<PAGE> 1
LETTER FROM THE PRESIDENT
BACKGROUND ARTWORK
Dear Fellow Contract Owner:
There's no doubt that we've all experienced excessive volatility in the
financial markets in 1998. The 12-month period ending December 31, 1998, has
served as a clear example of how the performance of different asset classes can
vary widely over a given time period. For example, domestic large cap stocks
made an impressive rebound in the fourth quarter to provide the highest asset
class returns for the year, even more spectacular when viewed against the
lackluster performance of small cap stocks over the past year. Similarly, the
divergence between the returns of value versus growth styles, Europe versus
Asia, and emerging versus developed markets reflects the overall volatility that
has been inherent in 1998.
Given these wild swings in performance, we think the message is clear: expect
volatility, and understand that it's extremely difficult to predict which asset
classes will be strong performers and which ones will be weak. One way to
cushion the volatility is to be sure that you're adequately diversified in your
investments and that you've properly allocated your assets based on your
investing needs and goals. By investing with Touchstone through a financial
advisor, you have already taken the important first step in building a portfolio
that can help you meet your future goals. Your financial advisor can help you
set new guidelines when life-style changes occur, and they can help you measure
your level of patience for overall market conditions.
We're proud to note that the Touchstone Standby Income Fund has been recognized
with Morningstar's highest 5-star rating for its three-year performance as of
12-31-98(1). Those familiar with Morningstar know that they are a privately
owned company that provides unbiased mutual fund information to help individual
investors make informed investment decisions. Only the top 10% of all mutual
funds in each investment class actually receive Morningstar's highest rating.
The Touchstone Standby Income Fund, classified as an Ultrashort Bond fund by
Morningstar, was ranked among 2,126 funds in Morningstar's Taxable Bond category
as of 12/31/98.
I'd like to take this opportunity to thank you for the success we've shared
together. We appreciate your continued confidence and investment in the
Touchstone Family of Funds and Variable Annuities(2).
Sincerely,
/s/ Jill McGruder
Jill T. McGruder
President and Chief Executive Officer
Touchstone Family of Funds and Variable Annuities
P.S. Please visit us on the World Wide Web at www.touchstonefunds.com
(1) Morningstar proprietary ratings reflect historical risk-adjusted
performance, and are subject to change every month. Morningstar ratings are
calculated from the fund's three-, five-, and 10-year average annual returns in
excess of 3-month Treasury bill returns with appropriate fee adjustments, and a
risk factor that reflects fund performance below 3-month Treasury bill returns.
The top 10% of funds in a category receives 5 stars; the next 22.5% receives 4
stars. Past performance is no guarantee of future results. The Advisor waived
fees and reimbursed the Fund which had a material effect on the total return.
(2) Touchstone Variable Annuities are underwritten by Western-Southern Life
Assurance Company, Cincinnati, Ohio. The Touchstone Family of Funds and Variable
Annuities are distributed by Touchstone Securities, Inc., member NASD and SIPC.
For a prospectus containing more information, including all fees and expenses,
call 800.669.2796. Please read the prospectus carefully before investing or
sending money.
<PAGE> 2
NOTES
2
<PAGE> 3
TABLE OF CONTENTS
3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Separate Account 2
Management Discussion & Analysis......................... 3
Statement of Net Assets.................................. 16
Statement of Operations and Changes in Net Assets........ 17
Notes to Financial Statements............................ 19
Report of Independent Accountants........................ 24
Select Advisors Variable Insurance Trust
Emerging Growth.......................................... 3
International Equity..................................... 7
Income Opportunity....................................... 10
Value Plus............................................... 14
Balanced................................................. 17
Standby Income........................................... 21
Statements of Assets and Liabilities..................... 22
Statements of Operations................................. 23
Statements of Changes in Net Assets...................... 24
Financial Highlights..................................... 26
Notes to Financial Statements............................ 28
Report of Independent Accountants........................ 36
Select Advisors Portfolios
Growth & Income.......................................... 3
Bond..................................................... 6
Statements of Assets and Liabilities..................... 9
Statements of Operations................................. 10
Statements of Changes in Net Assets...................... 11
Ratios and Supplementary Data............................ 12
Notes to Financial Statements............................ 13
Report of Independent Accountants........................ 18
</TABLE>
<PAGE> 4
NOTES 4
<PAGE> 5
TOUCHSTONE
WESTERN-SOUTHERN LIFE
ASSURANCE COMPANY
SEPARATE ACCOUNT 2 LOGO
LOGO
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE> 6
NOTES 2
<PAGE> 7
MANAGEMENT DISCUSSION & ANALYSIS
3
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Advisor Emerging Growth
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Advisor Emerging Growth Sub-Account's performance. Small
capitalization stocks, as measured by the Russell 2000, declined 2.5% while the
total return (net of fees and expenses) for the Touchstone Advisor Emerging
Growth Sub-Account was 2.5%.
As the value-style manager of the Touchstone Advisor Emerging Growth Portfolio,
David L. Babson's core strategy continued to stress bottom up fundamental
analysis in identifying low risk stocks with attractive return potential. Small
company stocks continued to have a difficult time in 1998. The domestic equity
markets overall were marked by wild swings throughout the year. In the third
quarter, the Russell 2000 declined 20% as investors sold stocks due to fears the
U.S. was shortly headed into a recession. Not surprisingly, given Babson's low
risk value discipline, the value-style portion of the Fund held its value well
during the third quarter and bettered its benchmark.
In the fourth quarter of 1998, investors dramatically shifted course and
purchased stocks as rapidly as they were sold in the previous quarter, resulting
in the Russell 2000 increasing its value by 16%. Not surprisingly, Babson's low
risk value discipline had difficulty keeping pace with the soaring market, and
the value-style portion of the Portfolio trailed its benchmark for the quarter
and for the entire year.
Standout performers for the year included Elsag Bailey (+137%) due to a buyout
offer from the large European industrial conglomerate ABB, and Martin Marietta
Materials (+70%) due to continued strong demand of their primary product,
aggregates--a fancy term for rocks, stone and gravel which are critical in road
and infrastructure building. Unfortunately, Babson's increased weighting in the
Energy sector, the worst performing sector in 1998, detracted from performance.
Babson still likes the long term outlook for the Energy sector and continues to
increase their weighting in this sector.
As the growth-style manager of the Touchstone Advisor Emerging Growth Portfolio,
Westfield Capital Management continued to find companies with good growth
prospects. Unlike 1997, small cap growth did much better than small cap value in
1998. This pattern correlates very well with past cycles where growth
outperforms relatively as overall corporate profits peak--an environment
Westfield expects to continue into 1999.
Technology (including telecommunications) led the growth-style portion of the
portfolio. Its impact can be seen in the performance pattern over the course of
the year with the first quarter and fourth quarter accounting for most of the
gains. Portfolio performance was achieved the old-fashioned way--that is,
without the presence of Internet stocks. In the liquidity-driven market of 1998,
top performance portfolio managers had to speculate on unheard of valuations in
either the Internet group or the top 50 blue chips. Neither area fit Westfield's
price/earnings-to-growth valuation discipline very well. Instead, some of
Westfield's best technology stock picks were
<PAGE> 8
MANAGEMENT DISCUSSION & ANALYSIS
4
market-penetration stories. Such names as Geotel in call routing systems,
Galileo in networking ICs, and EMC in data storage are but a few.
The portfolio kept pace with its benchmark and peers during the severe
correction of July and August, and Westfield feels that this reflects the
cushioning effect of their growth-at-a-reasonable-price style, as well as
specific portfolio sector shifts made earlier in the year. Concerns about Asian
demand caused Westfield to exit the Energy sector and several technology product
arenas. Financially-sensitive holdings were reduced as they saw signs of a
slowing economy, while service companies in the consumer and healthcare sectors
were added. The educational field was also sharply overweighted and remained a
stand-out performer.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE RUSSELL 2000 MAJOR INDEX
ANNUITY EMERGING GROWTH ------------------------ WIESENBERGER SMALL CAP
PORTFOLIO MINOR INDEX
----------------------- ----------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10100 10171 10294
6/95 10714 11125 11458
9/95 11637 12224 12955
12/95 11741 12488 12801
3/96 12300 13126 13501
6/96 12847 13782 14428
9/96 12574 13829 14705
12/96 12948 14548 14934
3/97 12562 13796 13808
6/97 14873 16032 16007
9/97 17207 18418 18439
12/97 17170 17801 17424
3/98 18750 19592 19361
6/98 18079 18678 18781
9/98 14541 14915 14838
12/98 17592 17348 17675
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 2.5% Since Inception 2/23/95 15.8%
Cumulative Total Return
Since Inception 2/23/95 75.9%
Past performance is not indicative of future performance.
Touchstone Advisor International Equity
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Advisor International Equity Sub-Account. International equity
stocks, as measured by the MSCI EAFE Index, rose 20.3% while the total return
(net of fees and expenses) for the Touchstone Advisor International Equity
Sub-Account was 19.3%.
As the manager of the Touchstone Advisor International Equity Portfolio, Credit
Suisse Asset Management (formerly BEA Associates) attributes the Fund's
performance to three prominent drivers: the Fund's allocation to
<PAGE> 9
MANAGEMENT DISCUSSION & ANALYSIS
5
European markets, their underweight position in Japan, and their absence from
the rest of Asia.
In Europe, Credit Suisse favored several themes during the year including
companies benefiting from restructuring and businesses that help other companies
reduce costs. During the first half of the year, their positions in the auto
(Renault, Porsche, Volkswagen and BMW), business services (Cap Gemini and SAP),
and telecommunications equipment and mobile phone industries (Vodaphone and
Telefonica) added to performance.
Late in the third quarter, as the emerging markets crisis spread, they
repositioned their European allocation in favor of defensive industries and
companies whose core businesses are concentrated in Europe. This repositioning
had a negative impact in October, and was the primary cause of slight
underperformance for the year, when oversold global financials, in which they
were underweight, rallied sharply. However, their defensive positioning proved
beneficial during the end of the quarter as investors reduced their global
economic growth expectations and sought safer havens with higher earnings
visibility.
Being underweight in Japan added to performance for the year while stock
selection there hurt performance by a modest degree. For much of the year, the
portfolio was positioned in large blue chip exporters (Sony, Canon, TDK and
Honda) on the belief that their earnings would be more stable than domestic
companies that rely on Japan's domestic economy for revenues. While exporters
did well during the first part of the year, they were hurt in the third and
fourth quarters when the yen rallied sharply, thereby weakening the
profitability of exporters. Credit Suisse was also underweight in large banks in
Japan, which rallied in October causing a negative impact on performance.
Being absent from all of Asia except Japan proved to be effective on a full-
year basis. Despite the rally in the first month of the year and in the final
quarter, Asian markets were weak for most of the year, underscoring the view
that avoiding them was the most prudent approach to take.
<PAGE> 10
MANAGEMENT DISCUSSION & ANALYSIS
6
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE MSCI EAFE INDEX
ANNUITY INTERNATIONAL --------------- WIESENBERGER NON-US
EQUITY PORTFOLIO EQUITY - VA
--------------------- -------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10343 10627 10271
6/95 10774 10712 10758
9/95 11238 11167 11225
12/95 11283 11628 11397
3/96 11959 11973 11961
6/96 12205 12171 12411
9/96 12068 12165 12357
12/96 12476 12368 12833
3/97 12643 12183 12979
6/97 14043 13774 14314
9/97 14631 13685 14386
12/97 14203 12622 13128
3/98 16548 14489 14737
6/98 17481 14653 14426
9/98 15013 12579 12102
12/98 16938 15189 14141
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 19.3% Since Inception 2/23/95 14.7%
Cumulative Total Return
Since Inception 2/23/95 69.4%
Past performance is not indicative of future performance.
Touchstone Advisor Income Opportunity
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Advisor Income Opportunity Sub-Account. Corporate high yield bonds,
as measured by the Wiesenberger: Corporate High Yield Variable Annuity Index,
declined 1.5%; emerging market bonds, as measured by the Wiesenberger: Emerging
Market Income Variable Annuity Index, declined 22.7%, while corporate bonds in
general, as measured by the Lehman Brothers Corporate Bond Index, rose 8.5%.
Total return (net of fees and expenses) for the Touchstone Advisor Income
Opportunity Sub-Account was -13.1%.
As the manager of the Touchstone Advisor Income Opportunity Portfolio, Alliance
Capital Management continued to concentrate its portfolio strategy on
investments in emerging market corporates, emerging market sovereign and U.S.
corporate high yield debt. Alliance reports that 1998 was an extremely
challenging year for financial markets, as economic turmoil spread from Asia to
encompass Russia and Latin America, particularly Brazil. Both the high yield and
emerging markets came under pressure in the second half of the year, after
Russia announced a debt moratorium in August. High yield assets also came under
pressure due to these global concerns, causing many companies to revise earning
estimates downward; liquidity in the secondary market dissipated.
<PAGE> 11
MANAGEMENT DISCUSSION & ANALYSIS
7
As emerging market assets came under pressure, several positions were more
severely impacted than others, including: Russian principal loans, overweight
positions in Indonesian corporates, a Chinese toll road, and an Ecuadorian
cellular company. The portfolio performance also suffered because of an
overweight position in emerging market corporate securities that underperformed
sovereign bonds.
During the second half of the year, Alliance decided to change the investment
strategy and began to slowly weight the portfolio with more high yield assets,
rather than emerging markets securities, reflecting their belief in the strength
of the U.S. economy. As of December 31, 1997, 60% of Touchstone Income
Opportunity was in emerging markets. By December 31, 1998, 32% of the portfolio
was in emerging market assets. They accomplished this transition by taking
advantage of positive price momentum in emerging assets. When they felt prices
reflected fair value, they sold some of the emerging market assets--thereby
minimizing the losses on the portfolio--and invested those assets in the
domestic high yield area.
Alliance believes that there will be continued strong demand for the high yield
asset class, which could offer price appreciation through spread tightening of
0.50% to 1.25%. Although high yield is not immune to external events such as the
Brazilian situation, the outlook for continued, albeit slower, growth in the
United States will have more of a positive impact on high yield performance.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE WIESENBERGER
ANNUITY INCOME LEHMAN BROTHERS WIESENBERGER EMERGING CORPORATE HIGH YIELD -
OPPORTUNITY PORTFOLIO CORPORATE BOND INDEX MARKET INCOME - VA VA
--------------------- -------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
2/95 10000 10000 10000 10000
3/95 9785 10082 9740 10083
6/95 11268 10832 11408 10595
9/95 11958 11087 12056 10933
12/95 12573 11635 13048 11277
3/96 13264 11335 13574 11545
6/96 14072 11386 14975 11770
9/96 15151 11613 16839 12286
12/96 15887 12017 18107 12667
3/97 16217 11896 18462 12695
6/97 17308 12387 20203 13382
9/97 18124 12872 21293 14115
12/97 17673 13247 20131 14285
3/98 18576 13451 21107 14844
6/98 17767 13788 19445 14824
9/98 14776 14288 13923 13639
12/98 15368 14374 15551 14065
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 13.1% Since Inception 2/23/95 11.8%
Cumulative Total Return
Since Inception 2/23/95 53.7%
Past performance is not indicative of future performance.
<PAGE> 12
MANAGEMENT DISCUSSION & ANALYSIS
8
Touchstone Advisor Value Plus
Over the course of the abbreviated period ended December 31, 1998, several
investment management strategies and techniques materially affected the
performance of the Touchstone Advisor Value Plus Sub-Account since its inception
on May 1, 1998. From the Sub-Account's inception in May until the end of 1998,
growth and value stocks, as measured by the S&P 500 Index, rose 11.7% while
value stocks, as measured by the S&P Barra Value Index, rose 1.6%. Total return
(net of fees and expenses) for the Touchstone Advisor Value Plus Sub-Account was
1.6%.
As the manager of the Touchstone Advisor Value Plus Portfolio, Fort Washington
Investment Advisors concentrated their efforts on mid to large cap common stocks
that were considered fundamentally undervalued. Fort Washington reports that
1998 marked the fourth straight year of twenty plus percent returns for the S&P
500, a first in history. The year was also characterized by several other
events:
O The Asian crisis and the Long Term Capital debacle sent shock waves
through the financial markets.
O Weakening overseas economies and a defiant Iraq headlined the foreign
political landscape.
O President Clinton weathered a flurry of setbacks including charges of
sexual misconduct and a formal impeachment by members of Congress.
With all of this as a backdrop, investors encountered the type of volatility one
would expect from an unpredictable market. Valuations for stocks continued to
increase as a combination of lower interest rates and abundant liquidity pushed
stock prices higher.
The S&P 500 return was clearly dominated by the largest twenty names as they
accounted for over 36% of the index and over 75% of the total return for the
year. Growth managers continued their outperformance versus value managers for
1998 is represented by the S&P Barra Growth and S&P Barra Value indexes, up
42.2% and 14.7% respectively. In an even starker contrast, the Russell 2000
turned in a -2.5% return for the full year.
The best performing sector in the portfolio for the time period was Finance,
with Fannie Mae and Bank One contributing the most. Technology issues such as
Computer Associates International were the weakest performing sector.
<PAGE> 13
MANAGEMENT DISCUSSION & ANALYSIS
9
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE S&P 500 MAJOR INDEX
ANNUITY VALUE PLUS ------------------- S&P BAR VALUE MINOR WILSHIRE|LG CAP VALUE
PORTFOLIO INDEX MINOR INDEX
------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
4/98 10000 10000 10000 10000
6/98 9907 10227 9934 9968
9/98 8781 9210 8651 8853
12/98 10157 11171 10159 10075
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 n/a Since Inception 5/1/98 1.6%
Cumulative Total Return
Since Inception 5/1/98 1.6%
Past performance is not indicative of future performance.
Touchstone Advisor Growth & Income
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Advisor Growth & Income Sub-Account. Growth and value stocks, as
measured by the S&P 500 Index, rose 28.6% while the total return (net of fees
and expenses) for the Touchstone Advisor Growth & Income Sub-Account was 6.6%.
As the manager of the Touchstone Advisor Growth & Income Portfolio, Scudder
Kemper Investments focused exclusively on their relative dividend yield
discipline. Scudder reports that 1998 was truly a "Jekyll and Hyde" year for the
U.S. equity market. On the one hand, the S&P 500 Index returned a remarkable
28.6%, the fourth consecutive year of returns in excess of 20%. On the other
hand, it was an extraordinarily difficult period for value-oriented strategies,
such as those employed by the Touchstone Growth & Income Portfolio. The
strongest returns were limited to a narrow subset of the U.S. market, mostly the
largest capitalization growth technology stocks. Unfortunately, these returns
did not percolate down to most other stocks in the S&P 500. The lack of market
breadth last year is captured by the following statistics: fully 70% of the
stocks in the S&P 500 underperformed the reported index return, and 40% of S&P
500 stocks actually declined for the year.
<PAGE> 14
MANAGEMENT DISCUSSION & ANALYSIS
10
Other than the headwind of large cap growth stock dominance, the primary
negative influence resulted from Scudder's overweight in industrial cyclicals,
largely chemical, paper/forest products, and metals stocks. This overweight had
been in place since 1997, having been driven by the stocks' recession level
valuations. But commodity deflation, in combination with operating (and in a few
cases, financial) leverage caused such severe pressure on earnings that even
historically low valuations were not able to mitigate downside in stocks such as
Imperial Chemical, Witco, Lyondell and Oregon Steel. One bright spot in the
chemical sector was the third quarter announcement that BetzDearborn was to be
acquired by Hercules, leading to a 20% total return for the stock for the ten
months of 1998 until it was acquired. The paper stocks fared better, largely
because of their year-end rally which had each of the Fund's paper holdings
outperforming the fourth quarter S&P 500 return of 21%. This rally was driven by
a positive sentiment shift that occurred at the depths of the September market.
The global oversupply of pulp had become so severe that U.S. companies began to
respond with meaningful closings of capacity in an attempt to stabilize pricing.
Further positive news was the surprise announcement in November that
International Paper was seeking to acquire Union Camp, which drove the entire
sector higher.
The greatest source of outperformance was the Fund's overweight in
telecommunication stocks, which in aggregate rose 48%. Standout performers were
Bellsouth (+81%), Sprint (+64%), Alltel (+50%), and Frontier (+46%). Low
relative valuations at the beginning of the year, and the increasing recognition
that the local telephone companies' earnings were being enhanced by the growth
in value-added services catalyzed the outperformance of many of these stocks.
