<PAGE>
Registration No. 33-23512
As filed with the Securities and Exchange Commission on September 26, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 22 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 23 [X]
THE GCG TRUST
(Exact Name of Registrant as Specified in Charter)
280 Park Avenue
New York, New York 10017
-----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(800) 447-3644
Mitchell M. Cox
Associate General Counsel
Directed Services, Inc.
280 Park Avenue
New York, New York 10017
----------------------------------------------
(Name and Address of Agent for Service)
Copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Suite 500
Washington, D.C. 20005
[x] It is proposed that this filing will become effective on October
2, 1995 pursuant to paragraph (b) of Rule 485.
* Registrant has registered an indefinite number of shares of
beneficial interest under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940. Registrant
filed its Rule 24f-2 Notice for the fiscal year ending December
31, 1994, on February 24, 1995.
<PAGE>
THE GCG TRUST
CROSS-REFERENCE SHEET
PART A
REQUIRED BY RULE 404 UNDER THE SECURITIES ACT OF 1933
PROSPECTUS FOR MULTIPLE ALLOCATION SERIES, FULLY MANAGED SERIES,
LIMITED MATURITY BOND SERIES, ALL-GROWTH SERIES,
NATURAL RESOURCES SERIES, REAL ESTATE SERIES,
CAPITAL APPRECIATION SERIES, RISING DIVIDENDS SERIES,
EMERGING MARKETS SERIES, VALUE EQUITY SERIES,
STRATEGIC EQUITY SERIES, AND LIQUID ASSET SERIES
Item Heading
---- -------
1. Cover Page Cover Page
2. Synopsis Prospectus Synopsis
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives and
Policies; Investment
Restrictions; Description
of Securities and
Investment Techniques
5. Management of the Fund Management of the Trust
5A. Management's Discussion of See Annual Report to
Fund Performance Contractowners
6. Capital Stock and Other Securities Other Information;
Federal Income Tax
Status; Portfolio
Transactions; Dividends
and Distributions
7. Purchase of Securities Purchase of Shares;
Being Offered Exchanges
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION FOR
MULTIPLE ALLOCATION SERIES, FULLY MANAGED SERIES,
LIMITED MATURITY BOND SERIES, ALL-GROWTH SERIES, NATURAL
RESOURCES SERIES, REAL ESTATE SERIES, CAPITAL APPRECIATION
SERIES, RISING DIVIDENDS SERIES, EMERGING MARKETS SERIES,
VALUE EQUITY SERIES, STRATEGIC EQUITY SERIES,
LIQUID ASSET SERIES, AND MARKET MANAGER SERIES
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Management of the Trust
13. Investment Objectives and Policies Description of Securities and
Investment Techniques; Investment
Restrictions
14. Management of the Registrant Management of the Trust
15. Control Persons and Principal Other Information
Holders of Securities
16. Investment Advisory and Other Management of the Trust Services
17. Brokerage Allocation Brokerage and Research Services
18. Capital Stock and Other Securities Voting Rights
19. Purchase, Redemption and Pricing Purchases and Redemptions
20. Tax Status Taxation
21. Underwriters Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
<PAGE>
PART A
PROSPECTUS FOR
MARKET MANAGER SERIES
The Prospectus for the Market Manager Series is not affected by this
Post-Effective Amendment and is included in The GCG Trust's Post-
Effective Amendment No. 20, which was filed with the Securities and
Exchange Commission on April 28, 1995.
<PAGE>
THE GCG TRUST
CROSS-REFERENCE SHEET
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
FOR THE FUND FOR LIFE
REQUIRED BY RULE 404 UNDER THE SECURITIES ACT OF 1933
The Prospectus and Statement of Additional Information for The Fund
For Life are not affected by this Post-Effective Amendment and are
included in The GCG Trust's Post-Effective Amendment No. 20, which was
filed with the Securities and Exchange Commission on April 28, 1995.
<PAGE>
PART A
PROSPECTUS
Multiple Allocation Series, Fully Managed Series,
Limited Maturity Bond Series, All-Growth Series,
Natural Resources Series, Real Estate Series,
Capital Appreciation Series, Rising Dividends Series,
Emerging Markets Series, Value Equity Series,
Strategic Equity Series, and Liquid Asset Series
<PAGE>
THE GCG TRUST
280 PARK AVENUE NEW YORK, NEW YORK 10017
This Prospectus offers shares of twelve portfolios (the "Series") of The GCG
Trust (the "Trust"), which is an open-end, management investment company. Each
Series has its own investment objective or objectives and investment policies.
Shares of the Series may be sold to separate accounts of insurance companies to
serve as the investment medium for variable life insurance policies and variable
annuity contracts issued by the insurance companies ("Variable Contracts") and
to certain qualified pension and retirement plans. In the case of Variable
Contracts, the separate accounts invest in shares of one or more of the Series
in accordance with allocation instructions received from owners of the insurance
policies and annuity contracts. Such allocation rights are described further in
the Prospectus for the separate account.
The Series are managed by Directed Services, Inc. ("DSI"), which is an indirect,
wholly owned subsidiary of Bankers Trust Company. For more information regarding
DSI and Bankers Trust Company, see "The Manager." DSI and the Trust have
retained several investment advisory firms ("Portfolio Managers") to provide
investment advisory services to the Series. The twelve Series and their
respective Portfolio Managers are as follows:
<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGER
- -------------------------------------- -----------------------------------------------------------
<S> <C>
MULTIPLE ALLOCATION SERIES ZWEIG ADVISORS INC.
FULLY MANAGED SERIES T. ROWE PRICE ASSOCIATES, INC.
LIMITED MATURITY BOND SERIES BANKERS TRUST COMPANY
NATURAL RESOURCES SERIES VAN ECK ASSOCIATES CORPORATION
REAL ESTATE SERIES E.I.I. REALTY SECURITIES, INC.
ALL-GROWTH SERIES WARBURG, PINCUS COUNSELLORS, INC.
CAPITAL APPRECIATION SERIES CHANCELLOR TRUST COMPANY
RISING DIVIDENDS SERIES KAYNE, ANDERSON INVESTMENT MANAGEMENT, L.P.
EMERGING MARKETS SERIES BANKERS TRUST COMPANY
VALUE EQUITY SERIES EAGLE ASSET MANAGEMENT, INC.
STRATEGIC EQUITY SERIES ZWEIG ADVISORS INC.
LIQUID ASSET SERIES BANKERS TRUST COMPANY
</TABLE>
Information about the investment objective or objectives, investment policies,
and restrictions of each Series, along with a detailed description of the types
of securities and other assets in which each Series may invest, are set forth in
this Prospectus. There can be no assurance that the investment objective or
objectives for any Series will be achieved.
Investment in the Liquid Asset Series (or in any other Series) is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Liquid Asset Series will be able to maintain a stable net asset value of
$1.00 per share.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in any of the Series. A Statement of Additional
Information, dated October 2, 1995, containing additional and more detailed
information about the Series has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference into this Prospectus. The
Statement of Additional Information is available without charge and may be
obtained by writing to the Trust at the address printed above or by calling the
Trust at the Customer Service Center at the telephone number shown in the
accompanying prospectus.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
SEPARATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
THE SERIES' SHARES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE
SUBJECT TO MARKET FLUCTUATION, REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 2, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SYNOPSIS.................................. 1
FINANCIAL HIGHLIGHTS................................. 3
INVESTMENT OBJECTIVES AND POLICIES................... 13
Multiple Allocation Series......................... 13
Fully Managed Series............................... 15
Limited Maturity Bond Series....................... 16
Natural Resources Series........................... 17
Real Estate Series................................. 19
All-Growth Series.................................. 20
Capital Appreciation Series........................ 21
Rising Dividends Series............................ 21
Emerging Markets Series............................ 22
Value Equity Series................................ 24
Strategic Equity Series............................ 25
Liquid Asset Series................................ 26
MANAGEMENT OF THE TRUST.............................. 27
The Manager........................................ 27
The Portfolio Managers............................. 29
ZWEIG ADVISORS INC. ............................. 29
T. ROWE PRICE ASSOCIATES, INC. .................. 30
BANKERS TRUST COMPANY............................ 30
VAN ECK ASSOCIATES CORPORATION................... 31
WARBURG, PINCUS COUNSELLORS, INC. ............... 32
CHANCELLOR TRUST COMPANY......................... 32
KAYNE, ANDERSON INVESTMENT MANAGEMENT, L.P. ..... 33
EAGLE ASSET MANAGEMENT, INC. .................... 33
E.I.I. REALTY SECURITIES, INC. .................. 33
Other Expenses..................................... 34
Distributor........................................ 34
Custodian and Other Service Providers.............. 34
DESCRIPTION OF SECURITIES AND INVESTMENT
TECHNIQUES.......................................... 35
Mortgage-Backed Securities......................... 35
MORTGAGE PASS-THROUGH SECURITIES................. 35
OTHER MORTGAGE-BACKED SECURITIES................. 35
RISKS OF MORTGAGE-BACKED SECURITIES.............. 35
Other Asset-Backed Securities...................... 36
High Yield Bonds................................... 36
<CAPTION>
PAGE
<S> <C>
Repurchase Agreements.............................. 36
Restricted and Illiquid Securities................. 37
Short Sales........................................ 37
Foreign Securities................................. 38
Investment in Gold and Other Precious Metals....... 39
Futures Contracts.................................. 40
RISKS ASSOCIATED WITH FUTURES AND FUTURES
OPTIONS......................................... 40
Options on Securities.............................. 41
RISKS OF OPTIONS TRANSACTIONS.................... 42
Foreign Currency Transactions...................... 43
Options on Foreign Currencies...................... 43
Borrowing.......................................... 44
INVESTMENT RESTRICTIONS.............................. 44
PURCHASE OF SHARES................................... 45
NET ASSET VALUE...................................... 45
REDEMPTION OF SHARES................................. 46
EXCHANGES............................................ 47
PORTFOLIO TRANSACTIONS............................... 47
Brokerage Services................................. 47
Portfolio Turnover................................. 48
DIVIDENDS AND DISTRIBUTIONS.......................... 48
FEDERAL INCOME TAX STATUS............................ 48
OTHER INFORMATION.................................... 49
Capitalization..................................... 49
Voting Rights...................................... 50
Chancellor Administrative Order.................... 50
Performance Information............................ 50
LEGAL COUNSEL........................................ 51
INDEPENDENT AUDITORS................................. 51
FINANCIAL STATEMENTS................................. 51
</TABLE>
I
<PAGE>
PROSPECTUS SYNOPSIS
THE TRUST
The GCG Trust (the "Trust") is an open-end management investment company,
organized as a Massachusetts business trust on August 3, 1988. This Prospectus
offers shares of twelve portfolios (the "Series") of the Trust, each with its
own investment objective or objectives and investment policies. There can be no
assurance that any particular Series' investment objective or objectives will be
attained. The Board of Trustees may establish additional Series at any time and
may discontinue offering a Series at any time.
The purpose of the Trust is to serve as an investment medium for (i) variable
life insurance policies and variable annuity contracts ("Variable Contracts")
offered by insurance companies, and (ii) certain qualified pension and
retirement plans, as permitted under the federal tax rules relating to the
Series serving as investment mediums for Variable Contracts. See "Purchase of
Shares." In the case of Variable Contracts, the various Series may be used
independently or in combination. Within the limitations described in the
Prospectus for the applicable Variable Contract, an owner of a Variable Contract
("Variable Contract Owner") may allocate premiums and reallocate investment
value under his or her Variable Contract among various divisions of the
applicable separate account, which, in turn, invest in the various Series. The
assets of each Series are segregated and a Variable Contract Owner's interest is
limited to the Series in which the divisions selected by the Variable Contract
Owner have invested.
INVESTMENT OBJECTIVES
The investment objective or objectives of each of the Series are as follows:
The MULTIPLE ALLOCATION SERIES seeks the highest total return, consisting of
capital appreciation and current income, consistent with the preservation of
capital and elimination of unnecessary risk. The Series seeks to achieve this
objective through investment in debt and equity securities and the use of
certain sophisticated investment strategies and techniques.
The FULLY MANAGED SERIES seeks, over the long term, a high total investment
return, consistent with the preservation of capital and prudent investment risk.
The Series seeks to achieve this objective by investing primarily in common
stocks. The Series may also invest in fixed income securities and money market
instruments to preserve its principal value during uncertain or declining market
conditions. The Series' strategy is based on the premise that, from time to
time, certain asset classes are more attractive long term investments than
others.
The LIMITED MATURITY BOND SERIES seeks the highest current income consistent
with low risk to principal and liquidity. The Series seeks to achieve this
objective by investing primarily in a diversified portfolio of limited maturity
debt securities. The Series also seeks to enhance its total return through
capital appreciation when market factors indicate that capital appreciation may
be available without significant risk to principal.
The NATURAL RESOURCES SERIES seeks long-term capital appreciation. The Series
seeks to achieve this objective by investing in equity and debt securities of
companies engaged in the exploration, development, production, and distribution
of natural resources.
The REAL ESTATE SERIES seeks capital appreciation. The Series seeks to achieve
this objective through investment in publicly traded equity securities of
companies in the real estate industry. Current income is a secondary objective.
The ALL-GROWTH SERIES seeks capital appreciation. The Series seeks to achieve
this objective through investment in securities selected for their long-term
growth prospects.
The CAPITAL APPRECIATION SERIES seeks to generate long-term capital growth. The
Series seeks to achieve this objective by investing in common stock and
preferred stock that will be allocated between categories or "components" of
stocks referred to as the growth component and the value component.
The RISING DIVIDENDS SERIES seeks capital appreciation. The Series seeks to
achieve this objective by investing in equity securities of high quality
companies that meet the following four criteria: consistent dividend increases;
substantial dividend increases; reinvested profits; and an under-leveraged
balance sheet.
The EMERGING MARKETS SERIES seeks long-term growth of capital. The Series seeks
to achieve this objective by investing primarily in equity securities of
companies that are considered to be in emerging market countries.
The VALUE EQUITY SERIES seeks capital appreciation and, secondarily, dividend
income by investing primarily in equity securities which meet quantitative
1
<PAGE>
PROSPECTUS SYNOPSIS (CONTINUED)
standards believed by the Portfolio Manager to indicate above average financial
soundness and high intrinsic value relative to price.
The STRATEGIC EQUITY SERIES seeks to achieve capital appreciation primarily
through investment in equity securities based on various equity market timing
techniques. The amount of the Series' assets allocated to equities shall vary
from time to time to seek positive investment performance from advancing equity
markets and to reduce exposures to equities when the Portfolio Manager believes
that their risk/reward characteristics are less attractive.
The LIQUID ASSET SERIES seeks a high level of current income consistent with the
preservation of capital and liquidity.
THE MANAGER AND PORTFOLIO MANAGERS
The Manager of the Series is Directed Services, Inc. (the "Manager"), which is
an indirect, wholly owned subsidiary of Bankers Trust Company. The Trust and the
Manager have retained several investment advisory firms ("Portfolio Managers")
to manage the assets of the Series. The twelve Series and their Portfolio
Managers are as follows:
<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGER
- --------------------------- --------------------------
<S> <C>
Multiple Allocation Series Zweig Advisors Inc.
Fully Managed Series T. Rowe Price Associates,
Inc.
Limited Maturity Bond Bankers Trust Company
Series
Natural Resources Series Van Eck Associates
Corporation
Real Estate Series E.I.I. Realty Securities,
Inc.
All-Growth Series Warburg, Pincus
Counsellors, Inc.
Capital Appreciation Series Chancellor Trust Company
Rising Dividends Series Kayne, Anderson Investment
Management, L.P.
Emerging Markets Series Bankers Trust Company
Value Equity Series Eagle Asset Management,
Inc.
Strategic Equity Series Zweig Advisors Inc.
Liquid Asset Series Bankers Trust Company
</TABLE>
As Manager of the Series, Directed Services, Inc. has overall responsibility,
subject to the supervision of the Board of Trustees, for engaging portfolio
managers and for monitoring and evaluating the management of the assets of each
Series by the Portfolio Managers, for administering all operations of the
Series, and for providing or procuring all services necessary for the ordinary
operation of the Series. Pursuant to a Management Agreement, the Trust currently
pays the Manager for its services a monthly fee at the annual rate of 1.0% of
the value of the average daily net assets of the Multiple Allocation, Fully
Managed, Natural Resources, Real Estate, All-Growth, Capital Appreciation,
Rising Dividends, Value Equity Series, and Strategic Equity Series, in the
aggregate; 0.60% of the value of the average daily net assets of the Limited
Maturity Bond and Liquid Asset Series, in the aggregate; and 1.50% of the value
of the average daily net assets of the Emerging Markets Series.
Each Portfolio Manager of each Series has full investment discretion and makes
all determinations with respect to the investment of the Series' assets and the
purchase and sale of portfolio securities consistent with the investment
objectives, policies, and restrictions for such Series. The Portfolio Managers
are compensated by the Manager (and not the Trust).
The Trust is distinct in that the expense structure of the Series is simpler and
more predictable than most mutual funds. Many of the ordinary expenses for the
Trust's Series, including custodial, administrative, transfer agency, portfolio
accounting, auditing, and ordinary legal expenses are paid by the Manager;
whereas, most mutual funds pay for these expenses directly from their own
assets.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Series are offered at the net asset value of each Series. Shares
of each Series may be redeemed without cost at the net asset value per share of
the Series next determined after receipt of the redemption request. The
redemption price may be more or less than the purchase price.
SPECIAL CHARACTERISTICS AND
INVESTMENT RISKS
Certain of the Series may engage in investment techniques that involve certain
risks that are described more fully in the section "Description of Securities
and Investment Techniques." For instance, the Multiple Allocation, Fully
Managed, Limited Maturity Bond, Natural Resources, All-Growth, Capital
Appreciation, Emerging Markets, Value Equity, and Strategic Equity Series may
engage in various types of futures transactions. All these Series, except the
All-Growth Series, may also lend their portfolio securities. The Multiple
Allocation, Fully Managed, All-Growth, Natural Resources, Rising Dividends,
Value Equity, and Strategic Equity Series may invest in non-U.S.
dollar-denominated securities of foreign issuers, and the Emerging Markets
Series will normally invest primarily in such securities. The Multiple
Allocation, Fully Managed, Natural Resources, Rising Dividends, Emerging
Markets, Value Equity, and Strategic Equity Series may engage in foreign
currency transactions and options on foreign currencies. The Multiple
Allocation, Fully Managed,
2
<PAGE>
PROSPECTUS SYNOPSIS (CONTINUED)
Limited Maturity Bond, Natural Resources, Real Estate, All-Growth, Capital
Appreciation, Emerging Markets, Value Equity, and Strategic Equity Series may
engage in various put and call options transactions. The Fully Managed and
Emerging Markets Series may invest in high yield bonds and the Real Estate
Series may invest in high yield convertible bonds. The Natural Resources Series
may invest in precious metals and futures contracts on precious metals and the
Multiple Allocation Series may invest in gold futures contracts. In addition,
the Multiple Allocation, Natural Resources, All-Growth, Capital Appreciation,
and Strategic Equity Series may engage in short sales of securities.
FINANCIAL HIGHLIGHTS
The following tables present condensed financial information with respect to
each of the Series. Information in the tables for the years ended December 31,
1989, 1990, 1991 and 1992 is derived from the Trust's financial statements for
the Series that have been audited by Coopers & Lybrand L.L.P. Information in the
tables for the years ended December 31, 1993 and 1994 is derived from the
Trust's financial statements for the Series that have been audited by Ernst &
Young LLP. Information for the six-month period ended June 30, 1995 has not been
audited. The condensed financial information below does not include deductions
at the Separate Account level or contract specific deductions that may be
incurred under a Variable Contract for which the Trust serves as an underlying
investment vehicle. These charges would reduce the total return to any owner of
a Variable Contract. The following tables should be read in conjunction with the
Trust's financial statements, which are incorporated by reference in the Trust's
Statement of Additional Information from the Trust's Annual Report dated as of
December 31, 1994. The financial statements dated as of June 30, 1995 are also
incorporated by reference in the Trust's Statement of Additional Information
from the Trust's Semi-Annual Report dated as of June 30, 1995. The Trust's
Annual Report, which contains further information about the Series' performance,
is available to Shareholders upon request and without charge.
3
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
MULTIPLE ALLOCATION SERIES
<TABLE>
<CAPTION>
MULTIPLE ALLOCATION SERIES
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
06/30/95 ------------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989*
---------- ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $ 11.33 $ 11.89 $ 11.41 $ 11.73 $ 10.26 $ 10.34 $ 10.00
---------- ---------- ---------- ---------- --------- --------- ---------
Net investment income.......... 0.29 0.42 0.24 0.42 0.49 0.57 0.58
Net gain (loss) on securities
-- realized and unrealized.... 0.93 (0.56) 1.03 (0.18) 1.57 (0.08) 0.44
---------- ---------- ---------- ---------- --------- --------- ---------
Total from investment
operations...................... 1.22 (0.14) 1.27 0.24 2.06 0.49 1.02
---------- ---------- ---------- ---------- --------- --------- ---------
Less distributions:
Dividends from investment
income........................ -- (0.42) (0.24) (0.42) (0.49) (0.57) (0.58)
Distributions from capital
gains......................... -- 0.00 (0.55) (0.14) (0.10) 0.00 (0.10)
---------- ---------- ---------- ---------- --------- --------- ---------
Total distributions.............. -- (0.42) (0.79) (0.56) (0.59) (0.57) (0.68)
---------- ---------- ---------- ---------- --------- --------- ---------
Net asset value, end of period... $ 12.55 $ 11.33 $ 11.89 $ 11.41 $ 11.73 $ 10.26 $ 10.34
---------- ---------- ---------- ---------- --------- --------- ---------
---------- ---------- ---------- ---------- --------- --------- ---------
Total Investment Return............ 10.77%++ (1.18)% 11.13% 1.88% 20.02% 4.74% 8.92%+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $310,881 $299,392 $274,231 $116,040 $58,566 $24,347 $15,513
---------- ---------- ---------- ---------- --------- --------- ---------
---------- ---------- ---------- ---------- --------- --------- ---------
Ratio of expenses to average net
assets.......................... 1.01%+ 1.00% 1.01% 1.09% 1.33% 1.24% 2.35%+
Decrease reflected in above
expense ratio due to expense
limitations..................... -- -- 0.03% 0.10% 0.13% 0.68% 0.09%+
Ratio of net investment income to
average net assets.............. 4.85%+ 3.56% 2.75% 3.65% 4.43% 5.73% 6.52%+
Portfolio turnover rate.......... 128% 291.00% 348.34% 92.68% 69.51% 162.45% 115.11%
</TABLE>
- ------------------------
* The Multiple Allocation Series commenced operations on January 24, 1989.
+ Annualized.
++ Non-annualized.
4
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FULLY MANAGED SERIES*
<TABLE>
<CAPTION>
FULLY MANAGED SERIES
------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
06/30/95 -----------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989**
---------- ---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $ 11.70 $ 12.99 $ 12.43 $ 11.94 $ 9.51 $ 10.16 $ 10.00
---------- ---------- ---------- --------- --------- --------- ---------
Net investment income.......... 0.21 0.35 0.19 0.28 0.29 0.33 0.28
Net gain (loss) on securities
-- realized and unrealized.... 1.09 (1.29) 0.75 0.49 2.43 (0.65) 0.16
---------- ---------- ---------- --------- --------- --------- ---------
Total from investment
operations...................... 1.30 (0.94) 0.94 0.77 2.72 (0.32) 0.44
---------- ---------- ---------- --------- --------- --------- ---------
Less distributions:
Dividends from investment
income........................ -- (0.35) (0.19) (0.28) (0.29) (0.33) (0.28)
Distributions from capital
gains......................... -- 0.00 (0.19) 0.00 0.00 0.00 0.00
---------- ---------- ---------- --------- --------- --------- ---------
Total distributions.............. -- (0.35) (0.38) (0.28) (0.29) (0.33) (0.28)
---------- ---------- ---------- --------- --------- --------- ---------
Net asset value, end of period... $ 13.00 $ 11.70 $ 12.99 $ 12.43 $ 11.94 $ 9.51 $ 10.16
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Total Investment Return............ 11.11%++ (7.27)% 7.59% 6.23% 28.93% (3.18)% 3.90%+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $111,280 $ 99,854 $108,690 $37,696 $10,031 $ 5,426 $ 5,444
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Ratio of expenses to average net
assets.......................... 1.01%+ 1.00% 1.01% 1.04% 1.50% 1.52% 2.69%+
Decrease reflected in above
expense ratio due to expense
limitations..................... -- -- 0.04% 0.20% 0.68% 1.27% 0.19%+
Ratio of net investment income to
average net assets.............. 3.50%+ 2.62% 2.12% 2.38% 2.71% 3.38% 3.07%+
Portfolio turnover rate.......... 95% 66.06% 54.89% 27.37% 68.21% 99.59% 195.69%
</TABLE>
- ------------------------
* Effective January 1, 1995, T. Rowe Price Associates, Inc. serves as Portfolio
Manager for the Fully Managed Series. Prior to that date, a different firm
served as Portfolio Manager.
** The Fully Managed Series commenced operations on January 24, 1989.
+ Annualized.
++ Non-annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
LIMITED MATURITY BOND SERIES*
<TABLE>
<CAPTION>
LIMITED MATURITY BOND SERIES
---------------------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31
06/30/95 ---------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989**
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $ 9.98 $ 10.62 $ 10.43 $ 10.54 $ 10.15 $ 10.16 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Net investment income.......... 0.31 0.51 0.40 0.60 0.68 0.72 0.74
Net gain (loss) on securities
-- realized and unrealized.... 0.43 (0.64) 0.23 (0.11) 0.42 0.00 0.19
--------- --------- --------- --------- --------- --------- ---------
Total from investment
operations...................... 0.74 (0.13) 0.63 0.49 1.10 0.72 0.93
--------- --------- --------- --------- --------- --------- ---------
Less distributions:
Dividends from investment
income........................ -- (0.51) (0.40) (0.60) (0.68) (0.72) (0.74)
Distributions from capital
gains......................... -- 0.00 (0.04) 0.00 (0.03) (0.01) (0.03)
--------- --------- --------- --------- --------- --------- ---------
Total distributions.............. -- (0.51) (0.44) (0.60) (0.71) (0.73) (0.77)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period... $ 10.72 $ 9.98 $ 10.62 $ 10.43 $ 10.54 $ 10.15 $ 10.16
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Investment Return............ 7.41%++ (1.19)% 6.20% 4.84% 11.27% 7.87% 9.69%+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $84,713 $72,213 $72,219 $40,213 $16,144 $ 8,319 $ 2,630
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of expenses to average net
assets.......................... 0.61%+ 0.60% 0.61% 0.72% 0.87% 0.81% 1.11%+
Decrease reflected in above
expense ratio due to expense
limitations..................... -- -- 0.04% 0.27% 0.89% 2.09% 3.22%+
Ratio of net investment income to
average net assets.............. 5.85%+ 4.73% 4.64% 5.71% 6.58% 7.47% 8.56%+
Portfolio turnover rate.......... 94% 209.00% 114.63% 63.25% 464.93% 373.13% 354.02%
</TABLE>
- ------------------------
* Since May 1, 1992, Bankers Trust Company has served as Portfolio Manager for
the Limited Maturity Bond Series. Prior to that date, a different firm served
as Portfolio Manager.
** The Limited Maturity Bond Series commenced operations on January 24, 1989.
+ Annualized.
++ Non-annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
NATURAL RESOURCES SERIES
<TABLE>
<CAPTION>
NATURAL RESOURCES SERIES
---------------------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31
06/30/95 ---------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989*
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $ 13.88 $ 13.89 $ 9.31 $ 10.46 $ 10.11 $ 11.89 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Net investment income.......... 0.06 0.13 0.07 0.14 0.13 0.13 (0.35)
Net gain (loss) on securities
-- realized and unrealized.... 0.32 0.23 4.58 (1.15) 0.35 (1.78) 2.26
--------- --------- --------- --------- --------- --------- ---------
Total from investment
operations...................... 0.38 0.36 4.65 (1.01) 0.48 (1.65) 1.91
--------- --------- --------- --------- --------- --------- ---------
Less distributions:
Dividends from investment
income........................ -- (0.13) (0.07) (0.14) (0.13) (0.13) 0.00
Distributions from capital
gains......................... -- (0.24) 0.00 0.00 0.00 0.00 (0.02)
--------- --------- --------- --------- --------- --------- ---------
Total distributions.............. -- (0.37) (0.07) (0.14) (0.13) (0.13) (0.02)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period... $ 14.26 $ 13.88 $ 13.89 $ 9.31 $ 10.46 $ 10.11 $ 11.89
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Investment Return............ 2.74%++ 2.53% 49.93% (9.81)% 4.70% (13.84)% 18.96%+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $28,699 $32,879 $21,517 $ 2,916 $ 2,701 $ 2,552 $ 2,384
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of expenses to average net
assets.......................... 1.01%+ 1.00% 1.05% 1.50% 1.50% 1.53% 5.46%+
Decrease reflected in above
expense ratio due to expense
limitations..................... -- -- 0.08% 0.89% 1.94% 1.93% 1.36%+
Ratio of net investment income to
average net assets.............. 0.88%+ 1.01% 1.03% 1.38% 1.21% 1.21% (3.65)%+
Portfolio turnover rate.......... 6% 25.12% 4.77% 19.28% 38.63% 53.99% 21.95%
</TABLE>
- ------------------------
* The Natural Resources Series commenced operations on January 24, 1989.
+ Annualized.
++ Non-annualized.
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
REAL ESTATE SERIES*
<TABLE>
<CAPTION>
REAL ESTATE SERIES
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
06/30/95 ---------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989**
---------- -------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $ 11.29 $ 11.18 $ 9.81 $ 9.02 $ 7.05 $ 9.53 $ 10.00
---------- -------- --------- --------- --------- --------- ----------
Net investment income.......... 0.33 0.60 0.32 0.52 0.42 0.50 0.05
Net gain (loss) on securities
-- realized and unrealized.... 0.16 0.11**** 1.37**** 0.79 1.97 (2.48) (0.06)
---------- -------- --------- --------- --------- --------- ----------
Total from investment
operations...................... 0.49 0.71 1.69 1.31 2.39 (1.98) (0.01)
---------- -------- --------- --------- --------- --------- ----------
Less distributions:
Dividends from investment
income........................ -- (0.60) (0.32) (0.52) (0.42) (0.50) (0.05)
Distributions from capital
gains......................... -- 0.00 0.00 0.00 0.00 0.00 (0.41)***
---------- -------- --------- --------- --------- --------- ----------
Total distributions.............. -- (0.60) (0.32) (0.52) (0.42) (0.50) (0.46)
---------- -------- --------- --------- --------- --------- ----------
Net asset value, end of period... $ 11.78 $ 11.29 $ 11.18 $ 9.81 $ 9.02 $ 7.05 $ 9.53
---------- -------- --------- --------- --------- --------- ----------
---------- -------- --------- --------- --------- --------- ----------
Total Investment Return............ 4.34%++ 6.34% 17.27% 13.87% 34.06% (20.78)% (1.22)%+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $34,946 $37,336 $29,000 $ 3,739 $ 710 $ 320 $ 669
---------- -------- --------- --------- --------- --------- ----------
---------- -------- --------- --------- --------- --------- ----------
Ratio of expenses to average net
assets.......................... 1.01%+ 1.00% 1.04% 1.18% 1.53% 1.48% 5.79%+
Decrease reflected in above
expense ratio due to expense
limitations..................... -- -- 0.10% 1.79% 11.17% 10.80% 1.32%+
Ratio of net investment income to
average net assets.............. 5.56%+ 5.31% 4.69% 5.74% 5.00% 5.95% 0.55%+
Portfolio turnover rate.......... 37% 64.18% 38.37% 17.57% 53.79% 47.16% 82.94%
</TABLE>
- ------------------------
* Effective January 1, 1995, E.I.I. Realty Securities, Inc. serves as
Portfolio Manager for the Real Estate Series. Prior to that date, different
firms served as Portfolio Manager.
** The Real Estate Series commenced operations on January 24, 1989.
*** During the period from January 24, 1989 to December 31, 1989, the Real
Estate Series distributed capital per share of $.11.
**** In addition to net realized and unrealized loss on investments, this amount
includes an increase in net asset value per share resulting from the timing
and issuances or redemptions of the Series' shares in relation to
fluctuating market values for the portfolio.
+ Annualized.
++ Non-annualized.
8
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
ALL-GROWTH SERIES*
<TABLE>
<CAPTION>
ALL-GROWTH SERIES
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
06/30/95 ---------------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989**
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $ 11.86 $ 13.42 $ 12.64 $ 13.05 $ 9.65 $ 10.59 $ 10.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income.......... 0.11 0.11 0.05 0.08 0.11 0.19 0.09
Net gain (loss) on securities
-- realized and unrealized.... 1.30 (1.56) 0.78 (0.41) 3.40 (0.94) 0.66
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations...................... 1.41 (1.45) 0.83 (0.33) 3.51 (0.75) 0.75
---------- ---------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from investment
income........................ -- (0.11) (0.05) (0.08) (0.11) (0.19) (0.09)
Distributions from capital
gains......................... -- 0.00 0.00 0.00 0.00 0.00 (0.07)***
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total distributions.............. -- (0.11) (0.05) (0.08) (0.11) (0.19) (0.16)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period... $ 13.27 $ 11.86 $ 13.42 $ 12.64 $ 13.05 $ 9.65 $ 10.59
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Investment Return............ 11.89%++ (10.77)% 6.56% (2.59)% 36.48% (7.35)% 7.20%+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $ 80,977 $ 71,218 $ 56,491 $ 24,202 $11,858 $5,005 $3,571
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of expenses to average net
assets.......................... 1.01%+ 1.00% 1.01% 1.31% 1.48% 1.51% 3.23%+
Decrease reflected in above
expense ratio due to expense
limitations..................... -- -- 0.01% 0.04% 0.40% 1.51% 0.38%+
Ratio of net investment income to
average net
assets.......................... 1.83%+ 1.08% 0.52% 0.61% 0.94% 1.99% 0.94%+
Portfolio turnover rate.......... 29% 195.65% 29.09% 20.13% 31.39% 88.29% 53.92%
</TABLE>
- ------------------------
* Since July 1, 1994, Warburg, Pincus Counsellors, Inc. has served as
Portfolio Manager for the All- Growth Series. Prior to that date, a
different firm served as Portfolio Manager.
** The All-Growth Series commenced operations on Janury 24, 1989.
*** During the period from January 24, 1989 to December 31, 1989, the All-Growth
Series distributed capital per share of $.07.
+ Annualized.
++ Non-annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
CAPITAL APPRECIATION SERIES
<TABLE>
<CAPTION>
CAPITAL APPRECIATION SERIES
-------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
06/30/95 ------------------------------------
(UNAUDITED) 1994 1993 1992*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $ 11.34 $ 11.76 $ 11.00 $ 10.00
---------- ---------- ---------- ----------
Net investment income.......... 0.11 0.23 0.13 0.12
Net gain (loss) on securities
-- realized and unrealized.... 1.80 (0.42) 0.78 1.00
---------- ---------- ---------- ----------
Total from investment
operations...................... 1.91 (0.19) 0.91 1.12
---------- ---------- ---------- ----------
Less distributions:
Dividends from investment
income........................ -- (0.23) (0.13) (0.12)
Distributions from capital
gains......................... -- 0.00 (0.02) 0.00
---------- ---------- ---------- ----------
Total distributions.............. -- (0.23) (0.15) (0.12)
---------- ---------- ---------- ----------
Net asset value, end of period... $ 13.25 $ 11.34 $ 11.76 $ 11.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total Investment Return............ 16.84%++ (1.59)% 8.31% 10.87%+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $105,332 $88,890 $87,219 $18,645
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Ratio of expenses to average net
assets.......................... 1.01%+ 1.00% 1.02% 0.91%+
Decrease reflected in above
expense ratio due to expense
limitations..................... -- -- 0.04% 0.27%+
Ratio of net investment income to
average net assets.............. 1.78%+ 1.96% 1.69% 2.06%+
Portfolio turnover rate.......... 45 % 83.64% 66.82% 5.52%
</TABLE>
RISING DIVIDENDS SERIES
<TABLE>
<CAPTION>
RISING DIVIDENDS SERIES
---------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
06/30/95 --------------------------
(UNAUDITED) 1994 1993**
---------- ---------- -------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period.......................... $10.22 $10.30 $10.00
---------- ---------- -------------
Net investment income.......... 0.09 0.14 0.01
Net gain on securities --
realized and unrealized....... 1.18 (0.08 ) 0.30
---------- ---------- -------------
Total from investment
operations...................... 1.27 0.06 0.31
---------- ---------- -------------
Less distributions:
Dividends from investment
income........................ -- (0.14 ) (0.01 )
Distributions from capital
gains......................... -- 0.00 0.00
---------- ---------- -------------
Total distributions.............. -- (0.14 ) (0.01 )
---------- ---------- -------------
Net asset value, end of period... $ 11.49 $ 10.22 $ 10.30
---------- ---------- -------------
---------- ---------- -------------
Total Investment Return............ 12.43 %++ 0.59 % 3.10 %++
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted)................. $63,976 $50,712 $14,430
---------- ---------- -------------
---------- ---------- -------------
Ratio of expenses to average net
assets.......................... 1.01 %+ 1.00 % 0.24 %++
Ratio of net investment income to
average net assets.............. 1.71%+ 1.88% 0.34%++
Portfolio turnover rate.......... 22 % 25.99% 2.79%
</TABLE>
- ------------------------
* The Capital Appreciation Series commenced operations on May 4, 1992.
** The Rising Dividends Series commenced operations on October 4, 1993.
+ Annualized.
++ Non-annualized.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
EMERGING MARKETS SERIES
<TABLE>
<CAPTION>
EMERGING MARKETS SERIES
------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993*
SIX MONTHS -------------- ----------------
ENDED
06/30/95
--------------
(UNAUDITED)
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period................................ $ 10.08 $ 12.44 $ 10.00
-------------- -------------- --------
Net investment income............................................. 0.04 0.00 0.00
Net gain (loss) on securities -- realized and unrealized.......... (0.75 ) (1.89 ) 2.44
-------------- -------------- --------
Total from investment operations.................................... (0.71 ) (1.89 ) 2.44
-------------- -------------- --------
Less distributions:
Dividends from investment income.................................. -- 0.00 0.00
Distributions from capital gains.................................. -- (0.47 ) 0.00
-------------- -------------- --------
Total distributions................................................. -- (0.47 ) 0.00
-------------- -------------- --------
Net asset value, end of period...................................... $ 9.37 $ 10.08 $ 12.44
-------------- -------------- --------
-------------- -------------- --------
Total Investment Return............................................... (7.04 %++ (15.18 )% 24.40 %++
Ratios and Supplemental Data
Total net assets, end of period (000's omitted)..................... $ 59,818 $ 65,224 $ 31,181
-------------- -------------- --------
-------------- -------------- --------
Ratio of expenses to average net assets............................. 1.53 %+ 1.73 % 0.38 %++
Ratio of net investment income to average net assets................ 0.91 %+ 0.03 % 0.00 %++
Portfolio turnover rate............................................. 71 % 105.88 % 0.00 %
</TABLE>
VALUE EQUITY SERIES
<TABLE>
<CAPTION>
VALUE EQUITY
SERIES
----------------
SIX MONTHS
ENDED
06/30/95
----------------
(UNAUDITED)
<S> <C>
Per Share Operating Performance
Net asset value, beginning of the period.................................................................. $ 10.00
--------
Income from investment operations:
Net investment income................................................................................... 0.07 ***
Net realized and unrealized gain on investments......................................................... 1.62 ***
--------
Total from investment operations.......................................................................... 1.69
--------
Net asset value, end of the period........................................................................ $ 11.69
--------
--------
Total return................................................................................................ 16.90 %++
Ratios/Supplemental Data
Net assets, end of period (in thousands).................................................................. $ 8,173
Ratio of expenses to average net assets................................................................... 1.04 %+
Ratio of net investment income to average net assets...................................................... 1.43 %+
Portfolio turnover rate................................................................................... 18 %
</TABLE>
- ------------------------
* The Emerging Markets Series commenced operations on October 4, 1993.
** The Value Equity Series commenced operation on January 1, 1995.
*** Per share numbers have been calculated using the average share method, which
more appropriately presents per share data for the period.
+ Annualized.
++ Non-annualized.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
LIQUID ASSET SERIES*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------
LIQUID ASSET SERIES
-----------------------------------------------------------------
1994 1993 1992 1991 1990
SIX MONTHS ------------- ----------- ----------- ----------- -----------
ENDED
06/30/95
---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------- ------------- ----------- ----------- ----------- -----------
Net investment income............. 0.027 0.04 0.03 0.03 0.05 0.07
Net gain (loss) on securities --
realized and unrealized.......... 0.00 0.00 0.00 0.00 0.00 0.00
--------------- ------------- ----------- ----------- ----------- -----------
Total from investment operations.... 0.027 0.04 0.03 0.03 0.05 0.07
--------------- ------------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from investment
income........................... (0.027 ) (0.04) (0.03) (0.03) (0.05) (0.07)
Distributions from capital
gains............................ (0.00 ) 0.00 0.00 0.00 0.00 0.00
--------------- ------------- ----------- ----------- ----------- -----------
Total distributions................. (0.027 ) (0.04) (0.03) (0.03) (0.05) (0.07)
--------------- ------------- ----------- ----------- ----------- -----------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------- ------------- ----------- ----------- ----------- -----------
--------------- ------------- ----------- ----------- ----------- -----------
Total Investment Return............... 2.75%++ 3.89 % 2.64 % 3.13 % 5.66 % 7.75 %
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted).................... $ 41,474 $ 46,122 $ 16,808 $ 13,206 $ 9,790 $ 8,709
--------------- ------------- ----------- ----------- ----------- -----------
--------------- ------------- ----------- ----------- ----------- -----------
Ratio of expenses to average net
assets............................. 0.61+ 0.61 % 0.61 % 0.74 % 0.76 % 0.66 %
Decrease reflected in above expense
ratio due to expense limitations... -- -- 0.08 % 0.50 % 1.01 % 1.84 %
Ratio of net investment income to
average net assets................. 5.48%+ 3.89 % 2.60 % 3.04 % 5.48 % 7.56 %
Portfolio turnover rate............. N/A N/A N/A N/A N/A
<CAPTION>
1989**
------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of
period............................. $ 1.00
------------
Net investment income............. 0.08
Net gain (loss) on securities --
realized and unrealized.......... 0.00
------------
Total from investment operations.... 0.08
------------
Less distributions:
Dividends from investment
income........................... (0.08)
Distributions from capital
gains............................ 0.00
------------
Total distributions................. (0.08)
------------
Net asset value, end of period...... $ 1.00
------------
------------
Total Investment Return............... 7.67 %+
Ratios and Supplemental Data
Total net assets, end of period
(000's omitted).................... $ 2,351
------------
------------
Ratio of expenses to average net
assets............................. 0.90 %+
Decrease reflected in above expense
ratio due to expense limitations... 3.26 %+
Ratio of net investment income to
average net assets................. 8.99 %+
Portfolio turnover rate............. N/A
</TABLE>
- ------------------------
* Since May 1, 1992, Bankers Trust Company has served as Portfolio Manager
for the Liquid Asset Series. Prior to that date, a different firm served as
Portfolio Manager.
** The Liquid Asset Series commenced operations on January 24, 1989.
+ Annualized.
++ Non-annualized.
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Series has a different investment objective or objectives that are
described below. Each Series' portfolio is managed by its own Portfolio Manager.
There can be no assurance that any of the Series will achieve its investment
objective or objectives. Because each Series seeks a different investment
objective or objectives and has different policies, each is subject to varying
degrees of financial, market, and credit risks. Each Series is subject to the
risk of changing economic conditions. As with any security, a risk of loss is
inherent in investment in a Series' shares. Therefore, investors should
carefully consider the investment objective or objectives, investment policies,
and potential risks of any Series before investing.
The different types of securities and investment techniques used by the
individual Series all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital appreciation
and there is a substantial risk of decline. With respect to debt securities,
there exists the risk that the issuer of a security may not be able to meet its
obligations on interest or principal payments at the time called for by the
instrument. In addition, the value of debt instruments generally rises and falls
inversely with interest rates.
Certain types of investments and investment techniques common to one or more
Series are described in greater detail, including the risks of each, in this
Prospectus under "Description of Securities and Investment Techniques" and in
the Statement of Additional Information.
Each Series is diversified, as defined in the Investment Company Act of 1940. A
diversified Series may not invest more than 5% of the value of its total assets
in any one issuer and it may not purchase more than 10% of the outstanding
voting securities of any one issuer with respect to 75% of its total assets,
exclusive of amounts held in cash, cash items, and U.S. Government securities.
Each Series' policy on diversification is a fundamental policy and may not be
changed without approval of a majority of the outstanding voting shares of that
Series.
The Series are subject to investment restrictions that are described in the
Statement of Additional Information. The investment restrictions so designated
and, unless otherwise noted, the investment objective or objectives of each
Series, are "fundamental policies" of each Series, which means that they may not
be changed without a majority vote of shareholders of the affected Series.
Except for these fundamental policies, all investment policies and practices
described in this Prospectus and in the Statement of Additional Information are
not fundamental, meaning that the Board of Trustees may change them without
shareholder approval.
MULTIPLE ALLOCATION SERIES
The investment objective of the Multiple Allocation Series is to seek the
highest total return, consisting of capital appreciation and current income,
consistent with the preservation of capital and elimination of unnecessary risk.
The Series seeks to achieve this objective through investment in debt and equity
securities and the use of certain sophisticated investment strategies and
techniques. The Portfolio Manager for the Series is Zweig Advisors Inc.
In seeking to maximize total return, the Series will follow an asset allocation
strategy contemplating shifts (which may be frequent) among a wide range of
investments and market sectors. The Series' investments will be designed to
maximize total return during all economic and financial environments, consistent
with the preservation of capital and elimination of unnecessary risk, as
determined by the Portfolio Manager.
The Series will invest up to 60% of its total assets in U.S. Government
securities and investment grade debt securities of domestic and foreign issuers,
and up to 50% of its total assets in equity securities, including common and
preferred stocks, convertible debt securities, and warrants. If the Portfolio
Manager deems stock market conditions to be favorable or debt market conditions
to be uncertain or unfavorable, a substantially higher percentage (but generally
not more than 60%) of the Series' total assets may be invested in such equity
securities. If, however, the Portfolio Manager believes that the stock market
investment environment is uncertain or unfavorable and justifies a defensive
position, then the Series may decrease its investments in equity securities and
increase its investments in debt securities and/or money market instruments.
During periods when the Portfolio Manager believes an overall defensive position
is advisable, greater than 50% (and under certain circumstances perhaps all) of
the Series' total assets may be invested in money market instruments and cash.
Furthermore, if the Portfolio Manager believes that inflationary or monetary
conditions warrant a significant investment in companies involved in gold
operations, the Series may invest up to 10% of its
13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
total assets in the equity securities of companies exploring, mining,
developing, producing, or distributing gold or other precious metals.
The Portfolio Manager will determine the extent of the Series' investment in
debt and equity securities, primarily on the basis of various debt and equity
market timing techniques developed by Dr. Martin Zweig (Ph.D. in Finance) and
his staff. The debt market timing techniques incorporate various indicators,
including the momentum of bond prices, short-term interest rate trends,
inflation indicators and general economic and liquidity indicators, as well as
other market indicators and statistics which the Portfolio Manager believes tend
to point to significant trends in the overall performance and the risk of the
debt markets. The equity market timing techniques incorporate general market
indicators, including interest rate and monetary analysis, market sentiment
indicators, price and trading volume statistics, and measures of valuation, as
well as other market indicators and statistics which the Portfolio Manager
believes tend to point to significant trends in the overall performance and the
risk of the stock market. There is no assurance that these debt or equity market
timing techniques will eliminate the risks of debt and equity investments,
correctly predict market trends, or enable the Series to achieve its investment
objective.
The Series may use various investment strategies and techniques when the
Portfolio Manager determines that such use is appropriate in an effort to meet
the Series' investment objective including: writing "covered" listed put and
call equity options, including options on stock indexes, and purchasing such
options; short sales of securities; purchasing and selling stock index, interest
rate, gold, and other futures contracts, and purchasing options on such futures
contracts; borrowing from banks to purchase securities; investing in securities
of "special situation" companies, "gold operations" companies, and foreign
issuers; entering into foreign currency transactions and options on foreign
currencies; entering into repurchase agreements or reverse repurchase
agreements; and lending portfolio securities to brokers, dealers, banks, or
other recognized institutional borrowers of securities. The debt and equity
components of the Series' portfolio may include such investments.
The maturities of the debt securities in the Series' portfolio will vary based
in large part on the Portfolio Manager's expectations as to future changes in
interest rates. However, the Portfolio Manager expects that the debt component
of the Series' portfolio will normally be invested primarily in intermediate
debt securities, I.E., those with remaining maturities of five to ten years,
and/or long-term debt securities, I.E., those with remaining maturities in
excess of ten years. The Portfolio Manager expects that the equity portion of
the Series' portfolio will be widely diversified by both industry and the number
of issuers. The Portfolio Manager expects that the majority of the stocks in the
Series' portfolio will be selected on the basis of a proprietary computer-driven
stock selection model that evaluates and ranks higher dividend yield stocks. The
Portfolio Manager will consider, from a list of approximately 1,500 of the most
liquid stocks, approximately 750 stocks with the highest dividend yields. The
Portfolio Manager will then use, for the selection of stocks, a proprietary
computer-driven stock selection model that evaluates and ranks such higher
dividend yield stocks on the basis of various factors, which may include
earnings momentum, earnings growth, price-to-book value, price-to-earnings,
price-to-cash flow, cash flow trend, payout ratio trend and other market
measurements. Such stock selection model may evolve or be replaced by other
stock selection techniques intended to achieve the Series' objective.
From time to time the Series may invest in companies that are determined by the
Portfolio Manager to represent a "special situation." A special situation
reflects securities which are expected to be accorded favorable or unfavorable
market recognition within a reasonably estimable period of time, at an
appreciated or depreciated value, respectively, solely by reason of a
development particularly or uniquely applicable to the issuing company.
Developments that may create special situations include, among others: a buy
out; expected market recognition of asset value; asset reorganization;
recapitalization, tender offer or merger; material litigation; technological
breakthrough; and new management or management policies. However, since the
situations may not develop as anticipated, E.G., a tender offer may be
successfully defended against or a merger may fall through, the Series could
incur losses.
The Series may also invest in the equity securities (particularly common stocks)
of companies involved in the exploration, mining, development, production, and
distribution of gold. The Series may invest in issuers located in any part of
the world. The Portfolio Manager believes that the securities of companies
involved in gold operations may offer protection against inflation and monetary
instability and, thus, when deemed appropriate by the
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
Portfolio Manager, the Series may invest up to 10% of its total assets in such
securities. The Series may also invest in the securities of other companies
primarily engaged in the exploration, mining, processing, fabrication, or
distribution of other natural resources, including minerals and metals such as
silver, platinum, uranium, strategic metals, diamonds, coal, oil, and
phosphates, but the Series expects that such investments would be secondary to
investments in companies involved in gold operations, as protection against
inflation and monetary instability. Investment in gold and other natural
resources presents risks because the prices of gold and such other resources
have fluctuated substantially over short periods of time. Prices may be affected
by unpredictable monetary and political policies, such as currency devaluations
or revaluations, economic and social conditions within an individual country,
trade imbalances, or trade or currency restrictions between countries. The
prices of gold shares and other mining shares frequently fluctuate even more
dramatically than the prices of gold and other resources. The unstable political
and social conditions in South Africa and unsettled political conditions
prevailing in neighboring countries may have disruptive effects on the market
prices of securities in South African companies.
The Series may make short sales of securities. A short sale is a transaction in
which the Series sells a security it does not own in anticipation of a decline
in market price. The Series may make short sales to offset a potential decline
in a long position or a group of long positions, or if the Series' Portfolio
Manager believes that a decline in the price of a particular security or group
of securities is likely as a result of an unfavorable "special situation" or
other reasons. The Portfolio Manager expects that, even during normal or
favorable market conditions, the Series may make short sales in an attempt to
maintain portfolio flexibility and facilitate the rapid implementation of
investment strategies if the Portfolio Manager believes that the price of a
particular security or group of securities is likely to decline. For additional
information, see "Description of Securities and Investment Techniques -- Short
Sales."
The Series may from time to time increase its ownership of securities above the
amounts otherwise possible by borrowing from banks on an unsecured basis and
investing the borrowed funds. As further described under "Borrowing," in the
discussion on "Description of Securities and Investment Techniques," any such
borrowing will be made only from banks and is subject to certain percentage
limitations described under "Borrowing."
FULLY MANAGED SERIES
The Fully Managed Series' investment objective is to earn, over the long term, a
high total investment return, consistent with the preservation of capital and
prudent investment risk. It seeks to achieve this objective by investing
primarily in common stocks. The Series may also invest in fixed income
securities and money market instruments to preserve its principal value during
uncertain or declining market conditions. The Series' strategy is based on the
premise that, from time to time, certain asset classes are more attractive long
term investments than others. Total investment return consists of current
income, including dividends, interest and discount accruals, and capital
appreciation. Current income will be an important component of the Series'
effort to maximize total return. The Portfolio Manager for the Series is T. Rowe
Price Associates, Inc.
The Portfolio Manager expects that equity securities generally will constitute
25% to 85% of the Series' overall portfolio, and that the equity portfolio will
be widely diversified by number of issuers. The Portfolio Manager expects that
investment opportunities generally will be sought among securities of
large-capitalization, established companies, although securities of smaller,
less well-known companies may also be selected. The Series may invest up to 25%
of its total assets in preferred stock.
In selecting investments for the Series, the Portfolio Manager uses a
"valuation" discipline to identify stocks whose prospects for price
appreciation, over time, are believed to exceed the risk of loss of market
value. Through this process, a security's current market value is analyzed
relative to each of the following: the company's assets, such as natural
resources and real estate; the company's replacement cost of plant and
equipment; the company's consumer or commercial franchises, such as well-
recognized trademarks or established brand names; and the company's earnings or
growth potential. The Portfolio Manager also seeks to identify securities that
have been over-discounted due to adverse operating results, deteriorating
economic or industry conditions, or unfavorable publicity. By investing after
the adverse conditions are reflected in the price of the company's securities,
the risks associated with such out-of-favor investments may be
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
limited. The utilization of this contrarian approach may result in investment
selections which are counter to those of most investors.
It is anticipated that debt securities, including convertible bonds, may often
constitute between 25% and 50% of the Series' overall portfolio. Debt securities
purchased by the Series may be of any maturity. It is anticipated that the
weighted average maturity of the debt portfolio generally will be between four
and ten years, but may be shorter or longer. The Portfolio Manager may invest up
to 5% of the Series' assets, measured at the time of investment, in debt
securities that are rated below investment grade or, if not rated, of equivalent
quality. See "High Yield Bonds" in this Prospectus.
The balance of the Series' portfolio will generally be invested in the following
money market instruments which have remaining maturities not exceeding one year:
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (ii) negotiable certificates of deposit, bankers' acceptances
and fixed time deposits and other obligations of domestic banks (including
foreign branches) that have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation; (iii) commercial paper rated at the date of purchase in
the two highest rating categories; and (iv) repurchase agreements. The Series
also may invest in short-term U.S. dollar-denominated obligations of foreign
banks (including U.S. branches) at the time of purchase, if such banks have more
than $1 billion in total assets.
To maximize potential return, the Portfolio Manager may utilize the following
investment methods: writing "covered" listed put and call equity options,
including options on stock indices, and purchasing such options; purchasing and
selling, for hedging purposes, stock index, interest rate, and other futures
contracts, and purchasing options on such futures; purchasing warrants and
preferred and convertible preferred stocks; entering into repurchase agreements
and reverse repurchase agreements; lending portfolio securities to brokers,
dealers, banks, or other recognized institutional borrowers of securities;
purchasing restricted securities; purchasing securities of foreign issuers;
entering into forward currency contracts and currency exchange transactions for
hedging purposes; and borrowing from banks to purchase securities. The Series
will not engage in short sales of securities other than short sales "against the
box." See "Description of Securities and Investment Techniques" for further
discussion of these investment methods.
LIMITED MATURITY BOND SERIES
The Limited Maturity Bond Series' primary investment objective is the highest
current income consistent with low risk to principal and liquidity. As a
secondary objective, the Series also seeks to enhance its total return through
capital appreciation when market factors, such as falling interest rates and
rising bond prices, indicate that capital appreciation may be available without
significant risk to principal. The Portfolio Manager for this Series is Bankers
Trust Company.
The Series pursues its objectives primarily by investing in a diversified
portfolio of limited maturity debt securities. These are short-to-intermediate-
term debt securities with actual remaining maturities of seven years or less,
and other debt securities with special features (e.g., puts, variable or
floating coupon rates, maturity extension arrangements, mortgage pass-throughs,
etc.) producing price characteristics similar to those of short-to-intermediate-
term debt securities. Generally, the Series' portfolio securities are selected
from as many as ten sectors of the fixed income market, each representing a
different type of fixed income investment. The ten sectors are as follows:
(i) U.S. Treasury obligations;
(ii) U.S. Government agency and instrumentality
securities;
(iii)repurchase agreements with respect to U.S.
Treasury obligations and U.S. Government agency and instrumentality
securities;
(iv) asset-backed securities, including mortgage-
backed securities issued or guaranteed by U.S. Government agencies or
collateralized by U.S. Treasury obligations or U.S. government agency
securities, mortgages pooled by high-quality financial institutions, and
other asset-backed securities representing pools of receivables unrelated
to mortgage loans;
(v) banking industry obligations, including
certificates of deposit, time deposits, and bankers' acceptances issued by
commercial banks;
(vi) savings industry obligations, including
certificates of deposit and time deposits issued by savings and loan
associations;
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
(vii)corporate debt securities;
(viii)
corporate commercial paper, consisting
primarily of unsecured notes with maturities of nine months or less issued to
finance short-term credit needs;
(ix) variable or floating rate securities, the coupon
rates of which vary with a designated money market index; and
(x) foreign securities denominated in U.S. dollars.
For additional information as to the characteristics and risks of investments in
several of these sectors, see the "Description of Securities and Investment
Techniques" in this Prospectus.
The Portfolio Manager conducts a continuing review of sector yields and other
information. These data are analyzed in light of market conditions and trends in
order to determine which investment sectors offer the best values on a total
return basis. Where the yield of a sector exceeds that of comparable U.S.
Treasury obligations, the excess yield or "premium" is analyzed to determine
whether and to what extent it reflects additional risk in that sector. During
periods that yield differentials available in the non-governmental sectors do
not appear to justify the additional risks involved, the Series will invest more
heavily in U.S. Treasury obligations and U.S. Government agency and
instrumentality securities.
Ordinarily, the Series' portfolio will include securities from five or more of
the investment sectors. The Series does not intend to concentrate 25% or more of
its total assets in debt securities of issuers in any single industry.
After the sectors for investment have been chosen, individual securities are
selected from within these sectors on the basis of yield, creditworthiness, and
liquidity. The Series will invest in corporate debt securities and variable or
floating rate securities only if such securities are rated Baa or better by
Moody's or BBB or better by Standard & Poor's, or, if not rated by Moody's or
Standard & Poor's, if the Portfolio Manager determines that they are of
equivalent quality. The Series will invest in corporate commercial paper only if
rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by Standard & Poor's, or, if
not rated by Moody's or Standard & Poor's, if the Portfolio Manager determines
that the commercial paper is of equivalent quality. For additional information,
see "Appendix 1: Description of Bond Ratings" in the SAI.
The Series seeks to reduce risk, increase income, and preserve or enhance total
return by actively managing the maturity of its portfolio in light of market
conditions and trends. When, in the opinion of the Portfolio Manager, market
indicators point to higher interest rates and lower bond prices, average
maturity generally will be shortened. When falling interest rates and rising
bond prices are indicated, a longer average portfolio maturity generally can be
expected.
During periods of rising or falling interest rates, the Series may also seek to
hedge all or a part of its portfolio against related changes in securities
prices by buying or selling interest rate futures contracts and options thereon.
Such a strategy involves using the contracts as a maturity management device
that reduces risk and preserves total return while the Series is restructuring
its portfolio in response to the changing interest rate environment. For
information on such contracts, see "Description of Securities and Investment
Techniques."
The dollar-weighted average maturity of the Series' portfolio will not exceed
five years, and, in periods of rapidly rising interest rates, may be shortened
to one year or less. For these purposes, (i) the maturity of mortgage-backed
securities is determined on an "expected life" basis, (ii) variable or floating
rate securities are deemed to mature at the next interest rate adjustment date,
and (iii) debt securities with put features are deemed to mature at the next put
exercise date. Positions in interest rate futures contracts (long or short) will
be reflected in average portfolio maturity on the basis of the maturities of the
securities underlying the futures contracts.
The Series may invest in private placements of debt securities. The Series may
also purchase securities (including mortgage-backed securities such as GNMA,
FNMA, and FHLMC Certificates) on a when-issued basis. A description of these
techniques and their attendant risks is contained in the section of this
Prospectus entitled "Description of Securities and Investment Techniques."
NATURAL RESOURCES SERIES
The Natural Resources Series seeks long-term capital appreciation. The Series
seeks this objective by investing primarily in equity and debt securities of
companies engaged in the exploration, development, production, and distribution
of natural resources such as gold and other precious metals, strategic metals,
minerals, oil, natural gas, and coal. The Series may also invest in equity and
debt securities
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
of companies which themselves invest in companies engaged in these activities.
Although current income may be realized, it is not an investment objective; it
is anticipated that the Series will realize only a nominal amount of current
income. The Series' Portfolio Manager is Van Eck Associates Corporation.
The Series' Portfolio Manager believes securities of some natural resources
companies, sometimes referred to as "hard asset" companies, offer an opportunity
to protect wealth against eroding monetary values. The Portfolio Manager
believes that recent history indicates that the policies of many governments,
particularly persistent budget deficits and high rates of money supply growth,
have, at times, had long-term inflationary consequences. Generally, during
periods of accelerating inflation, the prices of many natural resources equity
securities sometimes have risen faster than the rate of inflation; and the
Portfolio Manager believes that they will continue to do so in the future.
During such periods, interest rates and yields on industrial shares have risen,
causing the prices of fixed income and industrial equity securities to decline.
The Portfolio Manager anticipates that inflation and the price of certain
natural resources will continue on a long-term upward trend with alternating
cycles as credit is overexpanded and subsequently tightened. Since the market
action of shares of companies engaged in certain natural resources activities
may move against or independently of the market trend of industrial shares, the
addition of such shares to an overall portfolio may increase the return and
reduce the fluctuations of such portfolio. There can be no assurance that an
increased rate of return or reduced fluctuation of a portfolio will be achieved.
Thus, an investment in the Series' shares should be considered part of an
overall investment program rather than a complete investment program.
The Series may invest in securities of foreign issuers, including securities of
South African issuers. The relative amount of the Series' investment in foreign
issuers will change from time to time, and the Series is subject to certain
guidelines for diversification of foreign security investments. Investments by
the Series in securities of foreign issuers may involve particular investment
risks. See "Description of Securities and Investment Techniques" in this
Prospectus. Political and social conditions in South Africa, due to former
segregation policies of the South African government and unsettled political
conditions prevailing in South Africa and neighboring countries, may pose
certain risks to the Series' investments. If aggravated by local or
international developments, such risks could have an adverse effect on
investments in South Africa, including the Series' investments and, under
certain conditions, on the liquidity of the Series' portfolio and its ability to
meet shareholder redemption requests. The ability of the Series to invest, or
hold its investments, in South African companies may be further affected by
changes in United States or South African laws or regulations. In the past,
legislation has been proposed in Congress which would require U.S. investors,
including the Series, to sell their investments in South Africa. Notwithstanding
these considerations, the recent liberalization respecting South Africa's
segregationist policies could reduce the legislative risks described above in
the future.
The Series will normally invest at least 65% of its total assets in securities
of companies engaged in the above-described natural resources activities. The
Series reserves the right to invest up to 10% of its net assets, taken at market
value at the time of investment, in gold bullion and coins and other precious
metal (silver and platinum) bullion. The Series may invest over 25% of its
assets in securities of companies predominantly engaged in gold operations,
although the Series will not invest in any such security or in gold bullion and
coins if, after such acquisition, more than 50% of the Series' assets (taken at
market value at the time of such investment) would be invested in securities of
companies predominantly engaged in gold operations and in gold bullion and
coins. The Series may also invest directly in other commodities including
petroleum and strategic metals. The Series may invest up to 35% of the value of
its total assets in: (a) common stock of companies not engaged in natural
resources activities, (b) investment-grade corporate debt securities, (c)
obligations issued or guaranteed by U.S. or foreign governments, (d) money
market instruments, and (e) repurchase agreements.
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
During periods of less favorable economic and/or market conditions, the Series
may make substantial investments for temporary defensive purposes in obligations
of the U.S. Government, certificates of deposit, bankers' acceptances,
investment grade commercial paper, and repurchase agreements.
The Series may engage in short sales, and may lend portfolio securities. The
Series may also invest up to 5% of its assets at the time of purchase in
warrants, and may purchase or sell put or call options on securities and foreign
currencies. The Series may engage in futures contracts and options on those
contracts. These techniques are described in "Description of Securities and
Investment Techniques."
Since the Series may invest substantially all of its assets in securities of
companies engaged in natural resources/hard asset activities and may concentrate
in securities of companies engaged in gold operations, the Series may be subject
to greater risks and market fluctuations than other investment companies with
more diversified portfolios. At the present time, many major producers of gold
bullion are located in foreign countries, and the production and marketing of
gold, precious metals, and other natural resources may be affected by the risks
of investing in foreign countries, including actions of and changes in
governments. Gold and natural resources securities may be cyclical in nature.
Based upon historical experience, during periods of economic or financial
instability, the securities of some gold and other natural resources companies
may be subject to broad price fluctuations, reflecting volatility of prices and,
in some instances, instability of supply of precious and other metals, oil,
coal, timber, or other natural resources. Instability of prices may affect
earnings of gold and other natural resources companies and may adversely affect
the financial condition of such companies. In addition, some natural resources
companies may also be subject to the risks generally associated with extraction
of gold and natural resources, such as the risks of mining and oil drilling, and
the risks of the hazards associated with natural resources, such as fire,
drought, and others.
REAL ESTATE SERIES
The primary investment objective of the Real Estate Series is capital
appreciation. Current income is a secondary objective. The Series seeks these
objectives primarily through investment in publicly traded equity securities of
companies in the real estate industry that are listed on national exchanges or
the National Association of Securities Dealers Automated Quotation System
("NASDAQ"). Securities are selected for long-term investment. It is generally
not the policy of the Series to purchase securities merely for short-term gain,
although there may be a limited number of short-term transactions. The Portfolio
Manager for the Series is E.I.I. Realty Securities, Inc.
The Series will invest not less than 65% of its total assets in common and
preferred stocks and convertible preferred securities of companies which have at
least 50% of the value of their assets in, or which derive at least 50% of their
revenues from, the ownership, construction, management, or sale of residential,
commercial, or industrial real estate, which include listed equity real estate
investment trusts which own properties, and listed mortgage real estate
investment trusts which make short-term construction and development mortgage
loans or which invest in long-term mortgages or mortgage pools. The Series may
invest more than 25% of its total assets in any of the foregoing sectors of the
real estate industry. The Series' assets may, however, be invested in money
market instruments and U.S. Government securities if, in the opinion of the
Portfolio Manager, market conditions warrant a temporary defensive investment
strategy.
The Series may invest up to 35% of its total assets in equity, debt, or
convertible securities of issuers whose products and services are related to the
real estate industry, such as manufacturers and distributors of building
supplies, and up to 25% of its total assets in financial institutions which
issue or service mortgages, such as savings and loans or mortgage bankers. The
Series also may invest in the securities of companies unrelated to the real
estate industry but which have significant real estate holdings believed to be
undervalued relative to the price of the companies' securities.
In addition to the common and preferred stocks described above, the Series may
invest up to 35% of its total assets in securities believed by the Portfolio
Manager to be undervalued and have capital appreciation potential, including
warrants and other rights to purchase securities (up to 5% of total assets),
bonds, convertible securities, and publicly traded limited partnerships listed
on national securities exchanges or NASDAQ. The Series may invest up to 5% of
its total assets in bonds, convertible securities, and limited partnerships
traded on the Toronto or London Stock Exchanges. The Series
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
may also invest up to 20% of its assets, measured at the time of investment, in
high yield convertible bonds that are rated below investment grade by one of the
primary rating agencies (or if not rated, deemed to be of comparable quality by
the Portfolio Manager). See "High Yield Bonds."
There are risks inherent in the Series' investment policies. The Series may be
subject to the risks associated with the direct ownership of real estate because
of its policy of concentration in the securities of companies which own,
construct, manage, or sell residential, commercial, or industrial real estate.
These risks include: declines in the value of real estate, adverse changes in
the climate for real estate, risks related to general and local economic
conditions, over-building and increased competition, increases in property taxes
and operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, leveraging of interests in real estate, and increases in interest
rates. The value of securities of companies which service the real estate
industry may also be affected by such risks.
In addition to the risks discussed above, equity real estate investment trusts
may be affected by any changes in the value of the underlying property owned by
the trusts, while mortgage real estate investment trusts may be affected by the
quality of any credit extended. Further, equity and mortgage real estate
investment trusts are dependent upon management skill, are not diversified, and
are therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self liquidation, and the possibility of failing to qualify for
special tax treatment under Subchapter M of the Internal Revenue Code and to
maintain an exemption under the Investment Company Act of 1940. Finally, certain
real estate investment trusts may be self-liquidating in that a specific term of
existence is provided for in the trust document. Such trusts run the risk of
liquidating at an economically inopportune time.
ALL-GROWTH SERIES
The All-Growth Series' investment objective is capital appreciation. The Series
seeks to achieve its objective through investment in securities selected on the
basis of fundamental investment research for their long-term growth prospects.
The Portfolio Manager for the Series is Warburg, Pincus Counsellors, Inc.
