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As filed with the Securities and Exchange Commission on April 28, 1998
File No. 811-8778
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5
SELECT ADVISORS PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
311 Pike Street
Cincinnati, Ohio 45202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 800-669-2793
Andrew S. Josef
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
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IFS0051D
EXPLANATORY NOTE
This Amendment to the Registration Statement on Form N-1A (the
"Registration Statement") has been filed by the Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, beneficial
interests in the series of the Registrant are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests will
be issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant's series may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. The Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in any series of the Registrant.
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IFS0051D
SELECT ADVISORS PORTFOLIOS
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
Select Advisors Portfolios (the "Portfolio Trust") is a no-load,
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York on February 7, 1994. Beneficial
interests in the Portfolio Trust are divided into nine separate series, each
having distinct investment objectives and policies. Each series, including Value
Plus Portfolio, Emerging Growth Portfolio, International Equity Portfolio,
Growth & Income Portfolio, Growth & Income Portfolio II, Balanced Portfolio,
Income Opportunity Portfolio, Bond Portfolio and Bond Portfolio II (each a
"Portfolio" and, collectively, the "Portfolios"), is described herein.
Beneficial interests in the Portfolios are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act").
Investments in the Portfolio Trust may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
Touchstone Advisors, Inc. ("Touchstone Advisors" or the "Advisor")
acts as the investment advisor to the Portfolios. Each of the Portfolios
benefits from the 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 Portfolio's assets among the Portfolio
Advisors.
The following is a discussion of the various investment policies of
each Portfolio. Further information about the investment policies of each
Portfolio, including a list of those restrictions on its investment activities
that are "fundamental" (i.e., they cannot be changed without shareholder
approval), appears in Part B. There can be no assurance that the investment
objective of the Portfolios will be achieved.
VALUE PLUS PORTFOLIO
The investment objective of the Portfolio is long-term growth of
capital. The Portfolio Advisor will seek to achieve its objective through
investment primarily in a diversified portfolio comprised of approximately 40 to
60 common stocks that are considered by the Portfolio Advisor to be
fundamentally undervalued ("Value Stocks"). The Portfolio Advisor will also seek
to provide an added plus to the return of the Value Plus Portfolio through
occasional investments in the common stock of rapidly growing companies. The
Portfolio Advisor believes that such investment in the common stock of rapidly
growing companies will not only enhance return but may also diversify the
portfolio so as to avoid risks that may be specific to Value Stocks. While the
Portfolio Advisor will generally seek to invest 80% of the Portfolio's total
assets in Value Stocks, it is the Portfolio's policy under normal conditions to
invest at least 65% of its total assets in all types of common stocks.
The Portfolio Advisor believes that there may be times when, in its
judgment, due to economic and market conditions, shareholders' interests are
best served by investing in preferred stocks, "investment grade" debt
securities, or securities that are convertible into common stocks. At such
times, the Portfolio may invest up to 35% of its total assets in such
securities.
A stock will be considered undervalued if it is currently trading at
a price below that at which the Portfolio Advisor believes it should be trading
and is therefore a superior potential investment based on one or more of the
following relative comparison: 1) price relative to earnings, 2) price relative
to cash flow and 3) price relative to financial strength. It is the goal of the
portfolio to invest in businesses that have unique competitive advantages and
proven management and should, therefore, eventually regain investor favor. It is
anticipated that some of the companies in which the Portfolio may invest will
not pay dividends.
Although the Portfolio is not limited by issuer size in selecting
securities for investment, the Portfolio will generally invest approximately 70%
of its total assets in securities of "large cap" companies of domestic and
foreign issuers which have a market capitalization greater than $5 billion, and
the remaining 30% of the Portfolio's total assets will be invested in securities
of "mid cap" companies of domestic or foreign issuers which have a market
capitalization between $1 billion and $5 billion.
The Portfolio Advisor will generally seek to invest 90% of the
Portfolio's total assets in common stocks and it is the Portfolio's policy under
normal conditions to invest at least 65% of its total assets in common stocks.
The Portfolio Advisor believes that there may be times when, in its judgment,
economic and market conditions are such that shareholders' interests are best
served by investing in preferred stocks, "investment grade" debt securities or
securities that are convertible into common stocks. At such times, the Portfolio
may invest up to 35% of its total assets in such securities. Although the
Portfolio is not limited by issuer size in selecting securities for investment,
it will generally invest approximately 70% of its investable assets in
securities of "large cap" companies of domestic and foreign issuers which have a
market capitalization greater than $5 billion, and the remaining 30% of the
Portfolio's total assets will be invested in securities of "mid cap" companies
of domestic or foreign issuers which have a market capitalization between $1
billion and $5 billion.
The Portfolio will generally consider debt securities to be "investment
grade" if such securities are rated investment grade at the time of purchase by
a nationally recognized statistical rating agency (i.e., BBB or better by
Standard & Poor's Rating Service, a division of McGraw-Hill Companies ("S&P") or
Baa or better by Moody's Investors Service, Inc. ("Moody's"), or if such
securities are not so rated but are considered by the Portfolio Advisor to be of
equivalent investment quality). Debt securities rated BBB by S&P or Baa by
Moody's or unrated securities of comparable investment quality lack outstanding
characteristics and in fact have speculative characteristics as well, and
changes in economic conditions and other circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal.
Although the Portfolio intends to invest primarily in common stocks, it
may invest up to 10% of its assets in cash investments and short-term
fixed-income securities. Such securities may be used to invest uncommitted cash
balances or to maintain liquidity to meet shareholder redemptions. In addition,
the Portfolio may hold up to 100% of its assets in cash or short-term
fixed-income securities for temporary defensive purposes if, in the opinion of
the Portfolio Advisor, market conditions warrant such a position. See
"Additional Risks and Investment Techniques -- Temporary Investments" and "--
Repurchase Agreements."
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
Composite Stock Price Index (the "S&P 500"), which is currently approximately
$40 billion, that the Portfolio Advisor (as defined below) believes has 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.
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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 preferred stocks,
convertible bonds and other fixed-income instruments rated at least Baa by
Moody's or BBB by S&P or, if unrated, determined by the Portfolio Advisor to be
of comparable quality. Instruments rated Baa or BBB possess some speculative
characteristics.
The Portfolio may invest up to 20% of its assets in foreign securities
principally traded outside the United States and in American Depositary Receipts
("ADRs"). The Portfolio may not invest more than 10% of its total assets in the
securities of companies based in an emerging market. See "Risk Factors and
Certain Investment Techniques -- Foreign Securities" and "-- Risks Associated
with Emerging Markets Securities."
International Equity Portfolio
The investment objective of the Portfolio is long-term capital
appreciation by investing primarily in equity securities of companies based
outside the United States.
The Portfolio 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.
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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 20% 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 and Growth & Income Portfolio II
The investment objective of each Portfolio is long term capital
appreciation and dividend income by investing primarily in a diversified
portfolio of dividend-paying common stocks, preferred stocks and securities
convertible into common stocks. Each Portfolio may also purchase such securities
which do not pay current dividends but which offer prospects for growth of
capital and future income. Convertible securities (which may be current coupon
or zero coupon securities) are bonds, notes, debentures, preferred stocks and
other securities which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. Under normal conditions,
at least 80% of each Portfolio's total assets will be invested in common stocks
and at least 65% of each Portfolio's total assets will be invested in common
stocks that, at the time of investment, pay regular dividends.
Each 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
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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.
Each Portfolio may also invest up to 20% of its total assets in foreign
securities, including securities of foreign issuers in the form of ADRs. Each
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."
Each Portfolio may invest under normal circumstances up to 20% of its
total assets in preferred stocks, convertible preferred stock, bonds,
convertible debentures and other fixed income instruments (the "Fixed Income
Instruments"). Within this 20% limitation, each Portfolio may invest in any
combination of Fixed Income Instruments subject to the following additional
limitations:
<TABLE>
<CAPTION>
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Type and Ratings of
Fixed Income Instruments Limitation
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<S> <C>
Convertible Fixed Income Up to 20% of the Portfolio's total assets
Instruments rated at least Ba by
Moody's or BB by S&P
Non-convertible Fixed Income Up to 20% of the Portfolio's total assets
Instruments rated at least Baa by
Moody's or BBB by S&P
Non-convertible Fixed Income Up to 5% of the Portfolio's total assets
Instruments rated below Baa by
Moody's or BBB by S&P
- -------------------------------------------------------------------------------
</TABLE>
See "Risk Factors and Certain Investment Techniques -- Convertible Securities"
and "-- Medium and Lower Rated and Unrated Debt Securities."
Each Portfolio may invest up to 10% of its total assets in real estate
investment trusts ("REITs"), which pool investors' funds for investment
primarily in income-producing real estate or real estate-related loans or
interests. See "Risk Factors and Certain Investment Techniques -- Real Estate
Investment Trusts."
Each Portfolio may also invest up to 5% of its total assets in
Standard and Poor's Depositary Receipts ("SPDRs") in order to invest uncommitted
cash balances, to maintain liquidity to meet shareholder redemptions, or to
minimize trading costs. SPDRs represent ownership in a unit investment trust
that holds a portfolio of stocks designed to track the performance of the S&P
500 Index. SPDRs are traded on the American Stock Exchange. See "Risk Factors
and Certain Investment Techniques -- Standard & Poor's Depositary Receipts."
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), described below under the heading "Bond Portfolio
and Bond Portfolio II." The Portfolio will not invest in any bond rated lower
than B by S&P or by Moody's.
Up to one-third of the Portfolio's assets may be invested in foreign
equity or fixed-income securities. No more than 15% of the Portfolio's total
assets will be invested in the securities of issuers based in emerging markets.
See "Risk Factors and Certain Investment Techniques -- Foreign Securities" and
"-- Risks Associated with Emerging Markets Securities."
Income Opportunity Portfolio
The investment objective of the Portfolio is high current income
through 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
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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 market value of debt securities held by the Income Opportunity
Portfolio, and the net asset value of the Portfolio, will be affected by general
changes in interest rates. The market value of debt securities held by a
Portfolio can be expected to vary inversely to changes in prevailing interest
rates. See "Risk Factors and Certain Investment Techniques--Fixed-Income and
Other Debt Instrument 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 A to Part B 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.
Bond Portfolio and Bond Portfolio II
The investment objective of each 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 each Portfolio's total assets will
be invested in the following types of securities:
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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. Each
Portfolio will also invest in preferred stocks.
No more than 60% of each Portfolio's total assets will be invested in
mortgage-related securities. Each Portfolio will not invest in any bond rated
lower than B by S&P or by Moody's. Each 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 each
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 Portfolios' U.S. dollar-denominated investments. See
"Risk Factors and Certain Investment Techniques -- Foreign Securities."
The market value of debt securities held by the Bond Portfolio, and
the net asset value of the Portfolio, will be affected by general changes in
interest rates. The market value of debt securities held by a Portfolio can be
expected to vary inversely to changes in prevailing interest rates. See "Risk
Factors and Certain Investment Techniques--Fixed-Income and Other Debt
Instrument Securities."
The average maturity of each Portfolio will be between five and fifteen
years. The average maturity of each 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.
Risk Factors and Certain Investment Techniques
Foreign Securities. Investing in securities issued by foreign companies
and governments involves considerations and potential risks not typically
associated with investing in obligations issued by the U.S. government and
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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 Portfolio investors.
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
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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.
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. As a result, shareholders should anticipate that the market value of the
obligations held by the Portfolios generally will increase when prevailing
interest rates are declining and generally will decrease when interest rates
are rising. 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 "Additional Risks and Investment Techniques--When-Issued
and Delayed-Delivery Securities" below.
Medium and Lower Rated 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.
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.
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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 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.
Convertible Securities. Convertible securities may offer higher income
than the common stocks into which they are convertible and include fixed-income
or zero coupon debt securities, which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
both non-convertible debt securities and equity securities.
While convertible securities generally offer lower yields than
non-convertible debt securities of similar quality, their prices may reflect
changes in the value of the underlying common stock. Convertible securities
entail less credit risk than the issuer's common stock.
Real Estate Investment Trusts. The Growth and Income Portfolio and the
Growth and Income Portfolio II may invest in REITs, which can generally be
classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs,
which invest the majority of their assets directly in real property, derive
their income primarily from rents. Equity REITs can also realize capital gains
by selling properties that have appreciated in value. Mortgage REITs, which
invest the majority of their assets in real estate mortgages, derive their
income primarily from interest payments on real estate mortgages in which they
are invested. Hybrid REITs combine the characteristics of both equity REITs and
mortgage REITs.
Investment in REITs is subject to risks similar to those associated
with the direct ownership of real estate (in addition to securities market
risks). REITs are sensitive to factors such as changes in real estate values
and property taxes, interest rates, cash flow of underlying real estate assets,
supply and demand, and the management skill and creditworthiness of the issuer.
REITs may also be affected by tax and regulatory requirements.
Standard & Poor's Depositary Receipts ("SPDRs"). The Growth and Income
Portfolio and the Growth and Income Portfolio II may invest in SPDRs. SPDRs
typically trade like a share of common stock and provide investment results
that generally correspond to the price and yield performance of the component
common stocks of the S&P 500 Index. There can be no assurance that this can be
accomplished as it may not be possible for the portfolio to replicate and
maintain exactly the composition and relative weightings of the S&P 500 Index
securities. SPDRs are subject to the risks of an investment in a broadly based
portfolio of common stocks, including the risk that the general level of stock
prices may decline, thereby adversely affecting the value of such investment.
Additional Risks and Investment Techniques.
The following are descriptions of types of securities invested in by
the Portfolios, certain investment techniques employed by the Portfolios and
risks associated with utilizing either the securities or the investment
technique.
Derivatives. The Portfolios may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset, or market index. Some "derivatives" such as certain mortgage-
related and other asset-backed securities are in many respects like any other
investment, although they may be more volatile or less liquid than more
traditional debt securities. There are, in fact, many different types of
derivatives and many different ways to use them. There 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 for
cash management purposes 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 a 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 Portfolios. The use of
derivatives for non-hedging purposes may be considered speculative. A
description of the derivatives a Portfolio 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 Depository
Receipts
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("EDRs") which are sometimes referred to as Continental Depository 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.
U.S. Government Securities. Each Portfolio may invest in U.S.
Government securities, which are obligations issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. Some U.S. Government
securities, such as U.S. Treasury bills, Treasury notes and Treasury bonds,
which differ only in their interest rates, maturities and times of issuance, are
supported by the full faith and credit of the United States. Others are
supported by: (i) the right of the issuer to borrow from the U.S. Treasury, such
as securities of the Federal Home Loan Banks; (ii) the discretionary authority
of the U.S. government to purchase the agency's obligations, such as securities
of the FNMA; or (iii) only the credit of the issuer, such as securities of the
Student Loan Marketing Association. No assurance can be given that the U.S.
Government will provide financial support in the future to U.S. Government
agencies, authorities or
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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
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in illiquid instruments to not more than 15% of the value of its net assets will
apply.
Stripped Mortgage-Related Securities. These securities are either
issued and guaranteed, or privately-issued but collateralized by securities
issued by, GNMA, FNMA or FHLMC. These securities represent beneficial ownership
interests in either periodic principal distributions ("principal-only") or
interest distributions ("interest-only") on mortgage-related certificates issued
by GNMA, FNMA or FHLMC, as the case may be. The certificates underlying the
stripped mortgage-related securities represent all or part of the beneficial
interest in pools of mortgage loans. A Portfolio will invest in stripped
mortgage-related securities in order to enhance yield or to benefit from
anticipated appreciation in value of the securities at times when its Portfolio
Advisor believes that interest rates will remain stable or increase. In periods
of rising interest rates, the expected increase in the value of stripped
mortgage-related securities may offset all or a portion of any decline in value
of the securities held by the Portfolio.
Investing in stripped mortgage-related securities involves the risks
normally associated with investing in mortgage-related securities. See
"Mortgage-Related Securities" above. In addition, the yields on stripped
mortgage-related securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only stripped mortgage-related securities and increasing the yield to
maturity on principal-only stripped mortgage-related securities. Sufficiently
high prepayment rates could result in a Portfolio not fully recovering its
initial investment in an interest-only stripped mortgage-related security.
Stripped mortgage-related securities are currently traded in an over-the-counter
market maintained by several large investment banking firms. There can be no
assurance that the Portfolio will be able to effect a trade of a stripped
mortgage-related security at a time when it wishes to do so. The Portfolio will
acquire stripped mortgage-related securities only if a secondary market for the
securities exists at the time of acquisition. Except for government stripped
mortgage-related securities based on fixed rate FNMA and FHLMC mortgage
certificates that meet certain liquidity criteria established by the Board of
Trustees of the Portfolio Trust, the Portfolios will treat government stripped
mortgage-related securities and privately-issued mortgage-related securities as
illiquid and will limit its investments in these securities, together with other
illiquid investments, to not more than 15% of net assets.
Zero Coupon Securities. Zero coupon U.S. Government securities are debt
obligations that are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the security will
accrue and compound over the period until maturity or the particular interest
payment date at a rate of interest reflecting the market rate of the security at
the time of issuance. Zero coupon securities do not require the periodic payment
of interest. These investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government securities
that make regular payments of interest. A Portfolio accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations, in which case the Portfolio will forego the purchase
of additional income producing assets with these funds. Zero coupon securities
include STRIPS, that is, securities underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities. They also include Coupons Under Book Entry
System ("CUBES"), which are component parts of U.S. Treasury bonds and represent
scheduled interest and principal payments on the bonds.
Loans and Other Direct Debt Instruments. These are instruments in
amounts owed by a corporate, governmental or other borrower to another party.
They may represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables) or to other parties. Direct debt instruments purchased by a
Portfolio may have a maturity of any number of days or years, may be secured or
unsecured, and may be of any credit quality. Direct debt instruments involve the
risk of loss in the case of default or insolvency of the borrower. Direct debt
instruments may offer less legal protection to a Portfolio in the event of fraud
or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments also may include standby financing commitments that obligate a
Portfolio to supply additional cash to the borrower on demand at the time when a
Portfolio would not have otherwise done so, even if the borrower's condition
makes it unlikely that the amount will ever be repaid.
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These instruments will be considered illiquid securities and so will be
limited, along with a Portfolio's other illiquid securities, to not more than
15% of the Portfolio's net assets.
Swap Agreements. To help enhance the value of its portfolio or manage
its exposure to different types of investments, the Portfolios may enter into
interest rate, currency and mortgage swap agreements and may purchase and sell
interest rate "caps," "floors" and "collars."