Scudder's underweight in the consumer staple sector, as well as specific stock
selection, also added value as their value discipline enabled them to avoid the
weakness in Coca-Cola, Procter & Gamble, and Gillette. Instead, the portfolio
was led by standout performers Avon (+47%) and Unilever (+35%). The Fund also
benefited from the fact many of its best performing stocks were top holdings.
These included Ford (+87%), Bellsouth (+81%), Sprint (+64%), Xerox (+62%),
American Home Products (+50%), Bristol-Myers Squibb (+43%), and Chase Manhattan
(+33%). And finally, the tremendous level of merger and acquisition activity in
the U.S. market helped the Fund last year. Stocks which were held that were
acquired during the year (or which are pending final completion) included
MidOcean, Mercantile Stores, Firstar, Echlin, BetzDearborn, and Mobil.
Scudder continues to focus on their relative dividend yield discipline, which
seeks to identify opportunities in undervalued and misunderstood companies.
While this discipline does not add value in every year, Scudder feels that it
has proven itself over market cycles. They cannot control the normal cyclical
shifts between growth and value, but they are confident that adhering to a time
tested stock selection discipline will prove beneficial over time.
<PAGE> 15
MANAGEMENT DISCUSSION & ANALYSIS
11
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE S&P 500 INDEX
ANNUITY GROWTH & INCOME ------------- WIESENBERGER GROWTH &
II PORTFOLIO INCOME - VA
----------------------- ---------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10252 10295 10249
6/95 11008 11278 11017
9/95 11839 12174 11845
12/95 12534 12908 12386
3/96 13407 13600 12996
6/96 13705 14210 13423
9/96 13866 14649 13853
12/96 14291 15871 14856
3/97 13696 16296 14914
6/97 15231 19141 16913
9/97 16566 20575 18210
12/97 16996 21165 18423
3/98 19152 24118 20487
6/98 18597 24914 20547
9/98 16222 22436 18151
12/98 18117 27213 21427
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 6.6% Since Inception 2/23/95 16.7%
Cumulative Total Return
Since Inception 2/23/95 81.2%
Past performance is not indicative of future performance.
Touchstone Advisor Balanced
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Advisor Balanced Sub-Account. Growth and value stocks, as measured by
the S&P 500 Index, rose 28.6% and government and corporate bonds, as measured by
the Lehman Brothers Aggregate Index, rose 8.7% while the total return (net of
fees and expenses) for the Touchstone Advisor Balanced Sub-Account was 4.6%.
As the manager of the Touchstone Advisor Balanced Portfolio, OpCap Advisors
employed a disciplined, bottom-up approach to stock selection which has not
changed since they began managing this Portfolio in April of 1997. Their
investment horizon is long-term, with an average holding period of 3 to 4 years.
OpCap reports that the stock market was characterized in 1998 by exceptionally
strong crosscurrents, including wide performance disparities among individual
stocks. Many quality businesses that are inexpensive languished or even fell in
price, while many large cap growth stocks and technology issues with what OpCap
believed to be unsustainably high valuations became even more highly valued.
Subsequently, OpCap's equity performance suffered from the ownership of a
disproportionate number of quality mid cap companies that have reasonable
valuations. The mid cap sector, especially mid cap value stocks, lagged badly in
the year.
<PAGE> 16
MANAGEMENT DISCUSSION & ANALYSIS
12
Performance also suffered from the relatively limited holdings of technology
stocks. The stock market valued many technology companies as if they had
unlimited earnings growth potential. The most obvious example is the Internet
stocks, which rose dramatically in price in 1998 even though many Internet
companies have very limited revenues. For example, At Home Corporation with a
market capitalization of $11 billion had revenues for the year of $50 million.
While OpCap agrees that technology is revolutionary, they do not feel
comfortable paying high prices for large unknowns. Moreover, they believe that
highly priced technology stocks, including the Internet issues, may be
vulnerable to large declines when the euphoria that surrounds them subsides. For
these reasons, they sold their technology holdings when they believed they had
achieved a level of prudent valuation. For example, the EMC Corporation (EMC)
position was sold in August at a price of $59 per share, or 37 times 1998's
estimated earnings.
While technology stocks soared in 1998, many solid but less glamorous companies
with improving business results fell by the wayside. The most striking example
in the portfolio is the real estate company, Security Capital Group, which
experienced a 58% drop in its share price. This occurred even though the
company's funds from operations (the real estate equivalent to earnings per
share) are expected to rise 9% in 1998 and 20% in 1999. At year end, the
company's stock sold at less than eight times 1998 funds from operations and at
a large discount to its net asset value.
Even though OpCap's disciplined value style of investing did not produce strong
returns in 1998, they will stick to it because in their experience it has proven
itself over time. In other words, they will continue to invest carefully for the
long term, rather than chase highly valued stocks or buy companies that are in
vogue. Their objective is to control risk and generate superior returns by
acquiring stocks for substantially less than they are worth.
OpCap believes two of the most important long-term drivers of the price of a
stock are five-year average return on equity and five-year earnings per share
growth. In that regard, the companies they own have significantly higher return
on equity and comparable earnings per share growth than the average of the
stocks in the S&P 500 Index. The stocks owned by the Fund not only have
favorable business characteristics, but are also reasonably valued. Their
weighted average positive price/earnings ratio was 18.9 times at the end of the
year and their weighted average price to book ratio was 3.8 times, well below
the S&P 500 Index's levels of 26.7 times and 13.8 times, respectively. They
remain optimistic that investments in quality undervalued businesses will
generate superior returns over time.
In the second half of the year, OpCap established new positions in the common
stocks of Compaq Computer, Computer Associates International and News
Corporation Limited. Each is expected to deliver strong business results in
1999. In the case of Compaq, for instance, they believe the stock is inexpensive
because of uncertainties created by acquisitions and recent poor operating
performance. They believe management has a sound plan for integrating
acquisitions and improving core operating results. The five largest equity
holdings at December 31, 1998 were Security Capital Group (Class B), a real
estate company; Teva Pharmaceutical Industries Ltd., the
<PAGE> 17
MANAGEMENT DISCUSSION & ANALYSIS
13
leading global generic pharmaceutical company; Sabre Group Holdings, which
operates a travel reservation and information system; Monsanto Co., a life
sciences company; and Sprint Corp., a leading provider of telecommunications
services.
In addition to its holdings of common stocks, which represented 59.7% of the
Fund's net assets at year end, 34.7% of net assets were invested in fixed income
securities. The balance was invested in cash and cash equivalents. The fixed
income portion of the portfolio performed well in 1998. OpCap's fixed income
holdings include a diverse group of high-quality corporate bonds, U.S.
Government and agency securities, foreign government debt and tax-exempt
municipal bonds.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE S&P 500 MAJOR LEHMAN BROS. WIESENBERGER
VARIABLE INDEX AGGREGATE MAJOR BLEND: 60% BALANCED MINO
ANNUITY ------------- INDEX 2 S&P 40% LB INDEX
BALANCED --------------- AGGREGATE MINOR -------------
PORTFOLIO INDEX
---------- ---------------
<S> <C> <C> <C> <C> <C>
2/95 10000 10000 10000 10000 10000
3/95 10288 10295 10061 10202 10161
6/95 11279 11278 10674 11034 10825
9/95 11954 12174 10884 11645 11383
12/95 12018 12908 11348 12266 11795
3/96 12412 13600 11147 12569 12026
6/96 12545 14210 11210 12936 12236
9/96 12954 14649 11417 13278 12503
12/96 13922 15871 11760 14102 13089
3/97 13808 16296 11695 14303 13005
6/97 15170 19141 12125 15993 14339
9/97 16097 20575 12530 16935 15274
12/97 16382 21165 12895 17433 15396
3/98 17472 24118 13094 18986 16596
6/98 17531 24914 13402 19544 16923
9/98 15896 22436 13968 18731 15784
12/98 17136 27213 14015 21091 17777
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 4.6% Since Inception 2/23/95 15.0%
Cumulative Total Return
Since Inception 2/23/95 71.4%
Past performance is not indicative of future performance.
Touchstone Advisor Bond
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Advisor Bond Sub-Account. Corporate bonds, as measured by the Lehman
Brothers Aggregate Index, rose 8.7% while the return of the Wiesenberger:
Corporate Bond (Investment Grade) Variable Annuity Average rose 6.3%. Total
return (net of fees and expenses) for the Touchstone Advisor Bond Sub-Account
was 7.4%.
As the manager of the Touchstone Advisor Bond Portfolio, Fort Washington
Investment Advisors continued to strategically rotate between govern-
<PAGE> 18
MANAGEMENT DISCUSSION & ANALYSIS
14
ment, corporate and mortgage securities throughout the year. Fort Washington
reports that the Fund generated solid returns in a market that was very
unfriendly to the average manager. The returns were the result of an above
average market yield and a portfolio duration equal to that of the Fund's
overall market index.
The portfolio was overweight in corporate and asset-backed securities. A 5% cash
position and a core position (5%) in preferred stocks generated significant
current income with low market volatility. The goal of the portfolio was to find
market niches of mispriced securities that generated above average returns for
their quality or duration. The portfolio position in preferred stock was a
perfect example of this strategy.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE LEHMAN BROTHERS AGGREGATE WIESENBERGER CORPORATION -
ANNUITY BOND II PORTFOLIO INDEX INV GRADE - VA
------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10068 10061 10050
6/95 10702 10674 10651
9/95 10863 10884 10830
12/95 11309 11348 11216
3/96 11036 11147 11055
6/96 11048 11210 11087
9/96 11222 11417 11280
12/96 11506 11760 11606
3/97 11447 11695 11560
6/97 11794 12125 11935
9/97 12149 12530 12299
12/97 12322 12895 12524
3/98 12551 13094 12723
6/98 12815 13402 12944
9/98 13103 13968 13315
12/98 13228 14015 13315
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 7.4% Since Inception 2/23/95 7.5%
Cumulative Total Return
Since Inception 2/23/95 32.3%
Past performance is not indicative of future performance.
Touchstone Advisor Standby Income
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Advisor Standby Income Sub-Account. Cash equivalents, as measured by
the Smith Barney 3-Month Treasury Bill Index rose 5.1% while the Merrill Lynch
91-Day Treasury Index rose 5.2% and the return of the 30-Day Money Market Yield
Index rose 5.1%. Total return (net of fees and expenses) for the Touchstone
Advisor Standby Income Sub-Account was 4.9%.
<PAGE> 19
MANAGEMENT DISCUSSION & ANALYSIS
15
As the manager of the Touchstone Advisor Standby Income Portfolio, Fort
Washington Investment Advisors maintained its core investment strategy by using
a sector rotation strategy and trend analysis. As the year began, the Portfolio
was overweight in commercial paper and had an average maturity that matched the
3-Month Treasury Bill Index. As the year concluded, they had a significantly
higher corporate and asset-backed weighting. They had also extended the average
maturity of the fund making it roughly 50% longer than the 3-month Treasury
bill. This dual focus restructuring was accomplished by rotating into corporate
and asset-backed securities as spreads widened to near historic highs. In the
process, Fort Washington was able to pare back their commercial paper exposure
and better position the portfolio for the coming year.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE
ANNUITY INCOME 30-DAY MM MINOR MERRILL 91-DAY MINOR NEW SBR 3-MTH
OPPORTUNITY PORTFOLIO INDEX INDEX TREASURY INDEX
--------------------- --------------- -------------------- --------------
<S> <C> <C> <C> <C>
2/95 10000 10000 10000 10000
3/95 10059 10046 10051 10049
6/95 10135 10185 10202 10196
9/95 10223 10321 10347 10339
12/95 10365 10457 10499 10480
3/96 10469 10586 10628 10616
6/96 10582 10713 10765 10750
9/96 10701 10842 10914 10890
12/96 10820 10974 11056 11031
3/97 10925 11107 11197 11171
6/97 11049 11246 11350 11315
9/97 11191 11387 11502 11461
12/97 11315 11532 11646 11610
3/98 11440 11679 11797 11760
6/98 11576 11826 11949 11909
9/98 11727 11975 12119 12060
12/98 11868 12114 12254 12198
</TABLE>
Average Annual Total Return
One Year Ended 12/31/98 4.9% Since Inception 2/23/95 4.5%
Cumulative Total Return
Since Inception 2/23/95 18.7%
Past performance is not indicative of future performance.
<PAGE> 20
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
STATEMENT OF NET ASSETS 16
December 31, 1998
<TABLE>
<S> <C> <C> <C>
ASSETS:
Investments at current market value:
Select Advisors Variable Insurance
Trust
Emerging Growth Portfolio (11,189 shares, cost $166,980) $ 171,529
International Equity Portfolio (11,556 shares, cost $152,581) 161,316
Balanced Portfolio (12,287 shares, cost $174,676) 171,523
Income Opportunity Portfolio (20,202 shares, cost $196,125) 175,556
Standby Income Portfolio (46,659 shares, cost $467,053) 467,053
Value Plus Portfolio (10 shares, cost $ 97) 102
Select Advisors Portfolios
Growth & Income Portfolio II (0.318505% beneficial interest $201,433) 237,910
Bond Portfolio II (0.283934% beneficial interest $ 96,433) 109,301
- ---------------------------------------------------------------------------------------------------
Total assets 1,494,290
LIABILITIES:
Accounts payable 35
- ---------------------------------------------------------------------------------------------------
Total liabilities 35
Total net assets $1,494,255
- ---------------------------------------------------------------------------------------------------
NET ASSETS:
Variable annuity contracts $1,493,051
Retained in the variable account by Western-Southern Life Assurance Company 1,204
- ---------------------------------------------------------------------------------------------------
Total net assets $1,494,255
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
17 STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME VALUE PLUS
TOTAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends and capital gains $ 90,346 $ 5,973 $ 5,347 $ 9,305 $ 63,278 $ 6,443
Miscellaneous income (loss) (4,698) 188 (1,300) (1,800) (2,054) 388 $ 5
EXPENSES:
Mortality and expense risk,
and administrative charge 13,748 1,845 1,312 1,432 5,436 928 5
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 71,900 4,316 2,735 6,073 55,788 5,903 0
- --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
on investments 29,707 (12,141) 6,483 (8,062) 23,279 43 5
Realized gain (loss) on
investments (60,160) 5,778 19,119 10,103 (95,409) 19 230
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (30,453) (6,363) 25,602 2,041 (72,130) 62 235
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 41,447 (2,047) 28,337 8,114 (16,342) 5,965 235
- --------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 1,109,428 59,053 60,324 32,031 127,683 641,970 100
Net transfers between sub-
accounts -- 103,499 13,119 24,334 (830,696) 617,134 (233)
Withdrawals and surrenders (1,739,080) (247,322) (89,500) (61,060) (131,066) (925,092) --
Contract maintenance charge (1,224) (200) (207) (238) (211) (43) --
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity (630,876) (84,970) (16,264) (4,933) (834,290) 333,969 (133)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets (589,429) (87,017) 12,073 3,181 (850,632) 339,934 102
Net assets, at beginning of
period 2,083,684 258,541 149,238 168,337 1,026,184 127,103 --
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, at end of period $1,494,255 $171,524 $161,311 $171,518 $ 175,552 $467,037 $102
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
INCOME:
Dividends and capital gains -- --
Miscellaneous income (loss) $ (50) $ (75)
EXPENSES:
Mortality and expense risk,
and administrative charge 2,156 634
- ---------------------------------------------------------------------
Net investment income (loss) (2,206) (709)
- ----------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
on investments 13,754 6,346
Realized gain (loss) on
investments -- --
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 13,754 6,346
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 11,548 5,637
- -------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 99,943 88,324
Net transfers between sub-
accounts 90,949 (18,106)
Withdrawals and surrenders (232,204) (52,836)
Contract maintenance charge (285) (40)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity (41,597) 17,342
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets (30,049) 22,979
Net assets, at beginning of
period 267,959 86,322
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, at end of period $237,910 $109,301
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME
TOTAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends and capital gains $ 98,985 $ 13,867 $ 7,984 $ 12,525 $ 48,689 $ 15,920
Miscellaneous income (loss) 2,046 424 242 151 491 (21)
EXPENSES:
Mortality and expense risk,
and administrative charge 8,013 946 799 789 1,297 2,346
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 93,018 13,345 7,427 11,887 47,883 13,553
- --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
on investments (16,192) 15,477 (131) 1,715 (45,887) (43)
Realized gain (loss) on
investments 15,346 7,624 4,509 2,405 1,824 (1,016)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (846) 23,101 4,378 4,120 (44,063) (1,059)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 92,172 36,446 11,805 16,007 3,820 12,494
- --------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 1,524,644 33,978 41,159 51,326 59,528 1,247,173
Net transfers between sub-
accounts -- 144,764 47,420 48,835 909,558 (1,310,153)
Withdrawals and surrenders (68,116) (9,166) (7,648) (2,812) (3,655) (36,193)
Contract maintenance charge (665) (126) (111) (118) (102) (37)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity 1,455,863 169,450 80,820 97,231 965,329 (99,210)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets 1,548,035 205,896 92,625 113,238 969,149 (86,716)
Net assets, at beginning of
period 535,649 52,645 56,613 55,099 57,035 213,819
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, at end of period $2,083,684 $258,541 $149,238 $168,337 $1,026,184 $ 127,103
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
INCOME:
Dividends and capital gains $ -- $ --
Miscellaneous income (loss) 719 40
EXPENSES:
Mortality and expense risk,
and administrative charge 1,413 423
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (694) (383)
- --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
on investments 8,426 4,251
Realized gain (loss) on
investments -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8,426 4,251
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 7,732 3,868
- --------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 58,171 33,309
Net transfers between sub-
accounts 143,810 15,766
Withdrawals and surrenders (8,642) --
Contract maintenance charge (140) (31)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity 193,199 49,044
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets 200,931 52,912
Net assets, at beginning of
period 67,028 33,410
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, at end of period $267,959 $ 86,322
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 22
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
NOTES 18
<PAGE> 23
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
19
NOTES TO FINANCIAL STATEMENTS
1. Organization
Western-Southern Life Assurance Company Separate Account 2 (the "Account") is a
unit investment trust registered under the Investment Company Act of 1940 (the
"1940 Act), established by the Western-Southern Life Assurance Company (the
"Company"), a life insurance company which is a wholly-owned subsidiary of The
Western and Southern Life Insurance Company ("Western & Southern"). The Account
is a funding vehicle for individual variable annuity contracts and commenced
operations on February 23, 1995.
The variable annuity contracts are designed for individual investors and group
plans that desire to accumulate capital on a tax-deferred basis for retirement
or other long-term objectives. The variable annuity contracts are distributed
across the United States through a network of broker-dealers and wholesalers.
2. Significant Accounting Policies
The Account has eight investment sub-accounts each of which invests in the
corresponding portfolio (a "Portfolio") of Select Advisors Variable Insurance
Trust or of Select Advisors Portfolios, each of which is an open-ended
diversified management investment company. The sub-account's value fluctuates on
a day to day basis depending on the investment performance of the Portfolio in
which each sub-account is invested. Sub-account transactions are recorded on the
trade date and income from dividends is recorded on the ex-dividend date.
Realized gains and losses on the sales of investments are computed on the basis
of specific identification.
Upon annuitization, the contract assets are transferred to the general account
of the Company. Accordingly, contract reserves are recorded by the company. See
the related prospectus for a more detailed description of the annuity contracts.
3. Contract Charges
Certain deductions for administrative and risk charges are deducted from the
contract value, in order to compensate the Company for administrative expenses
and for the assumption of mortality and expense risks. These charges are made
daily at an annual effective rate of .80% of the contract value.
The Company also deducts an annual contract maintenance charge of $35 from the
contract value on each contract anniversary and upon any full surrender.
<PAGE> 24
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
20
Notes to Financial Statements continued
4. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
5. Taxes
The Account is not taxed separately because the operations
of the Account are part of the total operations of the
Company. The Company is taxed as a life insurance company
under the Internal Revenue Code. Under existing federal
income tax law, no taxes are payable on the investment
income or on the capital gains of the Account.
6. Purchases and Sales of Investments
The following table shows aggregate cost of shares and
beneficial interests of the portfolios purchased and
proceeds from shares and beneficial interests of the
portfolios sold by the corresponding sub-accounts for the
period January 1, 1998 to December 31, 1998.
