As filed with the Securities and Exchange Commission on May 1, 1997
Registration Nos. 33-23512, 811-5629
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. 32
and/or
Registration Statement under
The Investment Company Act of 1940
Amendment No. 33
THE GCG TRUST
(Exact Name of Registrant as Specified in Charter)
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
[302-576-3400]
(Address and Telephone Number of Principal Executive Offices)
Marilyn Talman, Esq. COPY TO:
Golden American Life Insurance Company Jeffrey S. Puretz, Esq.
1001 Jefferson Street Dechert Price & Rhoads
Wilmington, DE 19801 1500 K Street, N.W., Suite 500
(Name and Address of Agent Washington, D.C. 20005
for Service of Process)
----------
Approximate date of commencement of proposed sale to the public:
A soon as practical after the effective date of the Registration Statement
It is proposed that this filing will become effective:
[x ] immediately upon filing pursuant to paragraph (b)
[ ] on ___________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on _________ pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on _________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective
date or a previously filed Post- Effective Amendment.
----------
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has previously filed a declaration of indefinite registration of
its shares of beneficial interest pursuant under the Securities Act of 1933
pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2
Notice for the year ended December 31, 1996 was filed on February 28, 1997.
<PAGE>
THE GCG TRUST
CROSS-REFERENCE SHEET
Multiple Allocation Series, Fully Managed Series, Limited Maturity Bond
Series, All-Growth Series, Hard Assets Series, Real Estate Series, Capital
Appreciation Series, Rising Dividends Series, Emerging Markets Series, Value
Equity Series, Strategic Equity Series, Small Cap Series, Managed Global Series,
Liquid Asset Series and Mid-Cap Growth Series
<TABLE>
<CAPTION>
Part A -- Prospectus
<S> <C> <C>
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
</TABLE>
Part B -- Statement of Additional Information
<TABLE>
<S> <C> <C>
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 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
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ THE GCG TRUST +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
THE GCG TRUST
1001 JEFFERSON STREET WILMINGTON, DELAWARE 19801
This Prospectus offers shares of fifteen 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 vari-
able 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 insur-
ance policies and annuity contracts. Such allocation rights are described fur-
ther in the Prospectus for the separate account.
The Series are managed by Directed Services, Inc. ("DSI"), which is a wholly
owned subsidiary of Equitable of Iowa Companies ("Equitable of Iowa"). DSI and
the Trust have retained several investment advisory firms ("Portfolio Manag-
ers") to provide investment advisory services to the Series. The fifteen Se-
ries 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 EQUITABLE INVESTMENT SERVICES, INC.
HARD ASSETS SERIES VAN ECK ASSOCIATES CORPORATION
REAL ESTATE SERIES E.I.I. REALTY SECURITIES, INC.
ALL-GROWTH SERIES PILGRIM BAXTER & ASSOCIATES, LTD.
CAPITAL APPRECIATION SERIES CHANCELLOR LGT ASSET MANAGEMENT, INC.
RISING DIVIDENDS SERIES KAYNE, ANDERSON INVESTMENT MANAGEMENT, L.P.
EMERGING MARKETS SERIES PUTNAM INVESTMENT MANAGEMENT, INC.
VALUE EQUITY SERIES EAGLE ASSET MANAGEMENT, INC.
STRATEGIC EQUITY SERIES ZWEIG ADVISORS INC.
SMALL CAP SERIES FRED ALGER MANAGEMENT, INC.
MANAGED GLOBAL SERIES PUTNAM INVESTMENT MANAGEMENT, INC.
LIQUID ASSET SERIES EQUITABLE INVESTMENT SERVICES, INC.
MID-CAP GROWTH SERIES PILGRIM BAXTER & ASSOCIATES, LTD.
</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 in-
sured 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 May 1, 1997, 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 ob-
tained 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 ac-
companying prospectus.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE SEPA-
RATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FU-
TURE 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 PRIN-
CIPAL 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 MAY 1, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SYNOPSIS........................................................ 1
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVES AND POLICIES......................................... 16
Multiple Allocation Series................................................ 16
Fully Managed Series...................................................... 18
Limited Maturity Bond Series.............................................. 19
Hard Assets Series........................................................ 21
Real Estate Series........................................................ 22
All-Growth Series......................................................... 23
Capital Appreciation Series............................................... 23
Rising Dividends Series................................................... 24
Value Equity Series....................................................... 25
Strategic Equity Series................................................... 27
Small Cap Series.......................................................... 28
Managed Global Series..................................................... 29
Liquid Asset Series....................................................... 30
Mid-Cap Growth Series..................................................... 30
Emerging Markets Series................................................... 33
MANAGEMENT OF THE TRUST.................................................... 33
The Manager............................................................... 34
The Portfolio Managers.................................................... 34
Zweig Advisors Inc. ..................................................... 34
T. Rowe Price Associates, Inc. .......................................... 34
Putnam Investment Management, Inc........................................ 35
Van Eck Associates Corporation........................................... 35
Pilgrim Baxter & Associates, Ltd. ....................................... 36
Chancellor LGT Asset Management, Inc. ................................... 36
Kayne, Anderson Investment Management, L.P............................... 36
Eagle Asset Management, Inc. ............................................ 37
E.I.I. Realty Securities, Inc............................................ 37
Fred Alger Management, Inc. ............................................. 37
Equitable Investment Services, Inc. ..................................... 38
Other Expenses............................................................ 38
Distributor............................................................... 39
Custodian and Other Service Providers..................................... 39
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................ 39
Mortgage-Backed Securities................................................ 39
Mortgage Pass-Through Securities......................................... 39
Other Mortgage-Backed Securities......................................... 39
Risks of Mortgage-Backed Securities...................................... 40
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Other Asset-Backed Securities............................................. 40
High Yield Bonds.......................................................... 40
Repurchase Agreements..................................................... 41
Restricted and Illiquid Securities........................................ 41
Short Sales............................................................... 41
Foreign Securities........................................................ 42
Investment in Gold and Other Precious Metals.............................. 44
Futures Contracts......................................................... 44
Risks Associated with Futures and Futures Options........................ 45
Options on Securities..................................................... 46
Risks of Options Transactions............................................ 46
Foreign Currency Transactions............................................. 47
Options on Foreign Currencies............................................. 48
Borrowing................................................................. 48
Hard Assets Securities.................................................... 48
Real Estate Securities.................................................... 48
Swaps..................................................................... 48
INVESTMENT RESTRICTIONS.................................................... 50
PURCHASE OF SHARES......................................................... 50
NET ASSET VALUE............................................................ 51
REDEMPTION OF SHARES....................................................... 52
EXCHANGES.................................................................. 52
PORTFOLIO TRANSACTIONS..................................................... 52
Brokerage Services........................................................ 52
Portfolio Turnover........................................................ 53
DIVIDENDS AND DISTRIBUTIONS................................................ 53
FEDERAL INCOME TAX STATUS.................................................. 53
OTHER INFORMATION.......................................................... 54
Capitalization............................................................ 54
Voting Rights............................................................. 55
The History of the Managed Global Series.................................. 55
Chancellor Administrative Order........................................... 55
Performance Information................................................... 55
LEGAL COUNSEL.............................................................. 56
INDEPENDENT AUDITORS....................................................... 56
FINANCIAL STATEMENTS....................................................... 56
</TABLE>
I
<PAGE>
PROSPECTUS SYNOPSIS
THE TRUST
The GCG Trust (the "Trust") is an open-end management investment company, or-
ganized as a Massachusetts business trust on August 3, 1988. This Prospectus
offers shares of fifteen 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 retire-
ment 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 in-
dependently or in combination. Within the limitations described in the Pro-
spectus 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 appli-
cable separate account, which, in turn, invest in the various Series. The as-
sets 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 cer-
tain 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 declin-
ing 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 ob-
jective 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 Hard Assets Series, formerly 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, devel-
opment, production, management and distribution of hard assets.
The Real Estate Series seeks capital appreciation. The Series seeks to achieve
this objective through investment in publicly traded equity securities of com-
panies 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 com-
panies 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 capital appreciation. 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
standards believed by the Portfolio Manager to indicate above average finan-
cial soundness and high intrinsic value relative to price.
1
<PAGE>
PROSPECTUS SYNOPSIS (CONTINUED)
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 eq-
uity markets and to reduce exposures to equities when the Portfolio Manager
believes that their risk/reward characteristics are less attractive.
The Small Cap Series seeks to achieve long-term capital appreciation by in-
vesting in equity securities of companies that, at the time of purchase, have
total market capitalization within the range of companies included in the Rus-
sell 2000 Growth Index. Many of the securities in which the Series invests may
be those of new companies in a developmental stage or more seasoned companies
believed by the Portfolio Manager to be entering a new stage of growth.
The Managed Global Series seeks capital appreciation. The Series seeks to
achieve this objective by investing primarily in common stocks of both
domestic and foreign issuers.
The Liquid Asset Series seeks a high level of current income consistent with
the preservation of capital and liquidity.
The Mid-Cap Growth Series seeks long-term growth of capital. The Series seeks
to achieve this objective by investing in equity securities of companies that,
at the time of purchase, have total market capitalization within the range of
$2 billion and which have long-term growth prospects.
THE MANAGER AND PORTFOLIO MANAGERS
The Manager of the Series is Directed Services, Inc. (the "Manager"), which is
a wholly owned subsidiary of Equitable of Iowa. The Trust and the Manager have
retained several investment advisory firms ("Portfolio Managers") to manage
the assets of the Series. The 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 Series Equitable Investment
Services, Inc.
Hard Assets Series Van Eck Associates
Corporation
Real Estate Series E.I.I. Realty
Securities, Inc.
All-Growth Series Pilgrim Baxter &
Associates, Ltd.
Capital Appreciation Series Chancellor LGT Asset
Management, Inc.
Rising Dividends Series Kayne, Anderson
Investment
Management, L.P.
Emerging Markets Series Putnam Investment
Management, Inc.
Value Equity Series Eagle Asset
Management, Inc.
Strategic Equity Series Zweig Advisors Inc.
Small Cap Series Fred Alger Management,
Inc.
Managed Global Series Putnam Investment
Management, Inc.
Liquid Asset Series Equitable Investment
Services, Inc.
Mid-Cap Growth Series Pilgrim Baxter &
Associates, Ltd.
</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 cur-
rently 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, Hard Assets, Real Estate, All-Growth, Capital Appreciation,
Rising Dividends, Value Equity, Strategic Equity, and Small Cap 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; 1.75% of the value of
the average daily net assets of the Emerging Markets Series; 1.25% of the
value of the average daily net assets of the Managed Global Series; and 0.90%
of the value of the average daily net assets of the Mid-Cap Growth 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 most of the Series is
simpler and more predictable than most mutual funds. Except for the Mid-Cap
Growth Series, 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 Mid-Cap Growth Series
pays its own expenses directly from its 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
2
<PAGE>
PROSPECTUS SYNOPSIS (CONTINUED)
Maturity Bond, Hard Assets, All-Growth, Capital Appreciation, Emerging Mar-
kets, Value Equity, Strategic Equity, Small Cap, Managed Global and Mid-Cap
Growth Series may engage in various types of futures transactions. All these
Series, except the All-Growth Series, Managed Global Series, and Mid-Cap Growth
Series may also lend their portfolio securities. The Multiple Allocation, Fully
Managed, All-Growth, Hard Assets, Rising Dividends, Value Equity, Strategic
Equity, Small Cap and Mid-Cap Growth Series may invest in non-U.S. dollar-
denominated securities of foreign issuers, and the Managed Global and Emerging
Markets Series will normally invest primarily in such securities. The Multiple
Allocation, Fully Managed, Hard Assets, Rising Dividends, Emerging Markets,
Value Equity, Strategic Equity, Small Cap, and Managed Global Series may engage
in foreign currency transactions and options on foreign currencies. The Multiple
Allocation, Fully Managed, Limited Maturity Bond, Hard Assets, Real Estate,
All-Growth, Capital Appreciation, Emerging Markets, Value Equity, Strategic
Equity, Small Cap, Managed Global and Mid-Cap Growth 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. (High yield bonds are sometimes
referred to as "junk bonds.") The Hard Assets Series may invest in precious
metals and futures contracts on precious metals and the Multiple Allocation and
Strategic Equity Series may invest in gold futures contracts. In addition, the
Multiple Allocation, Hard Assets, All-Growth, Capital Appreciation, Strategic
Equity, Small Cap, Managed Global and Mid-Cap Growth Series may engage in short
sales of securities.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables present condensed financial information with respect to
each Series, except the Mid-Cap Growth Series which had not commenced opera-
tions prior to December 31, 1996. Information in the tables for the years
ended December 31, 1996, 1995, 1994 and 1993 is derived from the Trust's
financial
statements for all Series that have been audited by Ernst & Young LLP. Infor-
mation in the tables for years ended December 31, 1992, 1991, 1990 and 1989 is
derived from the Trust's financial statements for all Series (except the Man-
aged Global Series) that have been audited by another independent auditor. The
information for the Managed Global Series is presented as if the reorganization
described under "Other Information--History of the Managed Global Series" (the
"Reorganization") had always been in effect. Data shown is derived solely from
the Managed Global Account of Separate Account D of Golden American Life Insur-
ance Company ("Golden American") which was the predecessor entity. The infor-
mation in the tables for the period of October 21, 1992 (commencement of opera-
tions) through December 31, 1995 has been derived from financial statements of
the Managed Global Series (as restated to give effect to the Reorganization)
for the same periods which have been examined by Ernst & Young LLP.
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 invest-
ment 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, 1996. The Trust's Annual Report, which contains further informa-
tion about the Series' performance, is available to shareholders upon request
and without charge.
- - ---------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
MULTIPLE ALLOCATION SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 12.52 $ 11.33 $ 11.89 $ 11.41 $ 11.73 $ 10.26 $ 10.34 $ 10.00
-------- -------- -------- -------- -------- ------- ------- -------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.56 0.58 0.42 0.24 0.42 0.49 0.57 0.58
Net realized and
unrealized
gain/(loss)
on investments.... 0.52 1.56 (0.56) 1.03 (0.18) 1.57 (0.08) 0.44
-------- -------- -------- -------- -------- ------- ------- -------
Total from
investment
operations........ 1.08 2.14 (0.14) 1.27 0.24 2.06 0.49 1.02
-------- -------- -------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.58) (0.45) (0.42) (0.24) (0.42) (0.49) (0.57) (0.58)
Distributions from
capital gains..... (0.61) (0.50) -- (0.55) (0.14) (0.10) -- (0.10)
-------- -------- -------- -------- -------- ------- ------- -------
Total
distributions..... (1.19) (0.95) (0.42) (0.79) (0.56) (0.59) (0.57) (0.68)
-------- -------- -------- -------- -------- ------- ------- -------
Net asset value, end
of year........... $ 12.41 $ 12.52 $ 11.33 $ 11.89 $ 11.41 $ 11.73 $ 10.26 $ 10.34
======== ======== ======== ======== ======== ======= ======= =======
Total return........ 8.77% 18.93% (1.18)% 11.13% 1.88% 20.02% 4.74% 8.92%++
======== ======== ======== ======== ======== ======= ======= =======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year
(in 000's)........ $272,791 $307,691 $299,392 $274,231 $116,040 $ 58,578 $ 24,347 $15,513
Ratio of operating
expenses to
average net
assets............ 1.00% 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........ 3.86% 4.42% 3.56% 2.75% 3.65% 4.43% 5.73% 6.52%+
Portfolio turnover
rate.............. 158% 187% 291% 348% 93% 70% 162% 115%
Average commission
rate paid(a)...... $ 0.0593 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Multiple Allocation Series commenced operations on January 24, 1989.
+ Annualized
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
- - ---------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
FULLY MANAGED SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 13.79 $ 11.70 $ 12.99 $ 12.43 $ 11.94 $ 9.51 $10.16 $ 10.00
-------- -------- ------- -------- ------- ------- ------ ------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.56 0.45 0.35 0.19 0.28 0.29 0.33 0.28
Net realized and
unrealized
gain/(loss) on
investments....... 1.69 1.98 (1.29) 0.75 0.49 2.43 (0.65) 0.16
-------- -------- ------- -------- ------- ------- ------ ------
Total from
investment
operations........ 2.25 2.43 (0.94) 0.94 0.77 2.72 (0.32) 0.44
-------- -------- ------- -------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.56) (0.34) (0.35) (0.19) (0.28) (0.29) (0.33) (0.28)
Distributions from
capital gains..... (0.66) -- -- (0.19) -- -- -- --
-------- -------- ------- -------- ------- ------- ------ ------
Total
distributions..... (1.22) (0.34) (0.35) (0.38) (0.28) (0.29) (0.33) (0.28)
-------- -------- ------- -------- ------- ------- ------ ------
Net asset value, end
of year........... $ 14.82 $ 13.79 $ 11.70 $ 12.99 $ 12.43 $ 11.94 $ 9.51 $ 10.16
======== ======== ======= ======== ======= ======= ====== ======
Total return........ 16.36% 20.80% (7.27)% 7.59% 6.23% 28.93% (3.18)% 3.90%++
======== ======== ======= ======== ======= ======= ====== ======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in 000's)... $136,660 $118,589 $ 99,854 $108,690 $ 37,696 $ 10,031 $5,426 $ 5,443
Ratio of operating
expenses to
average net
assets............ 1.00% 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............ 3.83% 3.41% 2.62% 2.12% 2.38% 2.71% 3.38% 3.07%+
Portfolio turnover
rate.............. 45% 113% 66% 55% 27% 68% 100% 196%
Average commission
rate paid(a)...... $ 0.0597 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Fully Managed Series commenced operations on January 24, 1989.
** Since January 1, 1995, T. Rowe Price Associates, Inc. has served as Portfolio Manager for the Fully Managed
Series. Prior to that date, a different firm served as Portfolio Manager.
+ Annualized
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
LIMITED MATURITY BOND SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96# 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
--------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year............. $ 11.15 $ 9.98 $ 10.62 $ 10.43 $ 10.54 $ 10.15 $10.16 $ 10.00
------- ------- ------- ------- ------- ------- ------ ------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income........... 0.59 0.60 0.51 0.40 0.60 0.68 0.72 0.74
Net realized and
unrealized
gain/(loss) on
investments...... (0.13) 0.57 (0.64) 0.23 (0.11) 0.42 -- 0.19
------- ------- ------- ------- ------- ------- ------ ------
Total from
investment
operations....... 0.46 1.17 (0.13) 0.63 0.49 1.10 0.72 0.93
------- ------- ------- ------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income........... (1.15) -- (0.51) (0.40) (0.60) (0.68) (0.72) (0.74)
Distributions from
capital gains.... (0.03) -- -- (0.04) -- (0.03) (0.01) (0.03)
------- ------- ------- ------- ------- ------- ------ ------
Total
distributions.... (1.18) -- (0.51) (0.44) (0.60) (0.71) (0.73) (0.77)
------- ------- ------- ------- ------- ------- ------ ------
Net asset value,
end of year...... $ 10.43 $ 11.15 $ 9.98 $ 10.62 $ 10.43 $ 10.54 $10.15 $ 10.16
======= ======= ======= ======= ======= ======= ====== ======
Total return....... 4.32% 11.72% (1.19)% 6.20% 4.84% 11.27% 7.87% 9.69%++
======= ======= ======= ======= ======= ======= ====== ======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
000's)........... $81,317 $ 90,081 $ 72,213 $ 72,219 $ 40,213 $ 16,144 $8,321 $ 2,631
Ratio of operating
expenses to
average net
assets........... 0.61% 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........... 5.33% 5.58% 4.73% 4.64% 5.71% 6.58% 7.47% 8.56%+
Portfolio turnover
rate............. 250% 302% 209% 115% 63% 465% 373% 354%
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Limited Maturity Bond Series commenced operations on January 24, 1989.
** Since August 13, 1996, Equitable Investment Services, Inc. has served as Portfolio Manager for the Limited
Maturity Bond Series. Prior to that date different firms served as Portfolio Manager.
+ Annualized
++ Non-annualized
# Per share numbers have been calculated using the monthly average share method, which more appropriately
represents the per share data for the period.
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
NATURAL RESOURCES SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
----------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year........ $ 15.04 $ 13.88 $ 13.89 $ 9.31 $ 10.46 $10.11 $ 11.89 $ 10.00
------- ------- ------- ------- ------- ------ ------- -------
INCOME/(LOSS)
FROM INVESTMENT
OPERATIONS:
Net investment
income/(loss)... 0.05 0.15 0.13 0.07 0.14 0.13 0.13 (0.35)
Net realized and
unrealized
gain/(loss) on
investments.... 4.92 1.34 0.23 4.58 (1.15) 0.35 (1.78) 2.26
------- ------- ------- ------- ------- ------ ------- -------
Total from
investment
operations..... 4.97 1.49 0.36 4.65 (1.01) 0.48 (1.65) 1.91
------- ------- ------- ------- ------- ------ ------- -------
LESS
DISTRIBUTIONS:
Dividends from
net investment
income......... (0.07) (0.13) (0.13) (0.07) (0.14) (0.13) (0.13) --
Distributions
from capital
gains.......... (2.09) (0.20) (0.24) -- -- -- -- (0.02)
------- ------- ------- ------- ------- ------ ------- -------
Total
distributions... (2.16) (0.33) (0.37) (0.07) (0.14) (0.13) (0.13) (0.02)
------- ------- ------- ------- ------- ------ ------- -------
Net asset value,
end of year.... $ 17.85 $ 15.04 $ 13.88 $ 13.89 $ 9.31 $10.46 $ 10.11 $ 11.89
======= ======= ======= ======= ======= ====== ======= =======
Total return..... 33.17% 10.69% 2.53% 49.93% (9.81)% 4.70% (13.84)% 18.96%++
======= ======= ======= ======= ======= ====== ======= =======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end
of year (in
000's)......... $43,903 $ 27,147 $ 32,879 $ 21,517 $ 2,916 $2,702 $ 2,552 $ 2,383
Ratio of
operating
expenses to
average net
assets......... 1.00% 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/(loss)
to average
net assets..... 0.34% 0.89% 1.01% 1.03% 1.38% 1.21% 1.21% (3.65)%+
Portfolio
turnover
rate........... 96% 24% 25% 5% 19% 39% 54% 22%
Average
commission rate
paid(a)........ $0.0252 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Natural Resources Series commenced operations on January 24, 1989.
+ Annualized
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
12
<PAGE
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
REAL ESTATE SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 12.63 $ 11.29 $ 11.18 $ 9.81 $ 9.02 $ 7.05 $ 9.53 $ 10.00
------- ------- ------- ------- ------ ----- ------ -----
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.70 0.75 0.60 0.32 0.52 0.42 0.50 0.05
Net realized and
unrealized
gain/(loss) on
investments....... 3.70 1.12 0.11# 1.37# 0.79 1.97 (2.48) (0.06)
------- ------- ------- ------- ------ ----- ------ -----
Total from
investment
operations........ 4.40 1.87 0.71 1.69 1.31 2.39 (1.98) (0.01)
------- ------- ------- ------- ------ ----- ------ -----
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.77) (0.53) (0.60) (0.32) (0.52) (0.42) (0.50) (0.05)
Distributions from
capital gains..... (0.28) -- -- -- -- -- -- (0.30)
Paid in Capital..... -- -- -- -- -- -- -- (0.11)
------- ------- ------- ------- ------ ----- ------ -----
Total
distributions..... (1.05) (0.53) (0.60) (0.32) (0.52) (0.42) (0.50) (0.46)
------- ------- ------- ------- ------ ----- ------ -----
Net asset value, end
of year........... $ 15.98 $ 12.63 $ 11.29 $ 11.18 $ 9.81 $ 9.02 $ 7.05 $ 9.53
======= ======= ======= ======= ====== ===== ====== =====
Total return........ 35.30% 16.59% 6.34% 17.27% 13.87% 34.06% (20.78)% (1.22)%++
======= ======= ======= ======= ====== ===== ====== =====
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in 000's)... $ 51,135 $ 34,975 $ 37,336 $ 29,000 $3,739 $ 710 $ 320 $ 670
Ratio of operating
expenses to
average net
assets............ 1.00% 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............ 5.53% 5.79% 5.31% 4.69% 5.74% 5.00% 5.95% 0.55%+
Portfolio turnover
rate.............. 31% 53% 64% 38% 18% 54% 47% 83%
Average commission
rate paid(a)...... $ 0.0647 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Real Estate Series commenced operations on January 24, 1989.
** Since January 1, 1995, E.I.I. Realty Securities, Inc. has served as Portfolio Manager for the Real Estate
Series. Prior to that date, a different firm served as Portfolio Manager.
+ Annualized
++ Non-annualized
# The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities
due to timing of sales and redemptions of Series shares.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
ALL-GROWTH SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year........... $ 13.78 $ 11.86 $ 13.42 $ 12.64 $ 13.05 $ 9.65 $10.59 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.14 0.18 0.11 0.05 0.08 0.11 0.19 0.09
Net realized and
unrealized
gain/(loss) on
investments....... (0.23) 2.47 (1.56) 0.78 (0.41) 3.40 (0.94) 0.66
------- ------- ------- ------- ------- ------- ------- ------
Total from
investment
operations........ (0.09) 2.65 (1.45) 0.83 (0.33) 3.51 (0.75) 0.75
------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.14) (0.14) (0.11) (0.05) (0.08) (0.11) (0.19) (0.09)
Distributions from
capital gains..... (0.16) (0.59) -- -- -- -- -- --
Paid in Capital..... -- -- -- -- -- -- -- (0.07)
------- ------- ------- ------- ------- ------- ------- ------
Total
distributions..... (0.30) (0.73) (0.11) (0.05) (0.08) (0.11) (0.19) (0.16)
------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end
of year........... $ 13.39 $ 13.78 $ 11.86 $ 13.42 $ 12.64 $ 13.05 $ 9.65 $ 10.59
======= ======= ======= ======= ======= ======= ======= ======
Total return........ (0.57)% 22.42% (10.77)% 6.56% (2.59)% 36.48% (7.35)% 7.20%++
======= ======= ======= ======= ======= ======= ======= ======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year
(in 000's)........ $ 78,750 $ 93,198 $ 71,218 $ 56,491 $ 24,202 $ 11,857 $5,005 $ 3,572
Ratio of operating
expenses to
average net
assets............ 1.00% 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............ 0.86% 1.42% 1.08% 0.52% 0.61% 0.94% 1.99% 0.94%+
Portfolio turnover
rate.............. 118% 81% 196% 29% 20% 31% 88% 54%
Average commission
rate paid(a)...... $ 0.0592 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The All-Growth Series commenced operations on January 24, 1989.
** 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.
+ Annualized
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
CAPITAL APPRECIATION SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92*
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................... $ 13.51 $ 11.34 $ 11.76 $ 11.00 $ 10.00
-------- -------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.16 0.19 0.23 0.13 0.12
Net realized and unrealized gain/(loss) on
investments........................................ 2.57 3.22 (0.42) 0.78 1.00
-------- -------- ------- ------- -------
Total from investment operations..................... 2.73 3.41 (0.19) 0.91 1.12
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.17) (0.15) (0.23) (0.13) (0.12)
Distributions from capital gains..................... (1.01) (1.09) -- (0.02) --
-------- -------- ------- ------- -------
Total distributions.................................. (1.18) (1.24) (0.23) (0.15) (0.12)
-------- -------- ------- ------- -------
Net asset value, end of year......................... $ 15.06 $ 13.51 $ 11.34 $ 11.76 $ 11.00
======== ======== ======= ======= =======
Total return......................................... 20.26% 30.16% (1.59)% 8.31% 10.87%++
======== ======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................... $148,752 $122,227 $ 88,890 $ 87,219 $18,645
Ratio of operating expenses to average net assets.... 1.00% 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............................................. 1.12% 1.53% 1.96% 1.69% 2.06%+
Portfolio turnover rate.............................. 64% 98% 84% 67% 6%
Average commission rate paid(a)...................... $ 0.0590 N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Capital Appreciation Series commenced operations on May 4, 1992.
+ Annualized
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
RISING DIVIDENDS SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96# 12/31/95 12/31/94 12/31/93*
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year.............................. $ 13.30 $ 10.22 $ 10.30 $ 10.00
-------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................... 0.14 0.13 0.14 0.01
Net realized and unrealized gain/(loss) on investments.......... 2.61 3.04 (0.08) 0.30
-------- ------- ------- -------
Total from investment operations................................ 2.75 3.17 0.06 0.31
-------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income............................ (0.13) (0.09) (0.14) (0.01)
Distributions from capital gains................................ (0.11) -- -- --
-------- ------- ------- -------
Total distributions............................................. (0.24) (0.09) (0.14) (0.01)
-------- ------- ------- -------
Net asset value, end of year.................................... $ 15.81 $ 13.30 $ 10.22 $ 10.30
======== ======= ======= =======
Total return.................................................... 20.65% 31.06% 0.59% 3.10%++
======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).............................. $ 126,239 $ 81,210 $ 50,712 $14,430
Ratio of operating expenses to average net assets............... 1.00% 1.01% 1.00% 0.24%++
Ratio of net investment income to average net assets............ 0.99% 1.24% 1.88% 0.34%++
Portfolio turnover rate......................................... 15% 43% 26% 3%
Average commission rate paid(a)................................. $ 0.0600 N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Rising Dividends Series commenced operations on October 4, 1993.
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
# Per share numbers have been calculated using the monthly average share method, which more appropriately
represents the per share data for the period.
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
EMERGING MARKETS SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year............................... $ 9.06 $ 10.08 $ 12.44 $ 10.00
------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................................ 0.04 0.04 -- --
Net realized and unrealized gain/(loss) on investments........... 0.62 (1.06) (1.89) 2.44
------- ------- ------- -------
Total from investment operations................................. 0.66 (1.02) (1.89) 2.44
------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income............................. -- -- -- --
Distributions from capital gains................................. -- (0.00)# (0.47) --
------- ------- ------- -------
Total distributions.............................................. -- (0.00) (0.47) --
------- ------- ------- -------
Net asset value, end of year..................................... $ 9.72 $ 9.06 $ 10.08 $ 12.44
======= ======= ======= =======
Total return..................................................... 7.28% (10.11)% (15.18)% 24.40%++
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)............................... $ 51,510 $ 47,974 $ 65,224 $31,181
Ratio of operating expenses to average net assets................ 1.55% 1.53% 1.73% 0.38%++
Ratio of net investment income to average net assets............. 0.38% 0.40% 0.03% 0.00%++
Portfolio turnover rate.......................................... 136% 141% 106% 0%
Average commission rate paid(a).................................. $ 0.0007 N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Emerging Markets Series commenced operations on October 4, 1993.
++ Non-annualized
# Amount represents less than $0.01 per share.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
VALUE EQUITY SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/96 12/31/95*
-------- ---------
<S> <C> <C>
Net asset value, beginning of year..................................................... $ 13.18 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................................. 0.22 0.08
Net realized and unrealized gain on investments........................................ 1.18 3.44
------- -------
Total from investment operations....................................................... 1.40 3.52
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income................................................... (0.19) (0.06)
Distributions from capital gains....................................................... (0.47) (0.28)
------- -------
Total distributions.................................................................... (0.66) (0.34)
------- -------
Net asset value, end of year........................................................... $ 13.92 $ 13.18
======= =======
Total return........................................................................... 10.62% 35.21%
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)..................................................... $ 44,620 $28,830
Ratio of operating expenses to average net assets...................................... 1.00% 1.01%
Ratio of net investment income to average net assets................................... 1.80% 1.53%
Portfolio turnover rate................................................................ 131% 86%
Average commission rate paid(a)........................................................ $ 0.0575 N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Value Equity Series commenced operations on January 3, 1995.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
STRATEGIC EQUITY SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/96## 12/31/95*
---------- ---------
<S> <C> <C>
Net asset value, beginning of year.................................................... $ 10.01 $ 10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................................. 0.23 0.06
Net realized and unrealized gain/(loss) on investments................................ 1.71 (0.03)#
------- ------
Total from investment operations...................................................... 1.94 0.03
------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income.................................................. (0.14) (0.02)
Distributions from capital gains...................................................... (0.13) --
------- ------
Total distributions................................................................... (0.27) (0.02)
------- ------
Net asset value, end of year.......................................................... $ 11.68 $ 10.01
======= ======
Total return.......................................................................... 19.39% 0.33%++
======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).................................................... $ 30,423 $ 8,067
Ratio of operating expenses to average net assets..................................... 1.00% 1.00%+
Ratio of net investment income to average net assets.................................. 2.05% 4.04%+
Portfolio turnover rate............................................................... 133% 29%
Average commission rate paid(a)....................................................... $ 0.0269 N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Strategic Equity Series commenced operations on October 2, 1995.
+ Annualized
++ Non-annualized
# The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities
due to timing of sales and redemptions of Series shares.
## Per share numbers have been calculated using the monthly average share method, which more appropriately
represents the per share data for the period since the use of the undistributed income method did not
accord with the results of operations.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
SMALL CAP SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE YEAR.
<TABLE>
<CAPTION>
YEAR
ENDED
12/31/96*
---------
<S> <C>
Net asset value, beginning of year................................................................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss............................................................................... (0.01)
Net realized and unrealized gain on investments................................................... 2.02
-------
Total from investment operations.................................................................. 2.01
-------
LESS DISTRIBUTIONS:
Dividends from net investment income.............................................................. --
Distributions from capital gains.................................................................. --
-------
Total distributions............................................................................... --
-------
Net asset value, end of year...................................................................... $ 12.01
=======
Total return...................................................................................... 20.10%++
=======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................................................................ $34,365
Ratio of operating expenses to average net assets................................................. 0.99%++
Ratio of net investment loss to average net assets................................................ (0.08)%++
Portfolio turnover rate........................................................................... 117%
Average commission rate paid(a)................................................................... $0.0621
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Small Cap Series commenced operations on January 3, 1996.
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
MANAGED GLOBAL SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
12/31/96***# 12/31/95# 12/31/94# 12/31/93# 12/31/92*#
------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $ 9.96 $ 9.26 $ 10.67 $ 10.01 $ 10.00
--------- --------- --------- --------- ---------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.04 0.05 0.07 0.06 0.02
Net realized and unrealized gain/(loss) on
investments..................................... 1.18 0.65 (1.48) 0.60 (0.01)
--------- --------- --------- --------- ---------
Total from investment operations.................. 1.22 0.70 (1.41) 0.66 0.01
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income.............. -- -- -- -- --
Distributions from capital gains.................. (0.05) -- -- -- --
--------- --------- --------- --------- ---------
Total distributions............................... (0.05) -- -- -- --
--------- --------- --------- --------- ---------
Net asset value, end of year...................... $ 11.13 $ 9.96 $ 9.26 $ 10.67 $ 10.01
========= ========= ========= ========= =========
Total return...................................... 12.27% 7.56% (13.21)% 6.59% 0.10%++
========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................ $ 86,376 $72,375 $86,209 $88,477 $ 38,699
Ratio of operating expenses to average net
assets.......................................... 1.26% 1.26% 1.31% 1.69% 0.34%++
Decrease reflected in above expense ratio due to
expense limitations............................. -- 0.09% 0.09% 0.03% --
Ratio of net investment income to average net
assets.......................................... 0.39% 0.51% 0.69% 0.56% 0.28%++
Portfolio turnover rate........................... 141% 44% N/A N/A N/A
Average commission rate paid(a)................... $ 0.0222 N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Managed Global Account of Separate Account D of Golden American Life Insurance Company (the "Account")
commenced operations on October 21, 1992.
** Since July 1, 1994, Warburg, Pincus Counsellors, Inc. has served as Portfolio Manager of the Account. Prior
to that date, a different firm served as Portfolio Manager.
*** On September 3, 1996, the Account was reorganized into the Trust. Net investment income and net realized
gains earned prior to September 3, 1996 are not subject to Internal Revenue Code distribution requirements
for regulated investment companies. Financial highlights from prior periods have been restated to account
for the entity as if it had been a regulated investment company since the commencement of operations (See
Note 6).
++ Non-annualized
# Per share numbers have been calculated using the monthly average share method, which more appropriately
represents the per share data for the period.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
LIQUID ASSET SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
----------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... 0.049 0.054 0.040 0.030 0.030 0.050 0.070 0.080
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 0.049 0.054 0.040 0.030 0.030 0.050 0.070 0.080
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.049) (0.054) (0.040) (0.030) (0.030) (0.050) (0.070) (0.080)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions...... (0.049) (0.054) (0.040) (0.030) (0.030) (0.050) (0.070) (0.080)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= =======
Total return............. 5.01% 5.51% 3.89% 2.64% 3.13% 5.66% 7.75% 7.67%++
======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's)............. $39,096 $ 38,589 $ 46,122 $ 16,808 $ 13,206 $ 9,790 $ 8,709 $ 2,352
Ratio of operating
expenses to average net
assets................. 0.61% 0.61% 0.61% 0.61% 0.74% 0.76% 0.66% 0.90%+
Decrease reflected in
above expense ratio due
to expense
limitations............ -- -- -- 0.08% 0.50% 1.01% 1.84% 3.26%+
Ratio of net investment
income to average net
assets................. 4.89% 5.39% 3.89% 2.60% 3.04% 5.48% 7.56% 8.99%+
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Liquid Assets Series commenced operations on January 24, 1989.
** Since August 13, 1996, Equitable Investment Services, Inc. has served as Portfolio Manager for the Liquid
Asset Series. Prior to that date different firms served as Portfolio Manager.
+ Annualized
++ Non-annualized
</TABLE>
See Notes to Financial Statements.
18
<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 Manag-
er. There can be no assurance that any of the Series will achieve its invest-
ment 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 care-
fully 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 indi-
vidual Series all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital apprecia-
tion and there is a substantial risk of decline. With respect to debt securi-
ties, 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, except the Managed Global and Hard Assets 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. The Managed Global and Hard
Assets Series are classified as "non-diversified," which means that each Series
is not limited by the Investment Company Act of 1940 in the amount of assets
that it may invest in the securities of a single issuer. However, the Managed
Global and Hard Assets Series will meet the diversification requirements under
the Internal Revenue Code applicable to mutual funds and variable contracts.
Further, the Managed Global Series may not acquire the securities of any issuer
if, as a result of such investment, more than 10% of the Series' assets would be
invested in the securities of any issuer, except that this restriction does not
apply to U.S. Government securities or foreign government securities, and the
Series may not invest in a security if, as a result of such investment, it would
hold more than 10% of the outstanding voting securities of any one issuer.
Because the Series are "non-diversified" and may invest in a smaller number of
individual issuers than a series which is "diversified," an investment in either
Series may, under certain circumstances, present greater risk to an investor
than an investment in a series which is diversified. This risk may include
greater exposure to the risk of poor earnings or default of one issuer than
would be the case for a more diversified series. 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 with-
out 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 strate-
gies and techniques. The Portfolio Manager for the Series is Zweig Advisors
Inc.
In seeking to maximize total return, the Series will follow an asset alloca-
tion 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, consis-
tent 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 secu-
rities and investment grade debt securities of domestic and foreign issuers,
and up to 50% of its total assets in equity
19
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
securities, including common and preferred stocks, convertible debt securi-
ties, and warrants. If the Portfolio Manager deems stock market conditions to
be favorable or debt market conditions to be uncertain or unfavorable, a sub-
stantially higher percentage (but generally not more than 60%) of the Series'
total assets may be invested in such equity securities. If, however, the Port-
folio Manager believes that the stock market investment environment is uncer-
tain 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 Port-
folio 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 op-
erations, the Series may invest up to 10% of its total assets in the equity
securities of companies exploring, mining, developing, producing, or distrib-
uting 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, infla-
tion 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 mar-
ket indicators, including interest rate and monetary analysis, market senti-
ment indicators, price and trading volume statistics, and measures of valua-
tion, as well as other market indicators and statistics which the Portfolio
Manager believes tend to point to significant trends in the overall perfor-
mance 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 Port-
folio 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 op-
tions; 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 ex-
cess of ten years. The Portfolio Manager expects that the equity portion of
the Series' portfolio will be widely diversified by both industry and the num-
ber 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 com-
puter-driven stock selection model that evaluates and ranks higher dividend
yield stocks. The Portfolio Manager will consider, from a list of approxi-
mately 1,500 of the most liquid stocks, approximately 750 stocks with the
highest dividend yields. The Portfolio Manager will then use, for the selec-
tion of stocks, a proprietary computer-driven stock selection model that eval-
uates and ranks such higher dividend yield stocks on the basis of various fac-
tors, which may include earnings momentum, earnings growth, price-to-book val-
ue, 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 re-
placed 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
20
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
appreciated or depreciated value, respectively, solely by reason of a develop-
ment 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, produc-
tion, 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 Portfolio
Manager, the Series may invest up to 10% of its total assets in such securi-
ties. The Series may also invest in the securities of other companies primar-
ily engaged in the exploration, mining, processing, fabrication, or distribu-
tion of other natural resources/hard assets, 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 sub-
stantially 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 politi-
cal 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 de-
cline 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 secu-
rity 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 implementa-
tion of investment strategies if the Portfolio Manager believes that the price
of a particular security or group of securities is likely to decline. For ad-
ditional information, see "Description of Securities and Investment Tech-
niques -- 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 percent-
age 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 securi-
ties and money market instruments to preserve its principal value during un-
certain 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 ap-
preciation. Current income will be an important component of the Series' ef-
fort 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.
21
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
In selecting investments for the Series, the Portfolio Manager uses a "valua-
tion" 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 es-
tate; the company's replacement cost of plant and equipment; the company's
consumer or commercial franchises, such as well-recognized trademarks or es-
tablished brand names; and the company's earnings or growth potential. The
Portfolio Manager also seeks to identify securities that have been over-dis-
counted due to adverse operating results, deteriorating economic or industry
conditions, or unfavorable publicity. By investing after the adverse condi-
tions are reflected in the price of the company's securities, the risks asso-
ciated with such out-of-favor investments may be 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 securi-
ties 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 follow-
ing money market instruments which have remaining maturities not exceeding one
year: (i) obligations issued or guaranteed by the U.S. Government, its agen-
cies 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 pur-
chase, 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, in-
cluding 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 agree-
ments and reverse repurchase agreements; lending portfolio securities to bro-
kers, dealers, banks, or other recognized institutional borrowers of securi-
ties; purchasing restricted securities; purchasing securities of foreign is-
suers; entering into forward currency contracts and currency exchange transac-
tions 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 sec-
ondary 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 with-
out significant risk to principal. The Portfolio Manager for this Series is
Equitable Investment Services, Inc.