In a typical interest rate swap agreement, one party agrees to make
regular payments equal to a floating interest rate on a specified amount (the
"notional principal amount") in return for payments equal to a fixed interest
rate on the same amount for a specified period. If a swap agreement provides for
payment in different currencies, the parties may also agree to exchange the
notional principal amount. Mortgage swap agreements are similar to interest rate
swap agreements, except that notional principal amount is tied to a reference
pool of mortgages.
In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile;
depending on how they are used, they may have 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
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Portfolio may be required to assert through the custodian bank such rights as
may exist against the underlying issuer. Thus, if the underlying issuer fails to
pay principal and/or interest when due, a Portfolio may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Portfolio had purchased a direct obligation of the issuer. In addition, if
the trust or custodial account in which the underlying security has been
deposited is determined to be an association taxable as a corporation, instead
of a non-taxable entity, the yield on the underlying security would be reduced
in respect of any taxes paid.
When-Issued and Delayed-Delivery Securities. To secure prices deemed
advantageous at a particular time, each Portfolio may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. A Portfolio will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Portfolio
may include securities purchased on a "when, as and if issued" basis under which
the issuance of the securities depends on the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization or debt restructuring.
Securities purchased on a when-issued or delayed-delivery basis may
expose a Portfolio to risk because the securities may experience fluctuations in
value prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
Repurchase Agreements. Each of the Portfolios may engage in repurchase
agreement transactions. Under the terms of a typical repurchase agreement, a
Portfolio would acquire an underlying debt obligation for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding period. A Portfolio may
enter into repurchase agreements with respect to U.S. Government securities with
member banks of the Federal Reserve System and certain non-bank dealers approved
by the Board of Trustees. Under each repurchase agreement, the selling
institution is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. The Portfolio
Advisor, acting under the supervision of the Advisor and the Board of Trustees,
reviews on an ongoing basis the value of the collateral and the creditworthiness
of those non-bank dealers with whom the Portfolio enters into repurchase
agreements. In entering into a repurchase agreement, a Portfolio bears a risk of
loss in the event that the other party to the transaction defaults on its
obligations and the Portfolio is delayed or prevented from exercising its rights
to dispose of the underlying securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert its rights to them, the risk of incurring expenses
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associated with asserting those rights and the risk of losing all or a part of
the income from the agreement. Repurchase agreements are considered to be
collateralized loans under the Investment Company Act of 1940, as amended
(the"1940 Act").
Reverse Repurchase Agreements and Forward Roll Transactions. The
Portfolios may enter into reverse repurchase agreements and forward roll
transactions. In a reverse repurchase agreement the Portfolio agrees to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price. Forward roll
transactions are equivalent to reverse repurchase agreements but involve
mortgage-backed securities and involve a repurchase of a substantially similar
security. At the time the Portfolio enters into a reverse repurchase agreement
or forward roll transaction it will place in a segregated custodial account cash
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
Policies" below and in Part B.
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 Securities and Exchange Commission (the "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
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securities. The Board of Trustees of the Portfolio Trust, with advice and
information from the respective Portfolio Advisor, will determine the liquidity
of restricted securities or Rule 144A securities by looking at factors such as
trading activity and the availability of reliable price information and, through
reports from such Portfolio Advisor, the Board of Trustees of the Portfolio
Trust will monitor trading activity in restricted securities. If institutional
trading in restricted securities or Rule 144A securities were to decline, a
Portfolio's illiquidity could be increased and the Portfolio could be adversely
affected.
No Portfolio will invest more than 10% of its total assets in
restricted securities (excluding Rule 144A securities).
Temporary Investments. For temporary defensive purposes during periods
when the Portfolio Advisor of a Portfolio believes, in consultation with the
Advisor, that pursuing the Portfolio's basic investment strategy may be
inconsistent with the best interests of its shareholders, the Portfolio may
invest its assets without limit in the following money market instruments:
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (including those purchased in the form of custodial receipts),
repurchase agreements, certificates of deposit, master notes, time deposits 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%
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of its total assets, and no Portfolio will buy calls with a value exceeding 5%
of its total assets.
A Portfolio will not enter into futures contracts and related options
for which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Portfolio's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Portfolio may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the
Portfolio's futures and options positions may not prove to be perfectly or even
highly correlated with changes in the value of its portfolio securities.
Successful use of futures and related options is subject to a Portfolio
Advisor's ability to predict correctly movements in the direction of the
securities markets generally, which ability may require different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures and options contracts may only be closed out by entering into
offsetting transactions on the exchange where the position was entered into (or
a linked exchange), and as a result of daily price fluctuation limits there can
be no assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Portfolio may realize
a loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Portfolio may not
be able to close a futures or options position without incurring a loss in the
event of adverse price movements.
Options on Foreign Currencies. Each Portfolio that may invest in
foreign securities may write covered put and call options and purchase put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired. The Portfolio may use options on
currency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different, but related
currency. As with other types of options, however, the writing of an option on
foreign currency will constitute only a partial hedge up to the amount of the
premium received, and the Portfolio could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the event of exchange rate movements
adverse to the Portfolio's position, it may not forfeit the entire amount of the
premium plus related transaction costs. In addition, the Portfolio may purchase
call options on currency when the Portfolio Advisor anticipates that the
currency will appreciate in value.
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
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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-traded 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 the Portfolio owns
the underlying stock sold by the Portfolio exposes the Portfolio during the term
of the option to possible loss of opportunity to realize appreciation in the
market price of the underlying stock or to possible continued holding of a stock
which might otherwise have been sold to protect against depreciation in the
market price of the stock. A covered put option sold by the Portfolio exposes
the Portfolio during the term of the option to a decline in price of the
underlying stock.
To close out a position when writing covered options, the Portfolio may
make a "closing purchase transaction" which involves purchasing an option on the
same stock with the same exercise price and expiration date as the option which
it has previously written on the stock. The Portfolio will realize a profit or
loss for a closing purchase transaction if the amount paid to purchase an option
is less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased.
Options on Securities Indexes. Each Portfolio may purchase and write
put and call options on securities indexes listed on domestic and, in the case
of those Portfolios which may invest in foreign securities, on foreign
exchanges. A securities index fluctuates with changes in the market values of
the securities included in the index.
Options on securities indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
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equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in securities
index options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
To the extent permitted by U.S. federal or state securities laws, the
International Equity Portfolio may invest in options on foreign stock indexes in
lieu of direct investment in foreign securities. The Portfolio may also use
foreign stock index options for hedging purposes.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular security, whether the
Portfolio will realize a gain or loss from the purchase or writing of options on
an index depends upon movements in the level of securities prices in the market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in price of a particular security. Accordingly, 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
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<PAGE> 22
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
Part B 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 Part B. The following
are summaries of these restrictions; see the Part B for the full text of these
restrictions. 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 or acquire more than 10% of the
outstanding voting securities of any one issuer, except U.S. Government
securities. 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. Reverse
repurchase agreements and forward roll transactions involving mortgage related
securities will be aggregated with bank borrowings for purposes of this
calculation. No Portfolio may purchase securities while borrowings exceed 5% of
the value of the Portfolio's total assets. No Portfolio will invest more than
15% of the value of its net assets in securities that are illiquid, including
certain government stripped mortgage-related securities, repurchase agreements
maturing in more than seven days and that cannot be liquidated prior to maturity
and securities that are illiquid by virtue of the absence of a readily available
market. Securities that have legal or contractual restrictions on resale but
have a readily available market, such as certain Rule 144A securities, are
deemed not illiquid for this purpose. No Portfolio may invest more than 10% of
its assets in restricted securities (excluding Rule 144A securities).
Portfolio Turnover. No Portfolio will trade in securities for short
term profits but, when circumstances warrant, securities may be sold without
regard to the length of time held. An annual portfolio 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,
1997 and 1996, the annual turnover rate of each of the following Portfolios was:
Emerging Growth Portfolio - 101% and 117%;
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International Equity Portfolio - 151% and 86%; Growth & Income Portfolio - 170%
and 92%; Growth & Income Portfolio II - 153% and 82%; Balanced Portfolio - 120%
and 88% (equity investments - 92% and 68%, fixed-income investments - 6% and
19%); Income Opportunity Portfolio - 270% and 222%; Bond Portfolio - 88% and
64%; and Bond Portfolio II - 79% and 79%. It is expected that the annual
portfolio turnover rate for the Value Plus Portfolio will be between 50% and
100%. A portfolio turnover 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.
Item 5. Management of the Portfolio Trust.
The Board of Trustees of the Portfolio Trust provides broad supervision
over the affairs of the Portfolio Trust. A majority of the Portfolio Trust's
Trustees are not affiliated with the Advisor nor the Portfolio Advisors. See
"Management of the Portfolio Trust" in Part B for more information about the
Trustees and officers of the Portfolio Trust.
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. 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) has entered into an
investment advisory agreement (the "Advisory Agreement") with the Advisor
which, in turn, has entered into a portfolio advisory agreement ("Portfolio
Agreement") with each Portfolio Advisor selected by the Advisor for the
Portfolios. It is the Advisor's responsibility to select, subject to the review
and approval of the Board of Trustees of the Portfolio Trust, Portfolio Advisors
who have distinguished themselves by able performance in their respective areas
of expertise in asset management and to review their continued performance.
Subject to the supervision and direction of the Board of Trustees, the
Advisor provides investment management evaluation services principally by
performing initial due diligence on prospective Portfolio Advisors and
thereafter monitoring Portfolio Advisor performance through quantitative and
qualitative analysis as well as periodic in-person, telephonic and written
consultations with Portfolio Advisors. In evaluating prospective Portfolio
Advisors, the Advisor considers, among other factors, each Portfolio Advisor's
level of expertise; relative performance and consistency of performance over a
minimum period of five years; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. The Advisor has responsibility for communicating
performance
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expectations and evaluations to each Portfolio Advisor and ultimately
recommending to the Board of Trustees of the Portfolio Trust whether the
Portfolio Advisor's contract should be renewed, modified or terminated. The
Advisor provides written reports to the Board of Trustees regarding the results
of its evaluation and monitoring functions. The Advisor is also responsible for
conducting all operations of the Portfolios except those operations
subcontracted to the Portfolio Advisors, or contracted by the Portfolio Trust to
the custodian, transfer agent and Administrator.
The Portfolio Advisor of each Portfolio makes all the day-to-day
decisions to buy or sell particular portfolio securities.
The Emerging Growth Portfolio is 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 pays the Advisor a fee for its services that is computed
daily and paid monthly at an annual rate equal to the percentage of the value of
the average daily net assets of the Portfolio as follows: Value Plus Portfolio -
0.75%; Emerging Growth Portfolio - 0.80%; International Equity Portfolio -
0.95%; Growth & Income Portfolio - 0.80% on the first $150 million of average
net assets and 0.75% thereafter; Growth & Income Portfolio II - 0.80% on the
first $150 million of average net assets and 0.75% thereafter; Balanced
Portfolio - 0.80%; Income Opportunity Portfolio - 0.65%; Bond Portfolio - 0.55%;
and Bond Portfolio II - 0.55%. The investment advisory fee paid by the Value
Plus, Emerging Growth, Growth & Income, Growth & Income II, International Equity
and Balanced Portfolios is higher than that of most mutual funds.
The Advisor in turn pays each Portfolio Advisor a fee for its services
provided to the Portfolio that is computed daily and paid monthly at an annual
rate equal to the percentage specified below of the value of the average daily
net assets of the Portfolio managed by that Portfolio Advisor:
Value Plus Portfolio
Fort Washington Investment Advisors, Inc. 0.45%
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
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Growth & Income Portfolio and
Growth & Income Portfolio II 0.50% on the first $150 million
Scudder Kemper Investments, Inc. 0.45% thereafter
Balanced Portfolio
OpCap Advisors 0.60% on the first $20 million*
0.50% on the next $30 million*
0.40% 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 and Bond Portfolio II
Fort Washington Investment 0.30%
Advisors, Inc.
- -----------------
* 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 Advisors also acts in an investment advisory capacity).
Fort Washington Investment Advisors, Inc. is an affiliate of the
Advisor, and investors should be aware that the Advisor may be subject to a
conflict of interest when making decisions regarding the retention and
compensation of Fort Washington and may be subject to such a conflict concerning
other particular Portfolio Advisors. However, the Advisor's decisions, including
the identity of a Portfolio Advisor and the specific amount of the Advisor's
compensation to be paid to the Portfolio Advisor, are subject to review and
approval by a majority of the Board of Trustees and separately by a majority of
such Trustees who are not affiliated with the Advisor or any of its affiliates.
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Portfolio Advisors
Subject to the supervision and direction of the Advisor and,
ultimately, the Board of Trustees, each Portfolio Advisor manages the securities
held by the Portfolio it serves in accordance with the Portfolio's stated
investment objective and policies, making investment decisions for the Portfolio
and placing orders to purchase and sell securities on behalf of the Portfolio.
The following sets forth certain information about each of the
Portfolio Advisors. The individuals employed by the Portfolio Advisor who are
primarily responsible for the day-to-day investment management of the Portfolio
are named below.
Fort Washington Investment Advisors, Inc. ("Fort Washington") serves as
the Portfolio Advisor to the Value Plus Portfolio. Fort Washington is owned by
The Western and Southern Life Insurance Company. Fort Washington has been
registered as an investment advisor under the Investment Advisers Act of 1940,
as amended, ("the Advisers Act"), since 1990. Fort Washington provides
investment advisory services to individual and institutional clients. As of
December 31, 1997, Fort Washington had assets under management of $9.0 billion.
John C. Holden is primarily responsible for the day-to-day investment management
of the Portfolio. Mr. Holden (CFA) joined Western and Southern/Fort Washington
in May 1997 and is Vice President and Senior Portfolio Manager. Mr. Holden
previously served as senior portfolio manager with Mellon Private Asset
Management in Pittsburgh, senior portfolio manager and investment analyst for
Star Bank's Stellar Performance Group in Cincinnati, and senior employee benefit
portfolio manager for First Kentucky Trust Company in Louisville. Fort
Washington's principal executive offices are located at 420 East Fourth Street,
Cincinnati, Ohio 45202.
David L. Babson & Company, Inc. ("Babson") serves as one of two
Portfolio Advisors to the Emerging Growth Portfolio. Babson is an indirect
subsidiary of MassMutual Holding Company. Babson has been registered as an
investment advisor under the Advisers Act, since 1940. Babson provides
investment advisory services to individual and institutional clients. As of
December 31, 1997, Babson and affiliates had assets under management of $19.7
billion. Eugene H. Gardner, Jr., Peter C. Schliemann and Lance F. James are
primarily responsible for the day-to-day investment management of the portion of
the Portfolio's assets allocated to Babson by the Advisor. Mr. Gardner has been
with Babson since 1990; Mr. Schliemann has been with Babson since 1979; and Mr.
James has been with the firm since 1986. Babson's principal executive offices
are located at One Memorial Drive, Cambridge, Massachusetts 02142-1300.
Westfield Capital Management Company, Inc. ("Westfield") serves as the
second Portfolio Advisor to the Emerging Growth Portfolio. As of October 31,
1997, Westfield became an indirect wholly-owned subsidiary of Boston Private
Bancorp, Inc. ("BPB"). 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, 1997,
Westfield had assets under management of $1.4 billion. BPB was established in
May 1987. BPB is the parent company of Boston Private Bank & Trust Company, a
private bank serving clients in New England with banking and investment
products. 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 ("BEA") serves as Portfolio Advisor to International Equity
Portfolio. BEA is a New York general partnership organized in 1990 and is a
wholly-owned subsidiary of Credit Suisse Group, the second largest Swiss bank.
BEA has been registered as an investment advisor under the Advisers Act since
1968. BEA provides investment advisory services to individual and institutional
clients. As of December 31, 1997, BEA had assets under management of $34.2
billion. BEA's principal executive offices are located at One Citicorp Center,
153 East 53rd Street, New York, New York 10022.
The Portfolio is managed by the BEA International Equity Management Team.
The team consists of the following investment professionals: William Sterling,
Richard Watt, Steven D. Bleiberg, Susan Boland, Emily Alejos and Robert B.
Hrabchak. Mr. Sterling joined BEA in 1995, prior to which time he was the head
of International Economics at Merrill Lynch & Company. Mr. Watt joined BEA in
1995, prior to which time he was the head of emerging markets investments and
research at Gartmore Investment Limited in London. Mr. Bleiberg has been an
investment professional with BEA for more than five years. Ms. Boland joined BEA
in 1996, prior to which time she was a director and portfolio manager for Barran
& Partners Limited. Prior to 1995, she was a partner and European portfolio
manager for Teton Partners. Ms. Alejos joined BEA in 1997, prior to which time
she was a Vice President and an emerging markets portfolio manager with Bankers
Trust. Mr. Hrabchak joined BEA in 1997, prior to which time he was a senior
portfolio manager at Merrill Lynch Asset Management in Hong Kong. Prior to 1995,
he was an associate in investment banking at Salomon Brothers.
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<PAGE> 27
Scudder Kemper Investments, Inc. ("Scudder Kemper") serves as the
Portfolio Advisor to the Growth and Income Portfolio. Scudder, Stevens & Clark,
Inc. ("Scudder"), which registered as an investment advisor under the Advisers
Act in 1943, served as the Portfolio Advisor to the Portfolio until December 31,
1997. As of December 31, 1997, a strategic alliance between Scudder and the
Zurich Group ("Zurich") was completed, the operations of Scudder and Zurich
Kemper Investments, Inc., a subsidiary of Zurich, were combined, and the
combined operations were named Scudder Kemper Investments, Inc. Scudder Kemper
is owned 69.5% by Zurich and 30.5% by senior employees of Scudder Kemper.
Scudder Kemper provides investment advisory services to mutual fund investors,
retirement and pension plans, institutional and corporate clients, insurance
companies, and private family and individual accounts. As of December 31, 1997,
Scudder Kemper had assets under management of more than $200 billion. Zurich is
a leading, internationally recognized provider of insurance and financial
services in non-life and life insurance, and reinsurance as well as asset
management.
Robert T. Hoffman, Lori Ensinger, Benjamin W. Thorndike and Kathleen
T. Millard are the individuals primarily responsible for the day-to-day
management of the Portfolio. Mr. Hoffman, Lead Product Manager, joined Scudder
in 1990. He has 13 years of experience in the investment industry, including
several years of pension fund management experience. Lori Ensinger, Lead
Portfolio Manager, focuses on stock selection and investment strategy. She has
worked as a portfolio manager since 1983 and joined Scudder in 1993. Benjamin W.
