name of the Portfolio, place
orders for the execution of all portfolio transactions in accordance
with the policies with respect thereto set forth in the Trust's
registration statements under the 1940 Act and the Securities Act of
1933, as such registration statements may be in effect from time to
time. In connection with the placement of orders for the execution of
portfolio transactions, the Portfolio Advisor will create and maintain
all necessary brokerage records of the Portfolio in accordance with all
applicable laws, rules and
-2-
<PAGE>
regulations, including but not limited to records required by Section
31(a) of the 1940 Act. All records shall be the property of the Trust
and shall be available for inspection and use by the Securities and
Exchange Commission (the "SEC"), the Trust or any person retained by the
Trust. Where applicable, such records shall be maintained by the Advisor
for the periods and in the places required by Rule 31a-2 under the 1940
Act. When placing orders with brokers and dealers, the Portfolio
Advisor's primary objective shall be to obtain the most favorable price
and execution available for the Portfolio, and in placing such orders
the Portfolio Advisor may consider a number of factors, including,
without limitation, the overall direct net economic result to the
Portfolio (including commissions, which may not be the lowest available
but ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and the
availability of the broker or dealer to stand ready to execute possibly
difficult transactions in the future. The Portfolio Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to pay a broker or dealer who
provides research services to the Portfolio Advisor an amount of
commission for effecting a portfolio transaction in excess of the amount
of commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Portfolio Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided by
such broker or dealer viewed in terms of the particular transaction or
the Portfolio Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Portfolio derives
or will derive a reasonably significant benefit from such research
services. The Portfolio Advisor will present a written report to the
Board of Trustees of the Trust, at least quarterly, indicating total
brokerage expenses, actual or imputed, as well as the services obtained
in consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the
Portfolio Advisor, its investment principals, supervisors or members of
its investment (or comparable) committee, the Portfolio Advisor shall
give the Advisor and the Trust's Board of Trustees written notice of
such reorganization or change within a reasonable time (but not later
than 30 days) after such reorganization or change.
e. The Portfolio Advisor will bear its expenses of providing
services to the Portfolio pursuant to this Agreement except such
expenses as are undertaken by the Advisor or the Trust.
-3-
<PAGE>
f. The Portfolio Advisor will manage the Portfolio Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal Revenue
Code of 1986, as amended.
3. Compensation of the Portfolio Advisor.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Portfolio Advisor, the Advisor will pay to
the Portfolio Advisor a monthly fee equal on an annual basis to 0.60% of
the first $20 million of the average daily net assets of the Combined
Portfolios, 0.50% of the average daily net assets of the Combined
Portfolios in excess of $20 million and up to $50 million; 0.40% of
the average daily net assets of the Combined Portfolios in excess of $50
million and up to $1 billion and 0.375% of the average daily net assets
of the Combined Portfolios in excess of $1 billion.
b. "Combined Portfolios," for purposes of this Section 3, means
the combined assets of the Portfolio and the Balanced Portfolio of the
Select Advisors Variable Trust, to which portfolio the Portfolio Advisor
also acts as investment advisor.
c. The fee of the Portfolio Advisor hereunder shall be computed
and accrued daily. If the Portfolio Advisor serves in such capacity for
less than the whole of any period specified in Section 3a, the fee to
the Portfolio Advisor shall be prorated. For purposes of calculating
the Portfolio Advisor's fee, the daily value of the net assets of the
Combined Portfolios shall be computed by the same method as the Trust
and the Select Advisors Variable Insurance Trust use, respectively, to
compute the net asset value of each such Portfolio for purposes of
purchases and redemptions of interests thereof.
d. The Portfolio Advisor reserves the right to waive all or a
part of its fees hereunder.
4. Activities of the Portfolio Advisor. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio Advisor will
report to the Board of Trustees of the Trust (at regular quarterly meetings
and at such other times as such Board of Trustees reasonably shall request)
(i) the financial condition and prospects of the Portfolio Advisor, (ii) the
nature and amount of transactions affecting the Portfolio that involve the
Portfolio Advisor and affiliates of the Portfolio Advisor, (iii) information
regarding any potential conflicts of interest arising by reason of its
continuing provision of advisory
-4-
<PAGE>
services to the Portfolio and to its other accounts, and (iv) such other
information as the Board of Trustees shall reasonably request regarding the
Portfolio, the Portfolio's performance, the services provided by the
Portfolio Advisor to the Portfolio as compared to its other accounts and the
plans of, and the capability of, the Portfolio Advisor with respect to
providing future services to the Portfolio and its other accounts. At least
annually, the Portfolio Advisor shall report to the Trustees the total number
and type of such other accounts and the approximate total asset value thereof
(but not the identities of the beneficial owners of such accounts). The
Portfolio Advisor agrees to submit to the Trust a statement defining its
policies with respect to the allocation of business among the Portfolio and
its other clients.
It is understood that the Portfolio Advisor may become interested in
the Trust as an interest holder or otherwise.
The Portfolio Advisor has supplied to the Advisor and the Trust copies of
its Form ADV with all exhibits and attachments thereto (including the
Portfolio Advisor's statement of financial condition) and will hereafter
supply to the Advisor, promptly upon the preparation thereof, copies of all
amendments or restatements of such document.
5. Use of Names. Neither the Advisor nor the Trust shall use the name
of the Portfolio Advisor in any prospectus, sales literature or other
material relating to the Advisor or the Trust in any manner not approved in
advance by the Portfolio Advisor; provided, however, that the Portfolio
Advisor will approve all uses of its name which merely refer in accurate
terms to its appointment hereunder or which are required by the SEC or a
state securities commission; and provided further, that in no event shall
such approval be unreasonably withheld. The Portfolio Advisor shall not use
the name of the Advisor or the Trust in any material relating to the
Portfolio Advisor in any manner not approved in advance by the Advisor or the
Trust, as the case may be; provided, however, that the Advisor and the Trust
shall each approve all uses of their respective names which merely refer in
accurate terms to the appointment of the Portfolio Advisor hereunder or which
are required by the SEC or a state securities commission; and, provided
further, that in no event shall such approval be unreasonably withheld.
6. Limitation of Liability of the Portfolio Advisor. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of
obligations or duties hereunder on the part of the Portfolio Advisor, the
Portfolio Advisor shall not be subject to liability to the Advisor, the Trust
or to any holder of an interest in the Portfolio for any act or omission in
the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
security. As used in this Section 6, the term "Portfolio Advisor" shall
include the Portfolio Advisor and/or any of
-5-
<PAGE>
its affiliates and the directors, officers and employees of the
Portfolio Advisor and/or any of its affiliates.