The Series pursues its objectives primarily by investing in a diversified
portfolio of limited maturity debt securities. These are short-to-intermedi-
ate-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 rep-
resenting 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;
22
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
(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 de-
posits, and bankers' acceptances issued by commercial banks;
(vi) savings industry obligations, including certificates of deposit and time
deposits issued by savings and loan associations;
(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 to-
tal 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 in-
strumentality 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 vari-
able or floating rate securities only if such securities are rated Baa or bet-
ter by Moody's Investor Services, Inc. ("Moody's") or BBB or better by Stan-
dard & Poor's Ratings Group ("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 deter-
mines that the commercial paper is of equivalent quality. For additional in-
formation, see "Appendix 1: Description of Bond Ratings" in the Statement of
Additional Information.
The Series seeks to reduce risk, increase income, and preserve or enhance to-
tal return by actively managing the maturity of its portfolio in light of mar-
ket conditions and trends. When, in the opinion of the Portfolio Manager, mar-
ket 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 there-
on. Such a strategy involves using the contracts as a maturity management de-
vice that reduces risk and preserves total return while the Series is restruc-
turing its portfolio in response to the changing interest rate environment.
For information on such contracts, see "Description of Securities and Invest-
ment 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 float-
ing 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 ma-
turities 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
23
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
when-issued basis. A description of these techniques and their attendant risks
is contained in the section of this Prospectus entitled "Description of Secu-
rities and Investment Techniques."
HARD ASSETS SERIES
Hard Assets Series, formerly the Natural Resources Series, seeks long-term
capital appreciation. The Series seeks this objective by investing primarily
in "Hard Asset Securities," that is equity and debt securities of companies
engaged in the exploration, development, production, management,
and distribution of hard assets such as gold and other precious metals,
strategic metals, minerals, oil, natural gas, coal and real estate investment
trusts. The Series may also invest in equity and debt securities 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 opportu-
nity 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 pe-
riods 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 ris-
en, causing the prices of fixed income and industrial equity securities to de-
cline. The Portfolio Manager anticipates that inflation and the price of cer-
tain natural resources will continue on a long-term upward trend with alter-
nating cycles as credit is overexpanded and subsequently tightened. Since the
market action of shares of companies engaged in certain natural resources ac-
tivities 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 assur-
ance that an increased rate of return or reduced fluctuation of a portfolio
will be achieved. Thus, an investment in the Series' shares should be consid-
ered 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. In-
vestments by the Series in securities of foreign issuers may involve particu-
lar investment risks. See "Description of Securities and Investment Tech-
niques" in this Prospectus. Political and social conditions in South Africa,
due to former segregation policies of the South African government and unset-
tled political conditions prevailing in South Africa and neighboring coun-
tries, may pose certain risks to the Series' investments. If aggravated by lo-
cal or international developments, such risks could have an adverse effect on
investments in South Africa, including the Series' investments and, under cer-
tain conditions, on the liquidity of the Series' portfolio and its ability to
meet shareholder redemption requests.
The Series will normally invest at least 65% of its total assets in Hard Asset
Securities. Hard Asset Securities include equity securities of "Hard Asset
Companies" and securities, including structured notes, whose value is linked
to the price of a Hard Asset commodity or a commodity index. See "Description
of Securities and Investment Techniques -- Indexed Securities and Structured
Notes." The term "Hard Asset Companies" includes companies that are directly
or indirectly
(whether through supplier relationships, servicing agreements or otherwise)
engaged to a significant extent in the exploration, development, production or
distribution of one or more of the following (together "Hard Assets"): (a)
precious metals, (b) ferrous and non-ferrous metals, (c) gas, petroleum,
petrochemicals or other hydrocarbons, (d) forest products, (e) real estate
including real estate investment trusts, and (f) other basic non-agricultural
commodities. Under normal market conditions, the Series will invest at least
5% of its assets in each of the first five sectors listed previously. The Series
has a fundamental policy of concentrating in such industries and up to 50% of
the Series' assets may be invested in any one of the above sectors. Since the
Series may so concentrate, it may be subject to greater risks and
market fluctionations than other investment companies with more diversified
portfolios. See "Hard Asset Securities."
Although the Series will not invest in real estate directly, it may invest up
to 50% of its assets in equity securities of real estate investment trusts
("REITS") and other real estate industry companies or companies with substantial
real estate investments. As a result, the Series may be subject to certain
risks associated with direct ownership of real estate and with the real estate
industry in general. For a description of these risks, see "Description of
Securities and Investment Techniques -- Real Estate Securities."
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 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 instru-
ments, and (e) repurchase agreements.
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."
The Portfolio Manager believes the Series may offer a hedge against inflation,
particularly commodity price driven inflation. However, there is no assurance
that rising commodity (or other hard asset) prices will result in higher
earnings or share prices for the Hard Asset Companies in the Series. Hard
Asset Company equities are affected by many factors, including movements in the
overall stock market. Inflation may cause a decline in the overall stock
market, including the stocks of Hard Asset Companies.
The Series seeks investment opportunities in the world's major stock, bond and
commodity markets. The Series may invest in securities issued anywhere in the
world, including the United States. There is no limitation or restriction on
the amount of assets to be invested in any one country. There is no
limitation on the amount the Series can invest in emerging markets. The
Series may purchase securities in any foreign country, developed or
underdeveloped. Investors should consider carefully the substantial risks
involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. Global investing involves economic and political considerations
not typically applicable to the U.S. markets. See "Description of Securities
and Investment Techniques."
The equity securities in which the Series may invest include common stocks;
preferred stocks (either convertible or non-convertible); rights; warrants;
direct equity interests in trusts; partnerships; joint ventures and other
incorporated entities or enterprises; "when issued" securities: "partly paid"
securities (securities paid for over a period of time) and special classes of
shares available only to foreign persons in those markets that restrict
ownership of certain
classes of equity to nationals or residents of that country. These securities
may be listed on the U.S. or foreign securities exchanges or traded
over-the-counter. Direct investments are generally considered illiquid and
will be aggregated with other illiquid investments for purposes of the
limitation on illiquid investments. The Series may invest in certain
derivatives. Derivatives are instruments
whose value is "derived" from an underlying asset. Derivatives in which the
Series may invest include futures contracts, forward contracts, options, swaps
and structured notes and other similar securities as may become available in
the market. These instruments offer certain opportunities and are subject to
additional risks that are described in the "Description of Securities and
Investment Techniques." In addition, the Series may invest in
futures and forward contracts and options on precious metals and other Hard
Assets. See "Investment in Gold and Other Precious Metals."
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. These risks are described further in "Description
of Securities and Investment Techniques."
Investors should be aware that some of the instruments in which the Series may
invest, such as structured or indexed notes, swaps and foreign securities, may
be subject to periods of extreme volatility and illiquidity and may be difficult
to value. Despite these risks, some of which are noted below, these instruments
may offer unique investment opportunities. These techniques are described in
"Description of Securities and Investment Techniques."
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
REAL ESTATE SERIES
The primary investment objective of the Real Estate Series is capital appreci-
ation. Current income is a secondary objective. The Series seeks these objec-
tives 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 resi-
dential, 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 in-
vested in money market instruments and U.S. Government securities if, in the
opinion of the Portfolio Manager, market conditions warrant a temporary defen-
sive investment strategy.
The Series may invest up to 35% of its total assets in equity, debt, or con-
vertible securities of issuers whose products and services are related to the
real estate industry, such as manufacturers and distributors of building sup-
plies, 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 Se-
ries also may invest in the securities of companies unrelated to the real es-
tate 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 may also invest up
to 20% of its assets, measured at the time of investment, in high yield con-
vertible 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. These risks are
discussed in "Description of Securities and Investment Techniques -- Real Estate
Securities."
25
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
ALL-GROWTH SERIES
The All-Growth Series' investment objective is capital appreciation. The Se-
ries 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 Pilgrim Baxter & Associ-
ates, Ltd.
In considering securities for the Series, the Portfolio Manager (1) selects
for investment those companies whose unique characteristics or proprietary ad-
vantages, it believes, offer the best prospects for above average increases in
revenues and earnings; (2) selects companies that tend to be grouped in indus-
tries 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' investment policy stresses flexibility and adaptability in arrang-
ing 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 se-
curities, i.e., there is no assurance of capital appreciation and there is a
substantial risk of decline. Investment in the securities of unseasoned compa-
nies 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 is-
suers. The Series may also engage in short sales. The Series may also write
"covered" listed put and call equity options including options on stock indi-
ces, 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 operat-
ing 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 Securi-
ties and Investment Techniques."
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 LGT Asset Management, Inc.
The Portfolio Manager will allocate the Series' assets between the two compo-
nents in an effort to
26
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
maximize the potential for achieving the Series' overall objective. The Port-
folio 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 lit-
tle 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 Standard & Poor's 500 Composite Stock Price Index ("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 sell-
ing 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 Port-
folio 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 serv-
ices 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 signifi-
cant 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. Trea-
sury bills that equity securities have historically provided, the Series may,
as a temporary defensive measure, invest up to 40% of its assets in money mar-
ket 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 in-
vests 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 in-
vestment methods: writing "covered" listed put and call equity options includ-
ing options on stock indices, and purchasing such options; purchasing and
selling stock index, interest rate, and other futures contracts, and purchas-
ing options on such futures; entering into repurchase agreements; and borrow-
ing 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 Invest-
ment Techniques" for further discussion of these investment methods. For a
discussion of investment in investment grade debt securities, see "Debt Secu-
rities." For a description of the risks of investment in industries related to
real estate, see Description of Securities and Investment Techniques -- Real
Estate Securities."
RISING DIVIDENDS SERIES
The investment objective of the Rising Dividends Series is capital apprecia-
tion. Dividend income is a secondary objective. The Portfolio Manager for the
Series is Kayne, Anderson Investment Management, L.P.
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 divi-
dends 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.
27
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
(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
13,000 companies for those companies that meet the above criteria. From this
universe, the Portfolio Manager anticipates that approximately 350 companies
will meet the criteria, each of which is individually analyzed by the Portfo-
lio Manager to consider its past and present competitive position within its
respective industry. Each security is analyzed on a proprietary computer ma-
trix, based on the Portfolio Manager's projections of each company's growth in
earnings, cash flow, and dividends. Target prices and value ranges are devel-
oped from this analysis. The securities are ranked based on their potential
total return and their risk/reward ratio. The final decision to invest in a
stock includes an analysis of how well the company is positioned in its sector
and how well the sector is positioned for the current economic environment. The
individual security selection is overlaid with a sector allocation discipline
to avoid over concentration in any single sector.
It is the policy of the Series that no equity
security will be acquired if, after its acquisition, more than 15% of the Se-
ries' 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 Se-
ries' equity securities to assure they meet the four criteria. A security will
generally be sold when it reaches its target price, when negative changes oc-
cur in either the company or its industry, or when any one or more of the four
criteria are no longer satisfied. A 15% price decline in a stock, relative to
the market, triggers a re-appraisal. The reappraisal may result in a sale, but
each buy/sell decision is made on the merits and fundamentals of that particu-
lar situation. 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 Portfo-
lio Manager deems a suitable investment. Equity securities are deemed to in-
clude 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 se-
curities 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 securi-
ties or in cash or cash equivalents.
EMERGING MARKETS SERIES
The investment objective of the Emerging Markets Series is long-term capital
appreciation. 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 diversi-
fied by issuer, and normally will be invested in companies located in at least
six different emerging market countries. The investment philosophy of the Se-
ries is to attempt to capitalize upon emerging capital markets in developing
nations and other nations in which the Portfolio Manager believes that eco-
nomic and political factors are likely to produce above average growth rates.
The Series' Portfolio Manager is Putnam Investment Management, Inc. ("Putnam").
At least 65% of the Series' assets normally will be invested in the equity se-
curities of issuers in countries that are identified as emerging market coun-
tries 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 proc-
ess 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, supply and demand, the prospects for relative growth among
the regions and the countries therein, expected levels of inflation, govern-
mental policies influencing business conditions, the outlook for currency re-
lationships, and the range of alternative opportunities available to interna-
tional investors. The Portfolio Manager may determine to change its allocation
at any time.
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
For purposes of allocating the Series' investments, a company will be consid-
ered 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. Eq-
uity 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 pur-
chase 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 eq-
uity securities, the remainder of the Series' assets, which normally will not
exceed 35% of net assets, may be invested in equity securities of issuers in
developed economies; 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 indust-
rialized 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 de-
gree in debt securities and bank and money market instruments as described
above. In addition, the Series may invest significantly in such securities af-
ter 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 ex-
change rates in relation to the U.S. dollar. Such foreign currency transac-
tions may include forward foreign currency contracts, currency exchange trans-
actions on a spot (i.e., cash) basis, put and call options on foreign curren-
cies, and foreign exchange futures contracts. For a description on these tech-
niques, see "Description of Securities and Investment Techniques --Foreign
Currency Transactions" in this Prospectus.
The Emerging Markets Series may use various investment strategies and tech-
niques to meet its investment objectives, including purchasing options on se-
curities and writing (selling) secured put and covered call options on securi-
ties and securities indexes. The Series may purchase and sell futures con-
tracts, and may purchase and write options on such futures contracts,including
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 invest-
ment companies when the Portfolio Manager believes such investment is an
appropriate method of investing in one or more emerging capital markets.
The Series may invest in restricted securities and warrants. These investment
techniques are described under the heading "Description of Securities and In-
vestment Techniques" in this Prospectus or in the Statement of Additional In-
formation.
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 Securities" in this Prospectus. 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
29
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INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
countries have experienced significant declines against the U.S. dollar in re-
cent years, and devaluation may occur subsequent to investments in those cur-
rencies by the Series. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and secu-
rities 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 sig-
nificant price volatility. There is a risk in emerging market countries that a
future economic or political crisis could lead to price controls, forced merg-
ers of companies, expropriation or confiscatory taxation, seizure, national-
ization, foreign exchange controls (which may include suspension of the abil-
ity to transfer currency from a given country) or creation of government mo-
nopolies, any of which may have a detrimental effect on the Series' invest-
ment. In addition, in many countries there is less publicly available informa-
tion about issuers than is available in the United States. Foreign companies
are not generally subject to uniform accounting, auditing, and financial re-
porting standards, and auditing practices and requirements may not be compara-
ble to those applicable to U.S. companies. Further, the Series may encounter
difficulties or be unable to pursue legal remedies or obtain judgments 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 sound-
ness and high intrinsic value relative to price.
The Portfolio Manager employs a three-step process to purchase securities
identified as possible value opportunities:
(1) He screens the universe of equity securities for five key variables: low
price-to-book, price-to-sales, and price-to-earnings ratios; and relative
dividend yield and relative price-to-earnings ratios.
(2) He performs in-depth fundamental research on individual companies including
their industry outlook and trends, strategy, management strength, and financial
stability.
(3) He employs a discounted free cash flow model to identify securities which
are trading at a significant discount to their estimated intrinsic value.
In selecting equity securities, the Portfolio Manger identifies three basic
categories of value opportunities:
"Pure" Value Opportunities: Stocks which trade at a discount to their
absolute intrinsic value and appear attractive relative to the broader market.
"Relative" Value Opportunities: Stock which trade at a discount to the
valuation parameters that the market has historically applied to them or their
peer group.
"Event-driven" Value Opportunities: Stocks with which a realized or
anticipated event may trigger recognition of the underlying value.
Companies selected for investment will, under normal circumstances, typically
meet at least one of the above criteria at the time of investment.
The Series may also invest in debt securities, and intends to limit those in-
vestments to U.S. Government and agency obligations. The portion of total as-
sets 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 of depos-
it, bankers' acceptances, high quality commercial paper, Treasury bills, re-
purchase agreements, and other money market instruments. During adverse market
conditions, as a temporary investment posture, the Series may invest signifi-
cantly 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 or-
dinary 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 Invest-
30
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
ment Techniques -- Foreign Securities" in this Prospectus.
It is the policy of the Series that no equity security
will be acquired, if, after it 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 may
be sold from the portfolio when (1) its price approaches its intrinsic value;
(2) a temporary, dramatic, short-term price appreciation occurs; (3) its
fundamentals deteriorate; or (4) its relative attractiveness diminishes. 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 sub-
scribe for or purchase common stocks. The Series may also invest in Standard &
Poor's Depositary Receipts ("SPDR's"), which are publicly traded interests in
a unit investment trust that invests in substantially all of the common stocks
in the S&P 500. SPDR's are not subject to the Series' policy that no more than
5% of the Series' total assets be invested in any one issuer.
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' as-
sets in securities that, at the time of investment, it believes to be illiq-
uid. In pursuing its investment objective or for hedging purposes, the Series
may, but is not required to, utilize the following investment techniques: en-
tering into stock index, interest rate, foreign currency and other financial
futures contracts, and purchasing options on such futures contracts; purchas-
ing and writing "covered" listed put and call options on securities, stock in-
dices, 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 in-
vestment 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 at-
tractive. The Series' investments in equities include both (1) stocks that the
Portfolio Manager selects for their "growth" characteristics (which may in-
clude positive earnings momentum and above average earnings growth rates), and
(2) stocks that the Portfolio Manager selects for their "income" characteris-
tics (which may include above average dividend yields and favorable dividend
growth). To the extent not invested in equity securities, the Series' assets
generally will be invested in money market instruments or held as cash. The
Series may also invest in debt securities for defensive purposes. The Portfo-
lio Manager for the Series is Zweig Advisors Inc.
The extent of the Series' investment in equity securities will be based pri-
marily 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 un-
certain 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 cer-
tain circumstances perhaps all) of the Series' total assets may be invested in
money market instruments and cash. The Portfolio Manager expects that the Se-
ries will be fully invested in equity securities only when the Portfolio Man-
ager believes that there is very low risk in the stock market. There is no as-
surance 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
31
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
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 fluctu-
ate 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 re-
placed by other stock selection techniques intended to achieve the Series' ob-
jective.
The Series may use various investment strategies and techniques when the Port-
folio Manager determines that such use is appropriate in an effort to meet the
Series' investment objective including: buying "covered" listed put equity op-
tions 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.
SMALL CAP SERIES
The investment objective of the Series is long-term capital appreciation. Except
during temporary defensive periods, the Series invests at least 65% of its total
assets in equity securities of companies that, at the time of purchase of the
securities, have total market capitalization within the range of companies in-
cluded in the Russell 2000 Growth Index ("Russell Index") or the S&P SmallCap
600 Index ("S&P Index"), updated quarterly. Both indexes are broad indexes of
small capitalization stocks. As of March 31, 1997, the range of market
capitalization
companies in the Russell Index was $10 million to $1.94 billion; the range of
the market capitalization the companies in the S&P Index at that date was $32
million to $2.579 billion. The combined range as of that date was $10 million
to $2.579 billion. The Series may invest up to 35% of its total assets in
equity securities of companies that, at the time of purchase, have total market
capitalization outside this combined range,and in excess of that amount (up to
100% of its assets) during temporary defensive periods. The Portfolio Manager
for the Series is Fred Alger Management, Inc.
The Series seeks to achieve its objective by investing in equity securities,
such as common or preferred stocks, or securities convertible into or
exchangeable for equity securities, including warrants and rights. The Series
will invest primarily in companies whose securities are traded on domestic
stock exchanges or in the over-the-counter market. These companies may still
be in the developmental stage, may be older companies that appear to be enter-
ing a new stage of growth owing to factors such as management changes or de-
velopment of new technology, products or markets, or may be companies provid-
ing products or services with a high unit volume growth rate. In order to af-
ford the Series the flexibility to take advantage of new opportunities for in-
vestments in accordance with its investment objective, it may hold up to 15%
of its net assets in money market instruments and repurchase agreements and in
excess of that amount (up to 100% of its assets) immediately after the com-
mencement of operations, after receipt of new monies, or during temporary de-
fensive periods. This amount may be higher than that maintained by other funds
with similar investment objectives.
Investing in smaller, newer issuers generally involves greater risk than in-
vesting in larger, more established issuers. Companies in which the Series is
likely to invest may have limited product lines, markets or financial re-
sources and may lack management depth. The securities of such companies may
have limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general. Accordingly, an investment in the Series may not be ap-
propriate for all investors.
The Series may use the following various investment strategies and techniques
when the Portfolio Manager determines that such use is appropriate in an ef-
fort to meet the Series' investment objec-
32
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
tive: short sales of securities; investing in securities of foreign issuers,
including foreign government securities; engaging in futures contracts, in-
cluding purchasing and selling stock index futures contracts and interest rate
futures contracts; purchasing and selling options on securities; purchasing
options on stock index futures contracts, interest rate futures contracts, and
foreign currency futures contracts; entering into foreign currency transac-
tions and options on foreign currencies; entering into repurchase agreements
and reverse repurchase agreements; and lending portfolio securities to bro-
kers, dealers, bankers, and other recognized institutional borrowers of secu-
rities.
MANAGED GLOBAL SERIES
The Managed Global Series investment objective is to seek capital appreciation.
Current income is only an incidental consideration in selecting investments for
the Series.
In seeking capital appreciation, the Series employs a global investment
strategy of investing primarily in common stocks traded in securities markets
throughout the world. The Series may at times invest up to 100% of its assets
in securities principally traded in securities markets outside the United
States, and will under normal market conditions, invest at least 65% of its
assets in at least three different countries, one of which may be the United
States. See Description of Securities and Investment Techniques -- Foreign Se-
curities." In unusual market circumstances where the Portfolio Manager believes
that foreign investing may involve undue risks, 100% of the Series' assets may
be invested in the United States. The Series may hold a portion of its assets
in cash or money market instruments.
In considering equity securities, the Series will not limit its investments to
any particular type of company. It may invest in companies, large or small,
whose earnings are believed to be in a relatively strong growth trend, or in
companies in which significant further growth is not anticipated but whose
securities are thought to be undervalued. It may invest in small and
relatively less well known companies. Investing in securities of smaller, less
well known companies may present greater opportunities for capital
appreciation, but may also involve greater risks.
At times the Portfolio Manager may judge that conditions in the international
securities markets make pursuing the Series' basic investment strategy incon-
sistent with the best interests of shareholders. The Portfolio Manager may
temporarily use alternative strategies, primarily designed to reduce fluc-
tuations in the value of the Series' assets. In implementing these "defensive"
strategies the Series may invest in some of the following securities.
The Series may invest solely in equity securities traded primarily in U.S.
markets. Also the Series may add preferred stocks to the portfolio.
The Series may invest in debt instruments:
(1) fixed-income instruments issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities ("U.S. Government Securities"); (2) obliga-
tions issued or guaranteed by a foreign government or any of its political sub-
divisions, authorities, agencies, or instrumentalities, or by supranational
entities ("foreign government securities");and (3) debt securities of domestic
or foreign issuers. Debt securities purchased by the Series may be of any
maturity. It is at the discretion of the Portfolio Manager.
The Series may invest in money market instruments. These include the following:
1) short-term U.S. Government securities; (2) short-term foreign government
securities (3) certificates of deposit, time deposits, bankers' acceptances,
and short-term obligations of banks and other depository institutions, both U.S.
and foreign, that have total assets of at least $10 billion (U.S.); and
(4) commercial paper and other short-term corporate obligations.
The Managed Global 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, including 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 when
the Portfolio Manager believes such investment is an appropriate method of
investing in one or more emerging capital markets. The Series may invest in
restricted securities and warrants.
For more information about the Series investments including the risks of such
investing see, "Description of Securities and Investment Techniques." The
Portfolio Manager may invest in the above or any other securities that it
considers consistent with the defensive strategies of the Series. It is im-
possible to predict when or for how long the Series will use such alternative
strategies.
The Series is the successor for accounting purposes to the Managed Global Ac-
count of Separate Account D of Golden American. For additional information,
see "Other Information--The History of the Managed Global Series."
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 Equitable Investment Services, Inc.
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 mon-
etary policy. The Portfolio Manager also seeks to improve yield by taking ad-
vantage 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.
33
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES (CONTINUED)
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 acquisi-
tion;
(ii) Bank Obligations. Obligations of commercial banks (including foreign
branches), savings and loan associations, and foreign banks with maturi-
ties not exceeding 13 months. Such obligations include negotiable certif-
icates of deposit, variable rate certificates of deposit, bankers' ac-
ceptances, 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. 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 compa-
nies, 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 to-
tal assets, measured at the time of investment, that are of the highest quali-
ty. 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 in-
strument 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 secu-
rities 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. Govern-
ment 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 pre-
sents minimal credit risk and determine whether or not to retain the instru-
ment.
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 en-
ter 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 obliga-
tions held by the Series.
MID-CAP GROWTH SERIES
The Mid-Cap Growth Series seeks long-term growth of capital. The Portfolio
Manager for the Series is Pilgrim Baxter & Associates, Ltd.
Under normal market conditions, the Series will invest at least 65% of its
total assets in common stocks of mid-range capitalization companies that, in
the Portfolio Manager's opinion, have an outlook for strong growth in earnings
and potential for capital appreciation. Such companies will have market
capitalizations at purchase in the range of $400 million to $4 billion. The
Portfolio Manager also will consider the diversity of industries in choosing
investment for the Series. See "Description of Securities and Investment
Techniques -- Foreign Securities."
Normally, the Series will be invested in substantially equity securities traded
in the United States or Canada on registered exchanges or in the over-the-
counter market. Additionally, the Series may invest in ADRs and foreign sec-
urities. The equity securities in which the Series may invest are common
stocks, warrants and rights to purchase common stocks, and debt securities and
preferred stock convertible into common stocks. The Series may invest in con-
vertible debt securities rated investment grade by a nationally recognized
statistical rating organization ("NRSRO") (i.e., within one of the four highest
rating categories). See "Description of Securities and Investment Techniques."
While it has no present intention to do so, the Series reserves the right to
invest up to 10% of its net assets in restricted securities and securities of
foreign issuers traded outside the United States and Canada and, for hedging
purposes only, to purchase and sell options on stocks and stock indices. The
Series also may invest up to 15% of its net assets in illiquid securities, but
will not invest more than 5% of its net assets in restricted securities that
the Portfolio Manager determines are illiquid based on guidelines approved by
the Board of Trustees of the Trust. See "Description of Securities and
Investment Techniques."
Securities will be sold when the Portfolio Manager believes that anticipated
appreciation is no longer probable, alternative investments offer superior
appreciation prospects, or the risk of a decline in the market price is too
great. Because of its policy with respect to sales of investments, the Series
may from time to time realize short-term gains and losses. the Series will
likely have somewhat greater volatility than the stock market in general, as
measured by the S&P 500. Because the investment techniques employed by the
Portfolio Manager are responsive to near-term earnings trends of the companies
whose securities are owned by the Series, portfolio turnover can be expected to
be fairly high.
34
<PAGE>
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, J. Michael Earley,
R. Barbara Gitenstein, Robert A. Grayson, Paul R. Schlaack, Stanley B. Seidler,
Roger B. Vincent and M. Norvel Young. The Executive Officers of the Trust are
Terry L. Kendall, Barnett Chernow, Myles R. Tashman 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 and is a wholly owned subsidiary of Equitable of Iowa. 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 to serve as the investment me-
dium for Variable Contracts issued by Golden American. DSI is the principal
underwriter and distributor of the Variable Contracts issued by Golden Ameri-
can. 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 subsidi-
ary of Equitable of Iowa. With assets of over $12.5 billion as of December 31,
1996,
Equitable of Iowa is the holding company for Equitable Life Insurance Company
of Iowa, USG Annuity & Life Company, Locust Street Securities, Inc., Equitable
Investment Services, Inc., DSI and Golden American Life
Insurance Company. Prior to August 13, 1996, DSI was an indirect, wholly owned
subsidiary of Bankers Trust Company.
DSI performs the activities described above in this Prospectus and below under
the caption "Distributor." Under the Management Agreement, DSI has overall re-
sponsibility, subject to the supervision of the Board of Trustees, for engag-
ing portfolio managers and for monitoring and evaluating the management of the
assets of each Series by the Portfolio Managers. The Manager is also responsi-
ble for monitoring and evaluating the Portfolio Managers on a periodic basis,
and will consider their performance records with respect to the investment ob-
jectives and policies of each Series. The Manager may, if appropriate, recom-
mend that the Trustees consider a change in the Portfolio Manager, although
the Manager does not expect to recommend frequent changes in Portfolio Manag-
ers 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 informa-
tion necessary to the proper conduct of the business of the Series. For all but
the Mid-Cap Growth Series, the Manager is responsible for providing or procur-
ing, at the Manager's expense, the services reasonably necessary for the ordi-
nary operation of the Series, including custodial, administrative, transfer
agency, portfolio accounting, dividend disbursing, auditing, and ordinary legal
services. The Manager also provides similar services to the Mid-Cap Growth
Series, but the expenses for such services are paid by the Series. The Manager
also acts as liaison among the various service providers to the Series, includ-
ing the custodian, portfolio accounting agent, Portfolio Managers, and the in-
surance 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 inde-
pendent trustees, and extraordinary expenses, such as litigation or indemnifi-
cation expenses.
Pursuant to the Management Agreement, the Manager is authorized to exercise
full investment discretion and make all determinations with respect to the in-
vestment 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 ter-
minated without penalty by the vote of the Board of Trustees or the sharehold-
ers 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 Investment Company Act of 1940.
35
<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
- -------------------------------------------------------------------------------
The Trust pays the Manager for its services under the Management Agreements 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 FEE (based on combined assets of the
- ---------------------------------- indicated groups of Series)
-----------------------------------------
Multiple Allocation, Fully 1.0% on the first $750 million in
Managed, Hard Assets, Real combined assets of these Series;
Estate, All-Growth, Capital 0.95% on the next $1.250 billion;
Appreciation, Rising Dividends, 0.90% on the next $1.5 billion; and
Value Equity, Strategic Equity, 0.85% on the amount over $3.5 billion
and Small Cap
Emerging Markets 1.75%
Managed Global Equity 1.25% on the first $500 million; and
1.05% on the amount over $500 million.
Mid-Cap Growth 0.75%
Limited Maturity Bond 0.60% on the first $200 million in
and Liquid Asset combined assets of these Series;
0.55% on the next $300 million; and
0.50% on the amount over $500 million
- -------------------------------------------------------------------------------
As compensation for its services during the most recent fiscal year, the
Trust, pursuant to the Management Agreement, paid the Manager fees which rep-
resented the following percentage of each Series' average daily net assets:
Multiple Allocation Series -- 0.99%; Fully Managed Series -- 0.99%; Limited
Maturity Bond Series -- 0.60%; Hard Assets Series -- 0.99%; Real Estate Se-
ries -- 0.99%; All-Growth Series -- 0.99%; Capital Appreciation Series --
0.99%; Rising Dividends Series -- 0.99%; Value Equity Series -- 0.99%; Stra-
tegic Equity Series -- 0.99%; Emerging Markets Series -- 1.50%; Liquid Asset
Series -- 0.60%; Managed Global -- 1.08% and Small Cap Series -- 0.98%. The
Mid-Cap Growth Series had not commenced operations as of the end of the most
recent fiscal year. For more information on the Management Agreement, see the
Statement of Additional Information.
The Trust is distinct in that the expense structure of most Series is simpler
and more predictable than most mutual funds. For all Series but the Mid-Cap
Growth Series, many of the ordinary expenses for each Series, including cus-
todial, administrative, transfer agency, portfolio accounting, auditing, and
ordinary legal expenses are paid by the Manager; whereas, most mutual funds and
the Mid-Cap Growth Series 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 determina-
tions 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 de-
scribed in the Investment Company Act of 1940. A description of each Portfolio
Manager follows.
ZWEIG ADVISORS INC.
The Portfolio Manager to the Multiple Allocation Series and the Strategic Eq-
uity 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, diversi-
fied management investment company.
The asset allocation strategy for the Multiple Allocation Series is deter-
mined 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 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
36
<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
investment advisory and portfolio management services for over 25 years. He
is the President and/or Chairman of investment advisory firms which, as of
December 31, 1996, managed in excess of $6 billion in assets. Dr. Zweig owns
approximately 64% of the outstanding shares of the Portfolio Manager.
Mr. Lazar is a Vice President of the Portfolio Manager and has been control-
ler of the Portfolio Manager since 1986. Mr. Lazar has also been Vice Presi-
dent 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 Ap-
preciation Fund since their inceptions.
Mr. 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 Presi-
dent with J.P. Morgan & Co., Inc.
Pursuant 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 Associ-
ates, 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, 1996, the firm and its affiliates managed over $99.4
billion in assets.
With respect to its investment management of the Fully Managed Series, the
Portfolio Manager has an Investment Advisory Committee composed of the fol-
lowing 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 av-
erage daily net assets of the Fully Managed Series.
PUTNAM INVESTMENT MANAGEMENT, INC.
The Portfolio Manager to the Emerging Markets Series and Managed Global Series
is Putnam Investment Management, Inc. ("Putnam"), located at One Post Office
Square, Boston, Massachusetts 02109 has been managing mutual funds since 1937.
Putnam is wholly owned by Putnam Investments, Inc., is in turn wholly owned by
Marsh & McLennan Companies, Inc., a publicly traded company. As of December
31, 1996, Putnam and its affiliates managed approximately $173 billion of
assets.
Both the Managed Global Series and the Emerging Markets Series are managed by
committees of portfolio managers at Putnam.
Pursuant to the Portfolio Management Agreement, the Manager (and not the
Trust) pays Putnam a monthly fee equal to an annual rate of 1.00% of the
first $150 million, 0.95% of the next $150 million and 0.85% of over $300
million of average daily net assets of the Emerging Markets Series; and 0.70%
of the first $300 million and 0.60% over $300 million of average daily net
assets of the Managed Global Series.
Putnam assumed portfolio management of the Emerging Markets Series and
Managed Global Series on March 3, 1997. From the Emerging Markets Series'
commencement of operations on October 4, 1993 to March 3, 1997, Bankers Trust
Company served as the Emerging Markets Series' portfolio manager. Warburg,
Pincus Counsellors, Inc. served as portfolio manager of the Managed Global
Series or its predecessor, the Managed Global Account of Separate Account D
of Golden American Life Insurance Company, from July 1, 1994 until March 3,
1997. Prior to that, a different firm served as portfolio manager.
37
<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
VAN ECK ASSOCIATES CORPORATION
The Portfolio Manager to the Hard Assets Series is Van Eck Associates Corpo-
ration ("Van Eck"), located at 99 Park Avenue, New York, New York 10016. Van
Eck acts as investment adviser to ten other mutual funds and portfolios of
pension plans with similar investment objectives to the Hard Assets Series.
In addition, the Portfolio Manager acts as an adviser to nine other mutual
funds with investment objectives different from the Hard Assets 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 Hard Assets Series. Mr.
Bingham has served in that capacity since the Series' commencement of opera-
tions. 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 Presi-
dent 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 require-
ments. He has been serving in his current capacity with the Series since July
1995.
38
<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
Total aggregate assets under management of Van Eck Associates Corporation as
of December 31, 1996 were approximately $1.6 billion.
Pursuant 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 Hard Assets Series.
PILGRIM BAXTER & ASSOCIATES, LTD.
The Portfolio Manager of the All-Growth and Mid-Cap Growth Series is
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter"), located at 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania 19807. Pilgrim Baxter, a Delaware
corporation, was founded in 1982 and is a wholly owned subsidiary of United
Asset Management Corporation, a publicly traded company. Pilgrim Baxter is a
professional investment management firm which provides advisory services to
pension and profit sharing plans, charitable institutions, corporations,
individual investors, trust and estates, and other investment companies. As of
December 31, 1996, Pilgrim Baxter managed approximately $14.7 billion of
assets, including approximately $10 billion of investment company assets.
Bruce J. Muzina, Portfolio Manager, is responsible for management of the
All-Growth and Mid-Cap Growth Series. Mr. Muzina has been an investment
professional with Pilgrim Baxter since 1985.
Pursuant to the Portfolio Management Agreements, the Manager (and not the
Trust) pays Pilgrim Baxter a monthly fee equal to an annual rate of
0.55% of the average daily net assets of the All-Growth Series and the
Trust) pays Pilgrim Baxter a monthly fee equal to an annual rate of
0.55% of the average daily net assets of the Mid-Cap Growth Series.
Pilgrim Baxter assumed portfolio management of the All-Growth Series on Feb-
ruary 3, 1997. Warburg, Pincus Counsellors, Inc. served as portfolio manager
to the Series from July 1, 1994 until February 3, 1997.Prior to that date, a
different firm served as Portfolio Manager to the Series.
CHANCELLOR LGT ASSET MANAGEMENT, INC.
The Portfolio Manager to the Capital Appreciation Series is Chancellor LGT
Asset Manage-
39
<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
ment, Inc. ("Chancellor LGT"), located at 1166 Avenue of the Americas, New
York, New York 10036.
The Portfolio Manager is a wholly owned subsidiary of Liechtenstein Global
Trust, AG ("LGT"). Prior to October 31, 1996, the Series was managed by Chan-
cellor LGT's predecessor, Chancellor Trust Company ("Chancellor").
LGT and its worldwide affiliates provide global asset management and private
banking products, and as of December 31, 1996 were entrusted with approximately
$84 billion in institutional and individual client assets. LGT is controlled by
the Prince of Liechtenstein Foundation, which serves as the parent organization
for various business enterprises of the Princely Family of Liechtenstein.
The individuals responsible for the management of the Capital Appreciation
Series, since May 1, 1992 (the commencement of Chancellor LGT's and its pred-
ecessors' management of the Series), are Warren Shaw and Ted Ujazdowski. Mr.
Shaw, Chief Executive Officer and Chief Investment Officer of Chancellor LGT
since 1994, previously served as President since 1994 and Managing Director
since 1988. Mr. Ujazdowski has served as Managing Director of Chancellor LGT
since 1989.
Prior to July 27, 1993, Chancellor Capital Management, Inc. 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 the Portfolio Management Agreement, the Manager (and not the
Trust) pays Chancellor LGT 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 In-
vestment Management, L.P. ("Kayne, Anderson"), located at 1800 Avenue of the
Stars, Suite 200, Los Angeles, California 90067. The Portfolio Manager is a
registered investment adviser organized on June 29, 1994 as a California lim-
ited partnership succeeding to the investment advisory business of Kayne, An-
derson Investment Management, Inc. which was founded in 1984 by Richard A.
Kayne and John E. Anderson.
Kayne, Anderson is in the business of furnishing investment advice to insti-
tutional and private clients. The General Partner is KAIM Traditional LLC.
Messrs. Kayne, Anderson and Allan M. Rudnick in the aggregate own in excess of
80% of the LLC. As of December 31, 1995, Kayne, Anderson managed portfolios
which, in the aggregate, amounted to approximately $2.1 billion.
Allan M. Rudnick, Senior Vice President and Chief Investment Officer of
Kayne, Anderson since August, 1989 is the Senior Portfolio Manager responsi-
ble 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 agree-
ment. This substitution agreement did not result in any change in the person-
nel managing the assets of the Rising Dividends Series.
Pursuant 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' in-
vestments since September 1, 1996 is Michael J. Chren. Until assuming respon-
sibilities for the Series, Mr. Chren was Co-Portfolio Manager of Eagle's Eq-
uity Income Division since January, 1996 and was a research analyst for Eagle
since 1994. Prior to joining Eagle, Mr. Chren served as an invest-
40
<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
ment analyst since 1986: with Bear, Stearns in 1993, with Raymond James & As-
sociates, Inc. from 1991 to 1992, and with Junction Advisors, Inc. from 1989
to 1990.
Eagle is in the business of managing institutional clients and individual ac-
counts on a discretionary basis. Eagle is a wholly owned subsidiary of Ray-
mond 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 provided services to employee benefit plans, corporations,
and high net worth individuals, both foreign and domestic, since 1983. As of
December 31, 1996, the Portfolio Manager and/or its affiliates had investment
management authority with respect to approximately $965 million of real es-
tate securities assets. The Portfolio Manager is a wholly owned subsidiary of
European Investors Incorporated.
Richard J. Adler, Managing Director, and Cydney C. Donnell, Managing Director
of the Portfolio Manager, are the individuals primarily responsible for the
day-to-day operation of the Series. For the past ten years, they have been
portfolio managers or real estate securities analysts for the Portfolio Man-
ager and its affiliates.
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.
FRED ALGER MANAGEMENT, INC.
The Portfolio Manager to the Small Cap Series is Fred Alger Management, Inc.,
located at 75 Maiden Lane, New York, NY 10038. The Portfolio Manager has been
in the business of providing investment advisory services since 1964 and, as
of March 31, 1997, had approximately $6.4 billion under management, $4.9 bil-
lion in mutual fund accounts and $1.5 billion in other advisory accounts. The
Portfolio Manager is owned by Fred Alger & Company, Incorporated ("Alger
Inc."), which in turn is owned by Alger Associates, Inc., a financial serv-
ices holding company. Fred M. Alger III and his brother, David D. Alger, are
the majority shareholders of Alger Associates, Inc. and may be deemed to con-
trol that company and its subsidiaries.
David D. Alger, President of the Portfolio Manager, is primarily responsible
for the day-to-day management of the Series. He has been employed by the
Portfolio Manager as Executive Vice President and Director of Research since
1971 and as President since 1995 and he serves as portfolio manager for other
mutual funds and investment accounts managed by the Portfolio Manager. Also
participating in the management of the Series are Ronald Tartaro and Seilai
Khoo. Mr. Tartaro has been employed by the Portfolio Manager since 1990 and
he serves as a senior research analyst. Prior to 1990, he was a member of the
technical staff at AT&T Bell Laboratories. Ms. Khoo has been employed by the
Portfolio Manager since 1989 and she serves as a senior research analyst.
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 Small Cap Series.
EQUITABLE INVESTMENT SERVICES, INC.
The Portfolio Manager of the Limited Maturity Bond Series and the Liquid As-
set Series is Equitable Investment Services, Inc., located at 699 Walnut
Street, Des Moines, Iowa 50309. The Portfolio Manager is an Iowa corporation
which was incorporated in 1969 and is engaged in the business of providing
investment advice to affiliated insurance companies possessing portfolios
which, as of March 31, 1997, were valued at $10 billion. The Portfolio Man-
ager is a wholly owned subsidiary of Equitable of Iowa and is affiliated with
DSI. The Portfolio Manager is also the adviser to the Equi-Select Series
Trust, a registered investment company that serves as the invest-
41
<PAGE>
MANAGEMENT OF THE TRUST (CONTINUED)
ment vehicle to variable annuity contracts issued by Equitable Life Insurance
Company of Iowa.