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio $ 202,196 $ 282,854
International Equity Portfolio 93,458 106,988
Balanced Portfolio 129,570 128,432
Income Opportunity Portfolio 207,511 986,021
Standby Income Portfolio 1,581,274 1,241,366
Value Plus Portfolio 4,605 4,738
Select Advisors Portfolio
Growth & Income Portfolio II 235,698 279,501
Bond Portfolio II 135,081 118,447
</TABLE>
<PAGE> 25
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
21
7. Unit Values
The following table shows a summary of units outstanding
for variable annuity contracts for the period January 1,
1998 to December 31, 1998.
<TABLE>
<CAPTION>
TRANSFERS
BEGINNING UNITS UNITS BETWEEN ENDING UNIT ENDING
UNITS PURCHASED REDEEMED SUB-ACCOUNTS UNITS VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth
Sub-Account 15,058 3,505 (15,161) 6,347 9,749 17.592298 $ 171,524
International Equity
Sub-Account 10,507 3,615 (5,519) 921 9,524 16.937997 $ 161,311
Balanced Sub-Account 10,276 1,838 (3,595) 1,490 10,009 17.135699 $ 171,518
Income Opportunity
Sub-account 58,064 8,109 (8,127) (46,622) 11,424 15.367598 $ 175,552
Standby Income
Sub-Account 11,233 54,614 (79,371) 52,878 39,354 11.867636 $ 467,037
Value Plus Sub-Account -- 10 -- -- 10 10.156803 $ 102
Growth & Income
Sub-Account 15,766 5,442 (13,341) 5,265 13,132 18.117147 $ 237,910
Bond Sub-Account 7,005 6,761 (4,064) (1,439) 8,263 13.227693 $ 109,301
- ------------------------------------------------------------------------------------------------------------
$1,494,255
- ------------------------------------------------------------------------------------------------------------
</TABLE>
8. Subsequent Event
Effective immediately after the close of business on
December 31, 1998, two new portfolios, namely Touchstone
Growth & Income Fund and Touchstone Bond Fund were
established in the Select Advisors Variable Insurance
Trust. Effective after the close of business on December
31, 1998, Select Advisors Variable Insurance Trust was
renamed Touchstone Variable Series Trust ("VST"). The
shares of the newly established VST: Touchstone Growth &
Income Fund and VST: Touchstone Bond Fund, (collectively
"VST Funds") were substituted for shares of the Select
Advisors Portfolios: Growth & Income Portfolio II and the
Select Advisors Portfolios: Bond Portfolio II respectively,
(collectively "SAP Funds") held by Western-Southern Life
Assurance Company Separate Account 1 and Separate Account 2
and The Western and Southern Life Insurance Company
Separate Account A. This transaction was achieved through
an in-kind redemption from the SAP Funds and a
corresponding in-kind contribution to the VST Funds of the
net assets of the SAP Funds. As a result of this
transaction, the SAP Funds ceased to be available as
investment options for Separate Accounts 1, 2 and A. The
VST Funds have substantially identical investment
objectives, policies and risks as those of the respective
SAP Funds. In addition, the VST Funds will employ the same
investment advisor and investment techniques as those
employed by the respective SAP Funds. The SAP Funds will be
dissolved and terminated as soon as practicable.
<PAGE> 26
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
22
Notes to Financial Statements continued
9. Supplementary Information -- Selected Per Share Data and Ratios
TOUCHSTONE VARIABLE ANNUITY
Selected data for an accumulation unit outstanding throughout each year:
<TABLE>
<CAPTION>
TOUCHSTONE EMERGING GROWTH FUND SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.612142 $ 0.929048 $ 0.337947 $ 0.789879
Expenses 0.134380 0.118607 0.098968 0.073756
- ----------------------------------------------------------------------------------------
Net investment income
(loss) 0.477762 0.810441 0.238979 0.716123
Net realized and unrealized
gain (loss) on
investments (0.05531) 3.411742 0.967583 1.024979
- ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.422451 4.222183 1.206562 1.741102
Beginning of period 17.169847 12.947664 11.741102 10.000000
- ----------------------------------------------------------------------------------------
End of period $17.592298 $17.169847 $12.947664 $11.741102
- ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 0.86% 0.61% 0.76% 0.64%
Ratio of net investment
income (loss) to average
net assets (%) 2.01% 8.58% 0.97% 12.73%
<CAPTION>
TOUCHSTONE INTERNATIONAL EQUITY SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.560971 $ 0.771640 $ 0.084052 $ 0.033748
Expenses 0.128478 0.107978 0.095651 0.073298
- ----------------------------------------------------------------------------------------
Net investment income
(loss) 0.432493 0.663662 (0.011599) (0.039550)
Net realized and unrealized
gain (loss) on
investments 2.302091 1.063784 1.204897 1.322219
- ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 2.734584 1.727446 1.193298 1.282669
Beginning of period 14.203413 12.475967 11.282669 10.000000
- ----------------------------------------------------------------------------------------
End of period $16.937997 $14.203413 $12.475967 $11.282669
- ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 0.84% 0.78% 0.70% 0.67%
Ratio of net investment
income (loss) to average
net assets (%) 1.76% 7.22% 1.08% 0.17%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE BALANCED SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.918046 $ 1.317477 $ 0.569146 $ 1.125981
Expenses 0.134922 0.120752 0.101787 0.076118
- ----------------------------------------------------------------------------------------
Net investment income
(loss) 0.783124 1.196725 0.467359 1.049863
Net realized and unrealized
gain (loss) on
investments (0.029731) 1.263315 1.436884 0.968160
- ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.753393 2.460040 1.904243 2.018023
Beginning of period 16.382306 13.922266 12.018023 10.000000
- ----------------------------------------------------------------------------------------
End of period $17.135699 $16.382306 $13.922266 $12.018023
- ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 0.84% 0.71% 0.78% 0.69%
Ratio of net investment
income (loss) to average
net assets (%) 3.58% 10.64% 5.34% 14.78%
<CAPTION>
TOUCHSTONE INCOME OPPORTUNITY SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 1.751570 $ 2.241559 $ 1.977619 $ 1.550039
Expenses 0.134780 0.136658 0.113609 0.076165
- ----------------------------------------------------------------------------------------
Net investment income
(loss) 1.616790 2.104901 1.864010 1.473874
Net realized and unrealized
gain (loss) on
investments (3.922423) (0.318302) 1.449756 1.098992
- ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value (2.305633) 1.786599 3.313766 2.572866
Beginning of period 17.673231 15.886632 12.572866 10.000000
- ----------------------------------------------------------------------------------------
End of period $15.367598 $17.673231 $15.886632 $12.572866
- ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 0.90% 0.24% 0.75% 0.66%
Ratio of net investment
income (loss) to average
net assets (%) 9.28% 8.84% 12.25% 10.26%
</TABLE>
* Calculation of the Value Plus Unit Values began May 1, 1998, when that
sub-account commenced operations.
<PAGE> 27
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 2
23
<TABLE>
<CAPTION>
TOUCHSTONE STANDBY INCOME SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.633473 $ 0.594041 $ 0.550219 $ 0.483304
Expenses 0.092320 0.088130 0.084812 0.068599
- --------------------------------------------------------------------------------------------
Net investment income
(loss) 0.541153 0.505911 0.465407 0.414705
Net realized and unrealized
gain (loss) on
investments 0.011590 (0.010926) (0.010339) (0.049865)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.552743 0494985 0.455068 0.364840
Beginning of period 11.314893 10.819908 10.364840 10.000000
- --------------------------------------------------------------------------------------------
End of period $11.867636 $11.314893 $10.819908 $10.364840
- --------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 0.31% 1.38% 0.50% 0.78%
Ratio of net investment
income (loss) to average
net assets (%) 1.99% 7.95% 2.67% 4.35%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE GROWTH & INCOME SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C>
PER SHARE DATA
Investment income $ -- $ -- $ -- $ --
Expenses 0.141929 0.122934 0.108541 0.075378
- -------------------------------------------------------------------------------------------
Net investment income
(loss) (0.141929) (0.122934) (0.108541) (0.075378)
Net realized and unrealized
gain (loss) on
investments 1.263248 2.827415 1.865939 2.609327
- -------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 1.121319 2.704481 1.757398 2.533949
Beginning of period 16.995828 14.291347 12.533949 10.000000
- -------------------------------------------------------------------------------------------
End of period $18.117147 $16.995828 $14.291347 $12.533949
- -------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 0.85% 0.84% 0.87% 0.62%
Ratio of net investment
income (loss) to average
net assets (%) (0.87)% (0.41)% (9.54)% (0.55)%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE
VALUE PLUS
TOUCHSTONE BOND SUB-ACCOUNT SUB-ACCOUNT*
--------------------------------------------------------- -------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED*
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ -- $ -- $ -- $ -- $ 0.029387
Expenses 0.101441 0.094423 0.089697 0.071770 0.050319
- --------------------------------------------------------------------------------------------------------
Net investment income
(loss) (0.101144) (0.094423) (0.089697) (0.071770) (0.020932)
Net realized and unrealized
gain (loss) on
investments 1.007083 0.910882 0.285772 1.381287 0.177735
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.905642 0.816459 0.196075 1.309517 0.156803
Beginning of period 12.322051 11.505592 11.309517 10.000000 10.000000
- --------------------------------------------------------------------------------------------------------
End of period $13.227693 $12.322051 $11.505592 $11.309517 $10.156803
- --------------------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 0.65% 0.71% 0.83% 0.69% 9.80%
Ratio of net investment
income (loss) to average
net assets (%) (0.72)% (0.64)% (2.09)% (0.66)% 0.00%
</TABLE>
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS 24
To the Contractholders and Board of Directors of
Western-Southern Life Assurance Company
In our opinion, the accompanying statement of net assets and statement of
operations and changes in net assets present fairly, in all material respects,
the financial position of Western-Southern Life Assurance Company Separate
Account 2 as of December 31, 1998 and the results of their operations and
changes in net assets for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
January 22, 1999
Cincinnati, Ohio
<PAGE> 29
TOUCHSTONE ADVISOR VARIABLE ANNUITY
LOGO
LOGO
SELECT ADVISORS VARIABLE
INSURANCE TRUST
EMERGING GROWTH LOGO
INTERNATIONAL EQUITY LOGO
INCOME OPPORTUNITY LOGO
VALUE PLUS LOGO
BALANCED LOGO
STANDBY INCOME LOGO
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE> 30
NOTES 2
<PAGE> 31
EMERGING GROWTH PORTFOLIO
3
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
COMMON STOCKS -- 91.9%
AUTOMOTIVE -- 2.4%
8,700 Bandag, Class A $ 303,413
26,600 Exide 432,250
- ----------------------------------------------------------------------------------
735,663
- ----------------------------------------------------------------------------------
BANKING -- 2.1%
5,000 Bank United, Class A 196,250
7,900 Dime Bancorp 208,856
15,200 Golden State Bancorp* 252,700
- ----------------------------------------------------------------------------------
657,806
- ----------------------------------------------------------------------------------
BEVERAGES, FOOD & TOBACCO -- 1.8%
39,200 DiMon 291,550
15,000 Ralcorp Holdings* 273,750
- ----------------------------------------------------------------------------------
565,300
- ----------------------------------------------------------------------------------
BUILDING MATERIALS -- 4.8%
16,700 Calmat 515,613
44,900 Dal-Tile International* 465,838
8,400 Martin Marietta Materials 522,375
- ----------------------------------------------------------------------------------
1,503,826
- ----------------------------------------------------------------------------------
CHEMICALS -- 0.6%
25,300 Calgon Carbon 189,750
- ----------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 14.0%
17,200 Administaff* 430,000
17,000 Advance Paradigm* 594,987
14,000 Apollo Group, Class A 474,250
10,500 A.C. Nielson* 296,625
15,000 Career Education* 450,000
12,100 CDI* 244,269
9,000 DeVry* 275,625
27,000 FirstService* 322,313
10,000 ITT Educational Services* 340,000
12,000 Stewart Enterprises 267,000
14,900 Unova* 270,063
15,800 Wallace Computer Services 416,725
- ----------------------------------------------------------------------------------
4,381,857
- ----------------------------------------------------------------------------------
COMMUNICATIONS -- 4.7%
18,200 DSP Communications* 278,688
11,400 Geotel Communications* 424,650
19,000 Powerwave Technologies* 353,875
6,000 Tellabs* 411,375
- ----------------------------------------------------------------------------------
1,468,588
- ----------------------------------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING -- 6.3%
22,900 Carreker-Antinori* 153,144
26,700 CBT Group, ADR* 397,163
4,400 Earthlink Network* 250,800
7,500 Equant* 508,594
4,600 Policy Management Systems* 232,300
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 32
EMERGING GROWTH PORTFOLIO
4
Schedule of Investments continued
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
COMPUTER SOFTWARE & PROCESSING Continued
1,600 PRI Automation* $ 41,600
7,500 Transaction Systems Architects, Class A* 375,000
- ----------------------------------------------------------------------------------
1,958,601
- ----------------------------------------------------------------------------------
COMPUTERS & INFORMATION -- 5.0%
4,000 EMC* 340,000
10,200 Gerber Scientific 242,888
29,800 Intergraph* 171,350
15,000 Saville Systems, ADR* 285,000
33,600 Scitex* 394,800
2,500 Sterling Commerce* 112,500
- ----------------------------------------------------------------------------------
1,546,538
- ----------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.1%
29,100 Magnetek* 336,469
- ----------------------------------------------------------------------------------
ELECTRONICS -- 6.4%
30,000 Aeroflex* 453,750
21,500 Commscope* 361,469
15,500 Galileo Technology* 418,500
10,000 Maxwell Technologies* 402,500
15,000 Power Integrations* 375,938
- ----------------------------------------------------------------------------------
2,012,157
- ----------------------------------------------------------------------------------
ENTERTAINMENT & LEISURE -- 3.0%
17,000 Cinar Films, Class B* 431,375
9,000 SFX Entertainment, Class A* 493,875
- ----------------------------------------------------------------------------------
925,250
- ----------------------------------------------------------------------------------
FINANCIAL SERVICES -- 1.0%
23,000 Life USA Holdings 296,125
- ----------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 1.0%
42,300 Unisource Worldwide 306,675
- ----------------------------------------------------------------------------------
HEALTH CARE PROVIDERS -- 2.5%
14,700 IDEXX Laboratories* 395,523
14,000 Syncor International* 381,500
- ----------------------------------------------------------------------------------
777,023
- ----------------------------------------------------------------------------------
HEAVY CONSTRUCTION -- 0.8%
18,900 Foster Wheeler 249,244
- ----------------------------------------------------------------------------------
HEAVY MACHINERY -- 0.2%
4,500 Flowserve 74,531
- ----------------------------------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES -- 1.1%
5,800 Herman Miller 155,875
11,400 LA-Z-Boy Chair 203,063
- ----------------------------------------------------------------------------------
358,938
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 33
EMERGING GROWTH PORTFOLIO
5
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
INSURANCE -- 2.7%
13,100 HCC Insurance Holdings $ 230,888
8,350 HSB Group 342,872
28,000 Provident American* 280,000
- ----------------------------------------------------------------------------------
853,760
- ----------------------------------------------------------------------------------
MEDIA -- BROADCASTING & PUBLISHING -- 7.2%
16,000 American Tower Systems, Class A* 473,000
16,000 Capstar Broadcasting, Class A* 366,000
5,700 Central Newspapers, Class A 407,194
22,600 Hollinger International 314,988
25,000 Information Holdings* 393,750
9,400 Lee Enterprises 296,100
- ----------------------------------------------------------------------------------
2,251,032
- ----------------------------------------------------------------------------------
MEDICAL SUPPLIES -- 4.4%
15,600 Arthocare* 339,300
8,200 EG&G 228,063
12,300 Haemonetics* 279,825
13,000 OEC Medical Systems* 408,688
5,700 Roper Industries 116,138
- ----------------------------------------------------------------------------------
1,372,014
- ----------------------------------------------------------------------------------
METALS -- 0.5%
5,400 Harsco 164,363
- ----------------------------------------------------------------------------------
OIL & GAS -- 2.0%
10,300 Equitable Resources 299,988
23,000 Nabors Industries* 311,938
- ----------------------------------------------------------------------------------
611,926
- ----------------------------------------------------------------------------------
PHARMACEUTICALS -- 3.5%
9,000 Anesta* 239,625
18,000 Jean Coutu Group, Class A 386,433
18,500 King Pharmaceuticals* 483,313
- ----------------------------------------------------------------------------------
1,109,371
- ----------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
16,000 The Cheesecake Factory* 474,501
- ----------------------------------------------------------------------------------
RETAILERS -- 3.4%
34,000 Charming Shoppes* 146,625
10,000 Duane Reade* 385,000
9,000 Enesco Group 209,250
12,500 Guitar Center* 307,813
- ----------------------------------------------------------------------------------
1,048,688
- ----------------------------------------------------------------------------------
TELEPHONE SYSTEMS -- 2.4%
6,000 Exodus Communications* 385,500
7,500 Qwest Communications International* 375,000
- ----------------------------------------------------------------------------------
760,500
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 34
EMERGING GROWTH PORTFOLIO
6
Schedule of Investments continued
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
TEXTILES, CLOTHING & FABRICS -- 1.5%
12,347 Albany International $ 233,823
28,000 Stride Rite 245,000
- ----------------------------------------------------------------------------------
478,823
- ----------------------------------------------------------------------------------
TRANSPORTATION -- 4.0%
37,200 Fritz Companies* 402,225
38,300 Halter Marine Group* 186,713
8,900 Newport News Shipbuilding 297,594
19,500 Yellow* 372,938
- ----------------------------------------------------------------------------------
1,259,470
- ----------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $26,209,953) 28,728,789
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNITS
<C> <S> <C>
WARRANTS -- 0.1%
BANKING -- 0.1%
5,700 Golden State Bancorp* 26,006
- -----------------------------------------------------------------------------------
TOTAL WARRANTS (COST $21,258) 26,006
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 92.0% (COST $26,231,211)(a) 28,754,795
CASH AND OTHER ASSETS NET OF LIABILITIES -- 8.0% 2,509,108
- -----------------------------------------------------------------------------------
NET ASSETS -- 100.0% $31,263,903
- -----------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$26,235,332, resulting in gross unrealized appreciation and depreciation
of $5,284,907 and $2,765,444, respectively, and net unrealized
appreciation of $2,519,463.