Thorndike, Portfolio Manager, is the Portfolio's chief analyst and strategist
for convertible securities. Mr. Thorndike, who has 18 years of investment
experience, joined Scudder in 1983. Kathleen T. Millard, Portfolio Manager, has
been involved in the investment industry since 1983 and has worked as a
portfolio manager since 1986. Ms. Millard, who joined Scudder in 1991, focuses
on strategy and stock selection. Scudder Kemper's principal executive offices
are located at 345 Park Avenue, New York, New York.
Scudder Kemper may use its affiliated broker to execute portfolio
transactions for the Growth & Income Portfolio provided the commissions paid to
the affiliated broker are reasonable and fair in comparison to commissions paid
to other brokers in connection with comparable transactions. The Board of
Trustees reviews transactions executed through an affiliated broker on a
quarterly basis.
OpCap Advisors ("OpCap") serves as Portfolio Advisor to the 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, 1997, Oppenheimer Capital
and its subsidiaries had assets under management of $61.5 billion. On November
4, 1997, PIMCO Advisors, L.P. ("PIMCO Advisors") and its affiliates acquired
control of Oppenheimer Capital and its subsidiary, OpCap. PIMCO Advisors is a
registered investment advisor with $130 billion in assets under management as of
December 31, 1997, through various subsidiaries.
Value Advisors LLC, a limited liability company and a wholly-owned
subsidiary of PIMCO Advisors, holds a one-third managing general partner
interest in Oppenheimer Capital and a 1.0% general partner interest in OpCap.
Oppenheimer Capital L.P., a Delaware limited partnership whose units are traded
on the New York Stock Exchange, owns the remaining two thirds interest in
Oppenheimer Capital. PIMCO Partners, G.P. ("PIMCO GP"), general partner of PIMCO
Advisors, holds the sole general partner interest in Oppenheimer Capital, L.P.
PIMCO GP owns approximately 42.83% and 66.37% respectively of the total
outstanding Class A and Class B units of limited partnership interests of PIMCO
Advisors. PIMCO GP is a California general partnership with two general
partners. The first of these general partners is Pacific Investment Management
Company, which is a California corporation and is wholly-owned by Pacific
Financial Asset Management Company, a direct subsidiary of Pacific Life
Insurance Company ("Pacific Life"). PIMCO Partners L.L.C. ("PPLLC"), a
California limited liability company, is the second and managing general partner
of PIMCO GP. PPLLC's members are the Managing Directors (the "PIMCO Managers")
of Pacific Management Investment Company, a subsidiary of PIMCO Advisors (the
"PIMCO Subpartnership").
The PIMCO Managers are William H Gross, Dean S. Meiling, James F.
Muzzy, William F. Podlich III, Frank B. Rabinovitch, Brent R. Harris, John L.
Hague, William S. Thompson, Jr., William C. Powers, David H. Edington, Benjamin
Trosky, William R. Benz II and Lee R. Thomas III.
PIMCO Advisors is governed by an Operating Board and an Equity Board.
The PIMCO Subpartnership has the power to appoint (directly or indirectly) seven
of the twelve members of the Operating Board and therefore may be deemed to
control PIMCO Advisors. Pacific Life and the PIMCO Managers and/or the PIMCO
Subpartnership may each be deemed to control PIMCO Advisors because of direct or
indirect power to appoint 25% of the members of the Equity Board. Pacific Life,
the PIMCO Managers and the PIMCO Subpartnership disclaim such control.
Alan Gutman is primarily responsible for the day-to-day investment
management of the equity portion of the Portfolio and Robert J. Bluestone and
Matthew Greenwald are primarily responsible for the day-to-day management of the
fixed-income portion of the Portfolio. Mr. Gutman joined Oppenheimer Capital in
1991 and is Vice President. Mr. Greenwald joined Oppenheimer Capital in 1989 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, NY 10281.
Alliance Capital Management L.P. ("Alliance") serves as Portfolio
Advisor to the 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, 1997, Alliance had assets under
management of $217 billion. Wayne Lyski and Vickie Fuller are primarily
responsible for the day-to-day investment management of the Portfolio.
Mr. Lyski has been with Alliance since 1983.
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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 Bond Portfolio II. Roger Lanham and Brendan White are primarily
responsible for the day-to-day investment management of the Portfolios. 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.
YEAR 2000.
The investment advisory services provided to the Funds by Touchstone
Advisors, and each Portfolio Advisor and the services provided to shareholders
by Touchstone Securities, the Funds' Distributor, depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date, due
to the manner in which dates were encoded and calculated. That failure could
have a negative impact on the Funds' operations, including the handling of
securities trades, pricing and account services. Touchstone Advisors and
Touchstone Securities have advised the Funds that they have been reviewing all
of their computer systems and actively working on necessary changes to their
systems to prepare for the year 2000 and expect that their systems will be
compliant before that date. In addition, Touchstone Advisors has been advised by
the Funds' Portfolio Advisors, custodian, transfer agent, accounting service
agent and other service providers that they are also in the process of modifying
their systems with the same goal. There can, however, be no assurance that
Touchstone Advisors, Touchstone Securities or any other service provider will be
successful, or that interaction with other non-complying computer systems will
not impair Fund services at that time.
Administrator, Custodian, Fund Accounting Agent, Transfer Agent and Dividend
Paying Agent
Investors Bank & Trust Company ("Investors Bank"), 200 Clarendon
Street, Boston, Massachusetts 02116, serves as administrator, custodian and fund
accounting 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 Portfolio Trust, accounting, clerical and bookkeeping services;
the daily calculation of net asset values; 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
Portfolio Trust.
As custodian, Investors Bank holds cash, securities and other assets of
the Portfolio Trust as required by the 1940 Act.
Each Portfolio pays 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 all the series of Select
Advisors Trust A and Select Advisors Trust C (the "Select Advisors Series") 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, 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 Select Advisors Series 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.
Investors Bank also serves as transfer agent and dividend paying agent
for the Portfolio Trust.
Allocation of Expenses of the Portfolios
Each Portfolio bears its own expenses, which generally include all
costs not specifically borne by the Advisor, the Portfolio Advisors and the
Administrator. Included among a Portfolio's expenses are: costs incurred in
connection with its organization; investment management and administration fees;
fees for necessary professional and brokerage services; fees for any pricing
service; the costs of regulatory compliance; and costs associated with
maintaining the Portfolio Trust's legal existence and shareholder relations.
Item 6. Capital Stock and Other Securities.
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.
Under the Declaration of Trust, the Trustees are authorized to issue beneficial
interests in separate series of the Portfolio Trust. Each investor is entitled
to a vote in proportion to the amount of its investment in each Portfolio.
Investments in the Portfolios may not be transferred, but an investor may
withdraw all or any portion of his investment at any time at net asset value.
Investors in the Portfolios (e.g., investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of each Portfolio. However, the risk of an investor in the
Portfolios incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and each Portfolio
itself was unable to meet its obligations. For additional information, please
refer to Part B.
The Portfolio Trust reserves the right to create and issue a number of
series, in which case investments in each series would participate equally in
earnings and assets of the particular series. Currently, the Portfolio Trust has
nine series: Value Plus Portfolio, Emerging Growth Portfolio, International
Equity Portfolio, Income Opportunity Portfolio, Bond Portfolio, Bond Portfolio
II, Balanced Portfolio, Growth & Income Portfolio and Growth & Income Portfolio
II.
Investments in the Portfolios have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth below. The Portfolio
Trust is not required and does not currently intend to hold annual meetings of
investors, but the Portfolio Trust will hold special meetings of investors when
in the judgment of the Trustees it is necessary or desirable to submit matters
for an investor vote. Changes in fundamental policies will be submitted to
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<PAGE> 29
investors for approval. Investors have, under certain circumstances (e.g. upon
application and submission of certain specified documents to the Trustees by a
specified percentage of the aggregate value of the Portfolio Trust's outstanding
interests), the right to communicate with other investors in connection with
requesting a meeting of investors for the purpose of removing one or more
Trustees. Investors also have the right to remove one or more Trustees without a
meeting by a declaration in writing by a specified number of investors. Upon
liquidation of a Portfolio, investors would be entitled to share pro rata in the
net assets of the Portfolio available for distribution to investors.
The net asset value of each Portfolio is determined as of the close of
regular trading on the New York Stock Exchange Inc. ("NYSE") on each day on
which the NYSE is open for regular trading ("Fund Business Day") (and on such
other days as are deemed necessary in order to comply with Rule 22c-1 under the
1940 Act), by deducting the amount of the Portfolio's liabilities from the value
of its assets. The close of regular trading on the NYSE is usually 4:00 p.m.,
New York time (the "Valuation Time").
Each investor in the Portfolios may add to or reduce its investment in
each Portfolio on each Fund Business Day. At each Valuation Time on each such
Fund Business Day, the value of each investor's beneficial interest in each
Portfolio will be determined by multiplying the net asset value of a Portfolio
by the percentage, effective for that day, that represents that investor's share
of the aggregate beneficial interests in the Portfolio. Any additions or
withdrawals, which are to be effected on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in each 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 each Portfolio
as of the Valuation Time 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 each
Portfolio effected on such day, and (ii) the denominator of which is the
aggregate net asset value of each Portfolio as of the Valuation Time 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 each Portfolio by all investors in
each Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in each Portfolio as of the Valuation Time,
on the following Fund Business Day of each Portfolio.
The net income of each Portfolio shall consist of (i) all income
accrued, less the amortization of any premium, on the assets of each Portfolio,
less (ii) all actual and accrued expenses of each Portfolio determined in
accordance with generally accepted accounting principles ("Net Income").
Interest income includes discount earned (including both original issue and
market discount) on discount paper accrued ratably to the date of maturity and
any net realized gains or losses on the assets of the Portfolio. All the Net
Income of each Portfolio is allocated pro rata among the investors in each
Portfolio. The Net Income is accrued daily and distributed monthly to the
investors in each Portfolio.
Under the anticipated method of operation of the Portfolios, the
Portfolios will not be subject to any income tax. However, each investor in the
Portfolios will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolios' ordinary income and
capital gain in determining its income tax liability. The determination of such
share will
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<PAGE> 30
be made in accordance with the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations promulgated thereunder.
It is intended that the Portfolios' assets, income and distributions
will be managed in such a way that an investor in the Portfolios will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolios.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges, except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees of the Portfolio Trust. A security that is
primarily traded on a domestic stock exchange is valued at the last
sale price on that exchange or, if no sales occurred during the day, at the
current quoted bid price. All short-term dollar-denominated investments that
mature in 60 days or less are valued on the basis of amortized cost (which
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment) which the
Board of Trustees of the Portfolio Trust 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 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 Board of Trustees of the Portfolio Trust.
All assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Board of Trustees of the
Portfolio Trust.
In carrying out the valuation policies of the Board of Trustees of the
Portfolio Trust, independent pricing services may be consulted. Further
information regarding the Portfolio Trust's valuation policies is contained in
Part B.
Item 7. Purchase of Securities Being Offered.
Beneficial interests in the Portfolio Trust are issued solely in
private placement transactions that do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. See "General Description of
Registrant" above.
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<PAGE> 31
An investment in the Portfolio Trust may be made without a sales load.
All investments are made at the net asset value next determined if an order is
received by the Portfolio Trust by the designated cutoff time for each
accredited investor. The net asset value of each Portfolio is determined on each
Fund Business Day. Each Portfolio's portfolio securities are valued primarily on
the basis of market quotations or, if quotations are not readily available, by a
method which the Board of Trustees believes accurately reflects fair value.
There is no minimum initial or subsequent investment in the Portfolio
Trust. However, because each Portfolio intends to be as fully invested at all
times as is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Portfolio Trust's custodian bank by a Federal Reserve Bank).
The Portfolio Trust and Touchstone Securities, Inc. ("Touchstone
Securities") reserve the right to cease accepting investments in the Portfolios
at any time or to reject any investment order.
The placement agent for the Portfolios is Touchstone Securities. The
principal business address of Touchstone Securities is 311 Pike Street,
Cincinnati, Ohio 45202. Touchstone Securities receives no additional
compensation for serving as the placement agent for the Portfolios.
Item 8. Redemption or Repurchase.
An investor in the Portfolios may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Portfolios by the designated
cutoff time for each accredited investor. The proceeds of a withdrawal will be
paid by the Portfolios in federal funds normally on the Fund Business Day the
withdrawal is effected, but in any event within seven days. The Portfolios
reserve the right to pay redemptions in kind. Investments in the Portfolios may
not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the NYSE is closed (other than weekends or holidays)
or regular trading on such exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
Item 9. Pending Legal Proceedings.
Not applicable.
<PAGE> 32
IFS0051D
SELECT ADVISORS PORTFOLIOS
PART B
Item 10. Cover Page.
Not applicable.
<TABLE>
<CAPTION>
Item 11. Table of Contents. Page
<S> <C>
General Information and History . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . B-1
Management of the Portfolio Trust . . . . . . . . . . B-22
Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . .. B-25
Investment Advisory and Other Services . . . . . . . B-26
Brokerage Allocation and Other Practices . . . . . . B-29
Capital Stock and Other Securities . . . . . . . . . B-31
Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . .. B-33
Tax Status . . . . . . . . . . . . . . . . . . . . . B-34
Underwriters . . . . . . . . . . . . . . . . . . . . B-35
Calculation of Performance Data . . . . . . . . . . . B-35
Financial Statements . . . . . . . . . . . . . . . . B-35
Appendix A . . . . . . . . . . . . . . . . . . . . . Appendix A-1
</TABLE>
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
<PAGE> 33
Part A contains additional information about the investment objectives
and policies of Value Plus Portfolio, Emerging Growth Portfolio, International
Equity Portfolio, Growth & Income Portfolio, Growth & Income Portfolio II,
Balanced Portfolio, Income Opportunity Portfolio, Bond Portfolio and Bond
Portfolio II (each a "Portfolio," and collectively, the "Portfolios"), each a
series of Select Advisors Portfolios (the "Portfolio Trust").
Touchstone Advisors, Inc. ("Touchstone Advisors" or the "Advisor")
acts as the investment advisor to the Portfolios. Each of the Portfolios
benefits from the 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 or more
Portfolio Advisors, allocates the Portfolio's assets among the Portfolio
Advisors.
This Part B should only be read in conjunction with Part A. This
section contains supplemental information concerning the types of securities and
other instruments in which each Portfolio may invest, the investment policies
and portfolio strategies that each Portfolio may utilize and certain risks
attendant to those investments, policies and strategies.
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
B-2
<PAGE> 34
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 Appendix A to
this Part B.
Lower-Rated Debt Securities. While the market for high yield corporate
debt securities has been in existence for many years and has weathered previous
economic downturns, the 1980's brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructuring.
Past experience may not provide an accurate indication of future performance of
the high yield bond market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Trustees of the Portfolio Trust, including the use
of outside pricing services. Judgment plays a greater role in valuing high yield
corporate debt securities than is the case for securities for which more
external sources for quotations and last sale information is available. Adverse
publicity and changing investor perception may affect the ability of outside
pricing services to value lower-rated debt securities and the ability to dispose
of these securities.
In considering investments for the Portfolio, the Portfolio Advisor
will attempt to identify those issuers of high yielding debt securities whose
financial condition is adequate to meet future obligations, has improved or is
expected to improve in the future. The Portfolio Advisor's analysis focuses on
relative values based on such factors as interest or dividend coverage, asset
coverage, earnings prospects and the experience and managerial strength of the
issuer.
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<PAGE> 35
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, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as "private placements"
or "restricted securities" and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted securities or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and an investment company might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days. An investment
company might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act on 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
B-4
<PAGE> 36
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).
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 interests of a
Portfolio's shareholders.
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
B-5
<PAGE> 37
affecting the investment occurs, the Board of Trustees must terminate the loan
and regain the right to vote the securities.
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 forego 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.
B-6
<PAGE> 38
When a Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price.
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.
B-7
<PAGE> 39
A Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge 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.
B-8
<PAGE> 40
Options on securities indexes entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indexes is more likely to occur, although the
Portfolio generally will only purchase or write such an option if the Portfolio
Advisor believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Portfolio will not purchase such options unless
the Advisor and the respective Portfolio Advisor each believes the market is
sufficiently developed such that the risk of trading in such options is no
greater than the risk of trading in options on securities.
Price movements in a Portfolio's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indexes cannot serve as a complete hedge. Because options on securities indexes
require settlement in cash, the Portfolio Advisor may be forced to liquidate
portfolio securities to meet settlement obligations.
When a Portfolio writes a put or call option on a securities index, it
will cover the position by placing liquid securities in a segregated asset
account with the Portfolio's custodian.
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
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and will thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
Options on foreign currencies may be written for the same types of
hedging purposes. For example, where a Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained 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.
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Certain Portfolios also intend to write call options on foreign
currencies that are not covered for cross-hedging purposes. A call option on a
foreign currency is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of a
security which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with its custodian, cash or liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
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,
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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.
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
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contracts should be similar to those of debt securities, a Portfolio could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market.
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.
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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, 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.
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<PAGE> 46
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
B-15
<PAGE> 47
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. A
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies 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.
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
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<PAGE> 48
currency parities will be incorporated into a Portfolio Advisor's long-term
investment decisions, a Portfolio will not routinely enter into foreign currency
hedging transactions with respect to security transactions; however, the
Portfolio Advisors believe that it is important to have the flexibility to enter
into foreign currency hedging transactions when it determines that the
transactions would be in a Portfolio's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of the hedged currency increase. The precise
matching of the forward currency contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward currency
contract is entered into and the date it matures. The projection of currency
market movements is extremely difficult, and the successful execution of a
hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward currency contracts. In
such event the Portfolio's ability to utilize forward currency contracts in the
manner set forth in Part A 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 nationally recognized statistical rating organizations
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, each Portfolio
Advisor also makes its own evaluation of these securities, subject to review by
the Board of Trustees of the Portfolio
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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 Part A is set forth in Appendix A
to this Part B.
Investment Restrictions
The following investment restrictions are "fundamental policies" of
each Portfolio and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio. "Majority of the outstanding
voting securities" under the Investment Company Act of 1940, as amended (the
"1940 Act"), and as used in this Part B and Part A, means the lesser of (i) 67%
or more of the outstanding voting securities of the Portfolio present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of the Portfolio.