Robert F. Bowman has served as the senior portfolio manager responsible for
the day-to-day management of the Limited Maturity Bond Series since August,
1996. Mr. Bowman has been employed by the Portfolio Manager as a Managing Di-
rector since 1986. He joined the Portfolio Manager as Executive Vice Presi-
dent in 1986, and has over 18 years of direct investment experience.
Under the Portfolio Management Agreement, the Manager (and not the Trust)
pays Equitable Investment Services, Inc. a fee, payable monthly, based on the
average daily net assets of the Limited Maturity Bond Series at the following
annual rates of the average daily net assets of the Series: 0.30% of the
first $25 million; 0.25% of the next $50 million; 0.20% of the next $75 mil-
lion; 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 Equitable Investment Services, Inc. a fee, payable month-
ly, based on the average daily net assets of the Liquid Asset Series at the
following annual rates of the average daily net assets of the 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).
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 served as
portfolio manager from May 1, 1992 to August 13, 1996.
OTHER EXPENSES
The expenses of the ordinary operations of each Series, except for Mid-Cap
Series, are borne by the Manager pursuant to Management Agreement. The Mid-Cap
Series bears its own expenses. 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 ex-
penses, 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, 1996, 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 -- 0.61%; Hard Assets Series --1.00%;
Real Estate Series -- 1.00%; All-Growth Series -- 1.00%; Capital Appreciation
Series -- 1.00%; Rising Dividends Series --1.00%; Value Equity Series --
1.00%; Strategic Equity Series -- 1.00%; Emerging Markets Series -- 1.55%;
Managed Global -- 1.25%; Small Cap -- 0.99% 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 ad-
dress is 1001 Jefferson Street, Wilmington, Delaware 19801. The Distributor is
a registered broker-dealer and a member of the National Association of Securi-
ties Dealers and acts as Distributor without remuneration from the Trust.
CUSTODIAN AND OTHER SERVICE PROVIDERS
The Custodian for the Series is Bankers Trust Company. First Data Investors
Services Group of First Data Corporation, formerly The Shareholder Services
Group, Inc., provides certain administrative and portfolio accounting services
for all Series.
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 in-
formation 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 agree-
ments, lending portfolio securities, warrants, other investment companies, and
short sales, including short sales against the box, see the Statement of Addi-
tional 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 pay-
ments of both interest and principal on the securities are made periodically,
in effect
42
<PAGE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
"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 instru-
ments 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 pay-
ment 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 Associa-
tion, 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 certif-
icates 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 Divi-
dends, 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 ei-
ther 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 pay-
ment 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 sched-
ule as they are received. Mortgage-backed bonds are general obligations of
the issuer fully collateralized directly or indirectly by a pool of mort-
gages. 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 se-
curing 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 ob-
ligation, a holder could sustain a loss.
RISKS OF MORTGAGE-BACKED SECURITIES
Although mortgage loans constituting a pool of mortgages, such as those un-
derlying 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 obli-
gations, 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 of return upon rein-
vestment 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 aver-
age 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 ac-
tual 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 de-
lays in registering the newly traded paper securities. The custodian's poli-
cies for crediting missed payments while errant receipts are
43
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
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 Divi-
dends, 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 Addi-
tional 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 con-
vertible 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 Standard & Poor's, of equivalent qual-
ity and which are commonly referred to as "junk bonds." Investment in such se-
curities generally provides greater income and increased opportunity for capi-
tal appreciation than investments in higher quality debt securities, but they
also typically entail greater potential price volatility and principal and in-
come 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 eco-
nomic downturns or individual corporate developments. A projection of an eco-
nomic 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 el-
ements 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 col-
lateralized by the underlying securities. In these transactions, a Series pur-
chases securities such as U.S. Treasury obligations or U.S. Government securi-
ties (the "underlying securities") from a broker or bank, which agrees to re-
purchase 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 Se-
ries. If the broker or bank were to default on its repurchase obligation and
the underlying securities were sold for a lesser amount, the Series would re-
alize 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
The Multiple Allocation, Fully Managed, Limited Maturity Bond, Hard Assets,
Real Estate, All-Growth, Capital Appreciation, and Liquid Asset Series may
invest up to 10% of their net assets in illiquid securities. The Rising Divi-
dends, Emerging Markets, Value Equity, Strategic Equity, Small Cap, Mid-Cap
Growth and Managed Global Series may invest up to 15% of their net assets in
illiquid securities. All Series except the Liquid Asset, Capital Appreciation,
and Rising Dividends Series may invest in re-
44
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
stricted securities such as private placements. The Mid-Cap Growth Series will
only invest 10% of its assets in restricted securities, and will invest no more
than 5% of its assets in restricted securities that are also illiquid based on
the Trust's guidelines. Restricted securities owned by
a Series that are determined to be illiquid are subject to that Series'
illiquidity cap. Restricted securities may be sold only in privately negoti-
ated transactions, in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1993, or in a transaction
that is exempt from such registration. Where registration is required, a Se-
ries 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.
</R.
SHORT SALES
The Multiple Allocation, Hard Assets, All-Growth, Capital Appreciation, Stra-
tegic Equity, Small Cap, Managed Global and Mid-Cap Growth 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 implemen-
tation 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 se-
curity 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 securities acceptable to the broker. In addition, with respect to
any short sale, other than short sales against the box, the Series will be re-
quired to deposit collateral consisting of cash, cash items, or U.S. Govern-
ment 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. In addition, the Multiple Allo-
cation, Hard Assets, All-Growth, Capital Appreciation, Strategic Equity
and Mid-Cap Growth 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 securities
sold short which are not listed on a national securities exchange does not
exceed 10% of the Series' net assets. The Multiple Allocation, Hard Assets,
All-Growth, Capital Appreciation, Strategic Equity, and Mid-Cap Growth Series
also 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. A 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.
FOREIGN SECURITIES
The Multiple Allocation, Fully Managed, Hard Assets, All-Growth, Rising Divi-
dends, Emerging Markets, Value Equity, Strategic Equity, Small Cap Managed
Global and Mid-Cap
Growth 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 and Mid-Cap Growth Series may invest up to 10% of its net assets in
such securities. Under normal circumstances, the Managed Global Series will
have a significant portion of its net assets invested in such securities, and
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, Hard Assets, All-Growth, Capital
Appreciation, Rising Dividends, Emerging Markets, Value Equity, Strategic
Equity, Small Cap, Managed Global, and Mid-Cap Growth Series may invest in
American Depositary Receipts ("ADRs"), European Depositary Receipts
45
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
("EDRs") and Global Depositary Receipts ("GDRs") (collectively, "Depositary
Receipts") which are described below. The Capital Appreciation Series may in-
vest 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 ex-
pected that under ordinary circumstances, the Series will not invest more than
25% of its assets in foreign issuers, including Depositary Receipts. The Mul-
tiple Allocation, Limited Maturity Bond, Liquid Asset, Emerging Markets, Stra-
tegic Equity, Small Cap, and Managed Global Series may invest in foreign gov-
ernment securities that are denominated in U.S. dollars, although the Multiple
Allocation, Limited Maturity Bond, Liquid Asset, Strategic Equity, and Small
Cap 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 secu-
rities. The Emerging Markets and Managed Global Series may also invest in for-
eign government and corporate debt securities that are not denominated in U.S.
dollars. The Multiple Allocation, Liquid Asset, Emerging Markets, Strategic
Equity, Small Cap and Managed Global Series may invest in foreign branches of
commercial banks and foreign banks. See the "Banking Industry and Savings In-
dustry 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 for-
eign security investments. If a Series has less than 20% of its assets in for-
eign issuers, then all of such investment may be in issuers located in one
country. If a Series is designated as global, its assets must be invested in
a minimum of three different countries. 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 signi-
ficant portion of its revenues, or in which a significant portion of its goods
or services are produced.
Except for the Hard Assets Series, each Series may have no more than 25% of its
net assets invested in securities of
issuers located in any one emerging market country and no more than 50% of its
assets invested in securities of any one country, except that a Series may have
an additional investments 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 Hard Assets 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 coun-
tries with economic policies or business cycles different from those of the
United States, or to reduce fluctuations in portfolio value by taking advan-
tage 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 re-
spect to certain countries, there is the possibility of expropriation of as-
sets, confiscatory taxation, other foreign taxation, political or social in-
stability, 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 grow-
ing 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. securi-
ties markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the United States. 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
46
<PAGE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
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 coun-
tries. The sovereign debt issued or guaranteed by certain emerging market gov-
ernmental entities and corporate issuers in which the Series may invest poten-
tially 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 Se-
ries may have difficulty disposing of certain of these debt obligations be-
cause 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 abil-
ity 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 obliga-
tions, which has led to defaults on certain obligations and the restructuring
of certain indebtedness. See "Description of Securities and Investment Tech-
niques -- High Yield Bonds" in this Prospectus and "Debt Securities -- Sover-
eign 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 corpora-
tion. 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 evi-
dence 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. Deposi-
tary Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the is-
suers of the securities underlying unsponsored Depositary Receipts are not ob-
ligated 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 De-
positary Receipts. Depositary Receipts also involve the risks of other invest-
ments in foreign securities.
INDEXED SECURITIES AND STRUCTURED NOTES
The Hard Asset Series may invest in indexed securities whose value is linked
to one or more currencies, interest rates, commodities, or financial or
commodity indices. An indexed security enables the investor to purchase a note
whose coupons and/or principal redemption are linked to
the performance of an underlying
asset. Indexed securities may be positively or negatively indexed (i.e.,
their value may increase or decrease if the underlying instrument
appreciates). Indexed securities may have return characteristics similar to
direct investments in the underlying instrument or to one or more options on
the underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself, and present many of the same risks as investing
in futures and options. Indexed securities are also subject to credit risks
associated with the issuer of the security with respect to both principal and
interest. Only securities linked to one or more non-agricultural commodities
or commodity indices will be considered a Hard Asset security.
Indexed securities may be publicly traded or may be two-party contracts (such
two-party agreements are referred to here collectively as structured notes).
When the Series purchases a structured note, a type of derivative, it will
make a payment of principal to the counterparty. Some structures notes have
a guaranteed repayment of principal while others place a portion (or all) of
the principal at risk. The Series will purchase structures notes only from
counterparties rated A or better by S&P, Moody's or another nationally
recognized statistical rating organization. The Portfolio Manager will
monitor the liquidity of structured notes under the supervision of the Board
of Trustees, and notes determined to be illiquid will be aggregated with other
illiquid securities and limited to 15% of the total net assets of the Series.
INVESTMENT IN GOLD AND
OTHER PRECIOUS METALS
The Hard Assets Series may invest up to 10% of its total assets in gold bul-
lion 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" in the Statement of Additional Information 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 regu-
lated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended, 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 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 Se-
ries 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 interna-
tional 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
47
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
also may affect the value of securities of companies engaged in operations re-
specting gold and other precious metals.
FUTURES CONTRACTS
The Multiple Allocation, Fully Managed, Limited Maturity Bond, Hard Assets,
All-Growth, Capital Appreciation, Emerging Markets, Value Equity, Strategic
Equity, Small Cap, Managed Global and Mid-Cap Growth Series may engage in
futures contracts. The Multiple Allocation, Limited Maturity Bond, Hard Assets,
Emerging Markets, Value Equity, Strategic Equity, Small Cap and Managed Global
Series may purchase and sell interest rate futures contracts. The Limited
Maturity Bond, Emerging Markets, and Value Equity Series may also purchase
and write options on such futures contracts and the Small Cap Series may only
purchase options on such futures contracts. The Multiple Allocation, Fully
Managed, Hard Assets, All-Growth, Capital Appreciation, Emerging Markets, Value
Equity, Strategic Equity, Small Cap, Managed Global and Mid-Cap Growth Series
may purchase and sell stock index futures contracts and futures contracts based
upon other financial instruments, and purchase options on such contracts. In
addition, the Managed Global Series may also write options on such financial
futures contracts. The Multiple Allocation, Hard Assets, 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 descrip-
tion 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 en-
gaging in futures transactions would not be a "commodity pool."
At the time a Series purchases a futures contract, an amount of cash and/or
securities 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 op-
tions. The value of a futures contract may decline. While a Series' transac-
tions in futures may protect the Series against adverse movements in the gen-
eral 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 at-
tempted. The degree of imperfection of correlation depends on circumstances
such as variations in speculative market demand for futures and futures op-
tions on securities, including technical influences in futures trading and
futures options, and differences between the financial instruments being
hedged and the instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities, and creditwor-
thiness 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 un-
successful 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 con-
tinue to exist. The daily limit governs only price movements during a partic-
ular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
48
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
example, futures prices have occasionally moved to the daily limit for sev-
eral consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some holders of futures con-
tracts to substantial losses. Lack of a liquid market for any reason may pre-
vent the Series from liquidating an unfavorable position and the Series would
remain obligated to meet margin requirements and continue to incur losses un-
til the position is closed.
Any Series, other than the Emerging Market Series and Managed Global Series,
will only enter into futures contracts or futures options which are standard-
ized 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. The Managed Global Series
will only enter into futures contracts of options on futures contracts which
are standardized and traded on a U.S. or foreign exchange or board of trade,
or similar entity, or quoted on an automated quotation system, or in the case
of futures options, for which an established over-the-counter market exists.
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 com-
modity exchanges, trading on foreign commodity markets is not regulated by
the CFTC and may be subject to greater risk than trading on domestic ex-
changes. 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 Na-
tional Futures Association and any domestic exchange, including the right to
use reparations proceedings before the CFTC and arbitration proceedings pro-
vided 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
and Managed Global Series could incur losses or lose any profits that had
been realized in trading by adverse changes in the exchange rate of the cur-
rency in which the transaction is denominated. Transactions on foreign ex-
changes 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, Hard Assets,
Real Estate, All-Growth, Capital Appreciation, Emerging Markets, Value Equity,
Strategic Equity, Small Cap, Managed Global and Mid-Cap Growth Series. The
Multiple Allocation, Fully Managed, All-Growth, Capital Appreciation, Emerging
Markets, Value Equity, Small Cap, Managed Global and Mid-Cap Growth 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 Hard Assets and Real Estate Series
may purchase and write put 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, Value
Equity and Mid-Cap Growth 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 op-
49
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
tions transactions not only on U.S. domestic markets but also on exchanges and
other markets outside the United States. The Managed Global Series will only
purchase and write options that are standardized and traded on a U.S. or for-
eign exchange or board of trade, or for which an established over-the-counter
market exists.
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 pre-
viously 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 securi-
ty.
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 un-
derlying 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 op-
tion. 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 re-
lated 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 sus-
pensions 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, restric-
tions 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 Cor-
poration 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 op-
tions 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 under-
lying securities.
No Series except the Multiple Allocation Series will write a covered call op-
tion or purchase a put option if, as a result, the aggregate market value of
all portfolio securities covering call options or subject to put options ex-
ceeds 25% of the market value of the Series' net assets. Unless otherwise in-
dicated above, as in the case of the Emerging Markets and Managed Global Se-
ries, 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, Hard Assets, Emerging Markets, All-
Growth, Rising Dividends, Value Equity, Strategic Equity, Small Cap and
Managed Global Series may enter into forward currency contracts and enter into
currency exchange transactions on a spot (i.e., cash) basis. A forward cur-
rency contract is an obligation to pur-
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
chase 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 offset-
ting contract. A Series will engage in forward currency transactions in antic-
ipation of or to protect itself against fluctuations in currency exchange
rates, as further described in the Statement of Additional Information. Except
for the Emerging Markets and Managed Global Series, 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 ex-
tent that there has been movement in forward contract prices. For more infor-
mation on closing a forward currency position, including information on asso-
ciated 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 cur-
rency 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 invest-
ors should be aware of the costs of currency conversion. Although foreign ex-
change 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 for-
eign currency to the Series at one rate, while offering a lesser rate of ex-
change should the Series desire to resell that currency to the dealer.
OPTIONS ON FOREIGN CURRENCIES
The Multiple Allocation, Hard Assets, Emerging Markets, Value Equity, Strate-
gic Equity, Small Cap and Managed Global Series may engage in transactions in
options on foreign currencies. The Hard Assets 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 de-
scription 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 rela-
tion 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 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 sec-
ondary market for an option of the same series. Although a Series will pur-
chase only exchange-traded options, there is no assurance that a liquid sec-
ondary 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 transac-
tional costs on the sale of the underlying assets.
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES (CONTINUED)
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 in-
terest 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 borrow-
ing 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 commit-
ment 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 bor-
rowing limitations described above, except that the Multiple Allocation, Hard
Assets, Strategic Equity, Small Cap and Managed Global 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 es-
tablishes 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, Small Cap, Liquid Asset,
Managed Global and Mid-Cap Growth Series may, in connection with permissible
borrowings, transfer as collateral securities owned by the Series.
HARD ASSET SECURITIES
The Hard Assets Series has a fundamental policy of concentrating in Hard Asset
sector industries and up to 50% of the Series' assets may be invested in any
one of the Hard Asset sectors. As a result, the Series may be subject to greater
risks and market fluctuations than other investment companies with more
diversified portfolios. The production and marketing of Hard Assets may be
affected by actions and changes in governments. In addition, Hard Asset
Companies and securities of hard asset companies may be cyclical in nature.
During periods of economic or financial instability, the securities of some
Hard Asset Companies may be subject to broad price fluctuations, reflecting
volatility of energy and basic materials prices and possible instability of
supply of various Hard Assets. In addition, some Hard Asset Companies may also
be subject to the risks generally associated with extraction of 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, increased
regulatory and environmental costs, and others. Securities of Hard Asset
Companies may also experience greater price fluctuations than the relevant Hard
Asset. In periods of rising Hard Asset prices, such securities may rise at a
faster rate, and, conversely, in time of falling Hard Asset prices, such
securities may suffer a greater price decline.
REAL ESTATE SECURITIES
The Real Estate Series will invest not less than 65% of its assets in equity
securities of real estate investment trusts ("REITs") and other companies in the
real estate industry or companies with substantial real estate investments, and
Hard Assets Series may invest up to 50% of its assets in such securities. Other
Series may also invest in such securities. A Series investing in such real
estate securities 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, REITs may be affected by any changes
in the value of the underlying property owned by the trusts or by the quality of
any credit extended. REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. REITs 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 of 1986 and to maintain an exemption under the Investment
Company Act of 1940. Finally, certain REITs may be self-liquidating in that a
specific term of existence is provided for in the trust document and such REITs
run the risk of liquidating at an economically inopportune time.
SWAPS
The Hard Assets Series may invest in swaps. Swap agreements are two-party con-
tracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard swap transaction, two
parties agree to exchange the returns (or differential in rates of return)
earned or realized on particular predetermined investments or instruments, which
may be adjusted for an interest factor. The gross returns to be exchanged or
"swapped" between the parties are generally calculated with respect to a "no-
tional amount," i.e., the return on or increase in value of a particular dollar
amount invested at a particular interest rate, or in a "basket" of securities
representing a particular index.
The use of swaps is a highly specialized activity which involved investment
techniques and risks different from those associated with ordinary portfolio
transactions. Whether the Series' use of swap agreements will be successful in
furthering its investment objective will depend on the portfolio manager's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Moreover, the Series bears the
risk of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. Swaps are
generally considered illiquid and will be aggregated with other illiquid pos-
itions for purposes of the limitation on illiquid investments.
The swaps market is a relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect the Series' ability to terminate existing
swap agreements or to realize amounts to be received under such agreements.
INVESTMENT RESTRICTIONS
The Series are subject to investment restrictions that are described in the
Statement of Additional Information. Those investment restrictions so desig-
nated 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' 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 se-
curities and does not apply to the Hard Assets and Managed Global Series. 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 and does not apply to the Hard Assets
Series.
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 more than 25% of its total
assets in securities of issuers in the real estate and related industries, or
with respect to the Hard Assets Series, which will normally invest more than 25%
of its total assets in the group of industries engaged in hard assets activi-
ties, 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 in-
surance companies to serve as an investment medium for the Variable Contracts
issued by the insurance companies and to certain qualified pension and retire-
ment plans, as permitted under the federal tax rules relating to the Series
serving as investment mediums for Vari-
52
<PAGE>
PURCHASE OF SHARES (CONTINUED)
able 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 ac-
counts 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 in-
surers, 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 pric-
es.
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 read-
ily available market quotations and short-term debt securities. The net asset
values per share of each Series will fluctuate in response to changes in mar-
ket 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 Infor-
mation 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 re-
ported sales price, or, if no sales are reported, the mean between representa-
tive 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 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 agree-
ments (other than obligations having a maturity sixty days or less at their
date of acquisition valued under the amortized cost method), are normally val-
ued on the basis of quotes obtained from brokers and dealers or pricing serv-
ices, which take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturi-
ty, type of issue, trading characteristics, and other market data. Debt obli-
gations having a maturity of sixty days or less may be valued at amortized
cost unless the Portfolio Manager believes that amortized cost does not ap-
proximate market value.
When a Series writes a put or call option, the amount of the premium is in-
cluded in the Series' assets and an equal amount is included in its liabili-
ties. The liability thereafter is adjusted to the cur-
53
<PAGE>
NET ASSET VALUE (CONTINUED)
rent 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 ex-
change or board of trade. Foreign securities quoted in foreign currencies gen-
erally 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 contempo-
raneously 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 determin-
ing 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 Trust, al-
though 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 re-
view.
REDEMPTION OF SHARES
Shares of any Series may be redeemed on any business day. Redemptions are ef-
fected 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 fol-
lowing 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 holi-
day closings) or for any period during which trading thereon is restricted be-
cause an emergency exists, as determined by the SEC, making disposal of port-
folio securities or valuation of net assets not reasonably practicable, and
whenever the SEC 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 SEC. If 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 Se-
ries 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 Se-
ries and are effected at the respective net asset values per share of each Se-
ries on the date of the exchange. The Trust reserves the right to modify or
discontinue its exchange privilege at any time without notice. Variable Con-
tract 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 pro-
spectus 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 Se-
ries 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.
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<PAGE>
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' ac-
counts with brokers or dealers selected by the Portfolio Manager in its dis-
cretion. In executing transactions, the Portfolio Manager will attempt to ob-
tain 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 trans-
action, the reputation, the experience and financial stability of the broker-
dealer involved, the quality of the service, the difficulty of execution, exe-
cution capabilities, and operational facilities of the firms involved, and the
firm's risk in positioning a block of securities. In transactions on stock ex-
changes in the United States, payments of brokerage commissions are negotiat-
ed. 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 Man-
ager 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 commis-
sions may be fixed and the Portfolio Manager may be unable to negotiate com-
mission 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 considered
for other clients served by the Portfolio Manager and/or its affiliates. For
information on trade allocation, see "Portfolio Transactions and Brokerage--
Investment Decisions" in the Statement of Additional Information.
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, such firm will be able to obtain a price and execu-
tion at least as favorable as other qualified brokers. SEC rules further re-
quire 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."
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 securi-
ties 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 ex-
ample, if all of the securities in the portfolio (other than short-term secu-
rities) 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 com-
missions or other transactional expenses which must be borne, directly or in-
directly, by a Series and ultimately by the Series' shareholders. The portfo-
lio turnover rates for each Series are presented in the data shown in "Finan-
cial 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 div-
idend monthly or quarterly. Any net realized long-term capital gains (the ex-
cess 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 addi-
tional 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 regu-
lated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, a Series generally expects not to
be subject to federal income tax if it meets certain source of income, diver-
sification of assets, income distribution, and other requirements, to the ex-
tent it distributes its investment company taxable income and its net
55
<PAGE>
FEDERAL INCOME TAX STATUS (CONTINUED)
capital gains. Distributions of investment company taxable income and net re-
alized 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 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 gen-
erally 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 as-
sets 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. Gov-
ernment agency or instrumentality is treated as a separate issuer. Any secu-
rity issued, guaranteed, or insured (to the extent so guaranteed or insured)
by the United States or an agency or instrumentality of the United States is
treated as a security issued by the U.S. Government or its agency or instru-
mentality, 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 re-
spect to Variable Contracts invested in the Series at any time during the cal-
endar quarter in which the failure occurred could become currently taxable to
the owners of such Variable Contracts and income for prior periods with re-
spect to such Contracts also would be taxable, most likely in the year of the
failure to achieve the required diversification. Other adverse tax conse-
quences also could ensue. If a Series failed to qualify as a regulated invest-
ment 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 ac-
count 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 Vari-
able Contract Owner is considered the owner of the securities underlying the
separate account, income and gains produced by those securities would be in-
cluded currently in the Variable Contract Owner's gross income. It is not
known what standards will be incorporated in future regulations or other
pronouncements.
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 objec-
tives, investment policies, or investment restrictions. While a Series' in-
vestment objective is fundamental and may be changed only by a vote of a ma-
jority of its outstanding shares, the Trustees have reserved the right to mod-
ify the investment policies of a Series as necessary to prevent any such pro-
spective 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 in-
formation 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 seventeen portfolios that are operational, fifteen
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 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.
56
<PAGE>
OTHER INFORMATION (CONTINUED)
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Declara-
tion 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 dis-
claimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnifica-
tion 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 obliga-
tions 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 me-
dium 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 invest-
ment 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 in-
structions from Variable Contract Owners and will vote shares or other voting
interests in the separate account in proportion to the voting instructions re-
ceived.
HISTORY OF THE MANAGED GLOBAL SERIES
The Managed Global Series is a successor for accounting purposes to the Man-
aged Global Account (the "Managed Global Account") of Separate Account D of
Golden American. As of September 3, 1996, pursuant to an Agreement and Plan of
Reorganization (the "Plan") among Golden American (by itself and on behalf of
Separate Account B of Golden American), Separate Account D of Golden American,
and the Trust, the investment-related assets of the Managed Global Account
were transferred to a newly created division of Separate Account B. Separate
Account B is a separate account of Golden American that serves as a funding
vehicle for variable annuity contracts. Simultaneously, Separate Account B ex-
changed the investment-related assets for shares of the Managed Global Series,
a newly created series of the Trust.
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, con-
sented to the filing of an administrative order by 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, In-
vestment 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. Specif-
ically, the SEC order states that (i) CCM should have disclosed that its em-
ployees 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 capital-
ist 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 cli-
ents 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, perfor-
57
<PAGE>
OTHER INFORMATION (CONTINUED)
mance information for the Series will not be advertised or included in sales
literature unless accompanied by comparable performance information for a sep-
arate 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 received for 52 weeks, stated in terms of an annual percentage return
on the investment). "Effective yield" for the Liquid Asset Series is calcu-
lated 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 invest-
ment income per share earned during a given 30-day period (including dividends
and interest), less expenses accrued during the period ("net investment in-
come"), 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 in-
vestment 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 divi-
dends 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 infor-
mation should be considered in light of the Series' investment objectives and
policies, characteristics, and quality of the portfolios, and the market con-
ditions during the given time period, and should not be considered as a repre-
sentation 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 mat-
ters in connection with the shares offered by this Prospectus, and also acts
as outside counsel to the Trust.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-5072 serves as
independent auditors of the Trust.
FINANCIAL STATEMENTS
The Trust's audited financial statements dated as of December 31, 1996 for
all Series except the Mid-Cap Growth Series, including notes thereto, are
incorporated by reference in the Statement of Additional Information from
the Trust's Annual Report dated as of December 31, 1996. The financial
statements do not include information on the Mid-Cap Growth Series because
the Series had not commenced operations on December 31, 1996. Information in
the financial statements for all Series for
the years ended December 31, 1996, 1995, 1994 and 1993 has been audited by
Ernst & Young LLP. Information in the financial statements for all Series ex-
cept the Managed Global Series for the years ended December 31, 1992, 1991,
1990, and 1989 was audited by another independent auditor.
The information in the financial statements for the Managed Global Series is
presented as if the reorganization described under "Other Informa-
tion -- History of the Managed Global Series" had always been in effect. In-
formation in the financial statements of the Managed Global Series for the
period of October 21, 1992 (commencement of operations) to December 31, 1995
has been examined by Ernst & Young LLP.
58
<PAGE>
THE GCG TRUST
CROSS-REFERENCE SHEET
MARKET MANAGER SERIES
PART A -- PROSPECTUS
ITEM HEADING
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and
Policies; Description of
Securities and Investment
Techniques
5. Management of the Fund Management of the Trust
5A. Management's Discussion of Not Applicable
Fund Performance
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>
PROSPECTUS
MARKET MANAGER SERIES
1001 JEFFERSON STREET, SUITE 400
WILMINGTON, DELAWARE 19801
(800) 366-0066
The Market Manager Series is a non-diversified portfolio of an open-end
management investment company, The GCG Trust (the "Trust"). The investment
objective of the Market Manager Series is to seek favorable equity market
performance and at the same time preserve capital (without taking into account
expenses) for investments in the Series held until the Target Maturity Date of
March 6, 2001. The Series will seek this objective by attempting to return on
the Target Maturity Date (1) the principal amount invested in the Series
(without regard to expenses), plus (2) a percentage of the price appreciation
from the Series' Investment Start Date through the Target Maturity Date on
common stocks that are publicly traded in the United States, as represented by
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500") and other
indexes of publicly traded common stocks of large and mid-cap companies. There
can be no assurance that the Series' investment objective will be achieved.
The Manager to the Series is Directed Services, Inc. ("DSI"), which is a
wholly owned subsidiary of Equitable of Iowa Companies ("Equitable"). DSI and
the Trust have retained Equitable Investment Services, Inc.("EISI") to provide
investment advisory services to the Series. For more information regarding DSI,
Equitable and EISI. see "The Management of the Trust."
Information about the investment objectives, investment policies, and
restrictions of the Series, along with a detailed description of the type of
securities and other assets in which the Series may invest, are set forth in
this Prospectus.
Shares of the Series are available only to separate accounts (the "Separate
Accounts") of Golden American Life Insurance Company ("Golden American") to
serve as the investment medium for variable annuity contracts (the "Variable
Contracts") issued by Golden American.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Series. A Statement of Additional
Information dated May 1, 1997, 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 can be
obtained by writing or calling the Trust at the address and telephone number
printed above.
------------------------
THIS IS A LIMITED OFFERING. THE TRUST WILL ACCEPT INVESTMENTS IN THE SERIES
ONLY UNTIL MARCH 3, 1995.
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 SECURITIES AND EXCHANGE 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 MAY 1, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL HIGHLIGHTS....................................................................... 1
THE MANAGER AND THE PORTFOLIO MANAGER...................................................... 1
INVESTMENT OBJECTIVE AND POLICIES.......................................................... 1
Risks of the Series...................................................................... 4
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................................ 5
Over-the-Counter Options................................................................. 5
Zero Coupon Securities................................................................... 6
Options on Securities.................................................................... 8
Futures Contracts........................................................................ 9
Other Investment Companies............................................................... 9
MANAGEMENT OF THE TRUST.................................................................... 10
The Manager.............................................................................. 10
The Portfolio Manager.................................................................... 11
Other Expenses........................................................................... 12
Distributor.............................................................................. 12
Custodian................................................................................ 12
PURCHASE OF SHARES......................................................................... 12
NET ASSET VALUE............................................................................ 13
REDEMPTION OF SHARES....................................................................... 13
EXCHANGES.................................................................................. 13
DIVIDENDS AND DISTRIBUTIONS................................................................ 14
FEDERAL INCOME TAX STATUS.................................................................. 14
OTHER INFORMATION.......................................................................... 16
Capitalization........................................................................... 16
Voting Rights............................................................................ 16
LEGAL COUNSEL.............................................................................. 16
INDEPENDENT AUDITORS....................................................................... 16
FINANCIAL STATEMENTS....................................................................... 16
</TABLE>
I
<PAGE>
FINANCIAL HIGHLIGHTS
The following table presents financial information with respect to the
Series. Information in the table is included in the Trust's financial
statements for the Series that have been audited by Ernst & Young LLP. 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 table should be read in conjunction
with the financial statements, which are incorporated by reference in the
Statement of Additional Information from the Trust's Annual Report dated as
of December 31, 1996. The Trust's Annual Report, which contains further
information about the Series' performance, is available to Shareholders upon
request and without charge.
<TABLE>
<CAPTION>
1996 1995 1994*
------ ------ ------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, beginning of period...................................................... $12.03 $10.02 $10.00
------ ------ ------
Net investment income..................................................................... 0.46 0.37 0.02
Net gain (loss) on securities -- realized and unrealized.................................. 1.89 2.06 0.02
------ ------ ------
Total from investment operations.......................................................... 2.35 2.43 0.04
------ ------ ------
Less distributions:
Dividends from investment income........................................................ (0.46) (0.37) (0.02)
Distributions from capital gains........................................................ (0.70) (0.05) 0.00
------ ------ ------
Total Distributions....................................................................... (1.16) (0.42) (0.02)
------ ------ ------
Net asset value, end of period............................................................ $13.22 $12.03 $10.02
====== ====== ======
Total Investment Return..................................................................... 19.40% 24.33% 0.44%**
RATIOS AND SUPPLEMENTAL DATA ====== ====== ======
Total net assets, end of period (000's omitted)............................................. $5,585 $5,952 $2,754
Ratio of expenses to average net assets..................................................... 1.02% 0.89% --
Decrease reflected in above expense ratio die to expense limitations........................ -- 0.13% 0.13%**
Ratio of net investment income to average net assets........................................ 3.06% 3.42% 0.65%**
Portfolio turnover rate..................................................................... 0% 5% --
</TABLE>
* Series commenced operations on November 14, 1994
** Non-Annualized
THE MANAGER AND THE PORTFOLIO MANAGER
The Manager of the Series is Directed Services, Inc. (the "Manager"),
which is a subsidiary of Equitable of Iowa Companies. The Manager and the
Trust have retained an affiliate, Equitable Investment Services, Inc. (the
"Portfolio Manager") to manage the assets of the Series. The Trust pays the
Manager for its services a quarterly fee at the annual rate of 1.0% of the
value of the average daily net assets of the Series. The Portfolio Manager
makes all determinations with respect to the investment of the Series'
assets
consistent with the investment objectives, policies, and restrictions of
the Series. The Portfolio Manager is compensated by the Manager.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Market Manager Series is to seek
favorable equity market performance and at the same time preserve capital
(without taking into account expenses) for investments in the Series held
until the Target Maturity Date of March 6, 2001. The Series will seek this
objective by attempting to return on the Target Maturity Date (1) the
principal amount invested in the Series (without regard to expenses), plus
(2) a percentage of the price appreciation from the Series' Investment Start
Date through the Target Maturity Date on common stocks that are publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite
1
<PAGE>
Stock Price Index ("S&P 500") and other indexes of publicly traded common
stocks of large and mid-cap companies. There can be no assurance that the
Series will achieve its investment objective.
There are two components of the Series' investment objective: seeking
favorable equity market performance and seeking preservation of capital. The
Portfolio Manager will allocate the assets of the Series among the
investments described below to attempt to achieve the investment objective of
the Series.
FAVORABLE EQUITY PERFORMANCE. The Series will seek favorable equity
market performance by purchasing over-the-counter call options on the S&P 500
and other indexes of publicly traded common stocks of large and mid-cap
companies. For these purposes, an index of publicly traded common stock will
be considered an index of large and mid-cap companies if the companies
represented in the index have a median market capitalization of at least $300
million, although some of the companies represented on such an index could
have a market capitalization of less than this amount. The call options into
which the Series will enter will be negotiated on behalf of the Series by the
Portfolio Manager in an attempt to provide the Series with the right to
receive a percentage of the price appreciation on the stocks included in the
indexes for all or a portion of the period from the Investment Start Date
through the Target Maturity Date. The price appreciation on the S&P 500 and
other indexes does not include the value of dividends paid by companies in
the indexes. The Portfolio Manager has advised the Trust that it initially
intends to invest as of the Investment Start Date in call options on the S&P
500 and in call options on up to two other equity indexes, and that these
options would give the Series the right to receive approximately 110%-118% of
the price appreciation of a composite of these indexes from the Investment
Start Date through the Target Maturity Date, based upon the expected
weighting of the Series' relative positions in call options on these indexes.
It is anticipated that the Series will initially invest on or about the
Investment Start Date between 25% and 45% of the Series' assets in call
options on equity indexes. If at the option's maturity or when the Series
seeks to close out the option there is no price appreciation on the S&P 500
or another index with respect to which the Series holds a call option, the
Series will not benefit from the investment and will lose its investment in
the option. The Series will seek to enter into call options that provide an
absolute right for the Series to cause the issuing dealer to repurchase the
call at any time.
PRESERVATION OF CAPITAL. The Series will seek to preserve capital
(without regard to expenses) by investing a portion of its assets in zero
coupon bonds issued by the U.S. Government and its agencies and
instrumentalities and by private issuers which, at the time of investment,
are rated A or better by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"), or, if not rated, are of a comparable
quality as determined by the Portfolio Manager. The Series will usually
invest in zero coupon bonds with a maturity date on or close to the Target
Maturity Date, so the length to maturity of the fixed income securities held
by the Series can be expected to decrease as the Series nears its Target
Maturity Date. The Series may hold any or all of the zero coupon bonds in
which it invests until their maturity date or until or close to the Series'
Target Maturity Date, although, alternatively, the Series may dispose of one
or more of such bonds prior to this time if deemed by the Portfolio Manager
in its sole discretion to be in the Series' best interests or to be necessary
or appropriate under applicable law.
This strategy for pursuit of preservation of capital does not take into
account expenses of the Series so that if the Portfolio Manager is successful
in its strategy, an investor in the Series cannot be assured that the value
of his or her investment as of the Target Maturity Date will equal the value
of the investment as of the Investment Start Date. Similarly, the strategy
for pursuit of preservation of capital does not take into account any
expenses of the Variable Contracts whose proceeds are invested in the Series.
The purchaser of a Variable Contract would pay the expenses
2
<PAGE>
of the Variable Contract, which could further detract from the value of a
Variable Contract Owner's investment as of the Target Maturity Date. For more
information on expenses under the Variable Contract, see the Variable
Contract prospectuses.
OFFERING PERIOD. The Commencement Date is November 14, 1994. The Series
will be offered from the Commencement Date through March 3, 1995. This period
is referred to as the Offering Period. The Investment Start Date is March 6,
1995.
The Series will cease issuing new shares at the end of the Offering
Period (other than shares of the Series issued in connection with
reinvestment of the Series' dividends and distributions). However, it is
anticipated that other series with substantially similar investment
objectives and policies may be offered in the future.
TARGET MATURITY DATE. The Target Maturity Date of the Series is March 6,
2001. On or about this date, the Series will be converted to cash (after
deduction of any unpaid Series expenses). The proceeds will be available for
reinvestment in other investment options available for annuity contracts,
according to the allocation instructions received from Golden American. It is
anticipated that Golden American will ask owners of the annuity contracts
whose proceeds are invested in the Series to choose their desired allocation.
If no instructions are given, liquidation proceeds will be invested
automatically in a series substantially similar to the Series, if any is
being offered at the time, and if not, to the Liquid Asset Series of the
Trust or any successor thereto.
OTHER STRATEGIES. The Series intends to invest in commercial paper and
other money market instruments during the Offering Period until the
Investment Start Date. The Series may purchase only commercial paper and
other money market instruments rated at the time of investment Prime-1 or
Prime-2 by Moody's or A-1 or A-2 by S&P, or, if not rated by Moody's or S&P,
of comparable quality as determined by the Portfolio Manager. The Series also
reserves the right to invest in money market instruments at other times.
It is not initially intended that the Series will invest in
interest-bearing debt securities other than money market instruments as
described above or invest directly in equity securities. However, if at any
time the Portfolio Manager believes that investment in such securities is
appropriate in furtherance of the Series' investment objectives or to be
necessary or appropriate under applicable law, the Series may invest in such
securities. The Series also reserves the right to invest in exchange-traded
options and in futures contracts.
The interest-bearing debt securities in which the Series may invest are
those issued by the U.S. Government and its agencies and instrumentalities,
in repurchase agreements on such securities, and in debt instruments of
private issuers rated, at the time of investment, A or better by Moody's or
S&P, if not rated by such rating agencies, of comparable quality as
determined by the Portfolio Manager. The Series may only invest in U.S.
dollar-denominated debt securities of domestic issuers.
The Series may also seek favorable equity market performance by investing
directly or indirectly in equity securities included in the S&P 500 or other
index of large and mid-cap companies that are publicly traded in the United
States. The Series would purchase the common stock of those companies
included in the S&P 500 or another index that the Portfolio Manager believes,
based on statistical data, will represent the industry diversification of the
entire index. The Series may also invest in investment companies or other
vehicles that invest in equity securities that are included in an index.
These may include, but are not limited to, 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 purchase put and call options on securities and on stock
indexes in furtherance of the Series' investment objectives. The Series may
also purchase and sell futures contracts and stock index futures contracts,
and purchase options on such contracts.
3
<PAGE>
WHO SHOULD INVEST? The Series will be managed to achieve its investment
objective as of the Target Maturity Date. It is not intended for shareholders
seeking short-term profits. It is intended for investors who desire to
maintain their holding in the Series for the duration of the Series through
the Target Maturity Date. Those withdrawing their interests earlier may be
subject to the risk that the assets in which the Series will invest have not
yet reached their full potential return and the risk of redeeming when such
assets are more volatile than if held longer. Accordingly, redeeming earlier
than the Target Maturity Date may involve greater investment risk than
remaining invested through the Target Maturity Date.
RISKS OF THE SERIES
Investing in the Series involves certain risks. There can be no assurance
that the Series will achieve its investment objective. The Series is subject
to financial, market, and credit risks. As with any security, a risk of loss
is inherent in investment in shares of the Series.
The types of securities and investment techniques used by the Series have
attendant risks of varying degrees. For example, with respect to equity
securities in which the Series may invest directly or indirectly, there can
be no assurance of capital appreciation and there is a substantial risk of
decline.
The Series may acquire zero coupon bonds from governmental and private
issuers. As is the case of all fixed-income 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, and changes in value in response to changing interest
rates may be more pronounced in zero coupon bonds than in interest-bearing
bonds having the same maturity. The Series may acquire debt securities that
are not registered with the Securities and Exchange Commission. Generally,
such securities may only be sold if registered or in transactions that are
exempt from registration. The Series will only acquire unregistered bonds
that have rights under which the Series may require the issuer to repurchase
all or a portion of the bond. Any such repurchase right, as well as payment
of amounts representing principal and interest upon maturity of the bond,
will subject the Series to the risk of the creditworthiness of the issuer of
the bond.