In considering securities for the Series, the Portfolio Manager (1) selects for
investment those companies whose unique characteristics or proprietary
advantages, it believes, offer the best prospects for above average increases in
revenues and earnings; (2) selects companies that tend to be grouped in
industries that, from time to time, are judged to be less likely to be affected
by the business cycle
and/or have already experienced the negative effects of the capital markets; and
(3) monitors both companies and their industries to make certain they retain the
characteristics that led to their selection in the first place.
The Series' policy stresses flexibility and adaptability in arranging its
portfolio to seek the desired results. Common stocks will generally constitute a
majority of the portfolio, but the Series may invest in preferred stocks and
debt securities (including money market obligations) when, in the judgment of
the Portfolio Manager, a more conservative investment position seems appropriate
in light of anticipated market conditions. The Series will not invest for
purposes of exercising management or control.
Assets of the Series will be subject to the risks of investment in equity
securities, I.E., there is no assurance of capital appreciation and there is a
substantial risk of decline. Investment in the securities of unseasoned
companies may in some instances involve a higher degree of risk than investments
in securities of companies with longer operating histories. Any current income
from dividends received from such securities will be entirely incidental. The
Series is not suitable for investors seeking a consistent and/or minimum level
of income.
The Series may invest up to 10% of its assets in securities of foreign issuers.
The Series may also engage in short sales, subject to Shareholder approval of a
change in the investment restrictions applicable to the Series. The Series may
also write "covered" listed put and call equity options including options on
stock indices, and purchase such options; purchase and sell stock index,
interest rate, and other futures contracts; and purchase options on such
futures. It is not the policy of the Series to invest in securities of companies
with no operating history. The Series is permitted to borrow for the purpose of
making leveraged investments, subject to regulatory restrictions. For discussion
of the risks involved in these investment techniques, see "Description of
Securities and Investment Techniques."
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
CAPITAL APPRECIATION SERIES
The investment objective of the Series is to generate long-term capital growth.
In seeking this objective, the Series will invest primarily in common stock and
preferred stock that will be allocated between two categories of stocks
described below and referred to as "components." The components in which the
Series will invest are the growth component and the value component. The
Portfolio Manager for the Series is Chancellor Trust Company.
The Portfolio Manager will allocate the Series' assets between the two
components in an effort to maximize the potential for achieving the Series'
overall objective. The Portfolio Manager may allocate the assets between the
components in its discretion in any proportion that it deems appropriate. The
Portfolio Manager is free to allocate the Series' assets such that, at any point
in time, there may be little or no assets allocated to one of the components.
The Portfolio Manager may select a particular security for inclusion in both
components, provided that it meets the criteria for each component. The
Portfolio Manager will select securities for each component based upon the
criteria for each component as described below:
THE GROWTH COMPONENT. The securities eligible for this component are those that
the Portfolio Manager believes have the following characteristics: they have
stability and quality of earnings and positive earnings momentum; have dominant
competitive positions; and demonstrate above-average growth rates as compared to
published S&P 500 earnings projections.
THE VALUE COMPONENT. Securities eligible for this component are those that the
Portfolio Manager regards as fundamentally undervalued, I.E., securities selling
at a discount to asset value and securities with a relatively low price/earnings
ratio. The securities eligible for this component may include real estate stock
such as securities of publicly-owned companies that, in the Portfolio Manager's
judgment, offer an optimum combination of current dividend yield, expected
dividend growth, and discount to current real estate value. Real estate stocks
may also include those issued by companies in industries related to real estate,
including companies that own, develop or provide services to income-producing
real estate, and commercial and community developers, and may include real
estate investment trusts and "land rich" companies, which are companies that are
not in the real estate industry but that have significant real estate related
assets and whose stock price may be affected by the real estate assets they
hold.
If the Portfolio Manager believes that the expected market return for equity
securities over a twelve-month period is less than a premium over U.S. Treasury
bills that equity securities have historically provided, the Series may, as a
temporary defensive measure, invest up to 40% of its assets in money market
instruments and short-term investment grade debt securities until market
conditions improve. Investment grade securities are generally those rated at
least Baa by Moody's or BBB by Standard & Poor's, or unrated securities that the
Portfolio Manager determines are of comparable quality. The Series from time to
time may invest in money market instruments to the extent appropriate, pending
investment in the types of securities in which the Series normally invests or in
anticipation of redemptions. Money market instruments in which the Series may
invest include U.S. Government securities, certificates of deposit, bankers'
acceptances, time deposits, commercial paper and other U.S. dollar-denominated
obligations of domestic and foreign corporations, and repurchase agreements.
To maximize potential return, the Portfolio Manager may use the following
investment methods: writing "covered" listed put and call equity options
including options on stock indices, and purchasing such options; purchasing and
selling stock index, interest rate, and other futures contracts, and purchasing
options on such futures; entering into repurchase agreements; and borrowing from
banks to purchase securities. The Series may also invest up to 20% of its total
assets in Depositary Receipts. The Series may engage in short sales and short
sales "against the box." See "Description of Securities and Investment
Techniques" for further discussion of these investment methods. For a discussion
of investment in investment grade debt securities, see "Debt Securities." For a
description of the risks of investment in industries related to real estate, see
"Investment Objectives and Policies -- Real Estate Series."
RISING DIVIDENDS SERIES
The investment objective of the Rising Dividends Series is capital appreciation.
Dividend income is a secondary objective. The Portfolio Manager for the Series
is Kayne, Anderson Investment Management, L.P.
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
In seeking these objectives the Series normally invests at least 80% of its net
assets in equity securities of companies determined to be of high quality by the
Portfolio Manager that meet the following four criteria:
(i) Consistent dividend increases -- The company
must have increased its dividends in seven of the last ten years.
(ii) Substantial dividend increases -- The
company must have at least doubled its dividends in the last ten years.
(iii)Reinvested profits -- The company must
reinvest at least 35% of its profits annually.
(iv) Under-leveraged balance sheet -- The
company must have less than 35% of its total capitalization in long term debt.
In selecting securities, the Portfolio Manager screens a universe of over 7,000
companies for those companies that meet the above criteria. From this universe,
the Portfolio Manager anticipates that only a few hundred companies will meet
the criteria, each of which is individually analyzed by the Portfolio Manager to
consider its past and present competitive position within its respective
industry. Each security is analyzed on a proprietary computer matrix, based on
the Portfolio Manager's projections of each company's growth in earnings, cash
flow, and dividends. Target prices and value ranges are developed from this
analysis. The securities are ranked based on their potential total return, and
their risk/reward ratio. Portfolio selection is made from among the top rated
securities.
It is anticipated that the Series' portfolio will contain a minimum of 25
issues. In addition, it is the policy of the Series that no equity security will
be acquired if, after its acquisition, more than 15% of the Series' total assets
would be invested in any one industry or more than 5% would be invested in any
one issuer. The Portfolio Manager does not intend to invest any of the Series'
assets in securities that, at the time of investment, it believes to be
illiquid. The Portfolio Manager periodically monitors the Series' equity
securities to assure they meet the four criteria. A security usually will be
eliminated from the Portfolio when it reaches its target price, when negative
changes occur in either the company or its industry, or when any one or more of
the four criteria are no longer satisfied. There may from time to time be other
equity securities in the Portfolio which meet most, but not all, of the
criteria, but which the Portfolio Manager deems a suitable investment. Equity
securities are deemed to include common stocks, securities convertible into
common stocks, or rights or warrants to subscribe for or purchase common stocks.
The Portfolio Manager may enter into forward currency contracts and currency
exchange transactions for hedging purposes. During those times when equity
securities that meet the Portfolio Manager's investment criteria cannot be
found, for temporary defensive purposes or pending longer-term investment, the
Series may invest any amount of its assets in short-term fixed income securities
or in cash or cash equivalents.
EMERGING MARKETS SERIES
The investment objective of the Emerging Markets Series is long-term growth of
capital. The Series seeks this objective by investing primarily in equity
securities of companies that are considered to be in emerging market countries.
Income is not an objective, and any production of current income is considered
incidental to the objective of growth of capital. The Series will be diversified
by issuer, and normally will be invested in companies located in at least six
different emerging market countries. The investment philosophy of the Series is
to attempt to capitalize upon emerging capital markets in developing nations and
other nations in which the Portfolio Manager believes that economic and
political factors are likely to produce above average growth rates. The Series'
Portfolio Manager is Bankers Trust Company. Bankers Trust Company has entered
into a sub-advisory agreement with BT Fund Managers (International) Limited
pursuant to which BT Fund Managers (International) Limited provides advisory and
management services with respect to the Series' assets allocated for investment
in the Pacific Basin.
At least 65% of the Series' assets normally will be invested in the equity
securities of issuers in countries that are identified as emerging market
countries in the Morgan Stanley Capital International Emerging Markets Free
Index or the International Finance Corporation Emerging Market Index, or a
country that the Portfolio Manager otherwise believes is an emerging market
country because it has a developing economy or because its markets have begun a
process of change and are growing in size and/or sophistication.
The Portfolio Manager will allocate the Series' assets for investment in
emerging market countries in its discretion, taking into account economic and
political factors that may include, among others, relative market valuation,
earnings momentum,
22
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
supply and demand, the prospects for relative growth among the regions and the
countries therein, expected levels of inflation, governmental policies
influencing business conditions, the outlook for currency relationships, and the
range of alternative opportunities available to international investors. The
Portfolio Manager may determine to change its allocation at any time.
For purposes of allocating the Series' investments, a company will be considered
located in the country in which the company is domiciled, in which it is
primarily traded, from which it derives a significant portion of its revenues,
or in which a significant portion of its goods or services are produced. Equity
securities that may be acquired include common stock and other securities with
equity characteristics, including preferred stock, rights and warrants,
convertible securities, which may consist of debt securities or preferred stock
that may be converted into common stock or that carry the right to purchase
common stock, and shares of investment companies.
In selecting securities in emerging market countries, the Portfolio Manager
seeks undervalued investment opportunities for growth. The Portfolio Manager
uses a disciplined, value-oriented investment philosophy that generally stresses
the inherent value of companies under examination, usually based upon the medium
term outlook for such companies. Securities may be considered for the company's
fundamental financial characteristics, its earnings potential, or the potential
for economic development of the country or region in which the company is
located.
To the extent that the Series' assets are not invested in emerging market equity
securities, the remainder of the Series' assets, which normally will not exceed
35% of net assets, may be invested in debt securities issued or guaranteed by
corporate or governmental issuers in an emerging market country (including Brady
Bonds) or an industrialized country, including the United States; in bank
deposits or bank obligations (including certificates of deposit, time deposits,
and bankers' acceptances) of banks in emerging market or industrialized
countries, including the United States; instruments issued by international
development agencies; and in high-quality money market instruments, including
commercial paper and other short-term corporate debt obligations of issuers in
industrialized and emerging market countries. The Portfolio Manager may invest
up to 10% of the Series' assets, measured at the time of investment, in debt
securities that are rated below investment grade or, if not rated, of equivalent
quality. See "High Yield Bonds" in this Prospectus and "Debt Securities" in the
Statement of Additional Information.
For temporary defensive purposes, the Series may decrease its investment in
emerging market country equity securities, and may invest to a significant
degree in debt securities and bank and money market instruments as described
above. In addition, the Series may invest significantly in such securities after
receipt of new monies.
Most of the foreign securities in which the Series invests will be denominated
in foreign currencies. The Series may engage in foreign currency transactions in
anticipation of or to protect itself against fluctuations in currency exchange
rates in relation to the U.S. dollar. Such foreign currency transactions may
include forward foreign currency contracts, currency exchange transactions on a
spot (i.e., cash) basis, put and call options on foreign currencies, and foreign
exchange futures contracts. For a description on these techniques, see
"Description of Securities and Investment Techniques -- Foreign Currency
Transactions" in this Prospectus.
The Emerging Markets Series may use various investment strategies and techniques
to meet its investment objectives, including purchasing options on securities
and writing (selling) secured put and covered call options on securities and
securities indexes. The Series may purchase and sell futures contracts, and may
purchase and write options on such futures contracts. The Series may also
purchase and sell stock index futures contracts. When deemed appropriate by the
Portfolio Manager, the Series may enter into reverse repurchase agreements and
may invest cash balances in repurchase agreements and money market instruments
in an amount necessary to maintain liquidity, in an amount to meet expenses or
for day-to-day operating purposes. The Series may invest in shares of other
investment companies, provided that such investment companies invest a
significant portion of assets in emerging capital markets. The Series may invest
in restricted securities and warrants. These investment techniques are described
under the heading "Description of Securities and Investment Techniques" in this
Prospectus or in the Statement of Additional Information.
Investment in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. For a
description of these risks, see "Description of Securities and Investment
Techniques -- Foreign
23
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
Securities" in this Prospecutus. Investment in emerging markets countries
presents risks in a greater degree than, and in addition to, those presented by
investment in foreign issuers in general. A number of emerging market countries
restrict, to varying degrees, foreign investment in stocks. Repatriation of
investment income, capital, and proceeds of sales by foreign investors may
require governmental registration and/or approval in some emerging market
countries. A number of the currencies of developing countries have experienced
significant declines against the U.S. dollar in recent years, and devaluation
may occur subsequent to investments in those currencies by the Series. Inflation
and rapid fluctuations in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain emerging
market countries.
Many of the emerging securities markets are relatively small, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in emerging market countries that
a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country) or creation of government
monopolies, any of which may have a detrimental effect on the Series'
investment. In addition, in many countries there is less publicly available
information about issuers than is available in the United States. Foreign
companies are not generally subject to uniform accounting, auditing, and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. Further, the Series may
encounter difficulties or be unable to pursue legal remedies or obtain
judgements in foreign courts.
VALUE EQUITY SERIES
The investment objective of the Value Equity Series is capital appreciation.
Dividend income is a secondary objective. The Portfolio Manager for the Series
is Eagle Asset Management, Inc. At least 65% of the Series' assets normally will
be invested in equity securities.
In seeking these objectives the Series invests primarily in equity securities of
U.S. and foreign issuers which, when purchased, meet quantitative standards
believed by the Portfolio Manager to indicate above average financial soundness
and high intrinsic value relative to price. In selecting equity securities, the
Portfolio Manager analyzes companies using the four criteria described below.
While some companies selected for investment may meet more than one of the
criteria described below, the Series' investment policy is to primarily invest,
under normal circumstances, in companies that, at the time of investment, meet
at least one of the criteria. The criteria used by the Portfolio Manager are as
follows:
1. Price/earnings or price/book value ratio
approximates or falls below 75% of that of the average of the companies in the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500");
2. Dividend yield approximates at least 66% of
the prevailing average yield to maturity of the five most actively traded
long-term U.S. Government bonds;
3. Per share going-concern value (I.E., a
company's value if its major subsidiaries and assets are sold), as estimated by
the Portfolio Manager, exceeds market value; or
4. Long-term debt of the company approximates
or falls below its tangible net worth.
In selecting securities, the Portfolio Manager screens a universe of over 2,500
companies for those companies that meet the above criteria. From this universe,
the Portfolio Manager anticipates that only a few hundred companies will meet
one or more of the criteria. Each company identified by the initial screening is
individually analyzed by the Portfolio Manager to consider its past and present
competitive position within its respective industry. Each security is analyzed
based on the Portfolio Manager's projections of each company's growth in
earnings and dividends, earnings momentum, and undervaluation based on a
discount dividend model. Target prices and value ranges are developed from this
analysis and portfolio selection is made from among the top rated securities.
The Series may also invest in debt securities, and intends to limit those
investments to U.S. Government and agency obligations. The portion of total
assets invested in common stocks and debt securities will vary based on the
availability of common stocks meeting the selection criteria and the Portfolio
Manager's judgment of the investment merit of common stocks relative to debt
securities. The Series may also invest cash balances in certificates
24
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
of deposit, bankers' acceptances, high quality commercial paper, Treasury bills,
repurchase agreements, and other money market instruments. During adverse market
conditions, as a temporary investment posture, the Series may invest
significantly in the debt securities and money market instruments described
above.
The Series may invest without limit in equity securities of foreign issuers,
including American Depositary Receipts. However, it is expected that under
ordinary circumstances, the Series will not invest more than 25% of its assets
in foreign issuers, measured at the time of investment. For a description of the
risks associated with investment in foreign issuers, see "Description of
Securities and Investment Techniques -- Foreign Securities" in this Prospectus.
It is anticipated that the Series' portfolio will contain a minimum of 50
issues. In addition, it is the policy of the Series that no equity security will
be acquired if, after its acquisition, more than 25% of the Series' total assets
would be invested in any one industry or more than 5% would be invested in any
one issuer. The Portfolio Manager periodically monitors the Series' equity
securities to assure they meet the selection criteria. A security usually will
be eliminated from the Series' portfolio when it reaches its target price, when
negative changes occur in either the company or its industry, or when there is a
significant change in one or more of the selection criteria. From time to time,
the Series may invest in equity securities that do not meet the selection
criteria described above, but which the Portfolio Manager deems a suitable
investment. For purposes of the Series' investment policies, equity securities
are deemed to include common stocks, securities convertible into common stocks,
options on equity securities, and rights or warrants to subscribe for or
purchase common stocks. The Series may also invest in Standard & Poor's
Depositary Receipts, which are publicly traded interests in a unit investment
trust that invests in substantially all of the common stocks in the S&P 500.
The Series may also invest in restricted or illiquid securities; however, the
Portfolio Manager does not intend to invest more than 15% of the Series' assets
in securities that, at the time of investment, it believes to be illiquid. In
pursuing its investment objective or for hedging purposes, the Series may, but
is not required to, utilize the following investment techniques: entering into
stock index, interest rate, foreign currency and other financial futures
contracts, and purchasing options on such futures contracts; purchasing and
writing "covered" listed put and call options on securities, stock indices, and
currencies; entering into forward currency contracts and currency exchange
transactions; and borrowing from banks to purchase securities. See "Description
of Securities and Investment Techniques" for a discussion of the risks
associated with these investment techniques.
STRATEGIC EQUITY SERIES
The investment objective of the Strategic Equity Series is to achieve capital
appreciation. The Series seeks to achieve this objective primarily through
investment in equity securities. The amount of the Series' assets allocated to
equities shall vary from time to time to seek positive investment performance
from advancing equity markets and to reduce exposure to equities when the
Portfolio Manager believes that their risk/reward characteristics are less
attractive. The Series' investments in equities include both (1) stocks that the
Portfolio Manager selects for their "growth" characteristics (which may include
positive earnings momentum and above average earnings growth rates), and (2)
stocks that the Portfolio Manager selects for their "income" characteristics
(which may include above average dividend yields and favorable dividend growth).
To the extent not invested in equity securities, the Series' assets will be
invested in money market instruments or held as cash. The Portfolio Manager for
the Series is Zweig Advisors Inc.
The extent of the Series' investment in equity securities will be based
primarily on various equity market timing techniques developed by Dr. Martin
Zweig (Ph.D. in Finance) and his staff. The equity market timing techniques
incorporate general market indicators, including interest rate and monetary
analysis, market sentiment indicators, price and trading volume statistics, and
measures of valuation, as well as other market indicators and statistics which
the Portfolio Manager believes tend to point to significant trends in the
overall performance and the risk of the stock market. For example, if the
Portfolio Manager believes that the stock market investment environment is
uncertain or unfavorable and justifies a defensive position, then the Series may
decrease its investments in equity securities and increase its investments in
money market instruments. During periods when the Portfolio Manager believes an
overall defensive position is advisable, greater than 50% (and under certain
circumstances perhaps all) of the Series' total assets may be invested in money
market instruments and
25
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
cash. The Portfolio Manager expects that the Series will be fully invested in
equity securities only when the Portfolio Manager believes that there is very
low risk in the stock market. The Series may also invest in debt securities for
defensive purposes. There is no assurance that these equity market timing
techniques will eliminate the risks of equity investments, correctly predict
market trends, or enable the Series to achieve its investment objective.
The Portfolio Manager expects that the equity portion of the Series' portfolio
will generally be divided equally between "growth" stocks and "income" stocks.
Although the Portfolio Manager expects to invest assets proportionately in
growth stocks and income stocks in order to maintain an approximately equal
weighting between growth stocks and income stocks, the relative weighting of
growth stocks and income stocks will fluctuate from time to time because of,
among other things, changes in the market value of the growth stocks and income
stocks. The Portfolio Manager may change the relative weightings of the growth
stocks and income stocks from time to time if the Portfolio Manager determines
that such changes are appropriate in view of the then existing market
conditions. The equity portion of the Series' portfolio will be widely
diversified by the number of issues. The Portfolio Manager expects that the
majority of the stocks in the Series' portfolio will be selected on the basis of
proprietary computer-driven stock selection models that evaluate and rank
approximately 1,500 of the most liquid stocks on the basis of various factors,
which may include earnings momentum, earnings growth, price-to-book value,
price-to-earnings, price-to-cash flow, cash flow trend, price momentum, earnings
estimate revisions, payout ratio trend and other market measurements. Such stock
selection models may evolve or be replaced by other stock selection techniques
intended to achieve the Series' objective.
The Series may use various investment strategies and techniques when the
Portfolio Manager determines that such use is appropriate in an effort to meet
the Series' investment objective including: buying "covered" listed put equity
options and writing "covered" listed call equity options, including options on
stock indexes; short sales of securities; purchasing and selling stock index and
other futures contracts, and purchasing options on such futures contracts;
purchasing and selling interest rate and gold futures contracts; borrowing from
banks to purchase securities; investing in securities of foreign issuers;
entering into foreign currency transactions and options of foreign currencies;
entering into repurchase agreements or reverse repurchase agreements; and
lending portfolio securities to brokers, dealers, banks, or other recognized
institutional borrowers of securities.
LIQUID ASSET SERIES
The investment objective of the Liquid Asset Series is to achieve a high level
of current income consistent with the preservation of capital and liquidity. The
Portfolio Manager for the Series is Bankers Trust Company.
In managing the Series, the Portfolio Manager employs a number of professional
money management techniques, including varying the composition of investments
and the average maturity of the portfolio based upon the Portfolio Manager's
assessment of the relative values of the various money market securities and
future interest rate patterns. These assessments will change in response to
changing economic and money market conditions and to shifts in fiscal and
monetary policy. The Portfolio Manager also seeks to improve yield by taking
advantage of yield disparities that regularly occur in the money markets. For
example, market conditions frequently result in similar securities trading at
different prices. Also, there are frequently differences in the yield between
the various types of money market securities. The Series seeks to enhance yield
by purchasing and selling securities based upon these yield disparities.
The Series invests in one or more of the following:
(i) U.S. Government Securities. Obligations of
the U.S. Government and its agencies and instrumentalities maturing in 13
months or less from the date of acquisition or purchased pursuant to
repurchase agreements that provide for repurchase by the seller within 13
months from the date of acquisition;
(ii) Bank Obligations. Obligations of commercial
banks (including foreign branches), savings and loan associations, and
foreign banks with maturities not exceeding 13 months. Such obligations
include negotiable certificates of deposit, variable rate certificates of
deposit, bankers' acceptances, fixed time deposits, and commercial paper.
Bank money market instruments in which the Series may invest must be issued
by depository institutions with total assets of at least $1 billion, except
that up to 10% of total assets may be invested in certificates of deposit
of smaller institutions if such certificates of deposit are federally
insured.
26
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
Fixed time deposits, unlike negotiable certificates of deposit, generally
do not have a market and may be subject to penalties for early withdrawal
of funds;
(iii)Commercial Paper. Short-term unsecured
promissory notes with maturities not exceeding nine months issued in bearer
form by bank holding companies, corporations, and finance companies; and
(iv) Short-Term Corporate Debt
Securities. Corporate debt securities (other than commercial paper) maturing in
13 months or less.
The Series may invest only in U.S. dollar denominated money market instruments
that present minimal credit risk and, with respect to at least 95% of its total
assets, measured at the time of investment, that are of the highest quality. The
Portfolio Manager shall determine whether a security presents minimal credit
risk under procedures adopted by the Trust's Board of Trustees. A money market
instrument will be considered to be highest quality under standards adopted by
the Board of Trustees and consistent with applicable Securities and Exchange
Commission ("SEC") rules relating to money market funds. With respect to no more
than 5% of its total assets, measured at the time of investment, the Series may
also invest in money market instruments that are in the second-highest rating
category for short-term debt obligations. A money market instrument will be
considered to be in the second-highest rating category under the standards
described above.
The Series may not invest more than 5% of its total assets, measured at the time
of investment, in securities of any one issuer that are of the highest quality,
except that this limitation shall not apply to U.S. Government securities and
repurchase agreements thereon. The Series may not invest more than the greater
of 1% of its total assets or $1,000,000, measured at the time of investment, in
securities of any one issuer that are in the second-highest rating category,
except that this limitation shall not apply to U.S. Government securities. In
the event that an instrument acquired by the Series is downgraded or otherwise
ceases to be of the quality that is eligible for the Series, the Portfolio
Manager, under procedures approved by the Board of Trustees (or the Board of
Trustees itself if the Portfolio Manager becomes aware an unrated security is
downgraded below high quality and the Portfolio Manager does not dispose of the
security or such security does not mature within five business days) shall
promptly reassess whether such security presents minimal credit risk and
determine whether or not to retain the instrument.
From time to time, in the ordinary course of business, the Series may purchase
securities on a when-issued or delayed delivery basis. The Series may also enter
into repurchase agreements and may borrow under certain circumstances. See
"Description of Securities and Investment Techniques" for descriptions of these
techniques.
The Series seeks to maintain a net asset value of $1.00 per share for purposes
of purchases and redemptions; however, there can be no assurance that the net
asset value will not vary. The Series will be affected by general changes in
interest rates resulting in increases or decreases in the value of the
obligations held by the Series.
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the direction of the
Board of Trustees. The Trustees are Terry L. Kendall, Robert A. Grayson, M.
Norvel Young, and Roger B. Vincent. The Executive Officers of the Trust are
Terry L. Kendall, Barnett Chernow and Mary Bea Wilkinson. Additional information
about the Trustees and officers of the Trust may be found in the Statement of
Additional Information under the heading "Management of the Trust."
THE MANAGER
Directed Services, Inc. ("DSI" or the "Manager") serves as the Manager to the
Trust pursuant to a Management Agreement with the Trust. DSI is a New York
corporation that is a wholly owned subsidiary of BT Variable, Inc. ("BT
Variable") which, in turn, is an indirect subsidiary of Bankers Trust Company.
DSI is registered with the SEC as an investment adviser and a broker-dealer. The
Trust currently offers shares of its operating Series to, among other offerees,
separate accounts of Golden American Life Insurance Company ("Golden American")
to serve as the investment medium for Variable Contracts issued by Golden
American. DSI is the principal underwriter and distributor of the Variable
Contracts issued by Golden American. Golden American is a stock life insurance
company organized under the laws of the State of Delaware. Prior to December 30,
1993, Golden American was a Minnesota corporation. Golden American is an
indirect wholly owned subsidiary of Bankers Trust Company.
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MANAGEMENT OF THE TRUST (CONTINUED)
Bankers Trust Company is a New York banking corporation with executive offices
at 130 Liberty Street, New York, New York 10006, and is a wholly owned
subsidiary of Bankers Trust New York Corporation. As of December 31, 1994,
Bankers Trust New York Corporation was the seventh largest bank holding company
in the U.S. with total assets of approximately $98 billion. Bankers Trust
Company conducts a variety of general banking and trust activities and is a
leading wholesale supplier of financial services to the domestic and
international markets.
United States banking laws and regulations, including the Glass-Steagall Act as
currently interpreted by the Board of Governors of the Federal Reserve System
(the "Board"), prohibit a bank holding company registered under the Bank Holding
Company Act of 1956, or any affiliate thereof, from sponsoring, organizing,
controlling, or distributing the shares of a registered open-end investment
company, such as the Trust, continuously engaged in the issuance of its shares
and, except as otherwise provided by order of the Board, prohibit banks
generally from issuing, underwriting, selling or distributing securities. The
same laws and regulations generally permit a bank or bank affiliate to act as
investment adviser, transfer, dividend disbursing and shareholder servicing
agent and custodian to an investment company and to purchase such shares as
agent for and upon the order of a customer.
DSI performs the activities described above in this Prospectus and below under
the caption "Distributor." On September 30, 1992, a wholly owned subsidiary of
Bankers Trust Company acquired all of the issued and outstanding stock of Golden
American and DSI, and related assets, in a transaction involving settlement of
pre-existing claims of Bankers Trust Company against the former parent of Golden
American and DSI. Under applicable banking law, stock so acquired is subject to
various divestiture requirements. While Bankers Trust Company has no immediate
intent to divest its ownership of the stock of DSI, such a divestiture may occur
in the future. In addition, judicial or administrative decisions or
interpretations, as well as changes in either U.S. Federal or state banking
statutes or regulations, could prevent Bankers Trust Company from continuing to
own stock of DSI or prevent Bankers Trust Company or DSI from performing certain
of the activities contemplated by this Prospectus. In such event, changes in the
operation of the Series might occur. It is not expected, however, that the Trust
would suffer adverse financial consequences as a result of such occurrence.
Under the Management Agreement, DSI has overall responsibility, subject to the
supervision of the Board of Trustees, for engaging portfolio managers and for
monitoring and evaluating the management of the assets of each Series by the
Portfolio Managers. The Manager is also responsible for monitoring and
evaluating the Portfolio Managers on a periodic basis, and will consider their
performance records with respect to the investment objectives and policies of
each Series. The Manager may, if appropriate, recommend that the Trustees
consider a change in the Portfolio Manager, although the Manager does not expect
to recommend frequent changes in Portfolio Managers as a matter of operating
procedure for the Series.
As Manager, DSI is responsible, subject to the supervision of the Board of
Trustees, for providing administrative and other services necessary for the
ordinary operation of the Series in addition to advisory services. The Manager
provides the overall business management and administrative services necessary
for the Series' operation and provides or procures the services and information
necessary to the proper conduct of the business of the Series. The Manager is
responsible for providing or procuring, at the Manager's expense, the services
reasonably necessary for the ordinary operation of the Series, including
custodial, administrative, transfer agency, portfolio accounting, dividend
disbursing, auditing, and ordinary legal services. The Manager also acts as
liaison among the various service providers to the Series, including the
custodian, portfolio accounting agent, Portfolio Managers, and the insurance
company or companies to which the Series offer their shares. The Manager is also
responsible for ensuring that the Series operate in compliance with applicable
legal requirements and for monitoring the Portfolio Managers for compliance with
requirements under applicable law and with the investment policies and
restrictions of the Series. DSI does not bear the expense of brokerage fees and
other transactional expenses for securities or other assets (which are generally
considered part of the cost for the assets), taxes (if any) paid by a Series,
interest on borrowing, fees and expenses of the independent trustees, and
extraordinary expenses, such as litigation or indemnification expenses.
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MANAGEMENT OF THE TRUST (CONTINUED)
Pursuant to the Management Agreement, the Manager is authorized to exercise full
investment discretion and make all determinations with respect to the investment
of a Series' assets and the purchase and sale of portfolio securities for one or
more Series in the event that at any time no Portfolio Manager is engaged to
manage the assets of a Series. The Management Agreement may be terminated
without penalty by the vote of the Board of Trustees or the Shareholders of the
Series, or by the Manager, upon 60 days' written notice by the Board or the
Manager, and will terminate automatically if assigned as that term is described
in the 1940 Act.
- --------------------------------------------------------------------------------
The Trust pays the Manager for its services under the Management Agreement a
monthly fee based on the following percentages of the average daily net assets
of the Series:
<TABLE>
<CAPTION>
FEE (based on combined assets of the indicated groups of
SERIES Series)
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, 1.0% on the first $750 million in combined assets of these
Natural Resources, Real Estate, Series;
All-Growth, Capital Appreciation, 0.95% on the next $1.250 billion;
Rising Dividends, Value Equity, 0.90% on the next $1.5 billion; and
and Strategic Equity 0.85% on the amount over $3.5 billion
Limited Maturity Bond 0.60% on the first $200 million in combined assets of these
Liquid Asset Series;
0.55% on the next $300 million; and
0.50% on the amount over $500 million
Emerging Markets 1.50%
</TABLE>
- --------------------------------------------------------------------------------
As compensation for its services during the most recent fiscal year, the Trust,
pursuant to the Management Agreement, paid the Manager fees which represented
the following percentage of each Series' average daily net assets: Multiple
Allocation Series -- 1.00%; Fully Managed Series -- 1.00%; Limited Maturity Bond
Series -- 0.60%; Natural Resources Series -- 1.00%; Real Estate Series -- 1.00%;
All-Growth Series -- 1.00%; Capital Appreciation Series -- 1.00%; Rising
Dividends Series -- 1.00%; Emerging Markets Series -- 1.50%; and Liquid Asset
Series -- 0.60%. The Value Equity Series commenced operations on January 1,
1995. For more information on the Management Agreement, see the Statement of
Additional Information.
The Trust is distinct in that the expense structure of the Series is simpler and
more predictable than most mutual funds. Many of the ordinary expenses for the
Trust's Series, including custodial, administrative, transfer agency, portfolio
accounting, auditing, and ordinary legal expenses are paid by the Manager;
whereas, most mutual funds pay for these expenses directly from their own
assets.
THE PORTFOLIO MANAGERS
The Trust and the Manager have entered into Portfolio Management Agreements with
each of the Portfolio Managers. Under these Agreements, the Portfolio Manager of
each Series has full investment discretion and makes all determinations with
respect to the investment of a Series' assets and the purchase and sale of
portfolio securities and other investments. The Portfolio Management Agreements
may be terminated without penalty by the vote of the Board of Trustees or the
Shareholders of a Series, by the Portfolio Manager, or by the Manager, on 60
days' written notice by any party to a Portfolio Management Agreement and will
terminate automatically if assigned as that term is described in the 1940 Act. A
description of each Portfolio Manager follows.
ZWEIG ADVISORS INC.
The Portfolio Manager to the Multiple Allocation Series and the Strategic
Equity Series is Zweig Advisors Inc., located at 900 Third Avenue, New York,
NY 10022. The Portfolio Manager was organized on May 7, 1986 and currently
serves as investment adviser to The Zweig Fund, Inc., a closed-end,
diversified management investment company.
The asset allocation strategy for the Multiple Allocation Series is determined
by Dr. Martin E. Zweig, the day-to-day stock selection is made by Mr. Jeffrey
Lazar, and the day-to-day bond selection is made by Mr. Carlton Neel. The
asset allocation strategy for the Strategic Equity Series
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MANAGEMENT OF THE TRUST (CONTINUED)
is determined by Dr. Martin E. Zweig and the portfolio decisions for the
Series are made by Mr. David Katzen.
Dr. Zweig, the President of the Portfolio Manager, has been engaged in the
business of providing investment advisory and portfolio management services
for over 20 years. He is currently affiliated with investment advisers which,
as of June 30, 1995, managed in excess of $9.0 billion in total assets of
investment companies and pension plan, individual, and other securities
accounts. Dr. Zweig owns approximately 50% of the outstanding shares of the
Portfolio Manager.
Mr. Lazar is a Vice President of the Portfolio Manager and has been controller
of the Portfolio Manager since 1986. Mr. Lazar has also been Vice President of
The Zweig Fund, Inc. since 1987 and Vice President of The Zweig Total Return
Fund, Inc. since its inception in 1988.
Mr. Katzen is a Vice President of the Portfolio Manager and has held senior
positions with affiliates of the Portfolio Manager for more than five years.
Mr. Katzen is a Senior Vice President of The Zweig Series Trust mutual fund
and has been the portfolio manager of its Zweig Strategy Fund and Zweig
Appreciation Fund since their inceptions.
Mr. Carlton Neel joined the Portfolio Manager in June 1995. Mr Neel is a First
Vice President of The Zweig Series Trust mutual fund and has been the
portfolio manager for its Zweig Managed Assets and Government Securities
Series since July 1995. Prior to joining the Portfolio Manager, Mr. Neel was a
Vice President with J.P. Morgan & Co., Inc.
Pursuant to an Addendum to the Portfolio Management Agreement, the Manager
(and not the Trust) pays Zweig Advisors Inc. a monthly fee equal to an annual
rate of 0.50% of the average daily net assets of the Multiple Allocation
Series and 0.50% of the average daily net assets of the Strategic Equity
Series.
T. ROWE PRICE ASSOCIATES, INC.
The Portfolio Manager to the Fully Managed Series is T. Rowe Price Associates,
Inc. ("T. Rowe Price"), located at 100 East Pratt St., Baltimore, MD 21202. T.
Rowe Price was founded in 1937 by the late Thomas Rowe Price, Jr. As of
December 31, 1994, the firm and its affiliates managed over $57 billion in
assets of approximately three million individual and institutional investor
accounts.
With respect to its investment management of the Fully Managed Series, the
Portfolio Manager has an Investment Advisory Committee composed of the
following members: Richard P. Howard, Chairman; Arthur B. Cecil, III; Charles
A.
Morris; David L. Rea; George A. Roche;
and Richard T. Whitney. The Committee Chairman has day-to-day responsibility
for managing the Fully Managed Series and works with the Committee in
developing and executing the Fully Managed Series' investment program. Mr.
Howard has been Chairman of the Committee since 1989. He joined T. Rowe Price
in 1982 and has been managing investments since 1989.
From the Fully Managed Series' commencement of operations through December 31,
1994, Weiss, Peck & Greer Advisers, Inc. served as Portfolio Manager.
Pursuant to a Portfolio Management Agreement, the Manager (and not the Trust)
pays T. Rowe Price a monthly fee equal to an annual rate of 0.50% of the
average daily net assets of the Fully Managed Series.
BANKERS TRUST COMPANY
The Trust has entered into a Portfolio Management Agreement among the Trust,
DSI, and Bankers Trust Company under which Bankers Trust Company serves as
Portfolio Manager to the Limited Maturity Bond Series, Liquid Asset Series,
and Emerging Markets Series. The services to these Series are provided by the
Global Investment Management group of Bankers Trust Company.
The individual in charge of investment management decisions for the Limited
Maturity Bond Series is Louis Hudson, a Vice President and Portfolio Manager
of Bankers Trust Company since 1982.
Bluford Putnam, Managing Director and Chief Strategist of the Global
Investment Management Group (GIM) and Head of the Equities Group, chairs the
committee responsible for the allocation of assets of the Emerging Markets
Series. Mr. Putnam has eighteen years of experience as an international
economist and market analyst. He joined Bankers Trust Company in 1994. Prior
to that Mr. Putnam held positions as the Chief Investment Officer of a $1
billion private quantatatively managed portfolio, principal and head of the
international bond strategy team at Morgan Stanley, and was an economist at
the
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<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
Federal Reserve Bank of New York. The Emerging Markets Team of the Portfolio
Manager manages a portion of the Series' assets, including the assets
allocated for investment in Latin America, South Africa, and Eastern Europe.
Maria-Elena Carrion, Vice President and head of Latin American Equities since
April, 1993, is primarily responsible for the assets allocated to the Latin
American, South Africa, and Eastern European markets. Ms. Carrion is also a
member of the asset allocation committee. Prior to joining Bankers Trust
Company, Ms. Carrion served as Fund Manager for Latin American Securities
(London). Prior to that Ms. Carrion served as International Securities Analyst
and Fund Manager at U.S. Trust (New York).
Bankers Trust Company has entered into a sub-advisory agreement with BT Fund
Managers (International) Limited pursuant to which BT Fund Managers
(International) Limited provides investment advice with respect to a portion
of the assets of the Emerging Markets Series, including the assets allocated
for investment in emerging market countries in the Pacific Basin. Paul Durham,
Fund Manager of BT Fund Managers (International) Limited, is responsible for
management of these assets. Mr. Durham also is a member of the asset
allocation committee and serves as Vice President of Bankers Trust Australia
Limited ("BTAL") and has been in the Equities Group of BTAL since 1988. Prior
to joining BTAL, Mr. Durham completed an Honors degree majoring in accounting
and finance under scholarship from the Commonwealth Bank.
Under the Portfolio Management Agreement, the Manager (and not the Trust) pays
Bankers Trust Company a monthly fee equal to an annual rate based upon the
following percentages of the average daily net assets of the Limited Maturity
Bond Series: 0.30% of the first $25 million; 0.25% of the next $50 million;
0.20% of the next $75 million; and 0.15% of the amount over $150 million,
subject to a minimum annual fee of $35,000 (payable at the end of each
calendar year). The Manager (and not the Trust) pays Bankers Trust Company a
monthly fee equal to an annual rate based upon the following percentages of
the average daily net assets of the Liquid Asset Series: 0.20% of the first
$25 million; 0.15% of the next $50 million; and 0.10% of the amount over $75
million, subject to a minimum annual fee of $35,000 (payable at the end of
each calendar year). The Manager (and not the Trust) pays Bankers Trust
Company a monthly fee equal to an annual rate of 0.75% of the average daily
net assets of the Emerging Markets Series.
For information about Bankers Trust Company, see "The Manager," above. The
unit of Bankers Trust Company that serves as Portfolio Manager to the Limited
Maturity Bond Series, Liquid Asset Series, and Emerging Markets Series is the
Global Investment Management division which, as of December 31, 1994, managed
institutional assets approximating $185 billion. As of December 31, 1994,
Bankers Trust Company was an investment advisor to the following registered
investment companies: Short-Intermediate Fixed-Income Portfolio of Accessor
Funds, Inc.; Full Maturity Fixed Income Portfolio of AHA Investment Funds,
Inc.; MidCap Index Fund, Stock Index Fund, and Small Cap Index Fund of
American General Series Portfolio Company (VALIC); Asset Management Portfolio,
Asset Management Portfolio II, and Asset Management Portfolio III; the Bank
Fiduciary (Equity) Fund and the Bank Fiduciary (Fixed Income) Fund of the Bank
Fiduciary Funds; Capital Appreciation Portfolio; Cash Management Portfolio;
Equity 500 Index Portfolio of BT Institutional Funds; Global High Yield
Portfolio; Hercules Latin America Value Fund; Intermediate Tax Free Portfolio;
International Equity Portfolio; Latin American Equity Portfolio; Liquid Assets
Portfolio; NY Tax Free Money Portfolio; Pacific Basin Equity Portfolio; Equity
Index Series of Pacific Select Fund; Short/Intermediate Government Securities
Portfolio; Small Cap Portfolio; Tax Free Money Portfolio; Treasury Money
Portfolio; and Utility Portfolio.
From the Trust's commencement of operations through April 30, 1992, Neuberger
& Berman Management Incorporated served as Portfolio Manager to the Limited
Maturity Bond Series and Liquid Asset Series. Bankers Trust Company assumed
portfolio management responsibilities for these two Series on May 1, 1992.
VAN ECK ASSOCIATES CORPORATION
The Portfolio Manager to the Natural Resources Series is Van Eck Associates
Corporation ("Van Eck"), located at 99 Park Avenue, New York, New York 10016.
Van Eck acts as investment adviser to nine other mutual funds and portfolios
of pension plans with similar investment objectives to the Natural Resources
Series. In addition, the Portfolio Manager acts as an
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<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
adviser to ten other mutual funds with investment objectives different from
the Natural Resources Series. John C. van Eck and members of his family own
100% of the stock of Van Eck.
Henry J. Bingham, Executive Managing Director of Van Eck in conjunction with
Derek van Eck and other members of Van Eck's Hard Assets group, is primarily
responsible for the day-to- day management of the Natural Resources Series.
Mr. Bingham has served in that capacity since the Series' commencement of
operations. Over the past five years, Mr. Bingham has served as an officer and
portfolio manager for mutual funds for which Van Eck Associates Corporation
serves as investment adviser or sub-investment adviser.
Mr. Derek van Eck is Director of Global Investments and Executive Vice
President of Van Eck since 1993 and an officer of other mutual funds advised
by Van Eck since 1988. During 1991-93, Mr. van Eck completed MBA course
requirements. He has been serving in his current capacity with the Series
since July 1995.
Total aggregate assets under management of Van Eck Associates Corporation as
of December 31, 1994 were approximately $1.8 billion.
Pursuant to an Addendum to the Portfolio Management Agreement, the Manager
(and not the Trust) pays Van Eck Associates Corporation a monthly fee equal to
an annual rate of 0.50% of the average daily net assets of the Natural
Resources Series.
WARBURG, PINCUS COUNSELLORS, INC.
The Portfolio Manager of the All-Growth Series is Warburg, Pincus Counsellors,
Inc., located at 466 Lexington Avenue, New York, New York 10017.
Warburg, Pincus Counsellors, Inc. was incorporated in Delaware on December 15,
1970. The company is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. The Portfolio
Manager is registered with the SEC as an investment adviser.
The individual responsible for the day-to-day management of the Series'
investments is Anthony G. Orphanos. Mr. Orphanos is a Managing Director of
Warburg, Pincus Counsellors, Inc. and has been employed by Warburg, Pincus
Counsellors, Inc. since 1977.
As of December 31, 1994, Warburg, Pincus Counsellors, Inc. managed
approximately $10 billion of assets, including approximately $4.0 billion of
assets in 16 investment company portfolios. The Portfolio Manager is a
wholly-owned subsidiary of Warburg, Pincus Counsellors G.P., a New York
general partnership which has no business other than being a holding company
of the Portfolio Manager and its subsidiaries. The Portfolio Manager is
controlled by E.M. Warburg, Pincus & Co., Inc. through its ownership of a
class of voting preferred stock.
Pursuant to a Portfolio Management Agreement, the Manager (and not the Trust)
pays Warburg, Pincus Counsellors, Inc. a monthly fee equal to an annual rate
of 0.50% of the average daily net assets of the All-Growth Series.
From the Trust's commencement of operations through June 30, 1994, J.M.
Hartwell & Company, Inc. served as Portfolio Manager for the All-Growth
Series. Warburg, Pincus Counsellors, Inc. assumed management of the Series on
July 1, 1994.
CHANCELLOR TRUST COMPANY
The Portfolio Manager to the Capital Appreciation Series is Chancellor Trust
Company ("Chancellor"), located at 1166 Avenue of the Americas, New York, New
York 10036.
The Portfolio Manager is a New York State chartered limited purpose trust
company. The Portfolio Manager is a wholly owned subsidiary of Chancellor
Capital Management, Inc. ("Chancellor Capital"), which is owned 51% on a
fully-diluted basis by Chancellor Partners, L.P. (the "Partnership").
Chancellor Partners, Inc. is the General Partner of the Partnership and a
group of employees of Chancellor Capital are the limited partners of the
Partnership. Robert Wade, Jr. is the President and sole stockholder of
Chancellor Partners, Inc. USF&G Investment Management Group, Inc. owns
convertible exchangeable preferred stock in Chancellor Capital, representing
the remaining 49% ownership interest on a fully-diluted basis of Chancellor
Capital. Chancellor, its parent, and its affiliates had over $27.829 billion
in assets under management as of December 31, 1994.
The individuals responsible for the management of the Capital Appreciation
Series, since May 1, 1992 (the commencement of Chancellor's and its
predecessor, Chancellor Capital's, management of the Series), are Warren Shaw
and Ted Ujazdowski. Mr. Shaw, President of Chancellor since 1994, previously
served as Managing Director since 1988. Mr. Ujazdowski has served as Managing
Director of Chancellor since 1989.
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MANAGEMENT OF THE TRUST (CONTINUED)
Prior to July 27, 1993, Chancellor Capital served as Portfolio Manager to the
Capital Appreciation Series. Chancellor became the Portfolio Manager on July
27, 1993 pursuant to an assignment agreement. This assignment did not result
in any change in the personnel managing the assets of the Capital Appreciation
Series.
Pursuant to an Addendum to the Portfolio Management Agreement, the Manager
(and not the Trust) pays Chancellor a monthly fee equal to an annual rate of
0.50% of the average daily net assets of the Capital Appreciation Series.
KAYNE, ANDERSON INVESTMENT MANAGEMENT, L.P.
The Portfolio Manager to the Rising Dividends Series is Kayne, Anderson
Investment Management, L.P. ("Kayne, Anderson"), located at 1800 Avenue of the
Stars, Suite 1425, Los Angeles, California 90067. The Portfolio Manager is a
registered investment adviser organized on June 24, 1994 as a California
limited partnership succeeding to the investment advisory business of Kayne,
Anderson Investment Management, Inc. which was formed in 1984.
Kayne, Anderson is in the business of furnishing investment advice to
institutional and private clients. The General Partner is Kayne, Anderson
Investment Management, Inc., which was founded by Richard A. Kayne and John E.
Anderson. Messrs. Kayne, Anderson and Rudnick in the aggregate own 97% of the
limited partnership interests in the Portfolio Manager. As of December 31,
1994, Kayne, Anderson managed portfolios which, in the aggregate, amounted to
approximately $1.063 billion.
Allan M. Rudnick, Senior Vice President and Chief Investment Officer of Kayne,
Anderson since August, 1989 is the Senior Portfolio Manager responsible for
the management of the Rising Dividends Series. Prior to August, 1989, Mr.
Rudnick was President of Pilgrim Asset Management and Chief Investment Officer
of the Pilgrim Group of Mutual Funds.
Prior to January 1, 1995, Kayne, Anderson Investment Management, Inc. served
as Portfolio Manager to the Rising Dividends Series. Kayne, Anderson became
the Portfolio Manager on January 1, 1995 pursuant to a substitution agreement.
This substitution agreement did not result in any change in the personnel
managing the assets of the Rising Dividends Series.
Pursuant to an Addendum to the Portfolio Management Agreement, the Manager
(and not the Trust) pays Kayne, Anderson a monthly fee equal to an annual rate
of 0.50% of the average daily net assets of the Rising Dividends Series.
EAGLE ASSET MANAGEMENT, INC.
The Portfolio Manager to the Value Equity Series is Eagle Asset Management,
Inc. ("Eagle"), located at 880 Carillon Parkway, St. Petersburg, Florida
33716. The Portfolio Manager is a registered investment adviser organized on
February 8, 1984 as a Florida corporation.
The individual responsible for the day-to-day operation of the Series'
investments is Christian C. Bertelsen. Mr. Bertelsen is a Senior Vice
President of Eagle, and has been employed by Eagle since 1993. Prior to
joining Eagle, Mr. Bertelsen served as senior equity manager at Colonial
Advisory Services, where he was portfolio manager of Colonial Fund from 1986
to 1993. Prior to that, he held management and analyst positions at India
Wharf Associates, Batterymarch Financial Management, Gardner & Preston Moss
and Thorndike, Doran, Paine & Lewis.
Eagle is in the business of managing institutional clients and individual
accounts on a discretionary basis. Eagle serves as sub-adviser to the Eagle
Growth Equity Portfolio of American Scandia Trust and Heritage Income Growth
Trust. Eagle is a wholly-owned subsidiary of Raymond James Financial, Inc., a
publicly traded company whose shares are listed on the New York Stock
Exchange. Thomas A. James is the principal shareholder of Raymond James
Financial, Inc.
Pursuant to a Portfolio Management Agreement, the Manager (and not the Trust)
pays Eagle a monthly fee equal to an annual rate of 0.50% of the average daily
net assets of the Value Equity Series.
E.I.I. REALTY SECURITIES, INC.
The Portfolio Manager to the Real Estate Series is E.I.I. Realty Securities,
Inc., located at 667 Madison Avenue, 16th Floor, New York, NY 10021.
The Portfolio Manager is a professional investment adviser which, with its
affiliates, has been providing services to employee benefit plans,
corporations, and high net worth individuals, both foreign and domestic, since
1983. As of December 31, 1994, the Portfolio Manager and/or
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MANAGEMENT OF THE TRUST (CONTINUED)
its affiliates had investment management authority with respect to
approximately $375 million of real estate securities assets. The Portfolio
Manager is a wholly-owned subsidiary of European Investors Incorporated
("E.I.I.").
Richard J. Adler, Vice President of E.I.I., and Cydney C. Donnell, Vice
President of the Portfolio Manager, are the individuals primarily responsible
for the day-to-day operation of the Series. For the past five years, they have
been portfolio managers or real estate securities analysts for E.I.I.
From the Trust's commencement of operations through December 20, 1991, Cohen &
Steers Capital Management, Inc. served as Portfolio Manager for the Real
Estate Series. Chancellor Trust Company and its affiliate, Chancellor Capital
Management, Inc., assumed management of the Series from December 21, 1991 to
December 31, 1994.
Pursuant to a Portfolio Management Agreement, the Manager (and not the Trust)
pays the Portfolio Manager a monthly fee equal to an annual rate of 0.50% of
the average daily net assets of the Real Estate Series.
OTHER EXPENSES
The expenses of the ordinary operations of the Series are borne by the Manager
pursuant to the Management Agreement. The Trust bears the expenses of taxes (if
any) paid by a Series, the fees and expenses of its independent trustees, any
extraordinary expenses, such as any litigation or indemnification expenses, as
well as other expenses as described under "The Manager." Any such Trust expenses
directly attributable to a Series are charged to that Series; other expenses are
allocated among all the Series. For the Trust's fiscal year ended December 31,
1994, total Series expenses as a percentage of net assets were as follows:
Multiple Allocation Series -- 1.00%; Fully Managed Series -- 1.00%; Limited
Maturity Bond Series -- 0.60%; Natural Resources Series -- 1.00%; Real Estate
Series -- 1.00%; All-Growth Series -- 1.00%; Capital Appreciation Series --
1.00%; Rising Dividends Series -- 1.00%; Emerging Markets Series -- 1.73%; and
Liquid Asset Series -- 0.61%.
DISTRIBUTOR
Directed Services, Inc. acts as distributor ("Distributor") of shares of the
Series, in addition to serving as Manager for the Trust. The Distributor's
address is 280 Park Avenue, New York, New York 10017. The Distributor is a
registered broker- dealer and a member of the National Association of Securities
Dealers and acts as Distributor without remuneration from the Trust.
CUSTODIAN AND OTHER SERVICE PROVIDERS
The Custodian for the Series is Bankers Trust Company. The Shareholder Services
Group, Inc. provides certain administrative and portfolio accounting services
for all Series.
34
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes potential risks associated with different
types of securities and investment techniques used by the individual Series, as
described in "Investment Objectives and Policies."
For more detailed information on these investment techniques, as well as
information on some types of securities in which some or all of the Series may
invest, including information on U.S. Government securities, debt securities
generally, variable and floating rate securities, reverse repurchase agreements,
lending portfolio securities, warrants, other investment companies, and short
sales, including short sales against the box, see the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
All Series may invest in mortgage-backed securities.
MORTGAGE PASS-THROUGH SECURITIES
Many mortgage-backed securities are mortgage pass-through securities, which
are securities representing interests in "pools" of mortgages in which
payments of both interest and principal on the securities are made
periodically, in effect "passing through" periodic payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities and
possibly others). Such instruments differ from typical bonds because principal
is repaid monthly over the term of the loan rather than returned in a lump sum
at maturity. Timely payment of principal and interest on some mortgage
pass-through securities may be guaranteed by the full faith and credit of the
U.S. Government, as in the case of securities guaranteed by the Government
National Mortgage Association, or "GNMA", or guaranteed by agencies or
instrumentalities of the U.S. Government, as in the case of securities
guaranteed by the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported only by
the discretionary authority of the U.S. Government to purchase the agency's
obligations and not by the full faith and credit of the U.S. Government. For
more information on GNMA certificates and FNMA and FHLMC mortgage-backed
obligations, see "Mortgage-Backed Securities" in the Statement of Additional
Information.
OTHER MORTGAGE-BACKED SECURITIES
All Series other than the Liquid Asset, Capital Appreciation, Rising
Dividends, and Emerging Markets Series may purchase mortgage-backed securities
issued by financial institutions such as commercial banks, savings and loan
associations, mortgage banks, and securities broker-dealers (or affiliates of
such institutions established to issue these securities) in the form of either
collateralized mortgage obligations ("CMOs") or mortgage-backed bonds. CMOs
are obligations fully collateralized directly or indirectly by a pool of
mortgages on which payments of principal and interest are dedicated to payment
of principal and interest on the CMOs. Payments are passed through to the
holders, although not necessarily on a pro rata basis, on the same schedule as
they are received. Mortgage-backed bonds are general obligations of the issuer
fully collateralized directly or indirectly by a pool of mortgages. The
mortgages serve as collateral for the issuer's payment obligations on the
bonds but interest and principal payments on the mortgages are not passed
through either directly (as with GNMA certificates and FNMA and FHLMC
pass-through securities) or on a modified basis (as with CMOs). Accordingly, a
change in the rate of prepayments on the pool of mortgages could change the
effective maturity of a CMO but not that of a mortgage-backed bond (although,
like many bonds, mortgage-backed bonds can provide that they are callable by
the issuer prior to maturity). Although the mortgage-related securities
securing these obligations may be subject to a government guarantee or
third-party support, the obligation itself is not so guaranteed. Therefore, if
the collateral securing the obligation is insufficient to make payment on the
obligation, a holder could sustain a loss.
RISKS OF MORTGAGE-BACKED SECURITIES
Although mortgage loans constituting a pool of mortgages, such as those
underlying GNMA certificates, may have maturities of up to 30 years, the
actual average life of a mortgage-backed security typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. In the case of mortgage
pass-through securities such as GNMA certificates or FNMA and FHLMC
mortgage-backed obligations, or modified pass-through securities such as
collateralized mortgage obligations issued by various financial institutions,
early repayment of principal arising from prepayments of principal on the
underlying mortgage loans due to the sale of the underlying property, the
refinancing of the loan, or foreclosure may expose a Series to a lower rate
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
of return upon reinvestment of the principal. Prepayment rates vary widely and
may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening
the actual average life of the mortgage-backed security. Conversely, when
interest rates are rising, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the mortgage-backed security.
Accordingly, it is not possible to accurately predict the average life of a
particular pool. Reinvestment of prepayments may occur at higher or lower
rates than the original yield on the certificates. Therefore, the actual
maturity and realized yield on pass-through or modified pass-through mortgage-
backed securities will vary based upon the prepayment experience of the
underlying pool of mortgages.
With respect to GNMA certificates, although GNMA guarantees timely payment
even if homeowners delay or default, tracking the "pass-through" payments may,
at times, be difficult. Expected payments may be delayed due to the delays in
registering the newly traded paper securities. The custodian's policies for
crediting missed payments while errant receipts are tracked down may vary.
Other mortgage-backed securities such as those of FHLMC and FNMA trade in
book-entry form and are not subject to this risk of delays in timely payment
of income.
OTHER ASSET-BACKED SECURITIES
Any Series other than the Liquid Asset, Capital Appreciation, Rising Dividends,
and Emerging Markets Series may purchase other asset-backed securities
(unrelated to mortgage loans) such as "CARSSM" ("Certificates for Automobile
Receivables") and Credit Card Receivable Securities and any other asset-backed
securities that may be developed in the future. See the Statement of Additional
Information for a description of these instruments.
HIGH YIELD BONDS
The Real Estate Series may invest up to 20% of its assets in high yield
convertible bonds and the Fully Managed Series and Emerging Markets Series may
invest up to 5% and 10% of their assets, respectively, in high yield bonds.
Generally, high yield/high risk debt securities are those rated lower than Baa
or BBB, or, if not rated by Moody's or S&P, of equivalent quality and which are
commonly referred to as "junk bonds." Investment in such securities generally
provides greater income and increased opportunity for capital appreciation than
investments in higher quality debt securities, but they also typically entail
greater potential price volatility and principal and income risk.
In general, high yield bonds are not considered to be investment grade. They are
regarded as predominately speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. The prices of high
yield bonds have been found to be less sensitive to interest rate changes than
higher-rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in high
yield bond prices. In the case of high yield bonds structured as zero-coupon or
pay-in-kind securities, their market prices are affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash.
The secondary market on which high yield bonds are traded is generally less
liquid than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which a Series could sell a
high yield bond, and could adversely affect the daily net asset value of the
Series' shares. At times of less liquidity, it may be more difficult to value
the high yield bonds because such valuation may require more research, and
elements of judgment may play a greater role in the valuation because there is
less reliable, objective data available.
REPURCHASE AGREEMENTS
All Series may enter into repurchase agreements. Repurchase agreements permit an
investor to maintain liquidity and earn income over periods of time as short as
overnight. Repurchase agreements may be characterized as loans collateralized by
the underlying securities. In these transactions, a Series purchases securities
such as U.S. Treasury obligations or U.S. Government securities (the "underlying
securities") from a broker or bank, which agrees to repurchase the underlying
securities on a certain date or on demand and at a fixed price calculated to
produce a previously agreed-upon return to the Series. If the broker or bank
were to default on its repurchase obligation and the underlying securities were
sold for a lesser amount, the
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
Series would realize a loss, and may incur disposition costs in connection with
liquidating the collateral. In the event bankruptcy proceedings are commenced
with respect to the seller, realization of the collateral by a Series may be
delayed or limited, and a loss may be incurred if the collateral securing the
repurchase agreement declines in value during the bankruptcy proceedings.
A Series may engage in repurchase transactions in accordance with guidelines
approved by the Board of Trustees of the Trust, which include monitoring the
creditworthiness of the parties with which the Series engages in repurchase
transactions, obtaining collateral at least equal in value to the repurchase
obligation, and marking the collateral to market on a daily basis. See the
Statement of Additional Information "Description of Securities and Investment
Techniques" for further information regarding repurchase agreements.
RESTRICTED AND ILLIQUID SECURITIES
All Series except the Liquid Asset, Capital Appreciation, and Rising Dividends
Series may invest in restricted securities such as private placements, although
a Series may not invest in any restricted security that is illiquid if, after
its acquisition, more than 10% of the Series' assets are invested in illiquid
securities, or, with respect to the Emerging Markets, Value Equity, and
Strategic Equity Series, more than 15% of the Series' assets are invested in
illiquid securities. Restricted securities may be sold only in privately
negotiated transactions, in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933, or in a
transaction that is exempt from such registration. Where registration is
required, a Series may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Series may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Series might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities may be priced at fair
value as determined in good faith by the Series' Portfolio Manager.
SHORT SALES
The Multiple Allocation, Natural Resources, All-Growth, Capital Appreciation,
and Strategic Equity Series may make short sales of securities. A short sale is
a transaction in which the Series sells a security it does not own in
anticipation of a decline in market price. The Multiple Allocation Series'
Portfolio Manager expects that, even during normal or favorable market
conditions, the Series may make short sales in an attempt to maintain portfolio
flexibility and facilitate the rapid implementation of investment strategies if
the Portfolio Manager believes that the price of a particular security or group
of securities is likely to decline.
When a Series makes a short sale, the proceeds it receives are retained by the
broker until the Series replaces the borrowed security. In order to deliver the
security to the buyer, the Series must arrange through a broker to borrow the
security and, in so doing, the Series becomes obligated to replace the security
borrowed at its market price at the time of replacement, whatever that price may
be. The Series may have to pay a premium to borrow the security. The Series must
also pay any dividends or interest payable on the security until the Series
replaces the security.
The Series' obligation to replace the security borrowed in connection with the
short sale will be secured by collateral deposited with the broker, consisting
of cash or U.S. Government securities or other securities acceptable to the
broker. In addition, with respect to any short sale, other than short sales
against the box, the Series will be required to deposit collateral consisting of
cash, cash items, or U.S. Government securities in a segregated account with its
custodian in an amount such that the value of the sum of both collateral
deposits is at all times equal to at least 100% of the current market value of
the securities sold short. The deposits do not necessarily limit the Series'
potential loss on a short sale, which may exceed the entire amount of the
collateral.
The Series may make a short sale only if, at the time the short sale is made and
after giving effect thereto, the market value of all securities sold short is
25% or less of the value of its net assets and the market value of securities
sold short which are not listed on a national securities exchange does not
exceed 10% of the Series' net assets. In addition, the Series will not make
short sales of the securities of any one issuer to the extent of more than 2% of
the Series' net assets, nor will the Series make short sales of more than 2% of
the outstanding securities of one class of any issuer. The Series is not
required to liquidate an existing short sale position solely because a change in
market values has caused one or more of these percentage limitations to be
exceeded. For more information on short sales, see the Statement of Additional
Information.
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
FOREIGN SECURITIES
The Multiple Allocation, Fully Managed, Natural Resources, All-Growth, Rising
Dividends, Emerging Markets, Value Equity, and Strategic Equity Series may
invest in equity securities of foreign issuers. The Fully Managed Series may
invest up to 20% of its net assets in such securities. The All-Growth Series may
invest up to 10% of its net assets in such securities. The Emerging Markets
Series will normally invest at least 65% of its net assets in equity securities
of foreign issuers. The Value Equity Series may invest without limit in equity
securities of foreign issuers; however, it is expected that under ordinary
circumstances, the Series will not invest more than 25% of its assets in foreign
issuers, measured at the time of investment. The Multiple Allocation, Fully
Managed, Natural Resources, All-Growth, Capital Appreciation, Rising Dividends,
Emerging Markets, Value Equity, and Strategic Equity Series may invest in
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs") (collectively, "Depositary Receipts") which
are described below. The Capital Appreciation Series may invest up to 20% of its
total assets in Depositary Receipts and the Value Equity Series may invest
without limit in Depositary Receipts, although it is expected that under
ordinary circumstances, the Series will not invest more than 25% of its assets
in foreign issuers, including Depositary Receipts. The Multiple Allocation,
Limited Maturity Bond, Liquid Asset, Emerging Markets, and Strategic Equity
Series may invest in foreign government securities that are denominated in U.S.
dollars, although the Multiple Allocation, Limited Maturity Bond, Liquid Asset,
and Strategic Equity Series will not purchase foreign government securities if,
as a result, more than 10% of the value of its total assets would be invested in
such securities. The Emerging Markets Series may also invest in foreign
government and corporate debt securities that are not denominated in U.S.
dollars. The Multiple Allocation, Liquid Asset, Emerging Markets, and Strategy
Equity Series may invest in foreign branches of commercial banks and foreign
banks. See the "Banking Industry and Savings Industry Obligations" discussion in
the Statement of Additional Information for further description of these
securities.
Each Series is subject to the following guidelines for diversification of
foreign security investments. If a Series has less than 20% of its assets in
foreign issuers, then all of such investment may be in issuers located in one
country. If a Series has at least 20% but less than 40% of its assets in foreign
issuers, then such investment must be allocated to issuers located in at least
two different countries. Similarly, if a Series has at least 40% but less than
60% of its assets in foreign issuers, such investment must be allocated in at
least three different countries. Foreign investments must be allocated to at
least four different countries if at least 60% of a Series' assets is in foreign
issuers, and to at least five different countries if at least 80% is in foreign
issuers. For purposes of allocating a Series' investments, a company will be
considered located in the country in which it is domiciled, in which it is
primarily traded, from which it derives a significant portion of its revenues,
or in which a significant portion of its goods or services are produced.
A Series may have no more than 20% of its net assets invested in securities of
issuers located in any one country, except that a Series may have an additional
15% of its net assets invested in securities of issuers located in any one of
the following countries: Australia, Canada, France, Japan, the United Kingdom,
or Germany. In addition, the Natural Resources Series may invest up to 35% of
its net assets in securities of issuers located in South Africa. A Series'
investments in United States issuers are not subject to the foreign country
diversification guidelines.
Investments in foreign securities offer potential benefits not available solely
in securities of domestic issuers by offering the opportunity to invest in
foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Since each of these Series may invest
in securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, other foreign taxation,
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
political or social instability, or diplomatic developments that could adversely
affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the U.S. A Series might have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in U.S.
courts. In addition, transactions in foreign securities may involve greater time
from the trade date until settlement than domestic securities transactions and
involve the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
The Emerging Markets Series may invest in debt obligations ("sovereign debt") of
governmental issuers in emerging market countries and industrialized countries.
The sovereign debt issued or guaranteed by certain emerging market governmental
entities and corporate issuers in which the Series may invest potentially
involves a high degree of risk and may be deemed the equivalent in terms of
quality to high risk, low rated securities (I.E., high yield bonds) and subject
to many of the same risks as such securities. Similarly, the Series may have
difficulty disposing of certain of these debt obligations because there may be a
thin trading market for such securities. In the event a governmental issuer
defaults on its obligations, the Series may have limited legal recourse against
the issuer or guarantor, if any. Remedies must, in some cases, be pursued in the
courts of the defaulting party itself, and the ability of the holder of foreign
government debt securities to obtain recourse may be subject to the political
climate in the relevant country. The issuers of the government debt securities
in which the Series may invest have in the past experienced substantial
difficulties in servicing their external debt obligations, which has led to
defaults on certain obligations and the restructuring of certain indebtedness.
See "Description of Securities and Investment Techniques -- High Yield Bonds" in
this Prospectus and "Debt Securities -- Sovereign Debt" in the Statement of
Additional Information.
Dividend and interest income from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located and may not be
recoverable by a Series or its investors.
ADRs are Depositary Receipts typically issued by a U.S. bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or
U.S. corporation. Generally, Depositary Receipts in registered form are designed
for use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the securities underlying unsponsored Depositary Receipts are not obligated
to disclose material information in the United States and, therefore, there may
be less information available regarding such issuers and there may not be a
correlation between such information and the market value of the Depositary
Receipts. Depositary Receipts also involve the risks of other investments in
foreign securities.
INVESTMENT IN GOLD AND
OTHER PRECIOUS METALS
The Natural Resources Series may invest up to 10% of its total assets in gold
bullion and coins and other precious metals (silver or platinum) bullion and in
futures contracts with respect to such metals. The Multiple Allocation and
Strategic Equity Series may engage in gold futures contracts. (See "Gold Futures
Contracts" for further explanation of this investment technique.) The Series may
further restrict the level of their metal investments in order to comply with
applicable regulatory requirements. In order to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), each Series intends to manage its metal investments and/or
futures contracts on metals so that less than 10% of the gross income of the
Series for tax purposes during any fiscal year (the current
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
limit on so-called non-qualifying income) is derived from these and other
sources that produce such non-qualifying income.
Metals will not be purchased in any form that is not readily marketable, and
gold coins will be purchased for their intrinsic value only, I.E., coins will
not be purchased for their numismatic value. Any metals purchased by the Series
will be delivered to and stored with a qualified custodian bank. Metal
investments do not generate interest or dividend income.
Metal investments are considered speculative and are affected by various
worldwide economic, financial, and political factors. Prices may fluctuate
sharply over short time periods due to changes in inflation expectations in
various countries, metal sales by central banks of governments or international
agencies, speculation, changes in industrial and commercial demand, and
governmental prohibitions or restriction on the private ownership of certain
precious metals or minerals. Furthermore, at the present time, there are four
major producers of gold bullion: the Republic of South Africa, the United
States, Canada, and Australia. Political and economic conditions in these
countries will have a direct effect on the mining and distribution of gold and,
consequently, on its price. Many of these risks also may affect the value of
securities of companies engaged in operations respecting gold and other precious
metals.