As a matter of fundamental policy, no Portfolio may:
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that, in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money (including through reverse
repurchase agreements, forward roll transactions involving mortgage-backed
securities or other investment techniques entered into for the purpose of
leverage), and except that it may pledge, mortgage or hypothecate not more than
1/3 of such assets to secure such borrowings, provided that collateral
arrangements with respect to options and futures, including deposits of initial
deposit and variation margin, are not considered a pledge of assets for purposes
of this restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Additional Restrictions" below;
(2) underwrite securities issued by other persons except insofar as the
Portfolios may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
(4) (a) (all Portfolios except the Growth & Income Portfolio and the
Growth and Income Portfolio II) 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
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Portfolio may hold and sell, for the Portfolio's portfolio, real estate acquired
as a result of the Portfolio's ownership of securities);
(4)(b)(Growth & Income Portfolio and Growth and Income Portfolio II
only)
(i) purchase or sell real estate (except that (a) the Portfolio may
invest in (i) securities of entities that invest or deal in real estate,
mortgages, or interests therein and (ii) securities secured by real estate or
interests therein and (b) the Portfolio may hold and sell real estate acquired
as a result of the Portfolio's ownership of securities;
(ii) purchase or sell interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and options contracts) in the
ordinary course or business.
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the achievement
of a Portfolio's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) with respect to 75% of its total assets taken at market value,
invest in assets other than cash and 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 and to not more than 10% of the outstanding voting securities of
such issuer.
Additional Restrictions. Each Portfolio will not as a matter of
"operating policy" (changeable by the Board of Trustees without a shareholder
vote):
(i) borrow money (including through reverse repurchase agreements
or forward roll transactions involving mortgage-backed
securities or similar investment techniques entered into for
leveraging purposes), except that the Portfolio may borrow for
temporary or emergency purposes up to 10% of its total assets;
provided, however, that no Portfolio may purchase any security
while outstanding borrowings exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of
10% of the Portfolio's total assets (taken at market value),
provided that collateral arrangements with respect to options
and futures, including deposits of initial deposit and
variation margin, and reverse repurchase agreements are not
considered a pledge of assets for purposes of this
restriction;
(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
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that if such right is conditional the sale is made upon the
same conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except
by purchase in the open market where no commission or profit
to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such
purchase, though not made in the open market, is part of
a plan of merger or consolidation; provided, however, that
securities of any investment company will not be purchased for
the Portfolio if such purchase at the time thereof would
cause: (a) more than 10% of the Portfolio's total assets
(taken at the greater of cost or market value) to be invested
in the securities of such issuers; (b) more than 5% of the
Portfolio's total assets (taken at the greater of cost or
market value) to be invested in any one investment company;
or (c) more than 3% of the outstanding voting securities
of any such issuer to be held for the Portfolio; provided
further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities
of any open-end investment company unless the Portfolio (1)
waives the investment advisory fee, with respect to assets
invested in other open-end investment companies and (2)
incurs no sales charge in connection with the investment;
(vii) invest more than 15% of the Portfolio's net assets (taken
at the greater of cost or market value) in securities that
are illiquid or not readily marketable (defined as a security
that cannot be sold in the ordinary course of business within
seven days at approximately the value at which the
Portfolio has valued the security) 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 Trust'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 Trust's Board of
Trustees have determined that the commercial paper is
equivalent quality and is liquid;
(viii) invest more than 10% of the Portfolio's total assets in
securities that are restricted from being sold to the public
without registration under the 1933 Act (other than Rule 144A
Securities deemed liquid by the Portfolio Trust's Board of
Trustees;
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(ix) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio to hold more than 10% of any
class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be
subject to this restriction;
(x) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration,
for securities of the same issue and equal in amount to, the
securities sold short, and unless not more than 10% of the
Portfolio's net assets (taken at market value) is represented
by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the
Portfolios have no current intention to engage in short
selling);
(xi) 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;
(xii) 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
B-21
<PAGE> 53
sold and must continue to be owned by the Portfolio until the
call has been exercised, has lapsed, or the Portfolio has
purchased a closing call, and such purchase has been
confirmed, thereby extinguishing the Portfolio's obligation to
deliver securities pursuant to the call it has sold; and (d)
at the time a put is written, the Portfolio establishes a
segregated account with its custodian consisting of cash or
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
(xiii) 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.
Item 14. Management of the Portfolio Trust.
The Trustees and officers of 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 that those Trustees and
officers are "interested persons" (as defined in the 1940 Act) of the Portfolio
Trust. Unless otherwise indicated below, the address of each Trustee and officer
is 311 Pike Street, Cincinnati, Ohio 45202.
Trustees of the Portfolio Trust
*EDWARD G. HARNESS, JR. (age 49) -- Chairman of the Board of Trustees,
President and Chief Executive Officer; Director, President and Chief Executive
Officer, Touchstone Advisors (since February, 1994); Director, Chief Executive
Officer, Touchstone Securities, Inc. ("Touchstone Securities") (since October,
1991); President, Touchstone Securities (since March, 1996); President, IFS
Financial Services, Inc. (since January, 1991); President, IFS Systems, Inc.
(since August, 1991).
*WILLIAM J. WILLIAMS (age 82) -- Trustee; Chairman of the Board of
Directors, The Western and Southern Life Insurance Company (since 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.
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<PAGE> 54
JOSEPH S. STERN, JR., (age 80) -- Trustee; Retired Professor Emeritus,
College of Business, University of Cincinnati. His Address is 3 Grandin Place,
Cincinnati, OH 45208.
PHILLIP R. COX (age 50) -- 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.
ROBERT E. STAUTBERG (age 63) -- 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 80) -- Trustee; President, The Ultimate Distributing
Company (1986 to 1993); Director Emeritus, Fifth Third Bank. His address is 1313
Kemper Road, Suite 111, Cincinnati, OH 45246.
Officers of the Portfolio Trust
JAMES J. VANCE (age 36) -- Treasurer; Treasurer Western-Southern Life
Insurance Company (since January, 1994); Corporate Financing Manager, Eastman
Kodak Company (June, 1988 to December, 1993). His address is 400 Broadway,
Cincinnati, OH 45202.
EDWARD S. HEENAN (age 54) -- Treasurer; Vice President and Controller,
Touchstone (since December, 1993); Director, Controller, Touchstone Securities
(since October, 1991); Vice President and Comptroller, The Western and Southern
Life Insurance Company (since 1987). His address is 400 Broadway, Cincinnati, OH
45202.
ANDREW S. JOSEF (age 34) -- Secretary; Director, Legal Administration,
Investors Bank & Trust Company ("Investors Bank") (since May, 1997); Senior
Associate, Sullivan & Worcester LLP (November, 1995 to May, 1997); Associate,
Goodwin, Proctor & Hoar (January, 1993 to November, 1995); Associate, Simpson
Thacher & Bartlett (prior to 1993). His address is 200 Clarendon Street, Boston,
MA 02116.
SUSAN C. MOSHER (age 43) -- Assistant Secretary; Director, Legal
Administration, 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
200 Clarendon Street, Boston, MA 02116.
KEVIN M. CONNERTY (age 34) -- 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 200 Clarendon Street, Boston, MA 02116.
PAUL J. JASINSKI (age 51) -- Assistant Treasurer; Managing Director
- - Fund Administration, Investors Bank (since July, 1985). His address is 200
Clarendon Street, Boston, MA 02116.
B-23
<PAGE> 55
Ms. Mosher and Messrs. Josef, Connerty and Jasinski also hold similar
positions for other investment companies for which Investors Bank serves as
administrator.
No director, officer or employee of the Advisor, the Portfolio
Advisors, the Administrator or any of their affiliates will receive any
compensation from the Portfolio Trust for serving as an officer or Trustee of
the Portfolio Trust. The Portfolio Trust, Select Advisors Trust A, Select
Advisors Trust C 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 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. The following table reflects trustee fees paid for the
year ended December 31, 1997.
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<PAGE> 56
Trustee Compensation Table
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from Portfolio Trust
Name of Person, from Portfolio and Fund Complex
Position Trust Paid to Trustees
<S> <C> <C>
Joseph S. Stern, Jr.,
Trustee of Portfolio
Trust $1,976.63 $ 6,750.00
Phillip R. Cox,
Trustee of Portfolio
Trust $3,079.44 $10,000.00
Robert E. Stautberg,
Trustee of Portfolio
Trust $3,079.44 $10,000.00
David Pollak,
Trustee of Portfolio
Trust $3,079.44 $10,000.00
</TABLE>
As of March 31, 1998, the Trustees and officers of the Portfolio Trust
owned in the aggregate less than 1% of the shares of any Portfolio or the
Portfolio Trust (all series taken together).
The Portfolio Trust's Declaration of Trust provides that it will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio Trust, unless, as to liability to the Portfolio Trust
or the investors in the Portfolio Trust, it is finally adjudicated that they
engaged in wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the Portfolio
Trust. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in wilful misfeasance, bad faith, gross negligence or reckless disregard
of their duties.
Item 15. Control Persons and Principal Holders of Securities.
As of March 31, 1998, the following series (each a "Fund," and
collectively, the "Funds") of Select Advisors Trust A and Select Advisors Trust
C (the "Trusts"), 311 Pike Street, Cincinnati, Ohio 45202, owned the following
percentage of the corresponding Portfolio's outstanding interests: Touchstone
Emerging Growth Fund A and Touchstone Emerging Growth Fund C owned 65% and 35%,
respectively, of the value of the
B-25
<PAGE> 57
outstanding interests in the Emerging Growth Portfolio; Touchstone Growth &
Income Fund A and Touchstone Growth & Income Fund C owned 21% and 7%,
respectively, of the value of the outstanding interests in the Growth & Income
Portfolio; Touchstone International Equity Fund A and Touchstone International
Equity Fund C owned 55% and 45%, respectively, of the value of the outstanding
interests in the International Equity Portfolio; Touchstone Balanced Fund A and
Touchstone Balanced Fund C owned 57% and 43%, respectively, of the value of the
outstanding interests in the Balanced Portfolio; Touchstone Income Opportunity
Fund A and Touchstone Income Opportunity Fund C owned 65% and 35%, respectively,
of the value of the outstanding interests in the Income Opportunity Portfolio;
and Touchstone Bond Fund A and Bond Fund C owned 11% and 4%, respectively, of
the value of the outstanding interests in the Bond Portfolio. As of March 31,
1998, The Western and Southern Life Insurance Company Separate Account A
("Separate Account A"), 400 Broadway, Cincinnati, Ohio 45202, owned 71%, 85%,
35% and 50% of the value of the outstanding interests in the Growth & Income
Portfolio, the Bond Portfolio, the Growth & Income Portfolio II and the Bond
Portfolio II, respectively. As of March 31, 1998, The Western-Southern Life
Assurance Company Separate Account 1 ("Separate Account 1"), 400 Broadway,
Cincinnati, Ohio 45202, owned 65% and 49% of the value of the outstanding
interests in the Growth & Income Portfolio II and the Bond Portfolio II,
respectively. The Western-Southern Life Assurance Company Separate Account 2
("Separate Account 2"), 400 Broadway, Cincinnati, Ohio 45202, owned % and
% of the value of the outstanding interests in the Growth and Income Portfolio
II and the Bond Portfolio II, respectively. Each Fund, Separate Account A,
Separate Account 1, or Separate Account 2, if it owns over 50% of the value of
any of the above named Portfolios, may take actions requiring a majority vote
without the approval of any other investor in such Portfolios.
Each Fund has informed the Trusts that except as permitted by the SEC,
whenever it is requested to vote on matters pertaining to the fundamental
policies of each Portfolio, the Fund will hold a meeting of shareholders and
will cast its votes as instructed by the Fund's shareholders. It is anticipated
that other registered investment companies investing in the Portfolios will
follow the same or a similar practice.
Item 16. Investment Advisory and Other Services.
Advisor
Touchstone Advisors provides service to each Portfolio pursuant to
Investment Advisory Agreements with the Portfolio 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 Board of Trustees and by a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
Each Advisory Agreement is terminable, with respect to a Portfolio,
without penalty on not more than 60 days' nor less than 30 days written notice
by (1) the Portfolio Trust when authorized either by (a) a majority vote of the
investors in each Portfolio (with the vote of each being in proportion to the
amount of their investment) or (b) a vote of a majority of the Board of Trustees
(2) the Advisor. Each Advisory Agreement and will automatically terminate in the
event of its assignment. Each
B-26
<PAGE> 58
Advisory Agreement provides that neither the Advisor nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in its services to the Portfolios,
except for wilful misfeasance, bad faith or gross negligence or reckless
disregard of its or their obligations and duties under the Advisory Agreement.
Part A contains a description of fees payable to the Advisor for
services under the Advisory Agreements.
For the periods indicated, each Portfolio incurred the following
investment advisory fees equal on an annual basis to the following percentages
of the average daily net assets of each Portfolio:
<TABLE>
<CAPTION>
Emerging International Growth & Income Growth &
Growth Equity Income Balanced Opportunity Bond Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio II Portfolio II
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.80%** 0.80%* 0.65% 0.55% 0.80%** 0.55%
For the
Year Ended
12/31/97 $48,463 $73,217 $181,803 $38,823 $66,313 $82,976 $248,984 $103,585
For the
Year Ended
12/31/96 $35,755 $55,448 $138,167 $24,065 $28,495 $70,808 $127,974 $ 72,116
For the
Year Ended
12/31/95 $26,169 $43,963 $ 94,187 $16,553 $13,479 $62,478 $88,934 $ 61,568
</TABLE>
- ------------
* Prior to May, 1997 the rate was 0.70%.
** Prior to September, 1997 the rate was 0.75%.
For the periods indicated, the Advisor has voluntarily agreed to
reimburse each Portfolio the following amounts:
<TABLE>
<CAPTION>
Emerging International Growth & Income Growth &
Growth Equity Income Balanced Opportunity Bond Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio II Portfolio II
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the
Year Ended
12/31/97 $84,098 $200,506 $39,190 $82,721 $62,571 $96,974 $190,812 $139,681
For the
Year Ended
12/31/96 $59,720 $ 84,640 $62,911 $64,645 $62,865 $60,817 $118,296 $106,315
For the
Year Ended
12/31/95 $65,261 $102,137 $37,425 $67,859 $69,419 $42,920 $ 85,300 $ 69,754
</TABLE>
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<PAGE> 59
Portfolio Advisors
The Advisor has, in turn, entered into a portfolio advisory agreement
(each a "Portfolio Agreement") with each Portfolio Advisor selected by the
Advisor for a Portfolio. Under the direction of the Advisor and, ultimately, of
the Board of Trustees of the 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).
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, Transfer Agent and Dividend
Paying Agent
Pursuant to Administration and Fund Accounting Agreements, Investors
Bank supervises the overall administration of the Portfolio 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 Portfolio Trust with applicable laws and regulations.
Investors Bank also provides persons to serve as officers of the Portfolio
Trust. As custodian, Investors Bank holds cash, securities and other assets of
the Portfolio Trust.
Part A 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 Portfolio
Trust.
The Portfolios incurred the following administration and fund accounting fees
for the periods indicated:
<TABLE>
<CAPTION>
Emerging International Growth & Income Growth &
Growth Equity Income Balanced Opportunity Bond Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio II Portfolio II
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended
12/31/97 $100,241* $222,430* $111,938* $97,151* $95,319* $104,717* $79,501 $79,501
For the Year
Ended
12/31/96** $61,789 $64,008 $61,966 $64,985 $61,674 $61,716 $61,786 $61,396
For the Year
Ended
12/31/95 $47,425 $56,773 $46,643 $47,446 $45,723 $47,775 $46,743 $47,124
</TABLE>
- -----------------
* For the Year-Ended December 31, 1997, fee includes custody fees.
** Includes administration and fund accounting fees paid to Signature and
Investors Bank.
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 willful 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.
Investors Bank also serves as the Portfolio Trust's transfer agent and
dividend paying agent.
B-28
<PAGE> 60
Counsel and Independent Accountants
Frost & Jacobs LLP, 2500 PNC Center, 201 East 5th Street, Cincinnati,
Ohio 45201, serves as counsel to the Portfolio Trust and each Portfolio. Coopers
& Lybrand L.L.P. acts as independent accountants of the Portfolio Trust and each
Portfolio, providing audit services, tax return preparation, and assistance and
consultation in connection with the review of filings with the SEC. The
principal business address of Coopers & Lybrand L.L.P. is One Post Office
Square, Boston, Massachusetts 02109.
Item 17. Brokerage Allocation and Other Practices.
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
B-29
<PAGE> 61
national securities exchange transactions), size of order, difficulty of
execution and skill required of the executing broker-dealer. The Portfolio
Advisors review on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.
The Portfolio Advisors are authorized, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Portfolio with a broker to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. A Portfolio Advisor may use this research
information in managing a Portfolio's assets, as well as the assets of other
clients.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Board of Trustees may determine, the Portfolio Advisors may consider sales
of shares of the Portfolio 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 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.
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<PAGE> 62
The Portfolios paid the following brokerage commissions for the periods
indicated:
<TABLE>
<CAPTION>
Emerging International Growth & Income Growth & Bond
Aggregate Growth Equity Income Balanced Opportunity Bond Income Portfolio
Commission Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio II II
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the
Year Ended
12/31/97 $13,110 $57,618 $94,360 $12,476 $0 $0 $125,091 $0
For the
Year Ended
12/31/96 $11,550 $27,326 $45,100 $4,379 $0 $0 $40,690 $0
For the
Year Ended
12/31/95 $9,127 $21,883 $34,430 $4,519 $0 $0 $30,788 $0
</TABLE>
Item 18. Capital Stock and Other Securities.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in separate series, such as the Portfolios. No series of
the Portfolio Trust has any preference over any other series. Investors in the
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<PAGE> 63
Portfolios are entitled to participate pro rata in distributions of taxable
income, loss, gain and credit of the Portfolios. Upon liquidation or dissolution
of the Portfolios, investors are entitled to share pro rata in the net assets of
the Portfolios available for distribution to investors. Investments in the
Portfolios have no preference, preemptive, conversion or similar rights and are
fully paid and nonassessable, except as set forth below. Investments in the
Portfolios may not be transferred.
Each investor in the Portfolios is entitled to a vote in proportion to
the amount of its investment. The Portfolios and the other series of the
Portfolio Trust will all vote together in certain circumstances (e.g., election
of the Portfolio Trust's Trustees and auditors, as required by the 1940 Act and
the rules thereunder). One or more series of the Portfolio Trust could control
the outcome of these votes. Investors do not have cumulative voting rights, and
investors holding more than 50% of the aggregate beneficial interests in the
Portfolio Trust, or in a series as the case may be, may control the outcome of
votes and in such event the other investors in the Portfolios, or in the series,
would not be able to elect any Trustee. The Portfolio Trust is not required and
has no current intention to hold annual meetings of investors but the Portfolios
will hold special meetings of investors when in the judgment of the Portfolio
Trust's Trustees it is necessary or desirable to submit matters for an investor
vote. No material amendment may be made to the Portfolio Trust's Declaration of
Trust without the affirmative majority vote of investors (with the vote of each
being in proportion to the amount of its investment).