The Series is classified as non-diversified under the Investment Company
Act of 1940, as amended (the "1940 Act"), which means that the Series is not
limited by the 1940 Act in the amount of its assets that it may invest in the
securities of a single issuer. Because the Series may invest in a smaller
number of individual issuers than a diversified investment company, and
investment in the Series may, under certain circumstances, present greater
risk to an investor than an investment in a diversified company. This risk
may include greater exposure to the risk of poor earnings or default of one
issuer than would be the case for a more diversified fund.
Under the terms of the over-the-counter call options that will be
acquired by the Series, the Series must look to the issuing dealer to
repurchase the option and for payment upon exercise. Thus, it is likely that
the Series will be subject to the creditworthiness of the dealers through the
Target maturity Date. The Series may invest up to 20% of its assets in call
options from one dealer, and nonperformance by any such dealer as a result of
insolvency or otherwise may result in material losses to the Series.
Over-the-counter options are included in the group of instruments that have
been characterized in recent media and other reports as derivatives. For a
discussion of the risks associated with over-the-counter options, see
"Description of Securities and Investment Techniques -- Over-the-Counter
Options."
It is anticipated that in excess of 25% of the Series will be invested in
over-the-counter call options. Thus, the Series might be deemed to have
concentrated its investments in issuers in the securities industry. The
concentration of the Series' assets in firms in the securities industry will
cause the Series to have greater exposure to certain risks associated with
the securities industry. Securities firms are subject to risks associated
with underwriting activities and to fluctuations in the value of their
securities and other investments that may, in turn, affect their financial
strength and their ability to comply with regulations governing capital
requirements. Securities
4
<PAGE>
firms may also be affected by a deterioration in the general conditions of
the securities markets, which may adversely affect assets and revenues.
Securities firms may be subject to risks associated with exposure to
derivatives, currencies, and other financial instruments. In addition, the
securities industry is labor intensive, which may result in high operational
expenses, and is subject to regulation, which can be costly. In addition,
securities firms face competition from different types of financial
institutions.
It is intended that the Series will comply with certain asset
diversification requirements applicable to mutual funds that serve as
investment vehicles for Variable Contracts. These requirements may inhibit
the ability of the Series to acquire securities or other assets. Thus, the
ability of the Series to adjust to the changes in the creditworthiness of
issuers to which it is exposed or to make changes in its portfolio may be
limited. Under other circumstances, compliance with the diversification
requirements may cause the Series to make adjustments in its portfolio that
would not otherwise be made. These circumstances may impede the ability of
the Series to attain its investment objectives. The Manager and Portfolio
Manager intend to apply the asset diversification requirements, which are
ambiguous in certain respects, to the Series in a manner consistent with an
Internal Revenue Service ("IRS") ruling that the Series and Golden American
intend to request, or, in the absence of such ruling, in a manner that the
Manager and Portfolio Manager deem appropriate. The Series' satisfaction of
the diversification requirements is an important element underlying the tax
status of the Variable Contracts with premiums allocated to the Series. For
more information, see "Federal Income Tax Status" in this Prospectus.
ABOUT THE S&P 500 INDEX. The S&P 500 is a well-known stock market index
that includes common stocks of companies that represent a significant portion
of the market value of all common stocks publicly traded in the United
States. Stocks in the S&P 500 are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the
stock's current price). The Portfolio Manager believes that the performance
of the S&P 500 is representative of the performance of publicly traded common
stocks in general. The composition of the S&P 500 is determined by Standard &
Poor's Rating Group and is based on such factors as the market capitalization
and trading activity of each stock, and its adequacy as a representation of
stocks in a particular industry group. Standard & Poor's Rating Group may
change the S&P 500 from time to time. "Standard & Poor's-Registered
Trademark-", "S&P-Registered Trademark-", "S&P 500-Registered Trademark-",
"Standard & Poor's 500" and "500" are trademarks of McGraw-Hill, Inc. and
have been licensed for use by Equitable Investment Services, Inc. The Series
is not sponsored, endorsed, sold or promoted by Standard & Poor's Rating
Group and Standard & Poor's Rating Group makes no representation regarding
the advisability of investing in the Series.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes potential risks associated with
different types of securities and investment techniques used by the 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 the Series may invest, see the Statement of
Additional Information.
OVER-THE-COUNTER OPTIONS
The Series intends to purchase over-the-counter ("OTC") call options on
the S&P 500 Composite Stock Price Index and other stock indexes representing
large and mid-cap companies. These call options are included in the group of
instruments that can be characterized as derivatives. A call option on a
stock index gives the purchaser of the option, in return for the premium
paid, the right to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than the exercise price of the option. This amount of cash is equal
to the difference between the closing price of the index and the exercise
price of the option.
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The terms of any over-the-counter call options that the Series acquires
will be negotiated for the Series. It is intended that the option period will
be through the Target Maturity Date. Engaging in options transactions
involves certain risks. The Series will pay a premium to purchase the option.
If a call option purchased by the Series is not sold or exercised when it has
remaining value, and if the market price of the underlying securities index
remains less than or equal to the exercise price of the call, the Series will
lose its entire investment in the option. Also, the Series will remain
subject to the creditworthiness of the dealer for the option period.
OTC options differ from exchange traded options in several respects. OTC
options are available for a greater variety of securities, and a wider range
of expiration dates and exercise prices, than exchange traded options.
Options with a maturity date of those in which the Series will initially
invest (approximately six years) may be more volatile than shorter-term
exchange-traded options (that generally have a maturity of three, six, or
nine months). OTC options are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as
a result of the insolvency of the dealer or otherwise, in which event the
Series may experience material losses. The Series will engage in OTC stock
index options only with broker-dealers and banks ("Eligible Dealers") that
have been specifically approved by the Manager or the Portfolio Manager
pursuant to procedures adopted by the Board of Trustees of the Trust.
Eligible Dealers must have outstanding securities rated, at the time of
investment, A or better by Moody's or S&P and have shareholders' equity in
excess of $200 million. In addition, the manager or Portfolio Manager must
believe that the firm has capabilities for strong institutional trading depth
in OTC options and that the firm has the financial strength necessary to meet
the obligations under the OTC options. The Portfolio Manager will monitor the
creditworthiness of all Eligible Dealers from whom the Series has purchased
options on an ongoing basis.
Generally, many OTC options are considered illiquid. However, pursuant to
procedures adopted by the Trust's Board of Trustees, the Series will seek to
enter into OTC options that have contractual provisions that are designed to
provide liquidity. Generally, the Series will seek OTC options under the
terms of which the dealer of the option agrees to repurchase at any time the
option from the Series, in whole or in part, at a closing price that is based
upon the market price of the option, or under which the Series could transfer
or assign the OTC option. A closing price based on a market price would be
determined by agreement between the dealer and the Portfolio Manager on
behalf of the Series. In the event that the dealer and the Portfolio Manager
on behalf of the Series are unable to agree on a closing price, the closing
price shall be determined with reference to objective indicia of value, such
as bid quotations received from other Eligible Dealers. The Portfolio Manager
believes that these OTC options will, under their terms and the procedures
adopted by the Board of Trustees, be liquid, subject to the creditworthiness
of the issuing dealer. The Series will not acquire any call option that is
illiquid, if after such acquisition, more than 15% of the Series' assets are
invested in illiquid securities.
For more information on OTC options on stock indexes, see "Options on
Securities and Securities Indexes" in the Statement of Additional
Information.
ZERO COUPON SECURITIES
With respect to its investments in fixed-income securities, the Series
may invest in zero coupon securities issued by the United States and its
agencies and instrumentalities. These securities include the following: U.S.
Treasury notes and bonds and securities issued by U.S. Government agencies
and instrumentalities that have no coupons or have been stripped of their
unmatured interest coupons, individual interest coupons from such securities
that trade separately, evidences of such securities, and U.S. Treasury bills.
The Series may also invest in zero coupon securities issued by domestic
corporations which, at the time of investment, are rated A or better by
Moody's or by S&P, or, if not rated, are of a comparable quality as
determined by the Portfolio Manager.
Zero coupon securities pay no cash income but are sold at substantial
discounts from their value at maturity. Because zero coupon securities have
no coupons, the holder is not entitled to
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periodic payments of interest. When held to maturity, the entire return from
zero coupon securities, which consists of the accretion of discount, comes
from the difference between their purchase price and their maturity value.
This difference is known at the time of the purchase, so investors holding
zero coupon securities until maturity know the amount of their investment
return at the time of their investment. However, the zero coupon securities
represent only one component of the Series' assets, and the investment return
of the Series is not determinable in advance.
REINVESTMENT RISK. A portion of the total realized return from
conventional interest-paying bonds comes from the reinvestment of periodic
interest payments. Since the rate to be earned on these reinvestments may be
higher or lower than the yield to maturity at the time of purchase, the
investment's total return is uncertain even for investors holding the
security to its maturity. This uncertainty is commonly referred to as
"reinvestment risk" and can have a significant effect on total realized
investment return over a long holding period. One of the attractive features
of zero coupon securities is that, as they provide no interim interest
payments, reinvestment risk is absent. The total value of the security at
maturity is known precisely at the time of purchase. By investing primarily
in zero coupon securities, the Series will be managed to attempt to minimize
reinvestment risk. However, the total value of the Series at the Target
Maturity Date cannot be known in advance.
MARKET RISK. Because interest on zero coupon securities is not
distributed on a current basis but is, in effect, compounded, zero coupon
securities tend to be subject to greater market risk -- i.e., fluctuations in
market value due to changes in interest rates -- than interest-paying
securities of similar maturities. The market value of debt securities
generally rises and falls inversely with fluctuations in interest rates.
Therefore, investors can expect more appreciation from the Series during
periods of declining interest rates than from portfolios consisting of
interest-paying securities of similar maturity; conversely, when interest
rates rise, the Series normally will decline more in price than portfolios
consisting of interest-paying securities of similar maturity. Redemptions
made prior to maturity may result in a different investment return, which may
include a loss, than the return anticipated on the date of the original
investment.
INSURANCE ON PRIVATE ZERO COUPON SECURITIES. Financial guarantee
insurance has not been obtained by the Manager of the Series with respect
to the privately issued zero coupon securities held by the Series. It is
anticipated that the privately issued zero coupon securities will comprise
approximately 10%-15% of the Series' portfolio.
In general, financial guarantee insurance consists of the issuance of a
guarantee of scheduled payments of an issuer's securities, when due, or the
payment of the accreted value of a bond if the issuer of the bond becomes
insolvent, in consideration for the payment of a premium to the insurer. The
insurance does not guarantee the market value of the zero coupon securities
or the value of shares of the Series. In the event of a sale of certain zero
coupon securities, the insurance terminates as to such securities as of the
date of the sale.
Except as indicated below, any insurance obtained by the Manager will
have no effect on the net asset value of the shares of the Series. It is the
present intention of the Trust's Board of Trustees to attribute a value for
any such insurance for the purpose of computing the net asset value of the
Series' shares only if the bonds covered by such insurance are in default or
if the issuer is insolvent. The value of any insurance likely will be the
difference between the market value of a bond that is covered by insurance
upon default or the issuer's insolvency and the accreted value of that bond.
Determinations of the value, if any, attributed to the insurance will be
subject to the oversight of the Trust's Board of Trustees. For information
regarding the tax considerations relating to the financial guarantee
insurance, see "Taxation" in the Statement of Additional Information.
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OPTIONS ON SECURITIES
The Series reserves the right to engage in exchange-traded options on
securities and on securities indexes. The Series may purchase put and call
options on securities and on stock indexes in furtherance of the Series'
investment objective. The Series may enter into closing transactions in order
to terminate its position an option prior to the expiration of the option.
For a general description of the purchasing options on securities and
securities indexes, see "Options on Securities and Securities Indexes" in the
Statement of Additional Information.
RISKS OF OPTIONS TRANSACTIONS. Where a put or call option on a
particular security or index of securities is purchased to capture the
appreciation in its underlying security or securities index, the price of the
put or call option may move more or less than the price of the related
security or value of the index.
There can be no assurance that a liquid market will exist when the Series
seeks to close out an option position. Furthermore, if trading restrictions
or suspensions are imposed on the options markets, the Series may be unable
to close out a position. 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.
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Since option premiums paid by the 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.
FUTURES CONTRACTS
The Series has reserved the right to engage in futures contracts. The
Series may purchase futures contracts on securities or stock indexes and
purchase options on such contracts. For a general description of these
futures contracts and options thereon, including information on margin
requirements, see the Statement of Additional Information.
The Series may engage in such futures transactions as an adjunct to its
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 the Series
engaging in futures transactions would not be a "commodity pool." At the time
the Series purchases a futures contract, an amount of cash, U.S. Government
securities, or high quality debt securities 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.
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. There can be no assurance that a liquid market
will exist at a time when the 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.
The 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. The Series will not enter into a futures contact 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.
OTHER INVESTMENT COMPANIES
The Series may invest in shares or other interests issued by other
investment companies. The 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, the Series will bear its ratable share of the
investment company's expenses, including management fees in the case of a
management investment company.
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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, J. Michael Earley,
R. Barbara Gitenstein, Robert A. Grayson, Paul R. Schlaack, Stanley B.
Seidler, Roger B. Vincent, and M. Norvel Young. The Executive Officers of the
Trust are Terry L. Kendall, Barnett Chernow, Mary Bea Wilkinson, and Myles R.
Tashman. 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 Equitable of Iowa
Companies ("Equitable"). DSI is registered with the SEC as an investment
adviser and a broker-dealer. The Trust currently offers shares of its operat-
ing series to, among other offerees, separate accounts of 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 insur-
ance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden
American is a wholly owned subsidiary of Equitable. With assets of over $12.5
billion as of December 31, 1996, Equitable is the holding company for
Equitable Life Insurance Company of Iowa, USG Annuity & Life Company, Locust
Street Securities, Inc., and Equitable Investment Services, Inc. Prior to
August 13, 1996, DSI was an indirect, wholly owned subsidiary of Bankers
Trust Company.
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 the Management Agreement, DSI has overall responsibility, subject
to the supervision of the Board of Trustees, for engaging the portfolio
manager and for monitoring and evaluating the management of the assets of the
Series by the Portfolio Manager. The Manager is also responsible for
monitoring and evaluating the Portfolio Manager on a periodic basis, and will
consider its performance record with respect to the investment objectives and
policies of the
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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 changes in the Portfolio Manager 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 services providers to the
Series, including the custodian, portfolio accounting agent, Portfolio
manager, and the insurance company or companies to which the Series offers
its shares. The Manager is also responsible for ensuring that the Series
operates in compliance with applicable legal requirements and for monitoring
the Portfolio manager 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 the Series, interest on borrowing,
fees and expenses of the independent trustees, and extraordinary expenses,
such as litigation or indemnification expenses.
Pursuant to the Management Agreement, the Manager is authorized to
exercise full investment discretion and make all determinations with respect
to the investment of the Series' assets and the purchase and sale of
portfolio securities for the Series in the event that at any time no
Portfolio Manager is engaged to manage the assets of the 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 terminated
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 quarterly fee equal to an annual rate of 1.0% of the average
daily net assets of the Series. 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 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 MANAGER
The Trust and the Manager have entered into a Portfolio Management
Agreement with is Equitable Investment Services, Inc. ("EISI"), located at
699 Walnut Street, Des Moines, Iowa 50309. The Portfolio Manager is an Iowa
corporation which was incorporated in 1969 and is engaged in the business of
providing investment advice to affiliated insurance companies possessing
portfolios which, as of March 31, 1997, were valued at $10 billion. The Port-
folio Manager is a wholly owned subsidiary of Equitable and is affiliated
with DSI. The Portfolio Manager is also the adviser to the Equi-Select Series
Trust, a registered investment company that serves as the investment vehicle
to variable annuity contracts issued by Equitable Life Insurance Company of
Iowa.
The individual in charge of portfolio management decisions for the
Series is Bryan L. Borchert. He is Managing Director of EISI and has been an
investment professional with EISI since 1987.
Under the Portfolio Management Agreement, the Manager (and not the Trust)
pays EISI a fee, payable monthly, based on the average daily net assets of
the Series at the annual rate 0.50%.
From the Series' commencement of operations (Novmber 14, 1994) through
March 2, 1997 Bankers Trust Company served as portfolio manager.
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Under the Agreement, the Portfolio Manager 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 and other
investments. The Portfolio Management Agreement may be terminated without
penalty by the vote of the Board of Trustees or the Shareholders of the
Series, by the Portfolio Manager, or by the Manager, on 60 days' written
notice by any party to the Portfolio Management Agreement, and will
terminated automatically if assigned as that term is described in the 1940
Act.
Pursuant to the Portfolio Management Agreement, the Manager (and not the
Trust) pays Bankers Trust Company a quarterly fee equal to an annual rate of
0.50% based upon the average daily net assets of the 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 expense of
taxes (if any) paid by the Series, the fees and expense 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 the Series are
charged to the Series; other expenses are allocated among all the series of
the Trust. For the fiscal year ended December 31, 1996, total Series expenses
(net of fee waiver) were 1.02% of the Series' net assets.
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 1001 Jefferson Street, Suite 400, Wilmington,
Delaware 19801. 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
The Custodian for the Series is Bankers Trust Company. First Data
Investors Services Group of First Data Corporation, formerly The Shareholder
Services Group, Inc., provides portfolio accounting services for the Series.
PURCHASE OF SHARES
Shares of the Series may be offered for purchase by separate accounts of
Golden American to serve as an investment medium for the Variable Contracts
issued by the insurer. Shares of the
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Series will be sold during the Offering Period at the net asset value
(without a sales charge) next computed after receipt of a purchase order by
Golden American. Shares will not be available after the Offering Period
(other than for reinvestment of any dividends and distributions).
NET ASSET VALUE
The Series' net asset value is determined by dividing the value of the
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 the 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.
The net asset value per share of the Series will fluctuate in response to
changes in market conditions and other factors.
Portfolio securities for which market quotations are readily available
are stated at market value. Market value for securities other than options 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. Market
value for OTC options that the Series will purchase is determined on the
basis of representative bid quotations obtained from the dealers that have
issued the options and possibly other dealers, as monitored by the Portfolio
Manager under procedures adopted by the Board of Trustees. 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.
Under these procedures, debt securities of corporations for which market
quotations are not readily available and that have provisions under which the
issuer will repurchase all or a portion of the debt security will be valued
with reference to the repurchase price provided in the purchase agreement.
REDEMPTION OF SHARES
Shares of the 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.
EXCHANGES
Shares of the Series may be exchanged for shares of any other series of
the Trust, other than The Fund For Life, at any time. Exchanges of shares of
other series of the Trust into the Series will only be permitted during the
Offering Period. 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 division of
the pertinent insurance company separate account that invest in the series.
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The Series will be managed to achieve its investment objectives as of the
Target Maturity Date, and is intended for investors who desire to maintain
their holding in the Series for the duration of the Series through the Target
Maturity Date. Variable Contract Owners who withdraw their interests earlier
may be subject to a greater risk that the Series will not achieve its
investment objectives and to the risk that the assets in which the Series
will invest have not yet reached their full potential return.
DIVIDENDS AND DISTRIBUTIONS
Net investment income of the Series will be paid annually. Any net
realized long-term capital gains (the excess of net long-term capital gains
over net short-term capital losses) for the 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 the Series will be automatically reinvested in
additional shares off the Series unless a shareholder elects to receive
distributions in cash. Dividends or distributions by the Series will reduce
the per share net asset value by the per share amount so paid.
FEDERAL INCOME TAX STATUS
The Series intends to qualify each year and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Series generally expects
not 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.
To comply with regulations under Section 817(h) of the Code, the 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 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 generally will limit the ability
of the Series to invest more that 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 the 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 could be taxable, most
likely in the year of the failure to achieve the required diversification.
Other adverse tax consequences also could ensue. If the Series failed to
qualify as a regulated investment company, the results to Variable Contract
Owners would be substantially the same as a failure to meet the
diversification requirements under Code Section 817(h), and the Series'
income would be subject to taxation.
The manner in which the asset diversification requirements under Code
Section 817(h) and Subchapter M of the Code apply to the Series is not
entirely clear. The Series and the insurance company to which the Series
offers its shares intend to request rulings from the IRS to, among
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other things, confirm the intended approach of the Manager and Portfolio
Manager in applying the diversification rules. If such rulings are not
obtained, the Manager and Portfolio Manager intend to apply the asset
diversification rules in a manner in which they believe appropriate, but the
IRS might not necessarily accept such application. If it did not, Variable
Contracts with premiums allocated to the Series might not receive favorable
tax treatment, and the Series might not qualify as a regulated investment
company. Current or future diversification standards prescribed by the IRS
may restrict the Series' acquisitions of certain assets and may require the
Series to sell certain assets when it would not otherwise do so. Thus, the
Series' seeking to comply with the diversification requirements could
interfere with its ability to attain its investment objectives.
In certain circumstances, owners of variable annuity contracts may be
considered the owners for tax purposes, of the assets of the separate account
used to support their contracts. In those circumstances, income and gains
from the separate account assets would be includible in the variable contract
owner's taxable income when earned b y the separate account. The IRS has
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department also announced,
in connection with the issuance of regulations under Code Section 817(h)
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of
a segregated asset account may cause the investor (I.E., the policy owner),
rather than the insurance company, to be treated as the owner of the assets
in the account" and that future guidance would be issued. 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.
To date, the IRS has identified only certain circumstances as involving
prohibited incidents of ownership with respect to assets in a separate
account. The Series is similar to, but is different in certain respects from,
situations described in IRS rulings in which the IRS held that contract
owners did not possess incidents of ownership. These differences could result
in a Variable Contract Owner being treated as the owner of the assets
underlying the variable Contract. In addition, it is not known what standards
will be incorporated in future regulations or other pronouncements, and there
can be no certainty that the future rules, regulations and positions will not
be given retroactive application.
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 the Series will not have to
change its investment objectives, investment policies, or investment
restrictions. While the 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 the
Series as necessary to attempt to prevent any such prospective rules,
regulations or positions from causing the Variable Contract Owners to be
considered the owners of the shares of the Series.
Prospective purchasers of shares of the Series should consult a tax
advisor regarding the tax consequences of purchasing shares and Variable
contracts whose proceeds are invested in the Series' shares. See "Taxation"
in the Trust's Statement of Additional Information for more information on
taxes. 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.
15
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OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on August 3,
1988, and currently consists of fourteen series that are operational, one of
which is described in this Prospectus. Other series may be offered by means
of separate prospectuses. The Board of Trustees may establish additional
series in the future. The capitalization of the Trust consists solely of an
unlimited number of shares of beneficial interest with a par 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
the 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 the
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 the
Series and that is registered with the Securities and Exchange Commission 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.
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, 200 Clarendon Street, Boston, MA 02116-5072, serves
as independent auditors for the Trust.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the Series for the fiscal
year ended December 31, 1996, including notes thereto, are incorporated by
reference in the Statement of Additional Information from the Trust's Annual
Report dated as of December 31, 1996. Information in the financial statements
has been audited by Ernst & Young LLP. Commencement of operations on November
14, 1994.
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THE GCG TRUST
1001 Jefferson Street, Suite 400
Wilmington, Delaware 19801
(302) 576-3400
STATEMENT OF ADDITIONAL INFORMATION
The date of this Statement of Additional Information
is May 1, 1997.
This Statement of Additional Information discusses sixteen 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 Hard Assets 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 Small Cap
Series; the Managed Global Series; the Liquid Asset Series; the Market
Manager Series; and Mid-Cap Growth. 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
May 1, 1997 (which pertains to all Series other than the Market Manager
Series) and the Prospectus of the Market Manager Series dated May 1, 1997. 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. . . . . . . . . . . . . . . . . . . . . . . . . 11
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . 11
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . 12
Lending Portfolio Securities. . . . . . . . . . . . . . . . . . . 12
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Investment Companies. . . . . . . . . . . . . . . . . . . . 13
Short Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . 14
Futures Contracts and Options on Futures Contracts. . . . . . . . 14
General Description of Futures Contracts . . . . . . . . . . 15
Interest Rate Futures Contracts. . . . . . . . . . . . . . . 15
Options on Futures Contracts . . . . . . . . . . . . . . . . 15
Stock Index Futures Contracts. . . . . . . . . . . . . . . . 16
Gold Futures Contracts . . . . . . . . . . . . . . . . . . . 17
Limitations. . . . . . . . . . . . . . . . . . . . . . . . . 18
Options on Securities and Securities Indexes. . . . . . . . . . . 19
Purchasing Options on Securities . . . . . . . . . . . . . . 19
Writing Covered Call and Secured Put Options . . . . . . . . 19
Options on Securities Indexes. . . . . . . . . . . . . . . . 20
General. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
When-Issued or Delayed Delivery Securities. . . . . . . . . . . . 21
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . 21
Options on Foreign Currencies . . . . . . . . . . . . . . . . . . 22
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . 23
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . 26
The Management Agreement. . . . . . . . . . . . . . . . . . . . . 29
Distribution of Trust Shares. . . . . . . . . . . . . . . . . . . 34
Purchases and Redemptions . . . . . . . . . . . . . . . . . . . . 34
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PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . 34
Investment Decisions. . . . . . . . . . . . . . . . . . . . . . . 34
Brokerage and Research Services . . . . . . . . . . . . . . . . . 35
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 38
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 45
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Custodian and Other Service Providers . . . . . . . . . . . . . . 46
Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . 46
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Registration Statement. . . . . . . . . . . . . . . . . . . . . . 46
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 46
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
Each 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, Hard Assets, Liquid Asset, Capital Appreciation, Emerging Markets,
Strategic Equity, Small Cap, Managed Global, and Market Manager Series may
invest in debt securities of foreign issuers that are denominated in U.S.
dollars. The Multiple Allocation, Fully Managed, Hard Assets, Emerging
Markets, Strategic
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Equity, Small Cap, and Managed Global 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, Hard Assets, All-Growth, Strategic Equity, Small
Cap and Mid-Cap Growth Series may invest only in debt securities that are
investment grade, i.e., rated BBB or better by Standard & Poor's Rating Group
("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 equivalent
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 Standard & Poor's, 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
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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 appreciation than investments in
higher quality securities, but they also typically entail greater price
volatility and principal and 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 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
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Bonds are not considered U.S. Government securities and are considered
speculative. Brady Plan debt restructurings have been implemented to date in
several countries, including Mexico, Venezuela, Argentina, Uruguay, Costa Rica,
Bulgaria, the Dominican Republic, Jordan, Nigeria, Bolivia, Ecuador, Niger,
Brazil, Peru, PanamaPoland and the Philippines (collectively, the "Brady
Countries"). It is expected that other countries will undertake a Brady Plan
debt restructuring in the future. 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. The Managed Global Series may invest in debt obligations issued or
guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, or instrumentalities, or by supranational entities,
which, at the time of investment, are rated A or better by Standard & Poor's or
Moody's or, if not rated by Standard & Poor's or Moody's, determined by the
Portfolio Manager to be of equivalent quality.
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
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accordance with the terms of such obligations. A governmental entity's
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
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consists 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
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FHLMC's national portfolio. 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
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mortgage-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, the Series will exceed its illiquidity cap. 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
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Reform Act of 1986, pursuant to which a taxpayer's ability to deduct consumer
interest in his or her federal income tax calculation was 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&Ls"). The Multiple
Allocation, Limited Maturity Bond, Liquid Asset, Emerging Markets, Value Equity,
Strategic Equity, Small Cap, and Managed Global 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 and
Managed Global 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
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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 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, Managed Global 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, except the Managed Global 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.
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The Managed Global Series will not invest in obligations issued by a U.S. or
foreign commercial bank or S&L unless:
(i) the bank or S&L has total assets of at least $10
billion (U.S.), or the equivalent in other currencies,
and the institution has outstanding securities rated A
or better by Moody's or Standard & 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; and
(ii) in the case or a U.S. bank or S&L, its deposits are
insured by the FDIC or the SAIF, as the case may be.
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 & 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.
For purposes of limitations on purchases of restricted securities,
commercial paper issued pursuant to Section 4(2) of the 1933 Act as part of a
private placement that meets liquidity standards under procedures adopted by the
Board shall not be considered to be restricted.
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
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the Series. The Portfolio Manager, in accordance with procedures established
by the Board ofTrustees, 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.
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, Strategic Equity, Small Cap, Mid-Cap Growth, Managed Global, and
Market Manager Series may invest up to 15% of net 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,
Strategic Equity, Small Cap, Mid-Cap Growth and Managed Global 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 and/or
securities 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, Strategic
Equity, and Small Cap 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
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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
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, Hard Assets, Real Estate, All-Growth, Emerging
Markets, Value Equity, Strategic Equity, Small Cap, Managed Global and Mid-Cap
Growth Series. With the exception of the Managed Global 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, except the
Emerging Markets 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 Emerging Markets Series is not
subject to this 2% limitation. The Managed Global Series is not subject to any
limitations on the amount that may be invested in 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.
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SHORT SALES
The Multiple Allocation, Hard Assets, All-Growth, Capital
Appreciation, Strategic Equity, Small Cap, Managed Global and Mid-Cap Growth
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 thatthe 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, 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 in the prospectus.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Multiple Allocation, Fully Managed, Limited Maturity Bond, Hard
Assets, All-Growth, Capital Appreciation, Emerging Markets, Value Equity,
Strategic Equity, Small Cap, Market Manager and Mid-Cap Growth Series may engage
in futures contracts. The Multiple Allocation, Fully Managed, Limited
Maturity Bond, Hard Assets, Capital Appreciation, Emerging Markets, Value
Equity, Strategic Equity, and Small Cap 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, Hard Assets, All-Growth, Capital Appreciation,
Emerging Markets, Value Equity, Strategic Equity, Small Cap and Mid-Cap Growth
Series may purchase and sell stock index futures contracts and futures
contracts based upon other financial instruments, and purchase options on such
contracts. The Managed Global Series may purchase and sell futures contracts
on securities, stock index futures contracts, foreign exchange futures
contracts, and other financial futures contracts, and purchase and write options
on such futures contracts. The Market Manager Series may purchase futures
contracts on securities or stock indexes and purchase options on such contracts,
but will not write futures contracts. The Multiple Allocation, Hard Assets,
and Strategic Equity Series may engage in gold and other futures contracts. The
Fully Managed Series will not write options on any futures contracts.
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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, Hard Assets, Capital Appreciation, Emerging
Markets, Value Equity, Strategic Equity, Small Cap, and Managed Global 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 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,
Hard Assets, All-Growth, Capital Appreciation, Emerging Markets and Mid-
Cap Growth 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 con-
tracts and stock index futures contracts, but will not write options on such
contracts. The Value Equity and Small Cap 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
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contracts. The Limited Maturity Bond Series may purchase and write options on
interest-rate futures contracts. The Managed Global Series may purchase and
write options on futures contracts based on securities, stock index futures
contracts, interest rate futures contracts, and foreign exchange and other
financial 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,
Hard Assets, All-Growth, Capital Appreciation, Emerging Markets, Value
Equity, Strategic Equity, Small Cap, Managed Global Series, Mid-Cap Growth
Series and Market Manager Series may purchase and sell stock index futures
contracts. A "stock index" assigns relative
values to the common 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 con-
tract and the price at which the futures contract is originally purchased or
sold.
To the extent that changes in the value of a 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.
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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, Hard Assets, 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
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 Hard Assets
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 and/or
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.
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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.
LIMITATIONS. When purchasing a futures contract, a Series must maintain
with its custodian cash or securities (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 and/or
securites (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.
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OPTIONS ON SECURITIES AND SECURITIES INDEXES
In pursuing their investment objectives, the Multiple Allocation, Fully
Managed, Limited Maturity Bond, Hard Assets, Real Estate, All-Growth,
Capital Appreciation, Emerging Markets, Value Equity, Strategic Equity, Small
Cap, Managed Global and Mid-Cap Growth Series may engage in transactions on
options on securities. The Multiple Allocation Series, All-Growth Series,
Emerging Markets, Value Equity, Strategic Equity, Small Cap, Managed Global
and Mid-Cap Growth 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 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.
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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 hold
a call with the same exercise price, 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 and/or securities with a
value sufficient to meet its obligation as writer
of the option. A put is secured if the Series maintains cash and/or 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. 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.
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
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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 and/or securities
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, Hard Assets, Rising
Dividends, Emerging Markets, Value Equity, Strategic Equity, Small Cap, and
Managed Global 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 sell a particular
currency forward, for example, when it wants to hold bonds or bank obligations
denominated in that currency but anticipats or wishes 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
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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.
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, Hard Assets, Emerging Markets, Value Equity,
Strategic Equity, Small Cap, and Managed Global 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
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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:
(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 instrument-
alities;
(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; (d) with respect to the
Managed Global Series, to securities issued or guaranteed by foreign
governments or any political subdivisions thereof, authorities,
agencies, or instrumentalities (or repurchase agreements with respect
thereto); and (e) 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
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related industries, or to the Hard Assets Series, which will
normally invest more than 25% of its total assets in the group of
industries engaged in hard assets 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;
(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, Hard Assets, Real Estate, All-Growth, Capital
Appreciation, Liquid Asset and Mid-Cap Growth Series, make short sales of
securities, except short sales against the box, and except that this rest-
riction shall not apply to the Multiple Allocation, Hard Assets,
All-Growth,
24
<PAGE>
Capital Appreciation or Mid-Cap Growth 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, Hard Assets, 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 Hard Assets Series may invest in gold bullion and coins
and other precious metals bullion and engage in futures contracts with
respect to such commodities;
(c) the Multiple Allocation, Hard Assets and Strategic Equity
Series may engage in futures contracts on gold; and
(d) this restriction shall not apply to the Managed Global Series.
(13) With respect to all Series except the Managed Global Series,
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,
Strategic Equity Series, Small Cap Series, Managed Global Series, Market
Manager Series and Mid-Cap Growth 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,
Small Cap Series, Managed Global Series, Market Manager Series and Mid-Cap
Growth Series may not:
25
<PAGE>
(1) Make short sales of securities, except short sales against the box
(this restriction shall not apply to the Strategic Equity, Small Cap, and
Managed Global 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 net assets of the Series (taken at market
value at the time of such investment) would be invested in such securities.
The Managed Global Series is also subject to the following restriction and
policy which is not fundamental and may, therefore, be changed by the Board of
Trustees without shareholder approval. The Managed Global Series may not
purchase or sell commodities or commodities contracts (which, for the purpose of
this restriction, shall not include foreign currency or forward foreign currency
contracts or futures contracts on currencies), except that the Managed Global
Series may engage in interest rate futures contracts, stock index futures
contracts, futures contracts based on other financial instruments, and in
options on such futures contracts.
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, J. Michael Earley, R. Barbara Gitenstein, Robert A.
Grayson, Paul R. Schlaack, Stanley B. Seidler, M. Norvel Young, and Roger B.
Vincent. The Executive Officers of the Trust are Terry L. Kendall, Barnett
Chernow, Myles R. Tashman, and Mary Bea Wilkinson.
Trustees and Executive Officers of the Trust, their business addresses,
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST BUSINESS AFFILIATIONS AND PRINCIPAL OCCUPATIONS
<S> <C> <C>
Terry L. Kendall* Chairman of the Board Director, and Chief Executive Officer,
Golden American Life and President American Life Insurance Company;
Insurance Co. Executive Vice President,
1001 Jefferson Street Equitable of Iowa Companies; formerly, President
Wilmington, DE 19801 and Chief Executive Officer, United Pacific
and Chief Executive Officer, United Pacific
Barnett Chernow Vice President Executive Vice President,
Golden American Life Golden American Life
Insurance Co. Insurance Company; Executive Vice President,
1001 Jefferson Street Directed Services, Inc.; Senior Vice President
Wilmington, DE 19801 and Chief Financial Officer, Reliance Insurance
Company, August 1977 to July 1993. Age 47.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST BUSINESS AFFILIATIONS AND PRINCIPAL OCCUPATIONS
<S> <C> <C>
J. Michael Earley Trustee President, and Cheif Executive Officer, Bankers
665 Locust Street Trust Company, Des Moines, Iowa since July 1992;
Des Moines, IA 50309 President and Cheif Executive Officer, Mid-America
Savings Bank, Waterloo, Iowa from April, 1987 to
June, 1992. Age 51.
R. Barbara Gitenstein Trustee Provost, Drake University since July 1992; Assistant
Provost Office Provost, State University of New York from August,
202 Old Main 1991 to July, 1992; Associate Provost, State University
Drake Uniniversity of New York - Oswego from January, 1989 to August, 1991.
2507 University Avenue Age 49.
Des Moines, IA 50311-4505
Robert A. Grayson Trustee Co-founder, Grayson Associates, Inc.; Adjunct
Grayson Associates Professor of Marketing, New York University
108 Loma Media Road School of Business Administration; former
Santa Barbara, CA Director, The Golden Financial Group, Inc.;
93103 former Senior Vice President, David &
Charles Advertising. Age 69.
Myles R. Tashman Secretary Executive Vice President and Secretary, Golden
Golden American Life American Life Insurance Company;
Insurance Co. Executive
1001 Jefferson Street Vice President and Secretary, Directed
Wilmington, DE 19801 Services, Inc; Secretary of GCG Trust;
formerly, Senior Vice President and General
Counsel, United Pacific Life Insurance Company
(1986-1993). Age 54.
Paul R. Schlaack Trustee President, Chief Executive Officer and Director,
2000 Hub Tower Equitable Investment Services, Inc. since 1984.
699 Walnut Street Age 51.
Des Moines, IA 50309
Stanley B. Seidler Trustee President, Iowa Periodicals, Inc. since 1990 and
P.O. Box 1297 President, Excell Marketing L.C. since 1994. Age 68.
3301 McKinley Avenue
Des Moines, IA 50321
M. Norvel Young Trustee Chancellor Emeritus and Board of Regents,
Pepperdine University Pepperdine University; Director of Imperial
Malibu, CA 90263 Bancorp, Imperial Bank, Imperial Trust Co. and
20th Century Christian Publishing Company;
formerly: Chancellor, Pepperdine
University, 1971 to 1984; President, Pepperdine
University, 1957 to 1971; Director, National
Conference of Christians and Jews, 1978 to
1982. Age 81.
Mary Bea Wilkinson Treasurer Senior Vice President and Treasurer, Golden
Golden American Life American Life Insurance Company;
Insurance Co.
1001 Jefferson Street President and Treasurer, Directed Services,
Wilmington, DE 19801 Inc.; Assistant Vice President, CIGNA
Insurance Companies, August 1993 to
October 1993; various positions with United
Pacific Life Insurance Company, January 1987
to July 1993, and was Vice President and
Controller upon leaving. Age 40.
Roger B. Vincent Trustee President, Springwell Corporation; Director,
230 Park Avenue Petralone, Inc.; formerly, Managing Director,
New York, NY 10169 Bankers Trust Company. Age 51.
</TABLE>
27
- --------------------------
*Mr. Kendall and Mr. Schlaack are an "interested persons" of the Trust
(as that term is defined in the Investment Company Act of 1940) because
of their affiliations with the Manager and/or its affiliated companies
as shown above.
As of March 31, 1997, none of the Trustees directly owns shares of the
Series. In addition, as of March 31, 1997, 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.
Through December 31, 1995, Trustees other than those affiliated with the
Manager or a Portfolio Manager ("Non-Affiliated Trustees") received 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. Effective January 1, 1996, Non-Affiliated Trustees
receive a flat fee of $6,000 for each Board of Trustees meeting attended.
Trustees have been and will continue to be 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, 1996, fees
totaling $75,000 were paid by the Trust with each Trustee receiving $25,000
each. During the fiscal year ended December 31, 1995, fees
totaling $54,000 were paid by the Trust or accrued to Messrs. Grayson ($18,000),
Young ($18,000), and Vincent ($18,000). During the fiscal year ended December
31, 1995, Messrs. Grayson, Young, and Vincent earned total fees of $20,500,
$20,500, and $20,500, respectfully, from the Trust and Separate Account D,
another fund for which the Manager previously served as investment adviser. 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 March 31, 1997. The
address for each record owner is c/o Golden American Life Insurance Company,
1001 Jefferson Avenue, Wilmington, DE 19801.
NAME SERIES PERCENTAGE
David & Anita Swann
Charitable Remainder Trust Market Manager 12.5%
Darald Libby
Charitable Remainder Unit Trust Market Manager 7.8%
George Berman
Charitable Remainder Trust Market Manager 7.0%
Sanford Lugar Market Manager 5.6%
C.P. Steinmetz Strategic Equity 5.2%
28
<PAGE>
In addition, as of March 31, 1997 the General Account of Golden American
owned 5.8% of the shares of the Market Manager Series.
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 1001 Jefferson Street, Suite 400,
Wilmington, Delaware 19801. DSI is a New York corporation that is a wholly owned
subsidiary of BT Variable, Inc. which, in turn, is a subsidiary of Equitable of
Iowa Companies ("Equitable of Iowa"). 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 Equitable of Iowa.
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 at the Manager's expense for all Series except
Mid-Cap Growth Series which pays its own expenses, 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.
29
<PAGE>
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 August 13, 1998,
and from year to year thereafter, provided such continuance after August 13,
1998 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
persons" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of
any such party. The Management Agreement, dated August 13, 1996, was approved by
shareholders at a meeting held on July 29, 1996, and was 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 June 10,
1996. 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 August 13, 1996, DSI served as manager to the Series pursuant to a
Management Agreement dated October 1, 1993.
Gross fees paid to the Manager under the 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, 1996 were as follows:
Multiple Allocation Series -- $2,892,936; Strategic Equity Series -- $195,979;
Fully Managed Series -- $1,266,104;
Limited Maturity Bond Series -- $497,345; Hard Assets Series - - $362,600;
Real Estate Series -- $371,844; All-Growth Series -- $910,039; Capital
Appreciation Series -- $1,335,410; Rising Dividends Series -- $989,772; Emerging
Markets Series -- $791,005; Liquid Asset Series -- $240,479; Small Cap Series
- -- $180,699 and Value Equity Series -- $379,126. Gross fees
paid to the Manager under the Management Agreement (pursuant to which the Man-
ager provides all services reasonably necessary for the operation of the Trust)
for the fiscal year ended December 31, 1995 were as follows: Multiple
Allocation Series -- $3,056,095; Strategic Equity Series (commencement
of operation October 2, 1995) -- $11,085; Fully Managed Series -- $1,102,160;
Limited Maturity Bond Series -- $516,872; Hard Assets Series - - $291,869;
Real Estate Series -- $347,823; All-Growth Series -- $832,889; Capital
Appreciation Series -- $1,055,352; Rising Dividends Series -- $641,200; Emerging
Markets Series -- $817,859; Liquid Asset Series -- $254,546; and Value Equity
Series -- $108,140. The management fee payable to the Manager for the Market
Manager Series for the fiscal year ending December 31, 1995 was waived in part
($6,748) by the Manager and paid in part ($44,976) by the Series. 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; Hard Assets Series --
30
<PAGE>
$292,787; Real Estate Series -- $354,228; All-Growth Series -- $624,518;
Capital Appreciation Series -- $912,861; Rising Dividends Series --
$367,866; Emerging Markets Series -- $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.