7. Limitation of Trust's Liability. The Portfolio Advisor
acknowledges that it has received notice of and accepts the limitations upon
the Trust's liability set forth in its Declaration of Trust. The Portfolio
Advisor agrees that (i) the Trust's obligations to the Portfolio Advisor
under this Agreement (or indirectly under the Advisory Agreement) shall be
limited, in any event to the assets of the Portfolio and (ii) the Portfolio
Advisor shall not seek satisfaction of any such obligation from the holders
of interests in the Portfolio nor from any Trustee, officer, employee or
agent of the Trust.
8. Force Majeure. The Portfolio Advisor shall not be liable for delays
or errors occurring by reason of circumstances beyond its control, including
but not limited to acts of civil or military authority, national emergencies,
work stoppages, fire, flood, catastrophe, acts of God, insurrection, war,
riot, or failure of communication or power supply. In the event of equipment
breakdowns beyond its control, the Portfolio Advisor shall take reasonable
steps to minimize service interruptions but shall have no liability with
respect thereto.
9. Renewal, Termination and Amendment.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, for a period of 12 months from the
date hereof; and it shall continue thereafter provided that such
continuance is specifically approved by the parties and, in addition, at
least annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Portfolio or by
vote of a majority of the Trust's Board of Trustees and (ii) by the vote
of a majority of the Trustees who are not parties to this Agreement or
interested persons of either the Advisor or the Portfolio Advisor, cast
in person at a meeting called for the purpose of voting on such
approval.
b. This Agreement may be terminated at any time, without payment
of any penalty, (i) by the Advisor, by the Trust's Board of Trustees or
by a vote of the majority of the outstanding voting securities of the
Portfolio, in any such case upon not less than 60 days' prior written
notice to the Portfolio Advisor and (ii) by the Portfolio Advisor upon
not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable
-6-
<PAGE>
SEC rules and regulations, a vote of the majority of the outstanding
voting securities of the Portfolio affected by such change.
d. The terms "assignment," "interested persons" and "majority" of
the outstanding voting securities" shall have the meaning set forth for
such terms in the 1940 Act.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid,
to the other party at such address as such other party may designate in
accordance with this paragraph for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of the Trust and
that of the Advisor for this purpose shall be 311 Pike Street, Cincinnati,
Ohio 45202 and that the address of the Portfolio Advisor shall be
_______________, _________________.
12. Miscellaneous. Each party agrees to perform such further actions and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement
are included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
BY _____________________________
Edward G. Harness, Jr.
President
Attest:
_________________________
Secretary
-7-
<PAGE>
OPPENHEIMER CAPITAL _____________
BY _____________________________
Name, President
Attest:
_________________________
Secretary
-9-
<PAGE>
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of ________________, 1994, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
SELECT ADVISORS PORTFOLIOS, a New York master trust created pursuant to a
Declaration of Trust dated February 7, 1994, as amended from time to time (the
"Trust").
WHEREAS, the Trust is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended, (the "1940
Act"); and
WHEREAS, interests in the Trust are divided into separate subtrusts (each,
along with any subtrust which may in the future be established, a "Portfolio");
and
WHEREAS, the Trust desires to avail itself of the services, information,
advice, assistance and facilities of an investment advisor and to have an
investment advisor perform for it various investment advisory and research
services and other management services; and
WHEREAS, the Advisor is an investment Advisor registered under the
Investment Advisers Act of 1940, as amended, and desires to provide investment
advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set
forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. The Trust hereby employs the Advisor to
manage the investment and reinvestment of the assets of each Portfolio subject
to the control and direction of the Trust's Board of Trustees, for the period on
the terms hereinafter set forth. The Advisor hereby accepts such employment and
agrees during such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The Advisor shall for
all purposes herein be deemed to be independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
2. OBLIGATIONS AND SERVICES TO BE PROVIDED BY THE ADVISOR. In providing
the services and assuming the obligations set forth herein, the Advisor may, at
its expense, employ one or more subadvisors for any Portfolio. Any agreement
between the Advisor and a subadvisor shall be subject to the renewal,
termination and amendment provisions of paragraph 10 hereof. The Advisor
undertakes to provide the following services and to assume the following
obligations:
<PAGE>
a) The Advisor will manage the investment and reinvestment of the
assets of each Portfolio, subject to and in accordance with the
respective investment objectives and policies of each Portfolio
and any directions which the Trust's Board of Trustees may issue
from time to time. In pursuance of the foregoing, the Advisor
may engage separate investment advisors ("Portfolio Advisor(s)")
to make all determinations with respect to the investment of the
assets of each Portfolio, to effect the purchase and sale of
portfolio securities and to take such steps as may be necessary
to implement the same. Such determination and services by each
Portfolio Advisor shall also include determining the manner in
which voting rights, rights to consent to corporate action and
any other rights pertaining to the portfolio securities shall be
exercised. The Advisor shall, and shall cause each Portfolio
Advisor to, render regular reports to the Trust's Board of
Trustees concerning the Trust's and each Portfolio's investment
activities.
b) The Advisor shall, or shall cause the respective Portfolio
Advisor(s) to place orders for the execution of all portfolio
transactions, in the name of the respective Portfolio and in
accordance with the policies with respect thereto set forth in
the Trust's registration statements under the 1940 Act and the
Securities Act of 1933, as such registration statements may be
amended from time to time. In connection with the placement of
orders for the execution of portfolio transactions, the Advisor
shall create and maintain (or cause the Portfolio Advisors to
create and maintain) all necessary brokerage records for each
Portfolio, which records shall comply with all applicable laws,
rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act. All records shall be
the property of the Trust and shall be available for inspection
and use by the Securities and Exchange Commission (the "SEC"),
the Trust or any person retained by the Trust. Where applicable,
such records shall be maintained by the Advisor (or Portfolio
Advisor) for the periods and in the places required by Rule
31a-02 under the 1940 Act.
c. In the event of any reorganization or other change in the
Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Advisor shall give the
Trust's Board of Trustees written notice of such reorganization
or change within a reasonable time (but not later than 30 days)
after such reorganization or change.
d) The Advisor shall bear its expenses of providing services to the
Trust pursuant to this Agreement except such expenses as are
2
<PAGE>
undertaken by the Trust. In addition, the Advisor shall pay the
salaries and fees, if any, of all Trustees, officers and
employees of the Trust who are affiliated persons, as defined in
Section 2(a)(3) of the 1940 Act, of the Advisor.
e) The Advisor will manage, or will cause the Portfolio Advisors to
manage, the Portfolio Assets and the investment and reinvestment
of such assets so as to comply with the provisions of the 1940
Act and with Subchapter M of the Internal Revenue Code of 1986,
as amended.