FUTURES CONTRACTS
The Multiple Allocation, Fully Managed, Limited Maturity Bond, Natural
Resources, All-Growth, Capital Appreciation, Emerging Markets, Value Equity, and
Strategic Equity Series may engage in futures contracts. The Multiple
Allocation, Limited Maturity Bond, Natural Resources, Emerging Markets, Value
Equity, and Strategic Equity Series may purchase and sell interest rate futures
contracts, and the Limited Maturity Bond, Emerging Markets, and Value Equity
Series may also purchase and write options on such futures contracts. The
Multiple Allocation, Fully Managed, Natural Resources, All-Growth, Capital
Appreciation, Emerging Markets, Value Equity, and Strategic Equity Series may
purchase and sell stock index futures contracts and futures contracts based upon
other financial instruments, and purchase options on such contracts. The
Multiple Allocation, Natural Resources, and Strategic Equity Series may also
engage in gold and other futures contracts. The Fully Managed Series will not
write options on any futures contracts. For a general description of these
futures contracts and options thereon, including information on margin
requirements, see the Statement of Additional Information.
These Series may engage in such futures transactions as an adjunct to their
securities activities. The transactions in futures contracts must constitute
bona fide hedging or other strategies under regulations promulgated by the
Commodities Futures Trading Commission (the "CFTC"), under which a Series
engaging in futures transactions would not be a "commodity pool."
At the time a Series purchases a futures contract, an amount of cash, U.S.
Government securities, or money market instruments equal to the fair market
value less initial and variation margin of the futures contract will be
deposited in a segregated account with the Trust's custodian to collateralize
the position and thereby ensure that such futures contract is covered. In
addition, each Series will comply with certain regulations of the CFTC to
qualify for an exclusion from being a "commodity pool," which require a Series
to set aside cash and short-term obligations with respect to long positions in a
futures contract or a futures option. These requirements are described in the
Statement of Additional Information.
RISKS ASSOCIATED WITH
FUTURES AND FUTURES OPTIONS
There are several risks associated with the use of futures and futures
options. The value of a futures contract may decline. While a Series'
transactions in futures may protect the Series against adverse movements in
the general level of interest rates or other economic conditions, such
transactions could also preclude the Series from the opportunity to benefit
from favorable movements in the level of interest rates or other economic
conditions. With respect to transactions for hedging, there can be no
guarantee that there will be correlation between price movements in the
hedging vehicle and in the portfolio securities being hedged. An incorrect
correlation could result in a loss on both the hedged securities in a Series
and the hedging vehicle so that the Series' return might have been better if
hedging had not been attempted. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers.
A decision as to whether, when, and how to hedge involves the exercise of
skill and judgment and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate trends.
There can be no assurance that a liquid market will exist at a time when a
Series seeks to close out a futures contract or a futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. The daily limit governs only price movements during a particular
trading day and therefore does not limit potential losses because the limit
may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Lack of a liquid market for any reason may prevent the
Series from liquidating an unfavorable position and the Series would remain
obligated to meet margin requirements and continue to incur losses until the
position is closed.
Any Series, other than the Emerging Market Series, will only enter into
futures contracts or futures options which are standardized and traded on a
U.S. exchange or board of trade, or, in the case of futures options, for which
an established over-the-counter market exists. A Series will not enter into a
futures contract or purchase a futures option if immediately thereafter the
initial margin deposits for futures contracts held by the Series plus premiums
paid by it for open futures options positions, less the amount by which any
such positions are "in-the-money," would exceed 5% of the Series' total
assets.
The Emerging Markets Series may engage in futures contracts and options on
futures contracts not only on U.S. domestic markets, but also on exchanges and
other markets outside of the United States. Foreign markets may offer
advantages such as trading in indices that are not currently traded in the
United States. Foreign markets, however, may have greater risk potential than
domestic markets. Unlike trading on domestic commodity exchanges, trading on
foreign commodity markets is not regulated by the CFTC and may be subject to
greater risk than trading on domestic exchanges. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
a trader may look only to the broker for performance of the contract. Trading
in foreign futures or foreign options contracts may not be afforded certain of
the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
protections as funds received in respect of transactions on United States
futures exchanges. In addition, the Emerging Markets Series could incur losses
or lose any profits that had been realized in trading by adverse changes in
the exchange rate of the currency in which the transaction is denominated.
Transactions on foreign exchanges may include both commodities that are traded
on domestic exchanges and boards of trade and those that are not.
The Trust reserves the right to engage in other types of futures transactions
in the future and to use futures and related options for other than hedging
purposes to the extent permitted by regulatory authorities.
OPTIONS ON SECURITIES
The following Series may engage in transactions on options on securities: the
Multiple Allocation, the Fully Managed, Limited Maturity Bond, Natural
Resources, Real Estate, All-Growth, Capital Appreciation, Emerging Markets,
Value Equity, and Strategic Equity Series. The Multiple Allocation, Fully
Managed, All-Growth, Capital Appreciation, Emerging Markets, and Value Equity
Series may purchase and write put and call options on securities and on stock
indexes at such times as the Series' Portfolio Manager deems appropriate and
consistent with the Series' investment objective. The Natural Resources and Real
Estate Series may purchase and write put
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
and call options on securities. These Series will write call and put options
only if they are covered or secured, and may purchase or sell options to effect
closing transactions. The Strategic Equity Series may buy covered listed put
equity options and sell covered listed call equity options, including options on
stock indices. The Multiple Allocation Series will not purchase listed put or
call options if, immediately after such purchase, the premiums paid for all such
options owned at that time would exceed 2% of the Series' net assets. The Fully
Managed, All-Growth, Capital Appreciation, and Value Equity Series may write
covered call or put options with respect to not more than 25% of its net assets,
may purchase protective puts with a value of up to 25% of its net assets, and
may purchase calls and puts other than protective puts with a value of up to 5%
of the Series' net assets. The Emerging Markets Series may engage in options
transactions not only on U.S. domestic markets but also on exchanges and other
markets outside the United States.
The Limited Maturity Bond Series may write covered call options and purchase put
options, and purchase call and write put options to close out options previously
written by the Series. The Series may engage in options transactions to reduce
the effect of price fluctuations of securities owned by the Series (and involved
in the options) on the Series' net asset value per share. This Series will
purchase put options involving portfolio securities only when the Portfolio
Manager believes that a temporary defensive position is desirable in light of
market conditions, but does not desire to sell the portfolio security.
Any of these Series may enter into closing transactions in order to terminate
its obligations either as a writer or a purchaser of an option prior to the
expiration of the option. For a general description of purchasing and writing
options on securities and securities indexes, see "Options on Securities and
Securities Indexes" in the Statement of Additional Information.
RISKS OF OPTIONS TRANSACTIONS
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price. If a put or call option purchased by the Series is not sold when it has
remaining value, and if the market price of the underlying security, in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, the Series
will lose its entire investment in the option. Also, where a put or call
option on a particular security is purchased to hedge against price movements
in a related security, the price of the put or call option may move more or
less than the price of the related security.
There can be no assurance that a liquid market will exist when a Series seeks
to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Series may be unable to
close out a position. If a Series cannot effect a closing transaction, it will
not be able to sell the underlying security while the previously written
option remains outstanding, even though it might otherwise be advantageous to
do so. Possible reasons for the absence of a liquid secondary market on a
national securities exchange could include: insufficient trading interest,
restrictions imposed by national securities exchanges, trading halts or
suspensions with respect to call options or their underlying securities,
inadequacy of the facilities of national securities exchanges or The Options
Clearing Corporation due to a high trading volume or other event, and a
decision by one or more national securities exchanges to discontinue the
trading of call options or to impose restrictions on types of orders.
Since option premiums paid or received by a Series, as compared to underlying
investments, are small in relation to the market value of such investments,
buying and selling put and call options offer large amounts of leverage. Thus,
the leverage offered by trading in options could result in the Series' net
asset value being more sensitive to changes in the value of the underlying
securities.
No Series except the Multiple Allocation Series will write a covered call
option or purchase a put option if, as a result, the aggregate market value
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
of all portfolio securities covering call options or subject to put options
exceeds 25% of the market value of the Series' net assets. Unless otherwise
indicated above, as in the case of the Emerging Markets Series, a Series will
enter only into options which are standardized and traded on a U.S. exchange
or board of trade, or for which an established over-the-counter market exists.
FOREIGN CURRENCY TRANSACTIONS
The Multiple Allocation, Fully Managed, Natural Resources, Emerging Markets,
Rising Dividends, Value Equity, and Strategic Equity Series may enter into
forward currency contracts and enter into currency exchange transactions on a
spot (I.E., cash) basis. A forward currency contract is an obligation to
purchase or sell a currency against another currency at a future date and price
as agreed upon by the parties. A Series may either accept or make delivery of
the currency at the maturity of the forward contract or, prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. A Series will engage in forward currency transactions in anticipation
of or to protect itself against fluctuations in currency exchange rates, as
further described in the Statement of Additional Information. None of the Series
will commit more than 15% of the total assets of the Series computed at market
value at the time of commitment to forward contracts for hedging purposes, and
none will purchase and sell foreign currency as an investment.
A Series will not enter into a forward contract with a term of greater than one
year. At the maturity of a forward contract, a Series may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. If the Series retains the portfolio security and engages in an
offsetting transaction, the Series will incur a gain or a loss to the extent
that there has been movement in forward contract prices. For more information on
closing a forward currency position, including information on associated risks,
see the Statement of Additional Information.
Forward contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when a Series seeks to close out
a forward currency position, in which case a Series might not be able to effect
a closing purchase transaction at any particular time. In addition, a Series
entering into a forward foreign currency contract incurs the risk of default by
the counter party to the transaction.
While forward foreign currency contracts tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Although the Series values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Series may do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Series at one rate, while offering a lesser rate of exchange should the
Series desire to resell that currency to the dealer.
OPTIONS ON FOREIGN CURRENCIES
The Multiple Allocation, Natural Resources, Emerging Markets, Value Equity, and
Strategic Equity Series may engage in transactions in options on foreign
currencies. The Natural Resources Series may invest up to 5% of its assets,
taken at market value at the time of investment, in call and put options on
domestic and foreign securities and foreign currencies. For a description of
options on securities, see "Options on Securities."
A Series may purchase call and put options on foreign currencies as a hedge
against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Series may
be denominated. For a general description and other information on options on
foreign currencies, see "Options on Foreign Currencies" in the Statement of
Additional Information. Hedging against a change in the value of a foreign
currency does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Furthermore, such
hedging transactions reduce or preclude the opportunity for gain if the value of
the hedged currency should change relative to the U.S. dollar. A Series will not
speculate in options on foreign currencies. A Series may invest in options on
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although a Series will
purchase only exchange-traded options, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time. In the event no liquid secondary market exists, it might not be
possible to effect closing transactions in particular options. If a Series
cannot close out an exchange- traded option which it holds, it would have to
exercise its option in order to realize any profit and would incur transactional
costs on the sale of the underlying assets.
BORROWING
Each Series may borrow up to 10% of the value of its net assets. For temporary
purposes, such as to facilitate redemptions, a Series may increase its
borrowings up to 25% of its net assets. Leveraging by means of borrowing will
exaggerate the effect of any increase or decrease in the value of portfolio
securities on a Series' net asset value; money borrowed will be subject to
interest and other costs (which may include commitment fees and/or the cost of
maintaining minimum average balances), which may or may not exceed the income
received from the securities purchased with borrowed funds. The use of borrowing
tends to result in a faster than average movement, up or down, in the net asset
value of the Series' shares. A Series also may be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.
Reverse repurchase agreements, short sales of securities, and short sales of
securities against the box will be included as borrowing subject to the
borrowing limitations described above, except that the Multiple Allocation
Series, Natural Resources Series, and Strategic Equity Series are permitted to
engage in short sales of securities with respect to an additional 15% of the
Series' net assets in excess of the limits otherwise applicable to borrowing.
Securities purchased on a when-issued or delayed delivery basis will not be
subject to the Series' borrowing limitations to the extent that a Series
establishes and maintains liquid assets in a segregated account with the Trust's
custodian equal to the Series' obligations under the when-issued or delayed
delivery arrangement.
The Multiple Allocation, Fully Managed, Limited Maturity Bond, All-Growth,
Capital Appreciation, Strategic Equity Series and Liquid Asset Series may, in
connection with permissible borrowings, transfer as collateral securities owned
by the Series.
INVESTMENT RESTRICTIONS
The Series are subject to investment restrictions that are described in the
Statement of Additional Information. Those investment restrictions so designated
and the investment objective of each Series are "fundamental policies" of the
Series, which means that they may not be changed without a majority vote of the
shareholders of the affected Series. Except for those restrictions specifically
identified as fundamental and each Series's investment objective, all other
investment policies and practices described in this Prospectus and the Statement
of Additional Information are not fundamental, meaning that the Board of
Trustees may change them without shareholder approval. The vote of a majority of
the outstanding voting securities of a Series means the vote, at an annual or
special meeting, of (a) 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
such Series are present or represented by proxy; or (b) more than 50% of the
outstanding voting securities of such Series, whichever is less.
The investment restrictions are stated in full in the Statement of Additional
Information, and a brief description of some of them follows. A Series will not,
with respect to 75% of its assets, invest more than 5% of its assets (taken at
market value at the time of such investment) in securities of any one issuer,
except that this restriction does not apply to U.S. Government securities. A
Series will not, with respect to 75% of its assets, invest more than 10% (taken
at market value at the time of such investment) of any one issuer's outstanding
voting securities, except that this restriction does not apply to U.S.
Government securities. No Series will concentrate more than 25% of its assets in
any particular industry, except that this restriction does not apply to (a) U.S.
Government securities, (b) with respect to the Liquid Asset Series, to
securities or obligations issued by U.S. banks, and (c) with respect to the Real
Estate Series, which will normally invest
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INVESTMENT RESTRICTIONS (CONTINUED)
more than 25% of its total assets in securities of issuers in the real estate
and related industries, or with respect to the Natural Resources Series, which
will normally invest more than 25% of its total assets in the group of
industries engaged in natural resources activities, provided that such
concentration for these two Series is permitted under tax law requirements for
regulated investment companies that are investment vehicles for variable
contracts.
PURCHASE OF SHARES
Shares of the Series may be offered for purchase by separate accounts of
insurance companies to serve as an investment medium for the Variable Contracts
issued by the insurance companies and to certain qualified pension and
retirement plans, as permitted under the federal tax rules relating to the
Series serving as investment mediums for Variable Contracts. Shares of the
Series are sold to insurance company separate accounts funding both variable
annuity contracts and variable life insurance contracts and may be sold to
insurance companies that are not affiliated. The Trust currently does not
foresee any disadvantages to Variable Contract Owners or other investors arising
from offering the Trust's shares to separate accounts of unaffiliated insurers,
separate accounts funding both life insurance policies and annuity contracts, or
certain qualified pension and retirement plans; however, due to differences in
tax treatment or other considerations, it is theoretically possible that the
interests of owners of various contracts or pension and retirement plans
participating in the Trust might at some time be in conflict. However, the Board
of Trustees and insurance companies whose separate accounts invest in the Trust
are required to monitor events in order to identify any material conflicts
between variable annuity contract owners and variable life policy owners,
between separate accounts of unaffiliated insurers, and between various contract
owners and pension and retirement plans. The Board of Trustees will determine
what action, if any, should be taken in the event of such a conflict. If such a
conflict were to occur, one or more insurance company separate accounts might
withdraw their investment in the Trust. This might force the Trust to sell
securities at disadvantageous prices.
Shares of each Series are sold at their respective net asset values (without a
sales charge) next computed after receipt of a purchase order by an insurance
company whose separate account invests in the Trust.
NET ASSET VALUE
A Series' net asset value is determined by dividing the value of each Series'
net assets by the number of its shares outstanding. That determination is made
once each business day, Monday through Friday, at or about 4:00 p.m., New York
City time, on each day that the New York Stock Exchange is open for trading. The
Board of Trustees has established procedures to value each Series' assets to
determine net asset value. In general, these valuations are based on actual or
estimated market value, with special provisions for assets not having readily
available market quotations and short-term debt securities. The net asset values
per share of each Series will fluctuate in response to changes in market
conditions and other factors, except that the net asset value of the shares of
the Liquid Asset Series will not fluctuate in response to changes in market
conditions for so long as the Series is using the amortized cost method of
valuation.
The Liquid Asset Series' portfolio securities are valued using the amortized
cost method of valuation. This involves valuing a security at cost on the date
of acquisition and thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity. See the Statement of Additional
Information for a description of certain conditions and procedures followed by
the Series in connection with amortized cost valuation.
All other Series are valued as follows:
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price, or, if no sales are reported, the mean between representative bid
and asked quotations obtained from a quotation reporting system or from
established market makers. In other cases, securities are valued at their fair
value as determined in good faith by the Board of Trustees, although the actual
calculations will be made by persons acting under the direction of the Board and
subject to the Board's review. Money market instruments are valued at market
value, except that instruments maturing in sixty days or less may be valued
using the amortized cost method of valuation. The value of a foreign security is
determined in its national currency based upon the price on the foreign
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<PAGE>
NET ASSET VALUE (CONTINUED)
exchange as of its close of business immediately preceding the time of
valuation. Securities traded in over-the-counter markets outside the United
States are valued at the last available price in the over-the-counter market
prior to the time of valuation.
Debt securities, including those to be purchased under firm commitment
agreements (other than obligations having a maturity sixty days or less at their
date of acquisition valued under the amortized cost method), are normally valued
on the basis of quotes obtained from brokers and dealers or pricing services,
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data. Debt obligations having a
maturity of sixty days or less may be valued at amortized cost unless the
Portfolio Manager believes that amortized cost does not approximate market
value.
When a Series writes a put or call option, the amount of the premium is included
in the Series' assets and an equal amount is included in its liabilities. The
liability thereafter is adjusted to the current market value of the option. The
premium paid for an option purchased by the Series is recorded as an asset and
subsequently adjusted to market value. Futures and options thereon which are
traded on commodities exchanges or boards of trade will be valued at their
closing settlement price on such exchange or board of trade. Foreign securities
quoted in foreign currencies generally are valued at appropriately translated
foreign market closing prices.
Trading in securities on exchanges and over-the-counter markets in European and
Pacific Basin countries is normally completed well before 4:00 p.m., New York
City time. Trading on these exchanges may not take place on all New York
business days and in addition, trading takes place in various foreign markets on
days which are not business days in New York and on which the Trust's net asset
value is not calculated. As a result, the calculation of the net asset value of
a Series investing in foreign securities may not take place contemporaneously
with the determination of the prices of the securities included in the
calculation. Further, under the Trust's procedures, the prices of foreign
securities are determined using information derived from pricing services and
other sources. Prices derived under these procedures will be used in determining
daily net asset value. Information that becomes known to the Trust or its agents
after the time that the net asset value is calculated on any business day may be
assessed in determining net asset value per share after the time of receipt of
the information, but will not be used to retroactively adjust the price of the
security so determined earlier or on a prior day. Events that may affect the
value of these securities that occur between the time their prices are
determined and the time the Series' net asset value is determined may not be
reflected in the calculation of net asset value of the Series unless the Manager
or the Portfolio Manager, acting under authority delegated by the Board of
Trustees, deems that the particular event would materially affect net asset
value. In this event, the securities would be valued at fair market value as
determined in good faith by the Board of Trustees of the Fund, although the
actual calculations will be made by the Manager or the Portfolio Manager acting
under the direction of the Board and subject to the Board's review.
REDEMPTION OF SHARES
Shares of any Series may be redeemed on any business day. Redemptions are
effected at the per share net asset value next determined after receipt of the
redemption request by an insurance company whose separate account invests in the
Series. Redemption proceeds normally will be paid within seven days following
receipt of instructions in proper form. The right of redemption may be suspended
by the Trust or the payment date postponed beyond seven days when the New York
Stock Exchange is closed (other than customary weekend and holiday closings) or
for any period during which trading thereon is restricted because an emergency
exists, as determined by the Securities and Exchange Commission, making disposal
of portfolio securities or valuation of net assets not reasonably practicable,
and whenever the Securities and Exchange Commission has by order permitted such
suspension or postponement for the protection of shareholders.
If the Board of Trustees should determine that it would be detrimental to the
best interests of the remaining shareholders of a Series to make payment wholly
or partly in cash, the Series may pay the redemption price in whole or part by a
distribution in kind of securities from the portfolio of the Series, in lieu of
cash, in conformity with applicable rules of the Securities and Exchange
Commission. If
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<PAGE>
REDEMPTION OF SHARES (CONTINUED)
shares are redeemed in kind, the redeeming shareholder might incur brokerage
costs in converting the assets into cash.
EXCHANGES
Shares of any one Series may be exchanged for shares of any of the other Series
described in this Prospectus. Exchanges are treated as a redemption of shares of
one Series and a purchase of shares of one or more of the other Series and are
effected at the respective net asset values per share of each Series on the date
of the exchange. The Trust reserves the right to modify or discontinue its
exchange privilege at any time without notice.
Variable Contract Owners do not deal directly with the Trust with respect to the
purchase, redemption, or exchange of shares of the Series, and should refer to
the prospectus for the applicable Variable Contract for information on
allocation of premiums and on transfers of account value among divisions of the
pertinent insurance company separate account that invest in the Series.
The Trust reserves the right to discontinue offering shares of one or more
Series at any time. In the event that a Series ceases offering its shares, any
investments allocated by an insurance company to such Series will be invested in
the Liquid Asset Series or any successor to such Series.
PORTFOLIO TRANSACTIONS
BROKERAGE SERVICES
Pursuant to the Portfolio Management Agreements, the Portfolio Manager places
orders for the purchase and sale of portfolio investments for the Series'
accounts with brokers or dealers selected by the Portfolio Manager in its
discretion. In executing transactions, the Portfolio Manager will attempt to
obtain the best execution for a Series, taking into account such factors as
price (including the applicable brokerage commission or dollar spread), size of
order, the nature of the market for the security, the timing of the transaction,
the reputation, the experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of execution, execution
capabilities, and operational facilities of the firms involved, and the firm's
risk in positioning a block of securities. In transactions on stock exchanges in
the United States, payments of brokerage commissions are negotiated. In
effecting purchases and sales of portfolio securities in transactions on U.S.
stock exchanges for the account of a Series, the Portfolio Manager may pay
higher commission rates than the lowest available when the Portfolio Manager
believes it is reasonable to do so in light of the value of the brokerage and
research services provided by the broker effecting the transaction. In the case
of securities traded on some foreign stock exchanges, brokerage commissions may
be fixed and the Portfolio Manager may be unable to negotiate commission rates
for these transactions. In the case of securities traded on the over-the-counter
markets, there is generally no stated commission, but the price includes an
undisclosed commission or markup.
Some securities considered for investment by the Series may also be appropriate
for other clients served by the Portfolio Manager and/or its affiliates. If a
purchase or sale of securities consistent with the investment policies of a
Series and one or more of these clients served by the Portfolio Manager and/or
its affiliates is considered at or about the same time, transactions in such
securities will be allocated among the Series and clients in a manner deemed
fair and reasonable by the Portfolio Manager and/or its affiliates. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Portfolio Manager, and the results of such
allocations, are subject to periodic review by the Trust's Manager and Board of
Trustees.
The Portfolio Manager for a Series may receive research services from many
broker-dealers with which the Portfolio Manager places the Series' portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Portfolio Manager and its affiliates in advising its various clients
(including the Series), although not all of these services are necessarily
useful and of value in managing a Series.
A Portfolio Manager may place orders for the purchase and sale of portfolio
securities with itself, acting as broker-dealer, or with a broker-dealer that is
an affiliate of the Portfolio Manager or the Trust where, in the judgment of the
Portfolio Manager,
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PORTFOLIO TRANSACTIONS (CONTINUED)
such firm will be able to obtain a price and execution at least as favorable as
other qualified brokers.
Securities and Exchange Commission rules further require that commission paid to
such an affiliated broker-dealer or Portfolio Manager by a Series on exchange
transactions not exceed "usual and customary brokerage commissions." BT
Brokerage Corporation, Watermark Securities, Inc., Zweig Securities Corp., KA
Associates, Inc., Counsellors Securities Inc., and Raymond James & Associates,
Inc. are registered broker-dealers and each is affiliated with a Portfolio
Manager. Certain affiliates of Robert Fleming Holdings Limited and Jardine
Fleming Group Limited are broker-dealers affiliated with T. Rowe Price. Any of
the above firms may retain compensation on transactions effected for a Series in
accordance with these rules and procedures adopted by the Board of Trustees.
During the Trust's fiscal years ended December 31, 1994, 1993, and 1992, the
Fully Managed Series paid to Weiss, Peck & Greer (a broker-dealer affiliated
with the Series' prior Portfolio Manager) brokerage commissions of $78,271
(50.0% of total brokerage commissions), $68,311 (57.3% of total brokerage
commissions), and $33,597 (92% of total brokerage commissions). During the
fiscal years ended December 31, 1994, 1993 and 1992, the Multiple Allocation
Series paid to Watermark Securities, Inc. brokerage commissions of $51,764
(17.2% of total brokerage commissions), $49,242 (18.6% of total brokerage
commissions) and $8,977 (9% of total brokerage commissions). In addition, during
the fiscal years ended December 31, 1994 and 1993, the Rising Dividends Series
paid to KA Associates, Inc. brokerage commissions of $2,330 (2.2% of total
brokerage commissions) and $20,641 (71.1% of total brokerage commissions).
PORTFOLIO TURNOVER
For reporting purposes, each Series' portfolio turnover rate is calculated by
dividing the value of the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of portfolio securities
owned by the Series during the fiscal year. In determining such portfolio
turnover, all securities whose maturities at the time of acquisition were one
year or less are excluded. A 100% portfolio turnover rate would occur, for
example, if all of the securities in the portfolio (other than short-term
securities) were replaced once during the fiscal year. The portfolio turnover
rate for each of the Series will vary from year to year, and depending on market
conditions, turnover could be greater in periods of unusual market movement and
volatility. A higher turnover rate would result in heavier brokerage commissions
or other transactional expenses which must be borne, directly or indirectly, by
a Series and ultimately by the Series' shareholders. The portfolio turnover
rates for each Series are presented in the data shown in "Financial Highlights"
in this Prospectus.
DIVIDENDS AND DISTRIBUTIONS
Net investment income of the Liquid Asset Series is declared as a dividend daily
and paid monthly. For all other Series, net investment income will be paid
annually, except that the Limited Maturity Bond Series may declare a dividend
monthly or quarterly. Any net realized long-term capital gains (the excess of
net long-term capital gains over net short-term capital losses) for any Series
will be declared and paid at least once annually. Net realized short-term
capital gains may be declared and paid more frequently.
Any distributions made by any Series will be automatically reinvested in
additional shares of that Series, unless an election is made by a shareholder to
receive distributions in cash. Dividends or distributions by a Series other than
the Liquid Asset Series (which attempts to maintain a constant $1.00 per share
net asset value) will reduce the per share net asset value by the per share
amount so paid.
FEDERAL INCOME TAX STATUS
Each Series intends to qualify each year and elect to be treated as a regulated
investment company under Subchapter M of the Code. Accordingly, a Series
generally expects not to be subject to federal income tax if it meets certain
source of income, diversification of assets, income distribution, and other
requirements, to the extent it distributes its investment company taxable income
and its net capital gains. Distributions of investment company taxable income
and net realized capital gains are automatically reinvested in additional shares
of the Series, unless an election is made by a shareholder to receive
distributions in cash. Tax consequences to the Variable Contract Owners are
described in the prospectuses for the pertinent Separate Accounts.
Certain requirements relating to the qualification of a Series as a regulated
investment company under
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FEDERAL INCOME TAX STATUS (CONTINUED)
the Code may limit the extent to which a Series will be able to engage in
transactions in options, futures contracts, or forward contracts.
To comply with regulations under Section 817(h) of the Code, each Series
generally will be required to diversify its investments, so that on the last day
of each quarter of a calendar year, no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. For this purpose,
securities of a single issuer are treated as one investment and each U.S.
Government agency or instrumentality is treated as a separate issuer. Any
security issued, guaranteed, or insured (to the extent so guaranteed or insured)
by the U.S. or an agency or instrumentality of the U.S. is treated as a security
issued by the U.S. Government or its agency or instrumentality, whichever is
applicable. These regulations will limit the ability of a Series to invest more
than 55% of its assets in direct obligations of the U.S. Treasury or in
obligations which are deemed to be issued by a particular agency or
instrumentality of the U.S. Government. If a Series fails to meet the
diversification requirements under Code Section 817(h), income with respect to
Variable Contracts invested in the Series at any time during the calendar
quarter in which the failure occurred could become currently taxable to the
owners of such Variable Contracts and income for prior periods with respect to
such Contracts also would be taxable, most likely in the year of the failure to
achieve the required diversification. Other adverse tax consequences also could
ensue. If a Series failed to qualify as a regulated investment company, the
results would be substantially the same as a failure to meet the diversification
requirements under Code Section 817(h).
In connection with the issuance of the regulations governing diversification
under Section 817(h) of the Code, the Treasury Department announced that it
would issue future regulations or rulings addressing the circumstances in which
a Variable Contract Owner's control of the investments of a separate account may
cause the contract owner, rather than the insurance company, to be treated as
the owner of the assets held by the separate account. If the Variable Contract
Owner is considered the owner of the securities underlying the separate account,
income and gains produced by those securities would be included currently in the
Variable Contract Owner's gross income. Although it is not known what standards
will be incorporated in future regulations or other pronouncements, the Treasury
staff has indicated informally that it is concerned that there may be too much
contract owner control where the fund (or series) underlying a separate account
invests solely in securities issued by companies in a specific industry.
Similarly, the ability of a contract owner to select a fund (or series)
representing a specific economic risk may also be proscribed.
These future rules and regulations proscribing investment control may adversely
affect the ability of certain Series to operate as described in this Prospectus.
There is, however, no certainty as to what standards, if any, Treasury will
ultimately adopt, and there can be no certainty that the future rules and
regulations will not be given retroactive application.
In the event that unfavorable rules or regulations are adopted, there can be no
assurance that the Series will be able to operate as currently described in the
Prospectus, or that a Series will not have to change its investment objectives,
investment policies, or investment restrictions. While a Series' investment
objective is fundamental and may be changed only by a vote of a majority of its
outstanding shares, the Trustees have reserved the right to modify the
investment policies of a Series as necessary to prevent any such prospective
rules and regulations from causing the Variable Contract Owners to be considered
the owners of the Series underlying the Separate Accounts.
See "Taxation" in the Trust's Statement of Additional Information for more
information on taxes, including information on the taxation of distributions
from a Series. Reference is made to the prospectus or offering memorandum of the
applicable Separate Account for information regarding the federal income tax
treatment respecting a Variable Contract.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on August 3, 1988, and
currently consists of fourteen portfolios that are operational, twelve of which
are described in this Prospectus. Other portfolios may be offered by means of a
separate prospectus. The Board of Trustees may establish additional portfolios
in the future. The capitalization of the Trust consists solely of an unlimited
number of shares of beneficial interest with a par
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OTHER INFORMATION (CONTINUED)
value of $0.001 each. When issued in accordance with the terms of the Trust's
Agreement and Declaration of Trust ("Declaration of Trust"), shares of the Trust
are fully paid, freely transferable, and non-assessable by the Trust.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees, or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations
and thus should be considered remote.
VOTING RIGHTS
Shareholders of the Series are given certain voting rights. Each share of each
Series will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable insurance products.
Massachusetts business trust law does not require the Trust to hold annual
shareholder meetings, although special meetings may be called for a specific
Series, or for the Trust as a whole, for purposes such as electing or removing
Trustees, changing fundamental policies, or approving a contract for investment
advisory services. In the case of Variable Contracts, in accordance with current
laws, it is anticipated that an insurance company issuing a Variable Contract
funded by a Separate Account that invests in a Series and that is registered
with the SEC as a unit investment trust will request voting instructions from
Variable Contract Owners and will vote shares or other voting interests in the
separate account in proportion to the voting instructions received.
CHANCELLOR ADMINISTRATIVE ORDER
On October 18, 1994, Chancellor Capital Management, Inc. ("CCM"), the parent of
Chancellor Trust Company, Parag Saxena, one of CCM's managing directors in his
capacity as a CCM employee and who has no involvement in managing the Trust's
assets, and James A. Long, IV, in his capacity as CCM employee, consented to the
filing of an administrative order by the Securities and Exchange Commission (the
"SEC") without admitting or denying the allegations or substance of the order.
SEE IN THE MATTER OF CHANCELLOR CAPITAL MANAGEMENT, INC., PARAG SAXENA AND JAMES
A. LONG, IV, Investment Advisers Act of 1940 Release No. 1447, October 18, 1994.
The SEC's order alleges that, during the period October 1988 through August
1992, CCM and Messrs. Saxena and Long did not adequately disclose the conflict
of interest arising from certain personal trades by Mr. Saxena and that CCM did
not maintain all required records of Mr. Saxena's personal trades. Specifically,
the SEC order states that (i) CCM should have disclosed that its employees
purchased privately issued securities for their personal accounts and
subsequently invested for clients in publicly traded securities of the same
issuers, and (ii) CCM and Mr. Saxena should have disclosed, when investing for
clients in companies founded by a venture capitalist that over a year earlier,
Mr. Saxena had invested for his own account, at nominal prices, in securities of
two of those companies and a third company founded by the venture capitalist
after providing advice to the venture capitalist. The SEC did not allege that
these acts were intended to harm CCM's clients and acknowledged that clients
profited from the transactions examined.
The order censured CCM and Messrs. Saxena and Long and ordered them to comply
with certain provisions of the Investment Advisers Act and fined Mr. Saxena.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and effective yield of its
Liquid Asset Series, the current yield of the remaining Series, and the total
return of all Series in advertisements and sales literature. In the case of
Variable Contracts, performance information for the Series will not be
advertised or included in sales literature unless accompanied by comparable
performance information for a separate account to which the Series offers their
shares.
Current yield for the Liquid Asset Series will be based on income received by a
hypothetical investment over a given 7-day period (less expenses accrued during
the period), and then "annualized" (I.E., assuming that the 7-day yield would be
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OTHER INFORMATION (CONTINUED)
received for 52 weeks, stated in terms of an annual percentage return on the
investment). "Effective yield" for the Liquid Asset Series is calculated in a
manner similar to that used to calculate yield, but reflects the compounding
effect of earnings on reinvested dividends.
For the remaining Series, any quotations of yield will be based on all
investment income per share earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the maximum public offering price per share on the last day of the period.
Quotations of average annual total return for any Series will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Series over a period of one, five, or ten years (or, if less,
up to the life of the Series), will reflect the deduction of a proportional
share of Series expenses (on an annual basis), and will assume that all
dividends and distributions are reinvested when paid. Quotations of total return
may also be shown for other periods.
Quotations of yield or total return for the Series will not take into account
charges or deductions against any separate account to which the Series' shares
are sold or charges and deductions against the pertinent Variable Contract,
although comparable performance information for the separate account will take
such charges into account. Performance information for any Series reflects only
the performance of a hypothetical investment in the Series during the particular
time period on which the calculations are based. Performance information should
be considered in light of the Series' investment objectives and policies,
characteristics, and quality of the portfolios, and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future. For a description of the methods used to
determine yield and total return for the Series, see the Statement of Additional
Information.
LEGAL COUNSEL
Dechert Price & Rhoads, Washington, D.C., has passed upon certain legal matters
in connection with the shares offered by this Prospectus, and also acts as
outside counsel to the Trust.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, serves as
independent auditors of the Trust.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the Series dated as of December 31,
1994, including notes thereto, are incorporated by reference in the Statement of
Additional Information from the Trust's Annual Report dated as of December 31,
1994. Unaudited financial statements for the Series dated as of June 30, 1995
are incorporated by reference in the Trust's Statement of Additional Information
from the Trust's Semi-Annual Report dated as of June 30, 1995. The financial
statements do not include information on the Strategic Equity Series because the
Series had not commenced operations on June 30, 1995. Information in the
financial statements for the years ended December 31, 1989, 1990, 1991, and 1992
has been audited by Coopers & Lybrand L.L.P. Information in the financial
statements for the years ended December 31, 1994 and 1993 has been audited by
Ernst & Young LLP.
51
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY
DOMICILED IN WILMINGTON, DELAWARE
IN 3057 10/95
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
Multiple Allocation Series, Fully Managed Series,
Limited Maturity Bond Series, All-Growth Series,
Natural Resources Series, Real Estate Series,
Capital Appreciation Series, Rising Dividends Series,
Emerging Markets Series, Value Equity Series,
Growth and Income Series, Strategic Equity Series,
and Market Manager Series
<PAGE>
THE GCG TRUST
280 Park Avenue
14 West
New York, New York 10017
(212) 454-8200
Statement of Additional Information
The date of this Statement of Additional Information
is October 2, 1995.
This Statement of Additional Information discusses thirteen portfolios (the
"Series") of The GCG Trust (the "Trust"), which is an open-end management
investment company. The Series described herein are as follows: the Multiple
Allocation Series; the Fully Managed Series; the Limited Maturity Bond Series;
the Natural Resources Series; the Real Estate Series; the All-Growth Series; the
Capital Appreciation Series; the Rising Dividends Series; the Emerging Markets
Series; the Value Equity Series; the Strategic Equity Series; the Liquid Asset
Series; and the Market Manager Series. The Series' Manager is Directed
Services, Inc. (the "Manager").
This Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus of The GCG Trust dated
October 2, 1995 (which pertains to all Series other than the Market Manager
Series) and the Prospectus of the Market Manager Series dated May 1, 1995. The
Prospectuses have been filed with the Securities and Exchange Commission as part
of the Trust's Registration Statement. Investors should note, however, that
this Statement of Additional Information is not itself a prospectus and should
be read carefully in conjunction with the Prospectuses and retained for future
reference. The contents of this Statement of Additional Information are
incorporated by reference in the Prospectuses in their entirety. A copy of
either Prospectus may be obtained free of charge from the Trust at the address
and telephone number listed above.
MANAGER:
DIRECTED SERVICES, INC.
(800) 447-3644
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES. . . . . . . . . . . . . 1
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . . . 1
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
High Yield Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Brady Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Sovereign Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Mortgage-Backed Securities. . . . . . . . . . . . . . . . . . . . . . . 5
GNMA Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 5
FNMA and FHLMC Mortgage-Backed Obligations . . . . . . . . . . . . 6
Collateralized Mortgage Obligations (CMOs) . . . . . . . . . . . . 7
Other Mortgage-Backed Securities . . . . . . . . . . . . . . . . . 7
Other Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . 8
Variable and Floating Rate Securities . . . . . . . . . . . . . . . . . 9
Banking Industry and Savings Industry Obligations . . . . . . . . . . . 9
Commercial Paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . 12
Lending Portfolio Securities. . . . . . . . . . . . . . . . . . . . . . 12
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Investment Companies. . . . . . . . . . . . . . . . . . . . . . . 13
Short Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . 14
Futures Contracts and Options on Futures Contracts. . . . . . . . . . . 14
General Description of Futures Contracts . . . . . . . . . . . . . 14
Interest Rate Futures Contracts. . . . . . . . . . . . . . . . . . 14
Options on Futures Contracts . . . . . . . . . . . . . . . . . . . 15
Stock Index Futures Contracts. . . . . . . . . . . . . . . . . . . 15
Gold Futures Contracts . . . . . . . . . . . . . . . . . . . . . . 16
Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Options on Securities and Securities Indexes. . . . . . . . . . . . . . 18
Purchasing Options on Securities . . . . . . . . . . . . . . . . . 18
Writing Covered Call and Secured Put Options . . . . . . . . . . . 19
Options on Securities Indexes. . . . . . . . . . . . . . . . . . . 19
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
When-Issued or Delayed Delivery Securities. . . . . . . . . . . . . . . 20
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . 20
Options on Foreign Currencies . . . . . . . . . . . . . . . . . . . . . 22
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Management Agreement. . . . . . . . . . . . . . . . . . . . . . . . 27
Distribution of Trust Shares. . . . . . . . . . . . . . . . . . . . . . 32
Purchases and Redemptions . . . . . . . . . . . . . . . . . . . . . . . 32
i
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PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . 33
Investment Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Brokerage and Research Services . . . . . . . . . . . . . . . . . . . . 33
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Custodian and Other Service Providers . . . . . . . . . . . . . . . . . 44
Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . 44
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . 44
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
APPENDIX 1: Description of Bond Ratings. . . . . . . . . . . . . . . . . . . A-1
ii
<PAGE>
INTRODUCTION
This Statement of Additional Information is designed to elaborate upon
information contained in the Prospectuses for the Series, including the
discussion of certain securities and investment techniques. The more detailed
information contained herein is intended solely for investors who have read the
Prospectuses and are interested in a more detailed explanation of certain
aspects of some of the Series' securities and some investment techniques. Some
of the Series' investment techniques are described only in the Prospectuses and
are not repeated herein. Captions and defined terms in this Statement of
Additional Information generally correspond to like captions and terms in the
Series' Prospectuses.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. GOVERNMENT SECURITIES
All of the Series may invest in U.S. Government securities. U.S. Government
securities are obligations of, or are guaranteed by, the U.S. Government, its
agencies or instrumentalities. Treasury bills, notes, and bonds are direct
obligations of the U.S. Treasury. Securities guaranteed by the U.S. Government
include: federal agency obligations guaranteed as to principal and interest by
the U.S. Treasury (such as GNMA certificates, described in the section on
"Mortgage-Backed Securities," and Federal Housing Administration debentures). In
guaranteed securities, the payment of principal and interest is unconditionally
guaranteed by the U.S. Government, and thus they are of the highest credit
quality. Such direct obligations or guaranteed securities are subject to
variations in market value due to fluctuations in interest rates, but, if held
to maturity, the U.S. Government is obligated to or guarantees to pay them in
full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the Treasury.
However, they involve federal sponsorship in one way or another: some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Student Loan
Mortgage Association, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and Federal Home Loan Banks.
All Series except the Market Manager Series may also purchase obligations
of the International Bank for Reconstruction and Development, which, while
technically not a U.S. Government agency or instrumentality, has the right to
borrow from the participating countries, including the United States.
DEBT SECURITIES
All Series may invest in U.S. dollar-denominated corporate debt securities
of domestic issuers and the Multiple Allocation, Fully Managed, Limited Maturity
Bond, Natural Resources, Liquid Asset, Capital Appreciation, Emerging Markets,
Strategic Equity, and Market Manager Series may invest in debt securities of
foreign issuers that are denominated in U.S. dollars. The Multiple Allocation,
Fully Managed, Natural Resources, Emerging Markets, and Strategic Equity
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Series may invest in non-U.S. dollar-denominated debt securities of foreign
issuers. The debt securities in which the Series may invest are limited to
corporate debt securities (corporate bonds, debentures, notes, and other similar
corporate debt instruments) which meet the minimum ratings criteria set forth
for that particular Series, or, if not so rated, are, in the Portfolio Manager's
determination, comparable in quality to corporate debt securities in which a
Series may invest.
Those Series that do not specify any particular ratings criteria, i.e., the
Multiple Allocation, Natural Resources, All-Growth, and Strategic Equity
Series, may invest only in debt securities that are investment-grade, i.e.,
rated BBB or better by Standard & Poor's Corporation ("Standard & Poor's") and
Baa or better by Moody's Investors Service, Inc. ("Moody's"), or, if not rated
by Standard & Poor's or Moody's, of similar quality as determined by the
Portfolio Manager.
The investment return on a corporate debt security reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument. Bonds rated BBB or Baa, which
are considered medium-grade category bonds, do not have economic characteristics
that provide the high degree of security with respect to payment of principal
and interest associated with higher rated bonds, and generally have some
speculative characteristics. A bond will be placed in this rating category where
interest payments and principal security appear adequate for the present, but
economic characteristics that provide longer term protection may be lacking. Any
bond, and particularly those rated BBB or Baa, may be susceptible to changing
conditions, particularly to economic downturns, which could lead to a weakened
capacity to pay interest and principal.
New issues of certain debt securities are often offered on a when-issued or
firm-commitment basis; that is, the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment, but delivery and payment
for the securities normally take place after the customary settlement time. The
value of when-issued securities or securities purchased on a firm-commitment
basis may vary prior to and after delivery depending on market conditions and
changes in interest rate levels. However, the Series will not accrue any income
on these securities prior to delivery. The Series will maintain in a segregated
account with its custodian an amount of cash or high quality debt securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the when-issued securities or securities purchased on a firm-commitment
basis.
Many securities of foreign issuers are not rated by Moody's or Standard and
Poor's; therefore, the selection of such issuers depends, to a large extent, on
the credit analysis performed or used by the Series' Portfolio Manager.
HIGH YIELD BONDS
The Real Estate Series may invest up to 20% of its assets in convertible
bonds and the Fully Managed Series and Emerging Markets Series may invest up to
5% and 10% of their assets, respectively, in bonds rated lower than Baa or BBB,
or, if not rated by Moody's or S&P, of equivalent quality ("high yield bonds,"
which are commonly referred to as "junk bonds"). In general, high yield bonds
are not considered to be investment grade, and investors should consider the
risks associated with high yield bonds before investing in the pertinent Series.
Investment in such securities generally provides greater income and increased
opportunity for capital
2
<PAGE>
appreciation than investments in higher quality securities, but they also
typically entail greater price volatility and principalnd income risk.
Investment in high yield bonds involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
bonds are regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The high yield bond
market is relatively new, and many of the outstanding high yield bonds have not
endured a lengthy business recession. A long-term track record on bond default
rates, such as that for investment grade corporate bonds, does not exist for the
high yield market. Analysis of the creditworthiness of issuers of debt
securities, and the ability of a Series to achieve its investment objective may,
to the extent of investment in high yield bonds, be more dependent upon such
creditworthiness analysis than would be the case if the Series were investing in
higher quality bonds.
High yield bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade bonds. The
prices of high yield bonds have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
downturns or individual corporate developments. A projection of an economic
downturn or of a period of rising interest rates, for example, could cause a
decline in high yield bond prices because the advent of a recession could lessen
the ability of a highly leveraged company to make principal and interest
payments on its debt securities. If an issuer of high yield bonds defaults, in
addition to risking payment of all or a portion of interest and principal, the
Series may incur additional expenses to seek recovery. In the case of high yield
bonds structured as zero-coupon or pay-in-kind securities, their market prices
are affected to a greater extent by interest rate changes, and therefore tend to
be more volatile than securities which pay interest periodically and in cash.
The secondary market on which high yield bonds are traded may be less
liquid than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which the Series could sell a
high yield bond, and could adversely affect and cause large fluctuations in the
daily net asset value of the Series' shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield bonds, especially in a thinly traded market.
When secondary markets for high yield bonds are less liquid than the market for
higher grade bonds, it may be more difficult to value the securities because
such valuation may require more research, and elements of judgment may play a
greater role in the valuation because there is less reliable, objective data
available.
There are also certain risks involved in using credit ratings for
evaluating high yield bonds. For example, credit ratings evaluate the safety of
principal and interest payments, not the market value risk of high yield bonds.
Also, credit rating agencies may fail to timely reflect subsequent events.
BRADY BONDS
The Emerging Markets Series may invest in certain debt obligations
customarily referred to as "Brady Bonds," which are created through the exchange
of existing commercial bank loans to sovereign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds are
not considered U.S. Government securities and are considered speculative.
3
<PAGE>
Brady Plan debt restructurings have been implemented to date in several
countries, including Mexico, Venezuela, Argentina, Uruguay, Costa Rica, Brazil,
Bulgaria, the Dominican Republic, Jordan, Nigeria and the Philippines
(collectively, the "Brady Countries"). Ecuador has reached an agreement with its
lending banks, but the full consummation of Ecuador's Brady Plan is still
pending. It is expected that other countries will undertake a Brady Plan debt
restructuring in the future, including Peru, Poland and Panama. Brady Bonds have
been issued only recently, and accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds which have the same
maturity as the Brady Bonds. Interest payments on these Brady Bonds generally
are collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at the time and is adjusted at regular intervals
thereafter.
Certain Brady Bonds are entitled to "value recovery payments" in certain
circumstances, which in effect constitute supplemental interest payments but
generally are not collateralized. Brady Bonds are often viewed as having three
or four valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the "residual
risk").
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.
Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds. There can be no assurance that Brady
Bonds in which the Series may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause the Series to suffer
a loss of interest or principal on any of its holdings.
SOVEREIGN DEBT
The Emerging Markets Series may invest in debt obligations ("sovereign
debt") of governmental issuers in emerging market countries and industrialized
countries. Certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. The issuer or governmental authority
that controls the repayment of sovereign debt may not be willing or able to
repay the principal and/or pay interest when due in accordance
4
<PAGE>
with the terms of such obligations. A governmental entities' willingness or
ability to repay principal and pay interest due in a timely manner may be
affected by, among other factors, its cash flow situation, the extent of its
foreign reserves,the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as a
whole, the government's dependence on expected disbursements from third parties,
the government's policy toward the International Monetary Fund and the political
constraints to which a government may be subject. Governmental entities may also
be dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a debtor's implementation of
economic reforms or economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds to the government
debtor, which may further impair such debtor's ability or willingness to timely
service its debts. Holders of sovereign debt may be requested to participate in
the rescheduling of such debt and to extend further loans to governmental
entities. In addition, no assurance can be given that the holders of commercial
bank debt will not contest payments to the holders of other foreign government
debt obligations in the event of default under their commercial bank loan
agreements.
The issuers of the government debt securities in which the Series may
invest have in the past experienced substantial difficulties in servicing their
external debt obligations, which led to defaults on certain obligations and the
restructuring of certain indebtedness. Restructuring arrangements have included,
among other things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding principal
and unpaid interest to Brady Bonds, and obtaining new credit to finance interest
payments. There can be no assurance that the Brady Bonds and other foreign
government debt securities in which the Series may invest will not be subject to
similar restructuring arrangements or to requests for new credit which may
adversely affect the Series' holdings. Furthermore, certain participants in the
secondary market for such debt may be directly involved in negotiating the terms
of these arrangements and may therefore have access to information not available
to other market participants.
MORTGAGE-BACKED SECURITIES
All Series except the Market Manager Series may invest in mortgage-backed
securities.
GNMA CERTIFICATES. Government National Mortgage Association ("GNMA")
certificates are mortgage-backed securities representing part ownership of a
pool of mortgage loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. Government. GNMA is a wholly
owned U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks, and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a periodic payment which consists
5
<PAGE>
of both interest and principal payments. In effect, these payments are a "pass-
through" of the periodic payments made by the individual borrowers on the
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Mortgage-backed
securities issued by GNMA are described as "modified pass-through" securities.
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the scheduled
payment dates, regardless of whether or not the mortgagor actually makes the
payment. Although GNMA guarantees timely payment even if homeowners delay or
default, tracking the "pass-through" payments may, at times, be difficult.
Expected payments may be delayed due to the delays in registering the newly
traded paper securities. The custodian's policies for crediting missed payments
while errant receipts are tracked down may vary. Other mortgage-backed
securities, such as those of the Federal Home Loan Mortgage Corporation
("FHLMC") and the Federal National Mortgage Association ("FNMA"), trade in book-
entry form and should not be subject to the risk of delays in timely payment of
income.
Although the mortgage loans in the pool will have maturities of up to 30
years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Early repayments of principal
on the underlying mortgages may expose a Series to a lower rate of return upon
reinvestment of principal. Prepayment rates vary widely and may be affected by
changes in market interest rates. In periods of falling interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of
the GNMA certificates. Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
GNMA certificates. Accordingly, it is not possible to accurately predict the
average life of a particular pool. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of principal at current
rates, GNMA certificates can be less effective than typical bonds of similar
maturities at "locking in" yields during periods of declining interest rates,
although they may have comparable risks of decline in value during periods of
rising interest rates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. Government-related guarantors
(i.e., not backed by the full faith and credit of the U.S. Government) include
the FNMA and the FHLMC. FNMA, a federally chartered and privately owned
corporation, issues pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest, but this guarantee is not backed by the full faith and credit of the
U.S. Government. FNMA also issues REMIC Certificates, which represent an
interest in a trust funded with FNMA Certificates. REMIC Certificates are
guaranteed by FNMA, and not by the full faith and credit of the U.S. Government.
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions,
and mortgage bankers. FHLMC, a corporate instrumentality of the United States,
was created by Congress in 1970 for the purpose of increasing the availability
of mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
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FHLMC guarantees the timely payment of interest and ultimate collection of
principal and maintains reserves to protect holders against losses due to
default. PCs are not backed by the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity and realized yield on
particular FNMA and FHLMC pass-through securities will vary based on the
prepayment experience of the underlying pool of mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal are paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying investors, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner-than-desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
Series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third-party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
the principal; a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begin to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
OTHER MORTGAGE-BACKED SECURITIES. Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers also create pass-through pools of conventional
residential mortgage loans. In addition, such issuers may be the originators
and/or servicers of the underlying mortgage loans as well as the guarantors of
the mortgage-backed securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government or agency guarantees of
payments in the former pools. Timely payment of interest and principal of these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters of credit. The
insurance and guarantees are issued by governmental entities, private insurers,
and the mortgage poolers. Such insurance, guarantees, and the creditworthiness
of the issuers thereof will be considered in determining whether a mortgage-
backed security meets a Series' investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements.
All Series other than the Liquid Asset Series, the Capital Appreciation
Series, the Rising Dividends Series, the Emerging Markets Series, and the Market
Manager Series may buy mortgage-
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backed securities without insurance or guarantees, if the Portfolio Manager
determines that the securities meet a Series' quality standards. Although the
market for such securities is becoming increasingly liquid, securities issued by
certain private organizations may not be readily marketable. A Series will not
purchase mortgage-backed securities or any other assets which, in the opinion of
the Portfolio Manager, are illiquid if, as a result, more than 10% of the value
of a Series' total assets will be illiquid. As new types of mortgage-backed
securities are developed and offered to investors, the Portfolio Manager will,
consistent with a Series' investment objectives, policies, and quality
standards, consider making investments in such new types of mortgage-backed
securities.
It is expected that governmental, government-related, or private entities
may create mortgage loan pools and other mortgage-backed securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. As new types of mortgage-backed securities are developed
and offered to investors, investments in such new types of mortgage-backed
securities may be considered for the Series.
OTHER ASSET-BACKED SECURITIES
All Series other than the Liquid Asset Series, the Capital Appreciation
Series, the Rising Dividends Series, the Emerging Markets Series, and the Market
Manager Series may purchase other asset-backed securities (unrelated to mortgage
loans) such as "CARS-SM-" ("Certificates for Automobile Receivables-SM-") and
Credit Card Receivable Securities.
CARS-SM- represent undivided fractional interests in a trust ("trust")
whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARS-SM- are "passed-through" monthly to
certificate holders, and are guaranteed up to certain amounts by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. Underlying sales contracts are subject to prepayment,
which may reduce the overall return to certificate holders. Certificate holders
may also experience delays in payment or losses on CARS-SM- if the full amounts
due on underlying sales contracts are not realized by the trust because of
unanticipated legal or administrative costs of enforcing the contracts, or
because of depreciation, damage, or loss of the vehicles securing the contracts,
or other factors.
If consistent with its investment objective and policies, a Series may
invest in "Credit Card Receivable Securities." Credit Card Receivable Securities
are asset-backed securities backed by receivables from revolving credit card
agreements. Credit balances on revolving credit card agreements ("Accounts") are
generally paid down more rapidly than are Automobile Contracts. Most of the
Credit Card Receivable Securities issued publicly to date have been Pass-Through
Certificates. In order to lengthen the maturity of Credit Card Receivable
Securities, most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to fund the
transfer to the pool of assets supporting the related Credit Card Receivable
Securities of additional credit card charges made on an Account. The initial
fixed period usually may be shortened upon the occurrence of specified events
which signal a potential deterioration in the quality of the assets backing the
security, such as the imposition of a cap on interest rates. The ability of the
issuer to extend the life of an issue of Credit Card Receivable Securities thus
depends upon the continued generation of additional principal amounts in the
underlying Accounts during the initial period and the non-occurrence of
specified events. The Tax Reform Act of 1986, pursuant to which a taxpayer's
ability to deduct consumer interest in his or her federal income tax calculation
was
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completely phased out for taxable years beginning in 1991, as well as
competitive and general economic factors, could adversely affect the rate at
which new receivables are created in an Account and conveyed to an issuer,
shortening the expected weighted average life of the related Credit Card
Receivable Security, and reducing its yield. An acceleration in cardholders'
payment rates or any other event which shortens the period during which
additional credit card charges on an Account may be transferred to the pool of
assets supporting the related Credit Card Receivable Security could have a
similar effect on the weighted average life and yield.
Credit card holders are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such holder the right to set
off certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike most other asset-backed
securities, Accounts are unsecured obligations of the cardholder.
VARIABLE AND FLOATING RATE SECURITIES
All Series may invest in variable and floating rate securities.
Variable rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating rate securities provide for automatic adjustment of the interest rate
whenever some specified interest rate index changes. The interest rate on
variable or floating rate securities is ordinarily determined by reference to or
is a percentage of a bank's prime rate, the 90-day U.S. Treasury bill rate, the
rate of return on commercial paper or bank certificates of deposit, an index of
short-term interest rates, or some other objective measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par value. In many
cases, the demand feature can be exercised at any time on 7 days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice or
on similar notice at intervals of not more than one year. Some securities which
do not have variable or floating interest rates may be accompanied by puts
producing similar results and price characteristics.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
All Series may invest in (i) certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by commercial
banks and in (ii) certificates of deposit, time deposits, and other short-term
obligations issued by savings and loan associations ("S&L"). The Multiple
Allocation, Limited Maturity Bond, Liquid Asset, Emerging Markets, Value Equity,
and Growth and Income Series may invest in obligations of foreign branches of
commercial banks and foreign banks so long as the securities are U.S. dollar-
denominated, and the Emerging Markets Series may also invest in obligations of
foreign branches of commercial banks and foreign banks if the securities are not
U.S. dollar-denominated. See "Foreign Securities" discussion in The GCG Trust
Prospectus for further information regarding risks attending investment in
foreign securities.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, which are normally drawn by an importer or exporter to pay for
specific merchandise, and which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on
maturity. Fixed-time deposits are bank obligations payable at a stated maturity
date and bearing interest at a fixed rate. Fixed-time
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deposits may be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed-time deposit to a third
party, because there is no market for such deposits. A Series will not invest in
fixed-time deposits (i) which are not subject to prepayment or (ii) which
provide for withdrawal penalties upon prepayment (other than overnight
deposits), if, in the aggregate, more than 10% of its assets would be invested
in such deposits, in repurchase agreements maturing in more than seven days, and
in other illiquid assets, except that the Rising Dividends Series, Emerging
Markets Series, and Market Manager Series may invest up to 15% of assets in such
deposits, repurchase agreements, and other illiquid assets.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of U.S. banks, which include: (i) the
possibility that their liquidity could be impaired because of future political
and economic developments; (ii) their obligations may be less marketable than
comparable obligations of U.S. banks; (iii) a foreign jurisdiction might impose
withholding taxes on interest income payable on those obligations; (iv) foreign
deposits may be seized or nationalized; (v) foreign governmental restrictions,
such as exchange controls, may be adopted which might adversely affect the
payment of principal and interest on those obligations; and (vi) the selection
of those obligations may be more difficult because there may be less publicly
available information concerning foreign banks and/or because the accounting,
auditing, and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to U.S. banks.
Foreign banks are not generally subject to examination by any U.S. Government
agency or instrumentality.
Certain of the Series, including the Fully Managed Series and Liquid Asset
Series, invest only in bank and S&L obligations as specified in that Series'
investment policies. Other Series will not invest in obligations issued by a
commercial bank or S&L unless:
(i) the bank or S&L has total assets of least $1 billion, or the
equivalent in other currencies, and the institution has outstanding
securities rated A or better by Moody's or Standard and Poor's, or, if the
institution has no outstanding securities rated by Moody's or Standard &
Poor's, it has, in the determination of the Portfolio Manager, similar
creditworthiness to institutions having outstanding securities so rated;
(ii) in the case of a U.S. bank or S&L, its deposits are insured by
the FDIC or the Savings Association Insurance Fund ("SAIF"), as the case
may be; and
(iii) in the case of a foreign bank, the security is, in the
determination of the Series' Portfolio Manager, of an investment quality
comparable with other debt securities which may be purchased by the Series.
These limitations do not prohibit investments in securities issued by
foreign branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.
COMMERCIAL PAPER
All of the Series may invest in commercial paper (including variable amount
master demand notes), denominated in U.S. dollars, issued by U.S. corporations
or foreign corporations. Unless otherwise indicated in the investment policies
for a Series, a Series may invest in commercial paper (i) rated, at the date of
investment, Prime-1 or Prime-2 by Moody's or A-1 or A-2 by Standard &
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Poor's; (ii) if not rated by either Moody's or Standard & Poor's, issued by a
corporation having an outstanding debt issue rated Aa or better by Moody's or AA
or better by Standard & Poor's; or (iii) if not rated, are determined to be of
an investment quality comparable to rated commercial paper in which a Series may
invest.
Commercial paper obligations may include variable amount master demand
notes. These notes are obligations that permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between a
Series, as lender, and the borrower. These notes permit daily changes in the
amounts borrowed. The lender has the right to increase or to decrease the amount
under the note at any time up to the full amount provided by the note agreement;
and the borrower may prepay up to the full amount of the note without penalty.
Because variable amount master demand notes are direct lending arrangements
between the lender and borrower, and because no secondary market exists for
those notes, such instruments will probably not be traded. However, the notes
are redeemable (and thus immediately repayable by the borrower) at face value,
plus accrued interest, at any time. In connection with master demand note
arrangements, the Portfolio Manager will monitor, on an ongoing basis, the
earning power, cash flow, and other liquidity ratios of the borrower and its
ability to pay principal and interest on demand. The Portfolio Manager also will
consider the extent to which the variable amount master demand notes are backed
by bank letters of credit. These notes generally are not rated by Moody's or
Standard & Poor's; the Series may invest in them only if the Portfolio Manager
believes that at the time of investment the notes are of comparable quality to
the other commercial paper in which the Series may invest. Master demand notes
are considered by the Series to have a maturity of one day, unless the Portfolio
Manager has reason to believe that the borrower could not make immediate
repayment upon demand. See the Appendix for a description of Moody's and
Standard & Poor's ratings applicable to commercial paper.
REPURCHASE AGREEMENTS
All Series may invest in repurchase agreements. The term of such an
agreement is generally quite short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. The resale price is in excess of the purchase price by an amount which
reflects an agreed-upon market rate of return, effective for the period of time
the Series is invested in the security. This results in a fixed rate of return
protected from market fluctuations during the period of the agreement. This rate
is not tied to the coupon rate on the security subject to the repurchase
agreement.
The Portfolio Manager to a Series monitors the value of the underlying
securities at the time the repurchase agreement is entered into and at all times
during the term of the agreement to ensure that its value always equals or
exceeds the agreed-upon repurchase price to be paid to the Series. The Portfolio
Manager, in accordance with procedures established by the Board of Trustees,
also evaluates the creditworthiness and financial responsibility of the banks
and brokers or dealers with which the Series enters into repurchase agreements.
A Series may engage in repurchase transactions in accordance with
guidelines approved by the Board of Trustees of the Trust, which include
monitoring the creditworthiness of the parties with which a Series engages in
repurchase transactions, obtaining collateral at least equal in value to the
repurchase obligation, and marking the collateral to market on a daily basis.
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A Series may not enter into a repurchase agreement having more than seven
days remaining to maturity if, as a result, such agreements, together with any
other securities that are not readily marketable, would exceed 10% of the net
assets of the Series, except that the Rising Dividends, Emerging Markets, Value
Equity, Growth and Income Series, and Market Manager Series may invest up to 15%
of assets in such securities and repurchase agreements. If the seller should
become bankrupt or default on its obligations to repurchase the securities, a
Series may experience delay or difficulties in exercising its rights to the
securities held as collateral and might incur a loss if the value of the
securities should decline. A Series also might incur disposition costs in
connection with liquidating the securities.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement may be entered into by the Multiple
Allocation, Fully Managed, Capital Appreciation, Emerging Markets, Value Equity,
and Growth and Income Series and involves the sale of a security by the Series
and its agreement to repurchase the instrument at a specified time and price. A
Series will use the proceeds of a reverse repurchase agreement to purchase other
money market instruments which either mature at a date simultaneous with or
prior to the expiration of the reverse repurchase agreement or which are held
under an agreement to resell maturing as of that time. A Series will maintain a
segregated account consisting of cash, U.S. Government securities, or high-grade
debt obligations to cover its obligations under reverse repurchase agreements.
Under the Investment Company Act of 1940, reverse repurchase agreements may be
considered to be borrowings by the seller; accordingly, a Series will limit its
investments in reverse repurchase agreements consistent with the borrowing
limits applicable to the Series. See "Borrowing" for further information on
these limits. The use of reverse repurchase agreements by a Series creates
leverage which increases a Series' investment risk. If the income and gains on
securities purchased with the proceeds of reverse repurchase agreements exceed
the cost of the agreements, the Series' earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the costs, earnings or net asset value would decline faster
than otherwise would be the case.
LENDING PORTFOLIO SECURITIES
The Multiple Allocation, Fully Managed, Limited Maturity Bond, Natural
Resources, Capital Appreciation, Rising Dividends, Emerging Markets, Stragegic
Equity Series may lend portfolio securities to broker-dealers or institutional
investors for the purpose of realizing additional income.
A Series will only enter into this transaction if (1) the loan is fully
collateralized at all times with U.S. Government securities, cash, or cash
equivalents (cash, U.S. Government securities, negotiable certificates of
deposit, bankers' acceptances, or letters of credit) maintained on a daily
marked-to-market basis, in an amount at least equal to the value of the
securities loaned; (2) it may at any time call the loan and obtain the return of
the securities loaned within five business days; (3) it will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed 30% of the total
assets of the Series. As with other extensions of secured credit, loans of
portfolio securities involve some risk of loss of rights in the collateral
should the borrower fail financially. Accordingly, the Series' Portfolio Manager
will monitor the value of the collateral, which will be marked-to-market daily,
and will monitor the creditworthiness of the borrowers. There is no assurance
that a borrower will return any securities loaned; however, as discussed above,
a borrower of securities from a Series must maintain with the
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Series cash or U.S. Government securities equal to at least 100% of the market
value of the securities borrowed. Voting rights attached to the loaned
securities may pass to the borrower with the lending of portfolio securities;
however, a Series lending such voting securities may call them if important
shareholder meetings are imminent. A Series may only lend portfolio securities
to entities that are not affiliated with either the Manager or a Portfolio
Manager.
WARRANTS
Each of the following Series may invest in warrants: the Multiple
Allocation, Fully Managed, Natural Resources, Real Estate, All-Growth, Emerging
Markets, Value Equity, and Strategic Equity Series. Each of these Series may
invest up to 5% of its net assets in warrants (not including those that have
been acquired in units or attached to other securities), measured at the time of
acquisition, and none of these Series may acquire a warrant not listed on the
New York or American Stock Exchanges if, after the purchase, more than 2% of the
Series' assets would be invested in such warrants.
The holder of a warrant has the right to purchase a given number of shares
of a particular issuer at a specified price until expiration of the warrant.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and are
speculative investments. They pay no dividends and confer no rights other than a
purchase option. If a warrant is not exercised by the date of its expiration,
the Series will lose its entire investment in such warrant.
OTHER INVESTMENT COMPANIES
All Series may invest in shares issued by other investment companies. A
Series is limited in the degree to which it may invest in shares of another
investment company in that it may not, at the time of the purchase, (1) acquire
more than 3% of the outstanding voting shares of the investment company, (2)
invest more than 5% of the Series' total assets in the investment company, or
(3) invest more than 10% of the Series' total assets in all investment company
holdings. As a shareholder in any investment company, a Series will bear its
ratable share of the investment company's expenses, including management fees in
the case of a management investment company.
SHORT SALES
The Multiple Allocation, Natural Resources, All-Growth, Capital
Appreciation, and Strategic Equity Series may make short sales of securities. A
short sale is a transaction in which the Series sells a security it does not own
in anticipation of a decline in market price. A Series may make short sales to
offset a potential decline in a long position or a group of long positions, or
if the Series' Portfolio Manager believes that a decline in the price of a
particular security or group of securities is likely. The Multiple Allocation
Series' Portfolio Manager expects that, even during normal or favorable market
conditions, the Series may make short sales in an attempt to maintain portfolio
flexibility and facilitate the rapid implementation of investment strategies if
the Portfolio Manager believes that the price of a particular security or group
of securities is likely to decline.
Under current income tax laws, any capital gains realized by the Series
from short sales will generally be treated and distributed as short-term capital
gains. If the price of the security sold short increases between the time of the
short sale and the time the Series replaces the borrowed security,
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the Series will incur a loss, and if the price declines during this period, the
Series will realize a capital gain. Any realized gain will be decreased, and any
incurred loss increased, by the amount of transactional costs and any premium,
dividend, or interest which the Series may have to pay in connection with such
short sale.
SHORT SALES AGAINST THE BOX
All Series, except the Limited Maturity Bond Series, Liquid Asset Series,
and Market Manager Series, may make short sales "against the box." A short sale
"against the box" is a short sale where, at the time of the short sale, the
Series owns or has the immediate and unconditional right, at no added cost, to
obtain the identical security. The Series would enter into such a transaction to
defer a gain or loss for Federal income tax purposes on the security owned by
the Series. Short sales against the box are not subject to the percentage
limitations on short sales described above.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Multiple Allocation, Fully Managed, Limited Maturity Bond, Natural
Resources, All-Growth, Capital Appreciation, Emerging Markets, Value Equity,
Strategic Equity, and Market Manager Series may engage in futures contracts.
The Multiple Allocation, Fully Managed, Limited Maturity Bond, Natural
Resources, Capital Appreciation, Emerging Markets, Value Equity, and Strategic
Equity Series may purchase and sell interest-rate futures contracts. The Limited
Maturity Bond Series may also purchase and write options on interest rate
futures contracts, and the Value Equity Series may also purchase options on
interest rate futures contracts. The Multiple Allocation, Fully Managed, Natural
Resources, All-Growth, Capital Appreciation, Emerging Markets, Value Equity, and
Strategic Equity Series may purchase and sell stock index futures contracts and
futures contracts based upon other financial instruments, and purchase options
on such contracts. The Market Manager Series may purchase futures contracts on
securities or stock indexes and purchase options on such contracts, but will not
sell futures contracts. The Multiple Allocation, Natural Resources, and
Strategic Equity Series may engage in gold and other futures contracts. The
Fully Managed Series will not write options on any futures contracts.