For the period from September 1, 1996 to December 31, 1996 the Managed
Global Series paid the Manager fees of $349,038. For the period
from January 1 through August 30, 1996 and the fiscal years
ended December 31, 1995, and 1994, the predecessor of the
Managed Global Series of the Series paid management fees of $211,615,
$293,930, and $333,747, respectively.
The Trust, DSI, and each Portfolio Manager entered into Portfolio
Management Agreements dated and effective as of August 13, 1996. The
Portfolio Management Agreements were approved by the Trustees of the Trust at a
meeting held on June 10, 1996 and were approved by shareholders of each Series
of the Trust except the Managed Global Series at a meeting held on
July 29, 1996. The Portfolio Management Agreement among the Trust, DSI, and
Warburg, Pincus was approved by the sole shareholder of the Managed
Managed Global Series by written consent dated August 26, 1996. The Portfolio
Mangement
Agreements among the Trust, DSI and Pilgrim Baxter for the All-Growth Series
was approved by
shareholders at a meeting held on April 29, 1997. The Portfolio Management
Agreement among the Trust, DSI and Pilgrim Baxter for the Mid-Cap Growth Series
will be approved by the sole shareholder of the Mid-Cap Growth Series.
The Portfolio Management Agreement among the Trust, DSI and
Putnam
for the Emerging Markets and Managed Global Series was approved by shareholders
by proxy on April 29, 1997.
31
<PAGE>
Pursuant to the separate Portfolio Management Agreements, the
Manager (and not the Trust) pays each Portfolio Manager for 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, 1996,
the Manager (and not the Trust) paid the Portfolio Managers the following
amounts: Zweig Advisors Inc. -- $1,458,329 for the Multiple Allocation Series
and $98,793 for the Strategic Equity Series ; T. Rowe Price Associates, Inc.--
$638,243 for the Fully Managed
Series; Bankers Trust Company -- $395,503 for the Emerging Markets Series
and $28,992 for the Market Manager Series; Van Eck Associates Corp. -- $182,786
for the Hard Assets Series; Chancellor LGT Asset Management Inc. -- $673,180
for
the Capital Appreciation Series; Kayne, Anderson Investment Management, L.P. -
- - $498,776 for the Rising Dividends Series; E.I.I. Realty Securities, Inc. --
$187,447 for the Real Estate Series; Eagle Asset Management, Inc. -- $191,117
for the Value Equity Series; and Warburg, Pincus Counsellors, Inc. -- $458,750
for the All-Growth Series. For the fiscal period of September 1, 1996
to December 31, 1996 the Manager (and not the Trust) paid Warburg, Pincus
Counsellors, Inc. $170,010 on behalf of the Managed Global Series. For the
fiscal period January 1, 1996 to August 31, 1996, Warburg, Pincus Counsellors,
Inc. received $317,424 from the predecessor and the Managed Global Series.
the fiscal period of January 1, 1996 to August 12, 1996 the Manager paid
Bankers Trust Company $44,413 for the Liquid Asset Series and $135,897 for the
Limited Maturity Bond Series. For the fiscal period of August 13, 1996 to
December 31, 1996 the Manager paid Equitable Investment Services, Inc.$28,206
for the Liquid Asset Series and $79,768 for the Limited Maturity Bond Series.
For the fiscal year ended December 31, 1995, the Manager (and not
32
<PAGE>
the Trust) paid the Portfolio Managers the following amounts: Zweig
Advisors Inc. -- $1,623,170 for the Multiple Allocation Series and $5,543
for the Strategic Equity Series (operation commencement from October 2, 1995);
T. Rowe Price Associates, Inc. -- $552,676 for the Fully Managed Series; Bankers
Trust Company -- $222,697 for the Limited Maturity Bond Series, $410,190 for
the Emerging Markets Series, $76,360 for the Liquid Asset Series and
$22,410 for the Market Manager Series; Van Eck Associates Corp. -- $150,474
for the Hard Assets Series; Chancellor LGT Asset Managment, Inc. -- $559,368
forthe Capital Appreciation Series; Kayne, Anderson Investment Management,
L.P. -- $325,429 for the Rising Dividends Series; E.I.I. Realty Securities,
Inc. --$174,495 for the Real Estate Series; Eagle Asset Management, Inc. --
$54,070 for the Value Equity Series; and Warburg, Pincus Counsellors, Inc.
- -- $417,408
for the All-Growth 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 Hard
Assets Series; Chancellor LGT Asset Managment, Inc. -- $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 fiscal years ended December 31, 1995, and 1994, the
predecessor of the Managed Global Series paid portfolio management fees
of $440,770, and $500,620, respectively.
33
<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.
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.
34
<PAGE>
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-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.
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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 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.
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., Raymond James & Associates, Inc.,
and Fred Alger & Company, Incorporated 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.
For the fiscal year ended December 31, 1996, the Multiple Allocation
Series, Strategic Equity Series,Fully Managed Series, Limited Maturity Bond
Series, Emerging Markets Series, Liquid Asset Series, Market Manager Series,
Hard Assets Series, Real Estate Series, Capital Appreciation Series, Rising
Dividends Series, Value Equity Series, Managed Global Series, and All-Growth
Series paid
brokerage commissions of $472,297, $55,015, $127,213, $0, $541,589, $0, $0,
$138,086, $52,435, $188,794, $72,044, $121,872,$191,843, and $333,960,
respectively. The Multiple Allocation Series paid brokerage commissions of
$42,834 (9.07% of its total brokerage commissions) to Zweig Securities. The
Value Equity Series paid brokerage commissions of $2,550 (2.09% of its total
brokerage commissions) to Raymond James & Associates,Inc. The Capital
Appreciation Series paid brokerage commissions of $1,920 (1.02% of its total
brokerage commissions) to Raymond James & Associates,Inc. The Fully Managed
Series paid brokerage commissions of $150 (0.12% of its total brokerage
commissions) to Raymond James & Associates,Inc. The Hard Assets Series paid
brokerage commissions of $150 (0.11% of its total brokerage commissions) to
Raymond James & Associates,Inc. The Small Cap Series paid brokerage commissions
of $33,058 (78.34% of its total brokerage commissions) to Fred Alger. The
Emerging Markets Series paid brokerage commissions of $64,131 and $2,113 (11.84%
and 0.39% of its total brokerage commissions) to Jardine Fleming and Robert
Fleming, redpectively.The Managed Global Series paid brokerage commissions of
$3,041 (1.59% of its total brokerage commissions) to Jardine Fleming. The
Strastegic Equity Series paid brokerage commissions of $435 (0.79% of its total
brokerage commissions) to Zweig Securities.
For the fiscal year ended December 31, 1995, the Multiple Allocation
Series, Strategic Equity Series (operation commencement from October 2, 1995),
Fully Managed Series, Limited Maturity Bond Series, Emerging Markets Series,
Liquid Asset Series, Market Manager Series, Hard Assets Series, Real
Estate Series, Capital Appreciation Series, Rising Dividends Series, Value
Equity Series and All-Growth Series paid brokerage commissions of $519,963,
$10,355, $321,876, $0, $600,724, $0, $1,575, $40,242, $113,534, $235,075,
$82,924, $59,789 and $193,100, respectively. The Multiple Allocation Series
paid brokerage commissions of $86,365 (16.61% of its total brokerage
commissions) to Watermark Securities, Inc. The Market Manager Series paid
brokerage commissions of $1,425 (90.48% of its total brokerage commissions) to
BT Brokerage Corporation. The Value Equity Series paid brokerage commissions of
$240 (0.40% of its total brokerage commissions) to Raymond James & Associates,
Inc. During the fiscal year ended December 31, 1994, the Multiple Allocation
Series, Fully Managed Series, Hard Assets 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,
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respectively. The Multiple Allocation Series paid brokerage commissions of
$51,764 (17.2% of total brokerage commissions) to Watermark Securities, Inc. The
Fully Managed Series paid brokerage commissions of $78,271 (50.0% of total
brokerage commissions) to Weiss, Peck & Greer. The Rising Dividends Series paid
brokerage commissions of $2,330 (2.2% of total brokerage commissions) to KA
Associates, Inc.
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.
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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 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:
a-b 6
YIELD = 2 [ ( ----- + 1 ) - 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, 1996 and for the five- and one-year periods ended December 31, 1996
the average annual total return for each Series was as follows: 9.00%,
7.67%, and 8.77% for the Multiple Allocation Series;
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8.65, 8.30%, and 16.36% for the Fully Managed Series; 6.81%, 5.10%, and
4.32% for the Limited Maturity Bond Series; 5.49%, 2.42%, and -0.57%
for the All-Growth Series; 11.37%, 17.50%, and 35.30% for the Real Estate
Series; 10.40%, 15.37%, and 33.17% for the Hard Assets Series; and
5.17%, 3.99%, and 5.01% for the Liquid Asset Series. For the period
of May 4, 1992 (inception of the Capital Appreciation Series) to
December 31, 1996 and the one-year period ended December 31, 1996, the average
total return for the Capital Appreciation Series was 14.12% and 20.26%. For
the period of October 1, 1993 (inception of the Rising Dividends and
Emerging Markets Series) to December 31, 1996 and for the one-year period
ended December 31, 1996, the average total return for the Rising Dividends
Series was 16.47% and 20.65% and the average annual total return for the
Emerging Markets Series was 0.54% and 7.28%. For the period of November
14, 1994 (inception of the Market Manager Series) to December 31, 1996 and for
the one-year period ended December 31, 1996, the average total return for the
Market Manager Series was 20.52% and 19.40%. For the period of January 1,
1995 (inception of the Value Equity Series) to December 31, 1996 and for
the one-year period ended December 31, 1996, the average total return for the
Value Equity Series was 22.40% and 10.62%. For the period of October 2, 1995
(inception of the Strategic Equity Series) to December 31, 1996 and for
the one-year period ended December 31, 1996, the average total return for the
Strategic Equity Series was 15.61% and 19.39%. For
the period ended January 3, 1996 (inception for the Small Cap Series) to
December 31, 1996, the total return (non-annualized) for the Small Cap Series
was 20.10%
The Managed Global Series is a successor to the Managed Global Account
of
Separate Account D of Golden American. As of September 3, 1996, the
investment-related assets of the Managed Global Account of Separate Account D
were transferred to a newly created division of Separate Account B of Golden
American. Simultaneously, Separate Account B exchanged the investment-related
assets for shares of the Managed Global Series, a newly created Series of
the
Trust. The following information regarding average total return is restated from
the Managed Global Account of Separate Account D. The total return figures
reflect the deduction of certain expenses, including the management fees,
custodian fees, fees of the Board of Governors of Separate Account D, and other
expenses. For the period of October 21, 1992 (commencement of operations) to
December 31, 1996 and for the one-year period ended December 31, 1996, the
average total return for the Managed Global Series was 2.70% and 12.27%,
respectively.
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
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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.
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,
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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, 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
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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
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.
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.
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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 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.
43
<PAGE>
The requirements applicable to a Series' qualification as a regulated
investment company and its compliance with the diversification test under Code
Section 817(h) may limit the extent to which a Series will be able to engage in
transactions in options, futures contracts or forward contracts, investments in
precious metals, and in short sales.
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
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.
44
<PAGE>
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-
seven Series. The fifteen 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. 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.
45
<PAGE>
CUSTODIAN AND OTHER SERVICE PROVIDERS
The Custodian for the Series is Bankers Trust Company, 280 Park Avenue, New
York, New York 10017. First Data Investors Services Group of First Data
Corporation, One Exchange Place, 4th Floor, Boston, MA 02109, provides
administrative and portfolio accounting services for all Series.
INDEPENDENT AUDITORS
Ernst & Young, 200 Clarendon Street, Boston, MA 02116-5072, 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 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 Trust's audited financial statements dated as of December 31, 1996 for
all Series except the Mid-Cap Growth Series, including notes thereto, are
incorporated by reference in this Statement of Additional Information from
the Trust's Annual Report dated as of December 31, 1996.
46
<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 Rating Group ("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>
THE GCG TRUST
CROSS-REFERENCE SHEET
THE FUND FOR LIFE
PART A -- PROSPECTUS
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; Risks and Other
Considerations
5. Management of the Fund Management of the Trust
5A. Management's Discussion of See Annual Report to
Fund Performance Contract owners
6. Capital Stock and Other Securities Dividends, Distributions and
Taxes; Portfolio Transactions;
Other Information
7. Purchase of Securities Purchase of Shares;
Being Offered Exchanges
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
PART B -- STATEMENT OF ADDITIONAL INFORMATION
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 Investment Policies;
Investment Restrictions
14. Management of the Registrant Management of the Trust
15. Control Persons and Principal The Management Agreement
Holders of Securities
16. Investment Advisory and Other Management of the Trust
17. Brokerage Allocation Distribution of Trust Shares
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 Not Applicable
<PAGE>
THE FUND FOR LIFE
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Part A -- Prospectus
<S> <C> <C>
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
</TABLE>
Part B -- Statement of Additional Information
<TABLE>
<S> <C> <C>
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 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
</TABLE>
<PAGE>
THE FUND FOR LIFE
1001 JEFFERSON STREET, SUITE 400
WILMINGTON, DELAWARE 19801
(800) 366-0066
The Fund For Life (the "Fund") is a diversified portfolio
("Series") of an open-end management investment company, The GCG Trust
(the "Trust"). The Fund's investment objective is high total investment
return (capital appreciation and current income) consistent with prudent
investment risk and a balanced investment approach. The Fund seeks to
achieve its objective by investing in shares of other management
investment companies ("mutual funds") using an allocation strategy that
emphasizes mutual funds that invest primarily in domestic equity
securities (approximately 60%), while also allocating a portion of the
Fund's assets to mutual funds that invest in international equity
securities (approximately 10%), and allocating a portion of the Fund's
assets to mutual funds that invest primarily in debt securities
(approximately 30%). There can be no assurance that the Fund's
investment objective will be achieved.
The Trust has retained Directed Services, Inc. ("DSI") to provide
investment advisory administrative services to the Fund. The Fund's
policy of investing in shares of other investment companies involves
certain expenses not normally attributable to a mutual fund that invests
in other types of securities. See "Risks and Other Considerations."
As of the date of this Prospectus, shares of the Fund are sold only
to separate accounts of insurance companies (the "Separate Accounts") to
serve as the investment medium for variable annuity contracts issued by
the insurance companies.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Fund. A Statement of
Additional Information (the "SAI") dated May 1, 1997, containing
additional and more detailed information about the Fund has been filed
with the Securities and Exchange Commission and is hereby incorporated
by reference into this Prospectus. It is available without charge and
can be obtained by writing or calling the Trust at the address and
telephone number printed above.
___________
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.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE 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 MAY 1, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Synopsis 1
Financial Highlights 1
Investment Objective and Policies 2
Risks and Other Considerations 7
Management of the Trust 8
Investment in the Trust 10
Dividends, Distributions, and Taxes 12
Other Information 13
Appendix A-1
PROSPECTUS SYNOPSIS
This Prospectus offers shares of The Fund For Life (the "Fund"), a
portfolio ("Series") of The GCG Trust (the "Trust"). The Trust is an
open-end management investment company organized as a Massachusetts
business trust.
The Fund's investment objective is high total investment return
(capital appreciation and current income) consistent with prudent
investment risk and a balanced investment approach.
The Fund seeks to achieve this objective by investing in shares of
other open-end management investment companies ("mutual funds") based
on an investment program that emphasizes mutual funds that invest
primarily in domestic equity securities (approximately 60%), while
also allocating a portion of the Fund's assets to mutual funds that
invest in international equity securities (approximately 10%), and
allocating a portion of the Fund's assets to mutual funds that invest
primarily in debt securities rated at least investment grade
(approximately 30%). Under this asset allocation strategy,
investments are allocated between two asset classes of mutual funds:
generally 70% of the Fund's assets are composed of mutual funds
investing primarily in equity securities (including a portion in
equity securities of foreign issuers), and generally 30% of the
Fund's assets are composed of mutual funds investing primarily in
debt securities rated at least investment grade. This asset
allocation strategy is based upon the Portfolio Manager's belief that
an allocation of 70% of a portfolio's assets to common stocks and 30%
to debt securities provides the majority of investment return that
would otherwise be obtained by investing exclusively in common
stocks, yet with significantly lower volatility. There can be no
assurance that the Fund's investment objective will be attained.
This policy of investing in other investment companies involves
certain expenses not normally attributable to a mutual fund that
invests in other types of securities. See "Management of the Trust -
Expenses."
<PAGE>
Shares of the Fund currently are offered only to separate accounts
of Golden American Life Insurance Company ("Golden American") to
serve as the investment medium for variable annuity contracts issued
by Golden American (the "Variable Contracts"). However, shares of the
Fund may be offered in the future to other separate accounts
established by Golden American or other affiliated or unaffiliated
insurance companies. See "Purchase of Shares." The Trust's shares
will not be offered directly to the public.
FUND MANAGEMENT
The Trust has retained Directed Services, Inc. ("DSI" or the
"Manager") as Manager to manage the assets of the Fund and to act as
Administrator to the Fund. The Trust pays DSI monthly fees for
management and administrative services totalling on an annual basis
0.30% of the value of the average daily net assets of the Fund.
FINANCIAL HIGHLIGHTS
The following table presents selected financial highlights with
respect to the Fund for the years ended December 31, 1996, 1995 and
1994 and the period March 1, 1993 (commencement of operations) to
December 31, 1993. Information in the table is derived from the
Fund's financial statements that have been audited by Ernst & Young
LLP. 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 Fund serves as an underlying investment vehicle. These charges
would reduce the total return to any owner of a Variable Contract.
The table should be read in conjunction with the Fund's financial
statements, which are incorporated by reference in the Fund's
Statement of Additional Information from the Fund's Annual Report
dated December 31, 1996. The Fund's Annual Report, which contains
further information about the Fund's performance, is available to
Shareholders upon request and without charge.
<PAGE>
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD
DECEMBER DECEMBER DECEMBER MARCH 1,
31, 1996 31, 1995 31, 1994 1993* TO
DECEMBER
31, 1993
---------- ---------- ---------- ----------
PER SHARE OPERATING
PERFORMANCE
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.95 $ 9.23 $ 10.51 $ 10.00
---------- ---------- ---------- ----------
NET INVESTMENT INCOME
(LOSS) # .01 (0.24) 0.44 0.33
NET GAIN ON INVESTMENTS
- REALIZED AND UNREALIZED 0.88 1.98 (0.67) 0.51
---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.89 1.74 (0.23) 0.84
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
DISTRIBUTIONS FROM NET
INVESTMENT INCOME 0.00 0.02 0.44 0.33
DISTRIBUTIONS FROM NET
REALIZED CAPITAL GAINS 4.23 0.00 0.61 0.00
---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS 4.23 0.02 1.05 0.33
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $ 7.61 $ 10.95 $ 9.23 $ 10.51
========== ========== ========== ==========
TOTAL RETURN 10.57% 18.79% (2.15%) 8.42%**
RATIOS AND SUPPLEMENTAL DATA
TOTAL NET ASSETS, END OF
PERIOD (000'S OMITTED $ 201 $ 333 $1,346 $4,267
RATIO OF EXPENSES TO AVERAGE
NET ASSETS 2.56% 4.25% 1.84% 0.42%**
DECREASE REFLECTED IN ABOVE
EXPENSE RATIO DUE TO
WAIVERS AND/OR REIMBURSEMENTS 9.45% 0.68% -- 3.15%**
RATIO OF NET INVESTMENT
INCOME (LOSS) TO AVERAGE
NET ASSETS 0.10% (2.32%) 2.23% 4.89%**
PORTFOLIO TURNOVER RATE 6.87% 5.68% 13.06% 19.79%
* Commencement of operations
** Not annualized
# Per share data numbers have been calculated using the average share
method
See notes to financial statements.
10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of The Fund For Life is to realize high
total investment return (capital appreciation and current income)
consistent with prudent investment risk and a balanced investment
approach. The Fund seeks to achieve its objective by investing in
shares of other open-end management investment companies ("mutual
funds").
The Fund's investment program emphasizes investment in mutual
funds that invest primarily in domestic equity securities, while also
allocating a portion of the Fund's assets to mutual funds that invest
in international equity securities and a portion of the Fund's assets
to mutual funds that invest primarily in debt securities rated at
least investment grade. Generally, the Fund strives to maintain 70%
of its assets invested in mutual funds emphasizing equity investments
(including the equity securities of foreign issuers) and 30% of its
assets invested in mutual funds emphasizing debt investments rated at
least investment grade. The Fund will invest only in mutual funds
that are not affiliated with the Fund or its Manager.
Toward this end, the Fund allocates its assets among unaffiliated
mutual funds that generally fall into three general classifications,
as follows:
1. EQUITY FUNDS. Approximately 60% of the Fund's assets will
be invested in mutual funds that seek growth, growth and income,
capital appreciation, or a similar objective or objectives,
primarily through investment in domestic equity securities under
normal circumstances. This may include underlying mutual funds
generally classified as "growth," "growth and income," "equity
income," "capital appreciation," "aggressive growth" and "small
company growth" funds by fund rating services.
2. INTERNATIONAL EQUITY FUNDS. Approximately 10% of the
Fund's assets will be invested in mutual funds that seek growth,
growth and income, capital appreciation, or a similar objective or
objectives, primarily through investment in equity securities that
may be from issuers domiciled or traded in countries outside of
the United States. This may include funds generally classified as
"global," "foreign," or "international" funds by fund rating
services.
3. INCOME FUNDS. Approximately 30% of the Fund's assets will
be invested in mutual funds that seek as their objective income,
growth, or total return primarily through investment in debt
securities that are rated investment grade or better. This may
include funds generally classified as "income," "fixed income,"
and "high-grade corporates" by fund rating services.
The Fund's asset allocation strategy is based upon the Manager's
belief that an allocation of 70% of a portfolio's assets to common
stocks and 30% to debt securities provides the majority of investment
return that would otherwise be obtained by investing exclusively in
common stocks, yet with significantly lower volatility. The asset
allocation strategy has also been designed to reflect the Manager's
belief that with the increasing globalization of securities markets,
investors should have some exposure to foreign stock markets.
<PAGE>
In managing the Fund's portfolio, the Manager will generally
attempt to select mutual funds that have had the best performance
within their classification, as measured over time periods deemed
appropriate by the Manager. In most circumstances, the Manager will
consider time periods equal to or exceeding ten years but in special
situations may consider time periods of less than ten years or may
consider performance over several time periods. The Manager may take
into account any other factors that it deems appropriate including,
among other things, an underlying mutual fund's investment adviser
and the adviser's investment methodology or research capabilities;
the underlying fund's portfolio; any sales load; and the expense
level of an underlying fund. The Fund will not be managed to switch
in and out of underlying mutual funds to attempt to obtain short-term
gains. Once an underlying mutual fund is selected for investment, the
Fund generally will attempt to maintain its investment in the mutual
fund for at least one year from the time of the initial investment.
Generally, the Fund's portfolio will be reconfigured at least once a
year. However, if the Manager believes it appropriate, the Fund may
redeem its investment in any mutual fund in which it invests at any
time, or may maintain its investment in a mutual fund for longer than
one year.
The Fund will normally seek to maintain the allocation of its
assets among the three classifications indicated above at
approximately the percentages indicated above. However, the value of
the shares of the underlying mutual funds may not generally move in
the same direction or to the same extent, and, consequently, the
relative percentages of the Fund's investment in the three
classifications may vary. The Fund is not obligated to redeem shares
of underlying mutual funds in order to reduce such discrepancies.
However, the Fund will seek to reduce such variations by investing
its available cash in mutual funds of the appropriate class, and the
Fund will not invest in the shares of any mutual fund in one of the
three classifications if, at the time of the investment, the
percentage of the Fund's assets invested in such classification
varies from the percentages indicated above by more than 10% of the
Fund's assets.
It is intended that the Fund will normally be invested in not less
than 10 nor more than 15 mutual funds. In addition, the Fund may not
purchase or otherwise acquire the securities of any investment
company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of
another investment company) if, as a result, the Fund and all of its
affiliates, including private discretionary investment advisory
accounts managed by the Manager, if any, would own more than 3% of
the total outstanding stock of that company.
The Fund may invest in underlying mutual funds that are both
diversified and non-diversified. A non-diversified mutual fund may
invest more than 5% and up to 25% of its assets in the securities of
one issuer. The Fund itself is classified as diversified under the
Investment Company Act of 1940 (the "1940 Act").
<PAGE>
DESCRIPTIONS OF MUTUAL FUNDS. The mutual funds in the first two
classifications indicated above, Equity Funds and International
Equity Funds, will generally invest primarily in equity securities.
Generally, such mutual funds may also invest in securities
convertible into or exchangeable for common stock (such as
convertible preferred stock, convertible debentures, or warrants)
which may or may not be considered "equity securities" depending on
the policy of the underlying fund. Many of the mutual funds may also
be permitted to invest a portion of their assets in debt securities,
including securities issued, guaranteed or insured by the U.S.
Government, its agencies or instrumentalities; corporate bonds; and
money market instruments. Typically, mutual funds that invest
primarily in equity securities are permitted to invest in other types
of securities for temporary defensive purposes, which may include
corporate bonds, U.S. Government securities, commercial paper,
certificates of deposit or other money market securities, and
repurchase agreements.
The mutual funds in these two classifications may present certain
risks. Any of these mutual funds may trade their portfolios actively
(which results in higher brokerage commissions) and/or invest in
companies whose securities may be subject to erratic market
movements. These mutual funds also may invest up to 15% of their
assets in restricted or illiquid securities; invest in warrants; lend
their portfolio securities; sell securities short; borrow money for
investment purposes (i.e., leverage their portfolios), but any such
fund that borrows for investment purposes must maintain asset
coverage of at least 300% of the amount borrowed; write (sell) or
purchase call or put options on securities or on stock indexes;
concentrate more than 25% of their assets in one industry; and enter
into futures contracts and options on futures contracts. Some of the
risks associated with these investments are described in the Appendix
to this Prospectus.
The mutual funds in the International Equity Fund classification
described above, which may primarily invest in equity securities of
foreign issuers, may also invest in debt obligations of foreign
governments, corporations, and international or supranational
organizations (and their agencies or instrumentalities). In
anticipation of foreign exchange requirements and to avoid losses due
to adverse movements in foreign currency exchange rates, these funds
also may enter into forward contracts to purchase and sell foreign
currencies.
The investments of these funds in foreign issuers may involve
special risks in addition to those normally associated with
investments in the securities of U.S. issuers. For example, there
may be less publicly available information about foreign issuers than
is available for U.S. issuers, and foreign auditing, accounting, and
financial reporting practices may differ from U.S. practices. Also,
foreign securities markets may be less active than U.S. markets,
trading may be thin and consequently securities prices may be more
volatile. Generally, all foreign investments are subject to risks of
foreign political and economic instability, adverse movements in
foreign exchange rates, the imposition or tightening of exchange
controls or other limitations, the repatriation of foreign capital,
<PAGE>
and changes in foreign governmental attitudes toward private
investment, possibly leading to nationalization, increased taxation,
or confiscation of underlying fund assets. Also, there is the risk
of possible losses through the holding of securities by custodians
and securities depositories in foreign countries.
The mutual funds in the third classification, Income Funds, invest
primarily in investment grade debt securities, which may include
corporate bonds; securities issued, guaranteed, or insured by the
U.S. Government or its agencies or instrumentalities; commercial
paper; preferred stock; convertible preferred stock; or convertible
debentures. These mutual funds also may lend their portfolio
securities, sell securities short, borrow money for investment
purposes (but any fund that borrows money for investment purposes
must maintain asset coverage of at least 300% of the amount
borrowed), write or purchase call or put options on securities or on
stock indexes, and enter into futures contracts and options on
futures contracts.
The Fund will invest only in mutual funds in this classification
that invest primarily in investment grade debt securities.
Investment grade debt securities are considered to be those rated
within one of the four highest quality grades assigned by Standard &
Poor's Rating Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") or which are unrated but are deemed by an underlying
fund's investment adviser to be of comparable quality. These include
bonds rated AAA, AA, A, and BBB by S&P and bonds rated Aaa, Aa, A,
and Baa by Moody's. Bonds rated BBB by S&P or Baa by Moody's
normally indicate a greater degree of investment risk than bonds with
higher ratings. The Fund will not invest in any underlying fund that
invests more than 10% of its assets in debt securities rated lower
than investment grade.
OTHER FUND INVESTMENTS. The Fund intends to maintain its assets
invested in mutual funds in accordance with the investment program
described above. At times, for temporary purposes pending full
investment of its assets or to meet anticipated redemptions, the Fund
may invest in money market mutual funds or invest directly in (or
enter into repurchase agreements with respect to) short-term debt
securities, including U.S. Treasury bills and other short-term U.S.
Government securities, commercial paper, certificates of deposit,
time deposits, and bankers' acceptances. The Fund may not purchase
shares of any investment company that is not registered with the
Securities and Exchange Commission.
The Fund will not employ a defensive strategy in response to
market or financial conditions, but will attempt to remain as fully
invested as practicable in the shares of mutual funds allocated as
described above. However, the mutual funds themselves may adopt
defensive strategies consistent with their own investment policies.
This may result, for example, in the Fund holding underlying funds
that, in turn, have committed significant assets to defensive
investments so they are not primarily invested in equity or
longer-term debt securities in which they would normally be invested.
<PAGE>
The Fund's investments other than mutual funds are more fully
described as follows:
U.S. GOVERNMENT SECURITIES. U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. U.S. Treasury bills, which have a maturity of
up to one year, are direct obligations of the United States and are
the most frequently issued marketable U.S. Government security. The
U.S. Treasury also issues securities with longer maturities in the
form of notes and bonds.
U.S. Government agency and instrumentality obligations are debt
securities issued by U.S. Government-sponsored enterprises and
Federal agencies. Some obligations of agencies are supported by the
full faith and credit of the United States or U.S. Treasury
guarantees; others, by the right of the issuer to borrow from the
U.S. Treasury; others, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or
instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations
not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
BANK OBLIGATIONS. These obligations include negotiable
certificates of deposit, bankers' acceptances, and fixed time
deposits. The Fund limits its investments in United States bank
obligations to obligations of United States banks which 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.
The Fund may not invest in fixed time deposits maturing in more
than seven calendar days that are subject to withdrawal penalties.
Investments in fixed time deposits maturing from two business days
through seven calendar days that are subject to withdrawal penalties
may not, along with other illiquid securities, exceed 15% of the
value of the total assets of the Fund.
COMMERCIAL PAPER. Commercial paper includes short-term unsecured
promissory notes, variable rate demand notes, and variable rate
master demand notes issued by domestic and foreign bank holding
companies, corporations, and financial institutions, as well as
similar taxable instruments issued by government agencies and
instrumentalities. All commercial paper purchased by the Fund must
be, at the time of investment, (i) rated "P-1" by Moody's or "A-1" by
S&P, (ii) issued or guaranteed as to principal and interest by
issuers having an existing debt security rating of "Aa" or better by
Moody's or "AA" or better by S&P or (iii) securities which, if not
rated, are in the opinion of the Manager of an investment quality
comparable to rated commercial paper in which the Fund may invest.
<PAGE>
CORPORATE DEBT SECURITIES. Fund investments in these securities
are limited to non-convertible corporate debt securities (corporate
bonds, debentures, notes and other similar corporate debt
instruments) which have one year or less remaining to maturity and
which are rated "AA" or better by S&P or "Aa" or better by Moody's.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase
agreements. A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon
time and price. These agreements may be considered to be loans by
the purchaser collateralized by the underlying securities. The Fund
may not enter into a repurchase agreement of greater than seven days
maturity if, after such investment, the amount of the Fund's total
assets in such agreements and other illiquid securities is greater
than 15%. In the event of default by the seller under the repurchase
agreement, the Fund may experience problems in exercising its rights
to the underlying securities and may experience time delays and costs
in connection with the disposition of such securities.
BORROWING. The Fund may, for temporary or emergency purposes,
such as to facilitate redemptions, borrow from a bank in an amount
not in excess of 25% of the Fund's total assets, and the Fund may
pledge a portion of its total assets to secure such borrowings.
RISKS AND OTHER CONSIDERATIONS
Because a mutual fund invests in securities, any investment in a
mutual fund involves risk, and, although the Fund invests in a number
of mutual funds, this practice does not eliminate investment risk.
Moreover, investing through the Fund in a portfolio of mutual funds
involves certain additional expenses that would not be present in a
direct investment in the underlying funds. See "Management of the
Trust - Expenses." Further, the Manager has not had previous
experience in investing the assets of an investment company in a
portfolio of mutual funds.
The Fund, together with any "affiliated persons" (as defined in
the 1940 Act), may purchase only up to 3% of the total outstanding
securities of any underlying fund. Accordingly, when "affiliated
persons" of the Fund hold shares of any of the underlying mutual
funds, the Fund's ability to invest fully in shares of those mutual
funds is restricted, and the Manager must then, in some instances,
select alternative investments.
The 1940 Act also provides that an underlying mutual fund whose
shares are purchased by the Fund will be obligated to redeem shares
held by the Fund only in an amount up to 1% of the mutual fund's
outstanding securities during any period of less than 30 days.
Shares held by the Fund in excess of 1% of a mutual fund's
outstanding securities therefore will be considered not readily
marketable, and these securities together with other illiquid
securities may not, at the time of investment in any such security,
exceed 15% of the Fund's assets.
<PAGE>
Investment decisions by the investment advisers of the underlying
mutual funds are made independently of the Fund and the Manager.
Therefore, the investment adviser of one mutual fund may be
purchasing shares of the same issuer whose shares are being sold by
the investment adviser of another such fund. The result of this
would be an indirect expense to the Fund without accomplishing any
investment purpose.
Generally, the Fund will invest in underlying funds that can be
acquired by paying little or no sales load or other transactional
expenses. These include investments in "no-load" mutual funds or so
called "low load" mutual funds, the latter of which generally charge
a sales load no greater than 3% (or 3.09% of the net amount
invested). However, the Fund may also purchase shares of mutual
funds with sales loads higher than 3% when the Manager believes that
the investment merit of such funds is sufficient to purchase the
funds.
Under the 1940 Act a mutual fund must sell, and therefore the Fund
must buy, shares of underlying funds at the price (including sales
load, if any) described in its prospectus, and current rules under
the 1940 Act do not permit negotiation of sales charges. Therefore,
the Fund currently is not able to negotiate the level of the sales
charges at which it will purchase shares of load funds, which may be
as great as 8.5% of the public offering price (or 9.29% of the net
amount invested). Nevertheless, whenever possible, the Fund will
purchase such shares pursuant to (i) letters of intent, permitting it
to obtain reduced sales charges by aggregating its intended purchases
over time (generally thirteen months from the initial purchase under
the letter); (ii) rights of accumulation, permitting it to obtain
reduced sales charges as it purchases additional shares of an
underlying fund; and (iii) the right to obtain reduced sales charges
by aggregating its purchases of several funds within a "family" of
mutual funds.
The Fund may also acquire shares of mutual funds that pay certain
distribution expenses under a plan adopted pursuant to Rule 12b-1
under the 1940 Act (under which the Distributor may receive
distribution payments for its assistance in transaction execution),
and shares of mutual funds that impose a contingent deferred sales
charge. Under certain circumstances, a mutual fund may determine to
make payment of a redemption by the Fund wholly or partly by a
distribution in kind of securities from its portfolio, in lieu of
cash, in conformity with the rules of the Securities and Exchange
Commission. In such cases, the Fund may hold securities distributed
by a mutual fund until the Manager determines that it is appropriate
to dispose of such securities.
The Fund may invest in shares of mutual funds that are both
diversified and non-diversified under the 1940 Act. Non-diversified
funds are permitted to invest a greater proportion of their assets in
the securities of a smaller number of issuers, and may be more
susceptible to any single economic, political or regulatory
occurrence.
<PAGE>
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, J. Michael Earley, R. Barbara Gitenstein, Dr. Robert A.
Grayson, Paul R. Schlaack, Stanley B. Seidler, Roger B. Vincent and
Dr. M. Norvel Young. The Officers of the Trust are Terry L. Kendall,
Barnet Chernow, Myles R. Tashman 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."
MANAGEMENT AND ADMINISTRATION
Directed Services, Inc. ("DSI" or the "Manager") serves as the
Manager and Administrator to the Trust. The Trust pays DSI monthly
fees for management and administrative services totalling on an
annual basis 0.30% of the value of the average daily net assets of
the Fund. DSI's address is 1001 Jefferson Street, Wilmington, DE
19801. DSI is a New York corporation and is a wholly owned subsidiary
of Equitable of Iowa. 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 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 Equitable of Iowa. With assets of over $12.5 billion as of
December 31, 1996, Equitable of Iowa is the holding company for
Equitable Life Insurance Company of Iowa, USG Annuity & Life Company,
Locust Street Securities, Inc., Equitable Investment Services, Inc.,
DSI nd Golden American Life Insurance Company.
Prior to August 13, 1996, DSI was an indirect, wholly owned subsidiary
of Bankers Trust Company.
<PAGE>
DSI performs the activities described above in this Prospectus and
below under the caption "Distributor." Pursuant to a Management
Agreement between the Trust and DSI, the Trust pays the Manager for
management services a monthly fee at an annual rate of 0.10% of the
average daily net assets of the Fund. For more information on the
Management Agreement, see the Statement of Additional Information.
Pursuant to the terms of an Administrative Services Agreement
between the Trust and DSI, DSI provides administrative services
necessary for the Trust's operation and furnishes or procures on
behalf of the Trust and the Fund the services and information
necessary to the proper conduct of the Fund's business. The
Administrator also acts as liaison among the various service
providers to the Fund, including the custodian, portfolio accounting
agent, Manager, and the insurance company or companies to which the
Fund's shares are offered. DSI is also responsible for ensuring that
the Fund is operated in compliance with applicable legal
requirements. Under the Administrative Services Agreement, the Trust
pays DSI for administrative services a monthly fee at an annual rate
of 0.20% of the average daily net assets of the Fund. For more
information on the Administrative Services Agreement, see the
Statement of Additional Information. DSI is currently providing
(non-advisory) management and administrative services to the other
operational series of the Trust.
<PAGE>
DISTRIBUTOR
DSI acts as distributor ("Distributor") of shares of the Fund, in
addition to serving as Manager and Administrator to the Fund. The
Distributor is a registered broker-dealer and a member of the
National Association of Securities Dealers, Inc., and acts as
Distributor without remuneration from the Trust.
CUSTODIAN
The Custodian for the Trust is Bankers Trust Company, 280 Park
Avenue, New York, NY 10017. DSI provides portfolio accounting
services for the Trust pursuant to a portfolio accounting agreement.
EXPENSES
Investors in the Fund should recognize that an investment in the
Fund will bear not only a proportionate share of the expenses of the
Fund (including operating costs and management fees) but also
indirectly similar expenses of the underlying mutual funds.
Shareholders also will bear their proportionate share of any sales
charges incurred by the Fund related to the purchase of shares of the
mutual funds. In addition, shareholders of the Fund may indirectly
bear expenses paid by a mutual fund related to the distribution of
its shares.
OTHER EXPENSES
The Trust bears all costs of its operations other than expenses
specifically borne by DSI pursuant to the Administrative Services
Agreement or the Management Agreement. See "Management of the Trust"
in the SAI. Trust expenses directly attributable to the Fund are
charged to the Fund; other expenses are allocated among all the
Series. The Trust will reimburse DSI for the Fund's organizational
expenses that DSI advanced. The Fund's organizational expenses are
amortized over a period not exceeding five years from March 1, 1993,
the date of the Fund's commencement of operations.
PORTFOLIO TRANSACTIONS
Pursuant to the Management Agreement, the Manager places orders
for the purchase and sale of no-load mutual funds for the Fund's
account directly with the mutual fund or its agent. Purchase and sale
orders of load mutual funds may be placed with the Distributor,
although other brokers or dealers may be selected at the discretion
of the Manager. With respect to purchases of certain money market
instruments, purchase orders may be placed directly with the issuer
or its agent.
The Distributor may also assist in the execution of Fund portfolio
transactions to purchase underlying fund shares for which it may
receive distribution payments from the mutual funds or their
distributors in accordance with the distribution plans of those
funds. In providing execution assistance, the Distributor receives
orders from the Manager, places them with the mutual fund's
distributor or other person, as appropriate, confirms the trade,
price and number of shares purchased, assures prompt payment by the
Fund and proper completion of the order.
<PAGE>
The Fund has no restrictions upon portfolio turnover, although its
annual turnover rate is not expected to exceed 100%. A 100% annual
portfolio turnover rate would be achieved if each security in the
Fund's portfolio (other than securities with less than one year
remaining to maturity) were replaced once during the year. To the
extent that the Fund purchases shares of load funds, a higher
turnover rate would result in correspondingly higher sales loads paid
by the Fund. There is no limit on the portfolio turnover rates of
the mutual funds in which the Fund may invest.
INVESTMENT IN THE TRUST
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is calculated at or
about 4:00 p.m. (New York City time), Monday through Friday, on each
day that the New York Stock Exchange is open for trading, exclusive
of federal holidays. Net asset value per share is calculated by
dividing the aggregate value of the Fund's assets less all
liabilities by the number of the Fund's outstanding shares.
The assets of the Fund consist primarily of the mutual funds,
which are valued at their respective net asset values under the 1940
Act. Each mutual fund is required to value securities in its
portfolio for which market quotations are readily available at their
current market value (generally the last reported sale price) and all
other securities and assets at fair value pursuant to methods
established in good faith by the board of directors of the underlying
fund. Money market funds with portfolio securities that mature in
one year or less may use the amortized cost or penny-rounding methods
to value their securities. Securities having 60 days or less
remaining to maturity generally are valued at their amortized cost,
which approximates market value.
Other assets of the Fund are valued at their current market value
if market quotations are readily available and, if market quotations
are not available, they are valued at fair value pursuant to methods
established in good faith by the Board of Trustees. Securities
having 60 days or less remaining to maturity are valued at their
amortized cost.