The Portfolio Trust, with respect to each Portfolio, may enter into a
merger or consolidation, or sell all or substantially all of its assets, if
approved by the vote of two-thirds of the Portfolios' investors (with the vote
of each being in proportion to its percentage of the beneficial interests in a
Portfolio), except that if the Trustees of the Portfolio Trust recommend such
sale of assets, the approval by vote of a majority of the investors (with the
vote of each being in proportion to its percentage of the beneficial interests
of each Portfolio) will be sufficient. A Portfolio may also be terminated (i)
upon liquidation and distribution of its assets, if approved by the vote of
two-thirds of its investors (with the vote of each being in proportion to the
amount of its investment), or (ii) by the Trustees of the Portfolio Trust by
written notice to its investors.
The Portfolio Trust is organized as a trust under the laws of the State
of New York. Investors in the Portfolios or any other series of the Portfolio
Trust will be held personally liable for its obligations and liabilities,
subject, however, to indemnification by the Portfolio Trust in the event that
there is imposed upon an investor a greater portion of the liabilities and
obligations than its proportionate beneficial interest. The Declaration of Trust
also provides that the Portfolio Trust shall maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the protection
of the Portfolio Trust, its investors, Trustees, officers, employees and agents
covering possible tort and other liabilities. Thus, the risk of an investor
incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio Trust
itself was unable to meet its obligations with respect to any series thereof.
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<PAGE> 64
The Declaration of Trust further provides that obligations of the
Portfolios or any other series of the Portfolio Trust are not binding upon the
Trustees individually but only upon the property of the Portfolios or other
series of the Portfolio Trust, as the case may be, and that the Trustees will
not be liable for any action or failure to act, but nothing in the Declaration
of Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
The Portfolio Trust reserves the right to create and issue a number of
series, in which case investments in each series would participate equally in
the earnings and assets of the particular series. Investors in each series would
be entitled to vote separately to approve advisory agreements or changes in
investment policy, but investors of all series may vote together in the election
or selection of Trustees, principal underwriters and accountants. Upon
liquidation or dissolution of any series of the Portfolio Trust, the investors
in that series would be entitled to share pro rata in the net assets of that
series available for distribution to investors.
Item 19. Purchase, Redemption and Pricing of Securities Being Offered.
Beneficial interests in each Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of
Registrant," "Purchase of Securities Being Offered" and "Redemption or
Repurchase" in Part A.
Each Portfolio determines its net asset value as of 4:00 p.m., New York
time, on each day on which the NYSE is open for trading ("Fund Business Day"),
by dividing the value of each Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) by the value of the investment of the investors in each Portfolio at
the time the determination is made. (As of the date of this Registration
Statement, the NYSE is open every weekday except for: (a) the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day; and (b) the
preceding Friday or the subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively. Purchases and withdrawals
will be effected at the time of determination of net asset value next following
the receipt of any purchase or withdrawal order.
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market. Other assets are valued at fair value using
methods determined in good faith by the Board of Trustees.
B-33
<PAGE> 65
Item 20. Tax Status.
The Portfolio Trust is organized as a trust under New York law. Under
the anticipated method of operation of the Portfolio Trust, the Portfolios will
not be subject to any income tax. However, each investor in the Portfolios will
be taxable on its share (as determined in accordance with the governing
instruments of the Portfolio Trust) of a Portfolio's ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
The Portfolio Trust's taxable year-end is December 31. Although, as
described above, each Portfolio will not be subject to federal income tax, the
Portfolio Trust will file appropriate income tax returns with respect to each
Portfolio.
It is intended that the assets, income and distributions of the
Portfolios will be managed in such a way that an investor in each Portfolio will
be able to satisfy the requirements of Subchapter M of the Code, assuming that
the investor invested all of its assets in that Portfolio.
There are certain tax issues that will be relevant to only certain of
the investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Portfolios. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions of
assets will not be taxable provided certain requirements are met. Such investors
are advised to consult their own tax advisors as to the tax consequences of an
investment in the Portfolios.
Foreign Securities. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to determine
the effective rate of foreign tax in advance since the amount of each
Portfolio's assets to be invested in various countries will vary.
If each Portfolio is liable for foreign taxes, and if more than 50% of
the value of each 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 its investors. Pursuant to such election, the
amount of foreign taxes paid will be included in the income of each Portfolio's
investors, and such investors (except tax-exempt investors) may, subject to
certain limitations, claim either a credit or deduction for the taxes. Each such
investor will be notified after the close of each Portfolio's taxable year
whether the foreign taxes paid will "pass through" for that year and, if so,
such notification will designate (a) the investor'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 an investor 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
B-34
<PAGE> 66
foreign currency gains. Because capital gains realized by each 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.
Item 21. Underwriters.
The placement agent for the Portfolio Trust is Touchstone Securities,
which receives no additional compensation for serving in this capacity.
Investment companies, insurance company separate accounts, common and commingled
trust funds and similar organizations and entities may continuously invest in
each Portfolio.
Item 22. Calculation of Performance Data.
Not applicable.
Item 23. Financial Statements.
The following financial statements for the Portfolios at the end of 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 Part B.
EMERGING GROWTH PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO, GROWTH & INCOME
PORTFOLIO, BALANCED PORTFOLIO, INCOME OPPORTUNITY PORTFOLIO AND BOND
PORTFOLIO
Schedule of Investments, December 31, 1997
Statement of Assets and Liabilities, December 31, 1997
Statement of Operations, for the year ended December 31, 1997
Statement of Changes in Net Assets for the years ended
December 31, 1997 and December 31, 1996
Notes to Financial Statements
Supplementary Data
Report of Independent Accountants
GROWTH & INCOME PORTFOLIO II AND BOND PORTFOLIO II
Schedule of Investments, December 31, 1997
Statement of Assets and Liabilities, December 31, 1997
Statement of Operations, for the year ended December 31, 1997
Statement of Changes in Net Assets, for the years ended
December 31, 1997 and December 31, 1996
Notes to Financial Statements
Supplementary Data
Report of Independent Accountants
B-35
<PAGE> 67
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's and S&P,
which represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality.
Moody's Bond Ratings
Aaa. Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." 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.
Appendix A-1
<PAGE> 68
Ca. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated. Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the 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 Ratings
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.
Appendix A-2
<PAGE> 69
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
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.
Appendix A-5
<PAGE> 70
IFS0051D
SELECT ADVISORS PORTFOLIOS
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
The financial statements called for by this Item are included in Part B and
listed in Item 23 hereof.
(b) Exhibits
1(A). Declaration of Trust of the Registrant.3
1(B). Amendment No. 1 to Declaration of Trust of the Registrant.5
1(C). Form of Amendment No. 2 to Declaration of Trust of the Registrant.5
2. By-Laws of the Registrant.3
5(A). Amended Investment Advisory Agreement between the Registrant and
Touchstone Advisors, Inc. ("Touchstone"), including Amendment No. 1,
Amendment No. 2, and Amendment No. 3.5
5(B). Portfolio Advisory Agreement between Touchstone and David L. Babson
<PAGE> 71
and Company, Inc.3
5(C). Portfolio Advisory Agreement between Touchstone and Westfield
Capital Management Company, Inc.5
5(D). Portfolio Advisory Agreement between Touchstone and BEA Associates.3
5(E). Portfolio Advisory Agreement between Touchstone and Scudder Kemper
Investments, Inc. (with respect to Growth & Income Portfolio and Growth
& Income II Portfolio).5
5(F). Portfolio Advisory Agreement between Touchstone and Fort Washington
Investment Advisors, Inc. (with respect to Bond Portfolio).3
5(G). Portfolio Advisory Agreement between Touchstone and Alliance Capital
Management, L.P.3
5(H). Portfolio Advisory Agreement between Touchstone and OpCap Advisors.5
5(I). Amended Investment Advisory Agreement between the Registrant and
Touchstone.4
8. Custodian Agreement between the Registrant and Investors Bank &
Trust Company ("Investors Bank").1
9(A). Administration and Services Agreement between Investors Bank and the
Registrant.4
9(B). Fund Accounting Agreement between Investors Bank and the Registrant.4
13. Investment representation letters of initial investors.2
17. Powers of Attorney.5
27. Financial Data Schedules.5
1 Incorporated herein by reference from the registration statement of the
Registrant on Form N-1A (the "Registration Statement") as originally filed with
the Securities and Exchange Commission on September 23, 1994.
2 Incorporated herein by reference from Amendment No. 1 to the Registration
Statement as originally filed with the Securities and Exchange Commission
on November 14, 1994.
3 Incorporated herein by reference from Amendment No. 3 to the Registration
Statement as originally filed with the Securities and Exchange Commission via
EDGAR on April 29, 1996.
<PAGE> 72
4 Incorporated herein by reference from Amendment No. 4 to the Registration
Statement as originally filed with the Securities and Exchange Commission on
April 24, 1997.
5 Filed herein.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Record Holders
Series of Beneficial Interests (as of March 31, 1998)
<S> <C>
Emerging Growth Portfolio 2
International Equity Portfolio 2
Growth & Income Portfolio 3
Growth & Income Portfolio II 7
Balanced Portfolio 2
Income Opportunity Portfolio 2
Bond Portfolio 3
Bond Portfolio II 6
</TABLE>
Item 27. Indemnification.
Reference is hereby made to Article V of the Registrant's Declaration of Trust,
filed as an Exhibit herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940,
as amended (the "1940 Act").
Item 28. Business and Other Connections of Investment Advisor.
Touchstone Advisors, Inc. ("Touchstone Advisors") serves as investment
advisor to the Portfolio Trust.
Set forth below are the names, principal business addresses and positions of
each director and officer of Touchstone Advisors. Unless otherwise noted, the
principal business address of these individuals is Touchstone Advisors, Inc.,
311 Pike Street, Cincinnati, Ohio 45202. Unless otherwise specified, none of the
officers and directors of Touchstone Advisors serve as officers and Trustees of
the Portfolio Trust.
<TABLE>
<CAPTION>
POSITION AND OFFICES
WITH TOUCHSTONE POSITION AND OFFICES
NAME ADVISORS WITH THE REGISTRANT
<S> <C> <C>
James N. Clark* Director none
Edward G. Harness, Jr. Director, President Chairman of the
and Chief Executive Board, President and
Officer Chief Executive
Officer
William F. Ledwin* Director none
</TABLE>
<PAGE> 73
<TABLE>
<S> <C> <C>
Donald J. Wuebbling* Director, Secretary
and Chief Legal Officer none
James J. Vance Treasurer Treasurer
Edward S. Heenan* Vice President Controller
and Controller
Richard K. Taulbee* Vice President none
Patricia Wilson Chief Compliance Officer none
Robert F. Morand* Assistant Secretary none
Robert A. Dressman* Assistant Treasurer none
Timothy D. Speed* Assistant Treasurer none
</TABLE>
- -------------------
*Principal business address is 400 Broadway, Cincinnati, Ohio 45202
Item 29. Principal Underwriters.
Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in part, at
the office of the Registrant and the following locations:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Touchstone Securities, Inc. 311 Pike Street
(placement agent) Cincinnati, Ohio 45202
Touchstone Advisors, Inc. 311 Pike Street
(investment advisor) Cincinnati, Ohio 45202
Investors Bank & Trust Company 200 Clarendon Street
(administrator, custodian, Boston, Massachusetts 02116
fund accounting agent and
transfer agent)
</TABLE>
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish to each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to shareholders, including the information called for in Item 5A
of this Part C, upon request and without charge.
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and Commonwealth of Massachusetts on the 28th day of April, 1998.
SELECT ADVISORS PORTFOLIOS
By /S/ ANDREW S. JOSEF
Andrew S. Josef
Secretary
<PAGE> 75
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
1(B). Amendment No. 1 to Declaration of Trust of the Registrant.
1(C). Form of Amendment No. 2 to Declaration of Trust of the Registrant.
5(A). Amended Investment Advisory Agreement between the Registrant and
Touchstone, including Amendment No. 1, Amendment No. 2 and Amendment
No. 3.
5(C). Portfolio Advisory Agreement between Touchstone and Westfield Capital
Management Company, Inc.
5(E). Portfolio Advisory Agreement between Touchstone and Scudder Kemper
Investments, Inc. (with respect to Growth & Income Portfolio and
Growth & Income II Portfolio).
5(H). Portfolio Advisory Agreement between Touchstone and OpCap Advisors.
17. Powers of Attorney
27. Financial Data Schedules.
<PAGE> 1
SELECT ADVISORS PORTFOLIOS
Amendment No. 1
to
Declaration of Trust
The undersigned, being at least a majority of the trustees of Select
Advisors Portfolios, a master trust fund established under the laws of the State
of New York pursuant to a Declaration of Trust dated as of February 7, 1994 (the
"Declaration of Trust"), pursuant to Section 10.4(a) of the Declaration of
Trust, hereby amend the Declaration of Trust as follows:
1. The definition of "Holder" in Section 1.2., DEFINITIONS, is hereby
deleted and replaced by the following:
"HOLDER" shall mean the record holder of any Interest. With respect to
Bond Portfolio II and Growth & Income Portfolio II, at no time will a
Holder be a holder not permitted by Treasury Regulations Section
1.817-5(f)(2)(i)(A), which includes those holders mentioned in
Treasury Regulations Section 1.817-5(f)(3).
2. The definition of "Institutional Investor(s)" in Section 1.2.,
DEFINITIONS, is hereby deleted and replaced by the following:
"INSTITUTIONAL INVESTOR(S)" shall mean any regulated investment
company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether
organized within or without the United States of America, other than
an individual, S corporation, partnership or grantor trust
beneficially owned by any individual, S corporation or partnership,
and which in the case of Bond Portfolio II and Growth & Income
Portfolio II, is a holder permitted by Treasury Regulations Section
1.817-5(f)(2)(i)(A), which includes those holders mentioned in
Treasury Regulations Section 1.817-5(f)(3).
3. Section 10.2, DISSOLUTION, is hereby deleted and replaced by the
following:
DISSOLUTION. Any Series shall be dissolved (i) by the affirmative vote
of the Holders of not less than two-thirds of the Interests in the
Series at any meeting of the Holders or by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented
to in writing by the Holders of not less than two-thirds of such
Interests, (ii) by the Trustees by written notice of dissolution to
the Holders of the
<PAGE> 2
Interests in the Series, or (iii) upon the bankruptcy or withdrawal of
any Holder of an Interest in the Series, the Series shall be dissolved
effective 120 days after the event. However, the remaining Holders of
Interests in such Series may, by majority vote, agree to continue the
business of the Series even if there has been such a dissolution. The
Trust may be dissolved by action of the Trustees upon the dissolution
of the last remaining Series.
This Amendment may be simultaneously executed in several counterparts, each
of which shall be deemed to be an original, and such counterparts, together,
shall constitute one and the same instrument, which shall be sufficiently
evidenced by any one such original counterpart.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of March 30, l995.
/s/ Phillip R. Cox
----------------------------------------
Phillip R. Cox
As Trustee and not individually
/s/ Edward G. Harness, Jr.
----------------------------------------
Edward G. Harness, Jr.
As Trustee and not individually
/s/ David Pollak
----------------------------------------
David Pollak
As Trustee and not individually
/s/ Robert E. Stautberg
----------------------------------------
Robert E. Stautberg
As Trustee and not individually
/s/ Joseph S. Stern, Jr.
----------------------------------------
Joseph S. Stern, Jr.
As Trustee and not individually
/s/ William J. Williams
----------------------------------------
William J. Williams
As Trustee and not individually
<PAGE> 1
SELECT ADVISORS PORTFOLIOS
Amendment No. 2 to Declaration of Trust
First Amended an Restated Establishment and
Designation of Series of Shares of Beneficial Interest
(par value $0.00001 per share)
Dated as of May 1, 1998
The undersigned, being the Trustees of Select Advisors Portfolios (the
"Trust"), a master trust fund under the law of the State of New York, acting
pursuant to Section 6.2 and Section 10.4 of the Trust's Declaration of Trust,
dated February 7, 1994, as amended (the "Declaration"), hereby amend and
restate the Establishment and Designation of Series appended to the Declaration
to add an additional Series (as defined in the Declaration) of the Trust, to be
designated the Value Plus Portfolio and to delete the series heretofore
designated the Municipal Bond Portfolio, as the result of which changes the
series of the Trust (herein called the "Portfolios" or individually, a
"Portfolio") consit of the following Portfolios:
Bond Portfolio
Bond Portfolio II
Balanced Portfolio
Growth & Income Portfolio
Growth & Income Portfolio II
Income Opportunity Portfolio
Emerging Growth Portfolio
International Equity Portfolio
Value Plus Portfolio
The Portfolios shall have the relative rights and preferences as set
forth in Article 6 of the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 17th day of April, 1998. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
-------------------------
Phillip. R. Cox
-------------------------
Edward G. Harness, Jr.
-------------------------
David Pollak
-------------------------
Robert E. Stauberg
-------------------------
Joseph S. Stern, Jr.
-------------------------
William J. Williams
<PAGE> 1
Exhibit 5(A)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of September 9, 1994, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and SELECT
ADVISORS PORTFOLIOS, a New York master trust created pursuant to a Declaration
of Trust dated February 7, 1994, as amended from time to time (the "Trust").
WHEREAS, the Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act"); and
WHEREAS, interests in the Trust are divided into separate subtrusts (each,
along with any subtrust which may in the future be established, a "Portfolio");
and
WHEREAS, the Trust desires to avail itself of the services, information,
advice, assistance and facilities of an investment advisor and to have an
investment advisor perform for it various investment advisory and research
services and other management services; and
WHEREAS, the Advisor is an investment Advisor registered under the
Investment Advisers Act of 1940, as amended, and desires to provide investment
advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. he 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
<PAGE> 2
services and to assume the following obligations:
a) The Advisor will manage the investment and reinvestment of
the assets of each Portfolio, subject to and in accordance
with the respective investment objectives and policies of
each Portfolio and any directions which the Trust's Board
of Trustees may issue from time to time. In pursuance of
the foregoing, the Advisor may engage separate investment
advisors ("Portfolio Advisor(s)") to make all
determinations with respect to the investment of the assets
of each Portfolio, to effect the purchase and sale of
portfolio securities and to take such steps as may be
necessary to implement the same. Such determination and
services by each Portfolio Advisor shall also include
determining the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining
to the portfolio securities shall be exercised. 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.