GENERAL DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for
the future sale by one party and purchase by another party of a specified amount
of a particular financial instrument (debt security) or commodity for a
specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for
financial instruments, commodities futures contracts are usually closed out
before the delivery date. Closing out an open futures contract position is
effected by entering into an offsetting sale or purchase, respectively, for the
same aggregate amount of the same financial instrument or commodities and the
same delivery date. Where a Series has sold a futures contract, if the
offsetting purchase price is less than the original futures contract sale price,
the Series realizes a gain; if it is more, the Series realizes a loss. Where a
Series has purchased a futures contract, if the offsetting price is more than
the original futures contract purchase price, the Series realizes a gain; if it
is less, the Series realizes a loss.
INTEREST RATE FUTURES CONTRACTS. The Multiple Allocation, Fully Managed,
Limited Maturity Bond, Natural Resources, Capital Appreciation, Emerging
Markets, Value Equity, and Growth and Income Series may purchase and sell
interest rate futures contracts. An interest rate futures contract is an
obligation traded on an exchange or board of trade that requires the purchaser
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to accept delivery, and the seller to make delivery, of a specified quantity of
the underlying financial instrument, such as U.S. Treasury bills and bonds, in a
stated delivery month, at a price fixed in the contract.
The Series may purchase and sell interest rate futures as a hedge against
adverse changes in debt instruments and other interest rate sensitive securities
held in the Series' portfolio. As a hedging strategy a Series might employ, a
Series would purchase an interest rate futures contract when it is not fully
invested in long-term debt securities but wishes to defer their purchase for
some time until it can orderly invest in such securities or because short-term
yields are higher than long-term yields. Such a purchase would enable the Series
to earn the income on a short-term security while at the same time minimizing
the effect of all or part of an increase in the market price of the long-term
debt security which the Series intends to purchase in the future. A rise in the
price of the long-term debt security prior to its purchase either would be
offset by an increase in the value of the futures contract purchased by the
Series or avoided by taking delivery of the debt securities under the futures
contract.
A Series would sell an interest rate futures contract in order to continue
to receive the income from a long-term debt security, while endeavoring to avoid
part or all of the decline in market value of that security which would
accompany an increase in interest rates. If interest rates did rise, a decline
in the value of the debt security held by the Series would be substantially
offset by the ability of the Series to repurchase at a lower price the interest
rate futures contract previously sold. While the Series could sell the long-term
debt security and invest in a short-term security, ordinarily the Series would
give up income on its investment, since long-term rates normally exceed short-
term rates.
OPTIONS ON FUTURES CONTRACTS. The Multiple Allocation, Fully Managed,
Natural Resources, All-Growth, Capital Appreciation, and Emerging Markets Series
may purchase options on interest rate futures contracts, although these Series
will not write options on any such contracts. The Strategic Equity and Market
Manager Series may purchase options on futures contracts and stock index futures
contracts, but will not write options on such contracts. The Value Equity Series
may purchase options on stock index futures contracts, interest rate futures
contracts, and foreign currency futures contracts, but will not write options on
such contracts. The Limited Maturity Bond Series may purchase and write options
on interest-rate futures contracts. A futures option gives the Series the right,
in return for the premium paid, to assume a long position (in the case of a
call) or short position (in the case of a put) in a futures contract at a
specified exercise price prior to the expiration of the option. Upon exercise of
a call option, the purchaser acquires a long position in the futures contract
and the writer of the option is assigned the opposite short position. In the
case of a put option, the converse is true. A futures option may be closed out
(before exercise or expiration) by an offsetting purchase or sale of a futures
option by the Series.
The Series may use options on futures contracts in connection with hedging
strategies. Generally these strategies would be employed under the same market
conditions in which a Series would use put and call options on debt securities,
as described hereafter in "Options on Securities and Securities Indexes."
STOCK INDEX FUTURES CONTRACTS. The Multiple Allocation, Fully Managed,
Natural Resources, All-Growth, Capital Appreciation, Emerging Markets, Value
Equity, and Strategic Equity Series may purchase and sell stock index futures
contracts, and the Market Manager Series may purchase stock index futures
contracts. A "stock index" assigns relative values to the common
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stock included in an index (for example, the Standard & Poor's 500 Index of
Composite Stocks or the New York Stock Exchange Composite Index), and the index
fluctuates with changes in the market values of such stocks. A stock index
futures contract is a bilateral agreement to accept or make payment, depending
on whether a contract is purchased or sold, of an amount of cash equal to a
specified dollar amount multiplied by the difference between the stock index
value at the close of the last trading day of the contract and the price at
which the futures contract is originally purchased or sold.
To the extent that changes in the value of the Multiple Allocation, Fully
Managed, Natural Resources, All-Growth, Capital Appreciation, Emerging Markets,
Value Equity, and Growth and Income Series' portfolio corresponds to changes in
a given stock index, the sale of futures contracts on that index ("short hedge")
would substantially reduce the risk to the portfolio of a market decline and, by
so doing, provide an alternative to a liquidation of securities position, which
may be difficult to accomplish in a rapid and orderly fashion. Stock index
futures contracts might also be sold:
(1) when a sale of portfolio securities at that time would appear to be
disadvantageous in the long-term because such liquidation would:
(a) forego possible price appreciation,
(b) create a situation in which the securities would be difficult to
repurchase, or
(c) create substantial brokerage commissions;
(2) when a liquidation of the portfolio has commenced or is contemplated,
but there is, in the Series' Portfolio Manager's determination, a
substantial risk of a major price decline before liquidation can be
completed; or
(3) to close out stock index futures purchase transactions.
Where a Series anticipates a significant market or market sector advance,
the purchase of a stock index futures contract ("long hedge") affords a hedge
against not participating in such advance at a time when the Series is not fully
invested. Such purchases would serve as a temporary substitute for the purchase
of individual stocks, which may then be purchased in an orderly fashion. As
purchases of stock are made, an amount of index futures contracts which is
comparable to the amount of stock purchased would be terminated by offsetting
closing sales transactions. Stock index futures might also be purchased:
(1) if the Series is attempting to purchase equity positions in issues
which it had or was having difficulty purchasing at prices considered by
the Series' Portfolio Manager to be fair value based upon the price of the
stock at the time it qualified for inclusion in the portfolio, or
(2) to close out stock index futures sales transactions.
GOLD FUTURES CONTRACTS. The Multiple Allocation, Natural Resources, and
Strategic Equity Series may enter into futures contracts on gold. A gold
futures contract is a standardized contract which is traded on a regulated
commodity futures exchange, and which provides for the future delivery of a
specified amount of gold at a specified date, time, and price. When the Series
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purchases a gold futures contract it becomes obligated to take delivery of and
pay for the gold from the seller, and when the Series sells a gold futures
contract, it becomes obligated to make delivery of precious metals to the
purchaser, in each case at a designated date and price. A Series will enter into
gold futures contracts only for the purpose of hedging its holdings or intended
holdings of gold stocks and, with regard to the Natural Resources Series, gold
bullion. The Series will not engage in these contracts for speculation or for
achieving leverage. The Series' hedging activities may include purchases of
futures contracts as an offset against the effect of anticipated increases in
the price of gold or sales of futures contracts as an offset against the effect
of anticipated declines in the price of gold.
As long as required by regulatory authorities, each investing Series will
limit its use of futures contracts and futures options to hedging transactions
and other strategies as described under the heading "Limitations" in this
section, in order to avoid being deemed a commodity pool. For example, a Series
might use futures contracts to hedge against anticipated changes in interest
rates that might adversely affect either the value of the Series' securities or
the price of the securities which the Series intends to purchase. The Series'
hedging may include sales of futures contracts as an offset against the effect
of expected increases in interest rates and purchases of futures contracts as an
offset against the effect of expected declines in interest rates. Although other
techniques could be used to reduce that Series' exposure to interest rate
fluctuations, a Series may be able to hedge its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures options. See the
Prospectuses for a discussion of other strategies involving futures and futures
options.
If a purchase or sale of a futures contract is made by a Series, the Series
is required to deposit with its custodian a specified amount of cash or U.S.
Government securities ("initial margin"). The margin required for a futures
contract is set by the exchange or board of trade on which the contract is
traded and may be modified during the term of the contract. The initial margin
is in the nature of a performance bond or good faith deposit on the futures
contract which is returned to the Series upon termination of the contract,
assuming all contractual obligations have been satisfied. Each investing Series
expects to earn interest income on its initial margin deposits. A futures
contract held by a Series is valued daily at the official settlement price of
the exchange on which it is traded. Each day the Series pays or receives cash,
called "variation margin" equal to the daily change in value of the futures
contract. This process is known as "marking to market." The payment or receipt
of the variation margin does not represent a borrowing or loan by a Series but
is settlement between the Series and the broker of the amount one would owe the
other if the futures contract expired. In computing daily net asset value, each
Series will mark-to-market its open futures positions.
A Series is also required to deposit and maintain margin with respect to
put and call options on futures contracts it writes. Such margin deposits will
vary depending on the nature of the underlying futures contract (including the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Series.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security, and delivery month). If an offsetting purchase
price is less than the original sale price, the Series realizes a capital gain,
or if it is more, the Series realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Series
realizes a capital gain, or if it is less, the Series realizes a capital loss.
The transaction costs must also be included in these calculations.
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LIMITATIONS. When purchasing a futures contract, a Series must maintain
with its custodian cash or cash equivalents (including any margin) equal to the
market value of such contract. When writing a call option on a futures contract,
the Series similarly will maintain with its custodian, cash or cash equivalents
(including any margin) equal to the amount such option is "in-the-money" until
the option expires or is closed out by the Series. A call option is "in-the-
money" if the value of the futures contract that is the subject of the option
exceeds the exercise price.
A Series may not maintain open short positions in futures contracts or call
options written on futures contracts if, in the aggregate, the market value of
all such open positions exceeds the current value of its portfolio securities,
plus or minus unrealized gains and losses on the open positions, adjusted for
the historical relative volatility of the relationship between the Series and
the positions. For this purpose, to the extent the Series has written call
options on specific securities it owns, the value of those securities will be
deducted from the current market value of the securities portfolio.
In compliance with the requirements of the Commodity Futures Trading
Commission ("CFTC") under which an investment company may engage in futures
transactions, the Trust will comply with certain regulations of the CFTC to
qualify for an exclusion from being a "commodity pool." The regulations require
that the Trust enter into futures and options (1) for "bona fide hedging"
purposes, without regard to the percentage of assets committed to initial margin
and options premiums, or (2) for other strategies, provided that the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of the liquidation value of a Series' portfolio, after taking into account
unrealized profits and unrealized gains on any such contracts entered into.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
In pursuing their investment objectives, the Multiple Allocation, Fully
Managed, Limited Maturity Bond, Natural Resources, Real Estate, All-Growth,
Capital Appreciation, Emerging Markets, Value Equity, and Strategic Equity
Series may engage in transactions on options on securities. The Multiple
Allocation Series, All-Growth Series, Emerging Markets, Value Equity, and
Strategic Equity Series may engage in transactions on options on securities
indexes. The Market Manager Series may purchase put and call options on
securities and on securities indexes, but will not write such options. See
"Description of Securities and Investment Techniques" in the Prospectuses for
a description of the options transactions in which each Series may engage.
PURCHASING OPTIONS ON SECURITIES. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option. A
Series may purchase put options on securities to protect holdings in an
underlying or related security against a substantial decline in market value.
Securities are considered related if their price movements generally correlate
to one another. For example, the purchase of put options on debt securities held
by a Series would enable a Series to protect, at least partially, an unrealized
gain in an appreciated security without actually selling the security. In
addition, the Series would continue to receive interest income on such security.
A Series may purchase call options on securities to protect against
substantial increases in prices of securities the Series intends to purchase
pending its ability to invest in such securities in an orderly manner. A Series
may sell put or call options it has previously purchased, which could result
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in a net gain or loss depending on whether the amount realized on the sale is
more or less than the premium and other transactional costs paid on the put or
call option which is sold.
WRITING COVERED CALL AND SECURED PUT OPTIONS. In order to earn additional
income on its portfolio securities or to protect partially against declines in
the value of such securities, a Series may write covered call options. The
exercise price of a call option may be below, equal to, or above the current
market value of the underlying security at the time the option is written.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. Closing purchase transactions will ordinarily be effected to
realize a profit on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the underlying security, or to
enable the Series to write another call option on the underlying security with
either a different exercise price or expiration date or both.
In order to earn additional income or to facilitate its ability to purchase
a security at a price lower than the current market price of such security, a
Series may write secured put options. During the option period, the writer of a
put option may be assigned an exercise notice by the broker-dealer through whom
the option was sold requiring the writer to purchase the underlying security at
the exercise price.
A Series may write a call or put option only if the option is "covered" or
"secured" by the Series holding a position in the underlying securities. This
means that so long as the Series is obligated as the writer of a call option, it
will own the underlying securities subject to the option or if the Series holds
a call at the same exercise price, for the same exercise period, and on the same
securities as the written call. Alternatively, a Series may maintain, in a
segregated account with the Trust's custodian, cash, cash equivalents, or U.S.
Government securities with a value sufficient to meet its obligation as writer
of the option. A put is secured if the Series maintains cash, cash equivalents,
or U.S. Government securities with a value equal to the exercise price in a
segregated account, or holds a put on the same underlying security at an equal
or greater exercise price. Prior to exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series.
OPTIONS ON SECURITIES INDEXES. Call and put options on securities indexes
also may be purchased or sold by the Series for the same purposes as the
purchase or sale of options on securities. The Market Manager Series may only
purchase options on securities indexes. Options on securities indexes are
similar to options on securities, except that the exercise of securities index
options requires cash payments and does not involve the actual purchase or sale
of securities. In addition, securities index options are designed to reflect
price fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security. When such options are
written, the Series is required to maintain a segregated account consisting of
cash, cash equivalents or high grade obligations or the Series must purchase a
like option of greater value that will expire no earlier than the option sold.
Purchased options may not enable the Series to hedge effectively against stock
market risk if they are not highly correlated with the value of the Series'
portfolio securities. Moreover, the ability to hedge effectively depends upon
the ability to predict movements in the stock market.
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GENERAL. If an option written by a Series expires unexercised, the Series
realizes a capital gain equal to the premium received at the time the option was
written. If an option purchased by a Series expires unexercised, the Series
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security, exercise price, and expiration). There can be no
assurance, however, that a closing purchase or sale transaction can be effected
when the Series desires.
A Series will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or if it is more, the Series will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Series will realize a capital gain or, if it is
less, the Series will realize a capital loss. The principal factors affecting
the market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security in relation to the
exercise price of the option, the volatility of the underlying security, and the
time remaining until the expiration date.
The premium paid for a put or call option purchased by a Series is recorded
as an asset of the Series and subsequently adjusted. The premium received for an
option written by a Series is included in the Series' assets and an equal amount
is included in its liabilities. The value of an option purchased or written is
marked to market daily and valued at the closing price on the exchange on which
it is traded or, if not traded on an exchange or no closing price is available,
at the mean between the last bid and asked prices.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
All Series except the Market Manager Series may purchase securities on a
when-issued or delayed delivery basis if the Series holds, and maintains until
the settlement date in a segregated account, cash, U.S. Government securities,
or high-grade debt obligations in an amount sufficient to meet the purchase
price, or if the Series enters into offsetting contracts for the forward sale of
other securities it owns. Purchasing securities on a when-issued or delayed
delivery basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Series' other assets. Although a Series
would generally purchase securities on a when-issued basis or enter into forward
commitments with the intention of acquiring securities, the Series may dispose
of a when-issued or delayed delivery security prior to settlement if the
Portfolio Manager deems it appropriate to do so. The Series may realize short-
term profits or losses upon such sales.
FOREIGN CURRENCY TRANSACTIONS
The Multiple Allocation, Fully Managed, Natural Resources, Rising
Dividends, Emerging Markets, Value Equity, and Strategic Equity Series may
enter into forward currency contracts and enter into currency exchange
transactions on a spot (i.e., cash) basis. A forward currency contract is an
obligation to purchase or sell a currency against another currency at a future
date and price as agreed upon by the parties. A Series may either accept or make
delivery of the currency at the maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. A Series will engage in forward currency transactions in
anticipation of or to protect itself against fluctuations in currency exchange
rates. A Series might
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sell a particular currency forward, for example, when it wanted to hold bonds or
bank obligations denominated in that currency but anticipated or wished to be
protected against a decline in the currency against the dollar. Similarly, it
might purchase a currency forward to "lock in" the dollar price of securities
denominated in that currency which it anticipated purchasing.
A Series may enter into forward foreign currency contracts in two
circumstances. When a Series enters into a contract for the purchase or sale of
a security denominated in a foreign currency, the Series may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for a
fixed amount of dollars for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Series will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and such foreign currency during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received.
Second, when the Series' Portfolio Manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars to
sell the amount of foreign currency approximating the value of some or all of
the Series' portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. None of the Series will enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Series to deliver an amount of
foreign currency in excess of the value of the Series' portfolio securities or
other assets denominated in that currency.
At the maturity of a forward contract, a Series may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast the market value of a particular portfolio
security at the expiration of the contract. Accordingly, if a decision is made
to sell the security and make delivery of the foreign currency, it may be
necessary for the Series to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Series is
obligated to deliver.
If the Series retains the portfolio security and engages in an offsetting
transaction, the Series will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Series' entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Series will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Series will suffer a loss to the extent that the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
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Forward contracts are not traded on regulated commodities exchanges. There
can be no assurance that a liquid market will exist when a Series seeks to close
out a forward currency position, and in such an event, a Series might not be
able to effect a closing purchase transaction at any particular time. In
addition, a Series entering into a forward foreign currency contract incurs the
risk of default by the counter party to the transaction. The CFTC has indicated
that it may in the future assert jurisdiction over certain types of forward
contracts in foreign currencies and attempt to prohibit certain entities from
engaging in such foreign currency forward transactions.
For more information on forward currency contracts, including limits upon
the Series with respect to such contracts, see "Foreign Currency Transactions"
in The GCG Trust Prospectus.
OPTIONS ON FOREIGN CURRENCIES
The Multiple Allocation, Natural Resources, Emerging Markets, Value Equity,
and Growth and Income Series may engage in transactions in options on foreign
currencies. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. Currently, options are traded
on the following foreign currencies on a domestic exchange: British Pound,
Canadian Dollar, German Mark, Japanese Yen, French Franc, and Swiss Franc. A
Series may enter into closing sale transactions with respect to such options,
exercise them, or permit them to expire.
A Series may employ hedging strategies with options on currencies before
the Series purchases a foreign security denominated in the hedged currency that
the Series anticipates acquiring, during the period the Series holds the foreign
security, or between the date the foreign security is purchased or sold and the
date on which payment therefor is made or received.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing or selling
an option on a "surrogate" currency, i.e., a currency where there is tangible
evidence of a direct correlation in the trading value of the two currencies. A
surrogate currency is a currency that can act, for hedging purposes, as a
substitute for a particular currency because the surrogate currency's exchange
rate movements parallel that of the primary currency. Surrogate currencies are
used to hedge an illiquid currency risk, when no liquid hedge instruments exist
in world currency markets for the primary currency.
INVESTMENT RESTRICTIONS
Each Series' investment objective as set forth under "Investment Objectives
and Policies" in the Prospectus, together with the investment restrictions set
forth below, are, unless otherwise noted, fundamental policies of each Series
and may not be changed with respect to any Series without the approval of a
majority of the outstanding voting shares of that Series. The vote of a majority
of the outstanding voting securities of a Series means the vote, at an annual or
special meeting, of the lesser of (a) 67% or more of the voting securities
present at such meeting, if the holders of more than 50% of the outstanding
voting securities of such Series are present or represented by proxy; or (b)
more than 50% of the outstanding voting securities of such Series. Under these
restrictions, a Series may not:
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(1) Invest in a security if, with respect to 75% of its total assets, more
than 5% of the total assets (taken at market value at the time of such
investment) would be invested in the securities of any one issuer, except
that this restriction does not apply to securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities, and except that
this restriction shall not apply to the Market Manager Series;
(2) Invest in a security if, with respect to 75% of its assets, it would
hold more than 10% (taken at the time of such investment) of the
outstanding voting securities of any one issuer, except securities issued
or guaranteed by the U.S. Government, or its agencies or instrumentalities;
(3) Invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of issuers in any particular industry, except that this
restriction does not apply: (a) to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities (or repurchase
agreements with respect thereto), (b) with respect to the Liquid Asset
Series, to securities or obligations issued by U.S. banks, (c) with respect
to the Market Manager Series, to options on stock indexes issued by
eligible broker-dealers or banks, as described in the Market Manager
Series' Prospectus; and (d) to the Real Estate Series, which will normally
invest more than 25% of its total assets in securities of issuers in the
real estate industry and related industries, or to the Natural Resources
Series, which will normally invest more than 25% of its total assets in the
group of industries engaged in natural resources activities, provided that
such concentration for these two Series is permitted under tax law
requirements for regulated investment companies that are investment
vehicles for variable contracts;
(4) Purchase or sell real estate, except that a Series may invest in
securities secured by real estate or real estate interests or issued by
companies in the real estate industry or which invest in real estate or
real estate interests;
(5) Purchase securities on margin (except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities),
except a Series engaged in transactions in options, futures, and options on
futures may make margin deposits in connection with those transactions,
except that effecting short sales will be deemed not to constitute a margin
purchase for purposes of this restriction, and except that the Natural
Resources Series may, consistent with its investment objective and subject
to the restrictions described in the Prospectus and in the Statement of
Additional Information, purchase securities on margin;
(6) Lend any funds or other assets, except that a Series may, consistent
with its investment objective and policies:
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange Commission and
any guidelines established by the Board of Trustees;
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(7) Issue senior securities, except insofar as a Series may be deemed to
have issued a senior security by reason of borrowing money in according
with that Series' borrowing policies, and except, for purposes of this
investment restriction, collateral or escrow arrangements with respect to
the making of short sales, purchase or sale of futures contracts or related
options, purchase or sale of forward currency contracts, writing of stock
options, and collateral arrangements with respect to margin or other
deposits respecting futures contracts, related options, and forward
currency contracts are not deemed to be an issuance of a senior security;
(8) Act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, a Series may be
deemed to be an underwriter under the federal securities laws;
(9) With respect to the Multiple Allocation, Fully Managed, Limited
Maturity Bond, Natural Resources, Real Estate, All-Growth, Capital
Appreciation, and Liquid Asset Series, make short sales of securities,
except short sales against the box, and except that this restriction shall
not apply to the Multiple Allocation, Natural Resources, All-Growth or
Capital Appreciation Series, which may engage in short sales within the
limitations described in the Prospectus and in the Statement of Additional
Information;
(10) Borrow money or pledge, mortgage, or hypothecate its assets, except
that a Series may: (a) borrow from banks, but only if immediately after
each borrowing and continuing thereafter there is asset coverage of 300%;
and (b) enter into reverse repurchase agreements and transactions in
options, futures, options on futures, and forward currency contracts as
described in the Prospectus and in the Statement of Additional Information.
(The deposit of assets in escrow in connection with the writing of covered
put and call options and the purchase of securities on a "when-issued" or
delayed delivery basis and collateral arrangements with respect to initial
or variation margin and other deposits for futures contracts, options on
futures contracts, and forward currency contracts will not be deemed to be
pledges of a Series' assets);
(11) With respect to the Multiple Allocation, Fully Managed, Limited
Maturity Bond, Natural Resources, Real Estate, All-Growth, Capital
Appreciation, and Liquid Asset Series, invest in securities that are
illiquid because they are subject to legal or contractual restrictions on
resale, in repurchase agreements maturing in more than seven days, or other
securities which in the determination of the Portfolio Manager are illiquid
if, as a result of such investment, more than 10% of the total assets of
the Series (taken at market value at the time of such investment) would be
invested in such securities;
(12) Purchase or sell commodities or commodities contracts (which, for the
purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts), except:
(a) any Series may engage in interest rate futures contracts, stock
index futures contracts, futures contracts based on other financial
instruments, and on options on such futures contracts;
(b) the Natural Resources Series may invest in gold bullion and coins
and other precious metals bullion and engage in futures contracts with
respect to such commodities; and
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(c) the Multiple Allocation and Natural Resources Series may engage in
futures contracts on gold; and
(13) Invest in puts, calls, straddles, spreads, or any combination thereof,
provided that this restriction does not apply to puts that are a feature of
variable or floating rate securities or to puts that are a feature of other
corporate debt securities, and except that any Series may engage in
transactions in options, futures contracts, and options on futures.
The Rising Dividends Series, Emerging Markets Series, Value Equity Series,
Growth and Income Series and Market Manager Series are also subject to the
following restrictions and policies that are not fundamental and may, therefore,
be changed by the Board of Trustees (without shareholder approval). Unless
otherwise indicated, the Rising Dividends Series, Emerging Markets Series, Value
Equity Series, Strategic Equity Series, and Market Manager Series may not:
(1) Make short sales of securities, except short sales against the box
(this restriction shall not apply to the Strategic Equity Series, which
may make short sales within the limitations described in the Prospectus and
elsewhere in this Statement of Additional Information); and
(2) Invest in securities that are illiquid because they are subject to
legal or contractual restrictions on resale, in repurchase agreements
maturing in more than seven days, or other securities which in the
determination of the Portfolio Manager are illiquid if, as a result of such
investment, more than 15% of the total assets of the Series (taken at
market value at the time of such investment) would be invested in such
securities.
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the direction of
the Board of Trustees according to the applicable laws of the Commonwealth of
Massachusetts and the Trust's Agreement and Declaration of Trust. The Trustees
are Terry L. Kendall, Robert A. Grayson, M. Norvel Young, and Roger B. Vincent.
The Officers of the Trust are Terry L. Kendall, Barnett Chernow, Mary Bea
Wilkinson.
The Trustees and Executive Officers of the Trust, their business addresses,
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
NAME AND ADRESS POSITION WITH THE TRUST BUSINESS AFFILIATIONS AND PRINCIPAL OCCUPATIONS
- --------------- ----------------------- -----------------------------------------------
<S> <C> <C>
Terry L. Kendall* Chairman of the Board Managing Director, Bankers Trust Company; President,
Golden American Life and President Director, and Chief Executive Officer, Golden American Life
Insurance Co. Insurance Company; President, Director, and Chief Executive
1001 Jefferson Street Officer, BT Variable, Inc.; Chairman of the Board and
Wilmington, DE 19801 President of Separate Account D of Golden american Life
Insurance Company ("Separate Account D"); formerly,
President and Chief Executive Officer, United Pacific Life
Insurance Company (1983-1993).
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Barnett Chernow Vice President Executive Vice President, BT Variable, Inc., October 1993 to
Golden American Life present; Senior Vice President and Chief Financial Officer,
Insurance Co. Reliance Insurance Company, August 1977 to July 1993.
1001 Jefferson Street
Wilmington, DE 19801
Mary Bea Wilkinson Chief Financial Officer Senior Vice President, Golden American Life Insurance
Golden American Life Company November 1993 to present; Senior Vice President,
Insurance Co. BT Variable, Inc., November 1993 to present; Assistant
1001 Jefferson Street Vice President, CIGNA Insurance Companies, August 1993
Wilmington, DE 19801 to October 1993; various positions with United Pacific
Life Insurance Company, January 1987 to July 1993, and
was Vice President and Controller upon leaving.
Robert A. Grayson Trustee Co-founder, Grayson Associates, Inc.; Adjunct Professor of
Grayson Associates Marketing, New York University School of Business
108 Loma Media Road Administration; Member of the Board of Governors of Separate
Santa Barbara, CA Account D; former Director, The Golden Financial Group, Inc.;
93103 former Senior Vice President, David & Charles Advertising.
M. Norvel Young Trustee Chancellor Emeritus and Board of Regents, Pepperdine
Pepperdine University University; Director of Imperial Bancorp, Imperial Bank,
Malibu, CA 90263 Imperial Trust Co. and 20th Century Christian Publishing
Company; Member of the Board of Governors of Separate Account D;
formerly: Chancellor, Pepperdine University, 1971 to 1984;
President, Pepperdine University, 1957 to 1971;
Director, National Conference of Christians and Jews, 1978 to
1982.
26
<PAGE>
Roger B. Vincent Trustee President, Springwell Corporation; Director, Petralone, Inc.;
230 Park Avenue Member of the Board of Governors of Separate Account D;
New York, NY 10169 formerly, Managing Director, Bankers Trust Company.
<FN>
- --------
*Mr. Kendall is an "interested person" of the Trust (as that term is
defined in the Investment Company Act of 1940) because of his affiliation
with the Manager and its affiliated companies as shown above.
</TABLE>
None of the Trustees directly owns shares of the Series. In addition, as of
August 31, 1995, the Trustees and Officers as a group owned Variable Contracts
that entitled them to give voting instructions with respect to less than one
percent of the outstanding shares of each Series in the aggregate.
As indicated above, the Trustees and officers hold positions with Separate
Account D of Golden American Life Insurance Company ("Separate Account D"),
another fund for which the Manager serves as investment adviser. Trustees other
than those affiliated with the Manager or a Portfolio Manager receive a fee for
each Board of Trustees meeting attended based on the level of the Trust's assets
at the time of the meeting as follows: $2,000 per meeting for aggregate assets
up to $500 million; $3,000 per meeting for aggregate assets in excess of $500
million and up to $1 billion; $4,000 per meeting for aggregate assets in excess
of $1 billion and up to $2 billion; and $5,000 per meeting for aggregate assets
in excess of $2 billion. Trustees are reimbursed for any expenses incurred in
attending such meetings or otherwise in carrying out their responsibilities as
Trustees of the Trust. During the fiscal year ended December 31, 1994, fees
totalling $45,000 were paid by the Trust or accrued to Messrs. Kendall ($0),
Grayson ($15,000), Young ($15,000), and Vincent ($15,000). During the fiscal
year ended December 31, 1994, Messrs. Kendall, Grayson, Young, and Vincent
earned total fees of $0, $17,500, $17,500, and $17,500, respectfully, from the
Trust and Separate Account D. No officer or Trustee received any other
compensation directly from the Trust.
The table below lists each Variable Contract Owner who owns a Variable
Contract that entitles the owner to give voting instructions with respect to 5%
or more of the shares of the Series as of September 20, 1995. The address for
each record owner is c/o Golden American Life Insurance Company, 1001 Jefferson
Avenue, Wilmington, DE 19801.
NAME SERIES PERCENTAGE
Darald Libby Charitable Market Manager 6.09%
Remainder Unit Trust
George Berman Charitable Market Manager 5.42%
Remainder Trust
David and Anita Swann Market Manager 9.75%
Chartiable Remainder Trust
THE MANAGEMENT AGREEMENT
Directed Services, Inc. ("DSI" or the "Manager") serves as Manager to the
Series pursuant to a Management Agreement (the "Management Agreement") between
the Manager and the Trust. DSI's address is 280 Park Avenue, New York, New York
10017. DSI is a New York corporation
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<PAGE>
that is a wholly owned subsidiary of BT Variable, Inc. which, in turn, is an
indirect subsidiary of Bankers Trust Company. DSI is registered with the
Securities and Exchange Commission as an investment adviser and a broker-dealer.
The Trust currently offers the shares of its operating Series to, among others,
separate accounts of Golden American Life Insurance Company ("Golden American")
to serve as the investment medium for Variable Contracts issued by Golden
American. DSI is the principal underwriter and distributor of the Variable
Contracts issued by Golden American. Golden American is a stock life insurance
company organized under the laws of the State of Delaware. Prior to December 30,
1993, Golden American was a Minnesota corporation. Golden American is an
indirect wholly owned subsidiary of Bankers Trust Company.
Pursuant to the Management Agreement, the Manager, subject to the direction
of the Board of Trustees, is responsible for providing all supervisory,
management, and administrative services reasonably necessary for the operation
of the Trust and its Series other than the investment advisory services
performed by the Portfolio Managers. These services include, but are not limited
to, (i) coordinating all matters relating to the operation of the Series,
including any necessary coordination among the Series' Portfolio Managers,
Custodian, Dividend Disbursing Agent, Portfolio Accounting Agent (including
pricing and valuation of the Series' portfolios), accountants, attorneys, and
other parties performing services or operational functions for the Trust; (ii)
providing the Trust and the Series, at the Manager's expense, with the services
of a sufficient number of persons competent to perform such administrative and
clerical functions as are necessary to ensure compliance with federal securities
laws and to provide effective supervision and administration of the Trust; (iii)
maintaining or supervising the maintenance by third parties selected by the
Manager of such books and records of the Trust and the Series as may be required
by applicable federal or state law; (iv) preparing or supervising the
preparation by third parties selected by the Manager of all federal, state, and
local tax returns and reports of the Trust relating to the Series required by
applicable law; (v) preparing and filing and arranging for the distribution of
proxy materials and periodic reports to shareholders of the Series as required
by applicable law in connection with the Series; (vi) preparing and arranging
for the filing of such registration statements and other documents with the
Securities and Exchange Commission and other federal and state regulatory
authorities as may be required by applicable law in connection with the Series;
(vii) taking such other action with respect to the Trust, as may be required by
applicable law, including without limitation the rules and regulations of the
SEC and other regulatory agencies; and (viii) providing the Trust at the
Manager's expense, with adequate personnel, office space, communications
facilities, and other facilities necessary for operation of the Series
contemplated in the Management Agreement. Other responsibilities of the Manager
are described in the Prospectus.
The Manager shall make its officers and employees available to the Board of
Trustees and Officers of the Trust for consultation and discussions regarding
the supervision and administration of the Series.
Pursuant to the Management Agreement, the Manager is authorized to exercise
full investment discretion and make all determinations with respect to the
investment of a Series' assets and the purchase and sale of portfolio securities
for one or more Series in the event that at any time no Portfolio Manager is
engaged to manage the assets of such Series.
The Management Agreement shall continue in effect until October 1, 1995,
and from year to year thereafter, provided such continuance after October 1,
1995 is approved annually by (i) the holders of a majority of the outstanding
voting securities of the Trust or by the Board of Trustees, and (ii) a majority
of the Trustees who are not parties to such Management Agreement or "interested
28
<PAGE>
persons" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of
any such party. The Management Agreement, dated October 1, 1993, was approved by
shareholders at a meeting held on August 31, 1993, and was last approved by the
Board of Trustees, including the Trustees who are not parties to the Management
Agreement or interested persons of such parties, at a meeting held on September
27, 1994. The Management Agreement may be terminated without penalty by vote of
the Trustees or the shareholders of the Series or by the Manager, on 60 days'
written notice by either party to the Management Agreement, and will terminate
automatically if assigned as that term is described in the 1940 Act.
Prior to October 1, 1993, DSI served as manager to the then operational
Series pursuant to a management agreement that was effective as of September 30,
1992. The Manager's fees for supervisory and management services under the prior
management agreement were 0.20% of the average daily net assets of each of the
Series, computed and accrued daily and paid monthly. Under the prior management
agreement, the Manager was not responsible, as it is under the current
Management Agreement, for providing or procuring services necessary for the
ordinary operation of the Series, including portfolio management, custodial,
administrative, transfer agency, portfolio accounting, dividend disbursing,
auditing and ordinary legal expenses.
Prior to September 30, 1992, DSI served as manager to the operational
Series pursuant to a management agreement that was effective as of March 21,
1991, and, with respect to the Capital Appreciation Series, pursuant to an
addendum to such management agreement. This agreement terminated automatically
on September 30, 1992, upon the acquisition of DSI by BT Variable, Inc. The fees
under such agreement were identical to those fees paid under the management
agreement dated September 30, 1992.
Gross fees paid to the Manager under the current Management Agreement
(pursuant to which the Manager provides all services reasonably necessary for
the operation of the Trust) for the fiscal year ended December 31, 1994 were as
follows: Multiple Allocation Series -- $3,008,912; Fully Managed Series --
$1,093,894; Limited Maturity Bond Series -- $447,478; Natural Resources
Series -- $292,787; Real Estate Series -- $354,228; All-Growth Series --
$624,518; Capital Appreciation Series -- $912,861; Rising Dividends -- $367,866;
Emerging Markets -- $892,888; and Liquid Asset Series -- $226,289. The
management fee payable to the Manager for the Market Manager Series for the
fiscal period November 14, 1994 to December 31, 1994 was waived by the Manager.
Gross fees paid to the Manager for the period October 1, 1993 to December 31,
1993 were as follows: Multiple Allocation Series -- $641,069, Fully Managed
Series -- $257,788, Limited Maturity Bond Series -- $102,389, Natural Resources
Series -- $43,426, Real Estate Series -- $72,064, All-Growth Series -- $133,480,
Capital Appreciation Series -- $204,545, Rising Dividends Series -- $13,784,
Emerging Markets Series -- $35,514, and Liquid Asset Series -- $26,882. Gross
fees paid to the Manager for the period January 1, 1993 to September 30, 1993
under the prior management agreement (pursuant to which the Manager provided
supervisory and management services) were as follows: Multiple Allocation
Series -- $249,845, Fully Managed Series -- $96,568, Limited Maturity Bond
Series -- $49,996, Natural Resources Series -- $11,528, Real Estate Series --
$20,379, All-Growth Series -- $51,416, Capital Appreciation Series -- $70,127,
and Liquid Asset Series -- $6,695. Gross fees paid to the Manager for the period
January 1, 1992 to December 31, 1992 under the two prior management agreements
were as follows: Multiple Allocation Series -- $133,930, Fully Managed Series --
$29,317, Limited Maturity Bond Series -- $33,055, Natural Resources Series --
$5,396, Real Estate Series -- $2,258, All-Growth Series -- $27,880, and Liquid
Asset Series -- $4,000. Gross fees paid to the Manager for
29
<PAGE>
the period May 24, 1992 (commencement of operations) to December 31, 1992 for
the Capital Appreciation Series under the two prior management agreements were
$3,512.
Pursuant to an agreement to limit certain expenses of the Series, the
Series received from DSI for the period January 1, 1993 to September 30, 1993
the following amounts: Multiple Allocation Series -- $51,197, Fully Managed
Series -- $27,633, Limited Maturity Bond Series -- $22,467, Natural Resources
Series -- $8,504, Real Estate Series -- $18,209, All-Growth Series -- $2,517,
Capital Appreciation Series -- $19,889, and Liquid Asset Series -- $12,035.
Pursuant to an agreement to limit certain expenses of the Series, the Series
received from DSI for the period January 1, 1992 to December 31, 1992 the
following amounts: Multiple Allocation Series -- $76,328, Fully Managed
Series -- $39,532, Limited Maturity Bond Series -- $70,170, Natural Resources
Series -- $24,741, Real Estate Series -- $28,837, All-Growth Series -- $5,861,
and Liquid Asset Series --$57,413. Capital Appreciation Series received from DSI
for the period May 4, 1992 (commencement of operations) to December 31, 1992 the
following amount: $12,197.
The Trust, DSI and several Portfolio Managers -- Zweig Advisors Inc.;
Bankers Trust Company; Van Eck Associates Corporation; and Chancellor Trust
Company -- entered into Portfolio Management Agreements dated and effective as
of September 30, 1992, as amended by an addendum to each Portfolio Management
Agreement dated and effective as of October 1, 1993. and (with the exception of
Bankers Trust Company) as further amended by an addendum to each Portfolio
Management Agreement dated and effective as of April 30, 1995. The Portfolio
Management Agreements were approved by the shareholders of each of the
respective operational series of the Trust other than the Capital Appreciation
Series at a meeting held on June 29, 1992. The shareholders of the Capital
Appreciation Series approved the Portfolio Management Agreement for that Series
at a meeting held on August 31, 1993. The first addenda to the Portfolio
Management Agreements were approved by shareholders of each operational Series
of the Trust at a meeting held on August 31, 1993. Under the addenda to the
Portfolio Management Agreements, the Manager (and not the Trust) pays each
Portfolio Manager a monthly fee based on an annual percentage of average daily
net assets of the Series managed by that Portfolio Manager. The second addenda
to the Portfolio Management Agreements was approved by the Board of Trustees at
a meeting held on March 29, 1995 and by Shareholders at a meeting held on April
28, 1995. The Portfolio Management Agreement with Zweig Advisors Inc. was
amended by an addendum dated September 29, 1995, for the pupose of adding the
Strategic Equity Series. The addendum to that Portfolio Management Agreement
was approved by the Board of directors at a meeting held on September 21, 1995,
and was approved by the sole sharehloder of the Series at a meeting held on
September 29, 1995. With the exception of the Portfolio Management Agreements
for the All-Growth Series, Fully Managed Series and Real Estate Series, each
of the Portfolio Management Agreements was last approved by the Board of
Trustees of the Trust, including the Trustees who are not parties to the
Portfolio Management Agreements or interested persons of such parties, at a
meeting held on September 27, 1994. The Portfolio Management Agreements wih
Weiss, Peck & Greer Advisers, Inc. for the Fully Managed Series and Chancellor
Trust Company for the Real Estate Series terminated on December 31, 1994.
The Trust, DSI, and Warburg, Pincus Counsellors, Inc. entered into a
Portfolio Management Agreement dated as of June 9, 1994 on behalf of the All-
Growth Series. The Portfolio Management Agreement with Warburg, Pincus
Counsellors, Inc. was approved by the Board of Trustees at a meeting held on
June 9, 1994, and was approved by shareholders of that Series at a meeting held
on September 15, 1994.
30
<PAGE>
The Trust, DSI, and Kayne, Anderson Investment Management, Inc. entered
into a Portfolio Management Agreement dated as of October 1, 1993, as amended by
an addendum dated April 30, 1995, on behalf of the Rising Dividends Series. The
Portfolio Management Agreement with Kayne, Anderson Investment Management, Inc.
was approved by the sole shareholder of that Series at a meeting held on
September 30, 1993 and was last approved by the Board of Trustees at a meeting
held on September 27, 1994. On January 1, 1995, Kayne, Anderson Investment
Management, L.P. became Portfolio Manager pursuant to a Substitution Agreement.
The addendum to the Portfolio Management Agreement was approved by the Board of
Trustees at a meeting held on March 29, 1995 and by shareholders at a meeting
held on April 28, 1995.
The Trust, DSI, and Bankers Trust Company entered into an Addendum dated
October 1, 1993 to the Portfolio Management Agreement dated September 30, 1992
on behalf of the Emerging Markets Series. The Portfolio Management Agreement was
approved by the sole shareholder of that Series at a meeting held on September
30, 1993 and was last approved by the Board of Trustees at a meeting held on
September 27, 1994. The Trust, DSI, and Bankers Trust Company entered into a
second Addendum dated October 4, 1994 to the Portfolio Management Agreement on
behalf of the Market Manager Series. The Addendum was approved by the Board of
Trustees at a meeting held on September 27, 1994, and the Portfolio Management
Agreement was approved by the sole shareholder of that Series at a meeting held
on November 7, 1994.
The Trust, DSI, and Eagle Asset Management, Inc. entered into a Portfolio
Management Agreement dated as of January 1, 1995 on behalf of the Value Equity
Series. The Portfolio Management Agreement with Eagle Asset Management, Inc. was
approved by the Board of Trustees at a meeting held on September 27, 1994, and
was approved by the sole shareholder of that Series at a meeting held on
December 30, 1994.
The Trust, DSI, and T. Rowe Price Associates, Inc. entered into a Portfolio
Management Agreement dated as of January 1, 1995 on behalf of the Fully Managed
Series. The Portfolio Management Agreement with T. Rowe Price Associates, Inc.
was approved by the Board of Trustees at a meeting held on December 20, 1994,
and was approved by the Shareholders of the Series at a meeting held on April
28, 1995..
The Trust, DSI, and E.I.I. Realty Securities, Inc. entered into a Portfolio
Management Agreement dated as of January 1, 1995 on behalf of the Real Estate
Series. The Portfolio Management Agreement with E.I.I. Realty Securities, Inc.
was approved by the Board of Trustees at a meeting held on December 20, 1994,
and was approved by the Shareholders of the Series at a meeting held on April
28, 1995.
Prior to September 30, 1992, the Portfolio Managers served as portfolio
managers to the operational Series pursuant to portfolio management agreements
that were effective prior to that date. The fees payable to the Portfolio
Managers for advisory services to certain of Series under the prior portfolio
management agreements in effect until September 30, 1992 varied from the fees
provided in the current Portfolio Management Agreements. The prior portfolio
management agreements have been deemed by the Trust to have terminated upon the
acquisition of DSI by BT Variable, Inc.
As discussed in the section entitled "The Manager" in the Prospectus, prior
to October 1, 1993, the Trust bore the expenses of portfolio management fees.
Pursuant to the addenda to the Portfolio Management Agreements, the Manager (and
not the Trust) pays each Portfolio Manager for
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<PAGE>
its services a monthly fee at annual rates which are expressed as percentages of
the average daily net assets of each Series. For the fiscal year ended December
31, 1994, the Manager (and not the Trust) paid the Portfolio Managers the
following amounts: Zweig Advisors Inc. -- $1,656,915 for the Multiple Allocation
Series; Weiss, Peck & Greer Advisers, Inc. -- $734,134 for the Fully Managed
Series; Bankers Trust Company -- $198,421 for the Limited Maturity Bond Series,
$445,183 for the Emerging Markets Series, and $81,751 for the Liquid Asset
Series; Van Eck Associates Corp. -- $158,413 for the Natural Resources Series;
Chancellor Trust Company -- $250,164 for the Real Estate Series and $546,256 for
the Capital Appreciation Series; Kayne, Anderson Investment Management, Inc. --
$195,541 for the Rising Dividends Series. For the fiscal period from November
14, 1994 (commencement of operations) to December 31, 1994, the Manager (and not
the Trust) paid Bankers Trust Company $0 for the Market Manager Series. The
Manager paid J.M. Hartwell & Company, Inc. $160,575 for the All-Growth Series
for the period of January 1, 1994 through June 30, 1994, and Warburg, Pincus
Counsellors, Inc. $165,317 for the All-Growth Series for the period of July 1,
1994 to December 31, 1994. For the period of October 1, 1993 through December
31, 1993, the Manager (and not the Trust) paid the Portfolio Managers the
following amounts: Zweig Advisors Inc. -- $384,642 for the Multiple Allocation
Series; Weiss, Peck & Greer Advisers, Inc. -- $154,673 for the Fully Managed
Series; Bankers Trust Company -- $45,813 for the Limited Maturity Bond Series;
Van Eck Associates Corporation -- $23,884 for the Natural Resources Series;
Chancellor Trust Company -- $43,234 for the Real Estate Series; J.M. Hartwell &
Company, Inc. -- $73,414 for the All-Growth Series; Chancellor Trust Company --
$122,727 for the Capital Appreciation Series; and Bankers Trust Company --
$8,822 for the Liquid Asset Series. For the period of October 4, 1993
(commencement of operations) through December 31, 1993, the Manager (and not the
Trust) paid the Portfolio Managers of the Rising Dividends Series and Emerging
Markets Series, pursuant to the Portfolio Management Agreements, the following
amounts: Kayne, Anderson Investment Management, Inc. -- $7,582 for the Rising
Dividends Series and Bankers Trust Company -- $17,117 for the Emerging Markets
Series. Prior to October 1, 1993, pursuant to the Portfolio Management
Agreements or the prior portfolio management agreements, the Trust (and not the
Manager) paid each Portfolio Manager for its services. Fees paid to the
Portfolio Managers for the period of January 1, 1993 through September 30, 1993
were as follows: Zweig Advisors Inc. -- $749,534 for the Multiple Allocation
Series; Weiss, Peck & Greer Advisers, Inc. -- $289,704 for the Fully Managed
Series; Bankers Trust Company -- $108,259 for the Limited Maturity Bond Series;
Van Eck Associates Corporation -- $31,701 for the Natural Resources Series;
Chancellor Trust Company -- $61,138 for the Real Estate Series; J.M. Hartwell &
Company, Inc. -- $141,676 for the All-Growth Series; Chancellor Trust Company --
$210,811 for the Capital Appreciation Series; and Bankers Trust Company --
$26,178 for the Liquid Asset Series. Fees paid to the Portfolio Managers for the
year ended December 31, 1992 were as follows: Zweig Advisors Inc. -- $396,964
for the Multiple Allocation Series; Weiss, Peck & Greer Advisers, Inc. --
$86,870 for the Fully Managed Series; Chancellor Capital Management, Inc. (the
predecessor to Chancellor Trust Company) -- $6,796 for the Real Estate Series;
Van Eck Associates Corporation -- $14,459 for the Natural Resources Series; and
J.M. Hartwell & Company, Inc. -- $75,407 for the All-Growth Series. Fees paid to
Neuberger & Berman Management Incorporated for the period January 1, 1992 to
April 30, 1992 were $30,370 for the Limited Maturity Bond Series and $16,174 for
the Liquid Asset Series. Fees paid to Bankers Trust Company for the period May
1, 1992 to December 31, 1992 were $41,215 for the Limited Maturity Bond Series
and $17,391 for the Liquid Asset Series. Fees paid to Chancellor Capital
Management, Inc. (the predecessor to Chancellor Trust Company) for the period
May 4, 1992 (commencement of operations) to December 31, 1992 were $10,535 for
the Capital Appreciation Series.
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<PAGE>
DISTRIBUTION OF TRUST SHARES
Directed Services, Inc. ("DSI") serves as the Series' Distributor. DSI is
not obligated to sell a specific amount of the Series' shares. DSI bears all
expenses of providing distribution services including the costs of sales
presentations, mailings, advertising, and any other marketing efforts by DSI in
connection with the distribution or sale of the shares.
PURCHASES AND REDEMPTIONS
For information on purchase and redemption of shares, see "Purchase of
Shares" and "Redemption of Shares" in the Prospectuses. The Trust may suspend
the right of redemption of shares of any Series and may postpone payment beyond
seven days for any period: (i) during which the New York Stock Exchange is
closed other than customary weekend and holiday closing or during which trading
on the New York Stock Exchange is restricted; (ii) when the Securities and
Exchange Commission determines that a state of emergency exists which may make
payment or transfer not reasonably practicable; (iii) as the Securities and
Exchange Commission may by order permit for the protection of the security
holders of the Trust; or (iv) at any other time when the Trust may, under
applicable laws and regulations, suspend payment on the redemption of its
shares. If the Board of Trustees should determine that it would be detrimental
to the best interests of the remaining shareholders of a Series to make payment
wholly or partly in cash, the Series may pay the redemption price in whole or in
part by a distribution in kind of securities from the portfolio of the Series,
in lieu of cash, in conformity with applicable rules of the Securities and
Exchange Commission. If shares are redeemed in kind, the redeeming shareholder
might incur brokerage costs in converting the assets into cash.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for each Series are made by the Portfolio Manager of
each Series. Each Portfolio Manager has investment advisory clients other than
the Series. A particular security may be bought or sold by a Portfolio Manager
for certain clients even though it could have been bought or sold for other
clients at the same time. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, allocated between such
clients in a manner deemed fair and reasonable by the Portfolio Manager.
Although there is no specified formula for allocating such transactions, the
various allocation methods used by the Portfolio Manager, and the results of
such allocations, are subject to periodic review by the Trust's Manager and
Board of Trustees. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager for a Series places all orders for the purchase and
sale of portfolio securities, options, and futures contracts for a Series
through a substantial number of brokers and dealers or futures commission
merchants. In executing transactions, the Portfolio Manager will attempt to
obtain the best execution for a Series taking into account such factors as price
(including the applicable brokerage commission or dollar spread), size of order,
the nature of the market for the security, the timing of the transaction, the
reputation, experience and financial stability of the broker-
33
<PAGE>
dealer involved, the quality of the service, the difficulty of execution and
operational facilities of the firms involved, and the firm's risk in positioning
a block of securities. In transactions on stock exchanges in the United States,
payments of brokerage commissions are negotiated. In effecting purchases and
sales of portfolio securities in transactions on United States stock exchanges
for the account of the Trust, the Portfolio Manager may pay higher commission
rates than the lowest available when the Portfolio Manager believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction, as described below. In the
case of securities traded on some foreign stock exchanges, brokerage commissions
may be fixed and the Portfolio Manager may be unable to negotiate commission
rates for these transactions. In the case of securities traded on the over-the-
counter markets, there is generally no stated commission, but the price includes
an undisclosed commission or markup.
There is generally no stated commission in the case of fixed-income
securities, which are generally traded in the over-the-counter markets, but the
price paid by the Series usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Series includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Series of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Portfolio Manager for a Series may receive research services from many
broker-dealers with which the Portfolio Manager places the Series' portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Portfolio Manager and its affiliates in advising its various clients
(including the Series), although not all of these services are necessarily
useful and of value in managing a Series. The advisory fee paid by the Series to
the Portfolio Manager is not reduced because the Portfolio Manager and its
affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager may cause a Series to pay a broker-dealer, which provides
"brokerage and research services" (as defined in the Act) to the Portfolio
Manager, a disclosed commission for effecting a securities transaction for the
Series in excess of the commission which another broker-dealer would have
charged for effecting that transaction.
A Portfolio Manager may place orders for the purchase and sale of exchange-
listed portfolio securities with a broker-dealer that is an affiliate of the
Portfolio Manager where, in the judgment of the Portfolio Manager, such firm
will be able to obtain a price and execution at least as favorable as other
qualified brokers.
Pursuant to rules of the Securities and Exchange Commission, a broker-
dealer that is an affiliate of the Manager or a Portfolio Manager or, if it is
also a broker-dealer, the Portfolio Manager may receive and retain compensation
for effecting portfolio transactions for a Series on a national securities
exchange of which the broker-dealer is a member if the transaction is "executed"
on the
34
<PAGE>
floor of the exchange by another broker which is not an "associated person" of
the affiliated broker-dealer or Portfolio Manager, and if there is in effect a
written contract between the Portfolio Manager and the Trust expressly
permitting the affiliated broker-dealer or Portfolio Manager to receive and
retain such compensation. The Portfolio Management Agreements provide that each
Portfolio Manager may retain compensation on transactions effected for a Series
in accordance with the terms of these rules. The Fully Managed Series and Rising
Dividends Series currently intend to use a broker-dealer that is an affiliate of
the Portfolio Manager.
Securities and Exchange Commission rules further require that commissions
paid to such an affiliated broker-dealer or Portfolio Manager by a Series on
exchange transactions not exceed "usual and customary brokerage commissions."
The rules define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Board of Trustees
has adopted procedures for evaluating the reasonableness of commissions paid to
broker-dealers that are affiliated with Portfolio Managers or to Portfolio
Managers that are broker-dealers and will review these procedures periodically.
BT Brokerage Corporation, Watermark Securities, Inc., Zweig Securities Corp., KA
Associates, Inc., Counsellors Securities Inc. and Raymond James & Associates,
Inc. are registered broker-dealers, and each is an affiliate of a Portfolio
Manager. Certain affiliates of Robert Fleming Holdings Limited and Jardine
Fleming Group Limited are broker-dealers affiliated with T. Rowe Price
Associates, Inc. Any of the above firms may retain compensation on transactions
effected for a Series in accordance with these rules and procedures.
During the fiscal year ended December 31, 1994, the Multiple Allocation
Series, Fully Managed Series, Natural Resources Series, Real Estate Series, All-
Growth Series, Capital Appreciation Series, Rising Dividends Series, Emerging
Markets Series, and Market Manager Series paid brokerage commissions of
$301,480, $157,580, $69,954, $69,376, $260,691, $183,029, $106,828, $589,210,
and $975, respectively. During the fiscal year ended December 31, 1993, the
Multiple Allocation Series, Fully Managed Series, Natural Resources Series, Real
Estate Series, All-Growth Series, and Capital Appreciation Series paid brokerage
commissions of $265,151, $119,201, $42,006, $54,079, $30,669, and $157,757,
respectively. During the fiscal period from October 4, 1993 (commencement of
operations) to December 31, 1993, the Rising Dividends Series and Emerging
Markets Series paid brokerage commissions of $29,028 and $77,618, respectively.
The Fully Managed Series paid brokerage commissions of $68,311 (57.3% of its
total brokerage commissions) to Weiss, Peck & Greer Advisers, Inc. The Multiple
Allocation Series paid brokerage commissions of $49,242 (18.6% of its total
brokerage commissions) to Watermark Securities, Inc. The Rising Dividends Series
paid brokerage commissions of $20,641 (71.1% of its total brokerage commissions)
to KA Associates, Inc. During the fiscal year ended December 31, 1992, the
Multiple Allocation Series, Fully Managed Series, Natural Resources Series, Real
Estate Series, All-Growth Series, and Capital Appreciation Series paid brokerage
commissions of $97,955, $36,607, $1,948, $4,157, $6,000, and $20,494,
respectively. The Fully Managed Series paid brokerage commissions of $33,597
(92% of its total brokerage commissions) to Weiss, Peck & Greer Advisers, Inc.
The Multiple Allocation Series paid brokerage commissions of $8,977 (9% of its
total brokerage commissions) to Watermark Securities, Inc.
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NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectuses, the Series' net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at or about 4:00 P.M., New York City time, on each day the New
York Stock Exchange is open for trading, exclusive of federal holidays.
The Liquid Asset Series' portfolio securities are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Series would receive if it sold the instrument. During such periods the yield to
investors in the Series may differ somewhat from that obtained in a similar
investment company which uses available market quotations to value all of its
portfolio securities.
The Securities and Exchange Commission's regulations require the Liquid
Asset Series to adhere to certain conditions. The Trustees, as part of their
responsibility within the overall duty of care owed to the shareholders, are
required to establish procedures reasonably designed, taking into account
current market conditions and the Series' investment objectives, to stabilize
the net asset value per share as computed for the purpose of distribution and
redemption at $1.00 per share. The Trustees' procedures include a requirement to
periodically monitor, as appropriate and at such intervals as are reasonable in
light of current market conditions, the relationship between the amortized cost
value per share and the net asset value per share based upon available
indications of market value. The Trustees will consider what steps should be
taken, if any, in the event of a difference of more than 1/2 of 1% between the
two. The Trustees will take such steps as they consider appropriate (e.g.,
selling securities to shorten the average portfolio maturity) to minimize any
material dilution or other unfair results which might arise from differences
between the two. The Series also is required to maintain a dollar-weighted
average portfolio maturity of 90 days or less, to limit its investments to
instruments having remaining maturities of 13 months or less (except securities
held subject to repurchase agreements having 13 months or less to maturity) and
to invest only in securities determined by the Portfolio Manager under
procedures established by the Board of Trustees to be of high quality with
minimal credit risks.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the current yield and effective
yield of its Liquid Asset Series, the yield of the remaining Series, and the
total return of all Series in advertisements or sales literature. In the case of
Variable Contracts, performance information for the Series will not be
advertised or included in sales literature unless accompanied by comparable
performance information for a separate account to which the Series offer their
shares.
Current yield for Liquid Asset Series will be based on the change in the
value of a hypothetical investment (exclusive of capital charges) over a
particular seven-day period, less a pro-rata share of Series expenses accrued
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
"Effective yield" for the Liquid Asset Series assumes that all dividends
received during an annual period have been reinvested. Calculation of "effective
yield" begins with
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the same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [ ( (Base Period Return) + 1 )(365/7)] - 1
Quotations of yield for the remaining Series will be based on all
investment income per share earned during a particular 30-day period (including
dividends and interest and calculated in accordance with a standardized yield
formula adopted by the Securities and Exchange Commission), less expenses
accrued during the period ("net investment income"), and are computed by
dividing net investment income by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2 [ (a - b + 1 )(6) - 1 ]
-----
cd
where,
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
Quotations of average annual total return for a Series will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Series over certain periods that will include periods of one,
five, and ten years (or, if less, up to the life of the Series), calculated
pursuant to the following formula: P (1 + T)(n) = ERV (where P = a hypothetical
initial payment of $1,000, T = the average annual total return, n = the number
of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period). Quotations of total return may also be
shown for other periods. All total return figures reflect the deduction of a
proportional share of Series expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
For the period of January 3, 1989 (inception of the Trust) to December 31,
1994 and for the five- and one-year periods ended December 31, 1994, the average
annual total return for each Series was as follows: 7.46%, 7.06%, and -1.18% for
the Multiple Allocation Series; 5.51%, 5.76%, and -7.27% for the Fully Managed
Series; 6.45%, 5.72%, and -1.19% for the Limited Maturity Bond Series; 3.91%,
3.21%, and -10.77% for the All-Growth Series; 6.95%, 8.57%, and 6.34% for the
Real Estate Series; 6.93%, 4.58%, and 2.53% for the Natural Resources Series;
and 5.31%, 4.56%, and 3.89% for the Liquid Asset Series. For the period of May
4, 1992 (inception of the Capital Appreciation Series) to December 31, 1994 and
the one-year period ended December 31, 1994, the average total return for the
Capital Appreciation Series was 6.46% and -1.59%. For the period of October 1,
1993 (inception of the Rising Dividends and Emerging Markets Series) to December
31, 1994 and the one-year period ended December 31, 1994, the average total
return for the Rising Dividends Series was 3.02% and 0.59% and the average
annual total return for the Emerging Markets Series was 4.43% and -15.18%. For
the period of November 14, 1994 (inception of the Market Manager Series) to
December 31, 1994, the average total return for the Market Manager Series was
0.44%.
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Performance information for a Series may be compared, in advertisements,
sales literature, and reports to shareholders to: (i) the Standard & Poor's 500
Stock Index ("S & P 500"), the Dow Jones Industrial Average ("DJIA"), the Lehman
Brothers Government Bond Index, the Donoghue Money Market Institutional
Averages, the Lehman Brothers Government Corporate Index, the Salomon High Yield
Index, or other indices that measure performance of a pertinent group of
securities, (ii) other groups of mutual funds tracked by Lipper Analytical
Services, Inc., a widely used independent research firm which ranks mutual funds
by overall performance, investment objectives, and assets, or tracked by other
services, companies, publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Series.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Reports and promotional literature may also contain other information
including (i) the ranking of any Series derived from rankings of mutual funds or
other investment products tracked by Lipper Analytical Services, Inc. or by
other rating services, companies, publications, or other persons who rank mutual
funds or other investment products on overall performance or other criteria, and
(ii) the effect of tax deferred compounding on a Series' investment returns, or
returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in a Series (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
In addition, reports and promotional literature may contain information
concerning the Manager, the Portfolio Managers, or affiliates of the Trust, the
Manager, or the Portfolio Managers, including (i) performance rankings of other
mutual funds managed by a Portfolio Manager, or the individuals employed by a
Portfolio Manager who exercise responsibility for the day-to-day management of a
Series, including rankings of mutual funds published by Morningstar, Inc., Value
Line Mutual Fund Survey, or other rating services, companies, publications, or
other persons who rank mutual funds or other investment products on overall
performance or other criteria; (ii) lists of clients, the number of clients, or
assets under management; and (iii) information regarding services rendered by
the Manager to the Trust, including information related to the selection and
monitoring of the Portfolio Managers. Reports and promotional literature may
also contain a description of the type of investor for whom it could be
suggested that a Series is intended, based upon each Series' investment
objectives.
In the case of Variable Contracts, quotations of yield or total return for
a Series will not take into account charges and deductions against any Separate
Accounts to which the Series shares are sold or charges and deductions against
the life insurance policies or annuity contracts issued by Golden American,
although comparable performance information for the Separate Account will take
such charges into account. Performance information for any Series reflects only
the performance of a hypothetical investment in the Series during the particular
time period on which the calculations are based. Performance information should
be considered in light of the Series' investment objective or objectives and
investment policies, the characteristics and quality of the portfolios, and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
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TAXATION
The following discussion summarizes certain U.S. federal tax considerations
incident to an investment in a Series.
Each Series intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").
To qualify as a regulated investment company, each Series generally must,
among other things: (i) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities, or currencies (to satisfy this requirement, it is
intended that the Series investing in gold and other commodities will be managed
so that the gross income derived from its investments in gold and other
commodities and future contracts on gold and other commodities, when combined
with any other gross income of the Series which is not derived from qualifying
sources, will not exceed 10% of the Series' gross income during any fiscal
year); (ii) derive in each taxable year less than 30% of its gross income from
the sale or other disposition of certain assets held less than three months
(namely (a) stock or securities, (b) options, futures, and forward contracts
(other than those on foreign currencies), and (c) foreign currencies (including
options, futures, and forward contracts on such currencies) not directly related
to a Series' principal business of investing in stocks or securities (or options
and futures with respect to stocks and securities)); (iii) diversify its
holdings so that, at the end of each quarter of the taxable year, (a) at least
50% of the market value of the Series' assets is represented by cash, cash
items, U.S. Government securities, the securities of other regulated investment
companies, and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Series' total assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or of two or more issuers which the Series controls (as that term is
defined in the relevant provisions of the Code) and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (iv) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest, and net short-
term capital gains in excess of any net long-term capital losses) each taxable
year.
A Series qualifying as a regulated investment company generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (any net long-term capital gains in excess of the net short-
term capital losses), if any, that it distributes to shareholders. Each Series
intends to distribute to its shareholders, at least annually, substantially all
of its investment company taxable income and any net capital gains.
Generally, regulated investment companies, like the Series, must distribute
amounts on a timely basis in accordance with a calendar year distribution
requirement in order to avoid a nondeductible 4% excise tax. Generally, to avoid
the tax, a regulated investment company must distribute during each calendar
year, an amount at least equal to the sum of (i) 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (ii) 98%
of its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for the twelve-month period ending on October 31 of the
calendar year, and (iii) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax,
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each Series intends to make its distributions in accordance with the calendar
year distribution requirement. A distribution is treated as paid on December 31
of the calendar year if it is declared by a Series in October, November, or
December of that year to shareholders of record on a date in such a month and
paid by the Series during January of the following calendar year. Such
distributions are taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. The excise tax provisions described above do not
apply to a regulated investment company, like a Series, all of whose
shareholders at all times during the calendar year are (i) segregated asset
accounts of life insurance companies where the shares are held in connection
with variable contracts or (ii) tax-exempt retirement trusts described in Code
Section 401(a). (For this purpose, any shares of a Series attributable to an
investment in the Series not exceeding $250,000 made in connection with the
organization of the Series shall not be taken into account.) Accordingly, if
this condition regarding the ownership of shares of a Series is met, the excise
tax will be inapplicable to that Series.
Some of the Series may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitutes investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which a Series held the PFIC stock. A Series itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to a Series' holding period in prior taxable years (an interest factor
will be added to the tax, as if the tax had actually been payable in such prior
taxable years) even though a Series distributes the corresponding income to
shareholders. Excess distributions include any gain from the sale of PFIC stock
as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
A Series may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, a Series
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether any distributions
are received from the PFIC. If this election is made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. In addition, another election may be available that would involve marking
to market a Series' PFIC stock at the end of each taxable year (and on certain
other dates prescribed in the Code), with the result that unrealized gains are
treated as though they were realized. If this election were made, tax at the
Series level under the PFIC rules would be eliminated, but a Series could, in
limited circumstances, incur nondeductible interest charges. A Series' intention
to qualify annually as a regulated investment company may limit a Series'
elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Series
itself to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.
Certain options, futures contracts, and forward contracts in which a Series
may invest are "Section 1256 contracts." Gains or losses on Section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses; however, foreign currency gains or losses arising from certain
Section 1256 contracts may be treated as ordinary income or loss. Also, Section
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1256 contracts held by a Series at the end of each taxable year (and at certain
other times as prescribed pursuant to the Code) are "marked to market" with the
result that unrealized gains or losses are treated as though they were realized.
Generally, the hedging transactions undertaken by a Series may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Series. In addition, losses
realized by a Series on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Series of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Series which is taxed as ordinary income when
distributed to shareholders.
A Series may make one or more of the elections available under the Code
which are applicable to straddles. If a Series makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
The requirements applicable to a Series' qualification as a regulated
investment company may limit the extent to which a Series will be able to engage
in transactions in options, futures contracts or forward contracts.
Income received by a Series from sources within a foreign country may be
subject to withholding and other taxes imposed by that country. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Series of the Trust accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time that Series actually collects such receivables or pays
such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain futures contracts, forward contracts and options,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Series' investment company taxable income to be
distributed to its shareholders as ordinary income.
To comply with regulations under Section 817(h) of the Code, each Series of
the Trust generally will be required to diversify its investments so that on the
last day of each quarter of a calendar year, no more than 55% of the value of
its assets is represented by any one investment, no more than 70% is represented
by any two investments, no more than 80% is represented by any three
investments, and no more than 90% is represented by any four investments. For
additional
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information on the application of the asset diversification requirements under
Code Section 817(h), and the asset diversification requirements applicable to
regulated investment companies, potential investors in the Market Manager Series
should see "Federal Income Tax Status" in the Market Manager Series' Prospectus.
Generally, securities of a single issuer are treated as one investment and
obligations of each U.S. Government agency and instrumentality (such as the
Government National Mortgage Association) are treated for purposes of Section
817(h) as issued by separate issuers.
In connection with the issuance of the diversification regulations, the
Treasury Department announced that it would issue future regulations or rulings
addressing the circumstances in which a variable contract owner's control of the
investments of a separate account may cause the contract owner, rather than the
insurance company, to be treated as the owner of the assets held by the separate
account. If the variable contract owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income.
Among the areas in which Treasury has indicated informally that it is concerned
that there may be too much contract owner control is where a mutual fund (or
series) underlying a separate account invests solely in securities issued by
companies in a specific industry.
These future rules and regulations proscribing investment control may
adversely affect the ability of certain Series of the Trust to operate as
described in this Prospectus. There is, however, no certainty as to what
standards, if any, Treasury will ultimately adopt.
In the event that unfavorable rules, regulations or positions are adopted,
there can be no assurance that the Series will be able to operate as currently
described in the Prospectus, or that a Series will not have to change its
investment objective or objectives, investment policies, or investment
restrictions. While a Series' investment objective is fundamental and may be
changed only by a vote of a majority of its outstanding shares, the Trustees
have reserved the right to modify the investment policies of a Series as
necessary to prevent any such prospective rules, regulations and positions from
causing the Variable Contract Owners to be considered the owners of the assets
underlying the Separate Accounts.
Debt securities purchased by the Series (such as zero coupon bonds) may be
treated for U.S. Federal income tax purposes as having original issue discount.