PURCHASE OF SHARES
As of the date of this Prospectus, shares of the Fund may be
offered only for purchase by separate accounts of Golden American to
serve as an investment medium for variable annuity contracts issued
by Golden American. In the future, shares of the Fund may be sold to
insurance company separate accounts funding both variable annuity
contracts and variable life insurance contracts and may be sold to
different insurance companies that are not affiliated. The Trust
currently does not foresee any disadvantages to Variable Contract
owners arising from offering the Trust's shares to separate accounts
of unaffiliated insurers or to separate accounts funding both life
insurance policies and annuity contracts; however, in some
circumstances, it is theoretically possible that the interests of
owners of various contracts participating in the Trust might at some
time be in conflict. If and when applicable, the Board of Trustees
and insurance companies whose separate accounts invest in the Trust
<PAGE>
are required to monitor events in order to identify any material
conflicts between variable annuity contract owners and variable life
policy owners and, if and when applicable, between separate accounts
of unaffiliated insurers. The Board of Trustees will determine what
action, if any, should be taken in 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 redeem underlying mutual fund shares when
disadvantageous to do so.
Shares of the Fund 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. The Fund reserves the right to cease offering its shares at
any time.
REDEMPTION OF SHARES
Shares of the Fund may be redeemed on any business day.
Redemptions are effected at the net asset value per share next
determined after receipt of the redemption request by an insurance
company whose separate account invests in the Trust. 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
the Fund to make payment wholly or partly in cash, the Fund may pay
the redemption price in whole or in part by a distribution in kind of
securities from the portfolio of the Fund, 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.
Because the underlying mutual funds may invest some or all of
their assets in foreign securities primarily listed on foreign stock
exchanges, there may be times when disposal of portfolio securities
by or valuation of net assets of the underlying funds may not be
reasonably practicable. Such a situation may affect the ability of
the Fund to value its net assets and consequently may affect the
ability of shareholders of the Fund to redeem their shares. In such
a case, the Board of Trustees may take such action as it deems
reasonably necessary for the protection of shareholders of the Fund,
including seeking an order of the Securities and Exchange Commission
suspending or postponing the right of shareholders of the Fund to
redeem their shares.
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Trust intends that the Fund continue to qualify and elect to
be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). In any
year in which the Fund qualifies as a regulated investment company
and distributes substantially all of its net investment income (which
includes, among other items, the excess of net short-term capital
gains over net long-term capital losses) and its net capital gains
(the excess of net long-term capital gains over net short-term
capital losses), the Fund generally will not be subject to federal
income tax to the extent it distributes to shareholders such income
and capital gains in the manner required under the Code.
Income received by the Fund from an underlying mutual fund
(including dividends and distributions of net short-term capital
gains), as well as interest received on money market instruments and
net short-term capital gains received by the Fund on the sale of
mutual fund shares, will be distributed by the Fund and are
includable in the gross income of the shareholder (the insurance
company separate account) as ordinary income. The Fund is actively
managed and may realize taxable capital gains by selling or redeeming
shares of an underlying fund with unrealized portfolio appreciation.
As a result, an investment in the Fund rather than a direct
investment in an underlying fund may result in increased taxable
income to the shareholders (the insurance company separate accounts)
since the Fund must distribute gains in accordance with the rules in
the Code. Note that the Fund's ability to dispose of shares of
mutual funds held less than three months may be limited by
requirements relating to the Fund's qualification as a regulated
investment company for federal income tax purposes.
Distributions of net capital gains designated as capital gain
dividends received by the Fund from underlying funds, as well as net
long-term capital gains realized by the Fund from the sale (or
redemption) of mutual fund shares or other securities held by the
Fund for more than one year, will be distributed by the Fund and
(generally) will be includable in the gross income of shareholders
(the insurance company separate accounts) as long-term capital gains
(even if the shareholder had held the shares of the Fund for one year
or less).
For purposes of determining the character of income received by
the Fund when an underlying fund distributes capital gains dividends
to the Fund, the Fund must treat the distribution as a long-term
capital gain, even if it has held shares of the mutual fund for one
year or less. Any loss incurred by the Fund on the sale of that
underlying fund's shares held for six months or less will be treated
as a long-term capital loss to the extent of the capital gains
dividends received with respect to such shares.
Tax consequences to the Variable Contract owners are described in
the prospectus for the pertinent Variable Contract.
<PAGE>
The Fund intends to declare as a dividend and to distribute net
investment income quarterly. The Fund will distribute any net
realized capital gains at least once annually. All distributions
will be reinvested automatically at net asset value in additional
shares of the Fund, unless a shareholder elects to receive
distributions in cash. Dividends declared in October, November, or
December to shareholders of record in such month and paid during the
following January will be treated as having been distributed and
received by shareholders on December 31.
Regulations under Section 817(h) of the Code contain certain
diversification requirements. Generally, under those regulations,
the Fund 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 will be represented by any one investment
(such as a mutual fund), no more than 70% will be represented by any
two investments, no more than 80% will be represented by any three
investments, and no more than 90% will be represented by any four
investments. For this purpose, all securities of a given issuer are
treated as a single investment, but each U.S. Government agency and
instrumentality is treated as a separate issuer. In addition, any
security issued, guaranteed, or insured (to the extent so guaranteed
or insured) by the United States or an instrumentality of the U.S.
will be treated as a security issued by the U.S. Government or its
instrumentality, whichever is applicable. If the Fund fails to meet
the diversification requirements under Code Section 817(h), income
with respect to Variable Contracts invested in the Fund 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 the Fund 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 Code Section 817(h), 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. These future rules and regulations proscribing investment
control may adversely affect the ability of the Fund 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.
<PAGE>
In the event that unfavorable rules or regulations are adopted,
there can be no assurance that the Fund will be able to operate as
currently described in the Prospectus, or that the Fund will not have
to change its investment objectives, investment policies, or
investment restrictions. While the Fund's investment objective is
fundamental and may be changed only by a vote of majority of its
outstanding shares, the Trustees have reserved the right to modify
the investment policies of the Fund as necessary to prevent any such
prospective rules and regulations from causing the Variable Contract
owners to be considered the owners of the Fund.
See the SAI for additional information relating to taxation.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on
August 3, 1988. The Trust currently consists of fourteen portfolios
that are operational, one of which is described in this prospectus.
Ten other portfolios are 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 value of
$0.001 each. When issued in accordance with the Trust's Agreement
and Declaration of Trust, shares of the Fund are fully paid,
redeemable, 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 losses and expenses 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 should be
considered remote.
VOTING RIGHTS
Shareholders of the Trust are given certain voting rights. Each
share of the Fund 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.
<PAGE>
Massachusetts business trust law does not require the Trust to
hold annual shareholder meetings, although special meetings may be
called for the Fund, 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 accordance
with current laws, it is anticipated that an insurance company
issuing a Variable Contract that participates in the 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.
PERFORMANCE INFORMATION
The Trust may, from time to time, include quotations of the Fund's
total return in advertisements or reports to shareholders or
prospective investors. Performance information for the Fund will not
be advertised or included in sales literature unless accompanied by
comparable performance information for a separate account to which
the Fund offers its shares. Quotations of total return will be
expressed in terms of the average annual compounded rate of return of
a hypothetical investment in the Fund over periods of 1, 5 and 10
years (up to the life of the Fund). All total return figures will
reflect the deduction of a proportional share of Fund expenses on an
annual basis, and will assume that all dividends and distributions
are reinvested when paid. Quotations of total return reflect only
the performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based. Total
return for the Fund will vary based on changes in market conditions
and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be
expected in the future.
Quotations of total return for the Fund will not take into account
charges or deductions against any Separate Account to which the Fund
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. The Fund's
total return should not be compared with mutual funds that sell their
shares directly to the public since the figures provided do not
reflect charges against the separate accounts or the Variable
Contracts.
Reports and promotional literature may also contain other
information, including the effect of tax deferred compounding on the
Fund's 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 the Fund (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with the return on a taxable
basis.
For a more detailed description of the methods used to calculate
the Fund's yield and total return, see the SAI.
<PAGE>
LEGAL COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C.
20005, has passed upon certain securities matters in connection with
the shares offered by this Prospectus, and also acts as outside
counsel to the Trust.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-5072,
serves as independent auditors of the Trust.
FINANCIAL STATEMENTS
The audited financial statements for the Fund dated as of
December 31, 1996, including notes thereto, are incorporated by
reference in the Statement of Additional Information from the
Fund's Annual Report dated as of December 31, 1996. Information
in the financial statements has been audited by Ernst & Young LLP.
<PAGE>
APPENDIX
DESCRIPTION OF VARIOUS SECURITIES INVESTED IN, AND INVESTMENT
TECHNIQUES EMPLOYED BY, MUTUAL FUNDS IN WHICH THE FUND FOR LIFE MAY
INVEST.
ILLIQUID AND RESTRICTED SECURITIES. An underlying fund may invest
not more than 15% of its total assets in securities for which there
is no readily available market ("illiquid securities"), which would
include securities that are illiquid because their disposition is
subject to legal restrictions (so-called "restricted securities") and
repurchase agreements having more than seven days to maturity. A
considerable period of time may elapse between an underlying fund's
decision to dispose of such securities and the time when the
underlying fund is able to dispose of them, during which time the
value of the securities (and therefore the value of the underlying
fund's shares held by the Fund) could decline.
FOREIGN SECURITIES. An underlying fund may invest up to 100% of
its assets in securities of foreign issuers. There may be less
publicly available information about these issuers than is available
about companies in the U.S., and foreign auditing, accounting, and
financial reporting requirements may not be comparable to those in
the U.S. In addition, the value of the underlying fund's foreign
securities may be adversely affected by fluctuations in the exchange
rates between foreign currencies and the U.S. dollar, as well as
other political and economic developments, including the possibility
of expropriation, confiscatory or other taxation, exchange controls
or other foreign governmental restrictions. Many 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. 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. In addition, foreign securities
and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those
securities.
<PAGE>
The underlying funds will calculate generally their net asset
values and complete orders to purchase, exchange or redeem shares
only on a Monday-Friday basis (excluding holidays on which the New
York Stock Exchange is closed). Foreign securities in which the
underlying funds may invest may be listed primarily on foreign stock
exchanges which may trade on other days (such as Saturday). As a
result, the net asset value of an underlying fund's portfolio may be
significantly affected by such trading on days when the Manager does
not have access to the underlying funds and shareholders do not have
access to the Fund.
FOREIGN CURRENCY TRANSACTIONS. In connection with its portfolio
transactions in securities traded in a foreign currency, an
underlying fund may enter into forward contracts to purchase or sell
an agreed-upon amount of a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed
upon by the parties at a price set at the time of the contract.
Although such contracts tend to minimize the risk of loss due to a
decline in the value of the subject currency, they tend to limit
commensurately any potential gain which might result should the value
of such currency increase during the contract period.
INDUSTRY CONCENTRATION. An underlying fund may concentrate its
investments within one industry. Because the scope of investment
alternatives within an industry is limited, the value of the shares
of such an underlying fund may be subject to greater market
fluctuation than an investment in a fund which invests in a broader
range of securities.
REPURCHASE AGREEMENTS. Underlying funds, particularly money
market funds, may enter into repurchase agreements with banks and
broker-dealers under which they acquire securities subject to an
agreement with the seller to repurchase the securities at an
agreed-upon time and price. The Fund also may enter into repurchase
agreements. These agreements are considered under the 1940 Act to be
loans by the purchaser, collateralized by the underlying securities.
If the seller should default on its obligation to repurchase the
securities, the underlying fund may experience delays or difficulties
in exercising its right to realize a gain upon the securities held as
collateral and might incur a loss if the value of the securities
should decline. For a more complete discussion of repurchase
agreements, see "Investment Policies" in the SAI.
LOANS OF PORTFOLIO SECURITIES. An underlying fund may lend its
portfolio securities provided: (1) that the loan is secured
continuously by collateral consisting of U.S. Government securities
or cash or cash equivalents maintained on a daily marked-to-market
basis in an amount at least equal to the current market value of the
securities loaned; (2) the fund may at any time call the loan and
obtain the return of the securities loaned; (3) the fund will receive
any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of the securities loaned will not at any time
exceed one-third of the total assets of the fund. Loans of
securities involve a risk that the borrower may fail to return the
securities or may fail to provide additional collateral.
<PAGE>
SHORT SALES. An underlying fund may sell securities short. The
underlying fund will incur a loss as a result of the short sale if
the price of the security increases between the date of the short
sale and the date on which the fund replaces the borrowed security.
The fund will realize a gain if the security declines in price
between those dates. The amount of any gain will be decreased and
the amount of any loss increased by the amount of any premium,
dividends or interest the fund may be required to pay in connection
with a short sale.
OPTIONS. Certain underlying mutual funds may purchase and write
call and put options on securities, securities indexes, and on
foreign currencies. 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 a mutual fund 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 fund 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 mutual fund seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are
imposed on the options market a fund may be unable to close out a
position. If a mutual fund cannot effect a closing transaction, it
will not be able to sell the underlying security while the previously
written option remains outstanding, even if it might otherwise be
advantageous to do so.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. An underlying
mutual fund may invest in financial futures contracts such as
interest rate futures contracts, stock index futures contracts, and
others, and may purchase and write options on such futures contracts.
Generally, transactions in futures contracts and options thereon by a
mutual fund must constitute bona fide hedging or other permissible
transactions under regulations promulgated by the Commodities Futures
Trading Commission (the "CFTC"), under which a fund engaging in such
transactions would not be a "commodity pool."
<PAGE>
There are several risks associated with the use of futures
contracts. While a mutual fund's use of futures contracts for
hedging may protect a fund against adverse movements in the general
level of interest rates or securities prices, such transactions could
also preclude the opportunity to benefit from favorable movements in
the level of interest rates or securities prices. There can be no
guarantee that there will be a correlation between price movements in
the hedging vehicle and in the securities being hedged. An incorrect
correlation could result in a loss on both the hedged securities in a
mutual fund and the hedging vehicle so that the fund's return might
have been better had hedging not been attempted.
There can be no assurance that a liquid market will exist at a
time when a mutual fund seeks to close out a futures contract or
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. Lack of a liquid market for any reason may prevent the
fund from liquidating an unfavorable position and the fund would
remain obligated to meet margin requirements until the position is
closed.
LEVERAGE THROUGH BORROWING. An underlying fund may borrow a
percentage of the value of its net assets on an unsecured basis from
banks to increase its holdings of portfolio securities. Under the
1940 Act, the fund is required to maintain continuous asset coverage
of 300% with respect to such borrowings and to sell (within three
days) sufficient portfolio holdings to restore such coverage if it
should decline to less than 300% due to market fluctuations or
otherwise, even if disadvantageous from an investment standpoint.
Leveraging will exaggerate the effect of any increase or decrease in
the value of portfolio securities on the fund's net asset value, and
money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average
balances) which may or may not exceed the interest and option
premiums received from the securities purchased with borrowed funds.
WARRANTS. An underlying fund may invest in warrants, which are
options to purchase equity securities at specific prices valid for a
specific period of time. The prices do not necessarily move parallel
to the prices of the underlying securities. Warrants have no voting
rights, receive no dividends and have no rights with respect to the
assets of the issuer. If a warrant is not exercised within the
specified time period, it will become worthless and the fund will
lose the purchase price and the right to purchase the underlying
security.
IN 2999 05/97
<PAGE>
THE FUND FOR LIFE
1001 JEFFERSON STREET, SUITE 400
WILMINGTON, DELAWARE 19801
(800) 366-0066
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information describes The Fund
For Life (the "Fund"), one of the Series of The GCG Trust (the
"Trust"). The Trust is an open-end management investment company
organized as a Massachusetts business trust. The Fund's Manager
is Directed Services, Inc. ("DSI" or the "Manager").
The Fund's investment objective is high total investment
return (capital appreciation and current income) consistent with
prudent investment risk and a balanced investment approach. The
Fund seeks to achieve its investment objective by investing in
shares of other open-end investment companies--commonly called
mutual funds.
As of the date of this Statement of Additional Information,
shares of the Fund are sold only to separate accounts of
insurance companies to serve as the investment medium for
variable annuity contracts issued by the insurance companies.
This Statement of Additional Information is intended to
supplement the information provided to investors in the
Prospectus dated May 1, 1997, of The Fund For Life and has 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
Fund's Prospectus and retained for future reference. The
contents of this Statement of Additional Information are
incorporated by reference in the Prospectus in their entirety. A
copy of the 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
INVESTMENT POLICIES 1
U.S. Government Securities 1
Banking Industry Obligations 1
Commercial Paper 2
Corporate Debt Securities 3
Repurchase Agreements 4
INVESTMENT RESTRICTIONS 5
MANAGEMENT OF THE TRUST 7
The Management Agreement 10
The Administrative Services Agreement 11
Distribution of Trust Shares 13
Purchases and Redemptions 13
PORTFOLIO TRANSACTIONS 14
NET ASSET VALUE 15
ADVERTISING 16
TAXATION 17
Distributions 20
Other Taxes 20
OTHER INFORMATION 20
Capitalization 20
Voting Rights 21
Custodian 22
Independent Auditors 22
Counsel 22
Registration Statement 22
FINANCIAL STATEMENTS 22
Appendix A: Description of Bond Ratings A-1
Appendix B: Securities and Investment Techniques
of Underlying Mutual Funds B-1
INTRODUCTION
<PAGE>
This Statement of Additional Information is designed to
elaborate upon the discussion of certain securities and
investment techniques which are described in the Prospectus. The
more detailed information contained herein is intended solely for
investors who have read the Prospectus and are interested in a
more detailed explanation of certain aspects of some of the
Fund's securities and some investment techniques. Some of the
Fund's investment techniques are described only in the Prospectus
and are not repeated herein. Captions and defined terms in this
Statement of Additional Information generally correspond to like
captions and terms in the Prospectus.
INVESTMENT POLICIES
Although the Fund invests primarily in the shares of other
mutual funds, it is also authorized to invest for temporary
purposes or as may be considered necessary to meet anticipated
redemptions in a variety of short-term debt securities, including
U.S. Government securities, commercial paper, certificates of
deposit, bankers' acceptances and repurchase agreements with
respect to such securities. The following information
supplements the discussion of the investment objective and
policies of the Fund found under "Investment Objective and
Policies" in the Prospectus.
U.S. Government Securities
- --------------------------
The Fund may invest in obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities which
have remaining maturities not exceeding one year. Agencies and
instrumentalities which issue or guarantee debt securities and
which have been established or sponsored by the U.S. Government
include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the
Federal Home Loan Mortgage Corporation, the Federal Intermediate
Credit Banks, the Federal Land Banks, the Federal National
Mortgage Association and the Student Loan Marketing Association.
Banking Industry Obligations
- ----------------------------
The Fund may invest in certificates of deposit, time
deposits, bankers' acceptances, and other short-term debt
obligations issued by commercial banks.
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
<PAGE>
bank obligations payable at a stated maturity date and bearing
interest at a fixed rate. Fixed-time 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. The Fund will not invest in fixed-time
deposits (i) which are not subject to prepayment; (ii) which
mature in more than seven days that are subject to withdrawal
penalties upon prepayment; or (iii) which mature from two
business days through seven calendar days that provide for
withdrawal penalties upon prepayment (other than overnight
deposits), if, in the aggregate, more than 15% of its assets
would be invested in such deposits, in repurchase agreements
maturing in more than seven days, and in 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.
Commercial Paper
- ----------------
The Fund may invest in commercial paper (including variable
amount master demand notes), denominated in U.S. dollars, issued
by U.S. corporations or foreign corporations. The Fund may
invest in commercial paper (i) rated, at the date of investment,
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 by
Standard & Poor's Corporation ("S&P"); (ii) if not rated by
either Moody's or S&P, issued by a corporation having an
outstanding debt issue rated Aa or better by Moody's or AA or
better by S&P; or (iii) if not rated, is determined to be of an
investment quality comparable to rated commercial paper in which
the Fund may invest.
<PAGE>
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 the Fund, 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 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 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 S&P; the Fund may invest in
them only if the Manager believes that at the time of investment
the notes are of comparable quality to the other commercial paper
in which the Fund may invest. Master demand notes are considered
by the Fund to have a maturity of one day, unless the Manager has
reason to believe that the borrower could not make immediate
repayment upon demand. See Appendix A for a description of
Moody's and S&P ratings applicable to commercial paper.
Corporate Debt Securities
- -------------------------
Fund investments in these securities are limited to
non-convertible corporate debt securities (corporate bonds,
debentures, notes and similar corporate debt instruments) which
have one year or less remaining to maturity and which are rated
"AA" or better by S&P or "Aa" or better by Moody's.
The rating "P-1" is the highest commercial paper rating
assigned by Moody's and the ratings "A-1" and "A-1+" are the
highest commercial paper ratings assigned by S&P. Debt
obligations rated "Aa" or better by Moody's or "AA" or better by
S&P are generally regarded as high-grade obligations and such
ratings indicate that the ability to pay principal and interest
is very strong.
After purchase by the Fund, a security may cease to be rated
or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require a sale of such
security by the Fund. However, the Manager will consider such
event in its determination of whether the Fund should continue to
hold the security. To the extent the ratings given by Moody's or
S&P may change as a result of changes in such organizations or
their rating systems, the Fund will attempt to use comparable
ratings as standards for investments in accordance with the
investment policies contained in the Prospectus and in this
Statement of Additional Information.
<PAGE>
Repurchase Agreements
- ---------------------
The Fund may invest in repurchase agreements. A repurchase
agreement is a transaction in which the seller of a security
commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed upon time and price.
These agreements may be considered to be loans by the purchaser
collateralized by the underlying securities. 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 Fund 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 Fund 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 Fund 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. The Fund
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 15% of the net assets of the Fund. If
the seller should become bankrupt or default on its obligations
to repurchase the securities, the Fund may experience delays 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. The Fund also might incur disposition costs in
connection with liquidating the securities.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below, together with
the Fund's investment objective and policies, are fundamental
policies of the Fund and may not be changed by the Fund without
the approval of a majority of the outstanding voting shares of
the Fund. Under these restrictions, the Fund may not:
(1) 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 or the securities of issuers that
are registered investment companies and that themselves
invest more than 25% of their total assets in one industry,
except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (or repurchase agreements with respect
thereto) or securities or obligations issued by U.S. banks;
<PAGE>
(2) Purchase or sell real estate, except that the Fund
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;
(3) Purchase securities on margin (except for use of
short-term credit necessary for clearance of purchases and
sales of portfolio securities), except that to the extent
the Fund engages in transactions in options, futures, and
options on futures, the Fund may make margin deposits in
connection with those transactions and except that effecting
short sales will be deemed not to constitute a margin
purchase for purposes of this restriction, and subject to
the restrictions described in the Prospectus and in the
Statement of Additional Information, purchase securities on
margin;
(4) Lend any funds or other assets, except that the
Fund 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 Board of Trustees;
(5) Issue senior securities, except insofar as the
Fund may be deemed to have issued a senior security by
reason of borrowing money in accordance with the Fund's
borrowing policies, or in connection with any repurchase
agreement, 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;
(6) Act as an underwriter of securities of other
issuers, except when in connection with the disposition of
portfolio securities, the Fund may be deemed to be an
underwriter under the federal securities laws; and
(7) Borrow money or pledge, mortgage, or hypothecate
its assets, except that the Fund may borrow from banks but
only if immediately after each borrowing and continuing
thereafter, there is asset coverage of 300%.
<PAGE>
The Fund is 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 Fund may not:
(1) 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
Manager are illiquid if, as a result of such investment,
more than 15% of the total assets of the Fund (taken at
market value at the time of such investment) would be
invested in such securities;
(2) Purchase or sell commodities or commodities
contracts; and
(3) 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.
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, J. Michael Earley, R. Barbara Gitenstein, Robert A.
Grayson, Paul R. Schlaack, Stanley B. Seidler, M. Norvel Young, and Roger B.
Vincent. The Executive Officers of the Trust are Terry L. Kendall, Barnett
Chernow, Myles R. Tashman, and Mary Bea Wilkinson.
<PAGE>
Trustees and Executive Officers of the Trust, their business addresses,
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST BUSINESS AFFILIATIONS AND PRINCIPAL OCCUPATIONS
<S> <C> <C>
Terry L. Kendall* Chairman of the Board Director, and Chief Executive Officer,
Golden American Life and President American Life Insurance Company;
Insurance Co.
1001 Jefferson Street Executive Vice President,
Wilmington, DE 19801 Equitable of Iowa Companies; formerly, President
and Chief Executive Officer, United Pacific
Life Insurance Company (1983-1993). Age 50.
Barnett Chernow Vice President
Golden American Life Executive Vice President, Golden American Life
Insurance Co. Insurance Company; Executive Vice President,
1001 Jefferson Street Directed Services, Inc.; Senior Vice President
Wilmington, DE 19801 and Chief Financial Officer, Reliance Insurance
Company, August 1977 to July 1993. Age 47.
J. Michael Earley Trustee President, and Cheif Executive Officer, Bankers
665 Locust Street Trust Company, Des Moines, Iowa since July 1992;
Des Moines, IA 50309 President and Cheif Executive Officer, Mid-America
Savings Bank, Waterloo, Iowa from April, 1987 to
June, 1992. Age 51.
R. Barbara Gitenstein Trustee Provost, Drake University since July 1992; Assistant
Provost Office Provost, State University of New York from August,
202 Old Main 1991 to July, 1992; Associate Provost, State University
Drake Uniniversity of New York - Oswego from January, 1989 to August, 1991.
2507 University Avenue Age 49.
Des Moines, IA 50311-4505
Robert A. Grayson Trustee Co-founder, Grayson Associates, Inc.; Adjunct
Grayson Associates Professor of Marketing, New York University
108 Loma Media Road School of Business Administration; former
Santa Barbara, CA Director, The Golden Financial Group, Inc.;
93103 former Senior Vice President, David &
Charles Advertising. Age 69.
Myles R. Tashman Secretary Executive Vice President and Secretary, Golden
Golden American Life American Life Insurance Company; Executive
Insurance Co. Vice President, BT Variable, Inc.; Executive
1001 Jefferson Street Vice President and Secretary, Directed
Wilmington, DE 19801 Services, Inc; Secretary of GCG Trust;
formerly, Senior Vice President and General
Counsel, United Pacific Life Insurance Company
(1986-1993). Age 54.
<PAGE>
Paul R. Schlaack Trustee President, Chief Executive Officer and Director,
2000 Hub Tower Equitable Investment Services, Inc. since 1984.
699 Walnut Street Age 51.
Des Moines, IA 50309
Stanley B. Seidler Trustee President, Iowa Periodicals, Inc. since 1990 and
P.O. Box 1297 President, Excell Marketing L.C. since 1994. Age 68.
3301 McKinley Avenue
Des Moines, IA 50321
M. Norvel Young Trustee Chancellor Emeritus and Board of Regents,
Pepperdine University Pepperdine University; Director of Imperial
Malibu, CA 90263 Bancorp, Imperial Bank, Imperial Trust Co. and
20th Century Christian Publishing Company;
formerly: Chancellor, Pepperdine
University, 1971 to 1984; President, Pepperdine
University, 1957 to 1971; Director, National
Conference of Christians and Jews, 1978 to
1982. Age 81.
Mary Bea Wilkinson Treasurer Senior Vice President and Treasurer, Golden
Golden American Life American Life Insurance Company; Senior Vice
Insurance Co. President and Treasurer, BT Variable, Inc.;
1001 Jefferson Street President and Treasurer, Directed Services,
Wilmington, DE 19801 Inc.; Assistant Vice President, CIGNA
Insurance Companies, August 1993 to
October 1993; various positions with United
Pacific Life Insurance Company, January 1987
to July 1993, and was Vice President and
Controller upon leaving. Age 40.
Roger B. Vincent Trustee President, Springwell Corporation; Director,
230 Park Avenue Petralone, Inc.; formerly, Managing Director,
New York, NY 10169 Bankers Trust Company. Age 51.
</TABLE>
- --------------------------
*Mr. Kendall and Mr. Schlaack are an "interested persons" of the Trust
(as that term is defined in the Investment Company Act of 1940) because
of their affiliations with the Manager and/or its affiliated companies
as shown above.
As of March 31, 1997, none of the Trustees directly owns shares of the
Series. In addition, as of March 31, 1997, 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.
Through December 31, 1996, Trustees other than those affiliated with the
Manager or a Portfolio Manager ("Non-Affiliated Trustees") received 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. Effective January 1, 1996, Non-Affiliated Trustees
receive a flat fee of $6,000 for each Board of Trustees meeting attended.
Trustees have been and will continue to be 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, 1996, fees
totaling $75,000 were paid by the Trust with each Trustee receiving $25,000
each. During the fiscal year ended December 31, 1995, fees
totaling $54,000 were paid by the Trust or accrued to Messrs. Grayson ($18,000),
Young ($18,000), and Vincent ($18,000). During the fiscal year ended December
31, 1995, Messrs. Grayson, Young, and Vincent earned total fees of $20,500,
$20,500, and $20,500, respectfully, from the Trust and Separate Account D,
another fund for which the Manager previously served as investment adviser. 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 March 31, 1997. The
address for each record owner is c/o Golden American Life Insurance Company,
1001 Jefferson Avenue, Wilmington, DE 19801.
NAME SERIES PERCENTAGE
David & Anita Swann
Charitable Remainder Trust Market Manager 12.5%
Darald Libby
Charitable Remainder Unitrust Market Manager 7.8%
George Berman
Charitable Remainder Trust Market Manager 7.0%
Sanford Lugar Market Manager 5.6%
C.P. Steinmetz Strategic Equity 5.2%
<PAGE>
The Management Agreement
- ------------------------
Subject to the supervision of the Trust's Board of Trustees,
the Manager will provide a continuous investment program for the
Fund's portfolio and determine the composition of the assets of
the Fund's 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 Fund's assets by
determining the securities and other investments that shall be
purchased, entered into, sold, closed, or exchanged for the Fund,
when these transactions should be executed, and what portion of
the assets of the Fund should be held in the various securities
and other investments in which it may invest in accordance with
the Fund's investment objective or objectives, policies, and
restrictions.
Pursuant to the Management Agreement, the Manager is
authorized to exercise full investment discretion and make all
determinations with respect to the investment of the Fund's
assets and the purchase and sale of its portfolio securities.
The Management Agreement will continue in effect until
February 1996, and from year to year thereafter provided such
continuance is approved annually by (i) the holders of a majority
of the outstanding voting securities of the Fund or by the Board
of Trustees, and (ii) a majority of the Trustees who are not
parties to such Management Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Management
Agreement was approved by the Board of Trustees, including a
majority of the Trustees who are not parties to the Management
Agreement, or interested persons of such party, 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 Fund, or by the Manager, on 60 days' written
notice by either party to the Management Agreement and will
terminate automatically if assigned.
The Trust pays the Manager a monthly fee at an annual rate
of 0.10% of the average daily net assets of the Fund. Gross fees
paid to the Manager for the fiscal years ended December 31, 1996, 1995
and 1994 under the Management Agreement were $258, $830 and $2,601,
respectively.
<PAGE>
The Administrative Services Agreement
- -------------------------------------
Directed Services, Inc. ("Administrator") serves as
Administrator to the Fund pursuant to an Administrative Services
Agreement between the Administrator and the Trust. Its address
is 1001 Jefferson Street, Suite 400, Wilmington, DE 19801. DSI
also serves as Manager to the Fund.
Pursuant to the Administrative Services Agreement, the
Administrator, subject to the direction of the Board of Trustees,
is responsible for providing all supervisory and management
services reasonably necessary for the operation of the Trust and
the Fund other than the services performed by the Manager. These
services shall include, but are not limited to, (i) coordinating
all matters relating to the functions of the Fund's Manager,
Custodian, Dividend Disbursing Agent, and Recordkeeping Agent
(including pricing and valuation of the Fund's portfolio),
accountants, attorneys, and other parties performing services or
operational functions for the Trust, (ii) providing the Trust and
the Fund, at the Administrator'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 as well as other
applicable laws and to provide effective supervision and
administration of the Trust; (iii) maintaining or supervising the
maintenance by the Manager or third parties approved by the Trust
of such books and records of the Trust and the Fund as may be
required by applicable federal or state law; (iv) preparing or
supervising the preparation by third parties approved by the
Trust of all federal, state, and local tax returns and reports of
the Trust required by applicable law; (v) preparing and, after
approval by the Trust, filing and arranging for the distribution
of proxy materials and periodic reports to shareholders of the
Trust as required by applicable law; (vi) preparing and, after
approval by the Trust, 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; (vii) taking
such other action with respect to the Trust, after approval by
the Trust, as may be required by applicable law, including
without limitation the rules and regulations of the Securities
and Exchange Commission and other regulatory agencies; and (viii)
providing the Trust, at the Administrator's expense, with
adequate personnel, office space, communications facilities, and
other facilities necessary for its operations as contemplated in
the Administrative Services Agreement. Other responsibilities of
the Administrator are described in the Prospectus.
<PAGE>
The Administrator 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 Fund. The Trust pays the Administrator a
monthly fee at an annual rate of 0.20% of the Fund's average
daily assets. Gross fees paid the Administrator under the
Administrative Services Agreement for the fiscal years ended
December 31, 1996, 1995 and 1994 were $518, $1,660 and $5,201,
respectively.
The Trust bears all of its costs of operation other than
those specifically borne by the Administrator or the Manager.
The Fund's costs include any direct charges relating to the
purchase and sale of portfolio securities, interest charges, fees
and expenses of the Trust's attorneys and auditors, taxes and
governmental fees, cost of share certificates and other expenses
of issue, sale, repurchase or redemption of shares, expenses of
registering and qualifying shares for sale, expenses of printing
and distributing reports, notices and proxy materials to
shareholders, fees and expenses of data processing, recordkeeping
and financial accounting services rendered to the Trust, expenses
of printing and filing reports and other documents with
governmental agencies, expenses of typesetting, printing and
distributing Prospectuses to the existing shareholders, expenses
of annual and special shareholders' meetings, charges of
custodians, fees and expenses of Trustees of the Trust who are
not officers or employees to the Manager or its affiliates,
membership dues in the Investment Company Institute or other
industry associations, insurance premiums and extraordinary
expenses such as litigation expense and the expense of compliance
with any governmental tax withholding requirements.
Certain of the expenses incurred by the Fund in connection
with its organization, its registration with the Securities and
Exchange Commission and any states where registered, and the
public offering of its shares were advanced on behalf of the
Trust by the Manager. These organizational expenses are deferred
and amortized by the Fund over a period not exceeding 60 months
from the date of the Fund's commencement of operations.
Distribution of Trust Shares
- ----------------------------
Directed Services, Inc. (the "Distributor") serves as the
Trust's Distributor pursuant to a Distribution Agreement with the
Trust. The Distributor is not obligated to sell a specific
amount of Trust shares. The Distributor bears all expenses of
providing services pursuant to the Distribution Agreement
including the costs of sales presentations, mailings,
advertising, and any other marketing efforts by the Distributor
in connection with the distribution or sale of the shares.
<PAGE>
Purchases and Redemptions
- -------------------------
For information on purchase and redemption of shares, see
"Purchase of Shares" and "Redemption of Shares" in the Fund's
Prospectus. The Trust may suspend the right of redemption of
shares of the Fund 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 the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or
in part by a distribution in kind of securities from its
portfolio, 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
As part of its obligations under the Management Agreement,
the Manager places all orders for the purchase and sale of
portfolio investments for the Fund's account with brokers or
dealers selected by it in its discretion. With respect to orders
for the purchase and sale of no-load mutual funds, the Manager
places orders directly with the mutual fund or its agent. With
respect to purchases of certain money market instruments,
purchase orders are placed directly with the issuer or its agent.
Purchases of load fund shares may be effected by the Manager
itself, which is a registered broker-dealer, although other
brokers or dealers may be selected at the discretion of the
Manager.
When appropriate, the Fund may arrange to be included within
a class of investors entitled to a reduced sales charge on load
fund shares and may purchase load fund shares under letters of
intent, rights of accumulation and cumulative purchase
privileges, which permit it to obtain reduced sales charges for
larger purchases of shares. Therefore, in a majority of cases,
the sales charges paid by the Fund on a load fund purchase do not
exceed 1% of the public offering price.
<PAGE>
Under the 1940 Act, a mutual fund must sell its shares at
the price (including sales load, if any) described in its
prospectus, and current rules under the 1940 Act do not permit
negotiations of sales charges. Therefore, the Fund currently is
not able to negotiate the level of the sales charges at which it
purchases shares of load funds, which may be as great as 8.5% of
the public offering price (or 9.29% of the net amount invested).
Nevertheless, certain factors tend to keep the Fund's portfolio
transaction costs as low as possible, including: (1) the Fund,
to the extent feasible, purchases shares of no-load funds which
can be acquired without incurring a sales charge or utilizing a
broker to effect the transaction; (2) the Fund, to the extent
feasible, takes advantage of exchange or conversion privileges
offered by many "families" of mutual funds; and (3) insofar as
the Fund invests in U.S. Government and other money market
securities, the transaction costs should be minimal.
With respect to all non-mutual fund securities, in executing
transactions, the Manager attempts to obtain the best execution
for the Fund 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-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 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.
The Manager may in the future provide advisory services to
clients other than the Fund. A particular security may be bought
or sold by the Manager for certain clients even though it could
have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the security. In
some instances, one client may sell a particular security to
another client. Two or more clients of the Manager also may
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 Manager. Although there is no specified
formula for allocating such transactions, the various allocation
methods used by the Manager, and the results of such allocations,
are subject to periodic review by the Trust's 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.
<PAGE>
NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectus, the
Fund's 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.
ADVERTISING
The Trust may, from time to time, include the total return
of the Fund in advertisements or sales literature. Performance
information for the Fund will not be advertised or included in
sales literature unless accompanied by comparable performance
information for a separate account to which the Fund offers its
shares.
Quotations of average annual total return for the Fund will
be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over certain
periods that will include periods of one, five, and ten years
(or, if less, up to the life of the Fund), 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 Fund expenses on an annual
basis, and assume that all dividends and distributions are
reinvested when paid. For the fiscal year ended December 31,
1996 and the period from the commencement of operations of the
Fund on March 1, 1993 to December 31, 1996, the total return of
the Fund was 10.57% and 9.03%, respectively.
Performance information for the Fund may be compared, in
advertisements, sales literature, and reports to shareholders to:
(i) the Standard & Poor's 500 Stock Index, the Dow Jones
Industrial Average, 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 indexes 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,
<PAGE>
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 Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
Quotations of total return for the Fund will not take into
account charges and deductions against any separate accounts to
which the Fund shares are sold or charges and deductions against
the life insurance policies or annuity contracts issued by Golden
American Life Insurance Company, although comparable performance
information for the separate account will take such charges into
account. Performance information for the Fund reflects only the
performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based.
Performance information should be considered in light of the
Fund's investment objective 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.
Advertisements may include discussion of the underlying
mutual funds held by the Fund.
TAXATION
The following discussion summarizes certain U.S. federal tax
considerations incident to an investment in the Fund.
The Fund 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, the Fund
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; (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, or forward contracts (other than those on foreign
currencies), or (c) foreign currencies (including options,
futures, or forward contracts on such currencies) not directly
related to the Fund's 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 Fund's assets is represented by cash, U.S.
<PAGE>
Government securities, the securities of other regulated
investment companies, and other securities, with such other
securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the
Fund's total assets and 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); and (iv) distribute at least 90%
of its net investment 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.
As a regulated investment company, the Fund generally will
not be subject to U.S. federal income tax on its net investment
income and net capital gains (net long-term capital gains in
excess of the net short-term capital losses) that it distributes
to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its net
investment income and any net capital gains.
In general, amounts not distributed by a regulated
investment company on a timely basis in accordance with a
calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, a regulated
investment company must distribute during each calendar year, (i)
at least 98% of its ordinary income (not taking into account any
capital gains or losses) of the calendar year, (ii) at least 98%
of its capital gains in excess of its capital losses for the
twelve month period ending on October 31 of the calendar year
(adjusted for certain ordinary losses), and (iii) all ordinary
income and capital gains for previous years that were not
distributed during such years. The Fund will not be subject to
the excise tax on undistributed amounts for any calendar year if
at all times during the calendar year the shareholders of the
Fund consist only of segregated asset accounts of life insurance
companies established in connection with variable contracts, as
defined in the Code. (For this purpose, any shares of the Fund
attributable to an investment in the Fund not exceeding $250,000
made in connection with the organization of the Fund shall not be
taken into account.) In the event the Fund fails to meet this
exception, the Fund intends to make its distributions in
accordance with the calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a
calendar year if it is declared by the Fund in October, November,
or December of that year with a record date in such a month and
paid by the Fund during January of the following calendar year.
Such distributions will be taxable to shareholders (the insurance
company separate accounts) for the calendar year in which the
distributions are declared, rather than the calendar year in
which the distributions are received.
<PAGE>
If the Fund invests in shares of an investment company
organized abroad, the Fund may be subject to U.S. federal income
tax on a portion of an "excess distribution" from, or on the gain
from the sale of part or all of the shares in, such company. In
addition, an interest charge may be imposed with respect to
deferred taxes arising from such distributions or gains.
To comply with regulations under Section 817(h) of the Code,
the Fund generally will be required to diversify its investments
following the first anniversary of the beginning of its
operations. Generally, pursuant to Section 817(h), the Fund 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.
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. The
insurance company to which the Fund offers its shares (the
"Company") has advised the Trust that it believes that, for
federal income tax purposes, the Fund will be the owner of the
shares of the mutual funds and any income therefrom, and the
separate accounts of the Company will be the owners of the Shares
of the Fund and any income therefrom. 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 a mutual 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 representing a specific economic risk or to direct
(without restriction) the issuer of a variable contract at any
time to invest in the Fund or other investments may also be
proscribed. The belief of the Company with respect to the
ownership by the Fund of the mutual fund shares and the income
therefrom, and by the separate accounts of the Shares of the Fund
and the income therefrom, is based upon published Internal
Revenue Service rulings and the Company's understanding of the
current Internal Revenue Service policy.
<PAGE>
In connection with the issuance of the temporary
diversification regulations in 1986, the Treasury announced that
such regulations did not provide guidance concerning the extent
to which owners may direct their investments to particular
divisions of a separate account without being considered the
owners of the assets of the account. It is possible that
regulations or revenue rulings may be issued in this area at some
time in the future. These future rules and regulations
proscribing investment control may adversely affect the ability
of the Fund to operate as described in the Prospectus. There is,
however, no certainty as to what standards, if any, Treasury will
ultimately adopt. In the event that unfavorable rules or
regulations are adopted, there can be no assurance that the Fund
will be able to operate as currently described in the Prospectus,
or that the Fund will not have to change its investment objective
or objectives, investment policies, or investment restrictions.