2
<PAGE> 3
d) The Advisor shall bear its expenses of providing services to
the Trust pursuant to this Agreement except such expenses as
are undertaken by the Trust. In addition, the Advisor shall
pay the salaries and fees, if any, of all Trustees, officers
and employees of the Trust who are affiliated persons, as
defined in Section 2(a)(3) of the 1940 Act, of the Advisor.
e) The Advisor will manage, or will cause the Portfolio Advisors
to manage, the Portfolio Assets and the investment and
reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the
Internal Revenue Code of 1986, as amended.
3 EXPENSES. The Trust shall pay the expenses of its operation, including
but not limited to (i) charges and expenses for Trust accounting, pricing and
appraisal services and related overhead, (ii) the charges and expenses of the
Portfolio's auditor's; (iii) the charges and expenses of any custodian, transfer
agent, plan agent, dividend disbursing agent and registrar appointed by the
Trust with respect to the Portfolios; (iv) brokers' commissions, and issue and
transfer taxes, chargeable to the Trust in connection with securities
transactions to which the Trust is a party; (v) insurance premiums, interest
charges, dues and fees for Trust membership in trade associations and all taxes
and fees payable by the Trust to federal, state or other governmental agencies;
(vi) fees and expenses involved in registering and maintaining registrations of
the Trust and/or interests in the Trust with the SEC, state or blue sky
securities agencies and foreign countries, including the preparation of
Prospectuses and Statements of Additional Information for filing with the SEC;
(vii) all expenses of meetings of Trustees and of interest holders of the Trust
and of preparing, printing and distributing prospectuses, notices, proxy
statements and all reports to shareholders and to governmental agencies; (viii)
charges and expenses of legal counsel to the Trust; (ix) compensation of
Trustees of the Trust; (x) the cost of preparing and printing share
certificates; and (xi) interest on borrowed money, if any.
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
3
<PAGE> 4
method as the Trust uses to compute the net asset value of
that Portfolio.
b) The Advisor will pay all fees owing to each Portfolio Advisor,
and the Trust shall not be obligated to the Portfolio Advisors
in any manner with respect to the compensation of such
Portfolio Advisors.
c) The Advisor reserves the right to waive all or a part of its
fee.
5 ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. It is understood that the Trustees and
officers of the Trust are or may become interested in the Advisor as
stockholders, officers or otherwise, and that stockholders and officers of the
Advisor are or may become similarly interested in the Trust, and that the
Advisor may become interested in the Trust as a shareholder or otherwise.
6 USE OF NAMES. The Trust will not use the name of the Advisor in any
prospectus, sales literature or other material relating to the Trust in any
manner not approved prior thereto by the Advisor; except that the Trust may use
such name in any document which merely refers in accurate terms to its
appointment hereunder or in any situation which is required by the SEC or a
state securities commission; and provided further, that in no event shall such
approval be unreasonably withheld. The Advisor will not use the name of the
Trust in any material relating to the Advisor in any manner not approved prior
thereto by the Trust; except that the Advisor may use such name in any document
which merely refers in accurate terms to the appointment of the Advisor
hereunder or in any situation which is required by the SEC or a state securities
commission. In all other cases, the parties may use such names to the extent
that the use is approved by the party named, it being agreed that in no event
shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that, in consideration of the
Advisor's assumption of certain organization expenses of the Trust and of the
various Portfolios, the Advisor has reserved for itself the rights to the name
"Select Advisors Portfolios" (or any similar names) and that use by the Trust of
such name shall continue only with the continuing consent of the Advisor, which
consent may be withdrawn at any time, effective immediately, upon written notice
thereof to the Trust.
7 LIMITATION OF LIABILITY OF THE ADVISOR.
a) Absent willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Advisor, the Advisor shall not be
subject to liability to the Trust or to any holder of an
interest in any Portfolio for any act or omission in the
course of, or connected with, rendering services
4
<PAGE> 5
hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security. As used in this
Section 7, the term "Advisor" shall include Touchstone
Advisors, Inc. and/or any of its affiliates and the directors,
officers and employees of Touchstone Advisors, Inc. and/or of
its affiliates.
b) The Trust will indemnify the Advisor against, and
hold it harmless from, any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and
expenses) resulting from acts or omissions of the Trust.
Indemnification shall be made only after: (i) a final decision
on the merits by a court or other body before whom the
proceeding was brought that the Trust was liable for the
damages claimed or (ii) in the absence of such a decision, a
reasonable determination based upon a review of the facts,
that the Trust was liable for the damages claimed, which
determination shall be made by either (a) the vote of a
majority of a quorum of Trustees of the Trust who are neither
"interested persons" of the Trust nor parties to the
proceeding ("disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties hereto,
whose determination shall be set forth in a written opinion.
The Advisor shall be entitled to advances from the Trust for
payment of the reasonable expenses incurred by it in
connection with the matter as to which it is seeking
indemnification in the manner and to the fullest extent that
would be permissible under the applicable provisions of the
General Corporation Law of Ohio. The Advisor shall provide to
the Trust a written affirmation of its good faith belief that
the standard of conduct necessary for indemnification under
such law has been met and a written undertaking to repay any
such advance if it should ultimately be determined that the
standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a)
the Advisor shall provide security in form and amount
acceptable to the Trust for its undertaking; (b) the Trust is
insured against losses arising by reason of the advance; or
(c) a majority of a quorum of the Trustees of the Trust, the
members of which majority are disinterested non-party
Trustees, or independent legal counsel in a written opinion,
shall have determined, based on a review of facts readily
available to the Trust at the time the advance is proposed to
be made, that there is reason to believe that the Advisor will
ultimately be found to be entitled to indemnification.
8 LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it has
received notice of and accepts the limitations upon the Trust's liability set
forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder in any case shall be limited to the Trust and to its
assets and that the Advisor shall not seek
5
<PAGE> 6
satisfaction of any such obligation from the holders of the interests in any
Portfolio nor from any Trustee, officer, employee or agent of the Trust.
9 FORCE MAJEURE. The Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Advisor shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
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
6
<PAGE> 7
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered inn their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
Pursuant to the Trust's Declaration of Trust, dated as of February 7, 1994, the
obligations of this Agreement are not binding upon any of the Trustees or
interestholders of the Trust individually, but bind only the Trust estate.
SELECT ADVISORS PORTFOLIOS
By /s/ Edward G. Harness, Jr.
-------------------------------------
Edward G. Harness, Jr., President
Attest:
/s/ Teresa Massong
- ------------------
TOUCHSTONE ADVISORS, INC.
By /s/ Jill T. McGruder
-------------------------------------
Jill T. McGruder, Vice President
Attest:
/s/ Teresa Massong
- ------------------
7
<PAGE> 8
SCHEDULE 1
<TABLE>
<S> <C>
Emerging Growth Portfolio 0.80%
International Equity Portfolio 0.95%
Growth & Income Portfolio 0.75%
Growth & Income Portfolio II 0.75%
Balanced Portfolio 0.70%
Income Opportunity 0.65%
Bond Portfolio 0.55%
Bond Portfolio II 0.55%
Municipal Bond Portfolio 0.55%
</TABLE>
8
<PAGE> 9
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 the Advisor has requested that its fees accordingly, also be increased; and
WHEREAS, shareholders of the Trust, at a meeting of such shareholders held
on April 23, 1997, approved the proposed increase in such fees to be paid under
the Advisory Agreement.
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.
9
<PAGE> 10
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: /s/ Edward G. Harness, Jr.
---------------------------------
Edward G. Harness, Jr., President
TOUCHSTONE ADVISORS INC.
By: /s/ Brian J. Manley
-----------------------
10
<PAGE> 11
Exhibit A to Amendment No 1
to Advisory Agreement
SCHEDULE 1
<TABLE>
<S> <C>
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%
</TABLE>
11
<PAGE> 12
AMENDMENT NO. 2
TO
INVESTMENT ADVISORY AGREEMENT
This Amendment No. 2 to Investment Advisory Agreement is dated as of
September 18, 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 has engaged separate portfolio
advisors for each of the Trust's portfolios; and
WHEREAS, Fort Washington Investment Advisors, Inc. ("Fort Washington")
resigned as portfolio advisor to the Trust's Growth & Income Portfolios (the
"Portfolios"), effective at the close of business on August 31, 1997; and
WHEREAS, pursuant to approval given by the Trust's Board of Trustees, the
Advisor, on behalf of the Portfolios, entered into a Portfolio Advisory
Agreement, effective September 1, 1997, with Scudder Stevens & Clark, a
registered investment advisor ("Scudder"), under which Scudder is now acting as
Portfolio Advisor to the Portfolio (the "Portfolio Agreement"); and
WHEREAS, the holders of interests in the Portfolios approved the Portfolio
Agreement in meetings and actions held and taken on September 18,1997; and
WHEREAS, the advisory fees to be paid by the Advisor to Scudder under the
Portfolio Agreement for all periods after September 18, 1997 will be higher than
the fees formerly paid to Fort Washington under their portfolio advisor
agreement for the Portfolio, and the Advisor has requested that its fees,
accordingly, also be increased; and
WHEREAS, the holders of interests in the Portfolios approved such increase
in fees under the Advisory Agreement in meetings and actions held and taken on
September 18, 1997;and
NOW, THEREFORE, Schedule 1 to the Advisory Agreement is hereby amended,
effective as of September 18, 1997, to read as set forth in Exhibit A to this
Amendment, the sole change in such Schedule being an increase in the advisory
fees to be paid by the Portfolio, from 0.75% to 0.80%, on the first $150 million
of average daily net assets of the Portfolios.
12
<PAGE> 13
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 PORTFOLIOS
By: /s/ Edward G. Harness, Jr.
------------------------------
Edward G. Harness, Jr.,
President
TOUCHSTONE ADVISORS INC.
By: /s/ Brian J. Manley
-----------------------
13
<PAGE> 14
Exhibit A to Amendment No. 2 to
Advisory Agreement
SCHEDULE 1
<TABLE>
<S> <C>
Emerging Growth Portfolio 0.80%
Growth & Income Portfolio 0.80% on the first $150 million of average
daily net assets and 0.75% on such assets
in excess of $150 million
Growth & Income II Portfolio 0.80% on the first $150 million of average
daily net assets and 0.75% on such assets
in excess of $150 million
International Equity Portfolio 0.95%
Balanced Portfolio 0.80%
Income Opportunity 0.65%
Bond Portfolio 0.55%
Bond Portfolio II 0.55%
</TABLE>
14
<PAGE> 15
AMENDMENT NO. 3
TO
INVESTMENT ADVISORY AGREEMENT
BETWEEN
TOUCHSTONE ADVISORS, INC. AND SELECT ADVISORS PORTFOLIOS
This Amendment No. 3 to Investment Advisory Agreement is dated as of May
1, 1998 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
WHEREAS, a Sub-Trust or series of the Trust to be named Touchstone Value
Plus Portfolio has been established and designated by the Trust's Board of
Trustees;
NOW, THEREFORE, Schedule 1 to the Advisory Agreement is hereby amended,
effective as of May 1, 1998, to read as set forth in Exhibit A to this
Amendment, the sole change in such Schedule being the addition of the Value Plus
Portfolio.
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 PORTFOLIOS
By: /s/ Edward G. Harness, Jr.
--------------------------------
Edward G. Harness, Jr.,
President
TOUCHSTONE ADVISORS INC.
By: /s/ Patricia J. Wilson
----------------------------
Patricia J. Wilson
15
<PAGE> 16
Exhibit A to Amendment No. 3 to
Investment Advisory Agreement
SCHEDULE 1
<TABLE>
<S> <C>
Emerging Growth Portfolio 0.80%
Growth & Income Portfolio 0.80% on the first $150 million of average
daily net assets and 0.75% on such assets
in excess of $150 million
Growth & Income II Portfolio 0.80% on the first $150 million of average
daily net assets and 0.75% on such assets
in excess of $150 million
International Equity Portfolio 0.95%
Balanced Portfolio 0.80%
Income Opportunity Portfolio 0.65%
Bond Portfolio 0.55%
Bond Portfolio II 0.55%
Value Plus Portfolio 0.75%
</TABLE>
16
<PAGE> 1
Exhibit 5(C)
PORTFOLIO ADVISORY AGREEMENT
EMERGING GROWTH PORTFOLIO
SELECT ADVISORS PORTFOLIOS
This PORTFOLIO ADVISORY AGREEMENT is made as of the 30th day of October,
1997, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the
"Advisor"), and Westfield Capital Management Company, Inc., a Massachusetts
corporation (the "Portfolio Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Select
Advisors Portfolios, a New York trust (the "Trust") registered under the
Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory
services with respect to certain assets of the Emerging Growth 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 Second Amended and Restated 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 that portion of the assets of the Portfolio allocated to it by
the Advisor (such portion being herein called 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
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 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 Portfolio Assets 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 Sponsor Services, 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 Sponsor Services,
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, (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 those
institutional clients to which the Portfolio Advisor provides investment
management services, subject to receipt of the consent of such clients to the
use of their names.
c. The Portfolio Advisor will, in the name of the Portfolio, place
orders for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration statements
under the 1940 Act and the Securities Act of 1933, as such registration
statements may be in effect from time to time. In connection with the placement
of orders for the execution of portfolio transactions, the Portfolio Advisor
will create and maintain all necessary brokerage records of the Portfolio in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the 1940 Act. All records shall
be the property of the Trust and shall be available for inspection and use by
the Securities and Exchange Commission (the "SEC"), the Trust or any person
retained by the Trust. Where applicable, such records shall be maintained by
the Advisor for the periods and in the places required by Rule 31a-2 under the
1940 Act. When placing orders with brokers
-2-
<PAGE> 3
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.
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 Investment Company Act of 1940 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
-3-
<PAGE> 4
monthly fee equal on an annual basis to 0.45% of the first $10 million of
the average daily net assets of the Portfolio managed by the Portfolio
Advisor, 0.40% of the average daily net assets of the Portfolio managed by
the Portfolio Advisor in excess of $10 million and up to $50 million and
0.35% of the average daily net assets of the Portfolio managed by the
Portfolio Advisor in excess of $50 million. Such fee shall be computed and
accrued daily. If the Portfolio Advisor serves in such capacity for less
than the whole of any period specified in this Section 3a, the compensation
to the Portfolio Advisor shall be prorated. For purposes of calculating the
Portfolio Advisor's fee, the daily value of the Portfolio's net assets
shall be computed by the same method as the Trust uses to compute the net
asset value of the Portfolio for purposes of purchases and redemptions of
interests thereof.
b. The Portfolio Advisor reserves the right to waive all or a part of
its fees hereunder.
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio Advisor will
report to the Board of Trustees of the Trust (at regular quarterly meetings and
at such other times as such Board of Trustees reasonably shall request) (i) the
financial condition and prospects of the Portfolio Advisor, (ii) the nature and
amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding
any potential conflicts of interest arising by reason of its continuing
provision of advisory services to the Portfolio and to its other accounts, and
(iv) such other information as the Board of Trustees shall reasonably request
regarding the Portfolio, the Portfolio's performance, the services provided by
the Portfolio Advisor to the Portfolio as compared to its other accounts and
the plans of, and the capability of, the Portfolio Advisor with respect to
providing future services to the Portfolio and its other accounts. At least
annually, the Portfolio Advisor will provide to the Trustees information
regarding the composite return of such of its other accounts as are comparable,
in investment objective and composition, to the Portfolio. The Portfolio
Advisor agrees to submit to the Trust a statement defining its policies with
respect to the allocation of investment opportunities 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
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<PAGE> 5
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 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, until December 31, 1998; and it shall continue
thereafter provided that such continuance is specifically approved by the
parties and, in addition, at lease 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.
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b. This Agreement may be terminated at any time, without payment of
any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Portfolio,
in any such case upon not less than 60 days' prior written notice to the
Portfolio Advisor and (ii) by the Portfolio Advisor upon not less than 60
days' prior written notice to the Advisor and the Trust. This Agreement
shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required by
applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Portfolio affected by such change.
d. The terms "assignment," "interested persons" and "majority" of
the outstanding voting securities shall have the meaning set forth for such
terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be One Financial Center -- 27th Floor,
Boston, MA 02111.
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.
Attest: TOUCHSTONE ADVISORS, INC.
/s/ Brian J. Manley By /s/ Edward G. Harness, Jr.
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Name: Brian J. Manley Edward G. Harness, Jr.
Title: Vice President President
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Attest: WESTFIELD CAPITAL MANAGEMENT
COMPANY, INC.
/s/ Jill A. Roeting /s/ C. Michael Hazard
- ------------------------- ------------------------------
Name: Jill A. Roeting Name: C. Michael Hazard
Title: Assistant Vice President Title: Chairman
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<PAGE> 1
Exhibit 5(E)
PORTFOLIO ADVISORY AGREEMENT
SELECT ADVISORS PORTFOLIOS
GROWTH & INCOME PORTFOLIO
GROWTH & INCOME II PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the 1st day of January,
1998, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the
"Advisor"), and Scudder Kemper Investments, Inc. (the "Portfolio Advisor"), a
Delaware corporation.
WHEREAS, the Advisor has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), and has been retained by Select Advisors Portfolios (the
"Trust"), a New York trust organized pursuant to a Declaration of Trust dated
February 7, 1994 and registered as an open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act") to provide investment
advisory services to the Growth & Income Portfolio and the Growth and Income II
Portfolio (herein together the "Portfolio"); and
WHEREAS, the Portfolio Advisor also is an investment advisor registered
under the Advisers Act; 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 Advisor hereby
represents that (i) it has authority under the Advisory Agreement to appoint
the Portfolio Advisor to act as an investment adviser to the Trust, (ii) this
Agreement is valid and binding upon the Advisor. 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 Advisers Act and shall
otherwise comply in all
<PAGE> 2
material respects with all applicable laws and regulations, both state and
federal. The Portfolio Advisor shall for all purposes herein be deemed an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Trust or the Portfolio.