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE> 35
INTERNATIONAL EQUITY PORTFOLIO
7
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
COMMON STOCKS -- 92.7%
FINLAND -- 2.0%
5,464 Nokia OYJ, Series A $ 664,388
- -----------------------------------------------------------------------------------
FRANCE -- 16.7%
4,080 AXA 590,380
4,191 Banque National De Paris 344,549
1,353 Canal Plus 368,599
1,548 Cap Gemini 248,056
5,694 Casino Guichard-Perrachon 592,007
1,672 Vivendi 433,103
1,789 Dexia France 275,169
2,225 Groupe Danone 635,970
4,962 Rhone Poulenc 254,937
4,096 Sanofi 673,185
4,394 Suez Lyonnaise Des Eaux-Dumex 901,129
3,380 Total S.A., Series B 341,759
- -----------------------------------------------------------------------------------
5,658,843
- -----------------------------------------------------------------------------------
GERMANY -- 7.7%
941 Allianz Holdings 345,057
3,394 Bayerische Vereinsbank 265,817
5,028 Mannesmann 576,353
6,159 Metro 491,611
11,878 RWE 650,483
4,170 Siemens 269,032
- -----------------------------------------------------------------------------------
2,598,353
- -----------------------------------------------------------------------------------
GREAT BRITAIN -- 17.9%
12,198 Allied Zurich* 181,546
20,790 Bank of Scotland 247,469
46,562 BG 293,160
25,874 British Petroleum 385,519
55,752 Compass Group 637,253
20,566 Dixons Group, ADR 288,676
61,500 Gallaher Group 416,054
9,826 Glaxo Wellcome 337,345
28,565 Lloyds TSB Group 405,460
60,584 National Grid Group 482,525
22,712 Orange* 263,372
22,718 Prudential 342,266
18,196 Railtrack Group 474,569
30,668 SmithKline Beecham 427,673
16,665 Unilever 186,472
42,385 Vodafone Group 686,767
- -----------------------------------------------------------------------------------
6,056,126
- -----------------------------------------------------------------------------------
IRELAND -- 1.9%
35,831 Allied Irish Banks 636,488
1 Bank of Ireland 21
- -----------------------------------------------------------------------------------
636,509
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 36
INTERNATIONAL EQUITY PORTFOLIO
8
Schedule of Investments continued
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
ITALY -- 10.8%
14,746 Assicurazione Generali $ 614,431
118,034 Credito Italiano 695,726
21,140 Istituto Bancario San Paolo di Torino* 372,986
182,877 Olivetti* 636,642
785,673 Seat Pagine Gialle* 736,801
31,480 Telecom Italia Mobile 231,974
60,067 Telecom Italia 375,888
- -----------------------------------------------------------------------------------
3,664,448
- -----------------------------------------------------------------------------------
JAPAN -- 14.3%
2,600 Acom 166,705
3,000 Ajinomoto 31,794
3,000 Asahi Breweries 44,114
5,000 Bridgestone 113,265
4,000 Canon 85,313
20,000 Casio Computer 147,311
22,000 Citizen Watch 132,120
12,000 Daiichi Pharmaceutical 202,314
12 East Japan Railway 66,873
5,200 Familymart 259,013
5,000 Fuji 185,463
3,900 ITO Yokado 272,101
7,000 Kirin Brewery 89,022
66 Merrill Lynch (Honda Motor), CPS 67,082
7,000 Minebea 79,996
24,000 Mitsubishi Heavy Industries 93,262
6,000 Mitsubishi 34,443
32,500 Mitsui Chemicals 112,801
90 Morgan Stanley Deanwitter (Canon Inc), CPS* 73,913
70 Morgan Stanley Deanwitter (Sony Corp), CPS 87,238
1,700 Nintendo 163,649
28,000 Nippon Express 157,273
23,000 Nippon Paper Industries 104,407
40 Nippon Telegraph & Telephone 154,023
2,710 Promise 140,729
3,000 Rohm Company 272,631
7,000 Sankyo 152,698
24,000 Sekisui House 253,290
1,200 Sony 87,221
10,000 Sumitomo 48,574
3,400 TDK 310,183
4,000 Terumo 93,968
6,400 Tokyo Electric Power 157,697
17,000 Toppan Printing 207,189
7,000 Toyota Motor 189,791
- -----------------------------------------------------------------------------------
4,837,466
- -----------------------------------------------------------------------------------
NETHERLANDS -- 6.0%
9,250 Heineken 556,280
4,465 Koninklijke 223,369
6,295 Nutreco Holding 247,914
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 37
INTERNATIONAL EQUITY PORTFOLIO
9
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
NETHERLANDS Continued
1,153 STMicroelectronics* $ 90,629
900 STMicroelectronics, ADR* 70,256
4,844 Verenigde Nederlandse 182,520
3,094 Wolters Kluwer 661,612
- -----------------------------------------------------------------------------------
2,032,580
- -----------------------------------------------------------------------------------
PORTUGAL -- 0.5%
3,080 Brisa-Auto Estradas de Portugal 181,383
- -----------------------------------------------------------------------------------
SPAIN -- 3.9%
27,577 Argentaria 714,455
18,454 Iberdrola 345,403
5,380 Telefonica De Espana 239,322
- -----------------------------------------------------------------------------------
1,299,180
- -----------------------------------------------------------------------------------
SWEDEN -- 0.9%
12,480 Ericsson 296,457
- -----------------------------------------------------------------------------------
SWITZERLAND -- 10.1%
192 Nestle 417,361
406 Novartis 805,153
40 Roche Holding 487,386
84 Swiss Reinsurance 218,687
1,280 Swisscom* 535,078
1,281 Union Bank of Switzerland 393,008
760 Zuerich Allied 561,919
- -----------------------------------------------------------------------------------
3,418,592
- -----------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $26,545,659) 31,344,325
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 92.7% (COST $26,545,659)(a) 31,344,325
CASH AND OTHER ASSETS NET OF LIABILITIES -- 7.3% 2,468,701
- -----------------------------------------------------------------------------------
NET ASSETS -- 100.0% $33,813,026
- -----------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$26,852,674, resulting in gross unrealized appreciation and depreciation
of $4,918,105 and $426,454, respectively, and net unrealized appreciation
of $4,491,651.
ADR -- American Depositary Receipt
CPS -- Currency Protected Security
The accompanying notes are an integral part of the financial statements.
<PAGE> 38
INCOME OPPORTUNITY PORTFOLIO
SCHEDULE OF INVESTMENTS 10
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 67.6%
AEROSPACE & DEFENSE -- 2.5%
$ 500,000 Pacific Aerospace, 144A 11.25% 08/01/05 $ 375,000
500,000 Transdigm, 144A 10.375% 12/01/08 502,500
- -------------------------------------------------------------------------------------------------
877,500
- -------------------------------------------------------------------------------------------------
BEVERAGES, FOOD & TOBACCO -- 2.4%
700,000 Compania Alimentos Fargo, 144A 13.25% 08/01/08 532,000
400,000 Richmont Marketing Special, 144A 10.125% 12/15/07 300,000
- -------------------------------------------------------------------------------------------------
832,000
- -------------------------------------------------------------------------------------------------
CHEMICALS -- 3.2%
600,000 Climachem 10.75% 12/01/07 603,000
500,000 Trans-Resources 10.75% 03/15/08 495,000
- -------------------------------------------------------------------------------------------------
1,098,000
- -------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.4%
500,000 Nationsrent, 144A 10.375% 12/15/08 495,000
- -------------------------------------------------------------------------------------------------
COMMUNICATIONS -- 3.4%
450,000 Dobson Wireline 12.25% 06/15/08 416,250
450,000 Northeast Optic Network 12.75% 08/15/08 441,000
600,000 Paging Network Do Brasil, Euro-Dollar 13.50% 06/06/05 312,000
- -------------------------------------------------------------------------------------------------
1,169,250
- -------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING -- 2.2%
750,000 Primark, 144A 9.25% 12/15/08 753,750
- -------------------------------------------------------------------------------------------------
ENTERTAINMENT & LEISURE -- 3.9%
450,000 Bell Sports, 144A 11.00% 08/15/08 456,750
400,000 Regal Cinemas 9.50% 06/01/08 416,000
500,000 TVN Entertainment, 144A 14.00% 08/01/08 440,000
- -------------------------------------------------------------------------------------------------
1,312,750
- -------------------------------------------------------------------------------------------------
ENVIRONMENTAL -- 0.4%
300,000 ATC Group Services 12.00% 01/15/08 153,000
- -------------------------------------------------------------------------------------------------
FOOD RETAILERS -- 1.5%
500,000 Pantry 10.250% 10/15/07 523,750
- -------------------------------------------------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES -- 4.1%
750,000 Imperial Home Decor Group, Series B 11.00% 03/15/08 667,500
750,000 Salton/Maxim Housewares, 144A 10.75% 12/15/05 754,688
- -------------------------------------------------------------------------------------------------
1,422,188
- -------------------------------------------------------------------------------------------------
INDUSTRIAL -- DIVERSIFIED -- 14.4%
450,000 Aqua Chem, 144A 11.25% 07/01/08 432,000
500,000 Axia 10.75% 07/15/08 507,500
500,000 Derby Cycle, 144A 10.00% 05/15/08 430,000
450,000 Evenflo, 144A 11.75% 08/15/06 463,500
500,000 FSW International, Yankee-Dollar+ 12.50% 11/01/06 125,000
700,000 Generac Portable Products, 144A 11.25% 07/01/06 707,000
250,000 Neenah, 144A 11.125% 05/01/07 256,875
500,000 Penhall Acquisition, 144A 12.00% 08/01/06 470,000
880,000 Pen-Tab Industries 10.875% 02/01/07 778,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 39
INCOME OPPORTUNITY PORTFOLIO
11
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
INDUSTRIAL -- DIVERSIFIED Continued
$ 800,000 SF Holdings Group (zero coupon until 03/15/03,
12.75% thereafter), (c)(d) 0.00% 03/15/08 $ 280,000
500,000 Simonds, 144A 10.25% 07/01/08 510,000
- -------------------------------------------------------------------------------------------------
4,960,675
- -------------------------------------------------------------------------------------------------
MEDIA -- BROADCASTING & PUBLISHING -- 2.8%
500,000 Perry-Judd 10.625% 12/15/07 525,000
600,000 Source Media 12.00% 11/01/04 450,000
- -------------------------------------------------------------------------------------------------
975,000
- -------------------------------------------------------------------------------------------------
METALS -- 5.9%
500,000 Commonwealth Aluminum 10.75% 10/01/06 502,500
575,000 Doe Run Resources, Series B 11.25% 03/15/05 442,750
750,000 Golden Northwest Aluminum, 144A 12.00% 12/15/06 753,750
500,000 Nippon Denro Ispat 3.00% 04/01/01 175,000
1,000,000 NTS Steel Group Public, Euro-Dollar+ 4.00% 12/16/08 160,000
- -------------------------------------------------------------------------------------------------
2,034,000
- -------------------------------------------------------------------------------------------------
OIL & GAS -- 4.6%
500,000 Eagle Geophysical, Series B 10.75% 07/15/08 415,000
500,000 Elgin National Industries 11.00% 11/01/07 502,500
300,000 Panaco 10.625% 10/01/04 210,000
500,000 Parker Drilling, Series D 9.75% 11/15/06 445,000
- -------------------------------------------------------------------------------------------------
1,572,500
- -------------------------------------------------------------------------------------------------
REAL ESTATE -- 1.2%
850,000 GS Superhighway Holdings, Yankee-Dollar 10.25% 08/15/07 425,000
- -------------------------------------------------------------------------------------------------
RETAILERS -- 4.6%
500,000 Big 5 10.875% 11/15/07 505,000
300,000 Frank's Nursery & Crafts 10.25% 03/01/08 295,500
800,000 Home Interiors & Gifts, 144A 10.125% 06/01/08 792,000
- -------------------------------------------------------------------------------------------------
1,592,500
- -------------------------------------------------------------------------------------------------
TELEPHONE SYSTEMS -- 6.4%
500,000 AMSC Acquisition(d) 12.25% 04/01/08 310,000
400,000 Conecel, Euro-Dollar 14.00% 05/01/02 208,000
750,000 Conecel Holdings, Euro-Dollar, 144A(d) 14.00% 10/01/00 273,750
400,000 Orion Network 11.25% 01/15/07 392,000
500,000 Tricom 11.375% 09/01/04 410,000
600,000 Winstar Equipment 12.50% 03/15/04 609,000
- -------------------------------------------------------------------------------------------------
2,202,750
- -------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.7%
450,000 American Commercial Lines, 144A 10.25% 06/30/08 456,750
500,000 Stena Line 10.625% 06/01/08 450,000
- -------------------------------------------------------------------------------------------------
906,750
- -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $27,246,946) 23,306,363
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 40
INCOME OPPORTUNITY PORTFOLIO
12
Schedule of Investments continued
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
SOVEREIGN GOVERNMENT OBLIGATIONS -- 27.4%
ARGENTINA -- 5.1%
$2,068,025 Republic of Argentina(b) 6.187% 03/31/05 $ 1,757,821
- -------------------------------------------------------------------------------------------------
BRAZIL -- 3.4%
1,177,620 Republic of Brazil, Brady Bond (Payment-in-kind) 8.00% 04/15/14 700,684
800,000 Republic of Brazil, Brady Bond(b) 6.125% 04/15/24 468,000
- -------------------------------------------------------------------------------------------------
1,168,684
- -------------------------------------------------------------------------------------------------
BULGARIA -- 4.1%
1,000,000 Government of Bulgaria, Brady Bond(b) 6.688% 07/28/24 700,000
1,050,000 Government of Bulgaria, Brady Bond, IAB(b) 6.688% 07/28/11 703,500
- -------------------------------------------------------------------------------------------------
1,403,500
- -------------------------------------------------------------------------------------------------
COLOMBIA -- 2.9%
1,200,000 Republic of Colombia 8.625% 04/01/08 1,020,000
- -------------------------------------------------------------------------------------------------
MEXICO -- 4.5%
700,000 Mexican Discount Bond, Series B, Brady Bond(b) 6.039% 12/31/19 568,750
1,250,000 Mexico Par Series B Cumulative, Brady Bond 6.250% 12/31/19 973,438
- -------------------------------------------------------------------------------------------------
1,542,188
- -------------------------------------------------------------------------------------------------
NIGERIA -- 1.4%
750,000 Nigeria -- PAR, Brady Bond 6.250% 11/15/20 472,500
- -------------------------------------------------------------------------------------------------
PANAMA -- 2.7%
1,250,000 Panama, Brady Bond, IRB(b)(c) 4.00% 07/17/14 931,250
- -------------------------------------------------------------------------------------------------
PERU -- 1.6%
1,000,000 Government of Peru, Brady Bond, FLIRB 3.25% 03/07/17 566,250
- -------------------------------------------------------------------------------------------------
RUSSIA -- 0.5%
800,000 Russian Federation 8.750% 07/24/05 185,000
44,735 Russian Vnesheconombank, Brady Bond, IAN(b) 5.969% 12/15/15 4,837
- -------------------------------------------------------------------------------------------------
189,837
- -------------------------------------------------------------------------------------------------
VENEZUELA -- 1.2%
642,855 Republic of Venezuela, Brady Bond, DCB(b) 5.938% 12/18/07 407,409
- -------------------------------------------------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT OBLIGATIONS (COST $10,175,719) 9,459,439
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 41
INCOME OPPORTUNITY PORTFOLIO
13
<TABLE>
<CAPTION>
VALUE
UNITS (NOTE 1)
<C> <S> <C> <C> <C>
WARRANTS -- 0.0%
MEXICO -- 0.0%
1,076,000 United Mexico States* --
- -------------------------------------------------------------------------------------------------
NIGERIA -- 0.0%
750 Central Bank of Nigeria* --
- -------------------------------------------------------------------------------------------------
TELEPHONE SYSTEMS -- 0.0%
400 Loral Space & Communications* $ 4,400
300 Primus Telecommunications* 3,750
- -------------------------------------------------------------------------------------------------
8,150
- -------------------------------------------------------------------------------------------------
TOTAL WARRANTS (COST $0) 8,150
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 95.0% (COST $37,422,665)(a) 32,773,952
CASH AND OTHER ASSETS NET OF LIABILITIES -- 5.0% 1,720,061
- -------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $34,494,013
- -------------------------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
+ Security currently in default of interest payment. The portfolio is not
accruing stated interest.
(a) The aggregate identified cost for federal income tax purposes is
$37,463,946, resulting in gross unrealized appreciation and depreciation of
$328,349 and $5,018,343, respectively, and net unrealized depreciation of
$4,689,994.
(b) Interest rate shown reflects current rate on instrument with variable or
floating rates.
(c) Zero or step coupon bond.
(d) Security issued with detachable warrants. The current value of each warrant
is zero.
144A -- Securities restricted for resale to Qualified Institutional Buyers with
registration rights.
Brady Bond -- U.S. dollar denominated bonds of developing countries that were
exchanged, in a restructuring, for commercial bank loans in
default. The bonds are collateralized by U.S. Treasury zero-coupon
bonds to ensure principal.
DCB -- Debt Conversion Bond
Euro-Dollar -- Bonds issued offshore that pay interest and principal in U.S.
dollars.
FLIRB -- Front-Load Interest Reduction Bonds
IAB -- Interest Arrears Bond
IAN -- Interest Arrears Note
IRB -- Interest Reduction Bond
Yankee-Dollar -- U.S. dollar denominated bonds issued by non-U.S. companies in
the U.S.
The accompanying notes are an integral part of the financial statements.
<PAGE> 42
VALUE PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS 14
December 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
COMMON STOCKS -- 89.9%
AEROSPACE & DEFENSE -- 1.0%
675 Allied Signal $ 29,911
- ---------------------------------------------------------------------------------
AUTOMOTIVE -- 1.0%
525 Magna International, Class A 32,550
- ---------------------------------------------------------------------------------
BANKING -- 6.8%
1,182 Bank One 60,356
1,225 First American 54,359
650 Mellon Bank 44,688
1,575 North Fork Bancorporation 37,702
625 St. Paul Bancorp 17,012
- ---------------------------------------------------------------------------------
214,117
- ---------------------------------------------------------------------------------
BEVERAGES, FOOD & TOBACCO -- 7.4%
525 General Mills 40,819
425 McDonald's 32,566
1,775 Pepsico 72,664
1,425 Ralston-Ralston Purina Group 46,134
1,525 Sysco 41,842
- ---------------------------------------------------------------------------------
234,025
- ---------------------------------------------------------------------------------
CHEMICALS -- 1.1%
650 Du Pont (E.I.) De Nemours 34,491
- ---------------------------------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING -- 3.8%
800 Ceridian* 55,850
1,500 Computer Associates International 63,938
- ---------------------------------------------------------------------------------
119,788
- ---------------------------------------------------------------------------------
COMPUTERS & INFORMATION -- 4.3%
1,625 Compaq Computer 68,148
800 Sun Microsystems* 68,500
- ---------------------------------------------------------------------------------
136,648
- ---------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.9%
600 CMS Energy 29,063
- ---------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.9%
625 Thomas & Betts 27,070
- ---------------------------------------------------------------------------------
ELECTRONICS -- 3.6%
700 Intel 82,994
475 Xilinx* 30,934
- ---------------------------------------------------------------------------------
113,928
- ---------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.6%
1,225 Citigroup 60,638
1,025 Federal National Mortgage Association 75,850
850 SLM Holding 40,800
- ---------------------------------------------------------------------------------
177,288
- ---------------------------------------------------------------------------------
FOOD RETAILERS -- 0.9%
800 American Stores 29,550
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 43
VALUE PLUS PORTFOLIO
15
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
FOREST PRODUCTS & PAPER -- 4.4%
1,100 Kimberly-Clark $ 59,950
1,375 Mead 40,305
1,100 Tenneco 37,469
- ---------------------------------------------------------------------------------
137,724
- ---------------------------------------------------------------------------------
HEALTH CARE PROVIDERS -- 3.1%
2,025 HCR Manor Care* 59,484
2,550 Healthsouth* 39,366
- ---------------------------------------------------------------------------------
98,850
- ---------------------------------------------------------------------------------
HEAVY MACHINERY -- 0.4%
325 Applied Materials* 13,873
- ---------------------------------------------------------------------------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES -- 5.4%
800 General Electric 81,650
550 Johnson Controls 32,450
1,400 Newell 57,750
- ---------------------------------------------------------------------------------
171,850
- ---------------------------------------------------------------------------------
INSURANCE -- 4.9%
475 Aetna 37,347
900 Equitable Companies 52,088
475 Ohio Casualty 19,534
1,000 Reliastar Financial 46,125
- ---------------------------------------------------------------------------------
155,094
- ---------------------------------------------------------------------------------
MEDIA -- BROADCASTING & PUBLISHING -- 0.5%
800 A.H. Belo, Class A 15,950
- ---------------------------------------------------------------------------------
MEDICAL SUPPLIES -- 1.4%
1,075 Becton Dickinson & Company 45,889
- ---------------------------------------------------------------------------------
OFFICE EQUIPMENT -- 2.6%
700 Xerox 82,597
- ---------------------------------------------------------------------------------
OIL & GAS -- 8.1%
600 Chevron 49,763
1,750 Conoco, Class A* 36,531
875 Mobil 76,234
550 Schlumberger 25,369
2,200 Williams Companies 68,613
- ---------------------------------------------------------------------------------
256,510
- ---------------------------------------------------------------------------------
PHARMACEUTICALS -- 5.3%
950 Abbott Laboratories 46,550
600 Amgen* 62,738
400 Merck 59,075
- ---------------------------------------------------------------------------------
168,363
- ---------------------------------------------------------------------------------
RETAILERS -- 3.6%
1,025 Consolidated Stores* 20,692
875 Federated Department Stores* 38,117
675 Wal-Mart Stores 54,970
- ---------------------------------------------------------------------------------
113,779
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 44
VALUE PLUS PORTFOLIO
16
Schedule of Investments continued
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
TELEPHONE SYSTEMS -- 10.6%
1,375 Alltel $ 82,242
800 Bell Atlantic 45,450
1,875 Frontier 63,750
1,100 MCI Worldcom* 78,925
1,225 SBC Communications 65,691
- ---------------------------------------------------------------------------------
336,058
- ---------------------------------------------------------------------------------
TRANSPORTATION -- 2.3%
675 Trinity Industries 25,988
875 US Freightways 25,484
1,250 Wisconsin Central Transport* 21,484
- ---------------------------------------------------------------------------------
72,956
- ---------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $2,591,965) 2,847,922
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 89.9% (COST $2,591,965)(a) 2,847,922
CASH AND OTHER ASSETS NET OF LIABILITIES -- 10.1% 319,752
- ---------------------------------------------------------------------------------
NET ASSETS -- 100.0% $3,167,674
- ---------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is $2,783,997,
resulting in gross unrealized appreciation and depreciation of $118,237 and
$54,312, respectively, and net unrealized appreciation of $63,925.