3. EXPENSES. The Trust shall pay the expenses of its operation, including
but not limited to (i) charges and expenses for Trust accounting, pricing and
appraisal services and related overhead, (ii) the charges and expenses of the
Portfolio's auditor's; (iii) the charges and expenses of any custodian, transfer
agent, plan agent, dividend disbursing agent and registrar appointed by the
Trust with respect to the Portfolios; (iv) brokers' commissions, and issue and
transfer taxes, chargeable to the Trust in connection with securities
transactions to which the Trust is a party; (v) insurance premiums, interest
charges, dues and fees for Trust membership in trade associations and all taxes
and fees payable by the Trust to federal, state or other governmental agencies;
(vi) fees and expenses involved in registering and maintaining registrations of
the Trust and/or interests in the Trust with the SEC, state or blue sky
securities agencies and foreign countries, including the preparation of
Prospectuses and Statements of Additional Information for filing with the SEC;
(vii) all expenses of meetings of Trustees and of interest holders of the Trust
and of preparing, printing and distributing prospectuses, notices, proxy
statements and all reports to shareholders and to governmental agencies; (viii)
charges and expenses of legal counsel to the Trust; (ix) compensation of
Trustees of the Trust; (x) the cost of preparing and printing share
certificates; and (xi) interest on borrowed money, if any.
4. COMPENSATION OF THE ADVISOR.
a) As compensation for the services rendered and obligations assumed
hereunder by the Advisor, the Trust shall pay to the Advisor
monthly a fee that is equal on an annual basis to that percentage
of the average daily net assets of each Portfolio set forth on
Schedule 1 attached hereto (and with respect to any future
Portfolio, such percentage as the Trust and the Advisor may agree
to from time to time). Such fee shall be computed and accrued
daily. If the Advisor serves as investment advisor for less than
the whole of any period specified in this Section 4a, the
compensation to the Advisor shall be prorated. For purposes of
calculating the Advisor's fee, the daily value of each
Portfolio's net assets shall be computed by the same method as
the Trust uses to compute the net asset value of that Portfolio.
3
<PAGE>
b) The Advisor will pay all fees owing to each Portfolio Advisor,
and the Trust shall not be obligated to the Portfolio Advisors in
any manner with respect to the compensation of such Portfolio
Advisors.
c) The Advisor reserves the right to waive all or a part of its fee.
5. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. It is understood that the Trustees and
officers of the Trust are or may become interested in the Advisor as
stockholders, officers or otherwise, and that stockholders and officers of the
Advisor are or may become similarly interested in the Trust, and that the
Advisor may become interested in the Trust as a shareholder or otherwise.
6. USE OF NAMES. The Trust will not use the name of the Advisor in any
prospectus, sales literature or other material relating to the Trust in any
manner not approved prior thereto by the Advisor; except that the Trust may use
such name in any document which merely refers in accurate terms to its
appointment hereunder or in any situation which is required by the SEC or a
state securities commission; and provided further, that in no event shall such
approval be unreasonably withheld. The Advisor will not use the name of the
Trust in any material relating to the Advisor in any manner not approved prior
thereto by the Trust; except that the Advisor may use such name in any document
which merely refers in accurate terms to the appointment of the Advisor
hereunder or in any situation which is required by the SEC or a state securities
commission. In all other cases, the parties may use such names to the extent
that the use is approved by the party named, it being agreed that in no event
shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that, in consideration of the
Advisor's assumption of certain organization expenses of the Trust and of the
various Portfolios, the Advisor has reserved for itself the rights to the name
"Select Advisors Portfolios" (or any similar names) and that use by the Trust of
such name shall continue only with the continuing consent of the Advisor, which
consent may be withdrawn at any time, effective immediately, upon written notice
thereof to the Trust.
7. LIMITATION OF LIABILITY OF THE ADVISOR.
a. Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of the
Advisor, the Advisor shall not be subject to liability to the Trust or to
any holder of an interest in any Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
security. As used in this Section 7, the term "Advisor" shall
4
<PAGE>
include Touchstone Advisors, Inc. and/or any of its affiliates and the
directors, officers and employees of Touchstone Advisors, Inc. and/or of
its affiliates.
b. The Trust will indemnify the Advisor against, and hold it harmless
from, any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from acts or
omissions of the Trust. Indemnification shall be made only after: (i) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the Trust was liable for the damages claimed
or (ii) in the absence of such a decision, a reasonable determination
based upon a review of the facts, that the Trust was liable for the
damages claimed, which determination shall be made by either (a) the vote
of a majority of a quorum of Trustees of the Trust who are neither
"interested persons" of the Trust nor parties to the proceeding
("disinterested non-party Trustees") or (b) an independent legal counsel
satisfactory to the parties hereto, whose determination shall be set
forth in a written opinion. The Advisor shall be entitled to advances
from the Trust for payment of the reasonable expenses incurred by it in
connection with the matter as to which it is seeking indemnification in
the manner and to the fullest extent that would be permissible under the
applicable provisions of the General Corporation Law of Ohio. The
Advisor shall provide to the Trust a written affirmation of its good
faith belief that the standard of conduct necessary for indemnification
under such law has been met and a written undertaking to repay any such
advance if it should ultimately be determined that the standard of
conduct has not been met. In addition, at least one of the following
additional conditions shall be met: (a) the Advisor shall provide
security in form and amount acceptable to the Trust for its undertaking;
(b) the Trust is insured against losses arising by reason of the advance;
or (c) a majority of a quorum of the Trustees of the Trust, the members
of which majority are disinterested non-party Trustees, or independent
legal counsel in a written opinion, shall have determined, based on a
review of facts readily available to the Trust at the time the advance is
proposed to be made, that there is reason to believe that the Advisor
will ultimately be found to be entitled to indemnification.
8. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder in any case shall be limited to the Trust and to its
assets and that the Advisor shall not seek satisfaction of any such obligation
from the holders of the interests in any Portfolio nor from any Trustee,
officer, employee or agent of the Trust.
9. FORCE MAJEURE. The Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Advisor shall take
5
<PAGE>
reasonable steps to minimize service interruptions but shall have no liability
with respect thereto.
6
<PAGE>
10. RENEWAL, TERMINATION AND AMENDMENT.
a) This Agreement shall continue in effect, unless sooner terminated
as hereinafter provided, for a period of twelve months from the
date hereof and it shall continue indefinitely thereafter as to
each Portfolio, provided that such continuance is specifically
approved by the parties hereto and, in addition, at least
annually by (i) the vote of holders of a majority of the
outstanding voting securities of the affected Portfolio or by
vote of a majority of the Trust's Board of Trustees and (ii) by
the vote of a majority of the Trustees who are not parties to
this Agreement or interested persons of the Advisor, cast in
person at a meeting called for the purpose of voting on such
approval.
b) This Agreement may be terminated at any time, with respect to any
Portfolio(s), without payment of any penalty, by the Trust's
Board of Trustees or by a vote of the majority of the outstanding
voting securities of the affected Portfolio(s) upon 60 days'
prior written notice to the Advisor and by the Advisor upon 60
days' prior written notice to the Trust.
c) This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of any Portfolio
affected by such change. This Agreement shall terminate
automatically in the event of its assignment.
d) The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
11. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
12. MISCELLANEOUS. Each party agrees to perform such further actions and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions, in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered inn their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
Pursuant to the Trust's Declaration of Trust, dated as of February 7, 1994, the
obligations of this Agreement are not binding upon any of the Trustees or
interestholders of the Trust individually, but bind only the Trust estate.