2. DUTIES OF THE PORTFOLIO ADVISOR. The Portfolio Advisor will provide
the following services and undertake the following duties:
a. The Portfolio Advisor will manage the investment and reinvestment of
the 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 Portfolio
Assets 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 reasonably request.
b. The Portfolio Advisor shall provide support to the Advisor with respect
to the marketing of the Portfolio in a manner comparable to the support provided
to comparable clients of the Portfolio Advisor, including but not limited to:
(i) permission to use the Portfolio Advisor's name as provided in Section 6,
(ii) permission to use the past performance and investment history of the
Portfolio Advisor as the same is applicable to the Portfolio provided counsel to
the Trust determine that the use of such information and the manner of
presentation of such information is legally permissible, (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) with respect to clients whose names are
provided to the Advisor by the Portfolio Advisor in writing prior to use,
permission to use the names of these clients, subject to any
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<PAGE> 3
restrictions imposed by these clients on the use of such names or by the
Advisers Act and the rules adopted thereunder.
c. The Portfolio Advisor will, in the name of the Portfolio, place orders
for the execution of all portfolio transactions in accordance with the policies
with respect thereto set forth in the Trust's registration statements under the
1940 Act and the Securities Act of 1933, as such registration statements may be
in effect from time to time. In connection with the placement of orders for the
execution of portfolio transactions, the Portfolio Advisor will create and
maintain all necessary brokerage records of the Portfolio in accordance with all
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act. All records shall be the property of
the Trust and shall be available for inspection and use by the Securities and
Exchange Commission (the "SEC"), the Trust or any person retained by the Trust.
Where applicable, such records shall be maintained by the Advisor for the
periods and in the places required by Rule 31a-2 under the 1940 Act. When
placing orders with brokers and dealers, the Portfolio Advisor shall seek 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 and at such other times as reasonably requested by the
Board of Trustees, indicating total brokerage expenses, actual or imputed, as
well as the services obtained in
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<PAGE> 4
consideration for such expenses, broken down by broker-dealer and containing
such information as the Board of Trustees reasonably shall request.
d. The Portfolio Advisor may execute standard account documentation,
agreements, contracts and other documents (collectively "Account Documents") as
the Portfolio Advisor may be requested by brokers, dealers, counterparties and
other persons in connection with the Portfolio Advisor's management of the
Portfolio Assets, provided that the Advisor and the Trust's Board of Trustees
first authorize the Portfolio Advisor to execute Account Documents. In such
respect, and only for this limited purpose, the Portfolio Advisor shall act as
the agent and/or attorney-in-fact of the Trust and/or the Advisor.
e. The Advisor recognizes that, subject to the provisions of Section 2c,
Scudder Investor Services, Inc. or its successor ("SIS"), an affiliate of the
Portfolio Advisor, may act as the regular broker for the portfolio so long as it
is lawful for it so to act and that SIS may be a major recipient of brokerage
commissions paid by the portfolio. SIS may effect securities transactions for
the portfolio only if (i) the commissions, fees or other remuneration received
or to be received by it are reasonable and fair compared to the commissions,
fees or other remuneration received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time and (ii) the Trustees,
including a majority of those Trustees who are not interested persons, have
adopted procedures pursuant to Rule 17e-1 under the 1940 Act for determining the
permissible level of such commissions.
f. The Advisor understands that (i) when orders to purchase or sell the
same security on identical terms are placed by more than one of the funds and/or
other advisory accounts managed by the Portfolio Advisor or its affiliates, the
transactions generally will be executed as received, although a fund or advisory
account that does not direct trades to a specific broker ("free trades") usually
will have its order executed first, (ii) although all orders placed on behalf of
the Portfolio will be considered free trades, having an order placed first in
the market does not necessarily guarantee the most favorable price, and (iii)
purchases will be combined where possible for the purpose of negotiating
brokerage commissions, which in some cases might have a detrimental effect on
the price or volume of the security in a particular transaction as far as the
Portfolio is concerned.
g. The Portfolio Advisor may enter into arrangements with other persons
affiliated with the Portfolio Advisor for the provision of certain
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<PAGE> 5
personnel and facilities to the Portfolio Advisor to better enable it to
fulfill its duties and obligations under this Agreement.
h. 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.
i. 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.
j. The Portfolio Advisor will manage the Portfolio Assets and the
investment and reinvestment of such assets so as to seek 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 0.50% of
the first $150 million of the average daily net assets of the Portfolio,
and 0.45% of such average daily net assets in excess of $150 million.
b. The fee of the Portfolio Advisor hereunder shall be computed and
accrued daily and paid monthly. 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 Portfolio's
net assets shall be computed by the same method as the Trust uses to
compute the net asset value of the Portfolio for purposes of purchases
and redemptions of interests thereof.
c. 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. Furthermore, it is understood
that the Portfolio Advisor may give advice, and take action, with respect to
its other clients that may differ from the advice given, or the time and nature
of action taken, with
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<PAGE> 6
respect to the Portfolio. The Portfolio Advisor will report to the Board of
Trustees of the Trust (at regular quarterly meetings and at such other times as
such Board of Trustees reasonably shall request) (i) the financial condition
and prospects of the Portfolio Advisor, (ii) the nature and amount of
transactions affecting the Portfolio that involve the Portfolio Advisor and
affiliates of the Portfolio Advisor, (iii) information regarding any potential
conflicts of interest arising by reason of its continuing provision of advisory
services to the Portfolio and to its other accounts, and (iv) such other
information as the Board of Trustees shall reasonably request regarding the
Portfolio, the Portfolio's performance, the performance of other comparable
accounts to whom the Portfolio Advisor provides services, and the plans of, and
the capability of, the Portfolio Advisor with respect to providing future
services to the Portfolio and its other accounts. The Portfolio Advisor agrees,
on an ongoing basis, to notify the Advisor of any change in the individual(s)
responsible for day-to-day management of the Portfolio and any material change
in the investment strategies employed by the Portfolio Advisor in managing the
Portfolio. 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 investment
opportunities 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.
Nothing in this Agreement shall prevent the Portfolio Advisor, any parent,
subsidiary or affiliate, or any director or officer thereof, from acting as
investment advisor for any other person, firm, or corporation, and shall not in
any way limit or restrict the Portfolio Advisor or any of its directors,
officers, stockholders or employees from buying, selling or trading any
securities or commodities for its or their own account or for the account of
others for whom it or they may be acting, if such activities will not adversely
affect or otherwise impair the performance by the Portfolio Advisor of its
duties and obligations under this Agreement. The Portfolio Advisor will (i)
supply to the Advisor, upon the execution of this Agreement, with a true copy
of its currently effective Code of Ethics and policies regarding insider
trading and (ii) thereafter supply to Advisor copies of any amendments to or
restatements of such Code of Ethics or insider trading policies. The Portfolio
Advisor agrees to provide the Advisor, on a quarterly basis, a report with
respect to material violations of the Portfolio Advisor's Code of Ethics or
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<PAGE> 7
insider trading policies by portfolio managers who have responsibility for
managing the Portfolio or a written statement indicating that no such violations
have occurred during the quarter. In addition, the Portfolio Advisor agrees to
provide to the Advisor other information concerning violations of its Code of
Ethics or insider trading policies to the same extent as it provides such
information to the Boards of Directors of its proprietary mutual funds. The
parties agree to be bound by the provisions of Rule 17j-1 under the 1940 Act as
it may be amended to the extent that the provisions of the Rule are stricter
than the provisions of this paragraph.
5. PROVISION OF INFORMATION BY THE ADVISOR. To facilitate the Portfolio
Advisor's fulfillment of its obligations under this Agreement, the Advisor
agrees (i) promptly to provide the Portfolio Advisor with all amendments or
supplements to the Trust's registration statements, its Agreement and
Declaration of Trust, and its By-Laws, (ii) on an ongoing basis, to notify the
Portfolio Advisor expressly in writing of each change in the fundamental and
nonfundamental investment policies of the Portfolio, (iii) to provide or cause
to be provided to the Portfolio Advisor on an ongoing basis such assistance as
may be reasonably requested by the Portfolio Advisor in connection with its
activities under this Agreement, including, without limitation, information
concerning the Portfolio, its available funds, or funds that may reasonably
become available for investment, and information as to the general condition of
the Portfolio's affairs, (iv) to provide or cause to be provided to the
Portfolio Advisor on an ongoing basis such information as is reasonably
requested by the Portfolio Advisor for performance by the Portfolio Advisor of
its obligations under this Agreement and the Portfolio Advisor shall not be in
breach of any term of this Agreement or be deemed to have acted negligently if
such alleged breach or negligent act is the result of the Advisor's failure to
provide or cause to be provided such requested information and the Portfolio
Advisor's reliance on the information most recently furnished to the Portfolio
Advisor, and (v) promptly to provide the Portfolio Advisor with any guidelines
and procedures applicable to the Portfolio Advisor or the Portfolio adopted from
time to time by the Board of Trustees of the Trust and all amendments thereto.
6. 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
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<PAGE> 8
by the SEC or a state securities commission; and, provided further, that in no
event shall such approval be unreasonably withheld. Upon termination of this
Agreement, the Advisor and the Trust shall immediately cease to use the name of
the Portfolio Advisor.
7. 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. The Portfolio
Advisor shall not be liable to the Advisor or the Trust for any loss suffered as
a consequence of any action or inaction of other service providers to the Trust,
provided such action or inaction of such other service providers to the
Portfolio is not a result of the willful misconduct, bad faith or gross
negligence in the performance of, or from reckless disregard of, the duties of
the Portfolio Advisor under this Agreement. As used in this Section 7, the term
"Portfolio Advisor" shall include the Portfolio Advisor and/or any of its
affiliates and the directors, officers and employees of the Portfolio Advisor
and/or any of its affiliates.
8. 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.
9. 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.
10. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until December 31, 1998; 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
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<PAGE> 9
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 will also terminate upon written notice to the
other party that the other party is in material breach of the Agreement,
unless the other party in material breach of this Agreement cures such
breach to the reasonable satisfaction of the party alleging the breach
within 30 days after the written notice.
d. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required by
applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Portfolio affected by such change.
e. The terms "affiliated persons," "assignment," "interested persons"
and "majority of the outstanding voting securities" shall have the meaning
set forth for such terms in Section 2(a) of the 1940 Act.
11. SEVERABILITY AND INCORPORATED EFFECT. 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. In addition, where the effect of a requirement of the 1940
Act reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the SEC, whether of specific or general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
12. 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
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<PAGE> 10
shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the address of the
Portfolio Advisor shall be 345 Park Avenue, New York, New York 10154.
13. 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, or any applicable provisions of the
1940 Act. To the extent that the laws of the State of Ohio, or any of the
provisions in the Agreement, conflict with applicable provisions of the 1940
Act, the latter shall control. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
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<PAGE> 11
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.
Attest:
/s/ Brian J. Manley By /s/ Edward G. Harness
- --------------------------- ---------------------------
Name: Brian J. Manley Edward G. Harness, Jr.
Title: Vice President/CFO President
SCUDDER KEMPER INVESTMENTS, INC.
Attest:
/s/ John D. Lamb By /s/ Cornelia M. Small
- --------------------------- ---------------------------
Name: John D. Lamb Name: Cornelia M. Small
Title: Vice President Title: Managing Director
-11-
<PAGE> 1
Exhibit 5(H)
PORTFOLIO ADVISORY AGREEMENT
SELECT ADVISORS PORTFOLIOS
BALANCED PORTFOLIO
This PORTFOLIO ADVISORY AGREEMENT is made as of the 5th day of November,
1997, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the
"Advisor"), and OpCap Advisors (the "Portfolio Advisor"), a subsidiary of
Oppenheimer Capital, a Delaware general partnership.
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
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
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
<PAGE> 3
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. The Advisor recognizes that, subject to the foregoing provisions of
this Section 2, an affiliate of the Portfolio Advisor may act as the regular
broker for the portfolio so long as it is lawful for it so to act and that such
affiliate may be a major recipient of brokerage commissions paid by the
portfolio. Any such affiliate may effect securities transactions for the
portfolio only if (1) the commissions, fees or other remuneration received or
to be received by it are reasonable and fair compared to the commissions, fees
or other remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time and (2) the Trustees,
including a majority of those Trustees who are not interested persons, have
adopted procedures pursuant to Rule 17e-1 under the 1940 Act for determining
the permissible level of such commissions.
e. The Advisor understands that (i) when orders to purchase or sell the
same security on identical terms are placed by more than one of the funds
and/or other advisory accounts managed by the Portfolio Advisor or its
affiliates, the transactions generally will be executed as received, although a
fund or advisory account that does not direct trades to a specific broker
("free trades") usually will have its order executed first, (ii) although all
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<PAGE> 4
orders placed on behalf of the Portfolio will be considered free trades, having
an order placed first in the market does not necessarily guarantee the most
favorable price, and (iii) purchases will be combined where possible for the
purpose of negotiating brokerage commissions, which in some cases might have a
detrimental effect on the price or volume of the security in a particular
transaction as far as the Portfolio is concerned.
f. 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.
g. 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.
h. 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
such average daily net assets in excess of $20 million and up to $50 million
and 0.40% of such average daily net assets in excess of $50 million.
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.
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<PAGE> 5
4. ACTIVITIES OF THE PORTFOLIO ADVISOR. It is understood that the
Portfolio Advisor may perform investment advisory services for various other
clients, including other investment companies. The Portfolio Advisor will
report to the Board of Trustees of the Trust (at regular quarterly meetings and
at such other times as such Board of Trustees reasonably shall request) (i)
the financial condition and prospects of the Portfolio Advisor, (ii) the nature
and amount of transactions affecting the Portfolio that involve the Portfolio
Advisor and affiliates of the Portfolio Advisor, (iii) information regarding
any potential conflicts of interest arising by reason of its continuing
provision of advisory services to the Portfolio and to its other accounts, and
(iv) such other information as the Board of Trustees shall reasonably request
regarding the Portfolio, the Portfolio's performance, the services provided by
the Portfolio Advisor to the Portfolio as compared to its other accounts and
the plans of, and the capability of, the Portfolio Advisor with respect to
providing future services to the Portfolio and its other accounts. At least
annually, the Portfolio Advisor shall report to the Trustees the total number
and type of such other accounts and the approximate total asset value thereof
(but not the identities of the beneficial owners of such accounts). The
Portfolio Advisor agrees to submit to the Trust a statement defining its
policies with respect to the allocation of business among the Portfolio and its
other clients.
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.
Nothing in this Agreement shall prevent the Portfolio Advisor, any parent,
subsidiary or affiliate, or any director or officer thereof, from acting as
investment advisor for any other person, firm, or corporation, and shall not in
any way limit or restrict the Portfolio Advisor or any of its directors,
officers, stockholders or employees from buying, selling or trading any
securities or commodities for its or their own account or for the account of
others for whom it or they may be acting, if such activities will not adversely
affect or otherwise impair the performance by the Portfolio Advisor of its
duties and obligations under this Agreement. The Portfolio Advisor will (i)
supply to the Advisor, upon the execution of this Agreement, with a true copy
of its currently effective Code of Ethics and policies regarding insider
trading and (ii) thereafter supply to Advisor copies of any amendments to or
restatements of such Code of Ethics or insider trading policies, and (iii)
report to the Board of Trustees not less often than quarterly with respect to
any violations of such Code of Ethics or insider trading policies by persons
covered thereby to the extent that such violations involve the assets or
activities of the Portfolio.
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,
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<PAGE> 6
that the Portfolio Advisor will approve all uses of its name which merely refer
in inaccurate 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 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, until December 31, 1997; 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.
- 6 -
<PAGE> 7
b. This Agreement may be terminated at any time, without payment of
any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the
Portfolio, in any such case upon not less than 60 days' prior written
notice to the Portfolio Advisor and (ii) by the Portfolio Advisor upon not
less than 60 days' prior written notice to the Advisor and the Trust. This
Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required by
applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Portfolio affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for such
terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Portfolio Advisor shall be 225 Liberty Street, 16th Floor, New
York, New York 10281.
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.
Attest: TOUCHSTONE ADVISORS, INC.
/s/ Brian J. Manley By /s/ Edward G. Harness, Jr.
- --------------------------- --------------------------------
Name: Brian J. Manley Name: Edward G. Harness, Jr.
Title: Vice President Title: President
- 7 -
<PAGE> 8
Attest: OPCAP ADVISORS
/s/ Thomas E. Duggan By /s/ Bernard H. Garil
- ------------------------- ---------------------
Name: Thomas E. Duggan Name: Bernard H. Garil
Title: Secretary Title: President
<PAGE> 1
EXHIBIT 17
POWER OF ATTORNEY
WHEREAS, the undersigned is a Trustee and/or officer of Select Advisors
Trust A ("Trust A"), Select Advisors Trust C ("Trust C") and Select Advisors
Variable Insurance Trust ("VI Trust") (collectively, the "Trusts") and Select
Advisors Portfolios (the "SA Trust"); and
WHEREAS, each of Trust A, Trust C and VI Trust proposes to file with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder, a
post-effective amendment or post-effective amendments (collectively, the "Trust
Filings") to its Registration Statement on Form N-1A in connection with the
establishment of the Touchstone Value Plus Fund of Trust A, the Touchstone Value
Plus Fund of Trust C and the Touchstone Value Plus Portfolio of VI Trust; and
Whereas, the SA Trust proposes to file with the Securities and Exchange
Commission, pursuant to the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, a post-effective amendment or post-effective
amendments (the "SA Trust Filings") to its Registration Statement on Form N-1A
in connection with the establishment of the Value Plus Portfolio of the
SA Trust;
NOW THEREFORE, the undersigned hereby constitutes and appoints Edward G.
Harness, Jr., Andrew S. Josef, Kevin M. Connerty and Paul J. Jasinski, each of
them, individually and with full powers of substitution, as his true and lawful
attorney in fact and agents to execute and file, in his name and on his behalf
in any and all capacities, the Trust Filings and the SA Trust filings (and the
prospectuses and statements of additional information included therein and any
supplement to any of the foregoing). The undersigned hereby gives and grants to
said attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do if personally present
at the doing thereof. The undersigned hereby ratifies and confirms as his own
act and deed all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof. Each attorney in fact and agent has, and may exercise,
all of the powers conferred hereby.
The authority hereby granted is limited to the execution and filing of
the Trust Filings and the SA Trust Filings and, unless earlier revoked by the
undersigned or expressly extended by the undersigned in writing, shall remain in
force and effective only until the Trust Filings and the SA Trust Filings shall
have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
1st day of October, 1997.