Original issue discount is treated as interest for Federal income tax purposes
and can generally be defined as the excess of the stated redemption price at
maturity over the issue price. Original issue discount, whether or not cash
payments actually are received by the Series, is treated for Federal income tax
purposes as income earned by the Series, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of the Series each year is determined on the
basis of a constant yield to maturity which takes into account the compounding
of accrued interest.
In addition, debt securities may be purchased by the Series at a discount
which exceeds the original issue discount remaining on the securities, if any,
at the time the Series purchased the securities. This additional discount
represents market discount for income tax purposes. Treatment of market discount
varies depending upon the maturity of the debt security. Generally, in the case
of any debt security having a fixed maturity date of more than one year from the
date of issue and having market discount, the gain realized on disposition will
be treated as ordinary income to the extent it does not exceed the accrued
market discount on the security (unless the Series elects for all
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<PAGE>
its debt securities having a fixed maturity date of more than one year from the
date of issue to include market discount in income in tax years to which it is
attributable). Generally, market discount accrues on a daily basis. For any debt
security having a fixed maturity date of not more than one year from the date of
issue, special rules apply which may require in some circumstances the ratable
inclusion of income attributable to discount at which the bond was acquired as
calculated under the Code. The Series may be required to capitalize, rather than
deduct currently, part or all of any net direct interest expense on indebtedness
incurred or continued to purchase or carry any debt security having market
discount (unless the Series makes the election to include market discount
currently).
DISTRIBUTIONS
Distributions of investment company taxable income (which includes among
other items, interest, dividends, and net realized short-term capital gains in
excess of net realized long-term capital losses) and of net realized capital
gains, whether received in cash or additional shares are includable in the gross
income of the shareholder. Distributions of investment company taxable income
are treated as ordinary income for tax purposes. Net capital gains designated as
capital gains dividends by a Series will, to the extent distributed, be treated
as long-term capital gains regardless of the length of time a shareholder may
have held the shares. A distribution will be treated as paid on December 31 of
the calendar year if it is declared by a Series in October, November, or
December of that year to shareholders of record on a date in such a month and
paid by the Series during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which they
are declared, rather than the calendar year in which they are received.
Distributions received by tax-exempt shareholders will not be subject to federal
income tax to the extent permitted under the applicable tax exemption.
OTHER TAXES
Distributions may also be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Series. Depending upon the nature and
extent of a Series' contacts with a state or local jurisdiction, the Series may
be subject to the tax laws of such jurisdiction if it is regarded under
applicable law as doing business in, or as having income derived from, the
jurisdiction.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under an Agreement
and Declaration of Trust dated August 3, 1988 and currently consists of twenty-
five Series. The thirteen Series that are discussed in this Statement of
Additional Information and accompanying prospectuses and a Series that is
described in an additional prospectus and statement of additional information
are operational. The capitalization of the Trust consists of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional Series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional Series will not alter the rights of the Trust's shareholders, the
Separate Accounts. When issued in accordance with the terms of the Agreement and
Declaration of Trust, shares are fully paid, redeemable, freely transferable,
and non-assessable by the Trust.
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Shares do not have preemptive rights or subscription rights. In liquidation of a
Series of the Trust, each shareholder is entitled to receive his or her pro rata
share of the net assets of that Series.
On January 31, 1992, the name of the Trust was changed to The GCG Trust.
Prior to that change, the name of the Trust was The Specialty Managers Trust.
VOTING RIGHTS
Shareholders of the Series are given certain voting rights. Each share of
each Series will be given one vote, unless a different allocation of voting
rights is required under applicable law for a mutual fund that is an investment
medium for variable insurance products.
Massachusetts business trust law does not require the Trust to hold annual
shareholder meetings, although special meetings may be called for a specific
Series, or for the Trust as a whole, for purposes such as electing or removing
Trustees, changing fundamental policies, or approving a contract for investment
advisory services. The Trust will be required to hold a meeting to elect
Trustees to fill any existing vacancies on the Board if, at any time, fewer than
a majority of the Trustees have been elected by the shareholders of the Trust.
In addition, the Agreement and Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares or other voting interests of
the Trust may remove a person serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trust's shares do not have
cumulative voting rights. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee, if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. The Trust is required to assist in shareholders'
communications.
CUSTODIAN AND OTHER SERVICE PROVIDERS
The Custodian for the Series is Bankers Trust Company, 280 Park Avenue, New
York, New York 10017. The Shareholders Services Group, Inc., One Exchange Place,
4th Floor, Boston, MA 02109, provides administrative and portfolio accounting
services for all Series.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, NY 10019, serves as
independent auditors for the Trust.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, has
passed upon certain legal matters in connection with the shares offered by the
Trust and acts as outside counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectuses do not
contain all the information included in the Trust's Registration Statement filed
with the Securities and Exchange Commission under the Securities Act of 1933
with respect to the securities offered by the Prospectus. Certain portions of
the Registration Statement have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Registration
Statement, including the
44
<PAGE>
exhibits filed therewith, may be examined at the offices of the Securities and
Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectuses as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements for the Series dated as of December 31,
1994, including notes thereto, are incorporated by reference in this Statement
of Additional Information from the Trust's Annual Report dated as of December
31, 1994. Unaudited financial statements for the Series for the six-month period
ended June 30, 1995, including notes thereto, are incorporated by reference in
this Statement of Additional Information from the Trust's Semi-Annual Report
dated as of June 30, 1995.
45
<PAGE>
APPENDIX 1: DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc.'s ("Moody's") description of its
bond ratings:
Aaa - judged to be the best quality; they carry the smallest degree of
investment risk. Aa - judged to be of high quality by all standards; together
with the Aaa group, they comprise what are generally known as high grade bonds.
A - possess many favorable investment attributes and are to be considered as
"upper medium grade obligations." Baa - considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured; interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Ba - judged to have speculative elements; their future cannot be
considered as well assured. B - generally lack characteristics of the desirable
investment. Caa - are of poor standing; such issues may be in default or there
may be present elements of danger with respect to principal or interest. Ca -
speculative in a high degree; often in default. C - lowest rate class of bonds;
regarded as having extremely poor prospects.
Moody's also applies numerical indicators 1, 2, and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward the
lower end of the category.
Excerpts from Standard & Poor's Corporation's ("S&P") description of its
bond ratings:
AAA - highest grade obligations; capacity to pay interest and repay
principal is extremely strong. AA - also qualify as high grade obligations; a
very strong capacity to pay interest and repay principal and differs from AAA
issues only in small degree. A - regarded as upper medium grade; they have a
strong capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB - regarded as having an
adequate capacity to pay interest and repay principal; whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity than in higher
rated categories - this group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC, C- predominately speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligation: BB indicates the lowest degree of speculation and C the highest.
S&P applies indicators "+", no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
A-1
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
(1) Part A for The GCG Trust (Multiple Allocation Series, Fully
Managed Series, Limited Maturity Bond Series, Natural
Resources Series, Real Estate Series, All-Growth Series,
Capital Appreciation Series, Rising Dividends Series,
Emerging Markets Series, Value Equity Series, Strategic
Equity Series, and Liquid Asset Series):
Financial Highlights
(Not applicable for the Strategic Equity Series, which
has not yet commenced operations)
Part A for Market Manager Series:
Financial Highlights -- Filed in Post-Effective
Amendment No. 20 to the Registration Statement of The
GCG Trust (File No. 33-23512)
Part B for The GCG Trust (Multiple Allocation Series, Fully
Managed Series, Limited Maturity Bond Series, Natural
Resources Series, Real Estate Series, All-Growth Series,
Capital Appreciation Series, Rising Dividends Series,
Emerging Markets Series, Value Equity Series, Strategic
Equity Series, and Liquid Asset Series): The audited
financial statements (for all series except the Value Equity
Series and the Strategic Equity Series) dated as of December
31, 1994 are incorporated by reference from the Trust's
Annual Report dated as of December 31, 1994. Unaudited
financial statements (for all Series except the Strategic
Equity Series) dated as of June 30, 1995 are incorporated by
reference from the Trust's Semi-Annual Report dated as of
June 30, 1995. The financial statements include the
following:
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Statements of Investments
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
(relating to December 31, 1994 financial
statements only)
(2) Part A for The Fund For Life Series of The GCG Trust:
Financial Highlights -- Filed in Post-Effective
Amendment No. 20 to the Registration Statement of The
GCG Trust (File No. 33-23512)
Part B for The Fund For Life Series of The GCG Trust: The
audited financial statements dated as of December 31, 1994
are incorporated by reference from The Fund For Life's Annual
Report dated as of December 31, 1994. The financial
statements include the following:
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
-- Filed in Post-Effective Amendment No. 20 to the
Registration Statement of The GCG Trust
(File No. 33-23512)
<PAGE>
(b) Exhibits (the number of each exhibit relates to the exhibit
designation in Form N-1A):
(1) Restated Agreement and Declaration of Trust
(2) By-laws(1)
(3) Not Applicable
(4) Not Applicable
(5) (a) (i) (A) Form of Management Agreement (on behalf of
all Series except The Fund For Life)
(B) Form of Addendum to Management Agreement
(adding the Strategic Equity Series)
(ii) Form of Management Agreement (for The Fund For
Life)(2)
(b) Portfolio Management Agreements
(i) (A) Van Eck Associates Corporation(3)
(B) Form of Addendum to Portfolio Management
Agreement(4)
(C) Form of Addendum to Portfolio Management
Agreement(5)
(ii) T. Rowe Price Associates, Inc.(6)
(iii) (A) Zweig Advisors Inc.
(B) Form of Addendum to Portfolio Management
Agreement
(C) Form of Addendum to Portfolio Management
Agreement
(D) Form of Addendum to Portfolio Management
Agreement (adding Strategic Equity Series)
(iv) (A) Chancellor Capital Management, Inc.(3)
(B) Form of Addendum to Portfolio Management
Agreement(4)
(C) Form of Assignment Agreement(3)
(D) Form of Addendum to Portfolio Management
Agreement(5)
(v) (A) Form of Portfolio Management Agreement among
the Trust, Directed Services, Inc., and
Bankers Trust Company(7)
(B) Form of Addendum to the Portfolio Management
Agreement(4)
(C) Form of Addendum to the Portfolio Management
Agreement (adding the Market Manager
Series)(8)
(vi) (A) Form of Portfolio Management Agreement among
the Trust, Directed Services, Inc., and
Kayne, Anderson Investment Management,
Inc.(4)
(B) Form of Substitution Agreement(5)
(C) Form of Addendum to Portfolio Management
Agreement(5)
(vii) Portfolio Management Agreement among the
Trust, Directed Services, Inc., and Warburg,
Pincus Counsellors, Inc.(8)
(viii) Form of Portfolio Management Agreement among
the Trust, Directed Services, Inc., and Eagle
Asset Management, Inc.(9)
- 2 -
<PAGE>
(ix) Portfolio Management Agreement among the Trust,
Directed Services, Inc., and E.I.I. Realty
Securities, Inc.(6)
(c) Form of Sub-Investment Advisory Agreement between
Bankers Trust Company and BT Fund Managers
(International) Limited for the Emerging Markets
Series(10)
(d) Form of Administrative Services Agreement for The Fund
For Life(2)
(e) Administration and Fund Accounting Agreement among the
Trust, Directed Services, Inc., and The Shareholder
Services Group, Inc.(5)
(6) (i) Distribution Agreement(9)
(ii) Form of Addendum to the Distribution Agreement
(adding The Fund For Life, Zero Target 2002
Series, and Capital Appreciation Series)(2)
(iii) Form of Addendum to the Distribution
Agreement (adding the Market Manager Series
and Value Equity Series)(9)
(iv) Form of Addendum to the Distribution Agreement
(adding the Strategic Equity Series)
(7) Not Applicable
(8) (a) (i) Custodian Agreement(3)
(ii) Form of Addendum to Custodian Agreement(4)
(iii) Form of Addendum to Custodian Agreement
(adding the Market Manager Series and Value
Equity Series)(9)
(iv) Form of Addendum to the Custodian Agreement
(adding the Strategic Equity Series)
(9) (a) (i) Transfer Agency and Service Agreement(11)
(ii) Form of Addendum to the Transfer Agency and
Service Agreement for The Fund For Life, Zero
Target 2002 Series, and Capital Appreciation
Series(2)
(b) (i) Form of Organizational Agreement for Golden
American Life Insurance Company(11)
(ii) Assignment Agreement for Organizational
Agreement(12)
(iii) Form of Organizational Agreement for The
Mutual Benefit Life Insurance Company(12)
(iv) Assignment Agreement for Organizational
Agreement(12)
(v) Form of Addendum to Organizational Agreement
(adding Market Manager Series and Value Equity
Series)(9)
(vi) Form of Addendum to the Organizational Agreement
(adding the Strategic Equity Series)
(c) (i) Form of Settlement Agreement for Golden American
Life Insurance Company(11)
(ii) Assignment Agreement for Settlement Agreement(12)
(iii) Form of Settlement Agreement for The Mutual
Benefit Life Insurance Company(12)
(iv) Form of Assignment Agreement for Settlement
Agreement(12)
(d) Indemnification Agreement(12)
(e) (i) Form of Expense Reimbursement Agreement(12)
- 3 -
<PAGE>
(ii) Amendment No. 1 to the Expense Reimbursement
Agreement(3)
(iii) Amendment No. 2 to the Expense Reimbursement
Agreement(3)
(iv) Amendment No. 3 to the Expense Reimbursement
Agreement(3)
(v) Amendment No. 4 to the Expense Reimbursement
Agreement(3)
(10) Opinion and Consent of Counsel(11)
(11) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Ernst & Young LLP
(12) Not Applicable
(13) (a) Initial Capital Agreement(11)
(b) Form of Initial Capital Agreement for The Fund For
Life(3)
(14) Not Applicable
(15) Not Applicable
(16) Schedule showing computation of performance quotations
provided in response to Item 22 (unaudited)(6)
(17) Secretary's Certificate pursuant to Rule 483(b)(9)
(18) Annual Report dated December 31, 1994
_______________________
1 Incorporated by reference to the original Registration Statement on
Form N-1A of Western Capital Specialty Managers Trust as filed on
August 4, 1988, File No. 33-23512.
2 Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A of the Specialty Managers Trust as
filed on December 4, 1991, File No. 33-23512.
3 Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A of The GCG Trust as filed on May 3,
1993, File No. 33-23512.
4 Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of The GCG Trust as filed on August
2, 1993, File No. 33-23512.
5 Incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A of The GCG Trust as filed on April
28, 1995, File No. 33-23512.
6 Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A of The GCG Trust as filed on March
2, 1995, File No. 33-23512.
7 Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A of The GCG Trust as filed on April
30, 1992, File No. 33-23512.
8 Incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A of The GCG Trust as filed on August
5, 1994, File No. 33-23512.
- 4 -
<PAGE>
9 Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A of The GCG Trust as filed on
October 17, 1994, File No. 33-23512.
10 Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A of The GCG Trust as filed on
October 1, 1993, File No. 33-23512.
11 Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Western Capital Specialty
Managers Trust as filed on November 23, 1988, File No. 33-23512.
12 Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A of The Specialty Managers Trust as
filed on April 23, 1991, File No. 33-23512.
Item 25. PERSONS CONTROLLED BY OR UNDER CONTROL WITH REGISTRANT.
As of the date of this Post-Effective Amendment, a separate account of
The Mutual Benefit Life Insurance Company ("MBL"), separate accounts
of Hartford Life Insurance Company, separate accounts of Security
Equity Life Insurance Company, and Golden American Life Insurance
Company and its separate accounts own all of the outstanding shares of
Registrant.
MBL, Hartford Life Insurance Company, Security Equity Life Insurance
Company, and Golden American Life Insurance Company are required to
vote fund shares in accordance with instructions received from owners
of variable life insurance and annuity contracts funded by separate
accounts of that company.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of the date of this Registration Statement, there are 9
shareholders of record of Registrant's shares.
Item 27. INDEMNIFICATION.
Reference is made to Article V, Section 5.4 of the Registrant's
Agreement and Declaration of Trust, which is incorporated by reference
herein.
Pursuant to Indemnification Agreements between the Trust and each
Independent Trustee, the Trust indemnifies each Independent Trustee
against any liabilities resulting from the Independent Trustee's
serving in such capacity, provided that the Trustee has not engaged in
certain disabling conduct.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant by the Registrant
pursuant to the Trust's Agreement and Declaration of Trust, its By-
laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by directors, officers or controlling persons or the
Registrant in connection with the successful defense of any act, suit
or proceeding) is asserted by such directors, officers or controlling
persons in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issues.
- 5 -
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
DIRECTED SERVICES, INC.
The Manager of all Series of the Trust is Directed Services, Inc.
The directors and officers of the Manager have, during the past two fiscal
years, had substantial affiliations as follows. Unless otherwise stated,
the principal business address of each organization listed is 280 Park
Avenue, New York, New York 10017.
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
John Herron, Jr. Director Managing Director,
Bankers Trust Company;
Director, Golden American
Life Insurance Company,
Whitewood Properties
Corp. and BT Variable,
Inc.
Richard A. Marin Director Managing Director,
Bankers Trust Company,
Director, Whitewood
Properties Corp., BT
Variable, Inc., and
Golden American Life
Insurance Company.
Terry L. Kendall Chief Executive Officer Managing Director,
and Director Bankers Trust Company;
President, Director, and
Chief Executive Officer,
Golden American Life
Insurance Company;
President, Director, and
Chief Executive Officer,
BT Variable, Inc., 1993
to present; Director,
Whitewood Properties
Corp.; President and
Chief Executive Officer,
United Pacific Life
Insurance Company, 1983
to 1993.
Robert B. Langel President Executive Vice President,
Golden American Life
Insurance Company;
Executive Vice President,
BT Variable, Inc.
Barnett Chernow Executive Vice President Executive Vice President,
Golden American Life
Insurance Company;
Executive Vice President,
BT Variable, Inc.; Senior
Vice President and Chief
Financial Officer,
Reliance Insurance
Company, August 1977-July
1993.
- 6 -
<PAGE>
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
Mitchell R. Executive Vice President Executive Vice President
Katcher of BT Variable, Inc. and
Golden American Life
Insurance Company;
formerly, Consulting
Actuary, Tillinghast.
Harvey Hirsch Senior Vice President Senior Vice President,
Golden American Life
Insurance Company and BT
Variable, Inc.; formerly,
Managing Director,
Bankers Trust Company.
Myles Tashman Senior Vice President Senior Vice President,
Golden American Life
Insurance Company and BT
Variable, Inc.; formerly
Senior Vice President and
General Counsel, United
Pacific Life Insurance
Company.
Stephen J. Senior Vice President Senior Vice President and
Preston Chief Actuary, Golden
American Life Insurance
Company; Senior Vice
President, BT Variable,
Inc.; formerly, Senior
Vice President and
Actuary, Mutual of
American Insurance
Company and Vice
President and Actuary,
United Pacific Life
Insurance Company.
Mary Bea Senior Vice President Senior Vice President,
Wilkinson Golden American Life
Insurance Company and BT
Variable, Inc.; formerly,
Assistant Vice President,
CIGNA Insurance Companies
and Vice President and
Controller, United
Pacific Life Insurance
Company.
David L. Jacobson Senior Vice President Senior Vice President,
Golden American Life
Insurance Company and BT
Variable, Inc.; formerly,
Vice President of United
Pacific Life Insurance
Company.
Mitchell M. Cox Vice President and Vice President and
Associate General Counsel Associate General
Counsel, Golden American
Life Insurance Company,
October 1994 to present;
formerly, Managing
Director, Paramount
Capital, Inc. and
Associate, Skadden Arps
Slate Meager & Flom.
- 7 -
<PAGE>
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
Michael J. Vice President Vice President, Golden
Maxwell American Life Insurance
Company and BT Variable,
Inc.
Steven G. Mandel Vice President Vice President, Golden
American Life Insurance
Company and BT Variable,
Inc.
ZWEIG ADVISORS INC.
For information regarding Zweig Advisors Inc., reference is made to
Form ADV of Zweig Advisors Inc., SEC File No. 801-27366, which is
incorporated by reference.
T. ROWE PRICE ASSOCIATES, INC.
For information regarding T. Rowe Price Associates, Inc., reference is
made to Form ADV of T. Rowe Price Associates, Inc., SEC File No. 801-
00856, which is incorporated by reference.
VAN ECK ASSOCIATES CORPORATION
For information regarding Van Eck Associates Corporation, reference is
made to Item 28 on Form N-1A for Van Eck Funds, Registration No. 2-
97596, which is incorporated by reference.
WARBURG, PINCUS COUNSELLORS, INC.
For information regarding Warburg, Pincus Counsellors, Inc., reference
is made to Form ADV of Warburg, Pincus Counsellors, Inc., SEC File No.
801-7321, which is incorporated by reference.
KAYNE, ANDERSON INVESTMENT MANAGEMENT, L.P.
For information regarding Kayne, Anderson Investment Management, L.P,
reference is made to Form ADV of Kayne, Anderson Investment Management,
L.P., SEC File No. 801-24241, which is incorporated by reference.
EAGLE ASSET MANAGEMENT, INC.
For information regarding Eagle Asset Management, Inc., reference is
made to Form ADV of Eagle Asset Management, Inc., SEC File No. 801-
21343, which is incorporated by reference.
E.I.I. REALTY SECURITIES, INC.
For information regarding E.I.I. Realty Securities, Inc., reference is
made to Form ADV of E.I.I. Realty Securities, Inc., SEC File No. 801-
44099, which is incorporated herein by reference.
- 8 -
<PAGE>
CHANCELLOR TRUST COMPANY
The officers and directors of Chancellor Trust Company have, during the
past two years, had affiliations as follows. Unless otherwise stated,
the principal business address of each individual listed is 153 East
53rd Street, New York, New York 10022.
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
Robert G. Wade, Chairman of the Board and Chairman of the Board,
Jr. Director Chancellor Capital
Management, Inc.
("Chancellor Capital")
John Sweeney Director Chief Investment Officer,
USF&G USF&G Corporation
100 Light Street
Baltimore, MD 21202
Dan Hale Director Executive Vice President,
USF&G USF&G Corporation
100 Light Street
Baltimore, MD 21202
Penny Zuckerwise Chief Operating Officer Chief Operating Officer
and Director and Director, Chancellor
Capital
Warren Shaw President and Chief President and Chief
Investment Officer Investment Officer,
Chancellor Capital
Jeffrey Trongone Chief Financial Officer Chief Financial Officer,
Chancellor Capital
Richard Collins Managing Director Managing Director,
Chancellor Capital
John Ivers Managing Director and Managing Director,
Director Chancellor Capital
Donald Meyer Vice President and Vice President,
Director Chancellor Capital
Margaret Riley Vice President and Vice President,
Director Chancellor Capital
Edward Smith Managing Director and Managing Director,
Director Chancellor Capital
Karen Southard Managing Director and Managing Director,
Director Chancellor Capital
Ted Ujazdowski Managing Director and Managing Director,
Director Chancellor Capital
Charles Wetzel Managing Director and Managing Director,
Director Chancellor Capital
- 9 -
<PAGE>
BANKERS TRUST COMPANY
The directors and officers of Bankers Trust Company have during the two
past fiscal years, had substantial affiliations as follows. Unless
otherwise stated, the principal business address of each individual listed
is 280 Park Avenue, New York, New York 10017.
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
James J. Baechle Managing Director and Executive Vice President
Bankers Trust General Counsel and General Counsel of
Company Bankers Trust New York
130 Liberty Corporation
Street
New York, NY 10006
George B. Beitzel Director Retired Senior Vice
International President and Director,
Business Machines International Business
Corporation Machines Corporation;
Old Orchard Road Director, Bankers Trust
Armonk, NY 10504 New York Corporation;
Director, FlightSafety
International, Inc.,
Phillips Gas Company,
Phillips Petroleum
Company, Roadway
Services, Inc., Rohm and
Haas Company, TIG
Holdings, and Harvard
Business School Board of
Associates.
Phillip A. Director Chairman, Institute for
Griffiths Advanced Study; Director,
Institute for Bankers Trust New York
Advanced Study Corporation.
Olden Lane
Princeton, NJ 08540
William R. Howell Director Chairman of the Board and
J.C. Penney Chief Executive Officer,
Company, Inc. J.C. Penney Company, Inc;
P.O. Box 10001 Director, Bankers Trust
Plano, TX 75301-0001 New York Corporation;
Director, Exxon
Corporation, Halliburton
Company, Warner-Lambert
Company and the National
Urban League, Inc.
- 10 -
<PAGE>
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
Jon M. Huntsman Director Chairman and Chief
Huntsman Chemical Executive Officer,
Corpration Huntsman Chemical
2000 Eagle Gate Corporation; Director,
Tower Bankers Trust New York
Salt Lake City, Corporation; Chairman,
UT, 84111 Constar Corporation,
Huntsman Corporation,
Huntsman Holdings
Corporation, Petrostar
Corporation, and Primary
Children's Medical Center
Foundation; President,
Restar Corporation;
Director, Campbell Soup
Company and Chemical
Manufacturer's
Association; General
Partner, Huntsman Group
Ltd., McLeod Creek
Partnership and Trustar
Ltd.; Vice Chairman and
Director, American
Plastics Council.
Vernon E. Jordan, Director Senior Partner, Akin,
Jr. Gump, Strauss, Hauer &
Akin, Gump, Feld LLP; Director,
Strauss, Hauer Bankers Trust New York
& Feld, LLP Corporation; Director,
1333 New American Express Company,
Hampshire Corning Incorporated,
Avenue, N.W. Dow-Jones, Inc., J.C.
Washington, D.C. Penney Company, Inc., RJR
20036 Nabisco Inc., Revlon
Group Incorporated, Ryder
System, Inc., Sara Lee
Corporation, Union
Carbide Corporation, and
Xerox Corporation.
Joseph A. Managing Director and Executive Vice President
Manganello, Jr. Chief Credit Officer and Chief Credit Officer,
Bankers Trust Bankers Trust New York
Company Corporation.
130 Liberty Street
New York, NY 10006
Hamish Maxwell Director Chairman of the Executive
Philip Morris Committee, Philip Morris
Companies, Inc. Companies, Inc.;
100 Park Avenue Director, Bankers Trust
New York, NY 10017 New York Corporation;
Director, The News
Corporation Limited.
- 11 -
<PAGE>
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
Donald F. Director Chairman Emeritus,
McCullough Collins & Aikman
Collins & Aikman Corporation; Director,
Corporation Bankers Trust New York
210 Madison Corporation; Director,
Avenue Massachusetts Mutual Life
New York, NY Insurance Co. and
10016 Melville Corporation.
N. J. Nicholas, Director Director, Bankers Trust
Jr. New York Corporation;
745 Fifth Avenue Director, Xerox
New York, NY Corporation; former Co-
10020 Chief Executive Officer,
Time Warner Inc.
Russell E. Palmer Director Chairman and Chief
The Palmer Group Executive Officer, The
Suite 530 Palmer Group; Director,
3600 Market Bankers Trust New York
Street Corporation; Director,
Philadelphia, PA Allied-Signal Inc.,
19104 Contel Cellular, Inc.,
Federal Home Loan
Mortgage Corporation, GTE
Corporation, Goodyear
Tire & Rubber Company,
Imasco Limited, The May
Department Stores Company
and Safeguard
Scientifics, Inc.;
member, advisory board of
the Controller General of
the United States.
Didier Pineau- Director Chairman and Chief
Valencienne Executive Officer of
Schneider S.A. Schneider S.A.; Director,
4 Rue de Bankers Trust New York
Longchamp Corporation; Director,
75116 Paris, AXA (France), Banque
France Paribas (France), Cofibel
(Belgique), Compagnie
Industrielle de Paris
(France), Equitable Life
Assurance Society of
America, SIAPAP,
Schneider USA, Sema Group
PLC (Great Britain),
Spie-Batignolles, and
Whirlpool Corp.
Charles S. Chairman of the Board and Chairman of the Board and
Sanford, Jr. Director Director, Bankers Trust
New York Corporation;
Director, Mobil
Corporation and J.C.
Penney Company, Inc.
- 12 -
<PAGE>
Name Position With Adviser Other Affiliations
- ---- --------------------- ------------------
Eugene B. Shanks, President and Director President and Director,
Jr. Bankers Trust New York
Bankers Trust Corporation.
Company
130 Liberty
Street
New York, NY 10006
Patricia Carry Director Former Vice President,
Stewart The Edna McConnell Clark
Foundation; Director,
Bankers Trust New York
Corporation; Director,
Borden Inc., Continental
Corp. and Melville
Corporation.
George J. Vojta Director and Vice Vice Chairman and
Chairman of the Board Director, Bankers Trust
New York Corporation;
Director, Northwest
Airlines, Private Export
Funding Corp., and the
New York State Banking
Board; partner, New York
State Partnership.
Timothy T. Yates Managing Director, Chief Executive Vice President,
Bankers Trust Financial Officer and Chief Financial Officer
Company Controller and Controller, Bankers
130 Liberty Trust New York
Street Corporation; Director, New
York, NY 10006 Seaboard Associates, Inc.
Item 29. PRINCIPAL UNDERWRITERS.
(a) DIRECTED SERVICES, INC. serves as Distributor of Shares of The
GCG Trust. Directed Services, Inc. also serves as principal
underwriter to DSI Series Fund, Inc.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
- ------------------ --------------------- ---------------------
John Herron, Jr. Director None
Richard A. Marin Director None
Terry L. Kendall Chief Executive Officer President and Chairman of
and Director the Board
Robert B. Langel President None
Barnett Chernow Executive Vice President Vice President
Mitchell R. Katcher Executive Vice President None
Harvey Hirsch Senior Vice President None
Myles Tashman Senior Vice President None
- 13 -
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
- ------------------ --------------------- ---------------------
Stephen J. Preston Senior Vice President None
Mary Bea Wilkinson Senior Vice President None
David L. Jacobson Senior Vice President None
Mitchell M. Cox Vice President and Assistant Secretary
Associate General Counsel
Michael J. Maxwell Vice President None
Steven G. Mandel Vice President None
(c) Not Applicable
___________________________________________
* Principal business address for all individuals listed is 280 Park Avenue, New
York, New York 10017.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
The Trust intends to maintain its books of account for each Series as
required by Section 31(a) of the 1940 Act and rules thereunder at its
principal office at 280 Park Avenue, New York, New York 10017.
Item 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in
Part A or Part B.
Item 32. UNDERTAKINGS.
(a) Not Applicable
(b) Not Applicable
(c) Registrant undertakes to furnish to each person to whom a
prospectus for The GCG Trust or The Fund For Life is provided a
copy of the Trust's or The Fund For Life's latest Annual Report
upon request and without charge.
- 14 -
Undertakings. ____________
(a) Not Applicable4
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A (File No. 33-23512)
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and the State of New York, on the 25th day of September, 1995.
THE GCG TRUST
(Registrant)
----------------------------
Terry L. Kendall*
President
*By: /s/ Mitchell M. Cox
---------------------
Mitchell M. Cox
as Attorney-in-Fact**
- -----------------------------
** Power of Attorney is included as an Exhibit to Post-Effective Amendment No.
19 to the Registration Statement of The GCG Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 22 to the Registration Statement on Form N-1A (File No.
33-23512) has been duly signed below by the following persons on behalf of The
GCG Trust in the capacity and on the date indicated.
Signature Title Date
______________________ Chairman of the Board September 25, 1995
Terry L. Kendall* and President
______________________ Trustee September 25, 1995
Robert A. Grayson*
______________________ Trustee September 25, 1995
M. Norvel Young*
______________________ Trustee September 25, 1995
Roger B. Vincent*
______________________ Treasurer September 25, 1995
Mary Bea Wilkinson*
*By:/s/ Mitchell M. Cox
-------------------
Mitchell M. Cox
as Attorney-in-Fact**
___________________________
** Powers of Attorney are contained in Post-Effective Amendment No. 19 or
Post-Effective Amendment No. 20 to the Registration Statement of The GCG
Trust (File No. 33-23512).
<PAGE>
EXHIBIT LIST
Exhibit Number: Exhibit Name:
- --------------- -------------
(1) Restated Agreement and Declaration of Trust
(5)(a)(i)(A) Management Agreement
(5)(a)(i)(B) Addendum to Management Agreement
(5)(b)(iii)(A) Portfolio Management Agreement with Zweig Advisors
Inc.
(5)(b)(iii)(B) Addendum to Portfolio Management Agreement
(5)(b)(iii)(C) Addendum to Portfolio Management Agreement
(5)(b)(iii)(D) Addendum to Portfolio Management Agreement
(6)(iv) Addendum to the Distribution Agreement
(8)(a)(iv) Addendum to the Custodian Agreement
(9)(b)(vi) Addendum to the Organizational Agreement
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Ernst & Young LLP
(18)(a) Annual Report
(27) Financial Data Schedule
<PAGE>
THE GCG TRUST
AMENDED AND RESTATED
AGREEMENT AND
DECLARATION OF TRUST
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I -- THE TRUST
Section 1.1 Name................................. 1
Section 1.2 Definitions.......................... 2
ARTICLE II -- TRUSTEES
Section 2.1 Management of the Trust.............. 3
Section 2.2 Election of Trustees................. 4
Section 2.3 Term of Office of Trustees........... 4
Section 2.4 Termination of Service and
Appointment of Trustees.............. 4
Section 2.5 Temporary Absence of Trustee......... 5
Section 2.6 Number of Trustees................... 5
Section 2.7 Effect of Death, Resignation, etc.
of a Trustee......................... 5
Section 2.8 No Accounting........................ 5
Section 2.9 Ownership of the Trust............... 5
ARTICLE III -- POWERS OF TRUSTEES
Section 3.1 General.............................. 6
Section 3.2 Investments.......................... 6
Section 3.3 Legal Title.......................... 7
Section 3.4 Issuance and Repurchase of
Securities........................... 7
Section 3.5 Borrow Money......................... 8
Section 3.6 Officers; Delegation; Committees..... 8
Section 3.7 Collection and Payment............... 8
Section 3.8 Expenses............................. 8
Section 3.9 Manner of Acting; By-laws............ 9
Section 3.10 Voting Trusts........................ 9
Section 3.11 Miscellaneous Powers................. 9
Section 3.12 Further Powers....................... 10
ARTICLE IV -- ADVISORY, MANAGEMENT AND DISTRIBUTION
ARRANGEMENTS
Section 4.1 Management Arrangements.............. 10
Section 4.2 Distribution Arrangements............ 11
Section 4.3 Parties to Contract.................. 11
Section 4.4 Provisions and Amendments............ 12
-i-
<PAGE>
ARTICLE V -- LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice............ 12
Section 5.2 Trustee's Good Faith Action; Expert
Advice; No Bond or Surety............ 13
Section 5.3 Indemnification of Shareholders...... 13
Section 5.4 Indemnification of Trustees,
Officers, etc........................ 14
Section 5.5 Compromise Payment................... 15
Section 5.6 Indemnification Not Exclusive, etc... 15
Section 5.7 Liability of Third Persons Dealing
with Trustees........................ 16
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST
Section 6.1 Beneficial Interest.................. 16
Section 6.2 Series Designation................... 16
Section 6.3 Rights of Shareholders............... 18
Section 6.4 Trust Only........................... 19
Section 6.5 Issuance of Shares................... 19
Section 6.6 Register of Shares................... 19
Section 6.7 Transfer Agent and Registrar......... 20
Section 6.8 Transfer of Shares................... 20
Section 6.9 Notice............................... 21
ARTICLE VII -- CUSTODIANS
Section 7.1 Appointment and Duties............... 21
Section 7.2 Action Upon Termination of Custodian
Agreement............................ 22
Section 7.3 Central Certificate System........... 22
Section 7.4 Acceptance of Receipts in Lieu of
Certificates......................... 22
ARTICLE VIII -- REDEMPTION
Section 8.1 Redemptions.......................... 23
Section 8.2 Redemptions of Accounts of Less Than
a Minimum Dollar Amount.............. 23
ARTICLE IX -- DETERMINATION OF NET ASSET VALUE, NET
INCOME AND DISTRIBUTIONS
Section 9.1 Net Asset Value...................... 23
Section 9.2 Distributions to Shareholders........ 24
Section 9.3 Power to Modify Foregoing Procedures. 24
-ii-
<PAGE>
ARTICLE X -- SHAREHOLDERS
Section 10.1 Voting Powers....................... 24
Section 10.2 Meetings............................ 25
Section 10.3 Quorum and Required Vote............ 25
Section 10.4 Record Date for Meetings............ 26
Section 10.5 Proxies............................. 26
Section 10.6 Additional Provisions............... 26
Section 10.7 Reports............................. 26
Section 10.8 Shareholder Action by
Written Consent..................... 27
ARTICLE XI -- DURATION; TERMINATION OF TRUST; AMENDMENT;
MERGERS, ETC.
Section 11.1 Duration............................ 27
Section 11.2 Termination......................... 27
Section 11.3 Reorganization...................... 28
Section 11.4 Amendment Procedure................. 29
Section 11.5 Incorporation....................... 30
ARTICLE XII -- MISCELLANEOUS
Section 12.1 Filing.............................. 31
Section 12.2 Resident Agent...................... 31
Section 12.3 Governing Law....................... 31
Section 12.4 Counterparts........................ 31
Section 12.5 Reliance by Third Parties........... 32
Section 12.6 Provisions in Conflict with
Law or Regulations.................. 32
-iii-
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND
DECLARATION OF TRUST
OF
THE GCG TRUST
THE AGREEMENT AND DECLARATION OF TRUST made the 21st day of
September, 1995 by the parties signatory hereto, as trustees (such persons, so
long as they shall continue in office in accordance with the terms of this
Agreement and Declaration of Trust, and all other persons who at the time in
question have been duly elected or appointed as trustees in accordance with the
provisions of this Agreement and Declaration of Trust and are then in office,
being hereinafter called the "Trustees") and by the holders of shares of
beneficial interest to be issued hereunder hereinafter provided.
W I T N E S S E T H
WHEREAS, the Trustees desire to form a trust fund under the
laws of the Commonwealth of Massachusetts for the investment and reinvestment of
funds contributed thereto; and
WHEREAS, it is proposed that the beneficial interest in the
trust assets be divided into transferable shares of beneficial interest, which
may, at the discretion of the Trustees, be divided into separate series as
hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust all money and property contributed to the trust fund to manage and
dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, to wit:
ARTICLE I
THE TRUST
SECTION 1.1 NAME. The name of the trust created hereby (the
"Trust"), which term shall be deemed to include any series of the Trust when the
context requires, shall be "The GCG Trust", and so far as may be practicable the
Trustees shall conduct the activities of the Trust, execute all documents and
sue or be sued under that name, which name (and the word "Trust" wherever
hereinafter used) shall refer to the Trustees as Trustees, and not individually,
and shall not refer to the officers, agents, employees or shareholders of the
Trust or any
<PAGE>
Series thereof. Each Series of the Trust shall be established and designated by
the Trustees pursuant to Section 6.2 and each Series shall conduct its
activities under such name as the Trustees shall determine and set forth in the
instrument establishing such Series. Should the Trustees determine that the use
of the name of the Trust or any Series is not advisable, they may select such
other name for the Trust or such Series as they deem proper and the Trust or
such Series may conduct its activities under such other name. Any name change
shall be effective upon the execution by a majority of the then Trustees of an
instrument setting forth the new name. Any such instrument shall have the
status of an amendment to this Agreement and Declaration of Trust.
SECTION 1.2 DEFINITIONS. As used in this Agreement and
Declaration of Trust, the following terms shall have the following meanings:
The "1940 ACT" refers to the Investment Company Act of
1940 as amended from time to time and the regulations
promulgated thereunder.
The terms "AFFILIATED PERSON", "ASSIGNMENT",
"COMMISSION", "INTERESTED PERSON", "MAJORITY SHAREHOLDER VOTE"
(the 67% or 50% requirement of the third sentence of Section
2(a)(42) of the 1940 Act, whichever may be applicable) and
"PRINCIPAL UNDERWRITER" shall have the meanings given them in
the 1940 Act. "COMMISSION" shall mean the U.S. Securities and
Exchange Commission.
"DECLARATION" OR "DECLARATION OF TRUST" shall mean
this Agreement and Declaration of Trust as amended from time
to time. References in this Declaration to "DECLARATION",
"HEREOF", "HEREIN" and "HEREUNDER' shall be deemed to refer to
the Declaration rather than the article or section in which
such words appear.
"FUNDAMENTAL POLICIES" shall mean the investment
objective for each Series and the investment restrictions set
forth in the registration statement for the Trust on Form N-1A
and designated as fundamental policies therein.
"PERSON" shall mean and include individuals,
corporations, partnerships, trusts, associations, joint
ventures and other entities, whether or not legal entities,
and governments and agencies and political subdivisions
thereof.
- 2 -
<PAGE>
"PROSPECTUS" shall mean the currently effective
prospectus of any Series of the Trust under the Securities Act
of 1933, as amended.
"SERIES" shall mean any separate Series that may be
established and designated pursuant to Section 6.2.
"SHAREHOLDERS" shall mean as of any particular time
all holders of record of outstanding Shares at such time.
"SHARES" shall mean the equal proportionate
transferable units of interest into which the beneficial
interest in any Series of the Trust shall be divided from time
to time and includes fractions of Shares as well as whole
Shares. All references to Shares shall be deemed to be Shares
of any or all Series as the context may require.
"TRUSTEES" shall mean the signatories to this
Declaration, so long as they shall continue in office in
accordance with the terms hereof, and all other persons who at
the time in question have been duly elected or appointed and
have qualified as Trustees in accordance with the provisions
hereof and are then in office, and each such person is herein
referred to as the "Trustee", and reference in this
Declaration to a Trustee or Trustees shall refer to such
person or persons in their capacity as Trustee hereunder.
"TRUST PROPERTY" shall mean as of any particular time
any and all property, real or personal, tangible or
intangible, which at such time is owned or held by or for the
account of the Trust, any Series thereof or the Trustees.
ARTICLE II
TRUSTEES
SECTION 2.1 MANAGEMENT OF THE TRUST. The business and
affairs of the Trust shall be managed by the Trustees, and they shall have all
powers necessary and desirable to carry out that responsibility. The Trustees
named herein (or their successors appointed hereunder) shall serve until the
election of Trustees at the first meeting of Shareholders of the Trust.
- 3 -
<PAGE>
SECTION 2.2 ELECTION OF TRUSTEES. Except for the Trustees
named herein and those Trustees designated by such Trustees prior to the
issuance of Shares, or appointed to fill vacancies pursuant to Section 2.4
hereof, the Shareholders of the Trust shall elect Trustees at Shareholder
meetings called for that purpose. The Trustees need not be elected annually or
at regular intervals. Except as provided in Section 10.2, the Trustees shall
not be required to call a meeting of Shareholders for the purpose of electing
Trustees, provided, however, that in the event that at any time, other than the
time preceding the first meeting of Shareholders for the purpose of electing
Trustees, less than a majority of the Trustees holding office at that time were
elected by the Shareholders, a meeting of the Shareholders for the purpose of
electing Trustees shall be held promptly and in any event within 60 days (unless
the Commission shall by order extend such period). No election of a Trustee
shall become effective, however, until the person elected shall have accepted
such election and agreed in writing to be bound by the terms of this
Declaration. If re-elected, a Trustee may succeed himself. Trustees need not
own shares.
SECTION 2.3 TERM OF OFFICE OF TRUSTEES. A Trustee duly
appointed or elected hereunder shall hold office until the occurrence of any of
the following: (a) the Trustee may resign his trust by written instrument
signed by him and delivered to the other Trustees, which shall take effect upon
such delivery or upon such later date as is specified therein; (b) the Trustee
may be removed at any time by written instrument signed by at least two-thirds
of the number of Trustees prior to such removal, specifying the date when such
removal shall become effective; (c) the Trustee who requests in writing to be
retired or who has become mentally or physically incapacitated may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) the Trustee may be removed at any meeting of
Shareholders of the Trust by a vote of two-thirds of the outstanding Shares or
by a written declaration executed, without a meeting, by the holders of not less
than two-thirds of the outstanding Shares. A meeting for the purpose of
considering the removal of a person serving as Trustee shall be called by the
Trustees if requested in writing to do so by the holders (which for purposes of
this provision and only this provision shall be the persons having a voting
interest in the shares of the Trust) of not less than 10% of the outstanding
shares of the Trust.
SECTION 2.4 TERMINATION OF SERVICE AND APPOINTMENT OF
TRUSTEES. In case of the death, resignation, retirement, removal or mental or
physical incapacity of any of the Trustees, or in case a vacancy shall, by
reason of an increase
- 4 -
<PAGE>
in number, or for any other reason, exist, the remaining Trustees may (but need
not unless required by the 1940 Act, so long as there are at least two remaining
Trustees) fill such vacancy by appointing for the remaining term of the
predecessor Trustee such other person as they in their discretion shall see fit.
Such appointment shall be effective upon the signing of a written instrument by
a majority of the Trustees in office and the written acceptance of this
Declaration by the appointee. An appointment of a Trustee may be made by the
Trustees then in office in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of Trustees
and the written acceptance of this Declaration by the appointee. As soon as any
Trustee so appointed shall have accepted this Trust, the trust estate shall vest
in the new Trustee or Trustees, together with the continuing Trustees, without
any further act of conveyance, and he shall be deemed a Trustee hereunder. Any
appointment authorized by this Section 2.4 is subject to the provisions of
Section 16(a) of the 1940 Act.
SECTION 2.5 TEMPORARY ABSENCE OF TRUSTEE. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six months
at any one time to any other Trustee or Trustees, provided that in no case shall
less than two of the Trustees personally exercise the power hereunder except as
herein otherwise expressly provided.
SECTION 2.6 NUMBER OF TRUSTEES. The number of Trustees
serving hereunder at any time shall be determined by the Trustees themselves,
but once Shares have been issued shall not be less than two (2) or more than
fifteen (15).
SECTION 2.7 EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE.
The death, resignation, retirement, removal, or mental or physical incapacity of
the Trustees, or any one of them, shall not operate to annul or terminate the
Trust or any Series hereunder or to revoke or terminate any existing agency or
contract created pursuant to the terms of this Declaration, and until such
vacancy is filled, the Trustees in office, regardless of their number, shall
have all of the powers granted to the Trustees and shall discharge all the
duties imposed upon them by this Declaration.
SECTION 2.8 NO ACCOUNTING. Except to the extent required by
the 1940 Act or under circumstances which would justify his removal for cause,
no person ceasing to be a Trustee as a result of his death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall
- 5 -
<PAGE>
be required to make an accounting to the shareholders or remaining Trustees upon
such cessation.
SECTION 2.9 OWNERSHIP OF THE TRUST. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times be considered as
vested in the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have a proportionate undivided
beneficial interest in the Trust.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1 GENERAL. The Trustees in all instances shall act
as principals, and are and shall be free from the control of the Shareholders.
The Trustees shall have full power and authority to do any and all acts and to
make and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not be bound or limited by present or future laws or customs with
regard to investment by trustees or fiduciaries, but shall have full authority
and absolute power and control over the Trust Property and business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, including such authority, power and control to
do all acts and things as they, in their uncontrolled discretion, shall deem
proper to accomplish the purposes of this Trust. The enumeration of any
specific power herein shall not be construed as limiting the aforesaid powers.
SECTION 3.2 INVESTMENTS. The Trustees shall have power,
subject to the Fundamental Policies, to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer,
lend, exchange, mortgage, hypothecate, lease, distribute or
otherwise deal in or dispose of common stocks, preferred
stocks, bonds, debentures, warrants and rights to purchase
securities, mortgage related securities such as mortgage-
backed securities
- 6 -
<PAGE>
and collateralized mortgage obligations, options on
securities, futures contracts and options on futures
contracts, covered spread options, gold bullion and coins and
other precious metals (silver and platinum) bullion and
futures contracts with respect to such commodities,
certificates of beneficial interest, negotiable or non-
negotiable instruments, bank obligations, evidences of
indebtedness, privately placed debt securities, certificates
of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, firm commitment
agreements and "when-issued" securities and other securities,
including, without limitation, those issued, guaranteed or
sponsored by any state, territory or possession of the United
States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United
States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank, savings
institution, corporation or other business entity organized
under the laws of the United States and, to the extent
provided in the Prospectus and not prohibited by the
Fundamental Policies of the Trust, foreign securities of
issuers or governments organized under foreign laws, foreign
currency transactions and options on foreign currency
transactions, and other assets; and to exercise any and all
rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, with power to designate one or more persons,
firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said
instruments; and the Trustees shall be deemed to have the
foregoing powers with respect to any additional securities or
other assets in which any Series of the Trust may invest
should the investment policies set forth in the Prospectus or
the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust or any Series.
SECTION 3.3 LEGAL TITLE. Legal title to all the Trust
Property shall be vested in the Trustees as joint tenants except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more the Trustees, or in the name of the Trust or
any Series thereof, or in the name of any other Person as nominee, on such terms
as the Trustees may determine, provided that the interest of the Trust or any
Series thereof is appropriately protected.
- 7 -
<PAGE>
SECTION 3.4 ISSUANCE AND REPURCHASE OF SECURITIES. The
Trustees shall have the power to issue, sell, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal
in, Shares, including shares in fractional denominations, and, subject to the
more detailed provisions set forth in Articles VIII and IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the applicable Series of the Trust whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts governing business corporations.
SECTION 3.5 BORROW MONEY. Subject to the Fundamental
Policies, the Trustees shall have power to borrow money or otherwise obtain
credit and to secure the same by mortgaging, pledging or otherwise subjecting as
security the assets of the Trust or any Series thereof, including the lending of
portfolio securities, and to endorse, guarantee or undertake the performance of
any obligation, contract or engagement of any other person, form, association or
corporation.
SECTION 3.6 OFFICERS; DELEGATION; COMMITTEES. The Trustees
may, as they consider appropriate, elect and remove officers and appoint and
terminate agents and consultants and hire and terminate employees, any one or
more of the foregoing of whom may be a Trustee and may provide for the
compensation of all of the foregoing. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Trust and
the Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient. The Trustees may
appoint from their number and terminate any one or more committees consisting of
two or more Trustees, including without implied limitation an Executive
Committee which may, when the Trustees are not in session and subject to the
1940 Act, exercise some or all of the powers and authority of the Trustees as
the Trustees may determine.
SECTION 3.7 COLLECTION AND PAYMENT. The Trustees shall have
power to collect all property due to the Trust or any Series thereof; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise, arbitrate or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust or any Series thereof; and to enter into releases,
agreements and other instruments.
- 8 -
<PAGE>
SECTION 3.8 EXPENSES. The Trustees shall have power to incur
and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Trust or any Series, and to
pay reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers, employees
and Trustees. The Trustees may pay themselves such compensation for special
services, including legal, underwriting, syndicating and brokerage services, as
they in good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
SECTION 3.9 MANNER OF ACTING; BY-LAWS. Except as otherwise
provided herein or in the By-laws or required by the 1940 Act, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of the Trustees (a quorum being present), including any meeting held by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of a majority of Trustees then in office (or such larger or
different number as may be required by the 1940 Act or other applicable law).
The Trustees may adopt and from time to time amend or repeal the By-laws for the
conduct of the business of the Trust.
SECTION 3.10 VOTING TRUSTS. The Trustees shall have power
and authority for and on behalf of the Trust to join with other holders of any
securities or debt instruments in acting through a committee, depository, voting
trustee or otherwise, and in that connection to deposit any security or debt
instrument with, or transfer any security or debt instrument to, any such
committee, depository or trustee, and to delegate to them such power and
authority with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to agree to
pay, and to pay, such portion of the expenses and compensation of such
committee, depository or trustee as the Trustees shall deem proper.
SECTION 3.11 MISCELLANEOUS POWERS. The Trustees shall have
the power to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust or any Series
thereof; (b) enter into joint ventures, partnership and any other combinations
or associations; (c) purchase, and pay for out of Trust Property, insurance as
they deem necessary or appropriate for the conduct of the business, including
without limitation, policies insuring the Shareholders, Trustees, officers,
employees, agents, managers, investment advisers, distributors, selected
- 9 -
<PAGE>
dealers or independent contractors of the Trust or any Series thereof against
all claims arising by reason of holding any such position or by reason of any
action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability; (d) establish pension, profit-
sharing, share purchase, and other retirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civic or similar purposes; (f) to the extent permitted by law,
indemnify any Person with whom the Trust or any Series thereof has dealings,
including any adviser, administrator, manager, distributor and selected dealers
with respect to any Series, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method in which its accounts shall
be kept; and (i) adopt a seal for the Trust, provided that the absence of such
seal shall not impair the validity of any instrument executed on behalf of the
Trust.
SECTION 3.12 FURTHER POWERS. The Trustees shall have power
to conduct the business of the Trust or any Series thereof, carry on its
operations and maintain offices both within and without the Commonwealth of
Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign governments, and to do all such other things
and execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust or any Series thereof although such
things are not herein specifically mentioned. Any determination as to what is
in the interests of the Trust or any Series thereof made by the Trustees in good
faith shall be conclusive. In construing the provisions of this Declaration,
the presumption shall be in favor of a grant of power to the Trustees. The
Trustees will not be required to obtain any court order to deal with the Trust
Property. No Trustee shall be required to give any bond or other security for
the performance of any of his duties hereunder.
ARTICLE IV
ADVISORY, MANAGEMENT AND DISTRIBUTION ARRANGEMENTS
SECTION 4.1 ADVISORY AND MANAGEMENT ARRANGEMENTS. Subject to
a Majority Shareholder Vote, if required by law, of
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the Trust or the applicable Series, the Trustees may in their discretion from
time to time enter into advisory, management, or administrative contracts
whereby the other party to such contract shall undertake to furnish to the Trust
or one or more Series thereof such advisory, management and/or administrative
services, with respect to one or more Series as the Trustees shall from time to
time consider desirable and all upon such terms and conditions as the Trustees
may in their discretion determine. Subject to a Majority Shareholder Vote if
required by law, the Trustees and/or the investment adviser or manager may
engage one or more firms to serve as portfolio manager to a Series pursuant to a
portfolio management contract in which the portfolio manager makes all
determinations with respect to the purchase and sale of portfolio securities and
places, in the names of one or more Series all orders for execution of the
Series' portfolio transactions upon such terms and conditions and for such
compensation as the Trustees may in their discretion approve. A portfolio
manager may, in turn, engage its own sub-advisers in managing a particular
Series. Notwithstanding any provisions of this Declaration, the Trustees may
authorize any manager, adviser, portfolio manager, or administrator (subject to
such general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales, loans or exchanges of portfolio securities of
any Series of the Trust on behalf of the Trustees or may authorize any officer,
employee or Trustee to effect such purchases, sales, loans or exchanges pursuant
to recommendations of any such manager, adviser, portfolio manager or
administrator (and all without further action by the Trustees). Any such
purchases, sales, loans or exchanges shall be deemed to have been authorized by
all of the Trustees.
SECTION 4.2 DISTRIBUTION ARRANGEMENTS. The Trustees may in
their discretion from time to time enter into a contract, providing for the sale
of the Shares of the Trust or any Series of the Trust, whereby the Trust may
either agree to sell the Shares to the other party to the contract or appoint
such other party as its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine to be not inconsistent with the provisions of this Article
IV or the By-laws; and such contract may also provide for the repurchase or sale
of Shares by such other party as principal or as agent of the Trust and may
provide that such other party may enter into selected dealer agreements with
registered securities dealers to further the purpose of the distribution or
repurchase of the Shares. The Trustees may adopt a Distribution Plan pursuant
to Rule 12b-1 of the 1940 Act and may authorize the Trust to make payments from
its assets pursuant to such Plan.
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SECTION 4.3 PARTIES TO CONTRACT. Any contract of the
character described in Sections 4.1 and 4.2 of this Article IV or in Article VII
hereof may be entered into with any corporation, firm, trust or association,
although one or more of the Trustees or officers of the Trust may be an officer,
director, Trustee, shareholder or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was reasonable and fair and not inconsistent with the
provisions of this Article IV or the By-laws. The same person (including a
firm, corporation, trust or association) may be the other party to contracts
entered into pursuant to Sections 4.1 and 4.2 above or Article VII, and any
individual may be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 4.3.
SECTION 4.4 PROVISIONS AND AMENDMENTS. Any contract entered
into pursuant to Sections 4.1 and 4.2 of this Article IV shall, to the extent
applicable be consistent with and subject to the requirements of Section 15 of
the 1940 Act with respect to its continuance in effect, its termination, and the
method of authorization and approval of such contract or renewal thereof, and no
amendment to any contract entered into pursuant to Section 4.1 shall be
effective unless consented to by a Majority Shareholder Vote of the applicable
Series if required by law.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
SECTION 5.1 TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY
LIABLE; NOTICE. All persons extending credit to, contracting with or having any
claim against the Trust shall look only to the assets of the Series with which
such person dealt for payment under such credit, contract or claim; and neither
the Shareholders of any Series nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, nor any other
Series shall be personally liable therefor. Every note, bond, contract,
instrument, certificate or undertaking and every other act or thing whatsoever
executed or done by or on behalf of the Trust, any Series or the Trustees or any
of them in connection with the Trust shall be conclusively deemed to have been
executed or done only by or
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for the Trust (or the Series) or the Trustees and not personally. Nothing in
this Declaration shall protect any Trustee or officer against any liability to
the Trust or the Shareholders to which such Trustee or officer would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee or of such officer.
Every note, bond, contract, instrument, certificate, share or
undertaking made or issued by the Trustees or by any officers or officer shall
give notice that this Declaration is on file with the Secretary of The
Commonwealth of Massachusetts and shall recite to the effect that the same was
executed or made by or on behalf of the Trust or by them as Trustees or Trustee
or as officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, or the particular
Series in question, as the case may be, but the omission thereof shall not
operate to bind any Trustees or Trustee or officers or officer or Shareholders
or Shareholder individually.
SECTION 5.2 TRUSTEE'S GOOD FAITH ACTION; EXPERT ADVICE; NO
BOND OR SURETY. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. Subject to the foregoing, (a) the Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, adviser, manager, administrator, distributor or
principal underwriter, custodian or transfer, dividend disbursing, Shareholder
servicing or accounting agent of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee; (b) the Trustees may take advice
of counsel or other experts with respect to the meaning and operation of this
Declaration and their duties as Trustees, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice; and (c) in discharging their duties, the Trustees, when acting in good
faith, shall be entitled to rely upon the books of account of the Trust and upon
written reports made to the Trustees by any officer appointed by them, any
independent public accountant, and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of any adviser,
administrator, manager, distributor, selected dealer, appraiser or other expert,
consultant or agent. The Trustees as such shall not be required to give any
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bond or surety or any other security for the performance of their duties.
SECTION 5.3 INDEMNIFICATION OF SHAREHOLDERS. In case any
Shareholder (or former Shareholder) of any Series of the Trust shall be charged
or held to be personally liable for any obligation or liability of the Trust
solely by reason of being or having been a Shareholder and not because of such
Shareholder's acts or omissions or for some other reason, said Series (upon
proper and timely request by the Shareholder) shall assume the defense against
such charge and satisfy any judgment thereon, and the Shareholder or former
Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of said Series'
estate to be held harmless from and indemnified against all loss and expense
arising from such liability.
SECTION 5.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. The
Trust shall indemnify (from the assets of the Series or Series in question) each
of its Trustees and officers (including persons who serve at the Trust's request
as directors, officers or trustees of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise) [hereinafter referred
to as a "Covered Person"] against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust or (ii)
had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(either and both of the conduct described in (i) and (ii) being referred to
hereafter as "Disabling Conduct"). A determination that the Covered Person is
entitled to indemnification may be made by (i) a final decision on the merits by
a court or other body before whom the proceeding was brought that the person to
be indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of
a
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court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. Expenses, including accountants' and
counsel fees so incurred by any such Covered Person (but excluding amounts paid
in satisfaction of judgments, in compromise or as fines or penalties), may be
paid from time to time by the Series in question in advance of the final
disposition of any such action, suit or proceeding, provided that the Covered
Person shall have undertaken to repay the amounts so paid to the Series in
question if it is ultimately determined that indemnification of such expenses is
not authorized under this Article V and (i) the Covered Person shall have
provided security for such undertaking, (ii) the Trust shall be insured against
losses arising by reason of any lawful advances, or (iii) a majority of a quorum
of the disinterested Trustees who are not a party to the proceeding, or an
independent legal counsel in a written opinion, shall have determined, based on
a review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
SECTION 5.5 COMPROMISE PAYMENT. As to any matter disposed of
by a compromise payment by any such Covered Person referred to in Section 5.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a)
or by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
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SECTION 5.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article V shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article V, "Covered Person" shall include such person's heirs, executors
and administrators; "interested Covered Person" is one against whom the action,
suit or other proceeding in question or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened, and a
"disinterested" person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on the same or
similar grounds is then or has been pending or threatened. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
SECTION 5.6 LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES.
No person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees or
to see to the application of any payments made or property transferred to the
Trust or upon its order.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1 BENEFICIAL INTEREST. The interest of the
beneficiaries hereunder shall be divided into transferable shares of beneficial
interest with par value $.001 per share. The number of such shares of
beneficial interest authorized hereunder is unlimited. All Shares issued
hereunder including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and nonassessable.
SECTION 6.2 SERIES DESIGNATION. The Trustees, in their
discretion from time to time, may authorize the division of Shares into
additional Series, each additional Series relating to a separate portfolio of
investments. The Series are hereby established and designated:
The Liquid Asset Series
The Limited Maturity Bond Series
The All-Growth Series
The Natural Resources Series
The Real Estate Series
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The Fully Managed Series
The Multiple Allocation Series
The Fund For Life
The Global Income and Currency Fund
The Global Equity Fund
Zero Target 2000 Series
Zero Target 2003 Series
Zero Target 2004 Series
Zero Target 2005 Series
Zero Target 2006 Series
Zero Target 2010 Series
The Tremont Select Managers Fund
The Masters Series
The Intermediate Bond Series
The Capital Appreciation Series
The Rising Dividends Series
The Emerging Markets Series
The Market Manager Series
The Value Equity Series
The Strategic Equity Series
These Series shall be the only Series until additional Series are established
and designated by the Trustees. Different Series may be established and
designated and variations in the relative rights and preferences as between the
different Series shall be fixed and determined by the Trustees; provided that
all Shares shall be identical except that there may be variations between
different Series as to investment policies, securities portfolios, purchase
price, determination of net asset value, the price, terms and manner of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Series shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be shares of any or all Series as the context may require.
The following provisions shall be applicable to all Series:
(a) The number of Shares of each Series that may be
issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued
and required of any Series into one or more Series that may be
established and designated from time to time. The Trustees
may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as
they may determine, or cancel any Shares of any Series
reacquired by the Trust at their discretion from time to time.
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(b) The power of the Trustees to invest and reinvest
the Trust Property of each Series that has been or that may be
established shall be governed by Section 3.2 of this
Declaration.
(c) All consideration received by the Trust for the
issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to
that Series for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments
which are not readily identifiable as belonging to any
particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated from time
to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such
allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes.
(d) The assets belonging to each particular Series
shall be charged with the liabilities of the Trust in respect
of that Series and all expenses, costs, charges and reserves
attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series
shall be allocated and charged by the Trustees to and among
any one or more of the Series established and designated from
time to time in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable.
(i) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares of the Series designated The Fund
For Life shall be amortized for such
Series over the lesser of the life of
such Series or the five-year period
beginning with the month that such
Series commenced operations.
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(ii) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares of The Global Income and Currency
Fund, the Global Equity Fund, Zero
Target 2002 Series, Zero Target 2003
Series, Zero Target 2004 Series, Zero
Target 2005 Series, Zero Target 2006
Series, Zero Target 2010 Series, and The
Tremont Select Managers Fund shall be
amortized for each such Series over the
lesser of the life of each such Series
or the five-year period beginning with
the month that each such Series
commences operations.
(iii) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares designated The Masters Series and
The Intermediate Bond Series shall be
amortized for such Series over the
lesser of the life of each such Series
or the five-year period beginning with
the month that each such Series
commences operations.
(iv) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares designated Capital Appreciation
Series may be amortized for such Series
over the lesser of the life of the
Series or the five-year period beginning
with the month that such Series
commenced operations.
(v) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares designated Rising Dividends
Series and Emerging Markets Series may
be amortized for such Series over the
lesser of the life of the Series or the
five-year period beginning with
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the month that such Series commenced
operations.
(vi) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares designated Market Manager Series
may be amortized for such Series over
the lesser of the life of the Series or
the five-year period beginning with the
month that such Series commenced
operations.
(vii) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares designated Value Equity Series
may be amortized for such Series over
the lesser of the life of the Series or
the five-year period beginning with the
month that such Series commenced
operations.
(viii) Costs incurred by the Trust in
connection with the organization,
registration and public offering of
Shares designated Strategic Equity
Series may be amortized for such Series
over the lesser of the life of the
Series or the five-year period beginning
with the month that such Series
commences operations.
Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon
the holders of all Series for all purposes. The Trustees
shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated
as income and which items as capital; and each such
determination and allocation shall be conclusive and binding
upon the Shareholders.
(e) The power of the Trustees to pay dividends and
make distributions with respect to any one or more Series
shall be governed by Section 9.2 of this Trust. Dividends and
distributions on Shares of a particular Series may be paid
with such frequency as the Trustees may determine, which may
be daily or otherwise, pursuant
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to a standing resolution or resolutions adopted only once or
with such frequency as the Trustees may determine, to the
holders of Shares of that Series, from such of the income and
capital gains, accrued liabilities belonging to that Series.
All dividends and distributions on Shares of a particular
Series shall be distributed pro rata to the holders of that
Series in proportion to the number of Shares of that Series
held by such holders at the date and time of record
established for the payment of such dividends or
distributions.
The establishment and designation of any additional Series of
Shares shall be effective upon the execution by a majority of the then Trustees
of any instrument setting forth the establishment and designation of such
Series. Such instrument shall also set forth any rights and preferences of such
Series which are in addition to the rights and preferences of Shares set forth
in this Declaration. The Trustees may by an instrument executed by a majority
of their number abolish a Series and the establishment and designation thereof.
Each instrument referred to in this paragraph shall have the status of an
amendment to this Declaration.
SECTION 6.3 RIGHTS OF SHAREHOLDERS. The ownership of the
Trust Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares with respect to a particular Series, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to share or assume
any losses of the Trust, or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights in this Declaration specifically set forth. The Shares shall not entitle
the holder to preference, preemptive, appraisal, conversion or exchange rights
(except for rights to exchange Shares of one Series for Shares of another Series
as set forth in the Prospectus).
SECTION 6.4 TRUST ONLY. It is the intention of the Trustees
to create only the relationship of Trustee and beneficiary between the Trustees
and each Shareholder from time to time. It is not the intention of the Trustees
to create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
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SECTION 6.5 ISSUANCE OF SHARES. The Trustees, in their
discretion, may from time to time without a vote of the Shareholders issue
Shares with respect to any Series that may have been established pursuant to
Section 6.2, in addition to the then issued and outstanding Shares and Shares
held in the treasury, to such party or parties and for such amount not less than
the then current net asset value of said Shares and type of consideration,
including cash or property, at such time or times and on such terms as the
Trustee may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares. The Trustees may from time to time divide
or combine the Shares of any Series into a greater or lesser number without
thereby changing the proportionate beneficial interests in such Series of the
Trust. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or 1/1,000ths of a Share or multiples thereof.
SECTION 6.6 REGISTER OF SHARES. A register shall be kept at
the Trust or the offices of any transfer agent duly appointed by the Trustees
under the direction of the Trustees which shall contain the names and addresses
of the Shareholders and the number of Shares (with respect to each Series that
may have been established) held by them respectively and a record of all
transfers thereof. Separate registers shall be established and maintained for
each Series of the Trust. Each such register shall be conclusive as to who are
the holders of the Shares of the applicable Series and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein provided,
until he has given his address to a transfer agent or such other officer or
agent of the Trustees as shall keep the register for entry thereon. The Trust
shall not be required to issue certificates for the Shares; however, the
Trustees, in their discretion, may authorize the issuance of share certificates
and promulgate appropriate rules and regulations as to their use.
SECTION 6.7 TRANSFER AGENT AND REGISTRAR. The Trustee shall
have power to employ a transfer agent or transfer agents, and a registrar or
registrars, with respect to the Shares of the various Series. The transfer
agent may keep the applicable register and record therein the original issues
and transfers, if any, of the said Shares of the applicable Series. Any such
transfer agent and registrar shall perform the duties usually performed by
transfer agents and registrars of certificates of stock in a corporation, except
as modified by the Trustees.
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SECTION 6.8 TRANSFER OF SHARES. Shares shall be transferable
on the records of the Trust only by the record holder thereof or by his agent
thereto duly authorized in writing, upon delivery to the Trustees or a transfer
agent of the Trust of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery, the transfer
shall be recorded on the applicable register of the Trust. Until such record is
made, the Shareholder of record shall be deemed to be the holder of such Shares
for all purposes hereof and neither the Trustees nor any transfer agent or
registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of
the death, bankruptcy or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the applicable register of Shares as the
holder of such Shares upon production of the proper evidence thereof to the
Trustees or a transfer agent of the Trust, but until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereof and neither the Trustees nor any transfer agent or registrar nor
any officer or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other operation of law.
SECTION 6.9 NOTICE. Any and all notices to which any
Shareholder hereunder may be entitled and any and all communications shall be
deemed duly served or given if mailed, postage prepaid, addressed to any
Shareholder of record at his last known address as recorded on the applicable
register of the Trust.
ARTICLE VII
CUSTODIANS
SECTION 7.1 APPOINTMENT AND DUTIES. The Trustees shall at
all times employ, as custodian with respect to each Series of the Trust, a
custodian or custodians, each of which shall have an aggregate capital, surplus
and undivided profits (as shown on its last published report) of at least two
million dollars and shall meet the qualifications for custodians for portfolio
securities of investment companies contained in the 1940 Act. It is
contemplated that separate custodians may be employed for the different Series
of the Trust. Any custodian, acting with respect to one or more Series, shall
have authority as agent of the Trust or the Series with respect to which it is
acting, but subject to such restrictions, limitations and other
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requirements, if any, as may be contained in the By-laws of the Trust and the
1940 Act:
(1) to hold the securities owned by the Trust or the
Series and deliver the same upon written order;
(2) to receive any receipt for any monies due to the
Trust or the Series and deposit the same in its own banking
department (if a bank) or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books
and accounts of the Trust or the Series and furnish clerical
and accounting services; and
(5) if authorized to do so by the Trustees, to
compute the net income and the value of the net assets of the
Trust or the Series;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote of the Series
with respect to which the custodian is acting, the custodian shall deliver and
pay over all property of the Trust held by it as specified in such vote.