SELECT ADVISORS PORTFOLIOS
By _____________________________________
Edward G. Harness, Jr., President
Attest:
__________________________________
TOUCHSTONE ADVISORS, INC.
By _____________________________________
Jill T. McGruder, Vice President
Attest:
__________________________________
8
<PAGE>
Amendment No. 1
Investment Advisory Agreement
This Amendment No. 1 to Investment Advisory Agreement is dated as of May
1, 1997 and amends the Investment Advisory Agreement (the "Advisory
Agreement") dated September 9, 1994 made by and between Touchstone Advisors,
Inc., an Ohio corporation (the "Advisor"), and Select Advisors Portfolios, a
New York master trust created pursuant to a Declaration of Trust dated
February 7, 1994 (the "Trust").
WHEREAS, the Advisor acts as investment advisor to the Trust pursuant to
the Advisory Agreement; and in such capacity the Advisor has engaged separate
portfolio advisors for each of the Trust's portfolios; and
WHEREAS, the Trust, by its Board of Trustees, has taken action to
terminate the Trust's Municipal Bond Portfolio and the Portfolio Advisory
Agreement, dated September 9, 1994, presently in effect between the Advisor
and Neuberger & Berman, Portfolio Advisor to such portfolio, each as of the
close of business on April 30, 1997; and
WHEREAS, such Board of Trustees also has taken action to terminate
Portfolio Advisory Agreements presently in effect between the Advisor and
Harbor Capital Management Company, Inc. ("Harbor Capital") and Morgan
Grenfell Capital Management, Inc. ("Morgan Grenfell"), each such Portfolio
Advisory Agreement being dated as of September 9, 1994; and
WHEREAS, such Board of Trustees also has taken action to enter into a
Portfolio Advisory Agreement with Op Cap Advisors, a subsidiary of
Oppenheimer Capital, a registered investment advisor, under which Op Cap
Advisors will act as Portfolio Advisor to the Trust's Balanced Portfolio,
replacing Harbor Capital and Morgan Grenfell; and
WHEREAS, the advisory fees to be paid to Op Cap Advisors under such
Portfolio Advisory Agreement will be higher than the fees currently being
paid to Harbor Capital and Morgan Grenfell under their Portfolio Advisor
Agreements; and
WHEREAS, the trust is agreeable to an increase in the fees being paid
under the Advisory Agreement sufficient to offset the increase in fees to be
paid to Op Cap Advisors, having found that such increased fees are comparable
to the average fees being paid to advisors of balanced portfolios generally.
NOW, THEREFORE, Schedule 1 to the Advisory Agreement is hereby amended,
effective as of the close of business on April 30, 1997, to read as set forth
in Exhibit A to this Amendment, the only changes in such Schedule being an
increase in the advisory fees to be paid by the Balanced Portfolio, from
0.70% to 0.80% of average daily net assets, and the deletion of the Municipal
Bond Portfolio. <PAGE>
IN WITNESS WHEREOF, the parties have caused this
Amendment to be executed and delivered in their names and on their behalf as
of the day and year first above written.
SELECT ADVISORS PORTFOLIO
By:_________________________________
Edward G. Harness, Jr., President
TOUCHSTONE ADVISORS INC.
By:________________________________
<PAGE>
Exhibit A to Amendment No 1 to
Advisory Agreement
SCHEDULE 1
Emerging Growth Portfolio 0.80%
International Equity Portfolio 0.95%
Growth & Income Portfolio 0.75%
Growth & Income Portfolio II 0.75%
Balanced Portfolio 0.80%
Income Opportunity 0.65%
Bond Portfolio 0.55%
Bond Portfolio II 0.55%
<PAGE>
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of December __, 1996 by and
between SELECT ADVISORS TRUST C, a Massachusetts business trust (the "Fund"),
and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company ("Investors
Bank").
WHEREAS, the Fund is registered as a management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act") consisting of
separate portfolios; and
WHEREAS, the Fund desires to retain Investors Bank to render certain
administrative services to the Fund and Investors Bank is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Investors Bank to provide
administration and processing services for and on behalf of the Fund on the
terms set forth in this Agreement. Investors Bank accepts such appointment and
agrees to render the services herein set forth for the compensation herein
provided.
2. DELIVERY OF DOCUMENTS. The Fund has furnished Investors Bank with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of Investors Bank to provide certain administrative services to the
Fund and approving this Agreement;
(b) The Fund's Declaration of Trust filed with the Commonwealth of
Massachusetts on March 11, 1994 and all amendments thereto (the "Declaration");
(c) The Fund's by-laws and all amendments thereto (the "By-Laws");
(d) The Fund's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory agreements, custody
agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(e) The Fund's most recent Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the 1940
Act and all amendments thereto; and
(f) The Fund's most recent prospectus and statement of additional
information (together, the "Prospectus"); and
(g) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for Investors Bank in the proper performance of
its duties hereunder.
The Fund will immediately furnish Investors Bank with copies of all
amendments of or supplements to the foregoing. Furthermore, the Fund will
notify Investors Bank as soon as possible of any matter which may materially
affect the performance by Investors Bank of its services under this Agreement.
<PAGE>
2
3. DUTIES OF INVESTORS BANK. Subject to the supervision and direction of
the Board of Trustees of the Fund, Investors Bank will (i) supervise the overall
administration of the Fund, (ii) prepare and, if applicable, file all documents
required for compliance by the Fund with applicable laws and regulations, and
(iii) provide monitoring reports and assistance reasonably required for the
Fund's compliance with federal securities and tax laws, including the 1940 Act
and Subchapter M of the Internal Revenue Code of 1986, as amended. Pursuant to
such obligations, Investors Bank will perform the services described in APPENDIX
1 hereto. Investors Bank may, from time to time, perform additional duties and
functions which shall be set forth in an amendment to such APPENDIX 1 executed
by both parties. At such time, the fee schedule included in APPENDIX 2 hereto
shall be appropriately amended, by written amendment thereto executed by both
parties.
In performing all services under this Agreement, Investors Bank shall
act in conformity with the Fund's Declaration and By-Laws and the 1940 Act, as
the same may be amended from time to time, and the investment objectives,
investment policies and other practices and policies set forth in the Fund's
Registration Statement, as the same may be amended from time to time.
Notwithstanding any item discussed herein, Investors Bank has no responsibility
for the rendering of investment advice to the Fund nor for the choice of its
investments.
4. DUTIES OF THE FUND.
(a) The Fund is solely responsible (through its transfer agent or
otherwise) for (i) providing timely and accurate reports ("Daily Sales Reports")
which will enable Investors Bank to monitor the total number of shares sold in
each state on a daily basis and (ii) identifying any exempt transactions
("Exempt Transactions") which are to be excluded from the Daily Sales Reports.