The accompanying notes are an integral part of the financial statements.
<PAGE> 45
BALANCED PORTFOLIO
17
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
COMMON STOCKS -- 55.1%
ADVERTISING -- 2.3%
15,100 WPP Group $ 932,425
- --------------------------------------------------------------------------------------
AEROSPACE & DEFENSE -- 2.6%
7,000 Lockheed Martin 593,250
11,700 Rockwell International 470,194
- --------------------------------------------------------------------------------------
1,063,444
- --------------------------------------------------------------------------------------
AIRLINES -- 2.1%
14,800 AMR* 878,750
- --------------------------------------------------------------------------------------
AUTOMOTIVE -- 2.2%
27,700 Lucasvarity, ADR 927,950
- --------------------------------------------------------------------------------------
BEVERAGES, FOOD & TOBACCO -- 0.9%
7,916 Diageo, ADR 366,115
- --------------------------------------------------------------------------------------
CHEMICALS -- 2.6%
22,400 Monsanto 1,064,000
- --------------------------------------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING -- 2.1%
20,800 Computer Associates International 886,600
- --------------------------------------------------------------------------------------
COMPUTERS & INFORMATION -- 1.1%
11,000 Compaq Computer 461,313
- --------------------------------------------------------------------------------------
ELECTRONICS -- 5.2%
48,900 Adaptec* 858,806
6,500 Avnet 393,250
8,700 Motorola 531,244
3,800 Solectron* 353,163
- --------------------------------------------------------------------------------------
2,136,463
- --------------------------------------------------------------------------------------
ENTERTAINMENT & LEISURE -- 1.1%
24,600 Polaroid 459,713
- --------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.2%
15,500 Citigroup 767,250
17,000 Countrywide Credit 853,188
8,300 Federal Home Loan Mortgage Corporation 534,831
- --------------------------------------------------------------------------------------
2,155,269
- --------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS -- 0.9%
14,100 Tenet Healthcare* 370,125
- --------------------------------------------------------------------------------------
INDUSTRIAL -- DIVERSIFIED -- 1.3%
8,900 Armstrong World Industries 536,781
- --------------------------------------------------------------------------------------
INSURANCE -- 3.3%
31,729 Conseco 969,718
10,300 Renaissancere Holdings 377,238
- --------------------------------------------------------------------------------------
1,346,956
- --------------------------------------------------------------------------------------
LODGING -- 1.2%
111,700 Homestead Village Property* 502,650
- --------------------------------------------------------------------------------------
MEDIA -- BROADCASTING & PUBLISHING -- 0.7%
9,300 Reed International, ADR 292,950
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 46
BALANCED PORTFOLIO
18
Schedule of Investments continued
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
METALS -- 1.3%
26,900 Allegheny Teledyne $ 549,769
- --------------------------------------------------------------------------------------
OIL & GAS -- 2.0%
26,500 Anadarko Petroleum 818,188
- --------------------------------------------------------------------------------------
PHARMACEUTICALS -- 2.6%
26,400 Teva Pharmaceutical Industries, ADR 1,074,150
- --------------------------------------------------------------------------------------
REAL ESTATE -- 5.3%
35,700 Oakwood Homes 542,194
20,500 Prologis Trust, REIT 425,375
88,600 Security Capital Group, Class B* 1,201,638
- --------------------------------------------------------------------------------------
2,169,207
- --------------------------------------------------------------------------------------
TELEPHONE SYSTEMS -- 2.6%
11,100 Sprint 933,788
5,550 Sprint PCS* 128,344
- --------------------------------------------------------------------------------------
1,062,132
- --------------------------------------------------------------------------------------
TEXTILES, CLOTHING & FABRICS -- 2.0%
34,200 Shaw Industries 829,350
- --------------------------------------------------------------------------------------
TRANSPORTATION -- 4.5%
35,900 Air Express International 780,825
23,600 Sabre Group Holdings* 1,050,200
- --------------------------------------------------------------------------------------
1,831,025
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $22,629,277) 22,715,325
- --------------------------------------------------------------------------------------
PREFERRED STOCKS -- 1.6%
ENTERTAINMENT & LEISURE -- 1.6%
27,200 News Corporation Limited (The), ADR 671,500
- --------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $692,711) 671,500
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES -- 0.0%
$ 12,718 Merrill Lynch Mortgage Investment 7.65% 01/15/12 $ 12,692
- --------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (COST $13,004) 12,692
- --------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 14.1%
BANKING -- 3.2%
750,000 Associates Corporation of North America 5.75% 11/01/03 755,357
250,000 BB&T 7.25% 06/15/07 271,203
250,000 Chase Manhattan 7.25% 06/01/07 273,322
743 Nykredit 6.00% 10/01/26 117
- --------------------------------------------------------------------------------------------------
1,299,999
- --------------------------------------------------------------------------------------------------
BEVERAGES, FOOD & TOBACCO -- 0.4%
160,000 Coca-Cola Femsa 8.95% 11/01/06 156,295
- --------------------------------------------------------------------------------------------------
CHEMICALS -- 0.2%
100,000 Belo 6.875% 06/01/02 102,841
- --------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE & PROCESSING -- 1.0%
400,000 Computer Associates International 6.375% 04/15/05 398,338
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 47
BALANCED PORTFOLIO
19
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
ELECTRIC UTILITIES -- 2.3%
$ 215,000 Financiera Energy 9.375% 06/15/06 $ 186,085
750,000 Tennessee Valley Authority 5.00% 12/18/03 744,389
- --------------------------------------------------------------------------------------------------
930,474
- --------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 3.4%
20,000 Access Financial 7.10% 05/15/21 20,641
750,000 AT&T Capital 7.50% 11/15/00 762,500
500,000 GMAC 7.125% 05/01/01 516,626
120,000 Paine Webber Group 7.00% 03/01/00 121,056
- --------------------------------------------------------------------------------------------------
1,420,823
- --------------------------------------------------------------------------------------------------
MEDIA -- BROADCASTING & PUBLISHING -- 1.2%
500,000 CSC Holdings 7.625% 07/15/18 490,300
- --------------------------------------------------------------------------------------------------
METALS -- 0.8%
300,000 AK Steel 9.125% 12/15/06 312,000
- --------------------------------------------------------------------------------------------------
MULTIPLE UTILITIES -- 0.8%
300,000 New Brunswick 7.125% 10/01/02 318,720
- --------------------------------------------------------------------------------------------------
OIL & GAS -- 0.3%
150,000 Petroleos Mexicanos 8.85% 09/15/07 132,000
- --------------------------------------------------------------------------------------------------
RETAILERS -- 0.5%
200,000 Rite Aid 7.125% 01/15/07 213,342
- --------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $5,782,435) 5,775,132
- --------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 6.5%
35,000 Federal National Mortgage Association 6.15% 10/25/07 35,164
500,000 Federal National Mortgage Association 6.00% 05/15/08 527,586
500,000 Federal National Mortgage Association 6.247% 06/25/16 514,270
711,091 Federal National Mortgage Association 6.50% 07/18/28 713,082
40,000 General Electric Capital Mortgage Service 6.50% 11/25/23 39,598
44,500 General Electric Capital Mortgage Service 6.50% 03/25/24 44,797
750,000 Government National Mortgage Association 4.00% 10/20/25 717,007
40,000 Merrill Lynch Mortgage Investment 7.089% 12/26/25 42,684
50,000 Prudential Home Mortgage Securities 6.25% 04/25/24 47,329
- --------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $2,651,506) 2,681,517
- --------------------------------------------------------------------------------------------------
MUNICIPAL BONDS -- 0.4%
40,000 Baltimore Community Development Financing 8.20% 08/15/07 46,379
40,000 New York State Housing Finance Agency Service 7.50% 09/15/03 42,139
50,000 Ohio Housing Financial Agency 7.90% 10/01/14 51,688
30,000 Oklahoma City Airport 9.40% 11/01/10 36,600
- --------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $161,340) 176,806
- --------------------------------------------------------------------------------------------------
SOVEREIGN GOVERNMENT OBLIGATIONS -- 2.3%
BRAZIL -- 0.6%
441,608 Republic of Brazil, Brady Bond 8.00% 04/15/14 263,308
- --------------------------------------------------------------------------------------------------
GREAT BRITAIN -- 0.6%
105,000 United Kingdom Treasury 8.00% 12/07/15 247,810
GBP
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 48
BALANCED PORTFOLIO
20
Schedule of Investments continued
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
SOUTH AFRICA -- 1.1%
3,180,000 Republic of South Africa 13.00% 08/31/10 $ 458,060
ZAR
- --------------------------------------------------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT OBLIGATIONS (COST $1,191,790) 969,178
- --------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 15.8%
$1,455,000 U.S. Treasury Bond 6.25% 04/30/01 1,506,373
975,000 U.S. Treasury Bond 7.25% 08/15/22 1,215,399
375,000 U.S. Treasury Bond 6.75% 08/15/26 449,414
1,295,000 U.S. Treasury Note 5.75% 10/31/00 1,319,687
550,000 U.S. Treasury Note 5.625% 05/15/01 563,063
700,000 U.S. Treasury Note 5.75% 08/15/03 730,625
90,000 U.S. Treasury Note 7.25% 08/15/04 101,222
550,000 U.S. Treasury Note 7.00% 07/15/06 626,313
- --------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $6,316,994) 6,512,096
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 95.8% (COST $39,439,057)(a) 39,514,246
CASH AND OTHER ASSETS NET OF LIABILITIES -- 4.2% 1,735,473
- --------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $41,249,719
- --------------------------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$39,477,402, resulting in gross unrealized appreciation and depreciation of
$3,366,548 and $3,329,704, respectively, and net unrealized appreciation of
$36,844.
(b) Interest rate shown reflects current rate on instrument with variable or
floating rates.
ADR -- American Depositary Receipt
Brady Bond -- U.S. dollar denominated bonds of developing countries that were
exchanged, in a restructuring, for commercial bank loans in
default. The bonds are collateralized by U.S. Treasury zero-coupon
bonds to ensure principal.
REIT -- Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE> 49
STANDBY INCOME PORTFOLIO
21
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES -- 36.1%
$1,005,626 Arcadia Automobile Receivables Trust 5.737% 07/16/01 $ 1,009,528
1,241,652 Auto Finance Group Receivables Trust 6.35% 10/15/02 1,252,206
1,200,000 Capital Asset Research Funding, Class A, 144A 5.905% 12/15/05 1,200,000
1,300,000 Chase Credit Card Master Trust 5.787% 09/15/04 1,300,767
1,000,000 Chase Manhattan Auto Owner Trust 6.00% 12/15/04 1,006,190
1,100,000 MBNA Master Credit Card Trust 5.906% 12/15/05 1,100,110
680,000 Standard Credit Card Master Trust 7.00% 04/07/01 682,338
786,669 Summit Acceptance Auto Trust 7.01% 07/15/02 793,061
1,200,000 UCFC Home Equity Loan 6.105% 04/15/13 1,200,000
- -------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (COST $9,528,090) 9,544,200
- -------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 33.2%
1,300,000 Case 6.20% 01/20/99 1,295,746
650,000 Coca-Cola 5.14% 01/15/99 648,701
800,000 Crown Cork & Seal 5.88% 01/25/99 796,864
700,000 MCI Worldcom 5.70% 01/22/99 697,672
1,300,000 Safeway 5.83% 01/15/99 1,297,053
1,300,000 Service Corporation International 6.00% 02/25/99 1,288,084
700,000 Toyota 5.16% 01/19/99 698,194
1,300,000 Union Pacific Resources 6.27% 01/15/99 1,296,831
780,000 Williams Holdings 6.05% 02/26/99 772,659
- -------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST $8,791,804) 8,791,804
- -------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 15.6%
BANKING -- 8.7%
1,200,000 Banco Latinoamericano 6.70% 10/08/99 1,206,684
1,100,000 MBNA 5.763% 07/07/03 1,091,363
- -------------------------------------------------------------------------------------------------
2,298,047
- -------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 4.2%
1,100,000 Texas Utilities Electric 9.50% 08/01/99 1,118,316
- -------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.7%
700,000 Credit Lyonnais, VR 6.875% 09/19/49 698,250
- -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $4,129,871) 4,114,613
- -------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 14.4%
2,700,000 Federal Home Loan Bank 4.50% 01/04/99 2,698,986
1,100,000 Federal Home Loan Bank 6.096% 05/13/03 1,105,280
- -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $3,798,986) 3,804,266
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 99.3% (COST $26,248,751)(a) 26,254,883
CASH AND OTHER ASSETS NET OF LIABILITIES -- 0.7% 195,057
- -------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $26,449,940
- -------------------------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
(a) The aggregate identified cost for federal income tax purposes is
$26,248,751, resulting in gross unrealized appreciation and depreciation
of $28,116 and $21,984, respectively, and net unrealized appreciation of
$6,132.
144A -- Securities restricted for resale to Qualified Institutional Buyers with
registration rights.
VR -- Variable Rate Security -- maturity dates on these type of securities
reflect the next interest rate reset date or, when applicable, the final
maturity date. Interest rate shown reflects current rate.
The accompanying notes are an integral part of the financial statements.
<PAGE> 50
SELECT ADVISORS VARIABLE INSURANCE TRUST
STATEMENTS OF ASSETS AND LIABILITIES 22
December 31, 1998
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME VALUE STANDBY
GROWTH EQUITY OPPORTUNITY PLUS BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(b) PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value (Note
1)(a) $28,754,795 $31,344,325 $32,773,952 $2,847,922 $39,514,246 $26,254,883
Cash 2,264,966 2,547,063 850,528 270,949 1,543,440 --
Foreign currency -- -- -- -- 6,977(c) --
Receivables for:
Investments sold 532,144 -- -- -- 96,357 --
Fund shares sold 9,161 19,279 28,503 -- 43,787 170,190
Dividends 14,735 17,780 -- 3,291 11,589 --
Foreign tax reclaims -- 33,986 -- 17 -- --
Unrealized appreciation on
foreign forward currency
contracts (Note 1) -- -- -- -- 2,329 --
Interest 7,462 7,870 1,015,869 681 233,199 137,737
Deferred organization expenses
(Note 1) 3,467 3,467 3,467 -- 3,467 3,496
Reimbursement receivable from
Sponsor (Note 4) -- -- -- 66,315 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total assets 31,586,730 33,973,770 34,672,319 3,189,175 41,455,391 26,566,306
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Investments purchased 127,890 -- -- -- -- --
Unrealized depreciation on
foreign forward currency
contracts (Note 1) -- -- -- -- 5,657 --
Fund shares redeemed -- -- -- 102 -- --
Due to custodian -- -- -- -- -- 97,164
Payable to Sponsor (Note 4) 168,860 127,391 150,087 -- 175,865 326
Other accrued expenses 26,077 33,353 28,219 21,399 24,150 18,876
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 322,827 160,744 178,306 21,501 205,672 116,366
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS(d): $31,263,903 $33,813,026 $34,494,013 $3,167,674 $41,249,719 $26,449,940
- ------------------------------------------------------------------------------------------------------------------------------
Shares outstanding 2,038,737 2,421,891 3,971,175 311,304 2,955,100 2,642,337
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value $ 15.33 $ 13.96 $ 8.69 $ 10.18 $ 13.96 $ 10.01
- ------------------------------------------------------------------------------------------------------------------------------
(a) Cost of investments $26,231,211 $26,545,659 $37,422,665 $2,591,965 $39,439,057 $26,248,751
</TABLE>
(b) The Portfolio commenced operations on May 1, 1998.
(c) The cost of foreign currency is $6,721.
(d) See the Statements of Changes in Net Assets for components of net assets.
The accompanying notes are an integral part of the financial statements.
<PAGE> 51
SELECT ADVISORS VARIABLE INSURANCE TRUST
23
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME VALUE STANDBY
GROWTH EQUITY OPPORTUNITY PLUS BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(a) PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1):
Interest $ 133,513 $ 106,869 $ 3,762,184 $ 5,934 $ 957,009 $1,358,522
Dividends (b) 195,612 387,564 -- 16,202 241,554 --
- -----------------------------------------------------------------------------------------------------------------------
Total investment income 329,125 494,433 3,762,184 22,136 1,198,563 1,358,522
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 204,486 270,100 217,105 9,223 267,938 56,841
Custody, administration and fund
accounting fees 93,751 192,611 93,667 64,925 94,507 89,474
Sponsor fees (Note 3) 51,120 56,862 66,800 2,460 66,983 45,472
Auditing fees 17,106 18,626 19,054 15,000 15,048 11,420
Printing Fees 3,355 4,627 6,803 191 6,093 2,783
Legal fees 3,533 3,378 4,708 64 180 2,477
Amortization of organization
expenses (Note 1) 3,906 3,906 3,906 -- 3,906 3,931
Trustee fees (Note 3) 2,545 2,531 3,060 150 2,903 1,993
Miscellaneous 893 2,325 2,608 128 2,913 1,279
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 380,695 554,966 417,711 92,141 460,471 215,670
Waiver of Sponsor fee (Note 3) (51,120) (56,862) (66,800) (2,460) (66,983) (45,472)
Reimbursement from Sponsor
(Note 4) (35,626) (142,709) (67,018) (75,538) (92,075) (56,515)
- -----------------------------------------------------------------------------------------------------------------------
Net expenses 293,949 355,395 283,893 14,143 301,413 113,683
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 35,176 139,038 3,478,291 7,993 897,150 1,244,839
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 993,434 849,718 (4,037,107) (239,885) 1,388,987 12,585
Written Options -- -- 32,130 -- -- --
Foreign currency -- (101,508) -- -- 62,437 --
- -----------------------------------------------------------------------------------------------------------------------
993,434 748,210 (4,004,977) (239,885) 1,451,424 12,585
- -----------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) on:
Investments (296,091) 3,383,197 (4,419,252) 255,957 (1,113,545) 6,334
Written Options -- -- -- -- -- --
Foreign currency -- (1,418) 279 -- (21,020) --
- -----------------------------------------------------------------------------------------------------------------------
(296,091) 3,381,779 (4,418,973) 255,957 (1,134,565) 6,334
- -----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS): 697,343 4,129,989 (8,423,950) 16,072 316,859 18,919
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 732,519 $4,269,027 $(4,945,659) $ 24,065 $ 1,214,009 $1,263,758
- -----------------------------------------------------------------------------------------------------------------------
(a) Portfolio commenced operations on May 1, 1998
(b) Net of foreign tax withholding $ -- $ 51,814 $ -- $ -- $ 433 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 52
SELECT ADVISORS VARIABLE INSURANCE TRUST
STATEMENTS OF CHANGES IN NET ASSETS 24
<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO
--------------------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 35,176 $ 33,227 $ 139,038 $ 101,104
Net realized gain (loss) 993,434 1,327,486 748,210 1,133,852
Net change in unrealized appreciation
(depreciation) (296,091) 2,197,739 3,381,779 577,604
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 732,519 3,558,452 4,269,027 1,812,560
- ------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (49,174) (30,394) (164,384) (70,264)
Realized capital gains (1,035,008) (1,012,609) (845,182) (995,634)
Distribution in excess of net
investment income -- -- (106,570) --
Distribution in excess of realized
capital gains -- -- -- --
Return of capital distributions -- -- -- --
- ------------------------------------------------------------------------------------------------------
Total dividends and distributions (1,084,182) (1,043,003) (1,116,136) (1,065,898)
- ------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from shares sold 13,916,105 12,538,066 12,081,975 10,372,680
Reinvestment of dividends 1,084,183 1,043,003 1,116,136 1,065,898
Cost of shares redeemed (2,801,672) (2,450,901) (2,240,707) (1,240,789)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) from share
transactions 12,198,616 11,130,168 10,957,404 10,197,789
- ------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 11,846,953 13,645,617 14,110,295 10,944,451
- ------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 19,416,950 5,771,333 19,702,731 8,758,280
- ------------------------------------------------------------------------------------------------------
End of period $31,263,903 $19,416,950 $33,813,026 $19,702,731
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $28,584,379 $16,385,765 $29,242,515 $18,285,104
Undistributed (distributions in excess
of) net investment income -- 3,217 (186,882) (56,246)
Accumulated net realized gain (loss) on
investments 155,940 208,293 (39,788) 58,471
Net unrealized appreciation
(depreciation) on investments 2,523,584 2,819,675 4,797,181 1,415,402
- ------------------------------------------------------------------------------------------------------
Net assets applicable to shares
outstanding $31,263,903 $19,416,950 $33,813,026 $19,702,731
- ------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING (NOTE 1):
Shares sold 892,493 892,720 869,535 858,524
Reinvestment of dividends 73,504 69,673 79,724 89,196
- ------------------------------------------------------------------------------------------------------
965,997 962,393 949,259 947,720
Shares redeemed (188,219) (174,447) (168,341) (98,268)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) 777,778 787,946 780,918 849,452
Beginning of period 1,260,959 473,013 1,640,973 791,521
- ------------------------------------------------------------------------------------------------------
End of period 2,038,737 1,260,959 2,421,891 1,640,973
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Portfolio commenced operations on May 1, 1998.