The Trustees may also authorize each custodian to employ one
or more sub-custodians from time to time to perform such of the acts and
services of the custodian and upon such terms and conditions, as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall meet the qualifications for
custodians contained in the 1940 Act.
SECTION 7.2 ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT.
Upon termination of any custodian agreement with respect to any Series or
inability of any custodian to continue to serve, the Trustees shall promptly
appoint a successor custodian, but in the event that no successor custodian can
be found who has the required qualifications and is willing to serve, the
Trustees shall call as promptly as possible a special Shareholders' meeting to
determine whether such Series shall function without a custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the Shares
of such Series outstanding and entitled to vote, the custodian shall deliver and
pay over all Trust Property held by it as specified in such vote.
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SECTION 7.3 CENTRAL CERTIFICATE SYSTEM. Subject to such
rules, regulations and orders as the Commission may adopt or issue, the Trustees
may direct the custodian to deposit all or any part of the securities owned by
the Trust or the Series in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange Act of
1934, or such other person as may be permitted by the Commission, or otherwise
in accordance with the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.
SECTION 7.4 ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES.
Subject to such rules, regulations and orders as the Commission may adopt, the
Trustees may direct the custodian to accept written receipts or other written
evidences indicating purchases of securities held in book-entry form in the
Federal Reserve System in accordance with regulations promulgated by the Board
of Governors of the Federal Reserve System and the local Federal Reserve Banks
in lieu of receipt of certificates representing such securities.
ARTICLE VIII
REDEMPTION
SECTION 8.1 REDEMPTIONS. All outstanding Shares of any
Series of the Trust may be redeemed at the option of the holders thereof, upon
and subject to the terms and conditions provided in this Article VIII. The
Trust shall, upon application of any Shareholder or pursuant to authorization
from any Shareholder of a particular Series, redeem or repurchase from such
Shareholder outstanding Shares of such Series at the then current net asset
value of such Shares. If so authorized by the Trustees, the Trust may, at any
time and from time to time, charge fees or deferred sales charges for effecting
such redemption, at such rates as the Trustees may establish, as and to the
extent permitted under the 1940 Act, and may, at any time and from time to time,
pursuant to such Act, suspend such right of redemption. The procedures for
effecting redemption shall be as set forth in the Prospectus with respect to the
applicable Series from time to time.
SECTION 8.2 REDEMPTIONS OF ACCOUNTS OF LESS THAN A MINIMUM
DOLLAR AMOUNT. The Trustees shall have the power to redeem shares at a
redemption price determined in accordance with Section 8.1 if at any time the
total investment in such
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account does not have a minimum dollar value determined from time to time by the
Trustees in their sole discretion; provided, however, that the Trustees may
exercise such power with respect to Shares of any Series only to the extent the
Prospectus describes such power with respect to such Series. In the event the
Trustees determine to exercise their power to redeem Shares provided in this
Section 8.2, Shareholders shall be notified that the value of their account is
less than the then effective minimum dollar amount and allowed 60 days to make
an additional investment before redemption is processed.
ARTICLE IX
DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS
SECTION 9.1 NET ASSET VALUE. The net asset value of each
outstanding Share of each Series of the Trust shall be determined with respect
to each Series at such time or times on such days as the Trustees may determine,
in accordance with the 1940 Act. The method of determination of net asset value
shall be determined by the Trustees and shall be as set forth in the Prospectus
with respect to the applicable Series. The power and duty to make the daily
calculations for any Series may be delegated by the Trustees to the adviser,
manager, administrator, manager, custodian, transfer agent or such other person
as the Trustees may determine. The Trustees may suspend the daily determination
of net asset value to the extent permitted by the 1940 Act.
SECTION 9.2 DISTRIBUTIONS TO SHAREHOLDERS. Except at such
times when the Trustees deem proper, the Trustees will not distribute to
Shareholders net investment income and realized capital gains, but will retain
and reinvest such net profits. The Trustees may make distributions to
Shareholders to the extent the distribution and the circumstances in which it
may be made are determined by the Trustees to be in the best interests of the
Series. The Trustees may retain and not reinvest from the net profits such
amount as they may deem necessary to pay the debts or expenses of the Trust or
to meet obligations of the Trust, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of the
business.
SECTION 9.3 POWER TO MODIFY FOREGOING PROCEDURES.
Notwithstanding any of the foregoing provisions of this Article IX, the Trustees
may prescribe, in their absolute discretion, such other bases and times for
determining the per share net asset value of the Trust's Shares or net income,
or the declaration and payment of dividends and distributions as they may deem
necessary or desirable to enable the Trust to comply
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with any provision of the 1940 Act, or any securities association registered
under the Securities Exchange Act of 1934, or any order of exemption issued by
said Commission, all as in effect now or hereafter amended or modified.
ARTICLE X
SHAREHOLDERS
SECTION 10.1 VOTING POWERS. The Shareholders shall have the
power to vote (i) for the election of Trustees as provided in Article II,
Section 2.2; (ii) for the removal of Trustees as provided in Article II, Section
2.3(d); (iii) with respect to any investment adviser as provided in Article IV,
Section 4.1; (iv) with respect to the merger, consolidation and sale of assets
of the Trust as provided in Article XI, Section 11.3; (v) with respect to the
amendment of this Declaration as provided in Article XI, Section 11.4; (vi) to
the same extent as the Shareholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders (provided, however, that a shareholder of a particular Series shall
not be entitled to a derivative or class action on behalf of any other Series
(or shareholders of any other Series) of the Trust); and (vii) with respect to
such additional matters relating to the Trust as may be required by law, by this
Declaration, or the By-laws of the Trust or any regulation of the Trust, by the
Commission or any State, or as the Trustees may consider desirable. Any matter
affecting a particular Series, including without limitation, matters affecting
the investment advisory arrangements or investment policies or restrictions of a
Series, if required by law, shall not be deemed to have been effectively acted
upon unless approved by the required vote of the Shareholders of such Series if
required by law. Unless otherwise required by law, each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action to be taken by Shareholders which is required or permitted by law, this
Declaration or any By-laws of the Trust.
SECTION 10.2 MEETINGS. Shareholder meetings shall be held as
specified in Article I of the By-laws and in Section 2.2 hereof at the principal
office of the Trust or at such other place as the Trustees may designate. No
annual or regular meetings of shareholders are required. Meetings of the
Shareholders may be called by the Trustees and shall be held at such times, on
such day and at such hour as the Trustees may
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from time to time determine, for the purposes specified in Section 2.2 and for
such other purposes as may be specified by the Trustees.
SECTION 10.3 QUORUM AND REQUIRED VOTE. Except as otherwise
provided by law, the holders of thirty percent of the outstanding Shares of each
Series present in person or by proxy shall constitute a quorum for the
transaction of any business at any meeting of Shareholders. If a quorum, as
above defined, shall not be present for the purpose of any vote that may
properly come before the meeting, the Shareholders present in person or by proxy
and entitled to vote at such meeting on such matter holding a majority of the
Shares present entitled to vote on such matter may by vote adjourn the meeting
from time to time to be held at the same place without further notice than by
announcement to be given at the meeting until a quorum, as above defined,
entitled to vote on such matter shall be present, whereupon any such matter may
be voted upon at the meeting as though held when originally convened. Subject
to any applicable requirement of law, this Declaration or the By-laws, a
plurality of the votes cast shall elect a Trustee and all other matters shall be
decided by a majority of the votes cast entitled to vote thereon.
SECTION 10.4 RECORD DATE FOR MEETINGS. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding 30 days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than 180 days prior to
the date of any meeting of Shareholders or declaration of dividends or other
action as a record date for the determination of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by Section 9.2 hereof.
SECTION 10.5 PROXIES. Any vote by a Shareholder of the Trust
may be made in person or by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Trustees or their
designee prior to the time the vote is taken. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of one or more
Trustees or one or more officers of the Trust. Only Shareholders of record
shall be entitled to vote. A proxy purporting to be executed by or on behalf of
a Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger. A
proxy with respect to shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the
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Trust receives a specific written notice to the contrary from any one of them.
SECTION 10.6 ADDITIONAL PROVISIONS. The By-laws may include
further provisions for Shareholders' votes, meetings and related matters.
SECTION 10.7 REPORTS. The Trustees shall cause to be
prepared with respect to each Series at least annually a report of operations
containing a balance sheet and statement of income and undistributed income of
the applicable Series of the Trust prepared in conformity with generally
accepted accounting principles and an opinion of an independent public
accountant on such financial statements. It is contemplated that separate
reports may be prepared for the various Series. Copies of such reports shall be
mailed to all Shareholders of record of the applicable Series within the time
required by the 1940 Act. The Trustees shall, in addition, furnish to the
Shareholders at least semi-annually, interim reports containing an unaudited
balance sheet of the Series as of the end of such period and an unaudited
statement of income and surplus for the period from the beginning of the current
fiscal year to the end of such period.
SECTION 10.8 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any
action which may be taken by Shareholders may be taken without a meeting if a
majority of Shareholders of each Series entitled to vote on the matter (or such
larger proportion thereof as shall be required by any express provision of this
Declaration) consent to the action in writing and the written consents are filed
with the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE XI
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS; ETC.
SECTION 11.1 DURATION. Subject to the provisions of Sections
11.2 and 11.3 hereof, this Trust shall continue without limitation of time.
SECTION 11.2 TERMINATION.
(a) The Trust, or any Series thereof, may be terminated by
the affirmative vote of a majority of the Trustees. Upon the termination of the
Trust or any Series:
(i) the Trust or such Series shall carry on no
business except for the purpose of winding up its affairs;
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(ii) the Trustees shall proceed to wind up the
affairs of the Trust or such Series and all of the powers of
the Trustees under this Declaration shall continue until the
affairs of the Trust or such Series shall have been wound up,
including the power to fulfill or discharge the contracts of
the Trust or such Series, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any
part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and do all other acts
appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other
disposition of all or substantially all the Trust Property
shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by
vote or consent of the holders of a majority of the Shares
entitled to vote; and
(iii) after payment or adequately providing for
the payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements as they deem
necessary for their protection, the Trustees may distribute
the remaining Trust Property of any Series, in cash or in kind
or partly each, among the Shareholders of such Series
according to their respective rights.
(b) After termination of the Trust or any Series and
distribution to the Shareholders as herein provided, a majority of the Trustees
shall execute and lodge among the records of the Trust an instrument in writing
setting forth the fact of such termination. Upon termination of the Trust, the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall thereupon
cease. Upon termination of any Series, the Trustees thereunder shall be
discharged from any further liabilities and duties with respect to such Series,
and the rights and interests of all Shareholders of such Series shall thereupon
cease.
SECTION 11.3 REORGANIZATION. The Trustees may sell, convey,
merge and transfer the assets of the Trust, or the assets belonging to any one
or more Series, to another trust, partnership, association or corporation
organized under the laws of any state of the United States, or to the Trust to
be held as assets belonging to another Series of the Trust, in exchange for
cash, shares or other securities (including, in the case of a transfer to
another Series of the Trust, Shares of such other Series) with such transfer
either (1) being made
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subject to, or with the assumption by the transferee of, the liabilities
belonging to each Series the assets of which are so transferred, or (2) not
being made subject to, or not with the assumption of, such liabilities;
provided, however, that no assets belonging to any particular Series shall be so
transferred unless the terms of such transfer shall have first been approved at
a meeting called for the purpose by a Majority Shareholder Vote of that Series.
Following such transfer, the Trustees shall distribute such cash, shares or
other securities (giving due effect to the assets and liabilities belonging to
and any other differences among the various Series the assets belonging to which
have so been transferred) among the Shareholders of the Series the assets
belonging to which have been so transferred; and if all of the assets of the
Trust have been so transferred, the Trust shall be terminated.
The Trust, or any one or more Series, may, either as the
successor, survivor, or non-survivor, (1) consolidate with one or more other
trusts, partnerships, associations or corporations organized under the laws of
the Commonwealth of Massachusetts or any other state in the United States, to
form a new consolidated trust, partnership, association, or corporation under
the laws of which any one of the constituent entities is organized, or (2) merge
into one or more other trusts, partnerships, associations, or corporation
organized under the laws of the Commonwealth of Massachusetts or any other state
of the United States, or have one or more such trusts, partnerships,
associations, or corporations merged into it, any such consolidation or merger
to be upon such terms and conditions as are specified in an agreement and plan
of reorganization entered into by the Trust, or one or more Series as the case
may be, in connection therewith. Any such consolidation or merger shall require
the approval of a Majority Shareholder Vote of each Series affected thereby.
For each Series of the Trust other than The Fund For Life, the terms "merge" or
"merger" as used herein shall not include the purchase or acquisition of any
assets of any other trust, partnership, association or corporation which is an
investment company organized under the laws of the Commonwealth of Massachusetts
or any other state of the United States.
Shareholders shall have no right to demand payment for their
shares or to any other rights of dissenting shareholders in the event the Trust
or any Series participates in any transaction which would give rise to appraisal
or dissenters' rights by a shareholder of a corporation organized under Chapter
156B of the General Laws of the Commonwealth of Massachusetts.
SECTION 11.4 AMENDMENT PROCEDURE. All rights granted to the
Shareholders under this Declaration are granted subject to the reservation of
the right to amend this Declaration as
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herein provided, except that no amendment shall repeal the limitations on
personal liability of any Shareholder or Trustee or repeal the prohibition of
assessment upon the Shareholders without the express consent of each Shareholder
or Trustee involved. Subject to the foregoing, the provisions of this
Declaration (whether or not related to the rights of Shareholders) may be
amended at any time, so long as such amendment does not adversely affect the
rights of any Shareholder with respect to which such amendment is or purports to
be applicable and so long as such amendment is not in contravention of
applicable law, including the 1940 Act, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of the Trust pursuant to the
vote of a majority of such Trustees). Any amendment to this Declaration that
adversely affects the rights of Shareholders may be adopted at any time by an
instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to a vote of a majority of such Trustees) when
authorized to do so by the vote of a majority of the Shares entitled to vote.
Subject to the foregoing, any such amendment shall be effective as provided in
the instrument containing the terms of such amendment or, if there is no
provision therein with respect to effectiveness, upon the execution of such
instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer of the Trust to the effect that such amendment
has been duly adopted.
SECTION 11.5 INCORPORATION. With the approval of the holders
of a majority of the Shares, the Trustees may cause to be organized or assist in
organizing a corporation or corporations under the laws of any jurisdiction or
any other trust, partnership, association or other organization to take over all
of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, association or organization in
exchange for the shares or securities thereof or otherwise, and to lend money
to, subscribe for the Shares or securities of, and enter into any contracts with
any such corporation, trust, partnership, association or organization, or any
corporation, trust, partnership, association or organization in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may
also cause a merger or consolidation between the Trust or any successor thereto
and any such corporation, trust, partnership, association or other organization
if and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organizations or entities.
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ARTICLE XII
MISCELLANEOUS
SECTION 12.1 FILING. This Declaration and any amendment
hereto shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and also may be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its filing. A restated Declaration,
containing the original Declaration and all amendments theretofore made, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of the Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
SECTION 12.2 RESIDENT AGENT. The Trust shall maintain a
resident agent in the Commonwealth of Massachusetts, which agent shall initially
be CT Corporation System, 2 Oliver Street, Boston, Massachusetts 02109. The
Trustees may designate a successor resident agent, provided, however, that such
appointment shall not become effective until written notice thereof is delivered
to the office of the Secretary of the Commonwealth of Massachusetts.
SECTION 12.3 GOVERNING LAW. This Declaration is executed by
the Trustees and delivered in the Commonwealth of Massachusetts and with
reference to the laws thereof, and the rights of all parties and the validity
and construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
SECTION 12.4 COUNTERPARTS. This Declaration may be
simultaneously executed in several counterparts, each of which shall be deemed
to be an original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 12.5 RELIANCE BY THIRD PARTIES. Any certificate
executed by an individual who, according to the records of the Trust or of any
recording office in which this Declaration may be recorded, appears to be a
Trustee hereunder, certifying to: (a) the number or identity of Trustees or
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Shareholders; (b) the name of the Trust or any Series thereof; (c) the due
authorization of the execution of any instrument or writing; (d) the form of any
vote passed at a meeting of Trustees or Shareholders; (e) the fact that the
number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration; (f) the form
of any By-laws adopted by or the identity of any officers elected by the
Trustees; (g) the existence of any fact or facts which in any manner relate to
the affairs of the Trust or any Series; or (h) the establishment of any Series,
shall be conclusive evidence as to the matters so certified in favor of any
person dealing with the Trustees and their successors.
SECTION 12.6 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable, and if
the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned have caused these presents
to be executed as of the day and year first above written.
________________________
Terry L. Kendall
280 Park Avenue
New York, NY 10017
________________________
Robert A. Grayson
108 Loma Media Road
Santa Barbara, CA 93103
___________________________
M. Norvel Young
24255 Pacific Coast Highway
Malibu, CA 90263-4507
___________________________
Roger B. Vincent
230 Park Avenue
New York, NY 10169
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EXHIBIT 5(a)(i)(A)
MANAGEMENT AGREEMENT
Agreement made this 1st day of October, 1993 between The GCG Trust
("Trust"), a Massachusetts business trust, and Directed Services, Inc.
("Manager"), a New York corporation (the "Agreement").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust currently offers shares in multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future; and
WHEREAS, the Trust desires to avail itself of the services of the Manager
for the provision of advisory, management, administrative, and other services
for the Trust; and
WHEREAS, the Manager is willing to render such services to the Trust.
Therefore, in consideration of the premises, the promises and mutual
covenants herein contained, it is agreed between the parties as follows:
1. APPOINTMENT. The Trust hereby appoints the Manager, subject to the
direction of the Board of Trustees, for the period and on the terms set forth in
this Agreement, to provide advisory, management, administrative, and other
services, as described herein, with respect to the Series identified on Schedule
A, such series together with all other series subsequently established by the
Trust with respect to which the Trust desires to retain the Manager to render
advisory, management, administrative, and other services hereunder and with
respect to which the Manager is willing to do so being herein collectively
referred to as the "Series." The Manager accepts such appointment and agrees to
render the services herein set forth for the compensation herein provided.
In the event the Trust establishes one or more series other than the Series
with respect to which it desires to retain the Manager to render advisory,
management, administrative, and other services hereunder, it shall notify the
Manager in writing. If the Manager is willing to render such services it shall
notify
<PAGE>
the Trust in writing, whereupon such series shall become a Series hereunder.
2. SERVICES OF THE MANAGER. The Manager represents and warrants that it
is registered as an investment adviser under the Investment Advisers Act of 1940
and in all states where required, and will maintain such registration for so
long as required by applicable law. Subject to the general supervision of the
Board of Trustees of the Trust, the Manager shall provide the following
advisory, management, administrative, and other services with respect to the
Series:
(a) Provide general, overall advice and guidance with respect to the
Series and provide advice and guidance to the Trust's Trustees, and oversee the
management of the investments of the Series and the composition of each Series'
portfolio of securities and investments, including cash, and the purchase,
retention and disposition thereof, in accordance with each Series' investment
objective or objectives and policies as stated in the Trust's current
registration statement, which management shall be provided by others selected by
the Manager and approved by the Board of Trustees as provided below or directly
by the Manager as provided in Section 3 of this Agreement;
(b) Analyze, select and recommend for consideration by the Trust's
Board of Trustees investment advisory firms (however organized) to provide
investment advice to one or more of the Series, and, at the expense of the
Manager, engage (which engagement may also be by the Trust) such investment
advisory firms to render investment advice and manage the investments of such
Series and the composition of each such Series' portfolio of securities and
investments, including cash, and the purchase, retention and disposition
thereof, in accordance with the Series' investment objective or objectives and
policies as stated in the Trust's current registration statement (any such firms
approved by the Board of Trustees and engaged by the Trust and/or the Manager
are referred to herein as "Portfolio Managers");
(c) Periodically monitor and evaluate the performance of the
Portfolio Managers with respect to the investment objectives and policies of the
Series;
(d) Monitor the Portfolio Managers for compliance with the investment
objective or objectives, policies and restrictions of each Series, the 1940 Act,
Subchapter M of the Internal Revenue Code, Section 817(h) of the Internal
Revenue Code, and if applicable, regulations under such provisions, and other
applicable law;
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(e) If appropriate, analyze and recommend for consideration by the
Trust's Board of Trustees termination of a contract with a Portfolio Manager
under which the Portfolio Manager provided investment advisory services to one
or more of the Series;
(f) Supervise Portfolio Managers with respect to the services that
such Portfolio Managers provide under respective portfolio management agreements
("Portfolio Management Agreements"), although the Manager is not authorized,
except as provided in Section 3 of the Agreement, directly to make
determinations with respect to the investment of a Series' assets or the
purchase or sale of portfolio securities or other investments for a Series;
(g) Provide all supervisory, management, and administrative services
reasonably necessary for the operation of the Series other than the investment
advisory services performed by the Portfolio Managers, including but not
limited to, (i) coordinating all matters relating to the operation of the
Series, including any necessary coordination among the Portfolio Managers,
custodian, transfer agent, dividend disbursing agent, and portfolio accounting
agent (including pricing and valuation of the Series' portfolios), accountants,
attorneys, and other parties performing services or operational functions for
the Trust, (ii) providing the Trust and the Series, at the Manager's expense,
with the services of a sufficient number of persons competent to perform such
administrative and clerical functions as are necessary to ensure compliance with
federal securities laws and to provide effective supervision and administration
of the Series; (iii) maintaining or supervising the maintenance by third parties
selected by the Manager of such books and records of the Trust and the Series as
may be required by applicable federal or state law; (iv) preparing or
supervising the preparation by third parties selected by the Manager of all
federal, state, and local tax returns and reports relating to the Series
required by applicable law; (v) preparing and filing and arranging for the
distribution of proxy materials and periodic reports to shareholders of the
Series as required by applicable law; (vi) preparing and arranging for the
filing of registration statements and other documents with the Securities and
Exchange Commission (the "SEC") and other federal and state regulatory
authorities as may be required by applicable law; (vii) taking such other action
with respect to the Trust as may be required by applicable law in connection
with the Series, including without limitation the rules and regulations of the
SEC and other regulatory agencies; and (viii) providing the Trust, at the
Manager's expense, with adequate personnel, office space, communications
facilities, and other facilities necessary for operation of the Series as
contemplated in this Agreement.
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(h) Provide or procure on behalf of the Trust and the Series, and at
the expense of the Manager, the following services for the Series: (i)
custodian services to provide for the safekeeping of the Series' assets; (ii)
portfolio accounting services to maintain the portfolio accounting records for
the Series; (iii) transfer agency services for the Series; (iv) dividend
disbursing services for the Series, and (v) other services necessary for the
ordinary operation of the Series. The Trust may, but is not required to, be a
party to any agreement with any third person contracted to provide the services
referred to in this Section 2(h).
(i) Render to the Board of Trustees of the Trust such periodic and
special reports as the Board may reasonably request; and
(j) Make available its officers and employees to the Board of
Trustees and officers of the Trust for consultation and discussions regarding
the administration and management of the Series and services provided to the
Trust under this Agreement.
3. INVESTMENT MANAGEMENT AUTHORITY. In the event that a Portfolio
Management Agreement pertaining to a Series is terminated or if, at any time, no
Portfolio Manager is engaged to manage the assets of a Series of the Trust, then
with respect to any such Series, the Manager, subject to the supervision of the
Trust's Board of Trustees, will provide a continuous investment program for the
Series' portfolio and determine the composition of the assets of the Series'
portfolio, including determination of the purchase, retention, or sale of the
securities, cash, and other investments contained in the portfolio. The Manager
will provide investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Series' assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Series, when these transactions should be executed,
and what portion of the assets of the Series should be held in the various
securities and other investments in which it may invest, and the Manager is
hereby authorized to execute and perform such services on behalf of the Series.
To the extent permitted by the investment policies of the Series, the Manager
shall make decisions for the Series as to foreign currency matters and make
determinations as to, and execute and perform, foreign currency exchange
contracts on behalf of the Series. The Manager will provide the services under
this Agreement in accordance with the Series' investment objective or
objectives, policies, and restrictions as stated in the Trust's Registration
Statement filed with the SEC, as amended. Furthermore:
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(a) The Manager will (1) take all steps necessary to manage the
Series so that it will qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, (2) take all steps necessary to
manage the Series so as to ensure compliance by the Series with the
diversification requirements of Section 817(h) of the Internal Revenue Code and
regulations issued thereunder, and (3) use reasonable efforts to manage the
Series so as to ensure compliance by the Series with any other rules and
regulations pertaining to investment vehicles underlying variable annuity or
variable life insurance policies. In managing the Series in accordance with
these requirements, the Manager shall be entitled to receive and act upon advice
of counsel to the Trust or counsel to the Manager.
(b) The Manager will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Trust's Board of
Trustees, and the provisions of the Registration Statement of the Trust under
the Securities Act of 1933 and the 1940 Act, as supplemented or amended.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Series as well as any other
investment advisory clients, the Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate the
securities to be so sold or purchased with those of its other clients where
such aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the Manager in a manner that is fair and equitable in the judgment of
the Manager in the exercise of its fiduciary obligations to the Trust and to
such other clients.
(d) In connection with the purchase and sale of securities of the
Series, the Manager will arrange for the transmission to the custodian for the
Trust on a daily basis, of such confirmation, trade tickets, and other documents
and information, including, but not limited to, Cusip, Sedol, or other numbers
that identify securities to be purchased or sold on behalf of the Series, as may
be reasonably necessary to enable the custodian to perform its administrative
and recordkeeping responsibilities with respect to the Series. With respect to
portfolio securities to be purchased or sold through the Depository Trust
Company, the Manager will arrange for the automatic transmission of the
confirmation of such trades to the Trust's custodian.
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<PAGE>
(e) The Manager will assist the custodian or portfolio accounting
agent for the Trust in determining, consistent with the procedures and policies
stated in the Registration Statement for the Trust, the value of any portfolio
securities or other assets of the Series for which the custodian or portfolio
accounting agent seeks assistance or review from the Manager. The Manager will
monitor on a daily basis the determination by the custodian or portfolio
accounting agent for the Trust of the value of portfolio securities and other
assets of the Series and the determination of net asset value of the Series.
(f) The Manager will make available to the Trust, promptly upon
request, all of the Series' investment records and ledgers as are necessary to
assist the Trust to comply with requirements of the 1940 Act and the Investment
Advisers Act of 1940, as well as other applicable laws. The Manager will
furnish to regulatory authorities having the requisite authority any information
or reports in connection with such services which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
(g) The Manager will regularly report to the Trust's Board of
Trustees on the investment program for the Series and the issuers and securities
represented in the Series' portfolio, and will furnish the Trust's Board of
Trustees with respect to the Series such periodic and special reports as the
Trustees may reasonably request.
(h) The Manager will not disclose or use any records or information
obtained pursuant to this Agreement (excluding investment research and
investment advice) in any manner whatsoever except as required to carry out its
duties as investment manager and administrator pursuant to this Section 3 or in
the ordinary course of business in connection with placing orders for the
purchase and sale of securities, and will keep confidential any information
obtained pursuant to this Agreement, and disclose such information only if the
Board of Trustees of the Trust has authorized such disclosure, or if such
disclosure is expressly required by applicable federal or state law or
regulations or regulatory authorities having the requisite authority.
(i) In rendering the services required under this Section of this
Agreement, the Manager may, from time to time, employ or associate with itself
such person or persons as it believes necessary to assist it in carrying out its
obligations under this Agreement. The Manager shall be responsible for making
reasonable inquires and for reasonably ensuring that any employee of the
Manager, any person or firm that the Manager has
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<PAGE>
employed or with which it has associated, or any employee thereof has not, to
the best of the Manager's knowledge, in any material connection with the
handling of Trust assets:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, or involving
violations of Sections 1341, 1342, or 1343 of Title 18, United States
Code; or
(ii) been found by any state regulatory authority, within the last
ten (10) years, to have violated or to have acknowledged violation of
any provision of any state insurance law involving fraud, deceit, or
knowing misrepresentation; or
(iii) been found by any federal or state regulatory authorities,
within the last ten (10) years, to have violated or to have
acknowledged violation of any provisions of federal or state
securities laws involving fraud, deceit, or knowing misrepresentation.
(j) In connection with its responsibilities under this Section 3, the
Manager is responsible for decisions to buy and sell securities and other
investments for the Series' portfolio, broker-dealer selection, and negotiation
of brokerage commission rates. The Manager's primary consideration in effecting
a security transaction will be to obtain the best execution for the Series,
taking into account the factors specified in the Prospectus and/or Statement of
Additional Information for the Trust, which include price (including the
applicable brokerage commission or dollar spread), the size of the order, the
nature of the market for the security, the timing of the transaction, the
reputation, experience and financial stability of the broker-dealer involved,
the quality of the service, the difficulty of execution, execution capabilities
and operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. Accordingly, the price to the Series in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified, in the judgment of the Manager in the
exercise of its fiduciary obligations to the Trust, by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Trustees may determine and consistent with Section 28(e) of the Securities
Exchange Act of 1934, the Manager shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Series to pay a broker-dealer for effecting a
portfolio investment transaction in excess of the amount of
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<PAGE>
commission another broker-dealer would have charged for effecting that
transaction, if the Manager or its affiliate determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker-dealer, viewed in terms of either
that particular transaction or the Manager's or its affiliate's overall
responsibilities with respect to the Series and to their other clients as to
which they exercise investment discretion. To the extent consistent with these
standards and in accordance with Section 11(a) of the Securities and Exchange
Act of 1934 and Rule 11a2-2(T) thereunder, the Manager is further authorized to
allocate the orders placed by it on behalf of the Series to the Manager if it is
registered as a broker-dealer with the SEC, to its affiliated broker-dealer, or
to such brokers and dealers who also provide research or statistical material or
other services to the Series, the Manager or an affiliate of the Manager. Such
allocation shall be in such amounts and proportions as the Manager shall
determine consistent with the above standards, and the Manager will report on
said allocation regularly to the Board of Trustees of the Trust indicating the
broker-dealers to which such allocations have been made and the basis therefor.
4. CONFORMITY WITH APPLICABLE LAW. The Manager, in the performance of
its duties and obligations under this Agreement, shall act in conformity with
the Registration Statement of the Trust and with the instructions and directions
of the Board of Trustees of the Trust and will conform to, and comply with, the
requirements of the 1940 Act and all other applicable federal and state laws and
regulations.
5. EXCLUSIVITY. The services of the Manager to the Trust under this
Agreement are not to be deemed exclusive, and the Manager, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of any of the Series) and to engage in other activities, so
long as its services hereunder are not impaired thereby.
6. DOCUMENTS. The Trust has delivered properly certified or
authenticated copies of each of the following documents to the Manager and will
deliver to it all future amendments and supplements thereto, if any:
(a) certified resolution of the Board of Trustees of the Trust
authorizing the appointment of the Manager and approving the form of this
Agreement;
(b) the Registration Statement as filed with the SEC and any
amendments thereto; and
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<PAGE>
(c) exhibits, powers of attorney, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
7. RECORDS. The Manager agrees to maintain and to preserve for the
periods prescribed under the 1940 Act any such records as are required to be
maintained by the Manager with respect to the Series by the 1940 Act. The
Manager further agrees that all records which it maintains for the Series are
the property of the Trust and it will promptly surrender any of such records
upon request.
8. EXPENSES. During the term of this Agreement, the Manager will pay all
expenses incurred by it in connection with its activities under this Agreement,
except such expenses as are assumed by the Trust under this Agreement and such
expenses as are assumed by a Portfolio Manager under its Portfolio Management
Agreement. The Manager further agrees to pay all salaries, fees and expenses of
any officer or trustee of the Trust who is an officer, director or employee of
the Manager or any of its affiliates. The Manager shall be responsible for all
of the expenses of its operations and for the following expenses:
(a) Expenses of all audits by the Trust's independent public
accountants;
(b) Expenses of the Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Trust's custodial services, including
recordkeeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
each Series' net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses of
International Management reports (as appropriate) for each Series;
(f) Expenses of maintaining the Trust's tax records;
(g) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of the
Trust to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's existence and qualification to do business, and the
registration of shares with federal and state securities or insurance
authorities;
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<PAGE>
(h) The Trust's ordinary legal fees, including the legal fees related
to the registration and continued qualification of the Trust's shares for sale;
(i) Costs of printing stock certificates representing shares of the
Trust;
(j) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(k) Association membership dues; and
(l) Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
Commencing with the date of this Agreement, the Manager is responsible for any
remaining unamortized organizational expenses of the Series as of the date of
this Agreement.
The Trust shall be responsible for the following expenses:
(a) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Manager or an affiliate of the Manager;
(b) Taxes levied against the Trust;
(c) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Trust;
(d) Costs, including the interest expense, of borrowing money;
(e) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Manager, any Portfolio Manager, or any
affiliates of either; and
(f) Extraordinary expenses as may arise, including extraordinary
consulting expenses and extraordinary legal expenses incurred in connection with
litigation, proceedings, other claims (unless the Manager is responsible for
such expenses under Section 10 of this Agreement or a Portfolio Manager is
responsible for such expenses under the Section entitled "Liability" of a
Portfolio Management Agreement), and the legal obligations of the Trust to
indemnify its trustees, officers, employees, shareholders, distributors, and
agents with respect thereto.
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<PAGE>
9. COMPENSATION. For the services provided by the Manager pursuant to
this Agreement, the Trust will pay to the Manager a fee at an annual rate equal
to a percentage of the average daily net assets of each Series as shown on
Schedule B to this Agreement. This fee shall be computed and accrued daily and
payable monthly.
10. LIABILITY OF THE MANAGER. The Manager may rely on information
reasonably believed by it to be accurate and reliable. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Trust will indemnify such persons from and against, any liability for, or
any damages, expenses, or losses incurred in connection with, any act or
omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Manager's duties, or by reason of reckless
disregard of the Manager's obligations and duties under this Agreement. Except
as may otherwise be required by the 1940 Act or the rules thereunder, neither
the Manager nor its stockholders, officers, directors, employees, or agents
shall be subject to, and the Trust will indemnify such persons from and against,
any liability for, or any damages, expenses, or losses incurred in connection
with, any act or omission by a Portfolio Manager or any of the Portfolio
Manager's stockholders or partners, officers, directors, employees, or agents
connected with or arising out of any services rendered under a Portfolio
Management Agreement, except by reason of willful misfeasance, bad faith, or
gross negligence in the performance of the Manager's duties under this
Agreement, or by reason of reckless disregard of the Manager's obligations and
duties under this Agreement.
11. CONTINUATION AND TERMINATION. This Agreement shall become effective
on the date first written above. Unless terminated as provided herein, the
Agreement shall continue in full force and effect for two (2) years from the
effective date of this Agreement, and shall continue from year to year
thereafter with respect to each Series so long as such continuance is
specifically approved at least annually (i) by the vote of a majority of the
Board of Trustees of the Trust, or (ii) by vote of a majority of the outstanding
voting shares of the Trust, and provided continuance is also approved by the
vote of a majority of the Board of Trustees of the Trust who are not parties to
this Agreement or "interested persons" (as defined in the 1940 Act) of the Trust
or the Manager, cast in person at a meeting called for the purpose of voting on
such approval. This Agreement may not be amended in any material respect
without a majority vote of the outstanding voting shares (as defined in the 1940
Act).
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<PAGE>
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a Series shall be effective
to continue this Agreement with respect to such Series notwithstanding (i) that
this Agreement has not been approved by the holders of a majority of the
outstanding shares of any other Series or (ii) that this Agreement has not been
approved by the vote of a majority of the outstanding shares of the Trust,
unless such approval shall be required by any other applicable law or otherwise.
This Agreement may be terminated by the Trust at any time, without the payment
of any penalty, by vote of a majority of the entire Board of Trustees of the
Trust or by a vote of a majority of the outstanding voting shares of the Trust,
or with respect to a Series, by vote of a majority of the outstanding voting
shares of such Series, on sixty (60) days' written notice to the Manager, or by
the Manager at any time, without the payment of any penalty, on sixty (60) days'
written notice to the Trust. This Agreement will automatically and immediately
terminate in the event of its "assignment" (as described in the 1940 Act).
12. USE OF NAME. It is understood that the name or any derivative thereof
or logo associated with the name Directed Services, Inc. is the valuable
property of the Manager, and that the Trust and/or the Series have the right to
use such name (or derivative or logo) only so long as this Agreement shall
continue with respect to such Trust and/or Series. Upon termination of this
Agreement, the Trust (or Series) shall forthwith cease to use such name (or
derivative or logo) and, in the case of the Trust, shall promptly amend its
Agreement and Declaration of Trust to change its name (if such name is included
therein).
13. NOTICE. Notices of any kind to be given to the Manager by the Trust
shall be in writing and shall be duly given if mailed or delivered to the
Manager at 280 Park Avenue, 14th Floor, New York, New York 10017, or at such
other address or to such individual as shall be specified by the Manager to the
Trust. Notices of any kind to be given to the Trust by the Manager shall be in
writing and shall be duly given if mailed or delivered to 280 Park Avenue, 14th
Floor, New York, New York 10017, or at such other address or to such individual
as shall be specified by the Trust to the Manager.
14. TRUST OBLIGATION. A copy of the Trust's Agreement and Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts and
notice is hereby given that the Agreement has been executed on behalf of the
Trust by a Trustee of the Trust in his or her capacity as trustee and not
individually. The obligations of this Agreement shall only be binding upon the
assets and property of the Trust and shall not
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<PAGE>
be binding upon any trustee, officer, or shareholder of the Trust individually.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
16. APPLICABLE LAW.
(a) This Agreement shall be governed by the laws of the State of New
York, provided that nothing herein shall be construed in a manner inconsistent
with the 1940 Act, the Investment Advisers Act of 1940, or any rules or order of
the SEC thereunder.
(b) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
The GCG Trust
_______________________ By:______________________________
Attest
_______________________ ______________________________
Title Title
Directed Services, Inc.
______________________ By:______________________________
Attest
______________________ ______________________________
Title Title
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<PAGE>
SCHEDULE A
The Series of The GCG Trust, as described in the attached Management
Agreement, to which Directed Services, Inc. shall act as Manager are as follows:
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
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<PAGE>
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Directed Services, Inc. (the "Manager") to the
following Series of The GCG Trust (the "Trust"), pursuant to the attached
Management Agreement, the Trust will pay the Manager a fee, payable monthly,
based on the average daily net assets of the Series at the following annual
rates of the average daily net assets of the Series.
Series Rate
------- ----
Multiple Allocation, Fully 1.00% of first $750 million;
Managed, Natural Resources, 0.95% of next $1.250 billion;
Real Estate, All-Growth, 0.90% of next $1.5 billion;
Capital Appreciation, and and
Rising Dividends Series: 0.85% of amount in excess of
$3.5 billion
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million;
and
0.50% of amount in excess of
$500 million
Emerging Markets Series: 1.50% of average daily net
assets
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<PAGE>
EXHIBIT 5(a)(i)(B)
ADDENDUM TO MANAGEMENT AGREEMENT
The Management Agreement (the "Agreement") between The GCG Trust (the
"Trust"), a Massachusetts business trust having its principal place of business
at 280 Park Avenue, New York, New York 10017, and Directed Services, Inc. ("DSI"
or the "Manager"), a New York corporation having its principal place of business
at 280 Park Avenue, New York, New York 10017, dated October 1, 1993, and amended
by an Addendum dated November 7, 1994, is hereby amended by the addition of the
provisions set forth in this Addendum to the Agreement, which is dated as of the
____ day of September, 1995:
WITNESSETH:
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest in separate series, each such series representing interests
in a separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers shares in multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future; and
WHEREAS, the Trust has subsequently established an additional series to be
designated as the Strategic Equity Series; and
WHEREAS, the Trust desires to appoint DSI as Manager for the Strategic
Equity Series, under the provisions set forth in the Agreement and in this
Addendum to the Agreement; and
WHEREAS, the Manager is willing to accept such appointment.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the
Agreement, the Trust hereby appoints DSI to act as Manager with
respect to the Strategic Equity Series which, together with all
other Series previously established and listed on Schedule A to
the Agreement, shall be Series under the Agreement as provided in
paragraph one (1), subject to the terms and conditions as
specified in the Agreement, including paragraph nine (9),
"Compensation."
<PAGE>
2. Schedule A to the Agreement shall be replaced with a new Schedule
A, a form of which is attached hereto.
3. Schedule B to the Agreement ("Compensation for Services to
Series") shall be replaced with a new Schedule B, a form of which
is attached hereto.
This Addendum shall take effect as of the date of its execution.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed on the date indicated.
THE GCG TRUST
By:
- ----------------------------- --------------------------
Attest:
DIRECTED SERVICES, INC.
By:
- ----------------------------- --------------------------
Attest:
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<PAGE>
SCHEDULE A
The Series of The GCG Trust, as described in the attached Management
Agreement, to which Directed Services, Inc. shall act as Manager are as follows:
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
<PAGE>
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Directed Services, Inc. (the "Manager") to the
following Series of The GCG Trust (the "Trust"), pursuant to the attached
Management Agreement, the Trust will pay the Manager a fee, payable monthly,
based on the average daily net assets of the Series at the following annual
rates of the average daily net assets of that Series.
Series Rate
------ ----
Multiple Allocation, Fully 1.00% of first $750 million;
Managed, Natural Resources, 0.95% of next $1.250 billion;
Real Estate, All-Growth, 0.90% of next $1.5 billion;
Capital Appreciation, Rising and 0.85% of amount in excess
Dividends Series, Value Equity of $3.5 billion
and Strategic Equity Series:
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million;
and 0.50% of amount in excess
of $500 million
Emerging Markets Series: 1.50% of average daily net
assets
Market Manager Series: 1.0% of average daily net
assets
<PAGE>
EXHIBIT 5(b)(iii)(A)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 30th day of September, 1992 among The GCG Trust (the
"Trust"), a Massachusetts business trust, Directed Services, Inc. ("Manager"), a
New York corporation, and Zweig Advisors Inc. ("Portfolio Manager"), a Delaware
corporation.
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, management investment company;
WHEREAS, the Trust is authorized to issue separate series, each of which
will offer a separate class of shares of beneficial interest, each series having
its own investment objective or objectives, policies, and limitations;
WHEREAS, the Trust currently offers shares in eight series designated as
the Liquid Asset Series, the Limited Maturity Bond Series, the All-Growth
Series, the Natural Resources Series, the Real Estate Series, the Fully Managed
Series, the Multiple Allocation Series, and the Capital Appreciation Series, and
intends to offer shares in an additional series to be designated as the Zero
Target 2002 Series, and the Trust may offer shares of additional series in the
future;
WHEREAS, the Trust has retained the Manager to render management services
to these series pursuant to a Management Agreement dated as of September 30,
1992, a copy of which has been provided to the Portfolio Manager and is
incorporated by reference herein;
WHEREAS, the Trust and the Manager wish to retain the Portfolio Manager to
furnish investment advisory services to one or more of the series of the Trust,
and the Portfolio Manager is willing to furnish such services to the Trust and
the Manager;
NOW THEREFORE, in consideration of the premises and the promises and mutual
covenants herein contained, it is agreed between the Trust, the Manager, and the
Portfolio Manager as follows:
1. APPOINTMENT. The Trust and the Manager hereby appoint Zweig
Advisors Inc. to act as Portfolio Manager to the Multiple Allocation Series (the
"Series") for the periods and on the terms set forth in this Agreement. The
Portfolio Manager accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
<PAGE>
In the event the Trust designates one or more series other than the
Series with respect to which the Trust and the Manager wish to retain the
Portfolio Manager to render investment advisory services hereunder, they shall
notify the Portfolio Manager in writing. If the Portfolio Manager is willing to
render such services, it shall notify the Trust and Manager in writing,
whereupon such series shall become a Series hereunder, and be subject to this
Agreement.
2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the
Trust's Board of Trustees and the Manager, the Portfolio Manager will provide a
continuous investment program for the Series' portfolio and determine the
composition of the assets of the Series' portfolio, including determination of
the purchase, retention, or sale of the securities, cash, and other investments
contained in the portfolio. The Portfolio Manager will provide investment
research and conduct a continuous program of evaluation, investment, sales, and
reinvestment of the Series' assets by determining the securities and other
investments that shall be purchased, entered into, sold, closed, or exchanged
for the Series, when these transactions should be executed, and what portion of
the assets of the Series should be held in the various securities and other
investments in which it may invest, and the Portfolio Manager is hereby
authorized to execute and perform such services on behalf of the Series. To the
extent permitted by the investment policies of the Series, the Portfolio Manager
shall make decisions for the Series as to foreign currency matters and make
determinations as to and execute and perform foreign currency exchange contracts
on behalf of the Series. The Portfolio Manager will provide the services under
this Agreement in accordance with the Series' investment objective or
objectives, policies, and restrictions as stated in the Trust's Registration
Statement filed with the Securities and Exchange Commission ("SEC"), as amended,
copies of which shall be sent to the Portfolio Manager by the Manager. The
Portfolio Manager further agrees as follows:
(a) The Portfolio Manager will (1) use reasonable efforts to manage
the Series so that it will qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, (2) manage the Series so as to ensure
compliance by the Series with the diversification requirements of Section 817(h)
of the Internal Revenue Code and regulations issued thereunder, and (3) use
reasonable efforts to manage the Series so as to ensure compliance by the Series
with any other rules and regulations pertaining to investment vehicles
underlying variable annuity or variable life insurance policies. The Manager or
the Trust will notify the Portfolio Manager of any pertinent changes,
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modifications to, or interpretations of Section 817(h) of the Internal Revenue
Code and regulations issued thereunder. In managing the Series in accordance
with these requirements, the Portfolio Manager shall be entitled to receive and
act upon advice of counsel to the Trust, counsel to the Manager, or counsel to
the Portfolio Manager that is also acceptable to the Manager.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board of
Trustees of which the Portfolio Manager has been sent a copy, and the provisions
of the Registration Statement of the Trust under the Securities Act of 1933 (the
"1933 Act") and the 1940 Act, as supplemented or amended, of which the Portfolio
Manager has received a copy. The Manager or the Trust will notify the Portfolio
Manager of pertinent provisions of applicable state insurance law with which the
Portfolio Manager must comply under this Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of the Series as well as of other
investment advisory clients of the Portfolio Manager or any of its affiliates,
the Portfolio Manager may, to the extent permitted by applicable laws and
regulations, including but not limited to Section 17(d) of the 1940 Act, but
shall not be obligated to, aggregate the securities to be so sold or purchased
with those of its other clients where such aggregation is not inconsistent with
the policies set forth in the Registration Statement. In such event, allocation
of the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Portfolio Manager in a manner that is fair and
equitable in the judgment of the Portfolio Manager in the exercise of its
fiduciary obligations to the Trust and to such other clients.
(d) In connection with the purchase and sale of securities for the
Series, the Portfolio Manager will arrange for the transmission to the custodian
and recordkeeping agent for the Trust on a daily basis, such confirmation, trade
tickets, and other documents and information, including, but not limited to,
Cusip, Sedol, or other numbers that identify securities to be purchased or sold
on behalf of the Series, as may be reasonably necessary to enable the custodian
and recordkeeping agent to perform its administrative and recordkeeping
responsibilities with respect to the Series. With respect to portfolio
securities to be purchased or sold through the Depository Trust Company, the
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Portfolio Manager will arrange for the automatic transmission of the
confirmation of such trades to the Trust's custodian and recordkeeping agent.
(e) The Portfolio Manager will monitor on a daily basis the
determination by the custodian and recordkeeping agent for the Trust of the
valuation of portfolio securities and other investments of the Series. The
Portfolio Manager will assist the custodian and recordkeeping agent for the
Trust in determining or confirming, consistent with the procedures and policies
stated in the Registration Statement for the Trust, the value of any portfolio
securities or other assets of the Series for which the custodian and
recordkeeping agent seeks assistance from or identifies for review by the
Portfolio Manager.
(f) The Portfolio Manager will make available to the Trust and the
Manager, promptly upon request, all of the Series' investment records and
ledgers maintained by the Portfolio Manager (which shall not include the records
and ledgers maintained by the custodian and recordkeeping agent for the Trust)
as are necessary to assist the Trust and the Manager to comply with requirements
of the 1940 Act and the Investment Advisers Act of 1940 (the "Adviser Act"), as
well as other applicable laws. The Portfolio Manager will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with such services which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
(g) The Portfolio Manager will provide reports to the Trust's Board
of Trustees for consideration at meetings of the Board on the investment program
for the Series and the issuers and securities represented in the Series'
portfolio, and will furnish the Trust's Board of Trustees with respect to the
Series such periodic and special reports as the Trustees and the Manager may
reasonably request.
(h) The Portfolio Manager will not disclose or use any records or
information obtained pursuant to this Agreement (excluding investment research
and investment advice) in any manner whatsoever except as expressly authorized
in this Agreement or in the ordinary course of business in connection with
placing orders for the purchase and sale of securities, and will keep
confidential any information obtained pursuant to this Agreement, and disclose
such information only if the Board of Trustees of the Trust has authorized such
disclosure, or if such disclosure is required by applicable federal or state law
or
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regulations or regulatory authorities having the requisite authority. The Trust
and the Manager will not disclose or use any records or information respecting
the Portfolio Manager obtained pursuant to this Agreement in any manner
whatsoever except as expressly authorized in this Agreement, and will keep
confidential any information obtained pursuant to this Agreement, and disclose
such information only as expressly authorized in this Agreement, if the Board of
Trustees of the Trust has authorized such disclosure, or if such disclosure is
required by applicable federal or state law or regulations or regulatory
authorities having the requisite authority.
(i) In rendering the services required under this Agreement, the
Portfolio Manager may, from time to time, employ or associate with itself such
person or persons as it believes necessary to assist it in carrying out its
obligations under this Agreement. However, the Portfolio Manager may not retain
as subadviser any company that would be an "investment adviser," as that term is
defined in the 1940 Act, to the Series unless the contract with such company is
approved by a majority of the Trust's Board of Trustees and a majority of
Trustees who are not parties to any agreement or contract with such company and
who are not "interested persons," as defined in the 1940 Act, of the Trust, the
Manager, or the Portfolio Manager, or any such company that is retained as
subadviser, and is approved by the vote of a majority of the outstanding voting
securities of the applicable Series of the Trust to the extent required by the
1940 Act. The Portfolio Manager shall be responsible for making reasonable
inquiries and for reasonably ensuring that any employee of the Portfolio
Manager, any subadviser that the Portfolio Manager has employed or with which it
has associated with respect to the Series, or any employee thereof has not, to
the best of the Portfolio Manager's knowledge, in any material connection with
the handling of Trust assets:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, involving
violations of Sections 1341, 1342, or 1343 of Title 18, United States
Code, or involving the purchase or sale of any security; or
(ii) been found by any state regulatory authority, within the last
ten (10) years, to have violated or to have acknowledged violation of
any provision of any state insurance law involving fraud, deceit, or
knowing misrepresentation; or
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(iii) been found by any federal or state regulatory authorities,
within the last ten (10) years, to have violated or to have
acknowledged violation of any provision of federal or state securities
laws involving fraud, deceit, or knowing misrepresentation.
3. BROKER-DEALER SELECTION. The Portfolio Manager is responsible for
decisions to buy and sell securities and other investments for the Series'
portfolio, broker-dealer selection, and negotiation of brokerage commission
rates. The Portfolio Manager's primary consideration in effecting a security
transaction will be to obtain the best execution for the Series, taking into
account the factors specified in the prospectus and statement of additional
information for the Trust, which include price (including the applicable
brokerage commission or dollar spread), the size of the order, the nature of the
market for the security, the timing of the transaction, the reputation, the
experience and financial stability of the broker-dealer involved, the quality of
the service, the difficulty of execution, and the execution capabilities and
operational facilities of the firm involved, and the firm's risk in positioning
a block of securities. Accordingly, the price to the Series in any transaction
may be less favorable than that available from another broker-dealer if the
difference is reasonably justified, in the judgment of the Portfolio Manager in
the exercise of its fiduciary obligations to the Trust, by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Trustees may determine and consistent with Section 28(e) of the Securities
Exchange Act of 1934, the Portfolio Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Series to pay a broker-dealer for
effecting a portfolio investment transaction in excess of the amount of
commission another broker-dealer would have charged for effecting that
transaction, if the Portfolio Manager or its affiliate determines in good faith
that such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Portfolio Manager's or its
affiliate's overall responsibilities with respect to the Series and to their
other clients as to which they exercise investment discretion. To the extent
consistent with these standards, the Portfolio Manager is further authorized to
allocate the orders placed by it on behalf of the Series to the Portfolio
Manager if it is registered as a broker-dealer with the SEC, to its affiliated
broker-dealer, or to such brokers and dealers who also provide research or
statistical material, or other services to the Series, the Portfolio Manager, or
an
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affiliate of the Portfolio Manager. Such allocation shall be in such amounts
and proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Board of Trustees of the Trust indicating the broker-dealers to
which such allocations have been made and the basis therefor.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has
reviewed the initial Registration Statement for the Trust filed with the
Securities and Exchange Commission and represents and warrants that, with
respect to the disclosure about the Portfolio Manager or information relating,
directly or indirectly, to the Portfolio Manager, such Registration Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any statement of a material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
The Portfolio Manager further represents and warrants that it is a duly
registered investment adviser under the Investment Advisers Act of 1940, as
amended ("Advisers Act") and a duly registered investment adviser in all states
in which the Portfolio Manager is required to be registered.
5. EXPENSES. During the term of this Agreement, the Portfolio
Manager will pay all expenses incurred by it and its staff and for their
activities in connection with its portfolio management under this Agreement.
The Trust shall be responsible for all the expenses of its operations including,
but not limited to:
(a) Expenses of all audits by the Trust's independent public
accountants;
(b) Expenses of the Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Trust's custodial services including
recordkeeping services provided by the custodian;
(d) Expenses of maintaining the Trust's tax records;
(e) Salaries and other compensation of any of the trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Portfolio Manager or an affiliate of the Portfolio Manager;
(f) Taxes levied against the Trust;
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(g) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Series;
(h) Costs, including the interest expense, of borrowing money;
(i) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of the
Trust to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's existence, and the regulation of shares with federal
and state securities or insurance authorities;
(j) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(k) Costs of printing stock certificates representing shares of the
Trust;
(l) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate thereof;
(m) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(n) Association membership dues;
(o) Extraordinary expenses of the Trust as may arise including
expenses incurred in connection with litigation, proceedings, and other claims
(unless the Portfolio Manager is responsible for such expenses under Section 15
of this Agreement), and the legal obligations of the Trust to indemnify its
Trustees, officers, employees, shareholders, distributors, and agents with
respect thereto; and
(p) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the Trust will pay the
Portfolio Manager a fee, payable monthly, based on the average daily net assets
of the Series at the annual rate of .60% of the average daily net assets of the
Series.
7. SEED MONEY. The Manager agrees that the Portfolio Manager shall
not be responsible for providing money for the initial capitalization of the
Trust or the Series.
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8. COMPLIANCE.
(a) The Portfolio Manager agrees that it shall immediately notify the
Manager and the Trust (1) in the event that the Securities and Exchange
Commission has censured the Portfolio Manager; placed limitations upon its
activities, functions or operations; suspended or revoked its registration as an
investment adviser; or has commenced proceedings or an investigation that may
result in any of these actions, (2) upon having a reasonable basis for believing
that the Series has ceased to qualify or might not qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, or (3) upon
having a reasonable basis for believing that the Series has ceased to comply
with the diversification provisions of Section 817(h) of the Internal Revenue
Code or the Regulations thereunder. The Portfolio Manager further agrees to
notify the Manager and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the Portfolio
Manager (1) in the event that the Securities and Exchange Commission has
censured the Manager or the Trust; placed limitations upon either of their
activities, functions, or operations; suspended or revoked the Manager's
registration as an investment adviser; or has commenced proceedings or an
investigation that may result in any of these actions, (2) upon having a
reasonable basis for believing that the Series has ceased to qualify or might
not qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, or (3) upon having a reasonable basis for believing that the
Series has ceased to comply with the diversification provisions of Section
817(h) of the Internal Revenue Code or the Regulations thereunder.
9. INSURANCE COMPANY OFFEREES. All parties acknowledge that the
Trust will offer its shares so that it may serve as an investment vehicle for
variable annuity contracts and variable life insurance policies issued by
insurance companies. The Trust and the Manager agree that shares of the Series
may be offered only to the separate accounts and general account of insurance
companies that are approved in writing by the Portfolio Manager. The Portfolio
Manager agrees that shares of this Series may be offered to separate accounts
and the general account of Golden American Life Insurance Company and to
separate accounts
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and the general accounts of any insurance companies that are affiliated with
Golden American Life Insurance Company. The Manager and Trust agree that the
Portfolio Manager shall be under no obligation to investigate insurance
companies to which the Trust offers or proposes to offer its shares.
10. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Portfolio Manager hereby agrees that all records
which it maintains for the Series are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the Trust's
or the Manager's request, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. The Portfolio Manager further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-l under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
11. COOPERATION. Each party to this Agreement agrees to cooperate
with each other party and with all appropriate governmental authorities having
the requisite jurisdiction (including, but not limited to, the Securities and
Exchange Commission and state insurance regulators) in connection with any
investigation or inquiry relating to this Agreement or the Trust.
12. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. The Manager and
the Trust agree that neither the Trust, the Manager, nor affiliated persons of
the Trust or the Manager shall give any information or make any representations
or statements in connection with the sale of shares of the Series concerning the
Portfolio Manager or the Series other than the information or representations
contained in the Registration Statement, prospectus, or statement of additional
information for the Trust shares, as they may be amended or supplemented from
time to time, or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved in writing in advance by the
Portfolio Manager, except with the prior written permission of the Portfolio
Manager. The parties agree that in the event that the Manager or an affiliated
person of the Manager sends sales literature or other promotional material to
the Portfolio Manager for its written approval and the Portfolio Manager has not
commented within 30 days, the Manager and its affiliated persons may use and
distribute such sales literature or other promotional material, although, in
such event, the Portfolio Manager shall not be deemed to have consented to such
use and distribution.
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13. CONTROL. Notwithstanding any other provision of the Agreement,
it is understood and agreed that the Trust shall at all times retain the
ultimate responsibility for and control of all functions performed pursuant to
this Agreement and reserve the right to direct, approve, or disapprove any
action hereunder taken on its behalf by the Portfolio Manager.
14. SERVICES NOT EXCLUSIVE. It is understood that the services of
the Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not their
investment objectives and policies are similar to those of the Series) or from
engaging in other activities.
15. LIABILITY. Except as may otherwise be required by the 1940 Act
or the rules thereunder or other applicable law, the Trust and the Manager agree
that the Portfolio Manager, any affiliated person of the Portfolio Manager, and
each person, if any, who, within the meaning of Section 15 of the 1933 Act
controls the Portfolio Manager shall not be liable for, or subject to any
damages, expenses, or losses in connection with, any act or omission connected
with or arising out of any services rendered under this Agreement, except by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of the Portfolio Manager's duties, or by reason of reckless disregard of the
Portfolio Manager's obligations and duties under this Agreement.
16. INDEMNIFICATION.
(a) The Manager agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person of the Portfolio Manager, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act controls
("controlling person") the Portfolio Manager (all of such persons being referred
to as "Portfolio Manager Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including legal and other expenses)
to which a Portfolio Manager Indemnified Person may become subject under the
1933 Act, the 1940 Act, the Advisers Act, under any other statute, at common law
or otherwise, arising out of the Manager's responsibilities to the Trust which
(1) may be based upon any misfeasance, malfeasance, or nonfeasance by the
Manager, any of its employees or representatives or any affiliate of the
Manager, any portfolio manager of any other series of the Trust, or person
acting on behalf of the Manager or (2) may be based upon any untrue statement or
alleged untrue statement of a material fact supplied
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by, or which is the responsibility of, the Manager and contained in the
Registration Statement or prospectus covering shares of the Trust or any Series,
or any amendment thereof or any supplement thereto, or the omission or alleged
omission to state therein a material fact known or which should have been known
to the Manager and was required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon information furnished to the Manager or the Trust or to any
affiliated person of the Manager by a Portfolio Manager Indemnified Person;
provided however, that in no case shall the indemnity in favor of the Portfolio
Manager Indemnified Person be deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of its reckless disregard of obligations and duties under
this Agreement.
(b) Notwithstanding Section 15 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated person
of the Manager, and each person, if any, who, within the meaning of Section 15
of the 1933 Act, controls ("controlling person") the Manager (all of such
persons being referred to as "Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities, or litigation (including legal and other
expenses) to which a Manager Indemnified Person may become subject under the
1933 Act, 1940 Act, the Advisers Act, under any other statute, at common law or
otherwise, arising out of the Portfolio Manager's responsibilities as Portfolio
Manager of the Series which (1) may be based upon any misfeasance, malfeasance,
or nonfeasance by the Portfolio Manager, any of its employees or
representatives, or any affiliate of or any person acting on behalf of the
Portfolio Manager, or (2) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
prospectus covering the shares of the Trust or any Series, or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact known or which should have been known to the Portfolio Manager and
was required to be stated therein or necessary to make the statements therein
not misleading, if such a statement or omission was made in reliance upon
information furnished to the Manager, the Trust, or any affiliated person of the
Manager or Trust by the Portfolio Manager or any affiliated person of the
Portfolio Manager; provided, however, that in no case shall the indemnity in
favor of a Manager Indemnified Person be deemed to protect such person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross
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negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this
Section 16 with respect to any claim made against a Portfolio Manager
Indemnified Person unless such Portfolio Manager Indemnified Person shall have
notified the Manager in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Portfolio Manager Indemnified Person (or after such
Portfolio Manager Indemnified Person shall have received notice of such service
on any designated agent), but failure to notify the Manager of any such claim
shall not relieve the Manager from any liability which it may have to the
Portfolio Manager Indemnified Person against whom such action is brought
otherwise than on account of this Section 16. In case any such action is
brought against the Portfolio Manager Indemnified Person, the Manager will be
entitled to participate, at its own expense, in the defense thereof or, after
notice to the Portfolio Manager Indemnified Person, to assume the defense
thereof, with counsel satisfactory to the Portfolio Manager Indemnified Person.
If the Manager assumes the defense and the selection of counsel by the Manager
to represent both the Manager and the Portfolio Manager Indemnified Person would
result in a conflict of interests and therefore, would not, in the reasonable
judgment of the Portfolio Manager Indemnified Person, adequately represent the
interests of the Portfolio Manager Indemnified Person, the Manager will, at its
own expense, assume the defense with counsel to the Manager and, also at its own
expense, with separate counsel to the Portfolio Manager Indemnified Person which
counsel shall be satisfactory to the Manager and to the Portfolio Manager
Indemnified Person. The Portfolio Manager Indemnified Person shall bear the
fees and expenses of any additional counsel retained by it, and the Manager
shall not be liable to the Portfolio Manager Indemnified Person under this
Agreement for any legal or other expenses subsequently incurred by the Portfolio
Manager Indemnified Person independently in connection with the defense thereof
other than reasonable costs of investigation. The Manager shall not have the
right to compromise on or settle the litigation without the prior written
consent of the Portfolio Manager Indemnified Person if the compromise or
settlement results, or may result in a finding of wrongdoing on the part of the
Portfolio Manager Indemnified Person.
(d) The Portfolio Manager shall not be liable under Paragraph (b) of
this Section 16 with respect to any claim made against a Manager Indemnified
Person unless such Manager
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Indemnified Person shall have notified the Portfolio Manager in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such Manager
Indemnified Person (or after such Manager Indemnified Person shall have received
notice of such service on any designated agent), but failure to notify the
Portfolio Manager of any such claim shall not relieve the Portfolio Manager from
any liability which it may have to the Manager Indemnified Person against whom
such action is brought otherwise than on account of this Section 16. In case
any such action is brought against the Manager Indemnified Person, the Portfolio
Manager will be entitled to participate, at its own expense, in the defense
thereof or, after notice to the Manager Indemnified Person, to assume the
defense thereof, with counsel satisfactory to the Manager Indemnified Person.
If the Portfolio Manager assumes the defense and the selection of counsel by the
Portfolio Manager to represent both the Portfolio Manager and the Manager
Indemnified Person would result in a conflict of interests and therefore, would
not, in the reasonable judgment of the Manager Indemnified Person, adequately
represent the interests of the Manager Indemnified Person, the Portfolio Manager
will, at its own expense, assume the defense with counsel to the Portfolio
Manager and, also at its own expense, with separate counsel to the Manager
Indemnified Person which counsel shall be satisfactory to the Portfolio Manager
and to the Manager Indemnified Person. The Manager Indemnified Person shall
bear the fees and expenses of any additional counsel retained by it, and the
Portfolio Manager shall not be liable to the Manager Indemnified Person under
this Agreement for any legal or other expenses subsequently incurred by the
Manager Indemnified Person independently in connection with the defense thereof
other than reasonable costs of investigation. The Portfolio Manager shall not
have the right to compromise on or settle the litigation without the prior
written consent of the Manager Indemnified Person if the compromise or
settlement results, or may result in a finding of wrongdoing on the part of the
Manager Indemnified Person.
17. DURATION AND TERMINATION. This Agreement shall become effective
on the date of its execution. Unless terminated as provided herein, the
Agreement shall remain in full force and effect for two (2) years from such date
and continue on an annual basis with respect to each Series unless terminated as
provided in this Section; provided that such annual continuance is specifically
approved each year by (a) the vote of a majority of the entire Board of Trustees
of the Trust, or by the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of each Series, and (b) the vote of a majority of
those
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Trustees who are not parties to this Agreement or interested persons (as such
term is defined in the 1940 Act) of any such party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval. The
Portfolio Manager shall not provide any services for such Series or receive any
fees on account of such Series with respect to which this Agreement is not
approved as described in the preceding sentence. Notwithstanding the foregoing,
this Agreement may be terminated: (a) by the Manager at any time without
penalty, upon sixty (60) days' written notice to the Portfolio Manager and the
Trust, (b) at any time without payment of any penalty by the Trust, upon the
vote of a majority of the Trust's Board of Trustees or a majority of the
outstanding voting securities of each Series, upon sixty (60) days' written
notice to the Manager and the Portfolio Manager, or (c) by the Portfolio Manager
at any time without penalty, upon sixty (60) days' written notice to the Manager
and the Trust. In the event of termination for any reason, all records of each
Series for which the Agreement is terminated shall promptly be returned to the
Manager or the Trust, free from any claim or retention of rights in such record
by the Portfolio Manager, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. The Agreement shall
automatically terminate in the event of its assignment (as such term is defined
in the 1940 Act). In the event this Agreement is terminated or is not approved
in the manner described above, the Sections or Paragraphs numbered 2(f), 2(h),
10, 11, 12, 15, 16, and 19 of this Agreement as well as any applicable provision
of this Paragraph numbered 17 shall remain in effect.
18. AMENDMENTS. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by an affirmative vote of (i) the holders of a majority
of the outstanding voting securities of the Series, and (ii) the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, if such approval is required by
applicable law.
19. USE OF NAME.
(a) It is understood that the name "Directed Services, Inc." or any
derivative thereof or logo associated with that name is the valuable property of
the Manager and its affiliates, and that the Portfolio Manager has the right to
use such name (or
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derivative or logo) only with the approval of the Manager and only so long as
the Manager is Manager to the Trust and/or the Series. Upon termination of the
Management Agreement between the Trust and the Manager, the Portfolio Manager
shall forthwith cease to use such name (or derivative or logo).
(b) It is understood that the word Zweig or any derivative thereof or
logo associated with that word is the property right of Martin E. Zweig, and
that the Trust and/or the Series have the right to use such word (or derivative
or logo) in offering materials of the Trust only with the approval of the
Portfolio Manager and only so long as the Portfolio Manager is a portfolio
manager to the Trust and/or the Series. Upon termination of this Agreement
between the Trust, the Manager, and the Portfolio Manager, the Trust shall
forthwith cease to use such word (or derivative or logo).
20. AGREEMENT AND DECLARATION OF TRUST. A copy of the Agreement and
Declaration of Trust for the Trust is on file with the Secretary of the
Commonwealth of Massachusetts. The Agreement and Declaration of Trust has been
executed on behalf of the Trust by Trustees of the Trust in their capacity as
Trustees of the Trust and not individually. The obligations of this Agreement
shall be binding upon the assets and property of the Trust and shall not be
binding upon any Trustee, officer, or shareholder of the Trust individually.
21. MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of the State of New
York, provided that nothing herein shall be construed in a manner inconsistent
with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder.
The term "affiliate" or "affiliated person" as used in this Agreement shall mean
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) To the extent permitted under Section 17 of this Agreement, this
Agreement may only be assigned by any party with the prior written consent of
the other parties.
(d) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise,
- 16 -
<PAGE>
the remainder of this Agreement shall not be affected thereby, and to this
extent, the provisions of this Agreement shall be deemed to be severable.
(e) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent of the Manager, or constituting the Manager as an agent of
the Portfolio Manager.
- 17 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
The GCG Trust
______________________ By:____________________________
Attest: Title:
Title:
Directed Services, Inc.
______________________ By:____________________________
Attest: Title:
Title:
Zweig Advisors Inc.
______________________ By:____________________________
Attest: Title:
Title:
Martin E. Zweig hereby consents and agrees to the use of the word "Zweig" upon
the terms and conditions set forth in Section 19 of the foregoing Agreement.