(b) The Fund agrees to make its legal counsel available to Investors
Bank for advice with respect to any matter of law arising in connection with
Investors Bank's duties hereunder, and the Fund further agrees that Investors
Bank shall be entitled to rely on such advice without further investigation on
the part of Investors Bank. Investors Bank will not consult with such counsel
on matters relating to the interpretation, construction or enforceability of
this Agreement or any part hereof.
5. FEES AND EXPENSES.
(a) For the services to be rendered and the facilities to be
furnished by Investors Bank, as provided for in this Agreement, the Fund will
compensate Investors Bank in accordance with the fee schedule attached as
APPENDIX 2 hereto. Such fees do not include out-of-pocket disbursements (as
delineated on the fee schedule or approved in advance by the Fund's management)
of Investors Bank for which Investors Bank shall be entitled to bill the Fund
separately and for which the Fund shall reimburse Investors Bank.
(b) Investors Bank shall not be required to pay any expenses incurred
by the Fund.
6. LIMITATION OF LIABILITY.
(a) Investors Bank, its directors, officers, employees and agents
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of its obligations and
duties under this Agreement, except in respect of an error, mistake or loss
resulting from willful misfeasance, bad faith or negligence in the performance
of such obligations and duties, or by reason of its disregard thereof or a
material breach of the provisions hereof.
(b) The Fund will indemnify Investors Bank, its directors, officers,
employees and agents against and hold it and them harmless from any and all
losses, claims, damages, liabilities or expenses (including legal fees and
expenses) resulting from any claim, demand, action or suit (i) arising
<PAGE>
3
out of the actions or omissions of the Fund, including, but not limited to,
inaccurate Daily Sales Reports and misidentification of Exempt Transactions;
(ii) arising out of the offer or sale of any securities of the Fund in
violation of (x) any requirement under the federal securities laws or
regulations, (y) any requirement under the securities laws or regulations of
any state, or (z) any stop order or other determination or ruling by any
federal or state agency with respect to the offer or sale of such securities;
or (iii) not resulting from the willful misfeasance, bad faith or negligence
of Investors Bank in the performance of such obligations and duties or by
reason of its disregard thereof or a material breach of the provisions
hereof.
(c) Investors Bank may apply to the Fund at any time for instructions
and may consult counsel for the Fund (except as to matters where the interests
of the Fund and Investors Bank, in the opinion of such counsel, differ), or its
own counsel, knowledgeable in the field, and with accountants and other experts
with respect to any matter arising in connection with its duties hereunder, and
Investors Bank shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction, or with the
opinion of such counsel, accountants, or other experts. Investors Bank shall
not be liable for any act or omission taken or not taken in reliance upon any
document, certificate or instrument which it reasonably believes to be genuine
and to be signed or presented by any person or persons duly authorized by the
Fund (as set forth in a certificate duly executed by an officer of the Fund).
Investors Bank shall not be held to have notice of any change of authority of
any officers, employees, or agents of the Fund until receipt of written notice
thereof has been received by Investors Bank from the Fund.
(d) In the event Investors Bank is unable to perform, or is
delayed in performing, its obligations under the terms of this Agreement
because of acts of God, strikes, legal constraint, government actions, war,
emergency conditions, interruption of electrical power or other utilities,
equipment or transmission failure or damage reasonably beyond its control or
other causes reasonably beyond its control, Investors Bank shall not be
liable to the Fund for any damages resulting from such failure to perform,
delay in performance, or otherwise that is attributable to such causes.
(e) Investors Bank acknowledges that the portfolios comprising the
Fund are organized under a two-tier financial services structure, known as
the Hub & Spoke-Registered Trademark-(1) structure, under and pursuant to a
certain Hub & Spoke License and Service Agreement dated December 14, 1993
(the "License Agreement"), by and between the Fund's adviser, Touchstone
Advisors, Inc., and Signature Financial Group, Inc. ("Signature"). As a
material inducement to the Fund to enter into this Agreement, Investors Bank
hereby warrants and represents that Investors Bank is a duly licensed and
authorized third party Hub & Spoke processing agent of Signature, and is duly
licensed and authorized by Signature to provide Hub & Spoke processing and
administration services to, for and on behalf of the Fund and its portfolios
in accordance with the terms of this Agreement; and further, that no consent,
which has not already been obtained in writing by Investors Bank, is required
by Touchstone Securities, Inc., or by either party to this Agreement from
Signature in order for Investors Bank to provide Hub & Spoke processing and
administration services, for and on behalf of the Fund and its portfolios.
(f) Investors Bank will indemnify the Fund, its trustees,
officers, employees and agents against and hold them harmless from any and
all losses, claims, damages, liabilities or expenses (including legal fees
and related expenses) resulting from any claim, demand, action or suit (i)
arising out of Investors Bank's failure to obtain and maintain in effect all
licenses rights and permissions (all without cost to the Fund for so long as
the Fund remains a party to the License Agreement and the License Agreement
remains in full force and effect) required to enable it to use, to the full
extent necessary for the performance of its duties and obligations under this
Agreement, all intellectual property belonging to Signature Financial
Services, Inc. and its affiliates that relates to the Hub & Spoke structure
and related fund accounting and administration and the software and processes
associated therewith and (ii) resulting from the willful misfeasance, bad
faith or negligence of Investors Bank in the performance
_____________________________
(1) Hub & Spoke is a registered service mark of Signature Financial Group, Inc.
<PAGE>
4
of its duties and obligations under this Agreement or from its disregard
thereof, or a material breach of the provisions hereof.
(g) In no event shall Investors Bank be liable for special,
incidental or consequential damages, even if advised of the possibility of
such damages.
7. TERMINATION OF AGREEMENT.
(a) The term of this Agreement shall be eighteen months commencing
upon the date hereof (the "Initial Term"), unless earlier terminated as
provided herein. After the expiration of the Initial Term, the term of this
Agreement shall automatically renew for successive one-year terms (each a
"Renewal Term") unless notice of non-renewal is delivered by the non-renewing
party to the other party no later than sixty days prior to the expiration of
the Initial Term or any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the violating party does
not cure such violation within 60 days of receipt of written notice from the
non-violating party of such violation.
(ii) Either party may terminate this Agreement during any
Renewal Term upon sixty days written notice to the other party. Any
termination pursuant to this paragraph 7(a)(ii) shall be effective upon
expiration of such sixty days, provided, however, that the effective date of
such termination may be postponed, at the request of the Fund, to a date not
more than ninety days after delivery of the written notice in order to give
the Fund an opportunity to make suitable arrangements for a successor
administrator.
(iii) If the Fund determines at any time to cease using the
Hub & Spoke structure in the conduct of its business, whether it changes to a
master-feeder, multiple class or other structure, the Fund may terminate this
Agreement if, after the Fund gives Investors Bank at least 30 days prior
written notice of such change, the parties, after making diligent and good
faith efforts, are unable to agree to amendments to this Agreement that are
reasonable and fair to both parties under the circumstances, such termination
to be effective 90 days after the delivery of such prior written notice.