The accompanying notes are an integral part of the financial statements.
<PAGE> 53
25
SELECT ADVISORS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
INCOME OPPORTUNITY VALUE PLUS BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- ----------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED PERIOD ENDED(a) YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1998 1997
<S> <S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 3,478,291 $ 1,832,004 $ 7,993 $ 897,150 $ 349,650
Net realized gain (loss) (4,004,977) 191,074 (239,885) 1,451,424 1,435,996
Net change in unrealized appreciation
(depreciation) (4,418,973) (528,803) 255,957 (1,134,565) 475,638
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (4,945,659) 1,494,275 24,065 1,214,009 2,261,284
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (3,478,834) (1,814,515) (8,332) (922,633) (350,429)
Realized capital gains -- (227,491) -- (1,163,140) (1,314,627)
Distribution in excess of net
investment income -- -- -- (10,746) (5,844)
Distribution in excess of realized
capital gains -- (496,586) -- -- --
Return of capital distributions (96,964) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (3,575,798) (2,538,592) (8,332) (2,096,519) (1,670,900)
- --------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from shares sold 17,222,143 19,127,540 5,347,995 21,290,408 13,559,392
Reinvestment of dividends 3,575,798 2,538,593 8,332 2,096,506 1,670,900
Cost of shares redeemed (4,661,882) (2,010,537) (2,204,386) (3,541,752) (228,301)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share
transactions 16,136,059 19,655,596 3,151,941 19,845,162 15,001,991
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 7,614,602 18,611,279 3,167,674 18,962,652 15,592,375
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 26,879,411 8,268,132 -- 22,287,067 6,694,692
- --------------------------------------------------------------------------------------------------------------------------
End of period $34,494,013 $26,879,411 $ 3,167,674 $41,249,719 $22,287,067
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $43,631,963 $27,592,868 $ 3,151,602 $40,767,171 $20,922,008
Undistributed (distributions in excess
of) net investment income -- 543 -- 20,627 14,838
Accumulated net realized gain (loss) on
investments (4,489,001) (484,024) (239,885) 394,283 148,018
Net unrealized appreciation
(depreciation) on investments (4,648,949) (229,976) 255,957 67,638 1,202,203
- --------------------------------------------------------------------------------------------------------------------------
Net assets applicable to shares
outstanding $34,494,013 $26,879,411 $ 3,167,674 $41,249,719 $22,287,067
- --------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING (NOTE 1):
Shares sold 1,636,452 1,651,438 563,284 1,468,902 967,476
Reinvestment of dividends 369,671 224,056 852 150,809 120,806
- --------------------------------------------------------------------------------------------------------------------------
2,006,123 1,875,494 564,136 1,619,711 1,088,282
Shares redeemed (474,021) (174,262) (252,832) (257,510) (16,607)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,532,102 1,701,232 311,304 1,362,201 1,071,675
Beginning of period 2,439,073 737,841 -- 1,592,899 521,224
- --------------------------------------------------------------------------------------------------------------------------
End of period 3,971,175 2,439,073 311,304 2,955,100 1,592,899
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STANDBY INCOME
PORTFOLIO
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 1,244,839 $ 745,080
Net realized gain (loss) 12,585 (8,448)
Net change in unrealized appreciation
(depreciation) 6,334 (382)
- -------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,263,758 736,250
- -------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (1,244,085) (745,079)
Realized capital gains -- --
Distribution in excess of net
investment income -- --
Distribution in excess of realized
capital gains -- --
Return of capital distributions -- --
- -------------------------------------------------------------------------
Total dividends and distributions (1,244,085) (745,079)
- -------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from shares sold 22,250,007 19,020,895
Reinvestment of dividends 1,246,263 743,655
Cost of shares redeemed (14,628,204) (11,298,653)
- -------------------------------------------------------------------------
Net increase (decrease) from share
transactions 8,868,066 8,465,897
- -------------------------------------------------------------------------
Total increase (decrease) in net assets 8,887,739 8,457,068
- -------------------------------------------------------------------------
NET ASSETS:
Beginning of period 17,562,201 9,105,133
- -------------------------------------------------------------------------
End of period $ 26,449,940 $ 17,562,201
- -------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 26,440,029 $ 17,571,962
Undistributed (distributions in excess
of) net investment income 3,709 1,366
Accumulated net realized gain (loss) on
investments 70 (10,925)
Net unrealized appreciation
(depreciation) on investments 6,132 (202)
- -------------------------------------------------------------------------
Net assets applicable to shares
outstanding $ 26,449,940 $ 17,562,201
- -------------------------------------------------------------------------
SHARES OUTSTANDING (NOTE 1):
Shares sold 2,223,752 1,900,755
Reinvestment of dividends 124,567 74,322
- -------------------------------------------------------------------------
2,348,319 1,975,077
Shares redeemed (1,461,706) (1,129,387)
- -------------------------------------------------------------------------
Net increase (decrease) 886,613 845,690
Beginning of period 1,755,724 910,034
- -------------------------------------------------------------------------
End of period 2,642,337 1,755,724
- -------------------------------------------------------------------------
</TABLE>
<PAGE> 54
SELECT ADVISORS VARIABLE INSURANCE TRUST
FINANCIAL HIGHLIGHTS 26
<TABLE>
<CAPTION>
TOUCHSTONE EMERGING GROWTH PORTFOLIO
----------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING: FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED(a)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.40 $ 12.20 $11.27 $10.10 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.02 0.03 0.04 0.11 0.04
Net realized and unrealized gain (loss) on
investments 0.46 4.06 1.22 1.87 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.48 4.09 1.26 1.98 0.10
- ---------------------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.03) (0.03) (0.04) (0.15) --
Realized capital gains (0.52) (0.86) (0.29) (0.66) --
Return of capital -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.55) (0.89) (0.33) (0.81) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.33 $ 15.40 $12.20 $11.27 $10.10
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(c) 3.28% 33.67% 11.16% 19.57% 1.00%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $31,264 $19,417 $5,771 $2,615 $2,020
Ratios to average net assets:
Net expenses 1.15% 1.15% 1.15% 1.15% 1.15%(d)
Net investment income (loss) 0.14% 0.27% 0.50% 1.09% 3.67%(d)
Expenses, without waiver and reimbursement 1.49% 2.19% 3.22% 3.73% 11.08%(d)
Portfolio Turnover 66% 88% 89% 101% 0%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE BALANCED PORTFOLIO
------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING: FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED(e) PERIOD ENDED(a)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.99 $ 12.84 $11.48 $10.17 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.35 0.31 0.30 0.32 0.05
Net realized and unrealized gain (loss) on
investments 0.40 2.05 1.60 2.15 0.12
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.75 2.36 1.90 2.47 0.17
- ---------------------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.37) (0.32) (0.30) (0.37) --
Realized capital gains (0.41) (0.89) (0.24) (0.79) --
Return of capital -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.78) (1.21) (0.54) (1.16) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.96 $ 13.99 $12.84 $11.48 $10.17
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (c) 5.44% 18.61% 16.78% 24.56% 1.70%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $41,250 $22,287 $6,695 $2,895 $2,034
Ratios to average net assets:
Net expenses 0.90% 0.90% 0.90% 0.90% 0.90%(d)
Net investment income 2.67% 2.61% 2.76% 2.87% 4.26%(d)
Expenses, without waiver and reimbursement 1.37% 2.04% 2.72% 3.46% 8.97%(d)
Portfolio Turnover 51% 86% 75% 124% 3%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on November 21, 1994.
(b) The Fund commenced operations on May 1, 1998.
(c) Total return would have been lower had certain expenses not been reimbursed
or waived during the period shown. (Note 4)
(d) Ratios are annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE> 55
27
REPORT OF INDEPENDENT ACCOUNTANTS
SELECT ADVISORS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
TOUCHSTONE INTERNATIONAL EQUITY PORTFOLIO
---------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING: FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED(a)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.01 $ 11.07 $10.00 $ 9.51 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.06 0.07 0.06 0.04 --
Net realized and unrealized gain (loss) on
investments 2.37 1.56 1.08 0.48 (0.49)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.43 1.63 1.14 0.52 (0.49)
- -----------------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.10) (0.05) (0.07) (0.03) --
Realized capital gains (0.38) (0.64) -- -- --
Return of capital -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.48) (0.69) (0.07) (0.03) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.96 $ 12.01 $11.07 $10.00 $ 9.51
- -----------------------------------------------------------------------------------------------------------------------------
Total return(c) 20.21% 14.76% 11.47% 15.45% (4.90)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $33,813 $19,703 $8,758 $5,215 $4,757
Ratios to average net assets:
Net expenses 1.25% 1.25% 1.25% 1.25% 1.25%(d)
Net investment income (loss) 0.49% 0.71% 0.86% 0.46% 1.23%(d)
Expenses, without waiver and reimbursement 1.95% 3.19% 3.03% 3.69% 5.58%(d)
Portfolio Turnover 141% 149% 90% 86% 0%
<CAPTION>
TOUCHSTONE INCOME OPPORTUNITY PORTFOLIO
----------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING: FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED(a)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.02 $ 11.21 $10.09 $ 9.42 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 1.02 1.20 1.17 1.22 0.12
Net realized and unrealized gain (loss) on
investments (2.30) (0.11) 1.45 0.79 (0.70)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.28) 1.31 2.62 2.01 (0.58)
- -------------------------------------------------------------------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (1.02) (1.19) (1.17) (1.34) --
Realized capital gains -- (0.31) (0.33) -- --
Return of capital (0.03) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.05) (1.50) (1.50) (1.34) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.69 $ 11.02 $11.21 $10.09 $ 9.42
- -------------------------------------------------------------------------------------------------------------------------------
Total return(c) (12.27)% 12.03% 27.37% 23.35% (5.80)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $34,494 $26,879 $8,268 $2,602 $1,883
Ratios to average net assets:
Net expenses 0.85% 0.85% 0.85% 0.85% 0.85%(d)
Net investment income (loss) 10.40% 10.93% 11.85% 12.81% 11.24%(d)
Expenses, without waiver and reimbursement 1.25% 1.72% 2.85% 3.54% 11.56%(d)
Portfolio Turnover 175% 189% 213% 104% 45%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOUCHSTONE
VALUE PLUS
PORTFOLIO TOUCHSTONE STANDBY INCOME PORTFOLIO
--------------- ------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING: FOR THE FOR THE FOR THE FOR THE FOR THE
PERIOD ENDED(b) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1996 1995
<S> <C> <S> <C> <C> <C>
Net asset value, beginning of period $10.00 $ 10.00 $ 10.01 $10.02 $10.03
- ----------------------------------------------------------------- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.03 0.55 0.54 0.52 0.56
Net realized and unrealized gain (loss) on
investments 0.18 0.01 (0.01) (0.01) (0.01)
- ----------------------------------------------------------------- ------------------------------------------------------------
Total from investment operations 0.21 0.56 0.53 0.51 0.55
- ----------------------------------------------------------------- ------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.03) (0.55) (0.54) (0.52) (0.56)
Realized capital gains -- -- -- -- --
Return of capital -- -- -- -- --
- ----------------------------------------------------------------- ------------------------------------------------------------
Total dividends and distributions (0.03) (0.55) (0.54) (0.52) (0.56)
- ----------------------------------------------------------------- ------------------------------------------------------------
Net asset value, end of period $10.18 $ 10.01 $ 10.00 $10.01 $10.02
- ----------------------------------------------------------------- ------------------------------------------------------------
Total return(c) 2.11% 5.71% 5.41% 5.18% 5.90%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $3,168 $26,450 $17,562 $9,105 $5,790
Ratios to average net assets:
Net expenses 1.15%(d) 0.50% 0.50% 0.50% 0.50%
Net investment income (loss) 0.65%(d) 5.47% 5.42% 5.15% 5.59%
Expenses, without waiver and reimbursement 7.49%(d) 0.95% 1.48% 1.54% 1.73%
Portfolio Turnover 100% 328% 251% 143% 159%
- ------------------------------------------------------------------ ------------------------------------------------------------
<CAPTION>
---------------
SELECTED DATA FOR A SHARE OUTSTANDING: FOR THE
PERIOD ENDED(a)
DECEMBER 31,
1994
<S> <C>
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.05
Net realized and unrealized gain (loss) on
investments 0.03
- ------------------------------------------------------------------
Total from investment operations 0.08
- ------------------------------------------------------------------
LESS: DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.05)
Realized capital gains --
Return of capital --
- ------------------------------------------------------------------
Total dividends and distributions (0.05)
- ------------------------------------------------------------------
Net asset value, end of period $10.03
- ------------------------------------------------------------------
Total return(c) 0.30%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (000's) $5,013
Ratios to average net assets:
Net expenses 0.50%(d)
Net investment income (loss) 4.90%(d)
Expenses, without waiver and reimbursement 3.67%(d)
Portfolio Turnover 56%
- ------------------------------------------------------------------
</TABLE>
<PAGE> 56
SELECT ADVISORS VARIABLE INSURANCE TRUST
NOTES TO FINANCIAL STATEMENTS 28
1. Organization and Significant Accounting Policies
Select Advisors Variable Insurance Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company, and was organized as a Massachusetts business trust on February 7,
1994. The Trust consists of six Portfolios: Emerging Growth Portfolio,
International Equity Portfolio, Income Opportunity Portfolio, Value Plus
Portfolio, Balanced Portfolio and Standby Income Portfolio ("Portfolios").
The Declaration of Trust permits the Trust to issue an unlimited number of
shares of beneficial interest. The Trust offers shares of beneficial interest of
each portfolio to separate accounts of Western-Southern Life Assurance Company
("Western-Southern") as a funding vehicle for certain variable annuity contracts
issued by Western-Southern through the separate accounts.
As of December 31, 1998, Touchstone Advisors, Inc., a subsidiary of
Western-Southern, and Western-Southern owned 100% of the outstanding shares of
the Trust.
The accounting policies are in conformity with generally accepted accounting
principles ("GAAP") for investment companies. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the related amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies of the
Portfolios:
INVESTMENT VALUATION. Securities for which market quotations are readily
available are valued at the last sale price on a national securities exchange,
or, in the absence of recorded sales, at the readily available closing bid price
on such exchanges, or at the quoted bid price in the over-the-counter market.
Securities quoted in foreign currencies are translated into U.S. Dollars at the
current exchange rate. Debt securities are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. Securities or other
assets for which market quotations are not readily available are valued at fair
value in good faith in accordance with procedures established by the Trustees
using prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers and general
market conditions. All debt securities with a remaining maturity of less than 60
days are valued at amortized cost, which approximates market.
<PAGE> 57
SELECT ADVISORS VARIABLE INSURANCE TRUST
29
FOREIGN CURRENCY TRANSLATION. The accounting records of the Portfolios are
maintained in U.S. dollars. The market value of investment securities, other
assets and liabilities and forward currency contracts denominated in foreign
currencies are translated into U.S. dollars at the prevailing exchange rates at
the end of the period. Purchases and sales of securities, income receipts, and
expense payments are translated at the exchange rate prevailing on the
respective dates of such transactions. Reported net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. The effects of
changes in foreign currency exchange rates on investments in securities are not
segregated in the statements of operations from the effects of changes in market
prices of these securities, but are included with the net realized and
unrealized gain or loss on investments.
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date except
that certain dividends from foreign securities where the ex-dividend date has
passed are recorded upon notification of the ex-dividend date. Interest income,
which includes the amortization of premium and accretion of discount, if any, is
recorded on an accrual basis. Dividend and interest income is recorded net of
foreign taxes where recovery of such taxes is not assured.
DIVIDENDS AND DISTRIBUTIONS. Distributions to shareholders for the Emerging
Growth Portfolio, International Equity Portfolio, Balanced Portfolio, Income
Opportunity Portfolio, and Value Plus Portfolio are recorded by the Portfolio on
the ex-dividend date. It is the policy of the Standby Income Portfolio to record
income dividends daily and distribute them monthly. Distributions to
shareholders of net realized capital gains, if any, are declared and paid
annually.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from GAAP. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid in capital. These differences which may result in
distribution reclassifications are primarily due to differing treatments for
foreign currency transactions, passive foreign investment companies (PFIC), and
losses deferred due to wash sales, paydown gains and losses on certain
securities and excise tax regulations. Undistributed net investment income and
accumulated net realized gains and losses may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
<PAGE> 58
SELECT ADVISORS VARIABLE INSURANCE TRUST
30
Notes to Financial Statements continued
FEDERAL TAXES. Each Portfolio of the Trust is treated as a separate entity for
federal income tax purposes. Each Portfolio's policy is to comply with the
provisions of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to distribute substantially all its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for a federal income tax is necessary. At
December 31, 1998, the following Portfolios had a capital loss carryforward
expiring in December 2006:
<TABLE>
<S> <C>
Income Opportunity Portfolio $3,801,099
Value Plus Portfolio $ 30,846
- --------------------------------------------------------------------------
</TABLE>
Additionally, at December 31, 1998, the International Equity Portfolio had a net
currency loss of $46 and the following Portfolios had net capital losses, as
specified below, attributable to security transactions incurred after October
31, 1998, which are treated as arising on the first day of the Portfolio's next
taxable year.
<TABLE>
<S> <C>
Income Opportunity Portfolio $646,621
Value Plus Portfolio $ 17,007
- ------------------------------------------------------------------------
</TABLE>
WRITTEN OPTIONS. Each Portfolio may enter into written option agreements. The
premium received for a written option is recorded as an asset with an equivalent
liability. The liability is marked-to-market based on the option's quoted daily
settlement price. When an option expires or the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security
and the liability related to such option is eliminated. When a written call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the Fund
purchased.
FORWARD FOREIGN CURRENCY CONTRACTS. Each Portfolio may enter into forward
foreign currency contracts to protect securities and related receivables and
payables against fluctuations in foreign currency rates. A forward foreign
currency contract is an agreement to buy or sell currencies of different
countries on a specified future date at a specified rate.
Risks associated with such contracts include the movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. The market value of the contract will fluctuate with changes in
currency exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Trustees of the Trust
and the change in the market value is recorded by the Portfolios as unrealized
appreciation or depreciation of forward foreign
<PAGE> 59
SELECT ADVISORS VARIABLE INSURANCE TRUST
31
currency contracts. As of December 31, 1998, the following Portfolio had the
following open forward foreign currency contracts:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE APPRECIATION/
PORTFOLIO NAME MATURITY DELIVER/RECEIVE FOR VALUE DEPRECIATION
<S> <C> <C> <C> <C> <C>
Balanced Portfolio
Sales 3/22/99 GBP 117,800 $197,433 $195,104 $ 2,329
1/11/99 ZAR 2,321,000 388,384 394,041 (5,657)
- ------------------------------------------------------------------------------------------
$(3,328)
- ------------------------------------------------------------------------------------------
</TABLE>
GBP -- Great British Pound
ZAR -- South African Rand
ORGANIZATION EXPENSE. Organization expenses were deferred and are being
amortized by each Portfolio except the Value Plus Portfolio, on a straight-line
basis over a five-year period from commencement of operations. The amount paid
by the Trust on any redemption by Touchstone Advisors, Inc. or, any other
then-current holder of the organizational seed capital shares ("Initial Shares")
of the Portfolio, will be reduced by a portion of any unamortized organization
expenses of the Portfolio determined by the proportion of the number of the
Initial Shares of the Portfolio redeemed to the number of the Initial Shares of
the Portfolio outstanding after taking into account any prior redemptions of the
Initial Shares of the Portfolio.
REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements, which
are agreements pursuant to which securities are acquired by the Portfolio from a
third party with the commitment that they will be repurchased by the seller at a
fixed price on an agreed upon date. Each Portfolio may enter into repurchase
agreements with banks or lenders meeting the creditworthiness standards
established by the Trust's Board of Trustees. The Portfolio, through its
custodian, receives as collateral, delivery of the underlying securities, whose
market value is required to be at least 102% of the resale price at the time of
purchase. The resale price reflects the purchase price plus an agreed upon rate
of interest. In the event of counterparty default the Portfolio has the right to
use the collateral to offset losses incurred.
SECURITIES TRANSACTIONS. Securities transactions are recorded on a trade date
basis. For financial and tax reporting purposes, realized gains and losses are
determined on the basis of specific lot identification.
2. Risks Associated with Foreign Investments
Some of the Portfolios may invest in the securities of foreign issuers.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or
<PAGE> 60
SELECT ADVISORS VARIABLE INSURANCE TRUST
32
Notes to Financial Statements continued
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Portfolio, political
or financial instability or diplomatic and other developments which could affect
such investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. In general, there is less overall governmental supervision and
regulation of foreign securities markets, broker-dealers, and issuers than in
the U.S.
3. Transactions with Affiliates
SPONSOR. Touchstone Advisors, Inc. ("Sponsor" or "Advisor"), a subsidiary of
Western-Southern, as sponsor to the Trust, pursuant to a Sponsor Agreement,
provides oversight of the various service providers to the Trust, including the
Trust's administrator, custodian and transfer agent. The Sponsor reserves the
right to receive a sponsor fee from each Portfolio on an annual basis up to
0.20% of average daily net assets of that Portfolio. The Sponsor Agreement may
be terminated by the Sponsor or by the Trust on not less than 30 days prior
written notice.
INVESTMENT ADVISOR. The Trust also has an investment advisory agreement with the
Sponsor. Under the terms of the investment advisory agreement, each Portfolio
pays a fee that is computed daily and paid monthly. For the period ended
December 31, 1998, each Portfolio incurred investment advisory fees equal on an
annual basis to the following percentages of the average daily net assets of the
Portfolio.
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME VALUE STANDBY
GROWTH EQUITY OPPORTUNITY PLUS BALANCED INCOME
<S> <C> <C> <C> <C> <C> <C>
Rate 0.80% 0.95% 0.65% 0.75% 0.80% 0.25%
- ------------------------------------------------------------------------------------------------
</TABLE>
Subject to review and approval by the Board of Trustees, the Advisor may enter
into certain sub-advisory agreements for the investment advisory services in
connection with the management of each of the Portfolios. The Advisor pays each
sub-advisor a fee for services provided using an annual rate, as specified
below, that is computed daily and paid monthly based on average daily net
assets. As of December 31, 1998, the following sub-advisory agreements were in
place:
<TABLE>
<S> <C>
EMERGING GROWTH PORTFOLIO
David L. Babson & Company, Inc......... 0.50%
Westfield Capital Management Company... 0.45% on the first $10 million
0.40% on the next $40 million
0.35% on thereafter
INTERNATIONAL EQUITY PORTFOLIO
Credit Suisse Asset Management......... 0.85% on the first $30 million
0.80% on the next $20 million
0.70% on the next $20 million
0.60% thereafter
</TABLE>
<PAGE> 61
33
SELECT ADVISORS VARIABLE INSURANCE TRUST
<TABLE>
<S> <C>
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
VALUE PLUS PORTFOLIO
Fort Washington Investment Advisor, 0.45%
Inc. ................................
BALANCED PORTFOLIO
OpCap Advisors......................... 0.60% on the first $20 million*
0.50% on the next $30 million*
0.40% thereafter*
STANDBY INCOME PORTFOLIO
Fort Washington Investment Advisors, 0.15%
Inc. ................................
</TABLE>
- ---------------
* Includes assets of the Balanced Portfolio of the Select Advisors Variable
Insurance Trust and the Balanced Portfolio of the Select Advisors Portfolio,
(for which OpCap Advisors also acts in an investment advisory capacity).
Fort Washington Investment Advisors, Inc., is an affiliate of the Sponsor.
TRUSTEES. Each Trustee who is not an "interested person," (as defined in the
Act), of the Trust, receives an aggregate of $5,000 annually, plus $1,000 per
meeting attended, as well as reimbursement for reasonable out-of-pocket
expenses, from the Trust and from Select Advisors Trust A, Select Advisors Trust
C, and Select Advisors Portfolios, which are included in separate reports. For
the year ended December 31, 1998, the Trust incurred $13,182 in Trustee fees.
4. Expense Reimbursements
The Sponsor has agreed to waive fees and reimburse each Portfolio so that,
following such waiver of fees and reimbursement, the aggregate total operating
expenses (excluding interest, taxes, brokerage commissions and extraordinary
expenses) of each Portfolio are not greater, on an annualized basis, than the
percentage of average daily net assets of the Portfolio listed below.
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME VALUE STANDBY
GROWTH EQUITY OPPORTUNITY PLUS BALANCED INCOME
<S> <C> <C> <C> <C> <C> <C>
Voluntary expense limit 1.15% 1.25% 0.85% 1.15% 0.90% 0.50%
Amount of Reimbursement $35,626 $142,709 $67,018 $75,538 $92,075 $56,515
- -----------------------------------------------------------------------------------------------
</TABLE>
The Sponsor has advised the Trust that it will continue to waive fees and
reimburse each Portfolio as described above through December 31, 1999.
<PAGE> 62
34
Notes to Financial Statements continued
SELECT ADVISORS VARIABLE INSURANCE TRUST
5. Purchases and Sales of Investment Securities
Investment transactions (excluding purchases and sales of
U.S. government obligations, U.S. government agency
obligations and short-term investments) for the year ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME VALUE STANDBY
GROWTH EQUITY OPPORTUNITY PLUS BALANCED INCOME
<S> <C> <C> <C> <C> <C> <C>
Cost of purchases $26,777,375 $45,292,886 $70,328,057 $4,707,578 $25,718,908 $22,928,829
Proceeds from sales $15,120,406 $37,064,146 $55,046,123 $1,875,695 $11,926,313 $13,813,076
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Purchase and sales of U.S. government obligations for the
year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
STANDBY
BALANCED INCOME
<S> <C> <C>
Cost of purchases $8,495,669 $8,774,275
Proceeds from sales $4,337,484 $7,668,650
- ---------------------------------------------------------------------------------------------
</TABLE>
6. Written Options
The Income Opportunity Portfolio's activity in written
options during year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONTRACTS
(000'S OMITTED) PREMIUMS
<S> <C> <C>
Options Outstanding at December 31, 1997 -- $ --
Options Written 2,550 32,130
Options Canceled in Closing Transactions (2,550) --
- --------------------------------------------------------------------------------------------------
Options Outstanding at December 31, 1998 -- $ 32,130
======= =========
- --------------------------------------------------------------------------------------------------
</TABLE>
7. Subsequent Event
Effective immediately after the close of business on
December 31, 1998, two new portfolios, namely Touchstone
Growth & Income Fund and Touchstone Bond Fund were
established in the Select Advisors Variable Insurance
Trust. Effective after the close of business on December
31, 1998, Select Advisors Variable Insurance Trust was
renamed Touchstone Variable Series Trust ("VST"). The
shares of the newly established VST: Touchstone Growth &
Income Fund and VST: Touchstone Bond Fund, (collectively
"VST Funds") were substituted for shares of the Select
Advisors Portfolios: Growth & Income Portfolio II and the
Select Advisors Portfolios: Bond Portfolio II respectively,
(collectively "SAP Funds") held by Western-Southern Life
Assurance Company Separate Account I and Separate Account 2
and The Western and Southern Life Insurance Company
Separate Account A. This transaction was achieved through
an in-kind redemption from the SAP Funds and a
corresponding in-kind contribution to the VST Funds of the
net assets of the SAP Funds. As a result of this
transaction, the SAP Funds ceased to be available as
investment options for Separate Accounts 1, 2 and A. The
VST Funds have substantially identical investment
objectives, policies and risks as those of the respective
SAP Funds. In addition, the VST Funds will employ the same
investment advisor and investment techniques as those
employed by the respective SAP Funds. The SAP Funds will be
dissolved and terminated as soon as practicable.
<PAGE> 63
35
SELECT ADVISORS VARIABLE INSURANCE TRUST
Federal Tax Information (unaudited)
For corporate shareholders, a portion of the ordinary
dividends paid during the Portfolio's year ended December
31, 1998 qualified for the dividends received deduction, as
follows:
<TABLE>
<S> <C>
Emerging Growth Portfolio 100%
Balanced Portfolio 18%
-------------------------------------------------------------------
</TABLE>
Pursuant to Section 852 of the Internal Revenue Code, the
Portfolios designated the following capital gain dividends
for the year ended December 31, 1998:
<TABLE>
<CAPTION>
LONG TERM CAPITAL GAINS
DISTRIBUTIONS PER SHARE CAPITAL GAIN DIVIDENDS
<S> <C> <C>
Emerging Growth Portfolio $0.513 $1,005,881
International Equity Portfolio $0.309 772,132
Balanced Portfolio 0.148 420,115
------------------------------------------------------------------------------------
</TABLE>
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS 36
REPORT OF INDEPENDENT ACCOUNTANTS
To Investors and Trustees of
the Select Advisors Variable Insurance Trust:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and financial highlights present fairly, in all material
respects, the financial position of the Touchstone Emerging Growth Portfolio,
Touchstone International Equity Portfolio, Touchstone Income Opportunity
Portfolio, Touchstone Value Plus Portfolio, Touchstone Balanced Portfolio and
Touchstone Standby Income Portfolio, (the "Funds") at December 31, 1998, the
results of their operations, the changes in their net assets and their financial
highlights for the periods indicated therein, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
<PAGE> 65
LOGO
LOGO
TOUCHSTONE ADVISOR VARIABLE ANNUITY
GROWTH & INCOME PORTFOLIO II LOGO
BOND PORTFOLIO II LOGO
SELECT ADVISORS PORTFOLIOS
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE> 66
NOTES
2
<PAGE> 67
3
SCHEDULE OF INVESTMENTS
December 31, 1998
GROWTH & INCOME PORTFOLIO II
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
COMMON STOCKS -- 93.4%
AEROSPACE & DEFENSE -- 3.3%
12,500 Lockheed Martin $ 1,059,375
8,500 Northrop Grumman 621,563
16,700 Rockwell International 810,994
- ----------------------------------------------------------------------------------
2,491,932
- ----------------------------------------------------------------------------------
AUTOMOTIVE -- 3.7%
26,400 Ford Motor 1,549,350
9,000 Goodyear Tire & Rubber 453,938
15,966 Meritor Automotive 338,280
10,000 Paccar 411,250
- ----------------------------------------------------------------------------------
2,752,818
- ----------------------------------------------------------------------------------
BANKING -- 10.0%
14,324 Bank One 731,419
24,800 BankAmerica 1,491,100
6,900 Bankers Trust 589,519
14,200 Chase Manhattan 966,488
23,746 First Union 1,444,054
23,200 Fleet Financial Group 1,036,750
20,800 Key 665,600
16,200 US Bancorp 575,100
- ----------------------------------------------------------------------------------
7,500,030
- ----------------------------------------------------------------------------------
BEVERAGES, FOOD & TOBACCO -- 5.2%
29,700 Heinz (H.J.) 1,681,763
27,700 Philip Morris 1,481,950
8,300 Unilever, ADR 688,381
- ----------------------------------------------------------------------------------
3,852,094
- ----------------------------------------------------------------------------------
CHEMICALS -- 7.1%
16,700 Akzo, ADR 745,238
7,300 Dow Chemical 663,844
10,100 Du Pont (E.I.) De Nemours 535,931
12,600 Eastman Chemical 563,850
35,300 Imperial Chemical Industries, ADR 1,233,294
54,600 Lyondell Petro Chemical 982,800
10,400 Olin 294,450
16,100 Witco 256,594
- ----------------------------------------------------------------------------------
5,276,001
- ----------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 2.1%
27,900 Pacificorp 587,644
24,700 Unicom 952,494
- ----------------------------------------------------------------------------------
1,540,138
- ----------------------------------------------------------------------------------
COSMETICS & PERSONAL CARE -- 1.7%
29,000 Avon Products 1,283,250
- ----------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 3.8%
20,500 Allegheny Energy 707,250
25,000 Cinergy 859,375
9,900 Duke Energy 634,219
22,900 Southern Company 665,531
- ----------------------------------------------------------------------------------
2,866,375
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 68
4
Schedule of Investments continued
GROWTH & INCOME PORTFOLIO II
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
ELECTRICAL EQUIPMENT -- 1.4%
8,600 Emerson Electric $ 520,300
12,100 Thomas & Betts 524,081
- ----------------------------------------------------------------------------------
1,044,381
- ----------------------------------------------------------------------------------
FINANCIAL SERVICES -- 1.7%
17,000 Federal National Mortgage Association 1,258,000
- ----------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 5.5%
12,800 Boise Cascade 396,800
18,400 Georgia-Pacific 1,077,550
13,900 Georgia-Pacific (Timber Group) 330,994
13,200 Temple-Inland 782,925
11,700 Westvaco 313,706
23,700 Weyerhauser 1,204,256
- ----------------------------------------------------------------------------------
4,106,231
- ----------------------------------------------------------------------------------
HEAVY MACHINERY -- 1.1%
5,500 Caterpillar 253,000
16,300 Parker Hannifin 533,825
- ----------------------------------------------------------------------------------
786,825
- ----------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 3.4%
56,900 Corning 2,560,500
- ----------------------------------------------------------------------------------
INSURANCE -- 2.5%
19,531 EXEL Limited, Class A 1,464,825
5,200 Lincoln National 425,425
- ----------------------------------------------------------------------------------
1,890,250
- ----------------------------------------------------------------------------------
METALS -- 2.3%
37,900 Allegheny Teledyne 774,581
38,100 Oregon Steel Mills 452,438
6,000 Phelps Dodge 305,250
4,000 Reynolds Metals 210,750
- ----------------------------------------------------------------------------------
1,743,019
- ----------------------------------------------------------------------------------
OFFICE EQUIPMENT -- 4.4%
27,600 Xerox 3,256,791
- ----------------------------------------------------------------------------------
OIL & GAS -- 8.4%
8,198 British Petroleum, ADR 778,810
26,600 Conoco, Class A* 555,275
12,700 Elf Aquitaine, ADR 719,138
8,500 Mobil 740,563
18,700 Texaco 988,763
13,700 Total S.A., ADR 681,575
37,000 Williams Companies 1,153,938
23,000 YPF Sociedad Anonima, ADR 642,563
- ----------------------------------------------------------------------------------
6,260,625
- ----------------------------------------------------------------------------------
PHARMACEUTICALS -- 6.3%
35,100 American Home Products 1,976,569
11,800 Bristol-Myers Squibb 1,578,988
11,900 Smithkline Beecham, ADR 827,050
8,100 Zeneca Group, ADR 363,488
- ----------------------------------------------------------------------------------
4,746,095
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 69
5
GROWTH & INCOME PORTFOLIO II
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
RETAILERS -- 1.9%
12,600 May Department Stores $ 760,725
14,900 Sears, Roebuck & Company 633,250
- ----------------------------------------------------------------------------------
1,393,975
- ----------------------------------------------------------------------------------
TELEPHONE SYSTEMS -- 12.3%
21,100 Alltel 1,262,044
37,400 Bell Atlantic 1,982,200
27,800 Bellsouth 1,386,525
32,600 Frontier 1,108,400
22,200 GTE 1,443,000
17,200 Sprint 1,446,950
25,800 Telesp Participacoes, ADR* 570,825
- ----------------------------------------------------------------------------------
9,199,944
- ----------------------------------------------------------------------------------
TRANSPORTATION -- 5.3%
27,800 Canadian Pacific 524,725
31,300 CSX 1,298,950
25,000 General Dynamics 1,465,625
21,200 Norfolk Southern 671,775
- ----------------------------------------------------------------------------------
3,961,075
- ----------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $66,393,317) 69,770,349
- ----------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 0.6%
COMMERCIAL SERVICES -- 0.6%
9,700 Monsanto, ACES* 475,300
- ----------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $396,174) 475,300
- ----------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 3.9%
REAL ESTATE -- 3.9%
10,000 Arden Realty Group 231,875
13,200 Boston Properties 402,600
19,900 Equity Office Properties 477,600
9,000 Equity Residential Properties Trust 363,938
12,800 Health Care Property Investors 393,600
17,500 Nationwide Health Properties 377,344
30,700 Prologis Trust 637,025
- ----------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $3,254,902) 2,883,982
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 97.9% (COST $70,044,393)(a) 73,129,631
CASH AND OTHER ASSETS NET OF LIABILITIES -- 2.1% 1,531,150
- ----------------------------------------------------------------------------------
NET ASSETS -- 100.0% $74,660,781
- ----------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
(a) The aggregate identified cost for federal income tax purposes is
$70,073,919, resulting in gross unrealized appreciation and
depreciation of $8,583,241 and $5,527,529, respectively, and net
unrealized appreciation of $3,055,712.