_____________________________
Martin E. Zweig
- 18 -
<PAGE>
EXHIBIT 5(b)(iii)(B)
ADDENDUM TO THE PORTFOLIO MANAGEMENT AGREEMENT
The Portfolio Management Agreement (the "Agreement"), which was made
the 30th day of September, 1992, between The GCG Trust (the "Trust"), a
Massachusetts business trust, Directed Services, Inc. (the "Manager"), a New
York corporation, and Zweig Advisors Inc. (the "Portfolio Manager"), a Delaware
corporation, is hereby amended by the addition of the provisions set forth in
this Addendum to the Agreement, which is made this ____ day of _____________,
1993.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate series, each of
which will offer a separate class of shares of beneficial interest, each series
having its own investment objective or objectives, policies, or limitations;
WHEREAS, the Trust currently offers shares in multiple series, may
offer shares of additional series in the future, and intends to offer shares of
additional series in the future;
WHEREAS, the Board of Trustees approved a Management Agreement on July
27, 1993, under which the Manager will provide the Trust with all services
necessary for the ordinary operation of the Trust, including advisory services;
WHEREAS, the Trust and the Manager have retained the Portfolio Manager
to furnish investment advice to one or more of the series of the Trust;
WHEREAS, the Trust, the Manager, and the Portfolio Manager have agreed
to amend the Portfolio Management Agreement; and
WHEREAS, this Addendum is effective as of the date indicated above
provided that it has earlier been approved by shareholders of the Series at a
meeting held for that, among other, purposes, and provided further that the
Management Agreement is effective on or before the date indicated above.
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust, the Manager, and the Portfolio
Manager as follows:
1. Paragraph six (6) ("Compensation") of the Agreement is amended by
revising the following language, which is restated as follows:
<PAGE>
6. COMPENSATION. For the services provided, the
Manager will pay the Portfolio Manager a fee, payable
monthly, based on the average daily net assets of the Series
at the annual rate of 0.60% of the base amount, and 0.50% of
the amount in excess of the base amount, where the base
amount is equal to the net assets of the Series as of
December 31, 1993, increased to the next $25 million
increment.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
THE GCG TRUST
By:
- ------------------------- ---------------------------
Attest
- ------------------------- ---------------------------
Title Title
DIRECTED SERVICES, INC.
By:
- ------------------------- ---------------------------
Attest
- ------------------------- ---------------------------
Title Title
ZWEIG ADVISORS INC.
By:
- ------------------------- ---------------------------
Attest
- ------------------------- ---------------------------
Title Title
2
<PAGE>
EXHIBIT 5 (b)(iii)(C)
ADDENDUM TO THE PORTFOLIO MANAGEMENT AGREEMENT
The Portfolio Management Agreement (the "Agreement"), which was made
the 30th day of September, 1992, between The GCG Trust (the "Trust"), a
Massachusetts business trust, Directed Services, Inc. (the "Manager"), a New
York corporation, and Zweig Advisors Inc. (the "Portfolio Manager"), a Delaware
corporation, and previously amended by the Addendum to the Agreement dated
October 1, 1993, is hereby amended by the addition of the provisions set forth
in this Addendum to the Agreement, which is dated as of April 30, 1995.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate series, each of
which will offer a separate class of shares of beneficial interest, each series
having its own investment objective or objectives, policies or limitations;
WHEREAS, the Trust currently offers shares in multiple series, may
offer shares of additional series in the future, and intends to offer shares of
additional series in the future;
WHEREAS, the Board of Trustees approved a Management Agreement on July
27, 1993, under which the Manager will provide the Trust with all services
necessary for the ordinary operation of the Trust, including advisory services;
WHEREAS, the Trust and the Manager have retained the Portfolio Manager
to furnish investment advice to one or more of the series of the Trust;
WHEREAS, the Trust, the Manager, and the Portfolio Manager have agreed
to amend the Portfolio Management Agreement; and
WHEREAS, this Addendum is effective as of the date indicated above
provided that it has earlier been approved by shareholders of the Series at a
meeting held for that purpose.
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust, the Manager, and the Portfolio
Manager as follows:
1. Paragraph six (6) ("Compensation") of the Agreement is amended by
revising the following language, which is restated as follows:
6. COMPENSATION. For the services provided, the Manager will
pay the Portfolio Manager a fee, payable monthly, based on
the average daily net assets of the Series at the annual
rate
<PAGE>
of 0.50% of the average daily net assets of the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
THE GCG TRUST
_________________________ By:_________________________
Attest
_________________________ _________________________
Title Title
DIRECTED SERVICES, INC.
_________________________ By:_________________________
Attest
_________________________ _________________________
Title Title
ZWEIG ADVISORS INC.
_________________________ By:_________________________
Attest
_________________________ _________________________
Title Title
2
<PAGE>
EXHIBIT 5(b)(iii)(D)
ADDENDUM TO THE PORTFOLIO MANAGEMENT AGREEMENT
The Portfolio Management Agreement (the "Agreement"), which was made
the 30th day of September, 1992, between The GCG Trust (the "Trust"), a
Massachusetts business trust, Directed Services, Inc. (the "Manager"), a New
York corporation, and Zweig Advisors Inc. (the "Portfolio Manager"), a Delaware
corporation, and previously amended by Addenda to the Agreement dated October 1,
1993 and April 30, 1995, is hereby amended by the addition of the provisions set
forth in this Addendum to the Agreement, which is dated as of September ___,
1995.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate series, each of
which will offer a separate class of shares of beneficial interest, each series
having its own investment objective or objectives, policies or limitations;
WHEREAS, the Trust currently offers shares in multiple series, may
offer shares of additional series in the future, and intends to offer shares of
additional series in the future;
WHEREAS, the Board of Trustees approved a Management Agreement on July
27, 1993, under which the Manager will provide the Trust with all services
necessary for the ordinary operation of the Trust, including advisory services;
WHEREAS, the Trust and the Manager have retained the Portfolio Manager
to furnish investment advice to one of the series of the Trust;
WHEREAS, the Trust has established an additional series to be
designated as the Strategic Equity Series;
WHEREAS, the Trust desires to appoint Zweig Advisors Inc. as Portfolio
Manager for the Strategic Equity Series, under the provisions set forth in the
Agreement and in this Addendum to the Agreement;
WHEREAS, the Portfolio Manager is willing to accept such appointment;
and
WHEREAS, the Trust, the Manager, and the Portfolio Manager have agreed
to amend the Portfolio Management Agreement.
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust, the Manager, and the Portfolio
Manager as follows:
1. In addition to its responsibilities as specified in the
Agreement, the Trust hereby appoints Zweig Advisors Inc. to act
as Portfolio Manager with
<PAGE>
respect to the Strategic Equity Series which, together with the
Multiple Allocation Series, shall be Series under the Agreement
as provided in paragraph one (1), subject to the terms and
conditions as specified in the Agreement, including paragraph six
(6), "Compensation."
2. Paragraph six (6) ("Compensation") of the Agreement is amended by
revising the following language, which is restated as follows:
6. COMPENSATION. For the services provided, the Manager will
pay the Portfolio Manager a fee, payable monthly, based on
the average daily net assets of the Multiple Allocation
Series and Strategic Equity Series at the annual rate of
0.50% of the average daily net assets of the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
THE GCG TRUST
_________________________ By:_________________________
Attest
_________________________ _________________________
Title Title
DIRECTED SERVICES, INC.
_________________________ By:_________________________
Attest
_________________________ _________________________
Title Title
ZWEIG ADVISORS INC.
_________________________ By:_________________________
Attest
_________________________ _________________________
Title Title
2
<PAGE>
EXHIBIT 6(iv)
ADDENDUM TO DISTRIBUTION AGREEMENT
The Distribution Agreement, made the 30th day of September, 1992
between The GCG Trust (the "Trust"), a Massachusetts business trust having its
principal place of business at 280 Park Avenue, New York, New York 10017, and
Directed Services, Inc. ("DSI" or the "Distributor"), a New York corporation
having its principal place of business at 280 Park Avenue, New York, New York
10017 (the "Agreement"), is hereby amended by the addition of the provisions set
forth in this Addendum to the Agreement, which is dated as of the ___ day of
September, 1995.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate series, each of
which will offer a separate class of shares of beneficial interest, each series
having its own investment objective or objectives, policies, or limitations;
WHEREAS, the Trust currently offers shares in multiple series, may
offer shares of additional series in the future, and intends to offer shares of
additional series in the future;
WHEREAS, the Trust has established a new series designated as the
Strategic Equity Series; and
WHEREAS, the Trust desires to appoint DSI as Distributor for the
Strategic Equity Series on the terms set forth in the Agreement and herein and
the distributor is willing to accept such appointment.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
In addition to its responsibilities as specified in the Agreement, the
Trust hereby constitutes and appoints DSI as Distributor with respect
to the Strategic Equity Series which, together with all other Series
previously established by the Trust, shall be Series under the
Agreement, subject to the terms and conditions as specified in the
Agreement and this Addendum.
This Addendum shall take effect with respect to the Strategic Equity
Series as of the day the Series begins operations.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date indicated above.
THE GCG TRUST
By:
- ------------------------- -------------------------
Attest: Title:
Title:
DIRECTED SERVICES, INC.
By:
- ------------------------- -------------------------
Attest: Title:
Title:
- 2 -
<PAGE>
EXHIBIT 8(a)(iv)
ADDENDUM TO CUSTODIAN AGREEMENT
The Custodian Agreement ("Agreement") between The GCG Trust (the
"Trust"), a Massachusetts business trust having its principal place of business
at 280 Park Avenue, New York, New York 10017, and Bankers Trust Company (the
"Custodian"), a New York banking corporation having its principal place of
business at 280 Park Avenue, New York, New York 10017, dated March 2, 1992, and
amended by Addenda among the Trust, Directed Services, Inc., and the Custodian
dated October 1, 1993 and November 7, 1994, is hereby amended by the addition of
the provisions set forth in this Addendum to the Agreement, entered into by the
Trust, Directed Services, Inc., and Bankers Trust Company, which is made this
___ day of September, 1995.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate Series, each of
which will offer a separate class of shares of beneficial interest, each Series
having its own investment objective or objectives, policies, or limitations; and
WHEREAS, the Trust currently offers shares in multiple Series, may
offer shares of additional Series in the future, and intends to offer shares of
additional Series in the future; and
WHEREAS, pursuant to a Management Agreement, effective as of October
1, 1993, the Trust has retained Directed Services, Inc. (the "Manager") to
render advisory, management, administrative, and other services necessary for
the ordinary operation of many of the Trust's Series; and
WHEREAS, the Trust has appointed Bankers Trust Company to serve as
Custodian for one or more Series of the Trust under the terms and conditions set
forth in the Custodian Agreement dated March 2, 1992; and
WHEREAS, the Trust, the Manager, and the Custodian have agreed to
amend the Custodian Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
In addition to its responsibilities as specified in the
Agreement, the Trust hereby constitutes and appoints Bankers Trust
Company as Custodian with respect to the Strategic Equity Series,
which, together with all other Series previously established by the
Trust, shall be Series under the Agreement as provided in Paragraph 1
of the Agreement and Appendix A thereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date indicated above.
THE GCG TRUST
___________________________ By:__________________________
Attest
___________________________ __________________________
Title Title
DIRECTED SERVICES, INC.
___________________________ By:__________________________
Attest
___________________________ __________________________
Title Title
BANKERS TRUST COMPANY
___________________________ By:__________________________
Attest
___________________________ __________________________
Title Title
<PAGE>
EXHIBIT 9(b)(vi)
ADDENDUM TO ORGANIZATIONAL AGREEMENT
The Organizational Agreement, made the 28th day of December, 1988
among The GCG Trust (the "Trust"), Directed Services, Inc. ("DSI"), and Golden
American Life Insurance Company ("Golden American") (the "Organizational
Agreement"), as amended by the Assignment Agreement to the Organizational
Agreement dated March 20, 1991 and Addenda to the Organizational Agreement dated
October 1, 1993 and November 7, 1994, is hereby amended by the addition of the
provisions set forth in this Addendum to the Organizational Agreement, which is
dated as of the ___ day of September, 1995.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate series, each of
which will offer a separate class of shares of beneficial interest, each series
having its own investment objective or objectives, policies, or limitations;
WHEREAS, the Trust currently offers shares in multiple series, may
offer shares of additional series in the future, and intends to offer shares of
additional series in the future;
WHEREAS, the Trust has established a new series designated as the
Strategic Equity Series; and
WHEREAS, the Trust and Golden American desire that the Strategic
Equity Series be sold to the separate accounts of Golden American to fund
benefits under variable life insurance policies and variable annuity contracts
issued by Golden American.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. The Strategic Equity Series, together with all other Series
listed on Exhibit B to the Organizational Agreement, shall be series
under the Organizational Agreement.
2. Exhibit B to the Organizational Agreement shall be replaced with
a new Exhibit B, a copy of which is attached hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date indicated above.
THE GCG TRUST
By:
- ------------------------------ --------------------------
Attest: Title:
Title:
DIRECTED SERVICES, INC.
By:
- ------------------------------ --------------------------
Attest: Title:
Title:
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By:
- ------------------------------ --------------------------
Attest: Title:
Title:
- 2 -
<PAGE>
EXHIBIT B
The Series of The GCG Trust, as described in the attached Organizational
Agreement, are as follows:
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
The Fund For Life
Emerging Markets Series
Rising Dividends Series
Market Manager Series
Value Equity Series
Strategic Equity Series
<PAGE>
[LETTERHEAD-COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Post-Effective Amendment to
the Registration Statement on Form N-1A of our report dated February 1, 1993 on
our audits of the financial highlights of The GCG Trust.
We also consent to the reference to our Firm in the Prospectus under the caption
"Financial Highlights".
COOPERS & LYBRAND L.L.P.
New York, New York
September 25, 1995
<PAGE>
EXHIBIT (11)(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights," "Independent Auditors" and "Financial Statements" and to the
incorporation by reference of our reports dated February 10, 1995 on the
financial statements of the Series comprising The GCG Trust included in this
Registration Statement (Form N-1A No. 33-23512) of The GCG Trust.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
New York, New York
September 25, 1995
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Trustees
THE GCG TRUST
We have audited the accompanying statements of assets and liabilities,
including the statements of investments, of the Liquid Asset Series, Limited
Maturity Bond Series, Natural Resources Series, All-Growth Series, Real Estate
Series, Fully Managed Series, Multiple Allocation Series, Capital Appreciation
Series, Rising Dividends Series, Emerging Markets Series and Market Manager
Series (eleven of the Series comprising The GCG Trust) as of December 31, 1994,
and the related statements of operations for the year then ended, and the
statements of changes in net assets and financial highlights for each of the two
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the three years in the
period ended December 31, 1992 were audited by other auditors whose report dated
February 1, 1993, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification by examination of securities
held by the custodian as of December 31, 1994 and confirmation of securities not
held by the custodian by correspondence with others. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of each of the respective Series constituting The GCG Trust
at December 31, 1994, and the results of their operations for the year then
ended, and the changes in their net assets and the financial highlights for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 10, 1995
1
<PAGE>
THE GCG TRUST
STATEMENTS OF ASSETS & LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
NATURAL
LIQUID ASSET LIMITED MATURITY RESOURCES ALL-GROWTH REAL ESTATE FULLY MANAGED
SERIES BOND SERIES SERIES SERIES SERIES SERIES
------------- ---------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At identified cost... $46,579,582 $73,185,589 $29,919,507 $72,519,359 $36,825,239 $105,001,335
------------- ---------------- ------------- ------------- ------------- ----------------
------------- ---------------- ------------- ------------- ------------- ----------------
At value............. $46,579,582 $71,588,040(a) $32,318,724 $71,061,483 $37,020,824 $ 99,298,231
Cash................... 0 17,845 21,043 31,387 54,979 0
Receivables:
Interest and
dividends........... 46,189 512,884 51,104 16,158 284,332 712,150
Investments sold..... 0 0 865,971 0 34,160 0
Shares of beneficial
interest sold....... 0 95,756 160,273 211,291 0 0
------------- ---------------- ------------- ------------- ------------- ----------------
Total Assets....... 46,625,771 72,214,525 33,417,115 71,320,319 37,394,295 100,010,381
------------- ---------------- ------------- ------------- ------------- ----------------
LIABILITIES
Payables:
To custodian......... 190,194 0 0 0 0 67,408
Investments
purchased........... 0 0 537,610 100,160 33,926 0
Shares of beneficial
interest redeemed... 312,841 381 93 610 23,163 86,089
Accrued expenses....... 763 1,185 891 1,946 1,011 2,737
------------- ---------------- ------------- ------------- ------------- ----------------
Total Liabilities.. 503,798 1,566 538,594 102,716 58,100 156,234
------------- ---------------- ------------- ------------- ------------- ----------------
NET ASSETS............... $46,121,973 $72,212,959 $32,878,521 $71,217,603 $37,336,195 $ 99,854,147
------------- ---------------- ------------- ------------- ------------- ----------------
------------- ---------------- ------------- ------------- ------------- ----------------
NET ASSETS CONSIST OF:
Paid-in capital........ $46,122,211 $76,087,099 $30,501,988 $74,096,461 $37,371,578 $106,358,423
Accumulated net
realized loss on
investment and foreign
currency
transactions.......... (238) (2,276,591) 0 (1,420,982) (230,968) (801,172)
Temporary
overdistribution of
realized gains........ 0 0 (22,684) 0 0 0
Net unrealized
appreciation
(depreciation) of
investment and foreign
currency
transactions.......... 0 (1,597,549) 2,399,217 (1,457,876) 195,585 (5,703,104)
------------- ---------------- ------------- ------------- ------------- ----------------
Net Assets, at value..... $46,121,973 $72,212,959 $32,878,521 $71,217,603 $37,336,195 $ 99,854,147
------------- ---------------- ------------- ------------- ------------- ----------------
------------- ---------------- ------------- ------------- ------------- ----------------
Shares of beneficial
interest outstanding.... 46,122,242 7,235,836 2,369,573 6,006,022 3,306,077 8,535,516
------------- ---------------- ------------- ------------- ------------- ----------------
------------- ---------------- ------------- ------------- ------------- ----------------
Net Asset Value,
Redemption Price and
Offering Price Per
Share................... $ 1.00 $ 9.98 $ 13.88 $ 11.86 $ 11.29 $ 11.70
------------- ---------------- ------------- ------------- ------------- ----------------
------------- ---------------- ------------- ------------- ------------- ----------------
</TABLE>
- --------------------------
(a) Includes repurchase agreements amounting to $13,733,833.
See notes to financial statements.
2
<PAGE>
THE GCG TRUST
STATEMENTS OF ASSETS & LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MULTIPLE CAPITAL RISING EMERGING
ALLOCATION APPRECIATION DIVIDENDS MARKETS MARKET MANAGER
SERIES SERIES SERIES SERIES SERIES TRUST TOTAL
-------------- -------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At identified cost..... $299,194,869 $88,445,877 $50,514,573 $70,372,767 $2,518,832 $875,077,529
-------------- -------------- ------------- ------------- -------------- --------------
-------------- -------------- ------------- ------------- -------------- --------------
At value............... $296,853,554 $89,795,918 $50,519,476 $60,925,429 $2,518,832 $858,480,093
Cash..................... 73,323 0 44,306 2,749,398 179,414 3,171,695
Receivables:
Interest and
dividends............. 2,696,753 125,199 132,059 93,885 0 4,670,713
Investments sold....... 0 0 0 511,244 0 1,411,375
Shares of beneficial
interest sold......... 0 46,198 17,950 1,248,104 56,000 1,835,572
-------------- -------------- ------------- ------------- -------------- --------------
Total Assets......... 299,623,630 89,967,315 50,713,791 65,528,060 2,754,246 869,569,448
-------------- -------------- ------------- ------------- -------------- --------------
LIABILITIES
Payables:
To custodian........... 0 1,074,867 0 0 0 1,332,469
Investments
purchased............. 0 0 0 49,766 0 721,462
Shares of beneficial
interest redeemed..... 223,346 366 240 245,457 0 892,586
Accrued expenses......... 8,227 2,434 1,392 8,925 0 29,511
-------------- -------------- ------------- ------------- -------------- --------------
Total Liabilities.... 231,573 1,077,667 1,632 304,148 0 2,976,028
-------------- -------------- ------------- ------------- -------------- --------------
NET ASSETS................. $299,392,057 $88,889,648 $50,712,159 $65,223,912 $2,754,246 $866,593,420
-------------- -------------- ------------- ------------- -------------- --------------
-------------- -------------- ------------- ------------- -------------- --------------
NET ASSETS CONSIST OF:
Paid-in Capital.......... $309,263,142 $87,879,567 $51,271,121 $74,681,978 $2,754,246 $896,387,814
Accumulated net realized
loss on investment and
foreign currency
transactions............ (7,510,970) (339,960) (563,865) 0 0 (13,144,746)
Temporary over-
distribution of realized
gains................... (18,800) 0 0 (10,728) 0 (52,212)
Net unrealized
appreciation
(depreciation) of
investment and foreign
currency transactions... (2,341,315) 1,350,041 4,903 (9,447,338) 0 (16,597,436)
-------------- -------------- ------------- ------------- -------------- --------------
Net Assets, at value....... $299,392,057 $88,889,648 $50,712,159 $65,223,912 $2,754,246 $866,593,420
-------------- -------------- ------------- ------------- -------------- --------------
-------------- -------------- ------------- ------------- -------------- --------------
Shares of beneficial
interest outstanding...... 26,414,658 7,837,978 4,962,344 6,472,923 274,824
-------------- -------------- ------------- ------------- --------------
-------------- -------------- ------------- ------------- --------------
Net Asset Value, Redemption
Price and Offering Price
Per Share................. $ 11.33 $ 11.34 $ 10.22 $ 10.08 $ 10.02
-------------- -------------- ------------- ------------- --------------
-------------- -------------- ------------- ------------- --------------
</TABLE>
See notes to financial statements.
3
<PAGE>
THE GCG TRUST
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
LIQUID LIMITED NATURAL REAL FULLY
ASSET MATURITY RESOURCES ALL-GROWTH ESTATE MANAGED
SERIES BOND SERIES SERIES SERIES SERIES SERIES
---------- ----------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (a)............................ $ 0 $ 0 $ 428,366 $ 435,311 $2,088,535 $ 1,810,840
Interest................................. 1,700,908 3,981,400 153,807 865,539 148,328 2,155,077
---------- ----------- ----------- ------------ ---------- ------------
Total Investment Income............ 1,700,908 3,981,400 582,173 1,300,850 2,236,863 3,965,917
---------- ----------- ----------- ------------ ---------- ------------
EXPENSES:
Unified fees............................. 226,289 447,478 292,787 624,518 354,228 1,093,894
Trustees' fees........................... 1,101 3,047 1,122 2,562 1,327 4,604
Transfer tax on foreign securities....... 0 0 0 0 0 0
Other expenses........................... 981 127 305 0 121 318
---------- ----------- ----------- ------------ ---------- ------------
Total Expenses..................... 228,371 450,652 294,214 627,080 355,676 1,098,816
---------- ----------- ----------- ------------ ---------- ------------
NET INVESTMENT INCOME 1,472,537 3,530,748 287,959 673,770 1,881,187 2,867,101
---------- ----------- ----------- ------------ ---------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT, OPTION AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss)................. (15) (2,276,591) 832,038 786,644 (145,061) (801,172)
Net unrealized appreciation
(depreciation).......................... 0 (2,144,080) (758,326) (8,600,804) 59,234 (10,742,758)
---------- ----------- ----------- ------------ ---------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENT, OPTION AND FOREIGN
CURRENCY TRANSACTIONS..................... (15) (4,420,671) 73,712 (7,814,160) (85,827) (11,543,930)
---------- ----------- ----------- ------------ ---------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. $1,472,522 $ (889,923) $ 361,671 $(7,140,390) $1,795,360 $ (8,676,829)
---------- ----------- ----------- ------------ ---------- ------------
---------- ----------- ----------- ------------ ---------- ------------
</TABLE>
See notes to financial statements.
4
<PAGE>
THE GCG TRUST
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
MULTIPLE CAPITAL RISING MARKET
ALLOCATION APPRECIATION DIVIDENDS EMERGING MANAGER
SERIES SERIES SERIES MARKETS SERIES SERIES(D) TOTAL TRUST
------------ -------------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (a)...................... $ 682,891 $ 2,170,002 $ 969,437 $ 920,563 $ 0 $ 9,505,945
Interest........................... 13,050,316 533,365 88,731 122,711 6,199 22,806,381
------------ -------------- ----------- --------------- ------------ ------------
Total Income................. 13,733,207 2,703,367 1,058,168 1,043,274 6,199 32,312,326
------------ -------------- ----------- --------------- ------------ ------------
EXPENSES:
Unified fees....................... 3,008,912 912,861 367,866 892,888 1,235 8,222,956
Trustees' fees..................... 12,023 3,748 1,174 2,151 0 32,859
Transfer tax on foreign
securities........................ 0 0 0 122,362 0 122,362
Other expenses..................... 251 9 0 9,892 (1,235)(e) 10,769
------------ -------------- ----------- --------------- ------------ ------------
Total Expenses............... 3,021,186 916,618 369,040 1,027,293 0 8,388,946
------------ -------------- ----------- --------------- ------------ ------------
NET INVESTMENT INCOME 10,712,021 1,786,749 689,128 15,981 6,199 23,923,380
------------ -------------- ----------- --------------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT, OPTION AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss)........... (7,454,742) (339,960) (555,934) 2,848,007(b) 316 (7,106,470)
Net unrealized appreciation
(depreciation).................... (6,671,966) (2,939,449) (229,418) (13,548,574)(c) 0 (45,576,141)
------------ -------------- ----------- --------------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) FROM INVESTMENT, OPTION AND
FOREIGN CURRENCY TRANSACTIONS....... (14,126,708) (3,279,409) (785,352) (10,700,567) 316 (52,682,611)
------------ -------------- ----------- --------------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........... $ (3,414,687) $(1,492,660) $ (96,224) $(10,684,586) $ 6,515 $(28,759,231)
------------ -------------- ----------- --------------- ------------ ------------
------------ -------------- ----------- --------------- ------------ ------------
</TABLE>
- ------------------------
(a) Net of foreign taxes witheld in the amount of $46,305 for the Natural
Resources Series, $10,462 for the All-Growth Series, $2,056 for the Fully
Managed Series, $3,969 for the Multiple Allocation Series, $9,967 for the
Rising Dividends Series and $52,943 for the Emerging Markets Series.
(b) Includes net realized loss from foreign currency transactions of $25,156 and
realized loss from options of $204,348.
(c) Includes net unrealized appreciation on translation of assets and
liabilities denominated in foreign currencies of $8,696.
(d) Commencement of operations, November 14, 1994.
(e) During the period November 14, 1994 through December 31, 1994, all fund
operating expenses have been waived.
See notes to financial statements.
5
<PAGE>
THE GCG TRUST
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
LIQUID ASSET SERIES LIMITED MATURITY BOND SERIES
-------------------------------- --------------------------------
1994 1993 1994 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income........................... $ 1,472,537 $ 401,623 $ 3,530,748 $ 2,626,470
Net realized gain (loss) from investment
transactions................................... (15) (223) (2,276,591) 247,665
Net unrealized appreciation (depreciation) of
investments.................................... 0 0 (2,144,080) 291,425
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from operations.................... 1,472,522 401,400 (889,923) 3,165,560
--------------- --------------- --------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income........................... 1,472,537 401,623 3,530,748 2,626,470
Net realized gain on investments................ 0 790 0 291,229(a)
--------------- --------------- --------------- ---------------
Total dividends to shareholders............... 1,472,537 402,413 3,530,748 2,917,699
--------------- --------------- --------------- ---------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares.................... 71,733,903 25,684,478 25,604,857 39,816,791
Dividends reinvested............................ 1,472,537 402,413 3,530,748 2,917,699
Cost of shares redeemed......................... (43,892,926) (22,483,768) (24,721,278) (10,976,209)
--------------- --------------- --------------- ---------------
Increase in net assets derived from beneficial
interest transactions........................ 29,313,514 3,603,123 4,414,327 31,758,281
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets........... 29,313,499 3,602,110 (6,344) 32,006,142
NET ASSETS:
Beginning of year............................... 16,808,474 13,206,364 72,219,303 40,213,161
--------------- --------------- --------------- ---------------
End of year..................................... $ 46,121,973 $ 16,808,474 $ 72,212,959 $ 72,219,303
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Shares sold....................................... 71,733,903 25,684,478 2,433,160 3,672,523
Shares issued from reinvestment of dividends...... 1,472,537 402,413 353,782 274,803
Shares redeemed................................... (43,892,926) (22,483,736) (2,350,325) (1,003,192)
--------------- --------------- --------------- ---------------
NET INCREASE IN SHARES OUTSTANDING................ 29,313,514 3,603,155 436,617 2,944,134
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See notes to financial statements.
6
<PAGE>
THE GCG TRUST
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
NATURAL RESOURCES SERIES ALL-GROWTH SERIES
------------------------------ ------------------------------
1994 1993 1994 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income......................... $ 287,959 $ 104,321 $ 673,770 $ 203,916
Net realized gain (loss) from investment
transactions................................. 832,038 (136,553) 786,644 (1,301,678)
Net unrealized appreciation (depreciation) of
investments.................................. (758,326) 3,875,337 (8,600,804) 4,435,620
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations.................. 361,671 3,843,105 (7,140,390) 3,337,858
-------------- -------------- -------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income......................... 287,959 104,321 673,770 203,916
Net realized gain on investments.............. 542,470(f) 0 0 0
-------------- -------------- -------------- --------------
Total dividends to shareholders............. 830,429 104,321 673,770 203,916
-------------- -------------- -------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares.................. 18,811,892 18,559,526 27,968,122 34,597,884
Dividends reinvested.......................... 830,429 104,321 673,770 203,916
Cost of shares redeemed....................... (7,812,512) (3,800,936) (6,100,789) (5,647,278)
-------------- -------------- -------------- --------------
Increase in net assets derived from
beneficial interest transactions........... 11,829,809 14,862,911 22,541,103 29,154,522
-------------- -------------- -------------- --------------
Net increase in net assets.................... 11,361,051 18,601,695 14,726,943 32,288,464
NET ASSETS:
Beginning of year............................. 21,517,470 2,915,775 56,490,660 24,202,196
-------------- -------------- -------------- --------------
End of year................................... $32,878,521 $21,517,470 $71,217,603 $56,490,660
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Shares sold..................................... 1,310,350 1,545,889 2,224,232 2,724,434
Shares issued from reinvestment of dividends.... 59,829 7,511 56,810 15,195
Shares redeemed................................. (550,248) (316,797) (484,915) (445,087)
-------------- -------------- -------------- --------------
NET INCREASE IN SHARES OUTSTANDING.............. 819,931 1,236,603 1,796,127 2,294,542
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See notes to financial statements.
7
<PAGE>
THE GCG TRUST
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
REAL ESTATE SERIES FULLY MANAGED SERIES
---------------------------- ---------------------------------
1994 1993 1994 1993
------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income...................... $ 1,881,187 $ 816,703 $ 2,867,101 $ 1,571,089
Net realized gain (loss) from investment
transactions.............................. (145,061) 83,835 (801,172) 1,688,632
Net unrealized appreciation (depreciation)
of investments............................ 59,234 (111,595) (10,742,758) 2,079,059
------------- ------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from operations............... 1,795,360 788,943 (8,676,829) 5,338,780
------------- ------------- --------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income...................... 1,881,187 816,703 2,867,101 1,571,089
Net realized gain on investments........... 0 0 0 1,553,749
------------- ------------- --------------- ---------------
Total dividends to shareholders.......... 1,881,187 816,703 2,867,101 3,124,838
------------- ------------- --------------- ---------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares............... 16,025,952 27,174,140 15,227,201 68,255,592
Dividends reinvested....................... 1,881,187 816,703 2,867,101 3,124,838
Cost of shares redeemed.................... (9,484,770) (2,702,301) (15,386,375) (2,600,505)
------------- ------------- --------------- ---------------
Increase in net assets derived from
beneficial interest transactions........ 8,422,369 25,288,542 2,707,927 68,779,925
------------- ------------- --------------- ---------------
Net increase (decrease) in net assets...... 8,336,542 25,260,782 (8,836,003) 70,993,867
NET ASSETS:
Beginning of year.......................... 28,999,653 3,738,871 108,690,150 37,696,283
------------- ------------- --------------- ---------------
End of year................................ $37,336,195 $28,999,653 $ 99,854,147 $108,690,150
------------- ------------- --------------- ---------------
------------- ------------- --------------- ---------------
Shares sold.................................. 1,366,184 2,376,635 1,189,610 5,294,503
Shares issued from reinvestment of
dividends................................... 166,624 73,050 245,051 240,557
Shares redeemed.............................. (821,566) (236,060) (1,267,393) (198,485)
------------- ------------- --------------- ---------------
NET INCREASE IN SHARES OUTSTANDING........... 711,242 2,213,625 167,268 5,336,575
------------- ------------- --------------- ---------------
------------- ------------- --------------- ---------------
</TABLE>
See notes to financial statements.
8
<PAGE>
THE GCG TRUST
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
MULTIPLE ALLOCATION SERIES CAPITAL APPRECIATION SERIES
---------------------------------- ------------------------------
1994 1993 1994 1993
--------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income...................... $ 10,712,021 $ 5,199,496 $ 1,786,749 $ 937,052
Net realized gain (loss) from investment
transactions.............................. (7,454,742) 11,791,123 (339,960) 188,432
Net unrealized appreciation (depreciation)
of investments............................ (6,671,966) 947,605 (2,939,449) 3,202,992
--------------- ----------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations............... (3,414,687) 17,938,224 (1,492,660) 4,328,476
--------------- ----------------- -------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income...................... 10,712,021 5,199,496 1,786,749 937,052
Net realized gain on investments........... 0 11,817,970(b) 0 188,432
--------------- ----------------- -------------- -------------
Total dividends to shareholders.......... 10,712,021 17,017,466 1,786,749 1,125,484
--------------- ----------------- -------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares............... 57,590,822 142,669,679 14,603,866 66,541,963
Dividends reinvested....................... 10,712,021 17,017,465 1,786,749 1,125,484
Cost of shares redeemed.................... (29,015,118) (2,416,469) (11,440,158) (2,297,172)
--------------- ----------------- -------------- -------------
Increase in net assets derived from
beneficial interest transactions........ 39,287,725 157,270,675 4,950,457 65,370,275
--------------- ----------------- -------------- -------------
Net increase in net assets................. 25,161,017 158,191,433 1,671,048 68,573,267
NET ASSETS:
Beginning of year.......................... 274,231,040 116,039,607 87,218,600 18,645,333
--------------- ----------------- -------------- -------------
End of year................................ $299,392,057 $274,231,040 $ 88,889,648 $87,218,600
--------------- ----------------- -------------- -------------
--------------- ----------------- -------------- -------------
Shares sold................................ 4,887,450 11,670,870 1,245,015 5,827,015
Shares issued from reinvestment of
dividends................................. 945,456 1,431,242 157,562 95,704
Shares redeemed............................ (2,484,836) (201,628) (983,898) (198,503)
--------------- ----------------- -------------- -------------
NET INCREASE IN SHARES OUTSTANDING........... 3,348,070 12,900,484 418,679 5,724,216
--------------- ----------------- --------------- -------------
--------------- ----------------- --------------- -------------
</TABLE>
See notes to financial statements.
9
<PAGE>
THE GCG TRUST
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
RISING DIVIDENDS SERIES EMERGING MARKETS SERIES
------------------------------ -------------------------------
1994 1993(c) 1994 1993(c)
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income (loss)................. $ 689,128 $ 19,337 $ 15,981 $ (653)
Net realized gain (loss) from investment
transactions................................ (555,934) (7,931) 2,848,007 (4,759)
Net unrealized appreciation (depreciation) of
investments................................. (229,418) 234,321 (13,548,574) 4,101,236
-------------- -------------- --------------- --------------
Net increase (decrease) in net assets
resulting from operations................. (96,224) 245,727 (10,684,586) 4,095,824
-------------- -------------- --------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income........................ 689,128 19,337 15,981 0
Net realized gain on investments............. 0 0 2,858,735(e) 0
-------------- -------------- --------------- --------------
Total dividends to shareholders............ 689,128 19,337 2,874,716 0
-------------- -------------- --------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares................. 39,214,457 14,183,832 52,607,595 27,099,555
Dividends reinvested......................... 689,128 19,337 2,874,716 0
Cost of shares redeemed...................... (2,835,595) (38) (7,879,876) (14,600)
-------------- -------------- --------------- --------------
Increase in net assets derived from
beneficial interest transactions.......... 37,067,990 14,203,131 47,602,435 27,084,955
-------------- -------------- --------------- --------------
Net increase in net assets................... 36,282,638 14,429,521 34,043,133 31,180,779
NET ASSETS:
Beginning of year............................ 14,429,521 0 31,180,779 0
-------------- -------------- --------------- --------------
End of year.................................. $50,712,159 $14,429,521 $65,223,912 $31,180,779
-------------- -------------- --------------- --------------
-------------- -------------- --------------- --------------
Shares sold.................................. 3,769,154 1,398,552 4,372,122 2,507,094
Shares issued from reinvestment of
dividends................................... 67,429 1,877 285,190 0
Shares redeemed.............................. (274,665) (3) (690,089) (1,394)
-------------- -------------- --------------- --------------
NET INCREASE IN SHARES OUTSTANDING............. 3,561,918 1,400,426 3,967,223 2,505,700
-------------- -------------- --------------- --------------
-------------- -------------- --------------- --------------
</TABLE>
See notes to financial statements.
10
<PAGE>
THE GCG TRUST
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
MARKET MANAGER
SERIES TOTAL TRUST
-------------- ---------------------------------
1994(d) 1994 1993
-------------- ---------------- --------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income....................................... $ 6,199 $ 23,923,380 $ 11,879,354
Net realized gain (loss) from investment transactions....... 316 (7,106,470) 12,548,543
Net unrealized appreciation (depreciation) of investments... 0 (45,576,141) 19,056,000
-------------- -------------- -------------
Net increase (decrease) in net assets resulting from
operations............................................... 6,515 (28,759,231) 43,483,897
-------------- -------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income....................................... 6,199 23,923,380 11,880,007
Net realized gain on investments............................ 316 3,401,521 13,852,170
-------------- -------------- -------------
Total dividends to shareholders........................... 6,515 27,324,901 25,732,177
-------------- -------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares................................ 2,749,065 342,137,732 464,583,440
Dividends reinvested........................................ 6,515 27,324,901 25,732,176
Cost of shares redeemed..................................... (1,334) (158,570,731) (52,939,276)
-------------- -------------- -------------
Increase in net assets derived from beneficial interest
transactions............................................. 2,754,246 210,891,902 437,376,340
-------------- -------------- -------------
Net increase in net assets.................................. 2,754,246 154,807,770 455,128,060
NET ASSETS:
Beginning of year........................................... 0 711,785,650 256,657,590
-------------- -------------- -------------
End of year................................................. $2,754,246 $866,593,420 $711,785,650
-------------- -------------- -------------
-------------- ---------------- -------------
Shares sold................................................. 274,307
Shares issued from reinvestment of dividends................ 650
Shared redeemed............................................. (133)
--------------
NET INCREASE IN SHARES OUTSTANDING............................ 274,824
--------------
--------------
</TABLE>
- ------------------------
(a) Includes tax return of capital of $1,389.
(b) Includes overdistribution of net realized gain on investments of $26,847.
(c) Commencement of operations, October 4, 1993.
(d) Commencement of operations, November 14, 1994.
(e) Includes overdistribution of net realized gain on investments of $10,728.
(f) Includes overdistribution of net realized gain on investments of $22,684.
See notes to financial statements.
11
<PAGE>
THE GCG TRUST
LIQUID ASSET SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 3.3% $1,497,015 Swiss Bank, 6.05%, dated 12/30/94, due 01/03/95
collaterized by $1,555,000 in principal amount
of US Treasury Bills due 04/20/95
(Cost $1,497,015).............................. $ 1,497,015
-----------
CERTIFICATES OF DEPOSIT 18.4% 2,000,000 Bank of Nova Scotia, 6.00%, 1/19/95............. 2,000,094
2,000,000 Hessen-Thuringer, 5.775%, 1/25/95............... 1,999,962
2,500,000 Industrial Bank of Japan, 6.08%, 1/10/95........ 2,500,007
2,000,000 National Westminister Bank, 5.80%, 1/23/95...... 1,999,994
-----------
(Cost $8,500,057)............................... 8,500,057
-----------
COMMERCIAL PAPER(a) 58.5% 2,000,000 B.A.T. Capital Corp., 6.03%, 1/06/95............ 1,997,990
2,000,000 Bank of New York, 5.95%, 1/24/95................ 1,992,067
2,500,000 Ciesco LP, 5.45%, 1/09/95....................... 2,496,594
2,500,000 Diamler-Benz, 5.65%, 1/09/95.................... 2,496,469
2,400,000 General Electric Capital Corp., 5.90%,
1/12/95........................................ 2,395,280
2,250,000 Goldman Sachs Group LP, 6.05%, 1/04/95.......... 2,248,488
2,000,000 International Netherlands U.S. Funding, 5.87%,
1/20/95........................................ 1,993,478
2,000,000 National Rural Utilities, 6.00%, 1/17/95........ 1,994,333
2,500,000 Norfolk Southern, 5.45%, 1/24/95................ 2,490,917
2,000,000 Penny, (J.C.) Funding Corp., 6.00%, 1/17/95..... 1,994,333
2,400,000 Philip Morris Companies Inc., 5.88%, 1/17/95.... 2,393,336
2,500,000 Swedish Export Credit Corp., 5.45%, 1/26/95..... 2,490,160
-----------
(Cost $26,983,445).............................. 26,983,445
-----------
TIME DEPOSITS 16.5% 1,000,000 Barclays Bank, 5.00%, 1/03/95................... 1,000,000
(EURODOLLARS) 2,000,000 Fuji Bank, 6.00%, 1/03/95....................... 2,000,000
2,300,000 Mitsubishi Bank Ltd., 6.125%, 1/03/95........... 2,300,000
2,300,000 Royal Bank of Canada, 6.125%, 1/03/95........... 2,300,000
-----------
(Cost $7,600,000)............................... 7,600,000
-----------
SHORT-TERM U.S. 4.3% 2,000,000 Federal Home Loan Bank, Discount notes 1/03/95
GOVERNMENT & AGENCY (Cost $1,999,065).............................. 1,999,065
OBLIGATIONS -----------
Total Investments 46,579,582
(Cost $46,579,582) -- 101%.....................
46,189
Total Other Assets -- 0.1%......................
(503,798)
Liabilities -- (1.1%)...........................
-----------
Total Net Assets -- 100%........................ $46,121,973
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
(a) Interest rate represents the annualized yield on date of purchase.
See notes to financial statements.
12
<PAGE>
THE GCG TRUST
LIMITED MATURITY BOND SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS 19.0% $6,733,833 Paine Webber, 5.85%, dated 12/31/94, due 1/03/95
collateralized by $6,530,000 in principal
amount of US Treasury Bonds, 8.375%, due
8/15/2008...................................... $ 6,733,833
7,000,000 Sanwa Bank, 5.5%, dated 12/31/94, due 1/03/95
collateralized by $7,450,000 in principal
amount of US Treasury Notes, 6.00%, due
11/30/1997..................................... 7,000,000
-----------
(Cost $13,733,833).............................. 13,733,833
-----------
SHORT-TERM U.S.
AGENCY OBLIGATIONS 15.2% 3,000,000 FHLMC Discount Note due 1/03/95................. 12,993,608
3,000,000 FNMA Discount Note due 1/18/95.................. 2,992,875
3,000,000 FNMA Discount Note due 1/23/95.................. 2,990,475
2,000,000 Federal Farm Credit Bank Discount Note due
1/17/95........................................ 1,995,560
-----------
(Cost $10,968,103).............................. 10,972,518
-----------
LONG-TERM U.S. GOVERNMENT 39.8% 30,290,000 United States Treasury Notes, 5.125%-8.5%,
OBLIGATIONS 2/28/97-11/15/00
(Cost $29,744,659)............................. 28,768,851
-----------
LONG-TERM U.S. AGENCY 8.5% 387,827 Federal Home Loan Mortgage Corp., Adj. Rate.,
OBLIGATIONS 5/15/97-1/01/17................................ 387,004
123,931 FNMA Gtd. REMIC, 9/25/98........................ 123,513
23,391 FNMA Pool # 048832, 10.00%, 6/01/17............. 24,583
18,548 FNMA Pool # 044026, 8.50%, 8/01/06.............. 18,531
16,085 FNMA Pool # 111311, 8.50%, 12/01/97............. 16,252
89,377 FNMA Pool # 122591, 8.50%, 6/01/98.............. 90,180
393,753 FNMA Pool # 127336, 8.50%, 8/01/06.............. 393,383
238,582 FNMA Pool # 70355, 8.50%, 3/01/04............... 238,358
2,000,000 FNMA Medium Term Note, 5.38%, 1/06/99........... 1,810,200
9,638 GNMA Pool # 147899, 10.00%, 2/15/16............. 10,148
118,733 GNMA Pool # 155224, 10.00%, 3/15/16............. 125,003
16,279 GNMA Pool # 161670, 9.50%, 9/15/16.............. 16,824
6,144 GNMA Pool # 276322, 9.50%, 7/15/19.............. 6,350
51,898 GNMA Pool # 284666, 9.50%, 3/15/20.............. 53,634
45,629 GNMA Pool # 286024, 10.00%, 4/15/20............. 48,039
258,733 GNMA Pool # 308911, 9.50%, 7/15/21.............. 267,386
2,500,000 SLMA Medium Term Note 8.29% 12/22/97............ 2,497,850
-----------
(Cost $6,315,301)............................... 6,127,238
-----------
CORPORATE BONDS 16.6% 1,000,000 Allied Corp., Zero Coupon, 1/15/96.............. 926,250
1,000,000 Capital Auto Receivable Asset Trust, 5.35%,
2/17/98........................................ 967,550
33,490 Chase Manhattan Grantor Trust 6.90%, 09/15/97... 33,373
553,008 Ford Motor Credit Corp., 4.85%, 1/15/98......... 541,279
500,000 Ford Motor Credit Corp. Master Trust,
6.875%, 1/15/99................................ 487,555
1,000,000 Ford Capital, 9%, 8/15/98....................... 1,018,775
900,000 Merrill Lynch Mortgage Corp., 7.26%, 5/04/99.... 901,170
1,500,000 Merrill Lynch Corp., 4.75%, 6/24/96............. 1,430,040
470,000 Nationsbank Corporation, 5.375%, 4/15/00........ 407,525
500,000 Salomon Inc., 8.11%, 4/07/95.................... 502,030
2,000,000 Schering-Plough Corp., Zero Coupon, 12/02/96.... 1,722,180
1,500,000 Standard Credit Card Master Trust I,
3.68%, 9/15/97................................. 1,500,060
1,500,000 Stop & Shop International Financial Corp.,
10.125%, 12/16/96.............................. 1,547,813
-----------
(Cost $12,423,693).............................. 11,985,600
-----------
Total Investments
(Cost $73,185,589) -- 99.1%.................... 71,588,040
Total Other Assets -- .9%....................... 626,485
Liabilities -- (0%)............................. (1,566)
-----------
Total Net Assets -- 100%........................ $72,212,959
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
See notes to financial statements.
13
<PAGE>
THE GCG TRUST
NATURAL RESOURCES SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER(a) 3.6% $1,200,000 General Electric Capital Corp. 4.25%, 1/03/95
(Cost $1,199,575).............................. $ 1,199,575
-----------
SHORT-TERM U.S. GOVERNMENT 4.5% 1,500,000 United States Treasury Bills, 1/26/95-3/16/95
OBLIGATIONS (Cost $1,488,430).............................. 1,489,177
-----------
<CAPTION>
SHARES
----------
<S> <C> <C> <C> <C>
COMMON STOCKS 90.2%
Diversified 19.9% 25,000 Agnico Eagle Mines Ltd.......................... 265,625
17,000 Coeur D' Alene Mines Corp....................... 278,375
40,000 Freeport -- McMoRan Copper and Gold Company,
Inc., Class A.................................. 850,000
50,000 Horsham Corp.................................... 637,500
25,000 Impala Platinum Holdings Ltd. (ADR)
(South Africa)**............................... 613,500
25,000 Magma Copper Co.*............................... 418,750
200,000 MIM Holdings Ltd*............................... 333,600
10,000 Pioneer Hi-Bred International................... 345,000
7,000 Phelps Dodge Corp............................... 433,125
200,000 Renison Goldfields Consolidated Ltd.
(Australia)*................................... 760,200
17,000 RTZ PLC (ADR) (United Kingdom)**................ 894,625
20,000 Rustenburg Platinum Holdings Ltd. (ADR)
(South Africa)**............................... 549,680
13,000 Stillwater Mining Company*...................... 177,125
-----------
6,557,105
-----------
Energy 0.6% 10,000 Renaissance Energy Ltd.* (Canada)............... 193,380
-----------
Long Life Gold 23.8% 52,000 American Barrick Resources Corp (Canada)........ 1,157,000
55,000 Dreifontein Consolidated (ADR) (South Africa)... 831,875
61,000 Hemlo Gold Mines Inc. (Canada).................. 617,625
84,000 Homestake Mining Company........................ 1,438,500
42,000 Kloof Gold Mining Ltd. (ADR) (South Africa)**... 624,750
270,000 Newcrest Mining Ltd. (ADR) (Australia).......... 1,204,200
11,500 Newmont Gold Company............................ 409,688
30,000 Pinnacle Resources Ltd. (Canada)*............... 358,230
57,000 TVX Gold*....................................... 384,750
60,000 Vaal Reefs Exploration & Mining Ltd. (ADR)
(South Africa)**............................... 543,780
6,000 Western Deep Levels Ltd. (ADR) (South
Africa)**...................................... 240,750
-----------
7,811,148
-----------
Medium Life Gold 14.2% 61,334 Dominion Mining Ltd. (Australia)*............... 14,720
50,000 Echo Bay Mines Ltd.............................. 531,250
52,000 First Mississippi Gold.......................... 1,300,000
60,000 Free State Consolidated Mines (ADR)
(Australia).................................... 922,500
164,000 Herald Resorces Ltd. (Australia)................ 131,036
40,000 Miramar Mining Corp. (Canada)*.................. 171,120
12,500 Pegasus Gold Inc. (Canada)...................... 142,188
125,000 Plutonic Resources Ltd. (Australia)*............ 552,625
180,000 Sons of Gwalia N.L. (Australia)................. 649,350
200,000 St. Barbara Mines Ltd. (Australia)*............. 248,200
-----------
4,662,989
-----------
</TABLE>
14
<PAGE>
THE GCG TRUST
NATURAL RESOURCES SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
Minerals 1.5% 260,000 Ashton Mining Ltd. (Australia).................. $ 433,680
80,000 Namibian Minerals Corp*......................... 75,896
-----------
509,576
-----------
Mining 13.1% 24,000 Anglo American Corp. So. Africa Ltd. (ADR)
(South Africa)**............................... 1,374,000
60,000 Battle Mountain Gold............................ 660,000
28,000 Newmont Mining Corp............................. 1,008,000
213,750 Western Mining Holding Ltd. (Australia)......... 1,249,112
-----------
4,291,112
-----------
Mining Finance 8.2% 65,000 Placer Dome Inc. (Canada)....................... 1,413,750
70,000 Teck Corp., Class B (Canada).................... 1,266,300
-----------
2,680,050
-----------
Oil 6.2% 8,000 British Petroleum PLC (ADR) (United Kingdom).... 639,000
7,500 Mobil Oil Corp.................................. 631,875
7,000 Royal Dutch Petroleum (Netherlands)............. 752,500
-----------
2,023,375
-----------
Transportation 2.7% 69,999 Sante Fe Gold................................... 901,237
-----------
Total Common Stocks
(Cost $27,231,502)............................. 29,629,972
-----------
Total Investments
(Cost $29,919,507) -- 98.3.%................... 32,318,724
Total Other Assets -- 3.3%...................... 1,098,391
Liabilities -- (1.6%)........................... (538,594)
-----------
Total Net Assets -- 100%........................ $32,878,521
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
*--Non-income producing security.
(a)--Interest rate represents the annualized yield on date of purchase.
**--American Depositary Receipts.
See notes to financial statements.
15
<PAGE>
THE GCG TRUST
ALL-GROWTH SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 2.5% $1,795,000 PNC, 5.50% dated 12/30/94, due 1/03/95
collateralized by $1,830,000 in principal
amount of US Treasury Notes, 5.875%, due
05/31/96
(Cost $1,795,000).............................. $ 1,795,000
-----------
SHORT-TERM U.S. 34.8% 22,000,000 United States Treasury Bills, 2/02/95-3/30/95... 21,809,027
GOVERNMENT AND AGENCY 3,000,000 FNMA Discount Note due 1/20/95.................. 2,991,900
-----------
OBLIGATIONS (Cost $24,791,339).............................. 24,800,927
-----------
<CAPTION>
SHARES
----------
<S> <C> <C> <C> <C>
COMMON STOCKS 62.4%
Diversified 22.8% 34,000 Allied Signal Inc............................... 1,156,000
53,000 BankAmerica Corp................................ 2,093,500
64,050 Comcast Corporation Class A..................... 1,004,816
58,000 Corning Inc..................................... 1,732,750
80,000 E G & G, Inc.................................... 1,130,000
130,000 GRC International*.............................. 1,478,750
70,000 Honeywell Inc................................... 2,205,000
180,000 Prime Resources Group*.......................... 1,299,240
55,000 Quaker State Corporation........................ 770,000
55,000 Stone & Webster Inc............................. 1,828,750
110,000 USF & G Corporation............................. 1,498,750
-----------
16,197,556
-----------
Drug & Health Care 1.7% 16,000 Chubb Corporation............................... 1,238,000
-----------
Electronics 2.1% 41,000 Rockwell International Corporation.............. 1,465,750
-----------
Entertainment 4.7% 140,000 Acclaim Entertainment, Inc*..................... 2,012,500
38,000 Time Warner Inc................................. 1,334,750
-----------
3,347,250
-----------
Financial Services 4.2% 40,000 Federal Home Loan Mortgage Corp................. 2,020,000
8,000 Travelers Inc................................... 260,000
100,000 Travelers Inc -- Warrants....................... 737,500
-----------
3,017,500
-----------
Insurance 2.2% 65,000 All State Insurance............................. 1,535,625
-----------
Manufacturing 9.3% 67,000 CBI Industries.................................. 1,716,875
36,000 Foster Wheeler Corporation...................... 1,071,000
65,000 Homestake Mining Company........................ 1,113,125
40,000 Tenneco Inc..................................... 1,700,000
33,000 Trinity Industries Inc.......................... 1,039,500
-----------
6,640,500
-----------
Medical Supplies 1.1% 50,000 Acuson Corporation*............................. 812,500
-----------
Mining, Minerals & Metals 10.4% 53,000 Inco Ltd........................................ 1,517,125
53,000 Baker Hughes Inc................................ 967,250
30,000 Halliburton Company............................. 993,750
30,000 Newmont Mining Corp............................. 1,080,000
15,000 Parker & Parsley Petroleum Company.............. 307,500
120,000 Pegasus Gold Inc................................ 1,365,000
55,000 Placer Dome Inc................................. 1,196,250
-----------
7,426,875
-----------
</TABLE>
16
<PAGE>
THE GCG TRUST
ALL-GROWTH SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE (+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
Technology 2.4% 60,000 Storage Technology Corporation*................. $ 1,740,000
-----------
Tele-Communications 1.5% 48,000 Tele-Communications Inc Class A*................ 1,044,000
-----------
Total Common Stocks
(Cost $45,933,020)............................. 44,465,556
-----------
Total Investments
(Cost $72,519,359) -- 99.7%.................... 71,061,483
Total Other Assets -- 0.4%...................... 258,836
Liabilities -- (0.1%)........................... (102,716)
-----------
Total Net Assets -- 100%........................ $71,217,603
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
*--Non-income producing security.
See notes to financial statements.
17
<PAGE>
THE GCG TRUST
REAL ESTATE SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT 13.0% $4,916,000 United States Treasury Bills, 3/16/95 (Cost
OBLIGATIONS $4,860,092).................................... $ 4,862,411
-----------
<CAPTION>
SHARES
----------
<S> <C> <C> <C> <C>
COMMON STOCK 85.9%
Apartment & Residential 29.3% 18,900 Associated Estates Realty Corp.................. 396,900
44,900 Avalon Properties Inc........................... 1,032,700
36,100 Bay Apartments Inc.............................. 726,513
28,000 Carr Realty Corp................................ 504,000
43,000 Camden Property Trust........................... 1,069,625
31,100 Equity Residential Property Trust............... 933,000
62,400 LTC Properties Inc.............................. 826,800
31,000 Oasis Residential Inc........................... 759,500
36,600 Post Properties Inc............................. 1,152,900
31,100 ROC Communities Inc............................. 653,100
20,500 Smith Charles Residential Properties Inc........ 520,188
6,700 Spieker Properties Inc.......................... 136,513
33,400 Sun Communities Inc............................. 751,500
45,000 Taubman Centers Inc............................. 438,750
30,500 Weeks Corp...................................... 667,188
18,000 Wellsford Residential Properties Inc............ 378,000
-----------
10,947,177
-----------
Diversified 38.2% 35,450 Bradley Real Estate Investment Trust............ 540,613
28,800 CBL & Associates................................ 594,000
26,100 Colonial Properties............................. 587,250
13,000 Crescent Real Estate Equities................... 352,625
74,700 Debartolo Realty................................ 1,120,500
35,900 Developers Diversified Realty Corp.............. 1,121,875
22,300 Duke Realty..................................... 629,975
22,500 Gables Residential Trust........................ 483,750
24,200 Glimcher Realty................................. 529,375
101,900 Host Marriott Corp*............................. 980,788
30,200 Kimco Realty Corp............................... 1,143,825
16,300 Kranzco Realty Inc.............................. 309,700
38,600 Liberty Property Trust.......................... 757,525
36,900 Merry Land & Investments Inc.................... 807,188
30,400 Property Trust America Inc...................... 547,200
26,700 RFS Hotel Investment............................ 390,488
35,899 Security Capital Industry....................... 610,283
29,800 Storage Inns USA................................ 819,500
30,000 The Maserich Company............................ 641,250
46,700 United Dominion Realty Trust.................... 671,313
17,400 Vornado Realty Trust............................ 624,225
-----------
14,263,248
-----------
Health Care 5.1% 14,400 Health Care Property Investments Inc............ 433,800
23,600 National Health Investments Inc................. 616,550
24,000 Nationwide Health Properties Inc................ 858,000
-----------
1,908,350
-----------
</TABLE>
18
<PAGE>
THE GCG TRUST
REAL ESTATE SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE (+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
Shopping Center 13.3% 20,600 Chelsea GCA Realty Inc.......................... $ 561,350
22,600 Federal Realty Investment Trust................. 466,125
20,700 Horizon Outlet Centers Inc...................... 540,788
21,000 Regency Realty Corp............................. 351,750
37,400 Rouse Company................................... 719,950
43,200 Simon Property Group Inc........................ 1,047,600
20,000 Tanger Factory Outlet Centers Inc............... 470,000
20,600 Weingarten Realty Investments................... 780,225
-----------
4,937,788
-----------
Total Common Stocks
(Cost $31,852,835)............................. 32,056,563
-----------
CONVERTIBLE PREFERRED 0.3% 2,100 Rouse Company Preferred Convertible
STOCKS (Cost $112,312)................................ 101,850
-----------
Total Investments
(Cost $36,825,239) -- 99.2%.................... 37,020,824
Total Other Assets -- 1.0%...................... 373,471
Total Liabilities -- (0.2%)..................... (58,100)
-----------
Total Net Assets -- 100.0%...................... $37,336,195
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
*--Non-income producing security.
See notes to financial statements.
19
<PAGE>
THE GCG TRUST
FULLY MANAGED SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
TIME DEPOSITS (EURODOLLARS) 4.9% $4,846,000 Societe Generale Bank, 4.95%, 1/03/95
(Cost $4,846,000).............................. $ 4,846,000
-----------
SHORT-TERM U.S. AGENCY 2.0% 2,000,000 FNMA Discount Note, 5.60%, 1/05/95
OBLIGATIONS (a) (Cost $1,998,444).............................. 1,998,444
-----------
SHORT-TERM U.S. GOVERNMENT 1.0% 1,000,000 U.S. Treasury Bills, 1/12/95
OBLIGATIONS (Cost $999,000)................................ 999,000
-----------
LONG-TERM U.S. AGENCY 1.9% 1,000,000 Federal Home Loan Bank, 7.19%, 4/27/01.......... 962,480
OBLIGATIONS 1,000,000 Federal National Mortgage Association, 7.20%,
1/10/02........................................ 928,575
-----------
(Cost $2,002,305)............................... 1,891,055
-----------
LONG-TERM U.S. GOVERNMENT 6.4% 4,500,000 United States Treasury Notes, 8.0%-8.625%,
OBLIGATIONS 10/15/95-5/15/01............................... 4,554,075
2,000,000 United States Treasury Bonds, 7.125%-7.625%,
11/15/22-2/15/23............................... 1,874,380
-----------
(Cost $6,769,202)............................... 6,428,455
-----------
LONG-TERM CORPORATE 15.5% 200,000 American Express Corp., 8.750%, 6/15/96......... 202,580
BONDS 300,000 AT&T, 8.625%, 12/01/31.......................... 296,048
1,000,000 BellSouth Telephone, 6.375%, 6/15/04............ 882,430
1,000,000 Chase Manhatten Bank, 6.50%, 8/01/05............ 845,425
1,000,000 Chrysler Financial Corp., 6.625%, 8/15/00....... 912,490
1,000,000 Citicorp, 7.125%, 3/15/04....................... 903,880
1,000,000 Dean Witter Discover, 5.00%, 4/01/96............ 965,530
1,000,000 Dean Witter Discover, 6.75%, 10/15/13........... 804,175
1,000,000 Ford Motor Credit, 6.75%, 8/15/08............... 845,200
1,500,000 General Electric Credit Corp., 5.50%,
11/01/01....................................... 1,281,450
1,000,000 Georgia Pacific Corp., 8.125%, 6/15/23.......... 892,250
1,500,000 Nations Bank, 6.50%, 8/15/03.................... 1,298,745
2,000,000 Republic Bank of New York, 5.875%, 10/15/08..... 1,560,350
168,000 Shell Oil Co., 7.250%, 2/15/02.................. 158,568
1,000,000 Southwest Bell, 6.625%, 4/01/05................. 879,250
1,000,000 Tele-Communications, 8.75%, 2/15/23............. 903,940
1,000,000 Tele-Communications, 7.25%, 8/01/05............. 864,930
1,000,000 Wal-Mart Stores, 7.50%, 5/15/04................. 950,610
-----------
(Cost $17,351,652).............................. 15,447,851
-----------
</TABLE>
20
<PAGE>
THE GCG TRUST
FULLY MANAGED SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
COMMON STOCKS 67.7%
Automotive Industry 1.0% 50,000 Federal Mogul Corp.............................. $1,006,250
-----------
Banking 1.0% 25,000 Bank America Corp............................... 987,500
-----------
Chemicals 7.5% 20,000 Eastman Kodak Co................................ 955,000
30,000 Englehard Corp.................................. 667,500
35,000 Great Lakes Chemical Corp....................... 1,995,000
14,300 Hercules, Inc................................... 1,649,863
15,000 Schering-Plough Corp............................ 1,110,000
15,000 Warner-Lambert Co............................... 1,155,000
-----------
7,532,363
-----------
Computers & Softwares 6.4% 35,000 BMC Software Inc*............................... 1,990,625
23,000 Hewlett & Packard Co............................ 2,297,125
25,000 Oracle Systems Corp*............................ 1,103,125
10,000 Xerox Corp...................................... 990,000
-----------
6,380,875
-----------
Drugs & Health Care 3.2% 45,000 Colgate-Palmolive Co............................ 2,851,875
10,000 Columbia Healthcare Co.......................... 365,000
-----------
3,216,875
-----------
Electronics 4.3% 50,000 General Electric Co............................. 2,550,000
30,000 Motorola Inc.................................... 1,736,250
-----------
4,286,250
-----------
Food & Beverage 5.4% 30,000 Coca Cola Co.................................... 1,545,000
70,000 McDonald's Corp................................. 2,047,500
50,000 PepsiCo, Inc.................................... 1,812,500
-----------
5,405,000
-----------
Entertainment 0.9% 20,000 Disney (Walt) Co................................ 922,500
-----------
Financial Services 6.2% 20,000 American Express Corp, 6.25%, due 10/15/96*..... 852,500
35,000 Federal National Mortgage Association........... 2,550,625
20,000 First Data Corp................................. 947,500
22,500 GP Financial Corp............................... 464,063
45,000 Kansas City Southern Industries................. 1,389,375
-----------
6,204,063
-----------
Insurance 1.9% 24,000 Chubb Corp...................................... 1,857,000
-----------
Hotel & Casino 1.2% 40,000 Promus Companies Inc*........................... 1,240,000
-----------
Machinery 1.2% 40,000 Singer Co., N.V................................. 1,195,000
-----------
Manufacturing 2.6% 60,000 Shaw Industries Inc............................. 892,500
50,000 USG Corp*....................................... 975,000
30,000 Wolverine World Wide Inc........................ 772,500
-----------
2,640,000
-----------
Metals 1.5% 75,000 Birmingham Steel Corp........................... 1,500,000
-----------
Oil Services 4.1% 50,000 Apache Corp..................................... 1,250,000
30,000 Exxon Corp...................................... 1,822,500
20,000 Schlumberger Ltd................................ 1,007,500
-----------
4,080,000
-----------
*Convertible into common stock.
</TABLE>
21
<PAGE>
THE GCG TRUST
FULLY MANAGED SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
------------ ---------- -----------
<S> <C> <C> <C> <C>
Real Estate 11.1% 45,000 Commercial Net Lease Realty, Inc................ $ 551,250
20,000 Duke Realty Investments Inc..................... 565,000
50,000 Evans Withycombe Residential Trust.............. 1,050,000
25,000 First Industrial Realty Trust................... 487,500
50,000 Gables Residential Trust........................ 1,075,000
50,000 JDN Realty Trust................................ 1,000,000
75,000 Manufactured Home Communities Inc............... 1,490,625
75,000 Mid-Atlantic Realty Trust....................... 618,750
45,000 Mills Corp...................................... 815,625
75,000 Paragon Group Inc............................... 1,425,000
50,000 Sizeler Property Investments Inc................ 525,000
75,000 Urban Shopping Centers Inc...................... 1,490,625
-----------
11,094,375
-----------
Retail 3.1% 40,000 Harcourt General Inc, Series A.................. 1,410,000
55,000 Toys R Us Inc*.................................. 1,677,500
-----------
3,087,500
-----------
Telecommunication 3.8% 20,000 Ericsson (L.M.) Tel. Co., Class B (ADR)**....... 1,102,500
40,000 MCI Communications, Inc......................... 735,000
45,000 Nextel Communications, Inc*..................... 646,875
60,000 Tele-Communications, Inc*....................... 1,305,000
-----------
3,789,375
-----------
Transportation 1.3% 25,000 Consolidated Rail Corp.......................... 1,262,500
-----------
Total Common Stocks
(Cost $71,034,732)............................. 67,687,426
-----------
Total Investments (Cost $105,001,335) --
99.4%.......................................... 99,298,231
Total Other Assets -- 0.7%...................... 712,150
Liabilities -- (0.1%)........................... (156,234)
-----------
Total Net Assets -- 100%........................ $99,854,147
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
(a) Interest rate represents the annualized yield on date of purchase.
*--Non-income producing security.
**--American Depositary Receipts.
See notes to financial statements.
22
<PAGE>
THE GCG TRUST
MULTIPLE ALLOCATION SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ----------- -------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER(a) 48.6% $11,300,000 American Telephone & Telegraph Co., 5.92%,
1/26/95...................................... $ 11,251,686
11,200,000 Bellatlantic Financial Services, 6.00%,
1/09/95...................................... 11,183,200
1,900,000 Bellsouth Corp., 5.85%, 1/06/95............... 1,898,148
10,800,000 Colgate-Palmolive, 5.93%, 1/04/95............. 10,792,884
6,300,000 Coca-Cola Financial Corp., 5.85%, 1/06/95..... 6,293,858
10,000,000 Emerson Electric, 5.80%, 1/20/95.............. 9,967,778
10,000,000 Exxon Corp., 5.90%, 1/06/95................... 9,990,167
13,000,000 Ford Motor Credit Corp., 5.88%, 1/11/95....... 12,976,643
2,900,000 Kimberly Clark, 5.93%, 1/10/95................ 2,895,223
12,800,000 Motorola Inc., 6.00%, 1/19/95................. 12,759,467
12,000,000 PepsiCo, 5.95%, 1/03/95....................... 11,994,050
10,000,000 Phillip Morris Corp., 5.87%, 1/23/95.......... 9,962,497
7,600,000 Raytheon Co., 5.80%, 1/05/95.................. 7,593,878
6,300,000 SmithKline Beecham, 6.00%, 1/17/95............ 6,282,150
10,400,000 Southwest Bell Capital Corp., 5.95%,
1/06/95...................................... 10,389,687
9,400,000 Xerox Credit Corp., 6.00%, 1/05/95............ 9,392,167
-------------
(Cost $145,623,483)........................... 145,623,483
-------------
LONG-TERM U.S. 36.7% 8,085,000 Federal Home Loan Mortgage Corp.,
GOVERNMENT & AGENCY 7.05% - 7.61%, 3/24/04 - 9/01/04.............. 7,360,787
OBLIGATIONS 14,025,000 Federal National Mortgage Association, 6.20% -
7.60%, 7/10/03 - 4/14/04...................... 12,887,207
82,685,000 U.S. Treasury Bonds, 7.125% - 8.125%, 4/15/00
- 11/15/24................................... 76,779,628
14,415,000 U.S. Treasury Notes, 4.625% - 7.25%, 02/15/96
- 8/15/04.................................... 12,911,408
-------------
(Cost $112,457,260)........................... 109,939,030
-------------
LONG-TERM CORPORATE
BONDS 1.7% 2,510,000 Exxon Capital Corp., 7.875%, 8/15/97.......... 2,501,592
2,530,000 General Electric Capital Corp., 8.375%,
3/01/01...................................... 2,550,468
-------------
(Cost $5,516,556)............................. 5,052,060
-------------
<CAPTION>
SHARES
-----------
<S> <C> <C> <C> <C>
COMMON STOCKS 12.2%
Banking 0.6% 23,600 Bank of Boston................................ 610,650
21,600 Bank of New York.............................. 626,400
14,900 Citicorp...................................... 616,488
-------------
1,853,538
-------------
Chemicals 2.5% 44,800 Applied Materials, Inc*....................... 1,892,800
15,600 Dupont E I de Nemours & Co.................... 877,500
24,400 Eastman Kodak Co.............................. 1,165,100
14,100 Hercules, Inc................................. 1,626,788
43,000 Union Carbide Corp............................ 1,263,125
25,500 Upjohn Co..................................... 784,125
-------------
7,609,438
-------------
Computers Software & 1.6% 34,900 International Business Machines Corp.......... 2,565,150
Technology 48,300 Oracle Systems Corp*.......................... 2,131,238
-------------
4,696,388
-------------
</TABLE>
23
<PAGE>
THE GCG TRUST
MULTIPLE ALLOCATION SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
------------ ----------- -------------
<S> <C> <C> <C> <C>
Diversified 1.6% 19,700 International Paper Co........................ $ 1,484,888
16,500 ITT Corp...................................... 1,462,313
29,300 Phelps Dodge Corp............................. 1,812,938
-------------
4,760,139
-------------
Drugs & Health Care 0.8% 64,200 Columbia/HCA Healthcare Services Inc.......... 2,343,300
-------------
Electronics 0.3% 8,500 Eaton Corp.................................... 420,750
6,100 TRW Inc....................................... 402,600
-------------
823,350
-------------
Energy 0.1% 9,800 Occidental Petroleum, Inc..................... 188,650
-------------
Financial Services 0.5% 71,800 GP Financial Corp............................. 1,480,875
-------------
Food & Beverage 0.1% 8,700 Anheuser Busch Inc............................ 442,613
-------------
Long Life Gold Mines 0.1% 13,600 Homestake Mining Company...................... 232,900
-------------
Newsprint 0.3% 31,800 Bowater, Inc.................................. 846,675
-------------
Pollution Control 0.3% 32,800 Waste Management Inc.......................... 861,000
-------------
Oil & Oilfield Services 0.9% 16,400 British Petroleum PLC (ADR)................... 1,309,950
24,500 Oryx Energy Co*............................... 290,938
30,500 Philips Petroleum Co.......................... 998,875
-------------
2,599,763
-------------
Telephone Services & 0.5% 25,500 Sprint Corp................................... 704,438
Telecommunications 22,600 US West, Inc.................................. 805,125
-------------
1,509,563
-------------
Tobacco 0.6% 29,000 Philip Morris Companies....................... 1,667,500
-------------
Utilities 1.4% 30,400 American Electric Power Co.................... 999,400
15,300 Carolina Power & Lighting Co.................. 407,363
9,000 Central Louisiana Electric Co................. 212,625
22,800 FPL Group..................................... 800,850
19,100 Northeast Utilities........................... 413,038
24,700 Portland General Electric Inc................. 475,475
9,700 Public Service Colorado....................... 284,938
22,800 Texas Utilities Co............................ 729,600
-------------
4,323,289
-------------
Total Common Stocks
(Cost $35,597,570)........................... 36,238,981
-------------
Total Investments
(Cost $299,194,869) -- 99.2%................. 296,853,554
Total Other Assets -- 0.9%.................... 2,770,076
Liabilities -- (0.1%)......................... (231,573)
-------------
Total Net Assets -- 100%...................... $299,392,057
-------------
-------------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
(a) Interest rate represents the annualized yield on date of purchase.