(iv) The Fund may terminate this Agreement if and at such
time as a court of competent jurisdiction either (A) finds, after the
exhaustion of all appeals, that the performance by Investors Bank of the
services called for by this Agreement or the engagement by the Fund of
Investors Bank to perform such services infringes the intellectual property
rights of Signature Financial Services, Inc., or any affiliate thereof, in
any manner whatsoever, or (B) enjoins or restrains the performance by
Investors Bank of the services called for by this Agreement.
(v) The Fund may terminate this Agreement if and at such time
as any of the administration agreements between Investors Bank and Select
Advisors Trust A, Select Advisors Portfolio or Select Advisors Variable
Insurance Trust are terminated due to a material violation of the terms of
any such administration agreement by Investors Bank.
(b) At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of Investors
Bank relating to its performance of its duties hereunder.
8. MISCELLANEOUS.
<PAGE>
5
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or Investors Bank shall be
sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Fund: Select Advisors Trust C
311 Pike Street
Cincinnati, OH 45202
Attention: Edward G. Harness, Jr.
To Investors Bank: Investors Bank & Trust Company
89 South Street
Boston, MA 02111
Attention: Carol Lowd
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written
consent of the other party.
(c) This Agreement shall be construed in accordance with the laws
of the Commonwealth of Massachusetts, without regard to its conflict of laws
provisions.
(d) This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which collectively shall
be deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
9. CONFIDENTIALITY. All books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required in the performance of duties hereunder or
as otherwise required by law.
10. USE OF NAME. The Fund shall not use the name of Investors Bank or
any of its affiliates in any prospectus, sales literature or other material
relating to the Fund in a manner not approved by Investors Bank prior thereto
in writing; provided however, that the approval of Investors Bank shall not
be required for any use of its name which merely refers in accurate and
factual terms to its appointment hereunder or which is required by the
Securities and Exchange Commission or any state securities authority or any
other appropriate regulatory, governmental or judicial authority; PROVIDED
FURTHER, that in no event shall such approval be unreasonably withheld or
delayed.
11. LIMITATION OF LIABILITY. Investors Bank is hereby expressly put on
notice of the limitation of liability set forth in the Declaration of Trust
of the Fund and agrees that the obligations assumed by the Fund hereunder
shall be limited in all cases to the assets of the Fund and that Investors
Bank shall not seek satisfaction of any such obligation from the officers,
agents, employees, trustees, or shareholders of the Fund.
12. SEVERAL OBLIGATIONS OF THE PORTFOLIOS. This Agreement is an
agreement entered into between Investors Bank and the Fund with respect to
each Portfolio. With respect to any obligation of the Fund
<PAGE>
6
on behalf of any Portfolio arising out of this Agreement, Investors Bank
shall look for payment or satisfaction of such obligation solely to the
assets of the Portfolio to which such obligation relates as though Investors
Bank had separately contracted with the Fund by separate written instrument
with respect to each Portfolio.
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
SELECT ADVISORS TRUST C
By:
-----------------------------
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
-----------------------------
Name:
Title:
<PAGE>
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 1st day of December, 1996, between Select
Advisors Trust C, a Massachusetts business trust (the "Fund") and Investors
Bank & Trust Company ("IBT").
The Fund, an open-end management investment company, on behalf of the
portfolios listed on APPENDIX A hereto, desires to retain IBT to perform
certain fund accounting services for the Fund, and IBT has indicated its
willingness to so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
1.1 AUTHORIZED PERSON. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 1.4 hereof.
1.2 BOARD. Board will mean the Board of Trustees of the Fund, as the
case may be.
1.3 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
1.4 PROPER INSTRUCTIONS. Proper Instructions shall mean instructions
(which may be continuing instructions) regarding matters signed or initialed
by an Authorized Person. Oral instructions will be considered Proper
Instructions if IBT reasonably believes them to have been given by an
Authorized Person. The Fund shall cause all oral instructions to be promptly
confirmed in writing. IBT shall act upon and comply with any subsequent
Proper Instruction which modifies a prior instruction and the sole obligation
of IBT with respect to any follow-up or confirmatory instruction shall be to
make reasonable efforts to detect any discrepancy between the original
instruction and such confirmation and to report such discrepancy to the Fund.
The Fund shall be responsible, at the Fund's expense, for taking any action,
including any reprocessing, necessary to correct any such discrepancy or
error, and to the extent such action requires IBT to act, the Fund shall give
IBT specific Proper Instructions as to the action required. Upon receipt by
IBT of an Officers' Certificate as to the authorization by the Board
accompanied by a detailed description of procedures approved by the Fund,
Proper Instructions may include communication effected directly between
electro-mechanical or electronic devices provided that the Board and IBT
agree in writing that such procedures afford adequate safeguards for the
Fund's assets.
2. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with IBT his or her
certification to IBT, in such form as may be acceptable to IBT, of (i) the
names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any
change in the information set forth in the most recent certification on file
(including without limitation any person named in the most recent
certification who is no longer an Authorized Person as designated therein),
the Secretary or Assistant Secretary of the Fund will sign a new or amended
certification setting forth the change and the new, additional or omitted
names or signatures. IBT will be entitled to rely and act upon any Officers'
Certificate given to it by the Fund which has been signed by Authorized
Persons named in the most recent certification received by IBT.
<PAGE>
3. FUND EVALUATION AND YIELD CALCULATION
3.1 FUND EVALUATION. IBT shall compute and, unless otherwise directed
by the Board, determine as of the close of regular trading on the New York
Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by
the Board, the net asset value and the public offering price of a share of
capital stock of the Fund, such determination to be made in accordance with
the provisions of the Declaration of Trust and By-laws of the Fund and the
Prospectus and Statement of Additional Information relating to the Fund, as
they may from time to time be amended, and any applicable resolutions of the
Board at the time in force and applicable; and promptly to notify the Fund,
the proper exchange and the NASD or such other persons as the Fund may
request of the results of such computation and determination. In computing
the net asset value hereunder, IBT may rely in good faith upon information
furnished to it by any Authorized Person in respect of (i) the manner of
accrual of the liabilities of the Fund and in respect of liabilities of the
Fund not appearing on its books of account kept by IBT, (ii) reserves, if
any, authorized by the Board or that no such reserves have been authorized,
(iii) the source of the quotations to be used in computing the net asset
value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and IBT
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to
(iii) above.