While the Fund's investment objective is fundamental and may be
changed only by a vote of a majority of its outstanding shares,
the Trustees have the right to modify the investment policies of
the Fund as necessary to prevent any such prospective rules and
regulations from causing the Variable Contract owners to be
considered the owners of the assets underlying the Separate
Accounts.
Distributions
- -------------
Distributions of net investment income by the Fund are
taxable to shareholders (the insurance company separate accounts)
as ordinary income. Net capital gains will be treated, to the
extent distributed and designated as capital gains dividends, as
long-term capital gains in the hands of the shareholders.
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 the Fund.
<PAGE>
OTHER INFORMATION
Capitalization
- --------------
The Trust is a Massachusetts business trust established
under an Agreement and Declaration of Trust dated August 3, 1988.
The capitalization of the Trust consists of an unlimited number
of shares of beneficial interest with a par value of $0.001 each.
The Trust currently consists of fourteen operational Series, one
of which is discussed in this Statement of Additional
Information. 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. 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 portfolio.
Expenses incurred by the Fund in connection with its
organization and the public offering of its shares aggregated
approximately $51,850.03. These costs have been deferred and are
being amortized over a period not exceeding five years from the
Fund's commencement of operations.
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, and prior to July 17, 1989, the
name of the Trust was Western Capital Specialty Managers Trust.
Voting Rights
- -------------
Shareholders of the Trust 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.
<PAGE>
Massachusetts business 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 of electing or removing Trustees, changing fundamental
policies, or approving a contract for investment advisory
services. It is not anticipated that the Trust will hold
meetings of the shareholders of the Fund unless required by law
or the Agreement and Declaration of Trust. In this regard, 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
- ---------
The Custodian for the Trust is Bankers Trust Company, 280
Park Avenue, New York, NY 10017. DSI provides portfolio
accounting services for the Trust pursuant to a Portfolio
Accounting Agreement.
Independent Auditors
- --------------------
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-5072,
serves as independent auditors for the Trust.
Counsel
- -------
Dechert Price & Rhoads, 1500 K Street, N.W., Washington,
D.C. 20005, has passed upon certain securities matters in
connection with the shares offered by the Trust and acts as
outside counsel to the Trust.
<PAGE>
Registration Statement
- ----------------------
This Statement of Additional Information and the Prospectus
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 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 Prospectus 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 Fund dated as of
December 31, 1996, including notes thereto, are incorporated by
reference in this Statement of Additional Information from the
Fund's Annual Report dated as of December 31, 1996.
<PAGE>
APPENDIX A: 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 the Standard & Poor's Rating Group ("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 - predominantly 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.
<PAGE>
APPENDIX B: SECURITIES AND INVESTMENT TECHNIQUES
OF UNDERLYING MUTUAL FUNDS
FOREIGN CURRENCY TRANSACTIONS. An underlying fund may enter
into forward contracts in connection with its portfolio
transactions in securities traded in a foreign currency. Under
such an arrangement, concurrently with the entry into a contract
to acquire a foreign security for a specified amount of currency,
the fund would purchase with U.S. dollars the required amount of
foreign currency for delivery at the settlement date of the
purchase; the fund would enter into similar forward currency
transactions in connection with the sale of foreign securities.
The effect of such transactions would be to fix a U.S. dollar
price for the security to protect against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period
between the date the security is purchased or sold and the date
on which payment is made or received, the normal range of which
is three to fourteen days. These contracts are traded in the
interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement and no commissions
are charged at any stage for trades.
Under the Internal Revenue Code (the "Code"), gains or
losses attributable to fluctuations in exchange rates which occur
between the time an underlying fund accrues interest or other
receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time it 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 an underlying fund's investment company
taxable income to be distributed to the Fund as ordinary income.
This, in turn, will affect the amount of investment company
taxable income of the Fund. See "Dividends, Distributions, and
Taxes" in the Fund's Prospectus.
MASTER DEMAND NOTES. Although the Fund itself will not do
so, underlying funds (particularly money market mutual funds) may
invest up to 100% of their assets in master demand notes. Master
demand notes are unsecured obligations of U.S. corporations
redeemable upon notice that permit investment by a fund of
fluctuating amounts at varying rates of interest pursuant to
direct arrangements between the fund and the issuing corporation.
Because they are direct arrangements between the fund and the
issuing corporation, there is no secondary market for the notes.
However, they are redeemable at face value, plus accrued
interest, at any time.
<PAGE>
SHORT SALES. An underlying fund may sell securities short.
In a short sale, the fund sells stock which it does not own,
making delivery with securities "borrowed" from a broker. The
fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement.
This price may or may not be less than the price at which the
security was sold by the fund. Until the security is replaced,
the fund is required to pay to the lender any dividends or
interest which accrue during the period of the loan. In order to
borrow the security, the fund also may have to pay a premium
which would increase the cost of the security sold. The proceeds
of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position
is closed out.
The underlying fund also must deposit in a segregated
account an amount of cash or U.S. Government securities equal to
the difference between (a) the market value of the securities
sold short at the time they were sold short and (b) the value of
the collateral deposited with the broker in connection with the
short sale (not including the proceeds from the short sale).
While the short position is open, the fund must maintain daily
the segregated account at such a level that (1) the amount
deposited in it plus the amount deposited with the broker as
collateral equals the current market value of the securities sold
short and (2) the amount deposited in it plus the amount
deposited with the broker as collateral is not less than the
market value of the securities at the time they were sold short.
Depending upon market conditions, up to 80% of the value of a
fund's net assets may be deposited as collateral for the
obligation to replace securities borrowed to effect short sales
and allocated to a segregated account in connection with short
sales.
A short sale is "against the box" if at all times when the
short position is open the fund owns at least an equal amount of
the securities or securities convertible into, or exchangeable
without further consideration for, securities of the same issue
as the securities sold short. Such a transaction serves to defer
a gain or loss for federal income tax purposes.
OPTIONS ACTIVITIES. An underlying fund may write (i.e.,
sell) listed call options ("calls") if the calls are "covered"
throughout the life of the option. A call is "covered" if the
fund owns the optioned securities. When a fund writes a call, it
receives a premium and gives the purchaser the right to buy the
underlying security at any time during the call period (usually
not more than nine months in the case of common stock) at a fixed
exercise price regardless of market price changes during the call
period. If the call is exercised, the fund will forgo any gain
from an increase in the market price of the underlying security
over the exercise price.
<PAGE>
An underlying fund may purchase a call on securities only to
effect a "closing purchase transaction," which is the purchase of
a call covering the same underlying security and having the same
exercise price and expiration date as a call previously written
by the fund on which it wishes to terminate its obligation. If
the fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call
previously written by the fund expires (or until the call is
exercised and the fund delivers the underlying security).
An underlying fund also may write and purchase put options
("puts"). When a fund writes a put, it receives a premium and
gives the purchaser of the put the right to sell the underlying
security to the fund at the exercise price at any time during the
option period. When an underlying fund writes a put, it must
"cover" the put by either maintaining cash or fixed income
securities with a value equal to the exercise price in a
segregated account with its custodian or by holding a put on the
same security and in the same principal amount as the put written
when the exercise price of the put held is equal to or greater
than the exercise price of the put written. When a fund
purchases a put, it pays a premium in return for the right to
sell the underlying security at the exercise price at any time
during the option period. An underlying fund also may purchase
stock index puts, which differ from puts on individual securities
in that they are settled in cash based on the values of the
securities in the underlying index rather than by delivery of the
underlying securities. Purchase of a stock index put is designed
to protect against a decline in the value of the portfolio
generally rather than an individual security in the portfolio.
If any put is not exercised or sold, it will become worthless on
its expiration date.
An underlying fund's option positions may be closed out only
on an exchange which provides a secondary market for options of
the same series, but there can be no assurance that a liquid
secondary market will exist at a given time for any particular
option. In this regard, trading in options on certain securities
(such as U.S. Government securities) is relatively new so that it
is impossible to predict to what extent liquid markets will
develop or continue.
The underlying fund's custodian, or a securities depository
acting for it, generally acts as escrow agent as to the
securities on which the fund has written puts or calls, or as to
other securities acceptable for such escrow so that no margin
deposit is required of the fund. Until the underlying securities
are released from escrow, they cannot be sold by the fund.
<PAGE>
In the event of a shortage of the underlying securities
deliverable on exercise of an option, the Options Clearing
Corporation has the authority to permit other, generally
comparable securities, to be delivered in fulfillment of option
exercise obligations. If the Options Clearing Corporation
exercises its discretionary authority to allow such other
securities to be delivered, it may also adjust the exercise
prices of the affected options by setting different prices at
which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options
Clearing Corporation may impose special exercise settlement
procedures.
FUTURES CONTRACTS. An underlying fund may enter into
futures contracts for the purchase or sale of debt securities and
stock indexes. A futures contract is an agreement between two
parties to buy and sell a security or an index for a set price on
a future date. Futures contracts are traded on designated
"contract markets" which, through their clearing corporations,
guarantee performance of the contracts.
Generally, if market interest rates increase, the value of
outstanding debt securities declines (and vice versa). Entering
into a futures contract for the sale of securities has an effect
similar to the actual sale of securities, although sale of the
futures contract might be accomplished more easily and quickly.
For example, if an underlying fund holds long-term U.S.
Government securities and it anticipates a rise in long-term
interest rates, it could, in lieu of disposing of its portfolio
securities, enter into futures contracts for the sale of similar
long-term securities. If rates increased and the value of the
fund's portfolio securities declined, the value of the fund's
futures contracts would increase, thereby protecting the fund by
preventing the net asset value from declining as much as it
otherwise would have. Similarly, entering into futures contracts
for the purchase of securities has an effect similar to the
actual purchase of the underlying securities, but permits the
continued holding of securities other than the underlying
securities. For example, if the fund expects long-term interest
rates to decline, it might enter into futures contracts for the
purchase of long-term securities so that it could gain rapid
market exposure that may offset anticipated increases in the cost
of securities it intends to purchase while continuing to hold
higher-yield short-term securities or waiting for the long-term
market to stabilize.
<PAGE>
A stock index futures contract may be used to hedge an
underlying fund's portfolio with regard to market risk as
distinguished from risk relating to a specific security. A stock
index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting
from changes in the market value of the contract to be credited
or debited at the close of each trading day to the respective
accounts of the parties to the contract. On the contract's
expiration date, a final cash settlement occurs. Changes in the
market value of a particular stock index futures contract reflect
changes in the specified index of equity securities on which the
future is based.
There are several risks in connection with the use of
futures contracts. In the event of an imperfect correlation
between the futures contract and the portfolio position which is
intended to be protected, the desired protection may not be
obtained and the fund may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements
may result in a poorer overall performance for the fund than if
it had not entered into futures contracts on debt securities or
stock indexes. Also, the successful use of futures depends upon
the underlying fund investment advisor's ability to predict
correctly movements in the direction of the market.
In addition, the market prices of futures contracts may be
affected by certain factors. First, all participants in the
futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the securities and futures markets. Second,
from the point of view of speculators, the deposit requirements
in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price
distortions, although speculators generally serve an important
function by bringing liquidity to the futures markets. When
purchasing a futures contract, a fund must deposit in a
segregated account cash or high quality debt instruments equal in
value to the current value of the underlying instruments less the
margin deposit.
Finally, positions in futures contracts may be closed out
only on an exchange or board of trade which provides a secondary
market for such futures. There is no assurance that a liquid
secondary market on an exchange or board of trade will exist for
any particular contract or at any particular time.
<PAGE>
OPTIONS ON FUTURES CONTRACTS. An underlying fund also may
purchase and sell listed put and call options on futures
contracts. An option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a position
in a futures contract (a long position if the option is a call
and a short position if the option is a put), at a specified
exercise price at any time during the option period. When an
option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the
difference between the current market price of the futures
contract and the exercise price of the option. The fund may
purchase put options on futures contracts in lieu of, and for the
same purpose as, a sale of a futures contract. It also may
purchase such put options in order to hedge a long position in
the underlying futures contract in the same manner as it
purchases "protective puts" on securities.
<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, Hard
Assets Series, Real Estate Series, All-Growth Series,
Capital Appreciation Series, Rising Dividends Series, Emerging
Markets Series, Value Equity Series, Strategic Equity Series,
Small Cap Series, Managed Global Series, and Liquid
Asset Series):
Financial Highlights
(Not applicable for the Mid-Cap Growth Series, which
had not commenced operations as of December 31, 1996)
Part A for Market Manager Series:
Financial Highlights
Part B for The GCG Trust (Multiple Allocation Series, Fully
Managed Series, Limited Maturity Bond Series, Hard
Assets Series, Real Estate Series, All-Growth Series,
Capital Appreciation Series, Rising Dividends Series, Emerging
Markets Series, Value Equity Series, Strategic Equity Series,
Small Cap Series, Managed Global Series, Liquid Asset Series,
and Market Manager Series): The audited financial statements
(for all series except the Mid-Cap Growth Series) dated as
of December 31, 1996 are incorporated
by reference from the Trust's Annual Report dated as of
December 31, 1996.(2)
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Portfolio of Investments
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
(2) Part A for The Fund For Life Series of The GCG Trust:
Financial Highlights
Part B for The Fund For Life Series of The GCG Trust: The
audited financial statements dated as of December 31, 1996 are
incorporated by reference from The Fund For Life's Annual
Report dated as of December 31, 1996.
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Portfolio of Investments
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
(b) Exhibits (the number of each exhibit relates to the exhibit
designation in Form N-1A):
(1) (a) Amended and Restated Agreement and Declaration of
Trust (1)
(b) Amendment to the Restated Agreement and Declaration of
Trust (adding the Managed Global Series) (3)
(2) By-laws (4)
(3) Not Applicable
(4) Not Applicable
(5) (a) (i) Form of Management Agreement (on behalf of all Series
except The Fund For Life and the Mid-Cap Growth Series(3)
(ii) Form of Management Agreement (for The Fund For Life)(6)
(iii) Amendment to Management Agreement (for the Mid-Cap Growth
Series)
(b) Portfolio Management Agreements
(i) Form of Portfolio Management Agreement with Van Eck
Associates Corporation (3)
(ii) Form of Portfolio Management Agreement with T. Rowe
Price Associates, Inc. (3)
(iii) Form of Portfolio Management Agreement with Zweig
Advisors Inc. (3)
(iv) Form of Portfolio Management Agreement with Chancellor
Trust Company (3)
(v) Portfolio Management Agreement with Putnam
Investment Management, Inc.
(vi) Form of Portfolio Management Agreement with Kayne,
Anderson Investment Management, L.P. (3)
(vii) Portfolio Management Agreement with Pilgrim
Baxter & Associates, Ltd.
(viii) Form of Portfolio Management Agreement with Eagle
Asset Management, Inc. (3)
(ix) Form of Portfolio Management Agreement with E.I.I.
Realty Securities, Inc. (3)
(x) Form of Portfolio Management Agreement with Fred Alger
Management, Inc. (3)
(xi) Form of Portfolio Management Agreement with Equitable
Investment Services, Inc.
- 2-
<PAGE>
(c) Form of Administrative Services Agreement for The Fund For
Life (6)
(d) Administration and Fund Accounting Agreement among the Trust,
Directed Services, Inc., and The Shareholder Services Group,
Inc. (7)
(6) Distribution Agreement (3)
(7) Not Applicable
(8) (a) (i) Custodian Agreement (8)
(ii) Form of Addendum to Custodian Agreement (9)
(iii) Form of Addendum to Custodian Agreement (adding the
Market Manager Series and Value Equity Series) (10)
(iv) Form of Addendum to the Custodian Agreement (adding the
Strategic Equity Series) (11)
(v) Form of Addendum to the Custodian Agreement (adding the
Small Cap Series) (12)
(vi) Form of Addendum to the Custodian Agreement (adding
Managed Global Series) (3)
(vii) Form of Addendum to the Custodian Agreement (adding
Mid-Cap Growth Series)
(9) (a) (i) Transfer Agency and Service Agreement (13)
(ii) Form of Addendum to the Transfer Agency and Service
Agreement for The Fund For Life, Zero Target 2002
Series, and Capital Appreciation Series (6)
(b) (i) Form of Organizational Agreement for Golden American Life
Insurance Company (13)
(ii) Assignment Agreement for Organizational Agreement (14)
(iii) Form of Organizational Agreement for The Mutual Benefit Life
Insurance Company (14)
(iv) Assignment Agreement for Organizational Agreement (14)
(v) Form of Addendum to Organizational Agreement (adding Market
Manager Series and Value Equity Series) (10)
(vi) Form of Addendum to the Organizational Agreement (adding the
Strategic Equity Series) (11)
(vii)Form of Addendum to the Organizational Agreement (adding the
Small Cap Series) (12)
(viii) Form of Addendum to the Organizational Agreement (adding
Managed Global Series) (3)
(ix) Form of Addendum to the Organizational Agreement (adding
Mid-Cap Growth Series)
(c) (i) Form of Settlement Agreement for Golden American Life
Insurance Company (13)
(ii) Assignment Agreement for Settlement Agreement (14)
(iii) Form of Settlement Agreement for The Mutual Benefit Life
Insurance Company (14)
(iv) Form of Assignment Agreement for Settlement Agreement (14)
- 3-
<PAGE>
(d) Indemnification Agreement (14)
(e) (i) Form of Expense Reimbursement Agreement (14)
(ii) Amendment No. 1 to the Expense Reimbursement Agreement (8)
(iii) Amendment No. 2 to the Expense Reimbursement Agreement (8)
(iv) Amendment No. 3 to the Expense Reimbursement Agreement (8)
(v) Amendment No. 4 to the Expense Reimbursement Agreement (8)
(10) Opinion and Consent of Counsel (13)
(11) Consent of Ernst & Young LLP, independent auditors
(12) Not Applicable
(13) (a) Initial Capital Agreement (13)
(b) Form of Initial Capital Agreement for The Fund For Life (8)
(14) Not Applicable
(15) Not Applicable
(16) Schedule showing computation of performance quotations provided in
response to Item 22 (unaudited) (15)
(17) Financial Data Schedules
(18) Secretary's Certificate pursuant to Rule 483(b) (10)
(19) Powers of Attorney
- -----------------------
(1) Incorporated by reference to Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A of The GCG Trust as filed on May
2, 1996, File No. 33-23512.
(2)
(3) Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement on Form N-1A of The GCG Trust as filed on June
14, 1996, File No. 33-23512.
(4) 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.
(5)
(6) 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.
(7) 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.
- 4-
<PAGE>
(8) 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.
(9) 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.
(10) 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.
(11) Incorporated by reference to Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A of The GCG Trust as filed on
September 26, 1995, File No. 33- 23512.
(12) Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A of The GCG Trust as filed on
December 22, 1995, File No. 33-23512.
(13) 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.
(14) 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.
(15) 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.
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.
- 6 -
<PAGE>
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.
Item 28. Business and Other Connections of Investment Adviser.
Directed Services, Inc.
The Manager of all Series of the Trust is Directed Services, Inc.
("DSI") The directors and officers of the Manager have, during the past two
fiscal years, had substantial affiliations with BT Variable, Inc. ("BT
Variable"), and Golden American Life Insurance Company
("Golden American") and Equitable of Iowa Companies ("EIC") and its affiliates.
Unless otherwise stated all officers of DSI have a principal business address
of 1001 Jefferson Street, Suite 400, Wilmington, Delaware 19801. Except for
Mr, Kendall all directors of DSI are employees of either EIC or one of its
affiliates and serve as directors of each of EIC's subsidiaries. In addition
to DSI, BT Variable and Golden American, EIC's subsidiaries are Equitable
Life Insurance Company of Iowa ("Equitable Life"), Equitable American Insurance
Company ("Equitable American") USG Annuity & Life Company ("USG"), Locust
Street Securities, Inc.,and Equitable Investment Services, Inc. ("EISI").
EIC's principal business address 604 Locust Street, Des Moines, Iowa 50306.
<TABLE>
<S> <C> <C>
Name Position With Adviser Other Affiliations
Fred S. Hubbell Director Chairman, President and Chief Executive Officer of
EIC, Equitable American, Equitable Life and USG;
and Chairman of EISI
Lawrence V. Durland, Jr. Director Senior Vice President of EIC, Equitable American,
Equitable Life
Paul E. Larson Director Executive Vice President, Treasurer and Chief
Financial Officer of EIC, Equitable American and
USG; and, Executive Vice President and Chief
Financial Officer of Equitable Life
Thomas L. May Director Senior Vice President of Marketing for Equitable
Life and USG
John A. Merriman Director Secretary and General Counsel of EIC, Equitable
American, Equitable Life and USG
Beth B. Neppl Director Vice President of Human Resources of EIC
Paul R. Schlaack Director President and Chief Executive Officer of EISI
</TABLE>
- 6-
<PAGE>
<TABLE>
<S> <C> <C>
Terry L. Kendall Chief Executive Officer and Director, and Chief Executive Officer,
Director Golden American Life Insurance Company;
President, Director, and Chief Executive
Officer, BT Variable, Inc., 1993 to present;
Executive Vice President, Equitable of Iowa
Companies since August, 1996; President and
Chief Executive Officer, United Pacific Life
Insurance Company, 1983 to 1993.
Edward Wilson President Executive Vice President, Golden American Life Insurance Company;
and Executive Vice President, First Golden American Life Insurance
Company of New York.
Barnett Chernow Executive Vice President Executive Vice President, Golden American Life Insurance Company;
Executive Vice President, EIC
Variable, Inc.; Senior Vice
President and Chief Financial
Officer, Reliance Insurance
Company, August 1977- July 1993.
Myles R. Tashman Executive Vice President, Executive Vice President, General Counsel, and
Secretary and General Secretary,and Golden American Life Insurance
Counsel Company, Inc.; formerly
Senior Vice President and General
Counsel, United Pacific Life
Insurance Company.
</TABLE>
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.
- 7-
<PAGE>
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.
Pilgrim Baxter Associates, Ltd.
For information regarding Pilgrim Baxter Associates, Ltd.., reference is made
to Form ADV of Pilgrim Baxter Associates, Ltd., SEC File No. 801-48872, 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.
Fred Alger Management, Inc.
For information regarding Fred Alger Management, Inc., reference is made to Form
ADV of Fred Alger Management, Inc., SEC File No. 801-6709, which is incorporated
by reference.
Chancellor Trust Company
For information regarding Chancellor Trust Company, Inc. ("CTC"), reference is
made to Form ADV of Chancellor Capital Management, Inc. ("CCM"), the direct
parent of CTC, SEC File No. 801-9087, which is incorporated by reference.
Officers and directors of CCM have the same titles and responsibilities in CTC.
- 8-
<PAGE>
Putnam Investment Managment, Inc.
For information regarding Putnam Investment Managment, Inc., reference is made
to Form ADV of Putnam Investment Managment, Inc., SEC File No. 801-7974, which
is incorporated by reference.
Equitable Investment Services, Inc.
For information regarding Equitable Investment Services, Inc., reference is made
to Form ADV of Equitable Investment Services, Inc., SEC File No.801-46909, which
is incorporated by reference.
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) The following officers of Directed Services, Inc. hold positions with
the registrant: Terry Kendall (President and Chairman), Barnett
Chernow (Vice President), and Myles R. Tashman (Secretary).
(c) Not Applicable
Item 30. Location of Accounts and Records.
The Trust maintains 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 1001 Jefferson Street, Suite 400, Wilmington, Delaware 19801.
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.
- 9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 32
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
Wilmington, and the State of Delaware, on May 1, 1997.
THE GCG TRUST
(Registrant)
/s/ Terry L. Kendall
--------------------------
Terry L. Kendall*
President
*By: /s/ Marilyn Talman
---------------------
Marilyn Talman
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 32 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 indicated on May 1, 1997.
Signature Title
/s/Terry L. Kendall
---------------------
Terry L. Kendall* Chairman of the Board
and President
/s/Robert A. Grayson
--------------------- Trustee
Robert A. Grayson*
/s/ M. Norvel Young*
--------------------- Trustee
M. Norvel Young*
/s/ Roger B. Vincent
--------------------- Trustee
Roger B. Vincent*
/s/Mary Bea Wilkinson
--------------------- Treasurer
Mary Bea Wilkinson*
*By: /s/ Marilyn Talman
------------------
Marilyn Talman
as Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Number Exhibit Name Exhibit
5(a)(iii) Amendment to Management Agreement (for the Mid-Cap EX99.B5aiii
Growth Series)
5(b)(vii) Portfolio Management Agreement with Pilgrim EX99.B5bvii
Baxter & Associates, Ltd.
5(b)(v) Portfolio Management Agreement with Putnam EX99.B5bv
Investment Management, Inc.
8(a)(vii) Form of Addendum to the Custodian Agreement EX99.B8avii
(adding Mid-Cap Growth Series)
11 Consent of Ernst & Young LLP EX99.B11
17 Financial Data Schedules EX27.01
EX27.02
EX27.03
EX27.04
EX27.05
EX27.06
EX27.07
EX27.08
EX27.09
EX27.10
EX27.11
EX27.12
EX27.13
EX27.14
EX27.15
EX27.16
19 Powers of Attorney EX99.B19
AMENDMENT TO MANAGMENT AGREEMENT
This Addendum to the Management Agreement made the 13th day of August, 1996
between The GCG Trust ("Trust") on behalf of the Mid-Cap Growth Series, 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 that Section 8 of the
Agreement for puposes of the Mid-Cap Growth Series:
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 Addendum 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, as well as the advisory fee to be paid
to the Portfolio Manager. The Trust shall be responsible for all of the expen-
ses of its operations these expenses include the following expenses, but are 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 obtaining quotations for calculating the value of each Series'
net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses of Inter-
national 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 share-
holders, 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;
<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;
(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;
(m) Salaries and other compensation of any of the Trust's executive officers
and employees, if any, who are not officers, directors, stockholders, or em-
ployees of the Manager or an affiliate of the Manager;
(n) Taxes levied against the Trust;
(o) Brokerage fees and commissions in connection with the purchase and sale of
portfolio securities for the Trust;
(p) Costs, including the interest expense, of borrowing money;
(q) 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
(r) Extraordinary expenses as may arise, including extraordinary consulting
expenses and extraordinary legal expenses incurred in connection with liti-
gation, proceedings, other claims (unless the Manager is responsible for such
expenses under Section 10 of this Agreement or a Portfolio Manager is respon-
sible 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.
THE GCG TRUST
Attest:____________________ By:____________________
Title:____________________ Title:____________________
DIRECTED SERVICES, INC.
Attest:____________________ By:____________________
Title:____________________ Title:____________________
THE GCG TRUST
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this ___ day of _________, 1997 among The GCG Trust (the
"Trust"), a Massachusetts business trust, Directed Services, Inc. ("Manager"),
a New York corporation, and Pilgrim Baxter & Associates, Ltd. ("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 multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future;
WHEREAS, pursuant to a Management Agreement, effective as of August 13,
1996, a copy of which has been provided to the Portfolio Manager, the Trust
has retained the Manager to render advisory, management, and administrative
services to many of the Trust's series;
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 Pilgrim
Baxter & Associates, Ltd. to act as Portfolio Manager to the Series designated
on Schedule A of this Agreement (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.
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 conduct a
1
<PAGE>
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) 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 that it will comply 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 that
it will comply 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, modifications to, or interpretations of Section 817(h) of the
Internal Revenue Code and regulations issued thereunder.
(b) The Portfolio Manager will comply with all applicable
provisions of 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, but shall not be obligated to, aggregate the securities
to be so sold or purchased with those of its other clients. 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,
subject to review by but not the approval of the Manager and the Board of
Trustees. In the event the Trust adopts any policy with respect to
aggregation, upon notice, the Portfolio Manager will comply such that any
aggregation will not be inconsistent with the policies set forth in the
Registration Statement.
2
<PAGE>
(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 portfolio accounting agent for the Series 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 portfolio accounting 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 Portfolio Manager will arrange for the automatic
transmission of the confirmation of such trades to the Trust's custodian and
portfolio accounting agent.
(e) The Portfolio Manager will monitor on a monthly basis the
determination by the portfolio accounting agent for the Trust of the valuation
of portfolio securities and other investments of the Series. The Portfolio
Manager will provide reasonable assistance to the custodian and portfolio
accounting 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 portfolio accounting 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 or portfolio accounting 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
"Advisers 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) 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
3
<PAGE>
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
(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/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,
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,
4
<PAGE>
or to such brokers and dealers who also provide research or statistical
material, or other services to the Series, the Portfolio Manager, or an
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 post-effective amendment to the Registration Statement for the
Trust filed with the Securities and Exchange Commission that contains
disclosure about the Portfolio Manager, and represents and warrants that, with
respect to the disclosure about the Portfolio Manager or information relating
directly 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 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 duties under this
Agreement. The Manager or the Trust shall be responsible for all the expenses
of the Trust's operations including, but not limited to:
(a) Expenses of all audits by the Trust's independent public
accountants;
(b) Expenses of the Series' transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Series' custodial services including
recordkeeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
the Series' net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses
of International Management Reports (as appropriate) for the Series;
(f) Expenses of maintaining the Trust's tax records;
(g) 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;
(h) Taxes levied against the Trust;
(i) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Series;
(j) Costs, including the interest expense, of borrowing money;
5
<PAGE>
(k) 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;
(l) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(m) Costs of printing stock certificates representing shares of the
Trust;
(n) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate thereof;
(o) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(p) Association membership dues;
(q) 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
14 of this Agreement), and the legal obligations of the Trust to indemnify its
Trustees, officers, employees, shareholders, distributors, and agents with
respect thereto; and
(r) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the Manager will pay
the Portfolio Manager a fee, payable monthly, as described on Schedule B.
7. SEED MONEY. The Manager agrees that the Portfolio Manager shall
not be responsible for providing money for the initial capitalization of the
Series.
8. COMPLIANCE.
(a) The Portfolio Manager agrees that it shall immediately notify
the Manager and the Trust (1) in the event that the SEC 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 reasonably be expected
to 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, and must be disclosed
pursuant to the requirements of Form N-1A or of any statement contained
therein that becomes untrue in any material respect.
6
<PAGE>
(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the SEC 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. 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 it maintains for the Series and to preserve the records required
by Rule 204-2 under the Advisers Act for the period specified in the Rule.
10. 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.
11. 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 advance by the Portfolio Manager, except with the prior 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 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 approved of the contents of such sales literature or other
promotional material.
12. 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.
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13. 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.
14. 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.
15. 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, the Internal Revenue Code,
under any other statute, at common law or otherwise, provided, however,
Portfolio Manager Indemnified Persons shall not be indemnified against losses,
damages, liabilities or litigation (including legal and other expenses)
arising out of (1) Portfolio Manager's, including without limitation any of
its employees or representatives or any affiliate of or any person acting on
behalf of the Portfolio Manager, 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, or (2) which are based upon any untrue statement or alleged
untrue statement of a material fact supplied by, or which is the
responsibility of, the Portfolio Manager and contained in the Registration
Statement or prospectus covering shares of the Trust or a 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 Portfolio 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 Portfolio
Manager or the Trust or to any affiliated person of the Portfolio Manager by
the Manager.
(b) Notwithstanding Section 14 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
8
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subject under the 1933 Act, 1940 Act, the Advisers Act, the Internal Revenue
Code, under any other statute, at common law or otherwise, arising out of (1)
the Portfolio Manager's 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 this Agreement, or (2) which are
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 a 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, providing that
such statement or omission was not 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 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 15 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,
notice, or other first legal process or notice 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
15. 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 of any such action 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.
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(d) The Portfolio Manager shall not be liable under Paragraph (b)
of this Section 15 with respect to any claim made against a Manager
Indemnified Person unless such Manager Indemnified Person shall have notified
the Portfolio Manager in writing within a reasonable time after the summons,
notice, or other first legal process or notice 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 15. 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 of any such action 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.
16. DURATION AND TERMINATION. This Agreement shall become
effective on the date first indicated above. Unless terminated as provided
herein, the Agreement shall remain in full force and effect for two (2) years
from the date first indicated above and continue on an annual basis thereafter
with respect to the Series; 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 the Series, and
(b) the vote of a majority of those 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 a 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. 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 the 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
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applicable law or otherwise. Notwithstanding the foregoing, this Agreement
may be terminated for each or any Series hereunder: (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 described 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), 9, 10, 11, 14, 15, and 18 of this
Agreement shall remain in effect, as well as any applicable provision of this
Paragraph numbered 16.
17. AMENDMENTS. No provision of this Agreement may be changed,
waived or discharged orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver or discharge 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.
18. 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/or its affiliates, and that the Portfolio Manager has the
right to use such name (or 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 name "Pilgrim Baxter & Associates,
Ltd." or any derivative thereof or logo associated with that name is the
valuable property of the Portfolio Manager and its affiliates and that the
Trust and/or the Series have the right to use such name (or derivative or
logo) in offering materials of the Trust with the approval of the Portfolio
Manager and for 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 name (or derivative or logo).
19. AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST. A
copy of the Amended and Restated Agreement and Declaration of Trust for the
Trust is on file with the Secretary of the Commonwealth of Massachusetts. The
Amended and Restated Agreement and Declaration of Trust has been executed on
behalf of the Trust by Trustees of the Trust in their capacity as Trustees of
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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.
20. MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of the State of
Delaware, 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 16 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, 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.
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
Attest: /s/Marilyn Talman By:/s/Terry L. Kendall
------------------- ---------------------------------
Title: Vice Pres. & Asst. Sec. Title: President
------------------------- ------------------------------
DIRECTED SERVICES, INC.
Attest: /s/Marilyn Talman By:/s/ Mary Bea Wilkinson
------------------ ------------------------------------
Title: V.P., Associate Gen Counsel Title: President
------------------------- ---------------------------------
and Assistant Secretary
-------------------------
PILGRIM BAXTER & ASSOCIATES, LTD.
Attest: /s/John M. Zerr By:/s/Eric C. Schneider
------------------- ---------------------------------
Title: General Counsel Title: CFO
------------------------- ------------------------------
<PAGE>
THE GCG TRUST
SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which Pilgrim Baxter & Associates, Ltd.
shall act as Portfolio Manager are as follows:
All Growth Series
Mid-Cap Growth Series
<PAGE>
THE GCG TRUST
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Pilgrim Baxter & Associates, Ltd.("Portfolio
Manager") to the following Series of The GCG Trust, pursuant to the attached
Portfolio Management Agreement, the Manager will pay the Portfolio 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
------ ----
All Growth Series 0.55%
Mid-Cap Growth Series 0.55%
SUB-ADVISORY AGREEMENT
The GCG Trust
March 1, 1997
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
Dear Sirs:
Directed Services, Inc. (the "Manager") and The GCG Trust (the "Fund")
confirm their agreement with Putnam Investment Management, Inc. (the "Sub-
Adviser') with respect to the Managed Global Series and the Emerging Markets
Series (each a "Portfolio" of the Fund) as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Fund employs the Manager as the manager of the Portfolios pursuant to
a management agreement, dated August 13, 1996 (the "Management Agreement"),
and the Fund and the Manager desire to employ and hereby appoint the Sub-
Adviser to act as the sub-investment adviser to the Portfolios. The
investment objectives(s), policies and limitations governing each Portfolio
are specified in the prospectus (the "Prospectus") and the statement of
additional information (the "Statement") of the Fund filed with the Securities
and Exchange Commission ("SEC') as part of the Fund's Registration Statement
on Form N-1A, as amended or supplemented from time to time, and in the manner
and to the extent as may from time to time be approved by the Board of
Trustees of the Fund (the "Board"). Copies of the Prospectus and the
Statement have been or will be submitted to the Sub-Adviser. The Manager
agrees promptly to provide copies of all amendments and supplements to the
current Prospectus and the Statement to the Sub-Adviser on an on-going basis.
Until the Manager delivers any such amendment or supplement to the Sub-
Adviser, the Sub-Adviser shall be fully protected in relying on the Prospectus
and Statement of Additional Information as previously furnished to the Sub-
Adviser. The Sub-Adviser accepts the appointment and agrees to furnish the
services for the compensation, as set forth below.
2. SERVICES AS SUB-ADVISER
(a) Subject to the supervision, direction and approval of the Board and
the Manager, the Sub-Adviser shall conduct a continual program of investment,
evaluation and, if appropriate in the view of the Sub-Adviser, sale and
reinvestment of each Portfolio's assets. The Sub-Adviser is authorized, in
its sole discretion and without prior consultation with the Manager, to: (i)
manage each Portfolio's assets in accordance with the Portfolio's investment
objective(s) and policies as stated in the Prospectus and the Statement; (ii)
make investment decisions for each Portfolio; (iii) place purchase and sale
orders for portfolio transactions on behalf of each Portfolio; and (iv) employ
professional portfolio managers and securities analysts who provide research
services to each Portfolio. The Sub-Adviser shall not be responsible for the
administrative affairs of the Fund, including, but not limited to, accounting
for and pricing of the Portfolios.
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The Sub-Adviser shall furnish the custodian and portfolio accounting
agent with daily information as reasonably necessary to enable the custodian
and portfolio accounting agent to perform administrative and recordkeeping
responsibilities. In addition, the Sub-Adviser shall furnish the Manager with
quarterly and annual reports concerning transactions and performance of each
Portfolio in such form as may be mutually agreed upon, and the Sub-Adviser
agrees to review each Portfolio and discuss the management of it from time to
time with the Manager and the Board.
(b) Unless the Manager gives the Sub-Adviser written instructions to the
contrary, the Sub-Adviser shall use its good faith judgment in a manner which
it reasonably believes best serves the interests of the Portfolio shareholders
to vote or abstain from voting all proxies solicited by or with respect to the
issuers of securities in which assets of a Portfolio may be invested
(c) The Sub-Adviser shall maintain and preserve such records related to
each Portfolio's transactions as are required of a Sub-Adviser under the
Investment Advisers Act of 1940, as amended. The Sub-Adviser shall timely
furnish to the Manager all information relating to the Sub-Adviser's services
hereunder reasonably requested by the Manager to keep and preserve the books
and records of each Portfolio. The request Sub-Adviser will promptly supply
to the Manager copies of any of such records upon request.
(d) The Sub-Adviser shall (1) use its best efforts to manage each
Portfolio so that it will qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, (2) use its best efforts to manage
each Portfolio so as to ensure compliance with the diversification
requirements of Section 817 (h) of the Internal Revenue Code and regulations
thereunder, (3) comply with applicable federal and state laws, rules and
regulations applicable to it as Sub-Adviser of the Portfolio, and (4) comply
with any procedure adopted by the Board, notice of which is delivered in
writing to the Manager. The Manager acknowledges and agrees that the Sub-
Adviser's compliance with its obligations under Sections 2(d) (1) and (2) will
be based on information supplied by the Manager as to each Portfolio,
including but not limited to, portfolio security lot allocation. Manager
agrees to supply all such information on a timely basis.
(e) The Sub-Adviser shall, upon request of the Manager, provide
reasonable assistance in enabling the Manager, the custodian or portfolio
accounting agent to determine the value of any portfolio securities or other
assets of a Portfolio.
3. BROKERAGE
In selecting brokers or dealers to execute transactions on behalf of a
Portfolio, the Sub-Adviser will seek the best overall terms available. In
assessing the best overall terms available for any transaction, the Sub-
Adviser will consider factors it deems relevant, including, but not limited
to, the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on
a continuing basis. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, the Sub-
Adviser is authorized to consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934, as amended) provided to a Portfolio and/or other accounts over which the
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Sub-Adviser or its affiliates exercise investment discretion. Nothing in this
paragraph shall be deemed to prohibit the Sub-Adviser from paying an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker, or dealer would have charged
for effecting that transaction, if the Sub-Adviser determined in good faith
that such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such member, broker, or dealer,
viewed in terms of either that particular transaction or its overall
responsibilities with respect to a Portfolio and/or other accounts over which
the Sub-Adviser or its affiliates exercise investment discretion.
4. COMPENSATION
In consideration of the services rendered pursuant to this Agreement, the
Manager will pay the Sub-Adviser an annual fee calculated at the rates set
forth in Exhibit A hereto of each Portfolio's average daily net assets; the
fee is calculated daily and paid monthly. The fee for the period from the
Effective Date (defined below) of the Agreement for a Portfolio to the end of
the month during which the Effective Date occurs shall be prorated according
to the proportion that such period bears to the full monthly period. Upon any
termination of this Agreement with respect to a Portfolio before the end of a
month, the fee for such part of that month for that Portfolio shall be
prorated according to the proportion that such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement . For the purpose of determining fees payable to the Sub-Adviser,
the value of a Portfolio's net assets shall be computed at the times and in
the manner specified in the Prospectus and/or the Statement.
5. EXPENSES
The Sub-Adviser shall bear all expenses (excluding brokerage costs,
custodian fees, auditors fees or other expense to be borne by the Portfolios)
in connection with the performance of its services under this Agreement. Each
Portfolio or the Manager will bear certain other expenses to be incurred in
its operation, including, but not limited to, investment advisory fees, sub-
advisory fees (other than sub-advisory fees paid pursuant to this Agreement)
and administration fees, fees for necessary professional and brokerage
services, costs relating to local administration of securities, fees for any
pricing service, the costs of regulatory compliance; and pro rata costs
associated with maintaining the Fund's legal existence and shareholder
relations. The Sub-Adviser shall only bear the expenses it has expressly
agreed to assume under this Agreement.
6. COMPLIANCE
The Sub-Adviser shall promptly notify the Manager and the Fund if (1) the
SEC has censured the Sub-Adviser; (2) it has reason to believe a Portfolio may
fail to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code; (3) it has reason to believe a Portfolio may cease to
comply with the diversification requirements of Section 817(h) of the Internal
Revenue Code; or (4) there is an untrue fact relating to the Sub-Adviser in
material in the Prospectus or Statement previously supplied for use by the
Sub-Adviser.
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The Manager shall promptly notify the Sub-Adviser if (1) the SEC has
censured the Manager; (2) it has reason to believe a Portfolio may fail to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code; and (3) it has reason to believe a Portfolio may cease to comply
with the diversification requirements of Section 817(h) of the Internal
Revenue Code.
7. STANDARD OF CARE AND INDEMNIFICATION
(a) The Sub-Adviser shall exercise its best judgment and shall act in
good faith in rendering the services listed in paragraphs 2 and 3 above. The
Sub-Adviser shall not be liable for any error of judgment or mistake of law or
for any loss suffered by a Portfolio or the Manager in connection with the
matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Sub-Adviser
against any liability to the Manager, the Fund or to the shareholders of a
Portfolio to which the Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Adviser's reckless disregard
of its obligations and duties under this Agreement ("Disabling Conduct").