/s/ James J. Vance
------------------
James J. Vance
<PAGE> 2
POWER OF ATTORNEY
WHEREAS, the undersigned is a Trustee and/or officer of Select Advisors
Trust A ("Trust A"), Select Advisors Trust C ("Trust C") and Select Advisors
Variable Insurance Trust ("VI Trust") (collectively, the "Trusts") and Select
Advisors Portfolios (the "SA Trust"); and
WHEREAS, each of Trust A, Trust C and VI Trust proposes to file with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder, a
post-effective amendment or post-effective amendments (collectively, the "Trust
Filings") to its Registration Statement on Form N-1A in connection with the
establishment of the Touchstone Value Plus Fund of Trust A, the Touchstone Value
Plus Fund of Trust C and the Touchstone Value Plus Portfolio of VI Trust; and
Whereas, the SA Trust proposes to file with the Securities and Exchange
Commission, pursuant to the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, a post-effective amendment or post-effective
amendments (the "SA Trust Filings") to its Registration Statement on Form N-1A
in connection with the establishment of the Value Plus Portfolio of the
SA Trust;
NOW THEREFORE, the undersigned hereby constitutes and appoints Edward G.
Harness, Jr., Andrew S. Josef, Kevin M. Connerty and Paul J. Jasinski, each of
them, individually and with full powers of substitution, as his true and lawful
attorney in fact and agents to execute and file, in his name and on his behalf
in any and all capacities, the Trust Filings and the SA Trust filings (and the
prospectuses and statements of additional information included therein and any
supplement to any of the foregoing). The undersigned hereby gives and grants to
said attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do if personally present
at the doing thereof. The undersigned hereby ratifies and confirms as his own
act and deed all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof. Each attorney in fact and agent has, and may exercise,
all of the powers conferred hereby.
The authority hereby granted is limited to the execution and filing of
the Trust Filings and the SA Trust Filings and, unless earlier revoked by the
undersigned or expressly extended by the undersigned in writing, shall remain in
force and effective only until the Trust Filings and the SA Trust Filings shall
have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of September, 1997.
/s/ Edward G. Harness, Jr.
--------------------------
Edward G. Harness, Jr.
<PAGE> 3
POWER OF ATTORNEY
WHEREAS, the undersigned is a Trustee and/or officer of Select Advisors
Trust A ("Trust A"), Select Advisors Trust C ("Trust C") and Select Advisors
Variable Insurance Trust ("VI Trust") (collectively, the "Trusts") and Select
Advisors Portfolios (the "SA Trust"); and
WHEREAS, each of Trust A, Trust C and VI Trust proposes to file with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder, a
post-effective amendment or post-effective amendments (collectively, the "Trust
Filings") to its Registration Statement on Form N-1A in connection with the
establishment of the Touchstone Value Plus Fund of Trust A, the Touchstone Value
Plus Fund of Trust C and the Touchstone Value Plus Portfolio of VI Trust; and
Whereas, the SA Trust proposes to file with the Securities and Exchange
Commission, pursuant to the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, a post-effective amendment or post-effective
amendments (the "SA Trust Filings") to its Registration Statement on Form N-1A
in connection with the establishment of the Value Plus Portfolio of the
SA Trust;
NOW THEREFORE, the undersigned hereby constitutes and appoints Edward G.
Harness, Jr., Andrew S. Josef, Kevin M. Connerty and Paul J. Jasinski, each of
them, individually and with full powers of substitution, as his true and lawful
attorney in fact and agents to execute and file, in his name and on his behalf
in any and all capacities, the Trust Filings and the SA Trust filings (and the
prospectuses and statements of additional information included therein and any
supplement to any of the foregoing). The undersigned hereby gives and grants to
said attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do if personally present
at the doing thereof. The undersigned hereby ratifies and confirms as his own
act and deed all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof. Each attorney in fact and agent has, and may exercise,
all of the powers conferred hereby.
The authority hereby granted is limited to the execution and filing of
the Trust Filings and the SA Trust Filings and, unless earlier revoked by the
undersigned or expressly extended by the undersigned in writing, shall remain in
force and effective only until the Trust Filings and the SA Trust Filings shall
have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of September, 1997.
/s/ Joseph S. Stern, Jr.
-----------------------------
Joseph S. Stern, Jr., Trustee
<PAGE> 4
POWER OF ATTORNEY
WHEREAS, the undersigned is a Trustee and/or officer of Select Advisors
Trust A ("Trust A"), Select Advisors Trust C ("Trust C") and Select Advisors
Variable Insurance Trust ("VI Trust") (collectively, the "Trusts") and Select
Advisors Portfolios (the "SA Trust"); and
WHEREAS, each of Trust A, Trust C and VI Trust proposes to file with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder, a
post-effective amendment or post-effective amendments (collectively, the "Trust
Filings") to its Registration Statement on Form N-1A in connection with the
establishment of the Touchstone Value Plus Fund of Trust A, the Touchstone Value
Plus Fund of Trust C and the Touchstone Value Plus Portfolio of VI Trust; and
Whereas, the SA Trust proposes to file with the Securities and Exchange
Commission, pursuant to the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, a post-effective amendment or post-effective
amendments (the "SA Trust Filings") to its Registration Statement on Form N-1A
in connection with the establishment of the Value Plus Portfolio of the
SA Trust;
NOW THEREFORE, the undersigned hereby constitutes and appoints Edward G.
Harness, Jr., Andrew S. Josef, Kevin M. Connerty and Paul J. Jasinski, each of
them, individually and with full powers of substitution, as his true and lawful
attorney in fact and agents to execute and file, in his name and on his behalf
in any and all capacities, the Trust Filings and the SA Trust filings (and the
prospectuses and statements of additional information included therein and any
supplement to any of the foregoing). The undersigned hereby gives and grants to
said attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do if personally present
at the doing thereof. The undersigned hereby ratifies and confirms as his own
act and deed all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof. Each attorney in fact and agent has, and may exercise,
all of the powers conferred hereby.
The authority hereby granted is limited to the execution and filing of
the Trust Filings and the SA Trust Filings and, unless earlier revoked by the
undersigned or expressly extended by the undersigned in writing, shall remain in
force and effective only until the Trust Filings and the SA Trust Filings shall
have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of September, 1997.
/s/ Philip R. Cox, Trustee
--------------------------
Philip R. Cox, Trustee
<PAGE> 5
POWER OF ATTORNEY
WHEREAS, the undersigned is a Trustee and/or officer of Select Advisors
Trust A ("Trust A"), Select Advisors Trust C ("Trust C") and Select Advisors
Variable Insurance Trust ("VI Trust") (collectively, the "Trusts") and Select
Advisors Portfolios (the "SA Trust"); and
WHEREAS, each of Trust A, Trust C and VI Trust proposes to file with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder, a
post-effective amendment or post-effective amendments (collectively, the "Trust
Filings") to its Registration Statement on Form N-1A in connection with the
establishment of the Touchstone Value Plus Fund of Trust A, the Touchstone Value
Plus Fund of Trust C and the Touchstone Value Plus Portfolio of VI Trust; and
Whereas, the SA Trust proposes to file with the Securities and Exchange
Commission, pursuant to the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, a post-effective amendment or post-effective
amendments (the "SA Trust Filings") to its Registration Statement on Form N-1A
in connection with the establishment of the Value Plus Portfolio of the
SA Trust;
NOW THEREFORE, the undersigned hereby constitutes and appoints Edward G.
Harness, Jr., Andrew S. Josef, Kevin M. Connerty and Paul J. Jasinski, each of
them, individually and with full powers of substitution, as his true and lawful
attorney in fact and agents to execute and file, in his name and on his behalf
in any and all capacities, the Trust Filings and the SA Trust filings (and the
prospectuses and statements of additional information included therein and any
supplement to any of the foregoing). The undersigned hereby gives and grants to
said attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do if personally present
at the doing thereof. The undersigned hereby ratifies and confirms as his own
act and deed all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof. Each attorney in fact and agent has, and may exercise,
all of the powers conferred hereby.
The authority hereby granted is limited to the execution and filing of
the Trust Filings and the SA Trust Filings and, unless earlier revoked by the
undersigned or expressly extended by the undersigned in writing, shall remain in
force and effective only until the Trust Filings and the SA Trust Filings shall
have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of September, 1997.
/s/ Robert E. Stautberg
----------------------------
Robert E. Stautberg, Trustee
<PAGE> 6
POWER OF ATTORNEY
WHEREAS, the undersigned is a Trustee and/or officer of Select Advisors
Trust A ("Trust A"), Select Advisors Trust C ("Trust C") and Select Advisors
Variable Insurance Trust ("VI Trust") (collectively, the "Trusts") and Select
Advisors Portfolios (the "SA Trust"); and
WHEREAS, each of Trust A, Trust C and VI Trust proposes to file with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder, a
post-effective amendment or post-effective amendments (collectively, the "Trust
Filings") to its Registration Statement on Form N-1A in connection with the
establishment of the Touchstone Value Plus Fund of Trust A, the Touchstone Value
Plus Fund of Trust C and the Touchstone Value Plus Portfolio of VI Trust; and
Whereas, the SA Trust proposes to file with the Securities and Exchange
Commission, pursuant to the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, a post-effective amendment or post-effective
amendments (the "SA Trust Filings") to its Registration Statement on Form N-1A
in connection with the establishment of the Value Plus Portfolio of the
SA Trust;
NOW THEREFORE, the undersigned hereby constitutes and appoints Edward G.
Harness, Jr., Andrew S. Josef, Kevin M. Connerty and Paul J. Jasinski, each of
them, individually and with full powers of substitution, as his true and lawful
attorney in fact and agents to execute and file, in his name and on his behalf
in any and all capacities, the Trust Filings and the SA Trust filings (and the
prospectuses and statements of additional information included therein and any
supplement to any of the foregoing). The undersigned hereby gives and grants to
said attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do if personally present
at the doing thereof. The undersigned hereby ratifies and confirms as his own
act and deed all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof. Each attorney in fact and agent has, and may exercise,
all of the powers conferred hereby.
The authority hereby granted is limited to the execution and filing of
the Trust Filings and the SA Trust Filings and, unless earlier revoked by the
undersigned or expressly extended by the undersigned in writing, shall remain in
force and effective only until the Trust Filings and the SA Trust Filings shall
have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of September, 1997.
/s/ David Pollak
---------------------
David Pollak, Trustee
<PAGE> 7
POWER OF ATTORNEY
WHEREAS, the undersigned is a Trustee and/or officer of Select Advisors
Trust A ("Trust A"), Select Advisors Trust C ("Trust C") and Select Advisors
Variable Insurance Trust ("VI Trust") (collectively, the "Trusts") and Select
Advisors Portfolios (the "SA Trust"); and
WHEREAS, each of Trust A, Trust C and VI Trust proposes to file with
the Securities and Exchange Commission, pursuant to the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder, a
post-effective amendment or post-effective amendments (collectively, the "Trust
Filings") to its Registration Statement on Form N-1A in connection with the
establishment of the Touchstone Value Plus Fund of Trust A, the Touchstone
Value Plus Fund of Trust C and the Touchstone Value Plus Portfolio of VI Trust;
and
Whereas, the SA Trust proposes to file with the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, a post-effective amendment or post-effective
amendments (the "SA Trust Filings") to its Registration Statement on Form N-1A
in connection with the establishment of the Value Plus Portfolio of the SA
Trust;
NOW THEREFORE, the undersigned hereby constitutes and appoints Edward
G. Harness, Jr., Andrew S. Josef, Kevin M. Connerty and Paul J. Jasinski, each
of them, individually and with full powers of substitution, as his true and
lawful attorney in fact and agents to execute and file, in his name and on his
behalf in any and capacities, the Trust Filings and the SA Trust filings (and
the prospectuses and statements of additional information included therein and
any supplement to any of the foregoing). The undersigned hereby gives and
grants to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof. The undersigned hereby ratifies and
confirms as his own act and deed all that said attorneys may or shall lawfully
do or cause to be done by virtue hereof. Each attorney in fact and agent has,
and may exercise, all of the powers conferred hereby.
The authority hereby granted is limited to the execution and filing of
the Trust Filings and the SA Trust Filings and, unless earlier revoked by the
undersigned or expressly extended by the undersigned in writing, shall remain
in force and effective only until the Trust Filings and the SA Trust Filings
shall have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th
day of September, 1997.
/s/ William J. Williams
----------------------------
William J. Williams, Trustee
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> TOUCHSTONE EMERGING GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,405,843
<INVESTMENTS-AT-VALUE> 6,971,213
<RECEIVABLES> 152,004
<ASSETS-OTHER> 582,495
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,705,712
<PAYABLE-FOR-SECURITIES> 77,219
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,196
<TOTAL-LIABILITIES> 105,415
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,600,297
<DIVIDEND-INCOME> 55,807
<INTEREST-INCOME> 18,125
<OTHER-INCOME> 0
<EXPENSES-NET> 93,983
<NET-INVESTMENT-INCOME> (20,051)
<REALIZED-GAINS-CURRENT> 913,915
<APPREC-INCREASE-CURRENT> 846,170
<NET-CHANGE-FROM-OPS> 1,740,034
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,997,506
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48,463
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 178,081
<AVERAGE-NET-ASSETS> 6,055,651
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> TOUCHSTONE INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 7,531,622
<INVESTMENTS-AT-VALUE> 8,352,416
<RECEIVABLES> 179,323
<ASSETS-OTHER> 255,790
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,787,529
<PAYABLE-FOR-SECURITIES> 143,002
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,064
<TOTAL-LIABILITIES> 194,066
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,593,463
<DIVIDEND-INCOME> 122,548
<INTEREST-INCOME> 16,635
<OTHER-INCOME> 0
<EXPENSES-NET> 128,262
<NET-INVESTMENT-INCOME> 10,921
<REALIZED-GAINS-CURRENT> 1,010,270
<APPREC-INCREASE-CURRENT> 77,380
<NET-CHANGE-FROM-OPS> 1,098,571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,022,016
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 73,217
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 328,768
<AVERAGE-NET-ASSETS> 7,706,980
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> TOUCHSTONE GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 24,682,029
<INVESTMENTS-AT-VALUE> 26,796,035
<RECEIVABLES> 474,481
<ASSETS-OTHER> 354,869
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,625,385
<PAYABLE-FOR-SECURITIES> 73,789
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178,083
<TOTAL-LIABILITIES> 251,872
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 27,373,513
<DIVIDEND-INCOME> 425,029
<INTEREST-INCOME> 42,782
<OTHER-INCOME> 0
<EXPENSES-NET> 296,730
<NET-INVESTMENT-INCOME> 171,081
<REALIZED-GAINS-CURRENT> 4,825,120
<APPREC-INCREASE-CURRENT> (380,944)
<NET-CHANGE-FROM-OPS> 4,615,257
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,417,352
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 181,803
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 335,920
<AVERAGE-NET-ASSETS> 23,738,439
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> TOUCHSTONE BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,418,376
<INVESTMENTS-AT-VALUE> 5,836,087
<RECEIVABLES> 92,727
<ASSETS-OTHER> 12,382
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,941,196
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,495
<TOTAL-LIABILITIES> 21,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,919,701
<DIVIDEND-INCOME> 35,733
<INTEREST-INCOME> 140,386
<OTHER-INCOME> 0
<EXPENSES-NET> 75,575
<NET-INVESTMENT-INCOME> 100,544
<REALIZED-GAINS-CURRENT> 965,160
<APPREC-INCREASE-CURRENT> (175,493)
<NET-CHANGE-FROM-OPS> 890,211
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,889,909
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38,823
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 158,296
<AVERAGE-NET-ASSETS> 5,040,503
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> TOUCHSTONE INCOME OPPORTUNITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 10,743,428
<INVESTMENTS-AT-VALUE> 10,281,897
<RECEIVABLES> 322,131
<ASSETS-OTHER> 265,334
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,869,362
<PAYABLE-FOR-SECURITIES> 141,946
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,002
<TOTAL-LIABILITIES> 171,948
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 10,697,414
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,287,743
<OTHER-INCOME> 0
<EXPENSES-NET> 132,799
<NET-INVESTMENT-INCOME> 1,154,944
<REALIZED-GAINS-CURRENT> 410,064
<APPREC-INCREASE-CURRENT> (742,747)
<NET-CHANGE-FROM-OPS> 822,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,548,050
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 66,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 195,370
<AVERAGE-NET-ASSETS> 10,194,713
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at Decemeber 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> TOUCHSTONE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 14,487,896
<INVESTMENTS-AT-VALUE> 14,935,166
<RECEIVABLES> 136,899
<ASSETS-OTHER> 223,253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,295,318
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32,723
<TOTAL-LIABILITIES> 32,723
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 15,262,595
<DIVIDEND-INCOME> 45,218
<INTEREST-INCOME> 1,041,039
<OTHER-INCOME> 0
<EXPENSES-NET> 128,234
<NET-INVESTMENT-INCOME> 958,023
<REALIZED-GAINS-CURRENT> 81,483
<APPREC-INCREASE-CURRENT> 96,828
<NET-CHANGE-FROM-OPS> 1,136,334
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,734,805
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 82,976
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,208
<AVERAGE-NET-ASSETS> 15,086,353
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at December 31, 1997 and is
qualified by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> TOUCHSTONE GROWTH & INCOME PORTFOLIO II
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 42,177,476
<INVESTMENTS-AT-VALUE> 45,017,903
<RECEIVABLES> 722,128
<ASSETS-OTHER> 1,058,533
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,798,564
<PAYABLE-FOR-SECURITIES> 120,878
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,704
<TOTAL-LIABILITIES> 235,582
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 46,562,982
<DIVIDEND-INCOME> 585,789
<INTEREST-INCOME> 102,429
<OTHER-INCOME> 0
<EXPENSES-NET> 274,750
<NET-INVESTMENT-INCOME> 413,468
<REALIZED-GAINS-CURRENT> 5,279,721
<APPREC-INCREASE-CURRENT> 455,947
<NET-CHANGE-FROM-OPS> 6,149,136
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 24,592,022
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 248,984
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 530,209
<AVERAGE-NET-ASSETS> 32,323,532
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Touchstone
Select Advisers Portfolio financial statements at December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> TOUCHSTONE BOND PORTFOLIO II
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 22,859,024
<INVESTMENTS-AT-VALUE> 23,439,440
<RECEIVABLES> 368,814
<ASSETS-OTHER> 920,316
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,728,570
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,196
<TOTAL-LIABILITIES> 44,196
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 24,684,374
<DIVIDEND-INCOME> 49,383
<INTEREST-INCOME> 1,271,056
<OTHER-INCOME> 0
<EXPENSES-NET> 140,857
<NET-INVESTMENT-INCOME> 1,179,582
<REALIZED-GAINS-CURRENT> 42,062
<APPREC-INCREASE-CURRENT> 256,174
<NET-CHANGE-FROM-OPS> 1,477,818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,704,976
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103,585
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 318,100
<AVERAGE-NET-ASSETS> 18,780,965
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