3.2. YIELD CALCULATION. IBT will compute the performance results of
the Fund (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the
"Releases") promulgated by the Securities and Exchange Commission, and any
subsequent amendments to, published interpretations of or general conventions
accepted by the staff of the Securities and Exchange Commission with respect
to such releases or the subject matter thereof ("Subsequent Staff
Positions"), subject to the terms set forth below:
(a) IBT shall compute the Yield Calculation for the Fund for the
stated periods of time as shall be mutually agreed upon, and communicate in a
timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, IBT will derive the items of
data necessary for the computation from the records it generates and maintains
for the Fund pursuant Section 11 hereof. IBT shall have no responsibility to
review, confirm, or otherwise assume any duty or liability with respect to the
accuracy or correctness of any such data supplied to it by the Fund, any of the
Fund's designated agents or any of the Fund's designated third party providers.
(c) At the request of IBT, the Fund shall provide, and IBT shall be
entitled to rely on, written standards and guidelines to be followed by IBT
in interpreting and applying the computation methods set forth in the
Releases or any Subsequent Staff Positions as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any
aspect of a security or a payment with respect thereto (e.g., original issue
discount, participating debt security, income or return of capital, etc.) or
otherwise or as to any other element of the computation which is pertinent to
the Fund, the Fund or its designated agent shall have the full responsibility
for making the determination of how the security or payment is to be treated
for purposes of the computation and how the computation is to be made and
shall inform IBT thereof on a timely basis. IBT shall have no responsibility
to make independent determinations with respect to any item which is covered
by this Section, and shall not be
2
<PAGE>
responsible for its computations made in accordance with such determinations so
long as such computations are mathematically correct.
(d) The Fund shall keep IBT informed of all publicly available
information relating specifically to the Fund (as opposed to investment
companies generally) and of any non-public advice, or non-public information
obtained by the Fund from its independent auditors or by its personnel or the
personnel of its investment adviser related to the computations to be
undertaken by IBT pursuant to this Agreement and IBT shall not be deemed to
have knowledge of such information (except as contained in the Releases and
the Subsequent Staff Positions or as publicly available regarding investment
companies generally) unless it has been furnished to IBT in writing.
4. FEES. For the services rendered pursuant to this Agreement, the Fund
agrees to pay IBT the fees set forth on APPENDIX B hereto.
5. ADDITIONAL SERVICES. IBT shall perform the additional services for
the Fund as are set forth on APPENDIX C hereto. APPENDIX C may be amended from
time to time upon agreement of the parties to include further additional
services to be provided by IBT to the Fund, at which time the fees set forth in
APPENDIX B shall be appropriately increased.
6. LIMITATION OF LIABILITY.
6.1 IBT, its directors, officers, employees and agents shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the performance of its obligations and duties
under this Agreement, except in respect of an error, mistake or loss
resulting from willful misfeasance, bad faith or negligence in the
performance of such obligations and duties, or by reason of its disregard
thereof or a material breach of the provisions hereof.
6.2 The Fund will indemnify IBT, its directors, officers, employees
and agents against and hold it and them harmless from any and all losses,
claims, damages, liabilities or expenses (including legal fees and expenses)
resulting from any claim, demand, action or suit (i) arising as a result of
any act or omission by IBT or any of its officers, directors, employees or
agents in good faith reliance upon the terms of this Agreement, any Officer's
Certificate or Proper Instructions; (ii) arising as a result of information
supplied by any Authorized Person and relied on in good faith by IBT in
connection with the calculation of (A) the net asset value and public
offering price of the shares of capital stock of the Fund or (B) the Yield
Calculation; or (iii) not resulting from the willful misfeasance, bad faith
or negligence of IBT in the performance of such obligations and duties or by
reason of its disregard thereof or a material breach of the provisions
hereof.
6.3 IBT may apply to the Fund at any time for instructions and may
consult counsel for the Fund (except as to matters where the interests of the
Fund and IBT, in the opinion of such counsel, differ), or its own counsel,
knowledgeable in the field, and with accountants and other experts with
respect to any matter arising in connection with its duties hereunder, and
IBT shall not be liable or accountable for any action taken or omitted by it
in good faith in accordance with such instruction, or with the opinion of
such counsel, accountants, or other experts. IBT shall not be liable for any
act or omission taken or not taken in reliance upon any document, certificate
or instrument which it reasonably believes to be genuine and to be signed or
presented by any person or persons duly authorized by the Fund (as set forth
in a certificate duly executed by an officer of the Fund). IBT shall not be
held to have notice of any change of authority of any officers, employees, or
agents of the Fund until receipt of written notice thereof has been received
by IBT from the Fund.
6.4 In the event IBT is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement because of acts
of God, strikes, legal constraint, government actions, war,
3
<PAGE>
emergency conditions, interruption of electrical power or other utilities,
equipment or transmission failure or damage reasonably beyond its control or
other causes reasonably beyond its control, IBT shall not be liable to the
Fund for any damages resulting from such failure to perform, delay in
performance, or otherwise that is attributable to such causes.
6.5 IBT acknowledges that the portfolios comprising the Fund are
organized under a two-tier financial services structure, known as the Hub &
Spoke -Registered Trademark-(1) structure, under and pursuant to a certain
Hub & Spoke License and Service Agreement dated December 14, 1993 (the
"License Agreement"), by and between the Fund's adviser, Touchstone Advisors,
Inc., and Signature Financial Group, Inc. ("Signature"). As a material
inducement to the Fund to enter into this Agreement, IBT hereby warrants and
represents that IBT is a duly licensed and authorized third party Hub & Spoke
processing agent of Signature, and is duly licensed and authorized by
Signature to provide Hub & Spoke processing and administration services to,
for and on behalf of the Fund and its portfolios in accordance with the terms
of this Agreement; and further, that no consent, which has not already been
obtained in writing by IBT, is required by Touchstone Securities, Inc., or by
either party to this Agreement from Signature in order for IBT to provide Hub
& Spoke processing and administration services, for and on behalf of the Fund
and its portfolios.
6.6 IBT will indemnify the Fund, its trustees, officers, employees
and agents against and hold them harmless from any and all losses, claims,
damages, liabilities or expenses (including legal fees and related expenses)
resulting from any claim, demand, action or suit (i) arising out of IBT's
failure to obtain and maintain in effect all licenses rights and permissions
(all without cost to the Fund for so long as the Fund remains a party to the
License Agreement and the License Agreement remains in full force and effect)
required to enable it to use, to the full extent necessary for the
performance of its duties and obligations under this Agreement, all
intellectual property belonging to Signature Financial Services, Inc. and its
affiliates that relates to the Hub & Spoke structure and related fund
accounting and administration and the software and processes associated
therewith and (ii) resulting from the willful misfeasance, bad faith or
negligence of IBT in the performance of its duties and obligations under this
Agreement or from its disregard thereof.
6.7 In no event shall IBT be liable for special, incidental or
consequential damages, even if advised of the possibility of such damages.