ACES -- Adjustable Conversion-Rate Equity Security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE> 70
SCHEDULE OF INVESTMENTS 6
December 31, 1998
BOND PORTFOLIO II
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
AGENCY FOR INTERNATIONAL DEVELOPMENT BONDS -- 1.9%
CENTRAL AMERICA -- 1.2%
$ 130,000 Central America International Development, Series
F+ 10.00% 12/01/11 $ 159,233
130,000 Central America International Development, Series
G+ 10.00% 12/01/11 159,233
130,000 Central America International Development, Series
H+ 10.00% 12/01/11 159,233
- ---------------------------------------------------------------------------------------------------
477,699
- ---------------------------------------------------------------------------------------------------
HONDURAS -- 0.7%
100,000 Republic of Honduras International Development,
Series D+ 13.00% 06/01/11 156,161
100,000 Republic of Honduras International Development,
Series C+ 13.00% 06/01/06 131,938
- ---------------------------------------------------------------------------------------------------
288,099
- ---------------------------------------------------------------------------------------------------
TOTAL AGENCY FOR INTERNATIONAL DEVELOPMENT BONDS (COST $590,000) 765,798
- ---------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 3.7%
90,565 Chase Manhattan Grantor Trust 5.20% 02/15/02 90,610
900,000 Chemical Credit Card Master Trust 5.98% 09/15/08 921,555
174,496 Navistar Financial 6.35% 11/15/02 175,681
249,861 World Omni Auto Lease 6.18% 11/25/03 251,298
- ---------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (COST $1,356,859) 1,439,144
- ---------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 34.0%
AUTOMOTIVE -- 0.5%
200,000 Ford Motor 6.75% 05/15/05 210,392
- ---------------------------------------------------------------------------------------------------
BANKING -- 3.9%
500,000 Bank of New York 8.50% 12/15/04 573,306
500,000 Credit Suisse London 7.90% 05/01/07 500,000
350,000 First Union 6.55% 10/15/35 365,091
71,396 Mercantile Safe Deposit+ 12.125% 01/02/01 71,775
- ---------------------------------------------------------------------------------------------------
1,510,172
- ---------------------------------------------------------------------------------------------------
COMMUNICATIONS -- 1.4%
500,000 Harris Corporation 6.65% 08/01/06 525,401
- ---------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 10.9%
1,000,000 Consumers Energy, Series B 6.50% 06/15/18 1,007,380
1,000,000 PSE&G Capital 6.74% 10/23/01 1,022,029
1,100,000 Southern California Edison 7.125% 07/15/25 1,114,079
1,000,000 Tennessee Valley Authority, Series G 5.375% 11/13/08 1,003,790
- ---------------------------------------------------------------------------------------------------
4,147,278
- ---------------------------------------------------------------------------------------------------
ELECTRONICS -- 2.6%
1,000,000 Raytheon 5.70% 11/01/03 1,000,782
- ---------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.8%
1,000,000 Safeco Capital 8.072% 07/15/37 1,063,806
- ---------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 1.6%
250,000 Georgia-Pacific 9.50% 05/15/22 285,243
350,000 Sweetheart Cup 9.625% 09/01/00 315,000
- ---------------------------------------------------------------------------------------------------
600,243
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 71
7
BOND PORTFOLIO II
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT RATE DATE (NOTE 1)
<C> <S> <C> <C> <C>
HEALTH CARE PROVIDERS -- 2.2%
$ 850,000 Columbia/HCA Health 6.73% 07/15/45 $ 853,669
- ---------------------------------------------------------------------------------------------------
MEDIA -- BROADCASTING & PUBLISHING -- 2.1%
500,000 Cox Communications 6.375% 06/15/00 507,380
250,000 News America Holdings 10.125% 10/15/12 297,759
- ---------------------------------------------------------------------------------------------------
805,139
- ---------------------------------------------------------------------------------------------------
OIL & GAS -- 1.9%
750,000 Husky Oil, 144A 8.90% 08/15/28 713,438
- ---------------------------------------------------------------------------------------------------
RETAILERS -- 1.3%
500,000 Wal-Mart Stores 5.85% 06/01/00 505,324
- ---------------------------------------------------------------------------------------------------
TELEPHONE SYSTEMS -- 2.8%
1,000,000 MCI Worldcom 8.875% 01/15/06 1,089,377
- ---------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $12,834,037) 13,025,021
- ---------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 35.5%
330,760 Federal Government Loan Mortgage Corporation 7.00% 10/01/25 337,603
337,104 Federal Government Loan Mortgage Corporation 7.00% 12/01/25 344,078
1,000,000 Federal Home Loan Bank 5.625% 03/19/01 1,012,226
1,250,000 Federal National Mortgage Association 5.75% 04/15/03 1,283,943
500,000 Federal National Mortgage Association 5.75% 02/15/08 518,079
2,999,749 Federal National Mortgage Association 6.50% 07/01/28 3,016,619
428,713 Government National Mortgage Association 7.00% 02/15/09 441,249
4,829 Government National Mortgage Association 7.50% 07/15/23 4,978
476,093 Government National Mortgage Association 7.50% 12/15/25 490,823
800,987 Government National Mortgage Association 7.50% 12/15/27 825,770
1,400,520 Government National Mortgage Association 7.00% 05/15/28 1,432,466
481,507 Government National Mortgage Association 7.00% 07/15/28 492,490
492,438 Government National Mortgage Association 7.00% 07/15/28 503,670
2,006,108 Government National Mortgage Association 6.50% 09/15/28 2,025,548
920,000 Housing Securities 6.75% 09/25/08 884,488
- ---------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $13,527,136) 13,614,030
- ---------------------------------------------------------------------------------------------------
SOVEREIGN GOVERNMENT OBLIGATIONS -- 2.8%
CANADA -- 2.8%
1,000,000 Province of Ontario 7.375% 01/27/03 1,082,730
- ---------------------------------------------------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENT OBLIGATIONS (COST $1,077,440) 1,082,730
- ---------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 10.5%
1,000,000 U.S. Treasury Bond 6.375% 08/15/27 1,150,000
1,000,000 U.S. Treasury Note 4.75% 11/15/08 1,007,813
500,000 U.S. Treasury Note 6.125% 11/15/27 560,000
1,300,000 U.S. Treasury Note 5.25% 11/15/28 1,332,500
- ---------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $3,906,122) 4,050,313
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 72
8
Schedule of Investments continued
BOND PORTFOLIO II
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C> <C> <C>
PREFERRED STOCKS -- 4.9%
ELECTRIC UTILITIES -- 2.9%
9,300 Appalachian Power, 8.25% Cumulative $ 239,475
16,800 Columbus Southern Power, 8.375% Cumulative 432,600
17,500 Virginia Power Capital, 8.05% Cumulative 447,344
- ---------------------------------------------------------------------------------------------------
1,119,419
- ---------------------------------------------------------------------------------------------------
OIL & GAS -- 2.0%
29,900 Transcanada Pipelines, 8.75% Cumulative 781,138
- ---------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $1,888,618) 1,900,557
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 93.3%
(COST $35,180,212)(a) 35,877,593
CASH AND OTHER ASSETS NET OF LIABILITIES -- 6.7% 2,573,245
- ---------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $38,450,838
- ---------------------------------------------------------------------------------------------------
</TABLE>
Notes to the Schedule of Investments:
+ Restricted and Board valued security (Note 6).
(a) The aggregate identified cost for federal income tax purposes is
$35,196,462, resulting in gross unrealized appreciation and depreciation of
$854,965 and $173,834, respectively, and net unrealized appreciation of
$681,131.
144A -- Securities restricted for resale to Qualified Institutional Buyers with
registration rights.
The accompanying notes are an integral part of the financial statements.
<PAGE> 73
SELECT ADVISORS PORTFOLIOS
9
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
GROWTH &
INCOME BOND
PORTFOLIO II PORTFOLIO II
<S> <C> <C>
ASSETS:
Investments, at value (Note 1)(a) $73,129,631 $35,877,593
Cash 1,746,965 2,201,113
Receivables for:
Dividends 169,747 21,068
Interest 6,365 436,820
Foreign tax reclaims 929 1,635
- --------------------------------------------------------------------------------------------
Total assets 75,053,637 38,538,229
- --------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 56,355 --
Payable to Sponsor (Note 3) 299,788 57,000
Other accrued expenses 36,713 30,391
- --------------------------------------------------------------------------------------------
Total liabilities 392,856 87,391
- --------------------------------------------------------------------------------------------
NET ASSETS:
Applicable to investors' beneficial interests $74,660,781 $38,450,838
- --------------------------------------------------------------------------------------------
(a) Cost of investments $70,044,393 $35,180,212
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 74
SELECT ADVISORS PORTFOLIOS
STATEMENTS OF OPERATIONS 10
For the Years Ended December 31, 1998
<TABLE>
<CAPTION>
GROWTH &
INCOME BOND
PORTFOLIO II PORTFOLIO II
<S> <C> <C>
INVESTMENT INCOME (NOTE 1):
Interest $ 76,442 $1,991,899
Dividends (a) 1,686,187 121,696
- ------------------------------------------------------------------------------------------
Total investment income 1,762,629 2,113,595
- ------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 504,873 173,524
Custody, administration and fund accounting fees 177,066 133,505
Sponsor fees (Note 3) 126,217 63,099
Printing fees 5,871 4,452
Auditing fees 18,617 16,576
Legal fees 8,202 4,276
Amortization of organization expenses (Note 7) 14,812 14,812
Trustee fees (Note 3) 5,667 2,838
Miscellaneous 7,404 2,950
- ------------------------------------------------------------------------------------------
Total expenses 868,729 416,032
Waiver of Sponsor fees (Note 3) (126,217) (63,099)
Reimbursement from Advisor (Note 4) (206,085) (116,523)
- ------------------------------------------------------------------------------------------
Net expenses 536,427 236,410
- ------------------------------------------------------------------------------------------
Net investment income 1,226,202 1,877,185
- ------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments 1,809,761 417,282
Net change in unrealized appreciation (depreciation) 244,812 116,965
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss): 2,054,573 534,247
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $3,280,775 $2,411,432
- ------------------------------------------------------------------------------------------
(a) Net of foreign tax withholding $ 3,679 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 75
SELECT ADVISORS PORTFOLIOS
11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH & INCOME BOND
PORTFOLIO II PORTFOLIO II
--------------------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 1,226,202 $ 413,468 $ 1,877,185 $ 1,179,582
Net realized gain (loss) on investments 1,809,761 5,279,721 417,282 42,062
Net change in unrealized appreciation
(depreciation) on investments 244,812 455,947 116,965 256,174
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 3,280,775 6,149,136 2,411,432 1,477,818
- ------------------------------------------------------------------------------------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTEREST:
Contributions 31,339,058 21,726,669 17,376,055 8,615,620
Withdrawals (6,522,034) (3,283,783) (6,021,023) (388,462)
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM INVESTORS'
TRANSACTIONS 24,817,024 18,442,886 11,355,032 8,227,158
- ------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 28,097,799 24,592,022 13,766,464 9,704,976
NET ASSETS
Beginning of period 46,562,982 21,970,960 24,684,374 14,979,398
- ------------------------------------------------------------------------------------------------------
End of period $74,660,781 $46,562,982 $38,450,838 $24,684,374
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 76
SELECT ADVISORS PORTFOLIOS
RATIOS AND SUPPLEMENTARY DATA 12
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO II
---------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED(a)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, end of period
(000's).................... $74,661 $46,563 $21,971 $13,894 $ 9,923
Ratios to average net assets:
Net Expenses 0.85% 0.85% 0.85% 0.85% 0.85%(b)
Net investment income
(loss) 1.94% 1.28% 1.07% 1.27% 2.06%(b)
Expenses, without waiver
and reimbursement 1.37% 1.64% 1.74% 1.77% 2.94%(b)
Portfolio turnover 55% 153% 82% 96% 0%
</TABLE>
<TABLE>
<CAPTION>
BOND PORTFOLIO II
---------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED(a)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, end of period
(000's).................... $38,451 $24,684 $14,979 $12,304 $10,104
Ratios to average net assets:
Net Expenses 0.75% 0.75% 0.75% 0.75% 0.75%(b)
Net investment income
(loss) 5.94% 6.28% 6.18% 6.91% 6.76%(b)
Expenses, without waiver
and reimbursement 1.32% 1.69% 1.76% 1.58% 2.67%(b)
Portfolio turnover 194% 79% 79% 80% 0%
</TABLE>
- ---------------
(a) The portfolios commenced operations on November 21, 1994.
(b) Ratios are annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE> 77
13
NOTES TO FINANCIAL STATEMENTS
SELECT ADVISORS PORTFOLIOS
1. Organization and Significant Accounting Policies
Select Advisors Portfolios (the "Portfolio Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company and was organized as a New York master trust fund on February 7, 1994.
There are nine subtrusts of the Portfolio Trust (each a "Portfolio"), each
having distinct investment objectives and policies. The Portfolios are Emerging
Growth Portfolio, International Equity Portfolio, Income Opportunity Portfolio,
Value Plus Portfolio, Growth & Income Portfolio, Balanced Portfolio, Bond
Portfolio, Growth & Income Portfolio II and Bond Portfolio II. Only Growth &
Income Portfolio II and Bond Portfolio II are included in this report. The other
portfolios are included in a separate report.
As of December 31, 1998, Touchstone Advisors, Inc., a subsidiary of
Western-Southern Life Assurance Company ("Western-Southern"), and
Western-Southern owned 100% of the interest in the Growth & Income Portfolio II
and Bond Portfolio II.
The accounting policies are in conformity with generally accepted accounting
principles ("GAAP") for investment companies. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the related amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies of the
Portfolios:
INVESTMENT VALUATION. Securities for which market quotations are readily
available are valued at the last sale price on a national securities exchange,
or, in the absence of recorded sales, at the readily available closing bid price
on such exchanges, or at the quoted bid price in the over-the-counter market.
Securities quoted in foreign currencies are translated into U.S. Dollars at the
current exchange rate. Debt securities are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. Securities or other
assets for which market quotations are not readily available are valued at fair
value in good faith in accordance with procedures established by the Trustees of
the Portfolio Trust using prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type, indications as to values from
dealers and general market conditions. All debt securities with a remaining
maturity of less than 60 days are valued at amortized cost, which approximates
market.
FOREIGN CURRENCY TRANSLATION. The accounting records of the Portfolios are
maintained in U.S. dollars. The market value of investment securities, other
assets and liabilities and forward contracts denominated in foreign currencies
are translated into U.S. dollars at the prevailing exchange rates at the end of
the period. Purchases and sales of securities, income receipts, and expense
payments are translated at the exchange rate prevailing on the respective dates
of such transactions. Reported net realized gains and losses on foreign currency
transactions represent net gains and losses from sales
<PAGE> 78
14
Notes to Financial Statements continued
SELECT ADVISORS PORTFOLIOS
and maturities of forward currency contracts, disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of net investment
income accrued and U.S. dollar amount actually received.
The effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the statements of operations from the effects
of changes in market prices of these securities, but are included with the net
realized and unrealized gain or loss on investments.
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date except
that certain dividends from foreign securities where the ex-dividend date has
passed are recorded as soon as the Portfolio Trust is informed of the
ex-dividend date. Interest income, which includes the amortization of premium
and accretion of discount, if any, is recorded on an accrual basis. Dividend and
interest income is recorded net of foreign taxes where recovery of such taxes is
not assured.
FEDERAL TAXES. Each Portfolio is treated as a partnership for federal income tax
purposes. As such, each investor in each Portfolio is subject to taxation on its
share of that Portfolio's ordinary income and capital gains. Accordingly, no
provision has been made for federal income taxes. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended.
FORWARD FOREIGN CURRENCY CONTRACTS. Each Portfolio may enter into forward
foreign currency contracts to protect securities and related receivables and
payables against fluctuations in foreign currency rates. A forward contract is
an agreement to buy or sell currencies of different countries on a specified
future date at a specified rate.
Risks associated with such contracts include the movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. The market value of the contract will fluctuate with changes in
currency exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Trustees of the
Portfolio Trust and the change in the market value is recorded by the Portfolio
as unrealized appreciation or depreciation of forward foreign currency
contracts.
REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements, which
are agreements pursuant to which securities are acquired by the Portfolio from a
third party with the commitment that they will be repurchased by the seller at a
fixed price on an agreed upon date. Each Portfolio may enter into repurchase
agreements with banks or lenders meeting the creditworthiness standards
established by the Portfolio Trust Board of Trustees. The Portfolio, through its
custodian, receives as collateral, delivery of the underlying securities, whose
market value is required to be at least 102% of the resale price at the time of
purchase. The resale price reflects the purchase price plus an agreed upon rate
of interest. In the event of counterparty default the Portfolio has the right to
use the collateral to offset losses incurred.
<PAGE> 79
15
SELECT ADVISORS PORTFOLIOS
SECURITIES TRANSACTIONS. Securities transactions are recorded on a trade date
basis. For financial and tax reporting purposes, realized gains and losses are
determined on the basis of specific lot identification.
2. Risks Associated with Foreign Investments
Some of the Portfolios may invest in securities of foreign issuers. Investing in
securities issued by companies whose principal business activities are outside
the U.S. may involve significant risks not present in domestic investments. For
example, there is generally less publicly available information about foreign
companies, particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally not
bound by uniform accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitation on the removal of funds or other assets of the
Portfolio, political or financial instability or diplomatic and other
developments which could affect such investments. Foreign stock markets, while
growing in volume and sophistication, are generally not as developed as those in
the U.S., and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In general, there is less overall governmental
supervision and regulation of foreign securities markets, broker-dealers, and
issuers than in the U.S.
3. Transactions with Affiliates
SPONSOR. Touchstone Advisors, Inc. ("Sponsor" or "Advisor"), as sponsor to the
Trust, pursuant to a Sponsor Agreement provides oversight of the various service
providers to the Trust, including the Trust's administrator, custodian and
transfer agent. The Sponsor receives a sponsor fee from each portfolio equal on
an annual basis to 0.20% of average daily net assets of that Portfolio. The
Sponsor Agreement may be terminated by the Sponsor or by the Trust on not less
than 30 days prior written notice.
INVESTMENT ADVISOR. The Portfolio Trust also has an investment advisory
agreement with Touchstone Advisors, Inc. Under the terms of the investment
advisory agreement, each Portfolio pays a fee that is computed daily and paid
monthly. Investment advisory fees for Growth & Income Portfolio II and Bond
Portfolio II is equal on an annual basis to .80% and .55%, respectively, of
average daily net assets.
Subject to review and approval by the Board of Trustees, the Advisor may enter
into certain sub-advisory agreements for the investment advisory services in
connection with the management of each of the Portfolios. The Advisor pays each
sub-advisor a fee for services provided using an annual rate, as specified
below, that is computed daily and paid monthly based on
<PAGE> 80
16
Notes to Financial Statements continued
SELECT ADVISORS PORTFOLIOS
average daily net assets. As of December 31, 1998, the following sub-advisory
agreements were in place:
<TABLE>
<S> <C>
GROWTH & INCOME PORTFOLIO
Scudder Kemper Investments, Inc. ...... 0.50% on the first $150 million
0.45% thereafter
BOND PORTFOLIO
Fort Washington Investment Advisors, 0.30%
Inc. ................................
</TABLE>
Fort Washington Investment Advisors, Inc., is an affiliate of the Advisor.
TRUSTEES. Each Trustee who is not an "interested person," (as defined in the
Act), of the Portfolio Trust, receives an aggregate of $5,000 annually, plus
$1,000 per meeting attended, as well as reimbursement for reasonable
out-of-pocket expenses from the Portfolio and from Select Advisors Trust A,
Select Advisors Trust C and Select Advisors Variable Insurance Trust. For the
year ended December 31, 1998, the Growth & Income Portfolio II incurred $5,667
in Trustee Fees and the Bond Portfolio II incurred $2,838 in Trustee Fees.
4. Expense Reimbursement
The Sponsor has agreed to reimburse each Portfolio so that, following such
reimbursement the aggregate total operating expenses (excluding interest, taxes,
brokerage commission and extraordinary expenses) are not greater, on an
annualized basis, than 0.85% and 0.75% of average daily net assets of Growth &
Income Portfolio II and Bond Portfolio II, respectively. The sponsor has advised
the Trust that it will continue to waive fees and reimburse each Portfolio as
described above through December 31, 1999. For the year ended December 31, 1998,
the sponsor reimbursed $206,085 and $116,523 to the Growth & Income Portfolio II
and Bond Portfolio II, respectively.
5. Purchases and Sales of Investment Securities
For the year ended December 31, 1998, the cost of investment securities
purchased was $59,853,038 and $29,717,084, and the proceeds from sales of
investment securities sold were $33,802,717 and $24,287,635, for Growth & Income
Portfolio II and Bond Portfolio II, respectively, excluding U.S. government
obligations and US government agency obligations and short-term investments.
Purchases and sales of U.S. government obligations were $38,779,377 and
$32,330,383, respectively, for Bond Portfolio II.
6. Restricted Securities
Restricted securities may be difficult to dispose of and involve time consuming
negotiation and expense. Prompt sale of these securities may involve the seller
taking a discount to the security's stated market value. As of December 31,
1998, Bond Portfolio II held restricted securities valued at
<PAGE> 81
17
SELECT ADVISORS PORTFOLIOS
$837,573 by the Trustees, representing 2.18% of net assets. Acquisition date and
cost of each are as follows:
<TABLE>
<CAPTION>
ACQUISITION DATE COST
<S> <C> <C>
Mercantile Safe Deposit 3/28/85 $ 71,379
Central America, Series F 8/1/86 130,000
Central America, Series G 8/1/86 130,000
Central America, Series H 8/1/86 130,000
Republic of Honduras, Series C 5/1/88 100,000
Republic of Honduras, Series D 5/1/88 100,000
</TABLE>
Bond Portfolio II received these securities from The Western and Southern Life
Insurance Company Separate Account A on November 21, 1994, in exchange for a
proportionate interest in the Portfolio.
7. Subsequent Event
Effective immediately after the close of business on December 31, 1998, two new
portfolios, namely Touchstone Growth & Income Fund and Touchstone Bond Fund were
established in the Select Advisors Variable Insurance Trust. Select Advisors
Variable Insurance Trust is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company and was organized as a
Massachusetts business trust on February 7, 1994. Effective after the close of
business on December 31, 1998, Select Advisors Variable Insurance Trust was
renamed Touchstone Variable Series Trust ("VST"). The shares of the newly
established VST: Touchstone Growth & Income Fund and VST: Touchstone Bond Fund,
(collectively "VST Funds") were substituted for shares of the Select Advisors
Portfolios: Growth & Income Portfolio II and the Select Advisors Portfolios:
Bond Portfolio II respectively, (collectively "SAP Funds") held by
Western-Southern Life Assurance Company Separate Account 1 and Separate Account
2 and The Western and Southern Life Insurance Company Separate Account A. This
transaction was achieved through an in-kind redemption from the SAP Funds and a
corresponding in-kind contribution to the VST Funds of the net assets of the SAP
Funds. As a result of this transaction, the SAP Funds ceased to be available as
investment options for Separate Accounts 1, 2 and A. The VST Funds have
substantially identical investment objectives, policies and risks as those of
the respective SAP Funds. In addition, the VST Funds will employ the same
investment advisor and investment techniques as those employed by the respective
SAP Funds. The SAP Funds will be dissolved and terminated as soon as
practicable.
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
18
REPORT OF INDEPENDENT ACCOUNTANTS
To Investors and Trustees of
the Select Advisors Portfolios:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and ratios and supplementary data present fairly, in all
material respects, the financial position of Growth and Income Portfolio II and
Bond Portfolio II (the "Funds") at December 31, 1998, the results of their
operations, the changes in their net assets and their ratios and supplementary
data for the periods indicated therein, in conformity with generally accepted
accounting principles. These financial statements and ratios and supplementary
data (hereafter referred to as "financial statements") are the responsibility of
the Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