*--Non-income producing security.
See notes to financial statements.
24
<PAGE>
THE GCG TRUST
CAPITAL APPRECIATION SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE (+)
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHORT TERM U.S. GOVERNMENT 16.9% $15,182,000 United States Treasury Bills, 3/16/95
OBLIGATIONS (Cost $15,009,343)........................... $15,016,515
-----------
<CAPTION>
SHARES
-----------
<S> <C> <C> <C> <C>
COMMON STOCK 84.1%
Automotive Industry 4.1% 35,000 Chrysler Corp................................. 1,715,000
50,000 General Motors Corp., Class E................. 1,925,000
-----------
3,640,000
-----------
Banking 7.1% 44,000 Ahmanson (H.F.) & Co.......................... 709,500
65,200 Bank of New York Inc.......................... 1,890,800
20,700 First Union Corp.............................. 856,463
30,000 Nationsbank Corp.............................. 1,353,750
34,700 Norwest Corp.................................. 811,113
39,500 Washington Mutual Savings Bank................ 666,563
-----------
6,288,189
-----------
Broadcasting & Publishing 3.1% 22,500 CBS Inc....................................... 1,245,938
27,900 Dun & Bradstreet Corp......................... 1,534,500
-----------
2,780,438
-----------
Business Services 0.8% 22,700 Dow Jones & Co................................ 703,700
-----------
Chemicals 11.3% 84,100 Praxair, Inc.................................. 1,724,050
39,600 PPG Industries Inc............................ 1,470,150
26,800 Schering-Plough Corp.......................... 1,983,200
56,000 Union Carbide Corp............................ 1,645,000
49,800 Upjohn Company................................ 1,531,350
21,700 Warner-Lambert Co............................. 1,670,900
-----------
10,024,650
-----------
Computers & Software 3.5% 51,300 COMPAQ Computer Corp*......................... 2,026,350
35,400 Silicon Graphics Inc*......................... 1,097,400
-----------
3,123,750
-----------
Consumer 3.8% 15,000 Procter & Gamble.............................. 930,000
35,000 Scott Paper................................... 2,419,375
-----------
3,349,375
-----------
Diversified 5.8% 12,000 Capital Cities/ABC Inc........................ 1,023,000
59,250 Comcast Corp. Class A......................... 929,514
38,500 Eastman Kodak Co.............................. 1,838,375
40,000 Time Warner Inc............................... 1,405,000
-----------
5,195,889
-----------
Drugs & Health Care 4.5% 14,800 Bristol Myers Squibb Co....................... 856,550
57,400 Humana Inc*................................... 1,298,675
33,000 Johnson & Johnson Co.......................... 1,806,750
-----------
3,961,975
-----------
Electronics 5.2% 21,000 Eaton Corp.................................... 1,039,500
16,000 Emerson Electric Co........................... 1,000,000
33,600 General Electric Co........................... 1,713,600
23,000 Loral Corp.................................... 871,125
-----------
4,624,225
-----------
Entertainment 2.2% 85,000 Circus Circus Enterprises Inc*................ 1,976,250
-----------
</TABLE>
25
<PAGE>
THE GCG TRUST
CAPITAL APPRECIATION SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE (+)
----------- ----------- -----------
<S> <C> <C> <C> <C>
Food & Beverage 5.9% 30,000 Anheuser Busch................................ $ 1,526,250
36,800 CPC International............................. 1,959,600
59,600 McDonald's Corp............................... 1,743,300
-----------
5,229,150
-----------
Financial Services 3.7% 84,000 American Express Co........................... 2,478,000
50,000 Great Western Financial....................... 800,000
-----------
3,278,000
-----------
Insurance 1.1% 26,600 UNUM Corp..................................... 1,004,150
-----------
Oil & Oilfield Services 5.7% 20,000 Amoco Corp.................................... 1,182,500
17,700 Texaco Inc.................................... 1,059,788
75,000 Ultramar Corp................................. 1,912,500
32,900 Unocal Corp................................... 896,525
-----------
5,051,313
-----------
Real Estate 1.1% 65,000 Debartolo Realty.............................. 975,000
-----------
Retail 9.0% 73,400 American Stores Co............................ 1,972,625
24,800 Dayton Hudson Corp............................ 1,754,600
90,500 Federated Department Stores*.................. 1,742,125
48,200 May Department Stores Co...................... 1,626,750
20,000 Sears Roebuck & Co*........................... 920,000
-----------
8,016,100
-----------
Telephone Services &
Telecommunications 6.2% 52,000 GTE Corp...................................... 1,579,500
64,900 Tele-Communications Inc, Class A*............. 1,411,575
37,400 Vanguard Cellular Systems, Inc. *............. 963,050
45,000 US West Inc................................... 1,603,124
-----------
5,557,249
-----------
Total Common Stocks (Cost $73,436,534)........ 74,779,403
-----------
Total Investments (Cost $88,445,877) --
101.0%....................................... 89,795,918
Total Other Assets -- 0.2%.................... 171,397
Liabilities -- (1.2%)......................... (1,077,667)
-----------
Total Net Assets -- 100%...................... $88,889,648
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
*--Non-income producing security.
See notes to financial statements.
26
<PAGE>
THE GCG TRUST
RISING DIVIDENDS SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE (+)
----------- ----------- -----------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (a) 6.3% $2,500,000 American Express Co., 5.80%, 1/03/95.......... $2,500,000
700,000 Ford Motor Credit Corp., 5.00%, 1/03/95....... 700,000
-----------
(Cost $3,200,000)............................. 3,200,000
-----------
COMMON STOCK 93.3% SHARES
-----------
Automotive Industry 2.3% 30,450 General Motors Corp., Class E................. 1,172,325
-----------
Banking 9.2% 32,890 Bank One Corp................................. 834,584
21,300 Fifth Third Bancorp........................... 1,022,400
1,800 National Commerce Bancorp..................... 40,950
22,500 NationsBank Corp.............................. 1,015,313
61,300 State Street Boston Corp...................... 1,754,713
-----------
4,667,960
-----------
Broadcasting & Publishing 3.8% 35,470 Dun & Bradstreet Corp......................... 1,950,850
-----------
Business Services 2.7% 19,000 Automatic Data Processing Inc................. 1,111,500
4,500 Gannett & Co.................................. 239,625
-----------
1,351,125
-----------
Chemicals 5.4% 38,000 Betz Laboratories............................. 1,681,500
28,800 PPG Industries, Inc........................... 1,069,200
-----------
2,750,700
-----------
Computers & Software 3.7% 18,800 Hewlett & Packard Co.......................... 1,877,650
-----------
Drugs & Health Care 6.6% 26,200 Johnson & Johnson Co.......................... 1,434,450
50,400 Merck & Co.................................... 1,921,500
-----------
3,355,950
-----------
Electronics 9.6% 11,150 AMP Inc....................................... 811,163
38,400 General Electric Co........................... 1,958,400
36,000 Grainger (W.W.), Inc.......................... 2,079,000
-----------
4,848,563
-----------
Entertainment 4.3% 47,500 Walt Disney Co................................ 2,190,938
-----------
Financial Services 14.0% 25,000 Cincinnati Financial Corp..................... 1,287,500
50,000 Franklin Resources Inc........................ 1,781,250
17,200 Geico Corp.................................... 842,800
17,400 General Re Corp............................... 2,153,250
30,400 Torchmark Corp................................ 1,060,200
-----------
7,125,000
-----------
Food & Beverage 8.1% 27,000 Coca Cola Co.................................. 1,390,500
19,000 Kellogg Co.................................... 1,104,375
63,400 Sara Lee Corp................................. 1,600,850
-----------
4,095,725
-----------
Manufacturing 5.4% 41,100 Copper Tire & Rubber Co....................... 970,988
33,000 Minnesota Mining & Manufacturing Co........... 1,761,375
-----------
2,732,363
-----------
Newsprint 0.1% 1,440 Reuters Holdings PLC (ADR)**.................. 63,180
-----------
Oil & Oilfield Services 5.0% 32,100 Exxon Corp.................................... 1,950,075
5,400 Royal Dutch Petroleum Co. (Netherlands)....... 580,500
-----------
2,530,575
-----------
</TABLE>
27
<PAGE>
THE GCG TRUST
RISING DIVIDENDS SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
----------- ----------- -----------
<S> <C> <C> <C> <C>
Retail 5.5% 50,500 The Gap....................................... $ 1,540,250
58,100 Wal-Mart Stores, Inc.......................... 1,234,624
-----------
2,774,874
-----------
Telecommunications 7.6% 18,000 Ericsson (LM.) Tel.Co., Class B (ADR)**....... 992,250
52,300 Pacific Telesis Group......................... 1,490,550
32,900 Telefonos de Mexico (ADR)**................... 1,348,898
-----------
3,831,698
-----------
Total Common Stocks (Cost $47,314,573)........ 47,319,476
-----------
Total Investments (Cost $50,514,573) --
99.6%........................................ 50,519,476
Total Other Assets -- .4%..................... 194,315
Total Liabilities (0%)........................ (1,632)
-----------
Total Net Assets 100.0%................... $50,712,159
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
(a) Interest rate represents the annualized yield on date of purchase.
**--American Depositary Receipts.
See notes to financial statements.
28
<PAGE>
THE GCG TRUST
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ------------- -----------
<S> <C> <C> <C> <C>
TIME DEPOSITS 0.9% $616,646 Sumitomo Bank 5.00%, 01/03/95 (Japan) (Cost
$616,646).................................... $616,646
-----------
CONVERTIBLE BONDS 2.7% 140,000 Acer Corp. Convertible Bond 4.00%, 6/10/01
(Philipines)................................. 352,100
240,000 Essar Gujarat Convertible Bond 5.5%, 08/05/98
(India)...................................... 418,800
220,000 Gugarat Ambuja Convertible Bond 3.50%,
06/30/99 (India)............................. 331,100
190,000 JG Summit Ltd. Convertible Bond
3.50%, 12/23/03 (Philipines)................. 139,650
250,000 SCICI, Convertible Bond 3.50%, 04/01/04
(India)...................................... 221,875
175,000 United Micro Electronics Convertible Bond
1.25%, 06/08/04 (Taiwan)..................... 270,813
-----------
(Cost $1,691,449)............................. 1,734,338
-----------
<CAPTION>
SHARES
-------------
<S> <C> <C> <C> <C>
COMMON STOCK 83.3%
Banking 11.9% 144,390 Banco De Credito (Peru)....................... 317,290
9,563 Banco Del Sudsa (Argentina)................... 72,825
27,700 Banco Frances Del Rio Plata (Argentina)....... 183,186
36,855 Banco Mercantil Class A (Venezuela)........... 69,374
5,896 Banco Mercantil Class B (Venezuela)........... 11,272
15,166 Banco Provincial Ord (Venezuela).............. 39,520
5,292 Banco Venezuela de Credito (Venezuela)........ 230,364
32,400 Bangkok Bank (Thailand)....................... 345,944
164,600 Bank International Indonesia (Indonesia)...... 523,965
160,000 Commerce Asset Ord. (Malaysia)................ 645,515
432,000 New Development & Commercial Bank
(Malaysia)................................... 964,512
203,887 Grupo Financiero Banamex "L" (Mexico)......... 580,405
199,700 Grupo Financiero Norte "C" (Mexico)*.......... 484,957
12,980 Metropolitan Bank & Trust (Philippines)....... 367,758
78,000 Overseas Chinese Bank (Singapore)............. 802,469
118,000 Overseas Union Bank (Singapore)............... 687,929
11,900 Philippine Savings Bank (Philippines)*........ 315,328
17,381 Philippine National Bank (Philippines)........ 244,456
404,000 PT Bank Denang Nasionale Indonesia
(Indonesia).................................. 675,171
250 Corp Financiera Del Valle SA ADR**
(Columbia)................................... 5,625
29,656 Grupo Financiero Serfin ADR** (Mexico)........ 222,420
-----------
7,790,285
-----------
Building & Construction 7.1% 2,500 Grupo Industrial Bufete SA ADR** (Mexico)..... 73,750
40,250 Grupo Industrial Bufete CPO (Mexico).......... 365,315
868,000 Pilecon Engineer (Malaysia)................... 1,135,574
287,000 Tanjong Plc (Malaysia)........................ 854,367
46,100 Tolmex SA B2 Ord (Mexico)..................... 393,137
318,000 United Engineers (Malaysia)................... 1,569,448
112,833 Ceramicas Carabobo Class B ADR (Venezuela)**.. 141,042
18,350 Grupo Mexicano de Desarrallo ADR** (Mexico)... 139,919
-----------
4,672,552
-----------
Diversified 10.0% 30,400 Aracruz Celulose ADR** (Brazil)............... 387,600
13,500 Chilquinta ADR (Chile)** #.................... 232,254
27,900 Corimon SA ADR (Venezuela)**.................. 254,587
</TABLE>
29
<PAGE>
THE GCG TRUST
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
------------ ------------- -----------
<S> <C> <C> <C> <C>
Diversified (Continued) 78,300 Desc Sociedad De Fomento Indl Class B
(Mexico)..................................... $ 381,563
9,500 Desc Sociedad De Fomento Class C NPV
(Mexico)..................................... 53,817
80,000 Gruma SA Series B (Mexico).................... 330,559
144,060 Grupo Carso (Mexico)*......................... 1,077,891
35,039 Grupo Industrial Durango ADR** (Mexico)....... 494,926
160,000 Hutchison Whampoa (Hong Kong)................. 647,196
328,000 Indah Kiat Pulp & Paper (Indonesia)........... 387,813
44,800 Jardine Matheson (Hong Kong).................. 319,876
34,000 Industrials Oxygen Inc (Malaysia)............. 40,752
24,000 Modern Realty Ltd (Indonesia)................. 65,484
76,000 Pt Modern Photo Film (Indonesia).............. 321,419
1,450,000 SM Prime Holdings Inc (Philipines)............ 472,890
345,000 Technology Resources Industries (Malaysia).... 1,101,351
-----------
6,569,978
-----------
Diversified Manufacturing 0.6% 13,746 Madeco SA ADR (Chile)**....................... 364,269
-----------
Electronics 3.0% 73,000 Hana Microelectronics (Thailand).............. 511,873
3,800 Samsung Electronics Co (Korea)................ 542,436
13,900 Samsung Electronics GDS Non-voting (Korea).... 695,000
575 Samsung Electronics GDS Voting (Korea)........ 34,500
684,000 Tomei International Holdings (China).......... 53,921
6,000 Yageo GDR (Taiwan)............................ 103,500
-----------
1,941,230
-----------
Emerging Markets 22.0% 2,000,000 Acesita Ord(Brazil)*.......................... 148,936
25,145 Benpres Holdings GDR* (Philipines)............ 232,591
33,000 Cadenalco (Columbia)#*........................ 528,000
78,313 Cemento Norte Pacasmayo (Peru)................ 301,067
14,150 Cementos Diamante#* (Columbia)................ 332,525
13,475 Cementos Paz Del Rio ADR** (Columbia)......... 269,500
93,015 Cemex SA NPV (Mexico)......................... 474,046
1,533,340 Cemig Cia Energy (Brazil)..................... 139,559
66,875 Cerveceria Backus & Johnston (Peru)........... 151,518
115,414 Cerveceria San Juan (Peru).................... 232,614
2,880,000 Cia Paulista Fuersa (Brazil).................. 255,319
280,607 Compania Peruana de Telephono (Peru).......... 326,822
201,000 Cia Siderurgica Paulista (Brazil)............. 585,656
279,413 Colorin Industria de Material (Argentina)..... 209,980
28,124 Compania Interamericano De Auto (Argentina)... 246,578
54,665 Corporation Cementera Argentina S.A.
(Argentina)*................................. 361,512
25,100 Corporacion Geo ADR (Mexico)**................ 527,100
832,000 Coteminas (Brazil)............................ 285,201
12,675,010 Companhia Siderurgica Nacional (Brazil)....... 432,239
15,000 Desc S.A. ADR Series C (Mexico)**............. 354,375
141,557 Elecricidad de Caracas (Venezuela)............ 202,343
2,628,167 Centrais Electrobas NPV (Brazil).............. 928,867
60,755 Ferryros (Peru)............................... 103,654
466,000 Grupo Posadas Series "A" (Mexico)............. 367,123
275,000 Grupo Posadas Series "L" (Mexico)*............ 214,416
14,000 Grupo Simec SA ADS (Argentina)*............... 211,750
133,140 Grupo Situr Class B (Mexico).................. 275,742
763,000 Henderson Invesments (Hong Kong).............. 502,882
139,205 Invers Y Represente Ord (Argentina)........... 383,581
4,306 Invers Y Represente ADR (Argentina)**......... 115,186
</TABLE>
30
<PAGE>
THE GCG TRUST
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
------------ ------------- -----------
Emerging Markets
<S> <C> <C> <C> <C>
(Continued) 21,000 John Keells Holdings GDS (Sri Lanka).......... $ 186,375
61,066 Juan Minetti Ord (Argentina).................. 302,882
16,964 Minsur "T" Ord (Peru)......................... 173,576
203,000 PT Mulia Industrindo (Indonesia).............. 553,888
7,000 PT Tri Polyta Indonesia ADR (Indonesia)* **... 169,750
49,117 Southern Peru Copper (Peru)*.................. 271,954
722,589 Sudamtex Ord "B" (Venezuela).................. 121,140
6,750,000 Telebras ON Ord (Brazil)...................... 291,223
78,582 Telecom Argentina (Argentina)................. 385,823
360 Telecom Argentina ADR (Argentina)**........... 17,550
601,750 Telefonos de Mexico Series "L" (Mexico)....... 1,251,151
34,600 Thai Petrochemical (Thailand)................. 76,575
59,375 TPI Polene Co. (Thailand)..................... 529,880
23,000 Usiminas ADR (Brazil)** #..................... 307,510
-----------
14,339,959
-----------
Financial Services 1.3% 430 HSBC Holdings Plc. (Hong Kong)................ 4,640
1,840,000 Manhattan Card., Ltd. (Hong Kong)............. 701,473
228,500 Venaseta Class A (Venezuela).................. 22,850
45,700 Venaseta Class B (Venezuela).................. 4,382
12,980 Servicios Financieros Quadrum ADR
(Mexico)**................................... 82,748
-----------
816,093
-----------
Food Product & Beer 2.3% 25,935 Cervecer Bieckert (Argentina)*................ 155,922
28,000 Panamerican Beverages Inc. ADR (Mexico)**..... 885,500
10,065 Quilmes Industrial SA (Argentina)............. 241,560
300,000 San Miguel Brewery Ltd (Hong Kong)............ 207,418
-----------
1,490,400
-----------
Foreign Miscellaneous 5.0% 16,326 Banco Galicia ADR (Argentina)**............... 281,623
30,800 Carulla ADR (Columbia)**...................... 488,950
10,922 Cemig ADR (Brazil)**.......................... 270,320
4,492 Cia Vale Rio Doce ADR (Brazil)**.............. 214,789
21,539 Maderas Y Sinteticos Sociedad Anoma ADR
(Chile)**.................................... 549,245
17,500 Mavesa S.A ADR (Venezuela)**#................. 86,536
3,000 Pohang Iron & Steel (South Korea)............. 291,570
283,000 Sahaviriya Steel Industry (Thailand).......... 721,594
1,880,000 Valle Rio Doce PN (Brazil).................... 360,000
-----------
3,264,627
-----------
Insurance 1.3% 1,266,000 National Mutual Asia Series A (Hong Kong)..... 834,402
-----------
Paper 0.0% 45,000 Venezolana De Pulpa y Papel (Venezuela)....... 31,500
-----------
Printing & Publishing 1.5% 53,000 Singapore Press Holdings (Singapore).......... 963,306
-----------
Real Estate Investment 6.7% 148,000 City Developments (Singapore)................. 827,298
Trust 63,100 Hemaraj Land Development (Thailand)........... 217,456
286,666 Duta Anggada Realty (Indonesia)............... 195,543
7,966 Hong Kong Land Holdings Ltd. (Hong Kong)...... 15,545
1,303,000 Hopewell Holdings (Hong Kong)................. 1,077,694
252,000 Singapore Land (Singapore).................... 1,477,778
175,000 Wharf Holdings (Hong Kong).................... 590,269
-----------
4,401,583
-----------
Retail 1.0% 537,884 Organizacion Soriana Series B (Mexico)........ 642,184
-----------
Telecommunication 2.9% 380,400 Hong Kong Telecommunications (Hong Kong)...... 725,110
</TABLE>
31
<PAGE>
THE GCG TRUST
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE(+)
------------ ------------- -----------
Telecommunications
<S> <C> <C> <C> <C>
(Continued) 6,786 Telebras Spons ADR (Brazil)**................. $ 303,655
33,300 Telex-Chile ADR (Chile)**..................... 353,813
8,250 PT Indonesia Satelite ADR (Indonesia)**....... 294,938
5,535 Telefonos de Mexico ADR (Mexico)**............ 226,935
-----------
1,904,451
-----------
Transportation 2.1% 101,000 Swire Pacific Ltd Class A (Hong Kong)......... 629,129
350,000 Orient Overseas International Ltd. (Hong
Kong)........................................ 228,418
62,600 Unithai Line Public Co. Ltd (Thailand)........ 488,829
-----------
1,346,376
-----------
Utilities 4.6% 47,500 Calcutta Electric GDR (India)................. 356,250
75,028 Central Puerto Buenos Aires Ord (Argentina)... 372,132
1,950 Central Puerto Buenos Aires ADR
(Argentina)**................................ 48,260
20,500 Chilgener S.A. ADR** (Chile).................. 504,813
366,000 Consolidated Electric Power (Hong Kong)....... 804,083
327,000 Hong Kong Electric (Hong Kong)................ 893,777
-----------
2,979,315
-----------
Total Common Stocks
(Cost $64,052,028)........................... 54,352,510
-----------
PREFERRED STOCK 6.4% 29,420,000 Banco Bradesco (Brazil)....................... 250,383
973,333 Brahma (Brazil)............................... 320,820
235,000 Cesp-CIA Energetica de Sao Paulo (Brazil)..... 305,556
818,000 Iochpe-Maxion NPV (Brazil).................... 570,472
5,892,600 Lojas Renner SA (Brazil)...................... 104,479
1,951,000 Mesbla NPV (Brazil)........................... 350,534
198,744,668 Refrigeracao Parana SA NPV (Brazil)........... 657,784
9,493,000 Telebras (Brazil)............................. 425,277
4,500,780 Telec De Dao Paulo SA Telesp(Brazil).......... 641,069
379,000,000 Usiminas (Brazil)#*........................... 515,189
-----------
(Cost $3,930,209)............................. 4,141,563
-----------
OPTIONS & WARRANTS 0.1% 4,000 Companhia Paulista de Foren Luz, Call Option @
$70, expiring 11/95 (Brazil)................. 32,757
75,000 Henderson Invesments-Warrants (Hong Kong)*.... 755
740,000 Hutchinson Whampao-Warrants (Hong Kong)*...... 46,860
-----------
(Cost $82,435)................................ 80,372
-----------
Total Investments
(Cost $70,372,767) -- 93.4%.................. $60,925,429
Total Other Assets -- 7.1%.................... 4,602,631
Total Liabilities -- (0.5%)................... (304,148)
-----------
Total Net Assets -- 100.0%.................... $65,223,912
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
*--Non-income producing security.
**--American Depositary Receipts.
#--Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold, in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1994 the value of
these securities amounted to $1,486,825 or 2.3% of net assets.
GDS--Global Depository Shares
GDR--Global Depository Receipts
ADS--American Depository Shares
See notes to financial statements.
32
<PAGE>
THE GCG TRUST
MARKET MANAGER SERIES
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NET ASSETS AMOUNT VALUE(+)
------------ ------------- -----------
<S> <C> <C> <C> <C>
SHORT TERM U.S. AGENCY
OBLIGATIONS 32.2% $ 66,000 FHLMC Discount Note, 1/18/95.................. $ 65,876
100,000 FHLMC Discount Note, 1/19/95.................. 99,762
280,000 Federal Home Loan Bank Discount Note,
1/26/95...................................... 278,913
115,000 FNMA Discount Note, 1/30/95................... 114,514
330,000 FNMA Discount Note, 1/31/95................... 328,411
-----------
(Cost $887,476)............................... 887,476
-----------
COMMERCIAL PAPER 10.2% 280,000 General Electric Capital Corporation, 2/01/95
(Cost $279,929).............................. 279,929
-----------
SHORT-TERM U.S. GOVERNMENT 49.1% 1,357,000 U. S. Treasury Bills, 1/12/95-2/16/95
OBLIGATIONS (Cost $1,351,427)............................ 1,351,427
-----------
Total Investments
(Cost $2,518,832) -- 91.5%................... $ 2,518,832
Total Other Assets -- 8.5%.................... 235,414
Liabilities -- (0%)........................... 0
-----------
Total Net Assets -- 100%...................... $ 2,754,246
-----------
-----------
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of notes to financial statements.
See notes to financial statements.
33
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The GCG Trust, ("the Trust") is registered under the Investment Company Act
of 1940 as a diversified, open-end series investment company and is intended to
be a funding vehicle for variable annuity contracts ("contracts") and variable
life insurance policies ("policies") offered by the separate accounts of life
insurance companies. The Trust currently functions as the funding vehicle for
contracts and policies offered by Golden American Life Insurance Company
("Golden American"), a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect subsidiary of Bankers Trust Company, by the Mutual Benefit Life
Insurance Company in Rehabilitation and by The Hartford Life Insurance
Companies. These financial statements include the following series of the Trust:
Liquid Asset ("LA"), Limited Maturity Bond ("LMB"), Natural Resources ("NR"),
All-Growth ("AG"), Real Estate ("RE"), Fully Managed ("FM"), Multiple Allocation
("MA"), Capital Appreciation ("CA"), Rising Dividends ("RD"), Emerging Markets
("EM") and Market Manager ("MM"). The Trust's Manager is Directed Services, Inc.
("DSI"), a wholly-owned subsidiary of BTV (see Note 4). As of December 31, 1994,
the Portfolio Managers of each of the Series above were as follows: Bankers
Trust Company (LA, LMB, EM and MM), Van Eck Associates Corp. (NR), Warburg,
Pincus Counsellors, Inc. (AG), Chancellor Capital Management, Inc. (RE and CA),
Weiss, Peck & Greer Advisors, Inc. (FM), Zweig Advisors, Inc. (MA), and Kayne,
Anderson Investment Management, Inc. (RD). Effective June 30, 1994, the Board of
Trustees of the Trust terminated the Portfolio Management Agreement between DSI
and J.M. Hartwell & Company, Inc., the Portfolio Manager of the AG Series.
Effective July 1, 1994, the Board of Trustees appointed Warburg as the new
Portfolio Manager for such Series. Also effective December 31, 1994, the Board
of Trustees terminated the Portfolio Management Agreements between DSI and
Weiss, Peck and Greer Advisors, Inc. and Chancellor Capital Management, Inc.,
the Portfolio Managers of the FM and the RE Series, respectively. Effective
January 1, 1995, the Board of Trustees appointed T. Rowe Price Associates, Inc.
and E.I.I. Realty Securities, Inc. as the new Portfolio Managers for the FM and
the RE Series, respectively.
All Series commenced operations on January 24, 1989, except for the Capital
Appreciation Series which commenced operations on May 4, 1992, the Rising
Dividends and the Emerging Markets Series which commenced operations on October
4, 1993, and the Market Manager Series which commenced operations on November
14, 1994.
The following is a summary of significant accounting policies consistently
followed in the preparation of the Trust's financial statements. The policies
are in conformity with generally accepted accounting principles.
INVESTMENTS VALUATION: The valuation of the Trust's assets is determined
once each business day, Monday through Friday, at or about 4:00 p.m., New York
City time, on each day that the New York Stock Exchange is open for trading.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price at which domestic and foreign securities were traded, or, if no
sales are reported, the mean between representative bid and ask quotations
obtained from a quotation reporting system or from established market makers. In
other cases, securities are valued at their fair value as determined in good
faith under the direction of the Board of Trustees.
The value of a foreign security is determined in its national currency based
upon the price on the pertinent foreign exchange immediately preceding the time
of valuation. Debt securities, including those to be purchased under firm
commitment agreements are normally valued on the basis of quotes obtained from
brokers and dealers or pricing services. Debt obligations having a maturity of
sixty days
34
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or less may be valued at amortized cost unless the Portfolio Manager believes
that amortized cost does not approximate market value. The Portfolio securities
of the Liquid Asset Series are valued using the amortized cost method, which
approximates market value.
CURRENCY TRANSLATION: Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency exchange contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar as of the close of business immediately
preceding the time of valuation. Purchases and sales of portfolio securities are
translated at the rates of exchange prevailing when such securities were
acquired or sold. Income and expenses are translated at rates of exchange
prevailing when accrued.
The Trust does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain (loss) on
investments and foreign currency transactions.
Net realized foreign exchange gains and losses arising from the sale of
forward contracts, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amount of dividends, interest and foreign withholding taxes recorded and the
U.S. dollar equivalent of the amounts actually received or paid were $25,156 for
the Emerging Markets Series. Net unrealized foreign exchange gains and losses
arising from changes in the value of assets and liabilities, other than
investments in securities at December 31, 1994 resulting from changes in the
exchange rate were $8,696 for the Emerging Markets Series. For the Natural
Resource Series, All-Growth Series, Fully Managed Series, Multiple Allocation
Series and Rising Dividends Series, realized and unrealized foreign exchange
gains and losses were not material.
REPURCHASE AGREEMENTS: Each Series may enter into repurchase agreements in
accordance with guidelines approved by the Board of Trustees of the Trust. Each
Series bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Series is delayed or prevented
from exercising its right to dispose of the underlying securities including the
risk of a possible decline in the value of the underlying securities during the
period while the Series seeks to assure its rights. Each Series takes possession
of the collateral, and reviews the value of the collateral and the
creditworthiness of those banks and dealers with which the Series enters into
repurchase agreements to evaluate potential risks. The market value of the
underlying securities received as collateral must be at least equal to the total
amount of the repurchase obligation. In the event of counterparty default, the
Series has the right to use the underlying securities to offset the loss.
FORWARD CONTRACTS: Certain Series of the Trust may enter into forward
foreign exchange contracts in order to hedge their exposure to changes in
foreign currency exchange rates on their foreign portfolio holdings. A forward
exchange contract is a commitment to purchase or sell a foreign currency at a
future date at a negotiated forward rate. The gain or loss arising from the
difference between the cost of the original contracts and the amount realized
upon the closing of such contracts is included in realized gains or losses from
investment transactions. Fluctuations in the value of forward foreign currency
exchange contracts held are recorded for financial reporting purposes as
unrealized gains or losses by the Trust on a daily basis. Risks may arise from
the potential inability of a counterparty to meet the terms of a contract and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. At December 31, 1994, there were no open forward foreign exchange
contracts in any of the Series.
FEDERAL INCOME TAXES -- Each Series of the Trust is a separate entity for
federal income tax purposes. No provision for federal income taxes has been made
since each Series of the Trust has
35
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
complied and intends to continue to comply with provisions of the Internal
Revenue Code available to regulated investment companies and to distribute its
taxable income to shareholders sufficient to relieve it from all or
substantially all Federal income taxes.
Dividends from net investment income and distributions from realized gains
from investment transactions have been determined in accordance with income tax
regulations and may differ from net investment income and realized gains
recorded by the Trust. These differences may include temporary timing
differences related to recognition of income and gains or losses from investment
transactions and different treatment in wash sales.
OTHER -- Investment transactions are recorded on trade date. Dividend income
and distributions to shareholders are recorded on the ex-dividend date. Interest
income (including amortization of premium and discount on securities) and
expenses are accrued daily. Realized gains and losses from investment
transactions are recorded on an identified cost basis which is the same basis
the Trust uses for federal income tax purposes. Purchases of securities under
agreements to resell are carried at cost, and the related accrued interest is
included in interest receivable.
2. COST OF INVESTMENTS, UNREALIZED APPRECIATION AND DEPRECIATION, AND PURCHASES
AND SALES OF INVESTMENT SECURITIES.
At December 31, 1994, the cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting purposes
(see the Statements of Investments). The gross unrealized appreciation and
depreciation of investments at December 31, 1994 and purchases and sales of
investment securities excluding short term securities for the year ended
December 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES ALL-GROWTH
SERIES BOND SERIES SERIES SERIES
-------------- ------------------- -------------------- --------------
<S> <C> <C> <C> <C>
Purchases............................. $ 0 $119,152,709 $17,017,367 $91,408,088
-------------- ------------------- -------------------- --------------
-------------- ------------------- -------------------- --------------
Sales................................. $ 0 $117,879,671 $ 6,578,673 $84,315,191
-------------- ------------------- -------------------- --------------
-------------- ------------------- -------------------- --------------
Gross Appreciation.................... $ 0 $ 19,140 $ 3,759,104 $ 1,177,074
Gross Depreciation.................... $ 0 (1,616,689) (1,359,887) (2,634,950)
-------------- ------------------- -------------------- --------------
Net unrealized appreciation
(depreciation) for federal income tax
purposes............................. $ 0 $ (1,597,549) $ 2,399,217 $(1,457,876)
-------------- ------------------- -------------------- --------------
-------------- ------------------- -------------------- --------------
</TABLE>
36
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COST OF INVESTMENTS, UNREALIZED APPRECIATION AND DEPRECIATION, AND PURCHASES
AND SALES OF INVESTMENT SECURITIES. (CONTINUED)
<TABLE>
<CAPTION>
MULTIPLE CAPITAL
REAL ESTATE FULLY MANAGED ALLOCATION APPRECIATION
SERIES SERIES SERIES SERIES
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Purchases.................................... $25,634,212 $74,445,374 $460,076,883 $65,456,260
-------------- ---------------- ---------------- --------------
-------------- ---------------- ---------------- --------------
Sales........................................ $20,212,094 $68,970,332 $396,073,224 $67,459,121
-------------- ---------------- ---------------- --------------
-------------- ---------------- ---------------- --------------
Gross Appreciation........................... $ 1,271,071 $ 3,411,676 $ 2,880,782 $ 5,205,191
Gross Depreciation........................... (1,075,486) (9,114,780) (5,222,097) (3,855,150)
-------------- ---------------- ---------------- --------------
Net unrealized appreciation (depreciation)
for federal income tax purposes............. $ 195,585 $(5,703,104) $ (2,341,315) $ 1,350,041
-------------- ---------------- ---------------- --------------
-------------- ---------------- ---------------- --------------
</TABLE>
<TABLE>
<CAPTION>
RISING
DIVIDENDS EMERGING MARKETS MARKET MANAGER
SERIES SERIES SERIES(A)
-------------- ---------------- --------------
<S> <C> <C> <C>
Purchases................................... $45,871,349 $104,457,122 $ 0
-------------- ---------------- --------------
-------------- ---------------- --------------
Sales....................................... $ 8,966,934 $ 58,119,472 $ 0
-------------- ---------------- --------------
-------------- ---------------- --------------
Gross Appreciation.......................... $ 2,759,486 $ 3,041,573 $ 0
Gross Depreciation.......................... (2,754,583) (12,488,911) 0
-------------- ---------------- --------------
Net unrealized appreciation (depreciation)
for federal income tax purposes............ $ 4,903 $ (9,447,338) $ 0
-------------- ---------------- --------------
-------------- ---------------- --------------
</TABLE>
- ------------------------
(a) Commencement of operations, November 14, 1994.
3. FEDERAL INCOME TAXES
For federal income tax purposes, the Series indicated below have capital
loss carryforwards as of December 31, 1994 which are available to offset future
capital gains, if any.
CAPITAL LOSS
CARRYFORWARD EXPIRATION
--------------- --------------
Liquid Asset Series......................... $ 238 2001 - 2002
---------------
---------------
Limited Maturity Bond Series................ $2,253,045 2002
---------------
---------------
All-Growth Series........................... $1,417,490 1997 - 2001
---------------
---------------
Real Estate Series.......................... $ 200,235 1998 - 2002
---------------
---------------
Fully Managed Series........................ $ 801,172 2002
---------------
---------------
Multiple Allocation Series.................. $7,516,598 2002
---------------
---------------
Capital Appreciation Series................. $ 339,527 2002
---------------
---------------
Rising Dividends Series..................... $ 563,865 2001 - 2002
---------------
---------------
37
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. MANAGEMENT FEES, ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
In accordance with the terms of the Management Agreement between the Trust
and DSI, the Trust pays a single unified fee to DSI to cover all ordinary
operating expenses (as defined) of each series of the Trust, except for Trustees
fees and taxes. For such services, the Trust pays to DSI a monthly fee in
accordance with the following schedule: For the Multiple Allocation, Fully
Managed, Natural Resources, Real Estate, All-Growth, Capital Appreciation and
Rising Dividends Series, the Trust pays to DSI a fee at an annual rate of 1.0%
of the average daily net assets of all of these Series, in the aggregate, on the
first $750 million in the combined net assets of these Series, 0.95% on the next
$1.250 billion in assets, 0.90% on the next $1.5 billion in assets, and 0.85% on
the amount of assets in excess of $3.5 billion. For the Limited Maturity Bond
and Liquid Asset Series, the Trust pays to DSI a fee at an annual rate of 0.60%
of the average daily net assets of both Series, in the aggregate, on the first
$200 million in the combined net assets of both Series, 0.55% on the next $300
million in assets, and 0.50% on the amount of assets in excess of $500 million.
For the Emerging Markets Series, the Trust pays to DSI a fee at an annual rate
of 1.50% of the average daily net assets of the Series. For the Market Manager
Series, the Trust pays to DSI a fee at an annual rate of 1.0% of the average
daily net assets of the Series. For the period November 14, 1994 to March 3,
1995, the expiration of the offering period, DSI has waived the fee with respect
to such Series. DSI pays advisory fees to the respective portfolio managers from
the fees earned under the Management Agreement.
Certain officers and trustees of the Trust are also officers and/or
directors of DSI and/or BTV.
Weiss, Peck & Greer, Inc., a related party to Weiss, Peck & Greer Advisers,
Inc., received $78,271 in brokerage commissions relating to transactions
executed on behalf of the Fully Managed Series. Watermark Securities, Inc., a
related party to Zweig Advisors, Inc., received $51,764 in brokerage commissions
relating to transactions executed on behalf of the Multiple Allocation Series.
BT Securities, Inc., a wholly-owned subsidiary of Bankers Trust received $975 in
brokerage commissions relating to transactions executed on behalf of the Market
Manager Series.
At December 31, 1994, the Trust owed to DSI $23,107 for unified fees.
38
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
LIQUID ASSET SERIES
-----------------------------------------------------
1994 1993 1992 1991 1990
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -------- --------
Net investment income.............................. 0.04 0.03 0.03 0.05 0.07
Net gain (loss) on securities -- realized and
unrealized........................................ 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- -------- --------
Total from investment operations..................... 0.04 0.03 0.03 0.05 0.07
--------- --------- --------- -------- --------
Less distributions:
Dividends from investment income................... (0.04) (0.03) (0.03) (0.05) (0.07)
Distributions from capital gains................... 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- -------- --------
Total distributions.................................. (0.04) (0.03) (0.03) (0.05) (0.07)
--------- --------- --------- -------- --------
Net asset value, end of period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
TOTAL INVESTMENT RETURN................................ 3.89% 2.64% 3.13% 5.66% 7.75%
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted)..................................... $46,122 $16,808 $13,206 $9,790 $8,709
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Ratio of expenses to average net assets.............. 0.61% 0.61% 0.74% 0.76% 0.66%
Decrease reflected in above expense ratio due to
expense limitations................................. -- 0.08% 0.50% 1.01% 1.84%
Ratio of net investment income to average net
assets.............................................. 3.89% 2.60% 3.04% 5.48% 7.56%
Portfolio turnover rate.............................. N/A N/A N/A N/A N/A
</TABLE>
39
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
LIMITED MATURITY BOND SERIES
---------------------------------------------------------
1994 1993 1992 1991 1990
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................ $ 10.62 $ 10.43 $ 10.54 $ 10.15 $ 10.16
---------- ---------- ---------- ---------- ---------
Net investment income............................. 0.51 0.40 0.60 0.68 0.72
Net gain (loss) on securities -- realized and
unrealized....................................... (0.64) 0.23 (0.11) 0.42 0.00
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Total from investment operations.................... (0.13) 0.63 0.49 1.10 0.72
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Less distributions:
Dividends from investment income.................. (0.51) (0.40) (0.60) (0.68) (0.72)
Distributions from capital gains.................. 0.00 (0.04) 0.00 (0.03) (0.01)
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Total distributions................................. (0.51) (0.44) (0.60) (0.71) (0.73)
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Net asset value, end of period...................... $ 9.98 $ 10.62 $ 10.43 $ 10.54 $ 10.15
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
TOTAL INVESTMENT RETURN............................... (1.19)% 6.20% 4.84% 11.27% 7.87%
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted).................................... $72,213 $72,219 $40,213 $16,144 $8,321
----------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------
Ratio of expenses to average net assets............. 0.60% 0.61% 0.72% 0.87% 0.81%
Decrease reflected in above expense ratio due to
expense limitations................................ -- 0.04% 0.27% 0.89% 2.09%
Ratio of net investment income to average net
assets............................................. 4.73% 4.64% 5.71% 6.58% 7.47%
Portfolio turnover rate............................. 209.00% 114.63% 63.25% 464.93% 373.13%
</TABLE>
40
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
NATURAL RESOURCES SERIES
----------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................. $ 13.89 $ 9.31 $10.46 $10.11 $11.89
--------- --------- --------- -------- ---------
Net investment income............................... 0.13 0.07 0.14 0.13 0.13
Net gain (loss) on securities -- realized and
unrealized......................................... 0.23 4.58 (1.15) 0.35 (1.78)
--------- --------- --------- -------- ---------
Total from investment operations...................... 0.36 4.65 (1.01) 0.48 (1.65)
--------- --------- --------- -------- ---------
Less distributions:
Dividends from investment income.................... (0.13) (0.07) (0.14) (0.13) (0.13)
Distributions from capital gains.................... (0.24) 0.00 0.00 0.00 0.00
--------- --------- --------- -------- ---------
Total distributions................................... (0.37) (0.07) (0.14) (0.13) (0.13)
--------- --------- --------- -------- ---------
Net asset value, end of period........................ $ 13.88 $ 13.89 $ 9.31 $10.46 $10.11
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
TOTAL INVESTMENT RETURN................................. 2.53% 49.93% (9.81)% 4.70% (13.84)%
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted)...................................... $32,879 $21,517 $2,916 $2,702 $2,552
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Ratio of expenses to average net assets............... 1.00% 1.05% 1.50% 1.50% 1.53%
Decrease reflected in above expense ratio due to
expense limitations.................................. -- 0.08% 0.89% 1.94% 1.93%
Ratio of net investment income to average net
assets............................................... 1.01% 1.03% 1.38% 1.21% 1.21%
Portfolio turnover rate............................... 25.12% 4.77% 19.28% 38.63% 53.99%
</TABLE>
41
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
ALL-GROWTH SERIES
---------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................ $ 13.42 $ 12.64 $ 13.05 $ 9.65 $ 10.59
---------- ---------- ---------- ---------- ---------
Net investment income............................. 0.11 0.05 0.08 0.11 0.19
Net gain (loss) on securities -- realized and
unrealized....................................... (1.56) 0.78 (0.41) 3.40 (0.94)
---------- ---------- ---------- ---------- ---------
Total from investment operations.................... (1.45) 0.83 (0.33) 3.51 (0.75)
---------- ---------- ---------- ---------- ---------
Less distributions:
Dividends from investment income.................. (0.11) (0.05) (0.08) (0.11) (0.19)
Distributions from capital gains.................. 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------
Total distributions................................. (0.11) (0.05) (0.08) (0.11) (0.19)
---------- ---------- ---------- ---------- ---------
Net asset value, end of period...................... $ 11.86 $ 13.42 $ 12.64 $ 13.05 $ 9.65
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
TOTAL INVESTMENT RETURN............................... (10.77)% 6.56% (2.59)% 36.48% (7.35)%
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted).................................... $71,218 $56,491 $24,202 $11,857 $5,005
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Ratio of expenses to average net assets............. 1.00% 1.01% 1.31% 1.48% 1.51%
Decrease reflected in above expense ratio due to
expense limitations................................ -- 0.01% 0.04% 0.40% 1.51%
Ratio of net investment income to average net
assets............................................. 1.08% 0.52% 0.61% 0.94% 1.99%
Portfolio turnover rate............................. 195.65% 29.09% 20.13% 31.39% 88.29%
</TABLE>
42
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
REAL ESTATE SERIES
----------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................. $ 11.18 $ 9.81 $ 9.02 $ 7.05 $ 9.53
----------- ----------- --------- ----------- ------------
Net investment income.............................. 0.60 0.32 0.52 0.42 0.50
Net gain (loss) on securities -- realized and
unrealized........................................ 0.11(4) 1.37(4) 0.79 1.97 (2.48)
----------- ----------- --------- ----------- ------------
Total from investment operations..................... 0.71 1.69 1.31 2.39 (1.98)
----------- ----------- --------- ----------- ------------
Less distributions:
Dividends from investment income................... (0.60) (0.32) (0.52) (0.42) (0.50)
Distributions from capital gains................... 0.00 0.00 0.00 0.00 0.00
----------- ----------- --------- ----------- ------------
Total distributions.................................. (0.60) (0.32) (0.52) (0.42) (0.50)
----------- ----------- --------- ----------- ------------
Net asset value, end of period....................... $ 11.29 $ 11.18 $ 9.81 $ 9.02 $ 7.05
----------- ----------- --------- ----------- ------------
----------- ----------- --------- ----------- ------------
TOTAL INVESTMENT RETURN................................ 6.34% 17.27% 13.87% 34.06% (20.78)%
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted)..................................... $37,336 $29,000 $3,739 $ 710 $ 320
----------- ----------- --------- ----------- ------------
----------- ----------- --------- ----------- ------------
Ratio of expenses to average net assets.............. 1.00% 1.04% 1.18% 1.53% 1.48%
Decrease reflected in above expense ratio due to
expense limitations................................. -- 0.10% 1.79% 11.17% 10.80%
Ratio of net investment income to average net
assets.............................................. 5.31% 4.69% 5.74% 5.00% 5.95%
Portfolio turnover rate.............................. 64.18% 38.37% 17.57% 53.79% 47.16%
</TABLE>
43
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
FULLY MANAGED SERIES
-----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........ $ 12.99 $ 12.43 $ 11.94 $ 9.51 $10.16
---------- ------------ ---------- ---------- ---------
Net investment income..................... 0.35 0.19 0.28 0.29 0.33
Net gain (loss) on securities -- realized
and unrealized........................... (1.29) 0.75 0.49 2.43 (0.65)
---------- ------------ ---------- ---------- ---------
Total from investment operations............ (0.94) 0.94 0.77 2.72 (0.32)
---------- ------------ ---------- ---------- ---------
Less distributions:
Dividends from investment income.......... (0.35) (0.19) (0.28) (0.29) (0.33)
Distributions from capital gains.......... 0.00 (0.19) 0.00 0.00 0.00
---------- ------------ ---------- ---------- ---------
Total distributions......................... (0.35) (0.38) (0.28) (0.29) (0.33)
---------- ------------ ---------- ---------- ---------
Net asset value, end of period.............. $ 11.70 $ 12.99 $ 12.43 $ 11.94 $ 9.51
----------- ----------- ---------- ---------- ---------
----------- ----------- ---------- ---------- ---------
TOTAL INVESTMENT RETURN....................... (7.27)% 7.59% 6.23% 28.93% (3.18)%
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted)............................ $99,854 $108,690 $37,696 $10,031 $5,426
---------- ----------- ---------- ---------- ---------
---------- ----------- ---------- ---------- ---------
Ratio of expenses to average net assets..... 1.00% 1.01% 1.04% 1.50% 1.52%
Decrease reflected in above expense ratio
due to expense limitations................. -- 0.04% 0.20% 0.68% 1.27%
Ratio of net investment income to average
net assets................................. 2.62% 2.12% 2.38% 2.71% 3.38%
Portfolio turnover rate..................... 66.06% 54.89% 27.37% 68.21% 99.59%
</TABLE>
44
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
MULTIPLE ALLOCATION SERIES
--------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........ $ 11.89 $ 11.41 $ 11.73 $ 10.26 $ 10.34
----------- ----------- ----------- ---------- -----------
Net investment income..................... 0.42 0.24 0.42 0.49 0.57
Net gain (loss) on securities -- realized
and unrealized........................... (0.56) 1.03 (0.18) 1.57 (0.08)
----------- ----------- ----------- ---------- -----------
Total from investment operations............ (0.14) 1.27 0.24 2.06 0.49
----------- ----------- ----------- ---------- -----------
Less distributions:
Dividends from investment income.......... (0.42) (0.24) (0.42) (0.49) (0.57)
Distributions from capital gains.......... 0.00 (0.55) (0.14) (0.10) 0.00
----------- ----------- ----------- ---------- -----------
Total distributions......................... (0.42) (0.79) (0.56) (0.59) (0.57)
----------- ----------- ----------- ---------- -----------
Net asset value, end of period.............. $ 11.33 $ 11.89 $ 11.41 $ 11.73 $ 10.26
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
TOTAL INVESTMENT RETURN....................... (1.18)% 11.13% 1.88% 20.02% 4.74%
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted)............................ $299,392 $274,231 $116,040 $58,578 $24,347
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Ratio of expenses to average net assets..... 1.00% 1.01% 1.09% 1.33% 1.24%
Decrease reflected in above expense ratio
due to expense limitations................. -- 0.03% 0.10% 0.13% 0.68%
Ratio of net investment income to average
net assets................................. 3.56% 2.75% 3.65% 4.43% 5.73%
Portfolio turnover rate..................... 291.00% 348.34% 92.68% 69.51% 162.45%
</TABLE>
45
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION SERIES
-----------------------------------
1994 1993 1992(1)
---------- ---------- ---------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $ 11.76 $ 11.00 $ 10.00
---------- ---------- ----------
Net investment income.................................................... 0.23 0.13 0.12
Net gain (loss) on securities -- realized and unrealized................. (0.42) 0.78 1.00
---------- ---------- ----------
Total from investment operations........................................... (0.19) 0.91 1.12
---------- ---------- ----------
Less distributions:
Dividends from investment income......................................... (0.23) (0.13) (0.12)
Distributions from capital gains......................................... 0.00 (0.02) 0.00
---------- ---------- ----------
Total distributions........................................................ (0.23) (0.15) (0.12)
---------- ---------- ----------
---------- ---------- ----------
Net asset value, end of period............................................. $ 11.34 $ 11.76 $ 11.00
---------- ---------- ----------
---------- ---------- ----------
TOTAL INVESTMENT RETURN...................................................... (1.59)% 8.31% 10.87%*
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period
(000's omitted)........................................................... $88,890 $87,219 $18,645
---------- ---------- ---------
---------- ---------- ---------
Ratio of expenses to average net assets.................................... 1.00% 1.02% 0.91%*
Decrease reflected in above expense ratio due to expense limitations....... -- 0.04% 0.27%*
Ratio of net investment income to average net assets....................... 1.96% 1.69% 2.06%*
Portfolio turnover rate.................................................... 83.64% 66.82% 5.52%
</TABLE>
46
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
RISING DIVIDENDS SERIES
-----------------------
1994 1993(2)
---------- -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............................................. $ 10.30 $ 10.00
---------- -----------
Net investment income........................................................... 0.14 0.01
Net gain (loss) on securities -- realized and unrealized........................ (0.08) 0.30
--------- -----------
Total from investment operations.................................................. 0.06 0.31
--------- -----------
Less distributions:
Dividends from investment income................................................ (0.14) (0.01)
Distributions from capital gains................................................ 0.00 0.00
--------- -----------
Total distributions............................................................... (0.14) (0.01)
--------- -----------
Net asset value, end of period.................................................... $ 10.22 $ 10.30
--------- -----------
--------- -----------
TOTAL INVESTMENT RETURN............................................................. 0.59% 3.10%**
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period (000's omitted)................................... $50,712 $14,430
---------- -----------
---------- -----------
Ratio of expenses to average net assets........................................... 1.00% 0.24%**
Ratio of net investment income to average net assets.............................. 1.88% 0.34%**
Portfolio turnover rate........................................................... 25.99% 2.79%
</TABLE>
47
<PAGE>
THE GCG TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
EMERGING MARKETS SERIES
------------------------ MARKET MANAGER
1994 1993(2) SERIES (3)
----------- ----------- ------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......................... $ 12.44 $ 10.00 $10.00
----------- ----------- ----------
Net investment income...................................... 0.00 0.00 0.02
Net gain (loss) on securities -- realized and unrealized... (1.89) 2.44 0.02
----------- ----------- ----------
Total from investment operations............................. (1.89) 2.44 0.04
----------- ----------- ----------
Less distributions:
Dividends from investment income........................... 0.00 0.00 (0.02)
Distributions from capital gains........................... (0.47) 0.00 0.00
----------- ----------- ----------
Total distributions.......................................... (0.47) 0.00 (0.02)
----------- ----------- ----------
Net asset value, end of period............................... $ 10.08 $ 12.44 $10.02
----------- ----------- ----------
----------- ----------- ----------
TOTAL INVESTMENT RETURN........................................ (15.18)% 24.40%** 0.44%**
RATIOS AND SUPPLEMENTAL DATA
Total net assets, end of period (000's omitted).............. $65,224 $31,181 $2,754
----------- ----------- ----------
----------- ----------- ----------
Ratio of expenses to average net assets...................... 1.73% 0.38%** 0.00%(5)**
Ratio of net investment income to average net assets......... 0.03% 0.00%** 0.65%**
Portfolio turnover rate...................................... 105.88% 0.00% --
</TABLE>
- ------------------------
* Annualized.
** Not annualized.
(1) Commencement of operations on May 4, 1992.
(2) Commencement of operations on October 4, 1993.
(3) Commencement of operations on November 14, 1994.
(4) In addition to net realized and unrealized gain on investments, this amount
includes an increase (decrease) in net asset value per share resulting from
the timing and issuances or redemptions of Series' shares in relation to
fluctuating market values for the portfolio.
(5) During the period November 14, 1994 through December 31, 1994, all fund
operating expenses have been waived and would have been equal to 0.13% of
average net assets.
48
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> THE GCG TRUST, LIQUID ASSET SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 41,420,380
<INVESTMENTS-AT-VALUE> 41,420,380
<RECEIVABLES> 114,965
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,535,345
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,455
<TOTAL-LIABILITIES> 61,455
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,474,078
<SHARES-COMMON-STOCK> 41,474,109
<SHARES-COMMON-PRIOR> 46,122,242
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (188)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 41,473,890
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,343,224
<OTHER-INCOME> 0
<EXPENSES-NET> 135,024
<NET-INVESTMENT-INCOME> 1,208,200
<REALIZED-GAINS-CURRENT> 50
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,208,250
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,208,200)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,627,641
<NUMBER-OF-SHARES-REDEEMED> (26,484,011)
<SHARES-REINVESTED> 1,208,237
<NET-CHANGE-IN-ASSETS> (4,648,083)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (238)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 135,024
<AVERAGE-NET-ASSETS> 44,437,263
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> THE GCG TRUST, LIMITED MATURITY BOND SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 83,212,937
<INVESTMENTS-AT-VALUE> 83,940,189
<RECEIVABLES> 865,747
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,805,936
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93,004
<TOTAL-LIABILITIES> 93,004
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82,443,680
<SHARES-COMMON-STOCK> 7,905,684
<SHARES-COMMON-PRIOR> 7,235,836
<ACCUMULATED-NII-CURRENT> 2,488,143
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (946,143)
<ACCUM-APPREC-OR-DEPREC> 727,252
<NET-ASSETS> 84,712,932
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,747,309
<OTHER-INCOME> 0
<EXPENSES-NET> 259,166
<NET-INVESTMENT-INCOME> 2,488,143
<REALIZED-GAINS-CURRENT> 1,330,448
<APPREC-INCREASE-CURRENT> 2,324,801
<NET-CHANGE-FROM-OPS> 6,143,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,164,463
<NUMBER-OF-SHARES-REDEEMED> (1,494,615)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 12,499,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,276,591)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 259,166
<AVERAGE-NET-ASSETS> 85,821,838
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> THE GCG TRUST, NATURAL RESOURCES SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 25,796,528
<INVESTMENTS-AT-VALUE> 28,170,608
<RECEIVABLES> 289,183
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 358,468
<TOTAL-ASSETS> 28,818,259
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 118,987
<TOTAL-LIABILITIES> 118,987
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,772,398
<SHARES-COMMON-STOCK> 2,012,550
<SHARES-COMMON-PRIOR> 2,369,573
<ACCUMULATED-NII-CURRENT> 130,132
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 423,709
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,373,033
<NET-ASSETS> 28,699,272
<DIVIDEND-INCOME> 248,371
<INTEREST-INCOME> 31,160
<OTHER-INCOME> 0
<EXPENSES-NET> 149,399
<NET-INVESTMENT-INCOME> 130,132
<REALIZED-GAINS-CURRENT> 446,393
<APPREC-INCREASE-CURRENT> (26,184)
<NET-CHANGE-FROM-OPS> 550,341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 446,891
<NUMBER-OF-SHARES-REDEEMED> (803,914)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,179,249)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (22,684)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 149,399
<AVERAGE-NET-ASSETS> 29,698,741
<PER-SHARE-NAV-BEGIN> 13.88
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.26
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> THE GCG TRUST, ALL-GROWTH SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 76,206,026
<INVESTMENTS-AT-VALUE> 82,173,023
<RECEIVABLES> 283,119
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 927
<TOTAL-ASSETS> 82,457,069
<PAYABLE-FOR-SECURITIES> 1,414,136
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 66,351
<TOTAL-LIABILITIES> 1,480,487
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75,256,991
<SHARES-COMMON-STOCK> 6,104,378
<SHARES-COMMON-PRIOR> 6,006,022
<ACCUMULATED-NII-CURRENT> 696,368
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (943,774)
<ACCUM-APPREC-OR-DEPREC> 5,966,997
<NET-ASSETS> 80,976,582
<DIVIDEND-INCOME> 486,926
<INTEREST-INCOME> 594,239
<OTHER-INCOME> 0
<EXPENSES-NET> 384,797
<NET-INVESTMENT-INCOME> 696,368
<REALIZED-GAINS-CURRENT> 477,208
<APPREC-INCREASE-CURRENT> 7,424,873
<NET-CHANGE-FROM-OPS> 8,598,449
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 634,446
<NUMBER-OF-SHARES-REDEEMED> (536,090)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,758,979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,420,982)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 384,797
<AVERAGE-NET-ASSETS> 76,868,101
<PER-SHARE-NAV-BEGIN> 11.86
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.30
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.27
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> THE GCG TRUST, REAL ESTATE SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 33,881,726
<INVESTMENTS-AT-VALUE> 35,021,173
<RECEIVABLES> 231,573
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 13,996
<TOTAL-ASSETS> 35,266,742
<PAYABLE-FOR-SECURITIES> 269,100
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,240
<TOTAL-LIABILITIES> 320,340
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,591,098
<SHARES-COMMON-STOCK> 2,966,890
<SHARES-COMMON-PRIOR> 3,306,077
<ACCUMULATED-NII-CURRENT> 972,063
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (756,206)
<ACCUM-APPREC-OR-DEPREC> 1,139,447
<NET-ASSETS> 34,946,402
<DIVIDEND-INCOME> 1,066,704
<INTEREST-INCOME> 82,347
<OTHER-INCOME> 0
<EXPENSES-NET> 176,988
<NET-INVESTMENT-INCOME> 972,063
<REALIZED-GAINS-CURRENT> (525,238)
<APPREC-INCREASE-CURRENT> 943,862
<NET-CHANGE-FROM-OPS> 1,390,687
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 176,361
<NUMBER-OF-SHARES-REDEEMED> (515,548)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,389,793)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (230,968)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 176,988
<AVERAGE-NET-ASSETS> 35,259,010
<PER-SHARE-NAV-BEGIN> 11.29
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0.16
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.78
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> THE GCG TRUST, FULLY MANAGED SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 103,471,119
<INVESTMENTS-AT-VALUE> 111,799,084
<RECEIVABLES> 623,474
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 401
<TOTAL-ASSETS> 112,422,959
<PAYABLE-FOR-SECURITIES> 1,009,498
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,130
<TOTAL-LIABILITIES> 1,142,628
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,603,583
<SHARES-COMMON-STOCK> 8,559,959
<SHARES-COMMON-PRIOR> 8,535,516
<ACCUMULATED-NII-CURRENT> 1,830,752
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,482,887)
<ACCUM-APPREC-OR-DEPREC> 8,328,883
<NET-ASSETS> 111,280,331
<DIVIDEND-INCOME> 995,046
<INTEREST-INCOME> 1,363,252
<OTHER-INCOME> 370
<EXPENSES-NET> 527,916
<NET-INVESTMENT-INCOME> 1,830,752
<REALIZED-GAINS-CURRENT> (4,681,715)
<APPREC-INCREASE-CURRENT> 14,031,987
<NET-CHANGE-FROM-OPS> 11,181,024
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 558,318
<NUMBER-OF-SHARES-REDEEMED> (533,875)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,426,184
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (801,172)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 527,916
<AVERAGE-NET-ASSETS> 105,456,225
<PER-SHARE-NAV-BEGIN> 11.70
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 1.09
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.00
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> THE GCG TRUST, MULITIPLE ALLOCATION SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 290,946,295
<INVESTMENTS-AT-VALUE> 301,822,093
<RECEIVABLES> 10,419,811
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,004,465
<TOTAL-ASSETS> 313,246,369
<PAYABLE-FOR-SECURITIES> 1,944,155
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 421,029
<TOTAL-LIABILITIES> 2,365,184
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 289,780,217
<SHARES-COMMON-STOCK> 24,763,759
<SHARES-COMMON-PRIOR> 26,414,658
<ACCUMULATED-NII-CURRENT> 7,285,341
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,739,472
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,076,155
<NET-ASSETS> 310,881,185
<DIVIDEND-INCOME> 1,364,554
<INTEREST-INCOME> 7,434,258
<OTHER-INCOME> 0
<EXPENSES-NET> 1,513,471
<NET-INVESTMENT-INCOME> 7,285,341
<REALIZED-GAINS-CURRENT> 10,269,242
<APPREC-INCREASE-CURRENT> 13,417,470
<NET-CHANGE-FROM-OPS> 30,972,053
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 380,140
<NUMBER-OF-SHARES-REDEEMED> (2,031,039)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,489,128
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7,510,970)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (18,880)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,513,471
<AVERAGE-NET-ASSETS> 302,621,714
<PER-SHARE-NAV-BEGIN> 11.33
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.93
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.55
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> THE GCG TRUST, CAPITAL APPRECIATION SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 92,858,868
<INVESTMENTS-AT-VALUE> 106,389,888
<RECEIVABLES> 5,114,635
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,716
<TOTAL-ASSETS> 111,506,239
<PAYABLE-FOR-SECURITIES> 6,088,273
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 86,016
<TOTAL-LIABILITIES> 6,174,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,401,985
<SHARES-COMMON-STOCK> 7,948,396
<SHARES-COMMON-PRIOR> 7,837,978
<ACCUMULATED-NII-CURRENT> 840,721
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,558,224
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,531,020
<NET-ASSETS> 105,331,950
<DIVIDEND-INCOME> 1,046,503
<INTEREST-INCOME> 269,953
<OTHER-INCOME> 0
<EXPENSES-NET> 475,735
<NET-INVESTMENT-INCOME> 840,721
<REALIZED-GAINS-CURRENT> 1,898,184
<APPREC-INCREASE-CURRENT> 12,180,979
<NET-CHANGE-FROM-OPS> 14,919,884
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 549,852
<NUMBER-OF-SHARES-REDEEMED> 439,434
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 16,442,302
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (339,960)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 475,735
<AVERAGE-NET-ASSETS> 95,092,282
<PER-SHARE-NAV-BEGIN> 11.34
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.80
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.25
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> THE GCG TRUST, RISING DIVIDENDS SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 56,354,465
<INVESTMENTS-AT-VALUE> 63,884,501
<RECEIVABLES> 136,339
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,376
<TOTAL-ASSETS> 64,028,216
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,204
<TOTAL-LIABILITIES> 52,204
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,011,500
<SHARES-COMMON-STOCK> 5,568,813
<SHARES-COMMON-PRIOR> 4,962,344
<ACCUMULATED-NII-CURRENT> 479,568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,045,092)
<ACCUM-APPREC-OR-DEPREC> 7,530,036
<NET-ASSETS> 63,976,012
<DIVIDEND-INCOME> 614,469
<INTEREST-INCOME> 147,210
<OTHER-INCOME> 912
<EXPENSES-NET> 283,023
<NET-INVESTMENT-INCOME> 479,568
<REALIZED-GAINS-CURRENT> (1,481,227)
<APPREC-INCREASE-CURRENT> 7,525,133
<NET-CHANGE-FROM-OPS> 6,523,474
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 914,212
<NUMBER-OF-SHARES-REDEEMED> (307,743)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,263,853
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (563,865)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 283,023
<AVERAGE-NET-ASSETS> 56,542,418
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.18
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.49
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> THE GCG TRUST, EMERGING MARKETS SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 62,826,342
<INVESTMENTS-AT-VALUE> 60,927,324
<RECEIVABLES> 476,811
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61,404,135
<PAYABLE-FOR-SECURITIES> 562,666
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,023,125
<TOTAL-LIABILITIES> 1,585,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,759,598
<SHARES-COMMON-STOCK> 6,382,121
<SHARES-COMMON-PRIOR> 6,472,923
<ACCUMULATED-NII-CURRENT> 256,258
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (12,285,559)
<ACCUM-APPREC-OR-DEPREC> (1,911,953)
<NET-ASSETS> 59,818,344
<DIVIDEND-INCOME> 550,026
<INTEREST-INCOME> 89,449
<OTHER-INCOME> 46,497
<EXPENSES-NET> 429,714
<NET-INVESTMENT-INCOME> 256,258
<REALIZED-GAINS-CURRENT> (12,274,831)
<APPREC-INCREASE-CURRENT> 7,535,385
<NET-CHANGE-FROM-OPS> (4,483,188)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,415,571
<NUMBER-OF-SHARES-REDEEMED> (1,506,373)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,405,568)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (10,728)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 429,714
<AVERAGE-NET-ASSETS> 56,735,386
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.75)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.37
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> THE GCG TRUST, VALUE EQUITY SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 7,145,500
<INVESTMENTS-AT-VALUE> 7,621,656
<RECEIVABLES> 296,599
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 762,277
<TOTAL-ASSETS> 8,680,532
<PAYABLE-FOR-SECURITIES> 502,371
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,659
<TOTAL-LIABILITIES> 508,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,622,698
<SHARES-COMMON-STOCK> 699,024
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 22,345
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 51,303
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 476,156
<NET-ASSETS> 8,172,502
<DIVIDEND-INCOME> 38,709
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 16,364
<NET-INVESTMENT-INCOME> 22,345
<REALIZED-GAINS-CURRENT> 51,303
<APPREC-INCREASE-CURRENT> 476,156
<NET-CHANGE-FROM-OPS> 549,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 708,427
<NUMBER-OF-SHARES-REDEEMED> (9,403)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8,167,502
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,364
<AVERAGE-NET-ASSETS> 3,178,341
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 1.62
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