7. TERMINATION.
7.1 The term of this Agreement shall be eighteen months commencing
upon the date hereof (the "Initial Term"), unless earlier terminated as
provided herein. After the expiration of the Initial Term, the term of this
Agreement shall automatically renew for successive one-year terms (each a
"Renewal Term") unless notice of non-renewal is delivered by the non-renewing
party to the other party no later than sixty days prior to the expiration of
the Initial Term or any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the
violating party does not cure such violation within 60 days of receipt of
such notice.
(b) Either party may terminate this Agreement during any Renewal Term
upon sixty days written notice to the other party. Any termination pursuant to
this paragraph 7.1(b) shall be effective upon expiration of such sixty days,
provided, however, that the effective date of such termination may be postponed,
at the request of the Fund, to a date not more than ninety days after
- -------------------------
(1) Hub & Spoke is a registered service mark of Signature Financial Group, Inc.
4
<PAGE>
delivery of the written notice in order to give the Fund an opportunity to
make suitable arrangements for a successor fund accountant.
(c) If the Fund determines at any time to cease using the Hub &
Spoke structure in the conduct of its business, whether it changes to a
master-feeder, multiple class or other structure, the Fund may terminate this
Agreement if, after the Fund gives IBT at least 30 days prior written notice
of such change, the parties, after making diligent and good faith efforts,
are unable to agree to amendments to this Agreement that are reasonable and
fair to both parties under the circumstances, such termination to be
effective 90 days after the delivery of such prior written notice.
(d) The Fund may terminate this Agreement if and at such time as a
court of competent jurisdiction either (A) finds, after the exhaustion of all
appeals, that the performance by IBT of the services called for by this
Agreement or the engagement by the Fund of IBT to perform such services
infringes the intellectual property rights of Signature Financial Services,
Inc., or any affiliate thereof, in any manner whatsoever, or (B) enjoins or
restrains the performance by Investors Bank of the services called for by
this Agreement.
(e) The Fund may terminate this Agreement if and at such time as
any of the fund accounting agreements between Investors Bank and Select
Advisors Trust C, Select Advisors Portfolio or Select Advisors Variable
Insurance Trust are terminated due to a material violation of the terms of
any such fund accounting agreement by Investors Bank.
7.2 The Fund shall reimburse IBT for any reasonable expenses incurred
by IBT for transition accounting and transfer of records in connection with
the termination of this Agreement.
7.3 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of IBT
relating to its performance of its duties as hereunder.
8. CONFIDENTIALITY. Both parties hereto agree that any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably
damage the other party and accordingly agree that each of them is entitled,
in addition to all other remedies at low or in equal to an injunction or
injunctions without bond or other security to prevent breaches of this
provision.
9. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office
at the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Select Advisors Trust C
311 Pike Street
Cincinnati, OH 45202
Attention: Edward G. Harness, Jr.
5
<PAGE>
(b) In the case of notices sent to IBT to:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
Attention: Carol Lowd, Client Manager
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate
in writing.
10. AMENDMENTS. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
11. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of IBT or by IBT without the written consent of
the Fund, authorized and approved by its Board; and provided further that
termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
12. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
14. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any
conflicting terms or provisions of any other instrument and terminates and
supersedes any and all prior agreements and undertakings between the parties
relating to the subject matter herein.
15. LIMITATION OF LIABILITY. IBT is hereby expressly put on notice of
the limitation of liability set forth in the Declaration of Trust of the Fund
and agrees that the obligations assumed by the Fund hereunder shall be
limited in all cases to the assets of the Fund and that IBT shall not seek
satisfaction of any such obligation from the officers, agents, employees,
trustees, or shareholders of the Fund.
16. SEVERAL OBLIGATIONS OF THE PORTFOLIOS. This Agreement is an agreement
entered into between IBT and the Fund with respect to each Portfolio. With
respect to any obligation of the Fund on behalf of any Portfolio arising out of
this Agreement, IBT shall look for payment or satisfaction of such obligation
solely to the assets of the Portfolio to which such obligation relates as though
IBT had separately contracted with the Fund by separate written instrument with
respect to each Portfolio.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
SELECT ADVISORS TRUST C
By:
---------------------------------
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
---------------------------------
Name:
Title:
7
<PAGE>
APPENDIX A
PORTFOLIOS
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
<PAGE>
APPENDIX C
ADDITIONAL SERVICES
None
2
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward S. Heenan,
Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski, each of them, with full
powers of substitution as his true and lawful attorneys and agents to execute
in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Select
Advisors Trust A, Select Advisors Trust C, Select Advisors Variable Insurance
Trust and Select Advisors Portfolios (the "Investment Companies") with the
Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended, and/or the Securities Act of 1933, as amended,
and/or any and all instruments which such attorneys and agents, or any of
them, deem necessary or advisable to enable the Investment Companies to
comply with such Acts, the rules, regulations and requirements of the SEC,
and the securities or Blue Sky laws of any state or other jurisdiction, and
the undersigned hereby ratifies and confirms as his own act and deed any and
all acts that such attorneys and agents, or any of them, shall do or cause to
be done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Edward G. Harness, Jr
Edward G. Harness, Jr., Trustee
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski,
each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Select Advisors Trust A, Select Advisors Trust C,
Select Advisors Variable Insurance Trust and Select Advisors Portfolios
(the "Investment Companies") with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and/or the
Securities Act of 1933, as amended, and/or any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable
the Investment Companies to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such
attorneys and agents have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Philip R. Cox
Philip R. Cox, Trustee
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski,
each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Select Advisors Trust A, Select Advisors Trust C,
Select Advisors Variable Insurance Trust and Select Advisors Portfolios
(the "Investment Companies") with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and/or the
Securities Act of 1933, as amended, and/or any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable
the Investment Companies to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such
attorneys and agents have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ David Pollak
David Pollak, Trustee
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski,
each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Select Advisors Trust A, Select Advisors Trust C,
Select Advisors Variable Insurance Trust and Select Advisors Portfolios
(the "Investment Companies") with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and/or the
Securities Act of 1933, as amended, and/or any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable
the Investment Companies to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such
attorneys and agents have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Robert E. Stautberg
Robert E. Stautberg, Trustee
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski,
each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Select Advisors Trust A, Select Advisors Trust C,
Select Advisors Variable Insurance Trust and Select Advisors Portfolios
(the "Investment Companies") with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and/or the
Securities Act of 1933, as amended, and/or any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable
the Investment Companies to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such
attorneys and agents have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ Joseph S. Stern, Jr.
Joseph S. Stern, Jr., Trustee
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward G. Harness, Jr.,
Edward S. Heenan, Susan C. Mosher, Kevin M. Connerty and Paul J. Jasinski,
each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Select Advisors Trust A, Select Advisors Trust C,
Select Advisors Variable Insurance Trust and Select Advisors Portfolios
(the "Investment Companies") with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and/or the
Securities Act of 1933, as amended, and/or any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable
the Investment Companies to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such
attorneys and agents have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th day
of February, 1997, in Cincinnati, Ohio.
/s/ William J. Williams
William J. Williams, Trustee