(b) Except for Disabling Conduct, the Manager shall indemnify and hold
the Sub-Adviser (and its officers, directors, employees, controlling persons,
shareholders and affiliates ("Indemnified Persons")) harmless from any
liability arising from the Sub-Adviser's conduct under this Agreement. The
Sub-Adviser shall indemnify and hold the Manager (and the Manager's
Indemnified Persons) harmless from any liability resulting from the Sub-
Adviser's Disabling Conduct or breach of the terms of this Agreement. The
Manager shall not be liable under this paragraph (b) with respect to any claim
made against the Sub-Adviser (and the Sub-Adviser's Indemnified Persons)
unless it received notice within a reasonable period of time after the Sub-
Adviser first received notice of the claim. The Sub-Adviser shall not be
liable under this paragraph (b) with respect to any claim made against the
Manager (and the Manager's Indemnified Persons) unless it received notice
within a reasonable period of time after the Manager first received notice of
the claim.
8. TERM OF AGREEMENT
This Agreement shall become effective for each Portfolio on March 1, 1997
(the "Effective Date") and shall continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically approved
at least annually as required by the 1940 Act. This Agreement is terminable,
with respect to a Portfolio without penalty, on 60 days' written notice, by
the Manager, the Board or by vote of holders of a majority (as defined in the
1940 Act and the rules hereunder) of the outstanding voting securities of
such Portfolio, or upon 60 days' written notice, by the Sub-Adviser. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act and the rules thereunder).
9. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Manager understands that the Sub-Adviser now acts, will continue to
act and may act in the future as investment manager or adviser to fiduciary
and other managed accounts, and as investment manager or adviser to other
investment companies, including any offshore entitled, or accounts, and the
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Manager has no objection to the Sub-Adviser's so acting, provided that
whenever a Portfolio and one or more other investment companies or accounts
managed or advised by the Sub-Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with a formula believed to equitable to each company and account. The
Manager recognizes that in some cases this procedure may adversely affect the
size of the position obtainable for a Portfolio. In addition, the Manager
understands that the persons employed by the Sub-Adviser to assist in the
performance of the Sub-Adviser's duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement shall
be deemed to limit or restrict the right of the Sub-Adviser or any affiliate
of the Sub-Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
10. REPRESENTATION
Each of the parties hereto represents that the Agreement has been duly
authorized, executed and delivered by all required corporate action.
11. USE OF NAME
(a) The Manager may use (and shall cause any of its affiliates including
the Fund to use) the name "Putnam Investment Management, Inc.", "Putnam
Investment Management", "Putnam Management" or "Putnam" only for so long as
this Agreement or any extension, renewal, or amendment hereof remains in
effect. At such times as this agreement shall no longer be in effect, the
Manager shall cease (and shall cause its affiliate to cease using) to use such
a name or any other name indicating that it is advised by or otherwise
connected with the Sub-Advisor and shall promptly change its name accordingly.
(b) The Manager will not, and will cause its affiliates to not, refer to
the Sub-Adviser or any affiliate in any prospectus, proxy statement or sales
literature except with the written permission of the Sub-Adviser.
(c) It will permit the Portfolio to be used as a funding vehicle only
for Policies issued by Golden American Life or any of its affiliates, except
with the permission of the Sub-Adviser.
(d) It will not (and will cause its affiliates to not) engage in
marketing programs (written or otherwise) directed toward Putnam Capital
Manager annuity contract ("PCM") which solicit transfers from PCM to the
Manager's products or those of its affiliates. The Manager will not (and will
cause its affiliates to not) create or use marketing materials which provide
direct comparisons between PCM and the Manager's products or those of any of
its affiliates. The Manager will not (and will cause its affiliates to not)
reimburse voluntarily, or enter into any contract or policy after the date
hereof providing for the reimbursement of, any deferred sales charges to
encourage the transfer of assets from PCM to the Manager's products or those
of any affiliate.
12. DECLARATION OF TRUST
A copy of the Amended and Restated Agreement and Declaration of Trust for
the Fund is on file with the Secretary of the Commonwealth of Massachusetts.
The Amended and Restated Agreement and Declaration of Trust has been executed
on behalf of the Fund by the Trustees of the Fund in their capacity as
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Trustees of the Fund and not individually. The obligations of this Agreement
shall be binding upon the assets and property of the Fund and shall not be
binding upon any Trustee, officer, or shareholder of the Fund individually.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning the
enclosed copy of this Agreement.
Very truly yours,
DIRECTED SERVICES, INC.
By:/s/Myles R. Tashman
----------------------------
THE GCG TRUST
By:/s/Myles R. Tashman
----------------------------
Accepted:
PUTNAM INVESTMENT MANAGEMENT, INC.
By:/s/Gordon H. Silver
- ----------------------------
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EXHIBIT A
SUB-ADVISORY FEES
For the period from the commencement of the Sub-Adviser's services under this
Sub-Advisory Agreement until such time as different fees are approved by the
shareholders of the Managed Global Series and the Emerging Markets Series at a
Special Meeting of Shareholders, the Sub-Advisory fees shall be the following
fees, payable monthly, based on the average daily net assets of each Portfolio
(Manager undertakes to use its best efforts to cause such fees to be approved
in a timely fashion):
PORTFOLIO ANNUAL RATE
- --------- -----------
Managed Global Series 1st $500m 0.60%
over $500m 0.50%
Emerging Markets Series all assets 0.75%
Upon approval by shareholders of the Managed Global Series and the Emerging
Markets Series, the Sub-Advisory fees shall be as follows:
PORTFOLIO ANNUAL RATE
- --------- -----------
Managed Global Series 1st $300m 0.70%
over $300m 0.60%
Emerging Market Series 1st $150m 1.00%
next $150m 0.95%
over $300m 0.85%
7
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 13th day of August, 1996, among The GCG Trust (the
"Trust"), a Massachusetts business trust, Directed Services, Inc. (the
"Manager"), a New York corporation, and Equitable Investment Services, Inc.
("Portfolio Manager"), an Iowa 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 multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future;
WHEREAS, pursuant to a Management Agreement, effective as of August 13,
1996, a copy of which has been provided to the Portfolio Manager, the Trust
has retained the Manager to render advisory, management, and administrative
services to many of the Trust's series;
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 Equitable
Investment Services, Inc. to act as Portfolio Manager to the Series designated
on Schedule A of this Agreement (each a "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. 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 promptly notify the Portfolio Manager in writing. If
the Portfolio Manager is willing to render such services, it shall so 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 each Series' portfolio and determine the
composition of the assets of each 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 each 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
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executed, and what portion of the assets of each 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 each 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 (the "SEC"), as from time to time amended, copies of which
shall be sent to the Portfolio Manager by the Manager upon filing with the
SEC. The Portfolio Manager further agrees as follows:
(a) The Portfolio Manager will (1) manage each Series so that no
action or omission on the part of the Portfolio Manager will cause a
Series to fail to meet the requirements to qualify as a regulated
investment company specified in Section 851 of the Internal Revenue Code
(other than the requirements for the Trust to register under the 1940 Act
and to file with its tax return an election to be a regulated investment
company, both of which shall not be the responsibility of the Portfolio
Manager), (2) manage each Series so that no action or omission on the part
of the Portfolio Manager shall cause a Series to fail to comply 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 that no action or omission on the part of the
Portfolio Manager shall cause a Series to fail to comply with any other
rules and regulations pertaining to investment vehicles underlying
variable annuity or variable life insurance policies. The Manager will
notify the Portfolio Manager promptly if the Manager believes that a
Series is in violation of any requirement specified in the first sentence
of this paragraph. The Manager or the Trust will notify the Portfolio
Manager of any pertinent changes, modifications to, or interpretations of
Section 817(h) of the Internal Revenue Code and regulations issued
thereunder and of rules or regulations pertaining to investment vehicles
underlying variable annuity or variable life insurance policies.
(b) The Portfolio Manager will perform its duties hereunder pursuant
to 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 notified in writing, 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 ("Registration Statement"). 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 a 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, 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
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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, subject to
review by the Manager and the Board of Trustees.
(d) In connection with the purchase and sale of securities for a
Series, the Portfolio Manager will arrange for the transmission to the
custodian and portfolio accounting agent for the Series 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 portfolio
accounting 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 Portfolio Manager will arrange for the automatic transmission of the
confirmation of such trades to the Trust's custodian and portfolio
accounting agent.
(e) The Portfolio Manager will assist the portfolio accounting 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
portfolio accounting agent seeks assistance from or identifies for review
by the Portfolio Manager, and the parties agree that the Portfolio Manager
shall not bear responsibility or liability for the determination or
accuracy of the valuation of any portfolio securities and other assets of
the Series except to the extent that the Portfolio Manager exercises
judgment with respect to any such valuation.
(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 portfolio accounting
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 "Advisers 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) 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
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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
(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 each 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/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,
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 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 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
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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
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 post-effective amendment to the Registration Statement for the Trust filed
with the SEC that contains disclosure about the Portfolio Manager, and
represents and warrants that, with respect to the disclosure about or
information relating, directly or indirectly, to the Portfolio Manager, to the
Portfolio Manager's knowledge, 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 Advisers Act, or alternatively that it is not
required to be a registered investment adviser under the Advisers Act to
perform the duties described in this Agreement, and that it is 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 duties under this Agreement. The
Manager or the Trust shall be responsible for all the expenses of the Trust's
operations including, but not limited to:
(a) Expenses of all audits by the Trust's independent public
accountants;
(b) Expenses of the Series' transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Series' 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;
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(g) 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;
(h) Taxes levied against the Trust;
(i) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Series;
(j) Costs, including the interest expense, of borrowing money;
(k) 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;
(l) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(m) Costs of printing stock certificates representing shares of the
Trust;
(n) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate
thereof;
(o) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(p) Association membership dues;
(q) 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 14 of this Agreement), and the legal obligations of the
Trust to indemnify its Trustees, officers, employees, shareholders,
distributors, and agents with respect thereto; and
(r) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the Manager will pay the
Portfolio Manager a fee, payable monthly as described in Schedule B.
7. SEED MONEY. The Manager agrees that the Portfolio Manager shall not be
responsible for providing money for the initial capitalization of the Series.
8. COMPLIANCE.
(a) The Portfolio Manager agrees that it shall promptly notify the
Manager and the Trust (1) in the event that the SEC or other governmental
authority has censured the Portfolio Manager; placed limitations upon its
activities, functions or operations; suspended or revoked its
registration, if any, as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions,
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(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 promptly 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, and is required to be
stated therein or necessary to make the statements therein not misleading,
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 SEC 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. 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.
10.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 SEC and state
insurance regulators) in connection with any investigation or inquiry relating
to this Agreement or the Trust.
11.REPRESENTATIONS RESPECTING PORTFOLIO MANAGER.
(a) During the term of this Agreement, the Trust and the Manager
agree to furnish to the Portfolio Manager at its principal offices prior
to use thereof copies of all Registration Statements and amendments
thereto, prospectuses, proxy statements, reports to shareholders, sales
literature or other material prepared for distribution to shareholders of
the Trust or any Series or to the public that refer or relate in any way
to the Portfolio Manager, Equitable Investment Services, Inc. or any of
its affiliates (other than the Manager), or that use any derivative of the
name Equitable Investment Services, Inc. or any logo associated therewith.
The Trust and the Manager agree that they will not use any such material
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without the prior consent of the Portfolio Manager, which consent shall
not be unreasonably withheld. In the event of the termination of this
Agreement, the Trust and the Manager will furnish to the Portfolio Manager
copies of any of the above-mentioned materials that refer or relate in any
way to the Portfolio Manager;
(b) the Trust and the Manager will furnish to the Portfolio Manager
such information relating to either of them or the business affairs of the
Trust as the Portfolio Manager shall from time to time reasonably request
in order to discharge its obligations hereunder;
(c) 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, 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 advance by the Portfolio Manager,
except with the prior permission of the Portfolio Manager.
12.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.
13.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.
14.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.
15.INDEMNIFICATION.
(a) Notwithstanding Section 14 of this Agreement, the Manager agrees
to indemnify and hold harmless the Portfolio Manager, any affiliated
person of the Portfolio Manager (other than the 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
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legal and other expenses) to which a Portfolio Manager Indemnified Person
may become subject under the 1933 Act, the 1940 Act, the Advisers Act, the
Internal Revenue Code, 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 or any 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 by, or which is the responsibility of, the Manager and contained
in the Registration Statement or prospectus covering shares of the Trust
or a 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 14 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated
person of the Manager (other than the Portfolio 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, the Internal Revenue Code, 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, (2)
may be based upon a failure to comply with Section 2, Paragraph (a) of
this Agreement, or (3) 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 a 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 negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement.
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(c) The Manager shall not be liable under Paragraph (a) of this
Section 15 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, notice, or other first legal process or notice 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 15. 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 of any such action
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 15 with respect to any claim made against a Manager
Indemnified Person unless such Manager Indemnified Person shall have
notified the Portfolio Manager in writing within a reasonable time after
the summons, notice, or other first legal process or notice 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 15. 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 of any such action 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
10
<PAGE>
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.
(e) The Manager shall not be liable under this Section 15 to
indemnify and hold harmless the Portfolio Manager and the Portfolio
Manager shall not be liable under this Section 15 to indemnify and hold
harmless the Manager with respect to any losses, claims, damages,
liabilities, or litigation that first become known to the party seeking
indemnification during any period that the Portfolio Manager is, within
the meaning of Section 15 of the 1933 Act, a controlling person of the
Manager.
16.DURATION AND TERMINATION. This Agreement shall become effective on the
date first indicated above. 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 thereafter with respect to each Series;
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 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. 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. Notwithstanding the foregoing, this
Agreement may be terminated for each or any Series hereunder: (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) day's 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 addition, this Agreement
shall terminate with respect to a Series in the event that it is not initially
11
<PAGE>
approved by the vote of a majority of the outstanding voting securities of
that Series at a meeting of shareholders at which approval of the Agreement
shall be considered by shareholders of the Series. 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 records 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 described 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), 9, 10, 11, 14, 15,
and 18 of this Agreement shall remain in effect, as well as any applicable
provision of this Paragraph numbered 16.
17.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.
18.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/or its affiliates, and that the Portfolio
Manager has the right to use such name (or 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 name "Equitable Investment Services,
Inc." or any derivative thereof or logo associated with that name is the
valuable property of the Portfolio Manager and its affiliates and that the
Trust and/or the Series have the right to use such name (or derivative or
logo) in offering materials of the Trust with the approval of the
Portfolio Manager and for 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 name (or derivative or logo).
19.AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST. A copy of the
Amended and Restated Agreement and Declaration of Trust for the Trust is on
file with the Secretary of the Commonwealth of Massachusetts. The Amended and
Restated 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.
12
<PAGE>
20.MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of the State of
Delaware, 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 16 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, 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.
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
/s/Marilyn Talman By:/s/Terry L. Kendall
------------------------- ---------------------------------
Attest
Vice Pres. & Asst. Sec. President
------------------------- ---------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/ Mary Bea Wilkinson
------------------------- ------------------------------------
Attest
Vice Pres. & Asst. Sec. President
------------------------- ---------------------------------
Title Title
EQUITABLE INVESTMENT SERVICES, INC.
Pamela S. Reinert By:/s/Paul R. Schlaack
------------------------- ---------------------------------
Attest
Associate & Notary Public President and CEO
------------------------- ---------------------------------
Title Title
13
<PAGE>
AMENDED SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the Portfolio
Management Agreement dated August 13, 1996, to which Equitable Investment
Services, Inc. shall act as Portfolio Manager are as follows:
Limited Maturity Bond Series
Liquid Asset Series
Market Manager Series
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of this 28th day of February, 1997.
THE GCG TRUST
_________________________ By:_________________________________
Attest
_________________________ By:_________________________________
Title Title
DIRECTED SERVICES, INC.
_________________________ By:_________________________________
Attest
_________________________ By:_________________________________
Title Title
EQUITABLE INVESTMENT SERVICES, INC.
_________________________ By:_________________________________
Attest
_________________________ By:_________________________________
Title Title
14
<PAGE>
AMENDED SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Equitable Investment Services, Inc.
("Portfolio Manager") to the following Series of The GCG Trust, pursuant to
the Portfolio Management Agreement dated August 13, 1996, the Manager will pay
the Portfolio 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
------ ----
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
0.15% of the amount over $150 million;
subject to a minimum annual fee of
$35,(payable at the end of each calendar
year) starting from the time that the
Portfolio Manager renders investment
management services for the assets of the
Series, and this amount shall be pro-rated
for any portion of a year in which the
Portfolio Management Agreement is not in
effect or during which the obligation to
pay this minimum fee has not commenced.
Liquid Asset Series 0.20% of the first
$25 million
0.15% of the next $50 million
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)
starting from the time that the Portfolio
Manager renders active investment
management services for the assets of the
Series, and this amount shall be pro-rated
for any portion of a year in which the
Portfolio Management Agreement is not in
effect or during which the obligation to
pay this minimum fee has not commenced.
Market Manager Series 0.50% (payable at
the end of each calendar year) starting
from the time that the Portfolio Manager
renders active investment management
services for the assets of the Series, and
this amount shall be pro-rated for any
portion of a year in which the Portfolio
Management Agreement is not in effect or
during which the obligation to pay this
minimum fee has not commenced.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of this 28th day of February, 1997.
THE GCG TRUST
_________________________ By:_________________________________
Attest
_________________________ By:_________________________________
Title Title
DIRECTED SERVICES, INC.
_________________________ By:_________________________________
Attest
_________________________ By:_________________________________
Title Title
EQUITABLE INVESTMENT SERVICES, INC.
_________________________ By:_________________________________
Attest
_________________________ By:_________________________________
Title Title
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 1001
Jefferson Street, Suite 400, Wilmington, DE 19803, and Bankers Trust Company
(the "Custodian"), a New York banking corporation having its principal place
of business at One Bankers Trust Plaza, New York, New York 10006, dated March
2, 1992, and amended by Addenda among the Trust, Directed Services, Inc., and
the Custodian dated October 1, 1993, November 7, 1994 and December 29, 1995, 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 4th day of March, 1997.
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 August 13, 1996,
the Trust has retained Directed Services, Inc. (the "Manager") to render advis-
ory, 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 Trus
t hereby constitutes and appoints Bankers Trust Company as Custodian with
respect to the Mid-Cap Growth 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.
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
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,
November 7, 1994 and December 29, 1995, is hereby amended by the addition of the
provisions set forth in this Addendum to the Organizational Agreement, which is
dated as of the 4th day of March, 1997.
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 Mid-Cap Growth
Series; and
WHEREAS, the Trust and Golden American desire that the Mid-Cap Growth 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 Mid-Cap Growth 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
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 Series
Emerging Markets Series
Rising Dividends Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series
Managed Global Series
Mid-Cap Growth Series
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial High-
lights", "Independent Auditors" and "Financial Statements" in each Prospectus
and "Independent Auditors" in each Statement of Additional Information included
in Post-Effective Amendment No. 32 to the Registration Statement (Form N-1A,
No. 33-23512) of The GCG Trust dated May 1, 1997.
We also consent to the incorporation by reference, in the aforementioned Regis-
tration Statement, of our report dated February 13, 1997 for The GCG Trust,
except for the Fund For Life Series of The GCG Trust, to which our report is
dated February 21, 1997, included in the 1996 Annual Report for The GCG Trust
and in the 1996 Annual Financial Statements for the Fund For Life Series of The
GCG Trust, respectively.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
April 28, 1997
19 -- POWERS OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the duly
elected Persident and Chairman of the Board of Trustees and a Trustee of The GCG
Trust (the "Trust") and a duly elected Governor of the Managed Global Account of
Separate Account D (the "Account") of Golden American Life Insurance Company,
constitutes and appoints Myles R. Tashman, and Marilyn Talman, and each of them,
his true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him in his name, place and stead, in any and all
capacities, to sign on behalf of the Trust and the Account registration
statements and applications for exemptive relief, and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
affirming all that said attorneys-in-fact and agents, or any of them, or his or
her substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Date: April 12, 1996
/s/ Terry L. Kendall
---------------------------
Terry L. Kendall
Chairman of the Board,
President, Trustee
and Governor
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Trustee of The GCG Trust (the "Trust") and a duly elected Governor of
the Managed Global Account of Separate Account D (the "Account") of Golden
American Life Insurance Company, constitutes and appoints Myles R. Tashman, and
Marilyn Talman, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution for him in his name,
place and stead, in any and all capacities, to sign on behalf of the Trust and
the Account registration statements and applications for exemptive relief, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and affirming all that said attorneys-in-fact and
agents, or any of them, or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Date: April 10, 1996
/s/ Robert A. Grayson
---------------------------
Robert A. Grayson
Trustee and Governor
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Trustee of The GCG Trust (the "Trust") and a duly elected Governor of
the Managed Global Account of Separate Account D (the "Account") of Golden
American Life Insurance Company, constitutes and appoints Myles R. Tashman, and
Marilyn Talman, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution for him in his name,
place and stead, in any and all capacities, to sign on behalf of the Trust and
the Account registration statements and applications for exemptive relief, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and affirming all that said attorneys-in-fact and
agents, or any of them, or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Date: April 10, 1996
/s/ M. Norvel Young
---------------------------
M. Norvel Young
Trustee and Governor
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Trustee of The GCG Trust (the "Trust") and a duly elected Governor of
the Managed Global Account of Separate Account D (the "Account") of Golden
American Life Insurance Company, constitutes and appoints Myles R. Tashman, and
Marilyn Talman, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution for him in his name,
place and stead, in any and all capacities, to sign on behalf of the Trust and
the Account registration statements and applications for exemptive relief, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and affirming all that said attorneys-in-fact and
agents, or any of them, or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Date: April 9, 1996
/s/ Roger B. Vincent
---------------------------
Roger B. Vincent
Trustee and Governor
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the duly
elected Treasurer of The GCG Trust (the "Trust") constitutes and appoints Myles
R. Tashman, and Marilyn Talman, and each of them, her true and lawful attorneys-
in-fact and agents with full power of substitution and resubstitution for her in
her name, place and stead, in any and all capacities, to sign on behalf of the
Trust and the Account registration statements and applications for exemptive
relief, and any and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as she
might or could do in person, hereby ratifying and affirming all that said
attorneys-in-fact and agents, or any of them, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Date: April 29, 1996
/s/ Mary Bea Wilkinson
---------------------------
Mary Bea Wilkinson
Treasurer
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> GCG Trust Multiple Allocation Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 255,474,424
<INVESTMENTS-AT-VALUE> 270,400,507
<RECEIVABLES> 2,852,912
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 386,618
<TOTAL-ASSETS> 273,640,037
<PAYABLE-FOR-SECURITIES> 536,845
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 311,977
<TOTAL-LIABILITIES> 848,822
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 252,751,789
<SHARES-COMMON-STOCK> 21,984,529
<SHARES-COMMON-PRIOR> 24,570,757
<ACCUMULATED-NII-CURRENT> 2,359,598
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,753,783
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,926,045
<NET-ASSETS> 272,791,215
<DIVIDEND-INCOME> 4,137,090
<INTEREST-INCOME> 10,019,027
<OTHER-INCOME> 0
<EXPENSES-NET> 2,910,568
<NET-INVESTMENT-INCOME> 11,245,549
<REALIZED-GAINS-CURRENT> 12,734,768
<APPREC-INCREASE-CURRENT> (239,570)
<NET-CHANGE-FROM-OPS> 23,740,747
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,158,230)
<DISTRIBUTIONS-OF-GAINS> (12,765,407)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 369,719
<NUMBER-OF-SHARES-REDEEMED> (4,951,880)
<SHARES-REINVESTED> 1,995,933
<NET-CHANGE-IN-ASSETS> (34,899,705)
<ACCUMULATED-NII-PRIOR> 3,272,200
<ACCUMULATED-GAINS-PRIOR> 2,784,501
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,892,936
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,910,568
<AVERAGE-NET-ASSETS> 291,569,077
<PER-SHARE-NAV-BEGIN> 12.52
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.52
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> (0.61)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.41
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>02
<NAME> GCG Trust Fully Managed Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 118,404,672
<INVESTMENTS-AT-VALUE> 135,963,763
<RECEIVABLES> 905,882
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,591
<TOTAL-ASSETS> 136,871,236
<PAYABLE-FOR-SECURITIES> 150,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,205
<TOTAL-LIABILITIES> 211,705
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,333,563
<SHARES-COMMON-STOCK> 9,223,011
<SHARES-COMMON-PRIOR> 8,601,294
<ACCUMULATED-NII-CURRENT> 1,011,198
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,754,589
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,560,181
<NET-ASSETS> 136,659,531
<DIVIDEND-INCOME> 2,981,524
<INTEREST-INCOME> 3,182,886
<OTHER-INCOME> 0
<EXPENSES-NET> 1,274,389
<NET-INVESTMENT-INCOME> 4,890,021
<REALIZED-GAINS-CURRENT> 9,354,731
<APPREC-INCREASE-CURRENT> 5,197,655
<NET-CHANGE-FROM-OPS> 19,442,407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,787,012)
<DISTRIBUTIONS-OF-GAINS> (5,697,159)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 899,422
<NUMBER-OF-SHARES-REDEEMED> (984,350)
<SHARES-REINVESTED> 706,645
<NET-CHANGE-IN-ASSETS> 18,070,582
<ACCUMULATED-NII-PRIOR> 901,688
<ACCUMULATED-GAINS-PRIOR> (1,896,482)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,266,104
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,274,389
<AVERAGE-NET-ASSETS> 127,697,864
<PER-SHARE-NAV-BEGIN> 13.79
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 1.69
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (0.66)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.82
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> GCG Trust Ltd Maturity Bond Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 80,592,098
<INVESTMENTS-AT-VALUE> 80,695,353
<RECEIVABLES> 652,776
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 475
<TOTAL-ASSETS> 81,348,604
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,428
<TOTAL-LIABILITIES> 31,428
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,764,028
<SHARES-COMMON-STOCK> 7,798,760
<SHARES-COMMON-PRIOR> 8,079,425
<ACCUMULATED-NII-CURRENT> 882,464
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (432,571)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 103,255
<NET-ASSETS> 81,317,176
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,912,571
<OTHER-INCOME> 0
<EXPENSES-NET> 502,590
<NET-INVESTMENT-INCOME> 4,409,981
<REALIZED-GAINS-CURRENT> (419,245)
<APPREC-INCREASE-CURRENT> (625,852)
<NET-CHANGE-FROM-OPS> 3,364,884
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,339,700)
<DISTRIBUTIONS-OF-GAINS> (197,828)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,109,922
<NUMBER-OF-SHARES-REDEEMED> (2,201,243)
<SHARES-REINVESTED> 810,656
<NET-CHANGE-IN-ASSETS> (8,764,192)
<ACCUMULATED-NII-PRIOR> 4,807,767
<ACCUMULATED-GAINS-PRIOR> 188,918
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 497,345
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 502,590
<AVERAGE-NET-ASSETS> 82,808,184
<PER-SHARE-NAV-BEGIN> 11.15
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (1.15)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.43
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> GCG Trust Hard Assets Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 35,686,732
<INVESTMENTS-AT-VALUE> 44,115,277
<RECEIVABLES> 80,173
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 96,463
<TOTAL-ASSETS> 44,291,913
<PAYABLE-FOR-SECURITIES> 388,182
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 331
<TOTAL-LIABILITIES> 388,513
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,397,722
<SHARES-COMMON-STOCK> 2,458,892
<SHARES-COMMON-PRIOR> 1,804,987
<ACCUMULATED-NII-CURRENT> 12,713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,064,792
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,428,173
<NET-ASSETS> 43,903,400
<DIVIDEND-INCOME> 377,064
<INTEREST-INCOME> 113,494
<OTHER-INCOME> 0
<EXPENSES-NET> 365,377
<NET-INVESTMENT-INCOME> 125,181
<REALIZED-GAINS-CURRENT> 5,202,516
<APPREC-INCREASE-CURRENT> 4,502,376
<NET-CHANGE-FROM-OPS> 9,830,073
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (148,094)
<DISTRIBUTIONS-OF-GAINS> (4,617,071)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,055,921
<NUMBER-OF-SHARES-REDEEMED> (668,408)
<SHARES-REINVESTED> 266,392
<NET-CHANGE-IN-ASSETS> 16,756,382
<ACCUMULATED-NII-PRIOR> 44,414
<ACCUMULATED-GAINS-PRIOR> 470,559
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 362,600
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365,377
<AVERAGE-NET-ASSETS> 36,614,572
<PER-SHARE-NAV-BEGIN> 15.04
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 4.92
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (2.09)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.85
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> GCG Trust Real Estate Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 37,871,977
<INVESTMENTS-AT-VALUE> 49,962,396
<RECEIVABLES> 1,256,787
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 34,510
<TOTAL-ASSETS> 51,253,693
<PAYABLE-FOR-SECURITIES> 119,074
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11
<TOTAL-LIABILITIES> 119,085
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,060,749
<SHARES-COMMON-STOCK> 3,200,267
<SHARES-COMMON-PRIOR> 2,770,209
<ACCUMULATED-NII-CURRENT> 461,696
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 521,744
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,090,419
<NET-ASSETS> 51,134,608
<DIVIDEND-INCOME> 2,329,551
<INTEREST-INCOME> 121,591
<OTHER-INCOME> 0
<EXPENSES-NET> 374,667
<NET-INVESTMENT-INCOME> 2,076,475
<REALIZED-GAINS-CURRENT> 1,565,070
<APPREC-INCREASE-CURRENT> 8,753,155
<NET-CHANGE-FROM-OPS> 12,394,700
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,222,780)
<DISTRIBUTIONS-OF-GAINS> (853,544)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 668,832
<NUMBER-OF-SHARES-REDEEMED> (437,975)
<SHARES-REINVESTED> 199,201
<NET-CHANGE-IN-ASSETS> 16,159,689
<ACCUMULATED-NII-PRIOR> 609,884
<ACCUMULATED-GAINS-PRIOR> (191,846)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 371,844
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 374,667
<AVERAGE-NET-ASSETS> 37,533,590
<PER-SHARE-NAV-BEGIN> 12.63
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> 3.70
<PER-SHARE-DIVIDEND> (0.77)
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.98
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>06
<NAME> GCG Trust All-Growth Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 65,719,141
<INVESTMENTS-AT-VALUE> 77,033,347
<RECEIVABLES> 1,640,396
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 621,405
<TOTAL-ASSETS> 79,295,148
<PAYABLE-FOR-SECURITIES> 76,734
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 468,469
<TOTAL-LIABILITIES> 545,203
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,879,936
<SHARES-COMMON-STOCK> 5,880,233
<SHARES-COMMON-PRIOR> 6,764,223
<ACCUMULATED-NII-CURRENT> 167,481
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,623,738)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,326,266
<NET-ASSETS> 78,749,945
<DIVIDEND-INCOME> 1,032,794
<INTEREST-INCOME> 672,219
<OTHER-INCOME> 0
<EXPENSES-NET> 916,329
<NET-INVESTMENT-INCOME> 788,684
<REALIZED-GAINS-CURRENT> (5,626,514)
<APPREC-INCREASE-CURRENT> 3,952,364
<NET-CHANGE-FROM-OPS> (885,466)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (874,994)
<DISTRIBUTIONS-OF-GAINS> (1,084,328)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 740,422
<NUMBER-OF-SHARES-REDEEMED> (1,771,856)
<SHARES-REINVESTED> 147,444
<NET-CHANGE-IN-ASSETS> (14,448,457)
<ACCUMULATED-NII-PRIOR> 267,485
<ACCUMULATED-GAINS-PRIOR> 1,073,410
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 910,039
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 916,329
<AVERAGE-NET-ASSETS> 91,709,319
<PER-SHARE-NAV-BEGIN> 13.78
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> (0.23)
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.16)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.39
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> GCG Trust Liquid Asset Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 38,930,693
<INVESTMENTS-AT-VALUE> 38,930,693
<RECEIVABLES> 165,128
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 767
<TOTAL-ASSETS> 39,096,588
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 875
<TOTAL-LIABILITIES> 875
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,097,332
<SHARES-COMMON-STOCK> 39,097,362
<SHARES-COMMON-PRIOR> 38,588,906
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,619)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 39,095,713
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,203,466
<OTHER-INCOME> 0
<EXPENSES-NET> 244,313
<NET-INVESTMENT-INCOME> 1,959,153
<REALIZED-GAINS-CURRENT> (1,432)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,957,721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,959,153)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,740,567
<NUMBER-OF-SHARES-REDEEMED> (73,186,056)
<SHARES-REINVESTED> 1,953,945
<NET-CHANGE-IN-ASSETS> 507,024
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (187)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 240,479
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 244,313
<AVERAGE-NET-ASSETS> 40,079,523
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> GCG Trust Capital Apprec Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 119,255,496
<INVESTMENTS-AT-VALUE> 148,557,353
<RECEIVABLES> 259,400
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 305
<TOTAL-ASSETS> 148,817,058
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,560
<TOTAL-LIABILITIES> 64,560
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117,052,147
<SHARES-COMMON-STOCK> 9,879,660
<SHARES-COMMON-PRIOR> 9,045,920
<ACCUMULATED-NII-CURRENT> 334,278
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,064,216
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,301,857
<NET-ASSETS> 148,752,498
<DIVIDEND-INCOME> 2,486,195
<INTEREST-INCOME> 372,026
<OTHER-INCOME> 0
<EXPENSES-NET> 1,343,960
<NET-INVESTMENT-INCOME> 1,514,261
<REALIZED-GAINS-CURRENT> 10,331,984
<APPREC-INCREASE-CURRENT> 12,871,108
<NET-CHANGE-FROM-OPS> 24,717,353
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,559,277)
<DISTRIBUTIONS-OF-GAINS> (9,340,494)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,649,994
<NUMBER-OF-SHARES-REDEEMED> (1,536,664)
<SHARES-REINVESTED> 720,410
<NET-CHANGE-IN-ASSETS> 26,525,258
<ACCUMULATED-NII-PRIOR> 379,294
<ACCUMULATED-GAINS-PRIOR> 1,072,726
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,335,410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,343,960
<AVERAGE-NET-ASSETS> 134,708,278
<PER-SHARE-NAV-BEGIN> 13.51
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 2.57
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> (1.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.06
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>09
<NAME> GCG Trust Fund for Life Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 170,297
<INVESTMENTS-AT-VALUE> 197,431
<RECEIVABLES> 240
<ASSETS-OTHER> 7,328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 204,999
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,868
<TOTAL-LIABILITIES> 3,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,153
<SHARES-COMMON-STOCK> 26,426
<SHARES-COMMON-PRIOR> 30,416
<ACCUMULATED-NII-CURRENT> 262
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,582
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,134
<NET-ASSETS> 201,131
<DIVIDEND-INCOME> 6,875
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 6,613
<NET-INVESTMENT-INCOME> 262
<REALIZED-GAINS-CURRENT> 32,582
<APPREC-INCREASE-CURRENT> (9,929)
<NET-CHANGE-FROM-OPS> 22,915
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 77,446
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (14,807)
<SHARES-REINVESTED> 10,817
<NET-CHANGE-IN-ASSETS> (131,918)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 77,446
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 776
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,055
<AVERAGE-NET-ASSETS> 258,709
<PER-SHARE-NAV-BEGIN> 10.95
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.88
<PER-SHARE-DIVIDEND> (4.23)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.61
<EXPENSE-RATIO> 2.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> GCG Trust Rising Dividends Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 93,612,668
<INVESTMENTS-AT-VALUE> 126,332,449
<RECEIVABLES> 164,886
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 302
<TOTAL-ASSETS> 126,497,637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 258,996
<TOTAL-LIABILITIES> 258,996
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,082,906
<SHARES-COMMON-STOCK> 7,983,033
<SHARES-COMMON-PRIOR> 6,105,857
<ACCUMULATED-NII-CURRENT> 226,722
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 209,232
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,719,781
<NET-ASSETS> 126,238,641
<DIVIDEND-INCOME> 1,783,522
<INTEREST-INCOME> 203,550
<OTHER-INCOME> 0
<EXPENSES-NET> 995,735
<NET-INVESTMENT-INCOME> 991,337
<REALIZED-GAINS-CURRENT> 1,608,438
<APPREC-INCREASE-CURRENT> 15,975,452
<NET-CHANGE-FROM-OPS> 18,575,227
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (990,183)
<DISTRIBUTIONS-OF-GAINS> (838,560)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,786,219
<NUMBER-OF-SHARES-REDEEMED> (1,024,265)
<SHARES-REINVESTED> 115,222
<NET-CHANGE-IN-ASSETS> 45,028,932
<ACCUMULATED-NII-PRIOR> 225,568
<ACCUMULATED-GAINS-PRIOR> (560,646)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 989,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 995,735
<AVERAGE-NET-ASSETS> 99,885,403
<PER-SHARE-NAV-BEGIN> 13.30
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 2.61
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.81
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> GCG Trust Emerging Markets Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 49,340,088
<INVESTMENTS-AT-VALUE> 49,974,750
<RECEIVABLES> 1,731,728
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 43,295
<TOTAL-ASSETS> 51,749,773
<PAYABLE-FOR-SECURITIES> 144,730
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 94,610
<TOTAL-LIABILITIES> 239,340
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,335,210
<SHARES-COMMON-STOCK> 5,301,626
<SHARES-COMMON-PRIOR> 5,297,187
<ACCUMULATED-NII-CURRENT> 48,445
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,475,215)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 601,993
<NET-ASSETS> 51,510,433
<DIVIDEND-INCOME> 766,004
<INTEREST-INCOME> 248,551
<OTHER-INCOME> 0
<EXPENSES-NET> 816,026
<NET-INVESTMENT-INCOME> 198,529
<REALIZED-GAINS-CURRENT> (96,039)
<APPREC-INCREASE-CURRENT> 3,437,230
<NET-CHANGE-FROM-OPS> 3,539,720
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,483,387
<NUMBER-OF-SHARES-REDEEMED> (1,478,948)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,536,050
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12,529,260)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 791,005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 816,026
<AVERAGE-NET-ASSETS> 52,731,162
<PER-SHARE-NAV-BEGIN> 9.06
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.62
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.72
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> GCG Trust Market Manager Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 4,026,551
<INVESTMENTS-AT-VALUE> 5,571,309
<RECEIVABLES> 4,964
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,587
<TOTAL-ASSETS> 5,584,860
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,039,890
<SHARES-COMMON-STOCK> 422,420
<SHARES-COMMON-PRIOR> 494,701
<ACCUMULATED-NII-CURRENT> 212
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,544,758
<NET-ASSETS> 5,584,860
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 236,330
<OTHER-INCOME> 0
<EXPENSES-NET> 58,881
<NET-INVESTMENT-INCOME> 177,449
<REALIZED-GAINS-CURRENT> 271,057
<APPREC-INCREASE-CURRENT> 572,521
<NET-CHANGE-FROM-OPS> 1,021,027
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (177,237)
<DISTRIBUTIONS-OF-GAINS> (271,993)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (105,933)
<SHARES-REINVESTED> 33,652
<NET-CHANGE-IN-ASSETS> (367,561)
<ACCUMULATED-NII-PRIOR> 145
<ACCUMULATED-GAINS-PRIOR> 791
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,847
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 58,881
<AVERAGE-NET-ASSETS> 5,797,725
<PER-SHARE-NAV-BEGIN> 12.03
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 1.89
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.70)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.22
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> GCG Trust Value Equity Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 40,257,385
<INVESTMENTS-AT-VALUE> 44,221,127
<RECEIVABLES> 1,359,933
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,055
<TOTAL-ASSETS> 45,583,115
<PAYABLE-FOR-SECURITIES> 893,272
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,499
<TOTAL-LIABILITIES> 962,771
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,079,388
<SHARES-COMMON-STOCK> 3,204,698
<SHARES-COMMON-PRIOR> 2,187,943
<ACCUMULATED-NII-CURRENT> 153,310
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 400,394
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,987,252
<NET-ASSETS> 44,620,344
<DIVIDEND-INCOME> 816,442
<INTEREST-INCOME> 253,451
<OTHER-INCOME> 0
<EXPENSES-NET> 381,909
<NET-INVESTMENT-INCOME> 687,984
<REALIZED-GAINS-CURRENT> 1,671,519
<APPREC-INCREASE-CURRENT> 1,631,687
<NET-CHANGE-FROM-OPS> 3,991,190
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (578,788)
<DISTRIBUTIONS-OF-GAINS> (1,449,349)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,468,459
<NUMBER-OF-SHARES-REDEEMED> (596,801)
<SHARES-REINVESTED> 145,097
<NET-CHANGE-IN-ASSETS> 15,789,856
<ACCUMULATED-NII-PRIOR> 44,111
<ACCUMULATED-GAINS-PRIOR> 178,227
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 379,126
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 381,909
<AVERAGE-NET-ASSETS> 38,266,892
<PER-SHARE-NAV-BEGIN> 13.18
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 1.18
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.47)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.92
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> GCG Strategic Equity Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 27,985,084
<INVESTMENTS-AT-VALUE> 30,230,841
<RECEIVABLES> 139,272
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 53,323
<TOTAL-ASSETS> 30,423,436
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15
<TOTAL-LIABILITIES> 15
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,552,014
<SHARES-COMMON-STOCK> 2,604,255
<SHARES-COMMON-PRIOR> 805,853
<ACCUMULATED-NII-CURRENT> 85,696
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 475,104
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,310,607
<NET-ASSETS> 30,423,421
<DIVIDEND-INCOME> 335,098
<INTEREST-INCOME> 269,134
<OTHER-INCOME> 0
<EXPENSES-NET> 197,822
<NET-INVESTMENT-INCOME> 406,410
<REALIZED-GAINS-CURRENT> 820,083
<APPREC-INCREASE-CURRENT> 2,298,765
<NET-CHANGE-FROM-OPS> 3,525,258
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (347,741)
<DISTRIBUTIONS-OF-GAINS> (334,167)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,903,728
<NUMBER-OF-SHARES-REDEEMED> (163,819)
<SHARES-REINVESTED> 58,493
<NET-CHANGE-IN-ASSETS> 22,355,961
<ACCUMULATED-NII-PRIOR> 27,042
<ACCUMULATED-GAINS-PRIOR> (10,827)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 195,979
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 197,822
<AVERAGE-NET-ASSETS> 19,819,534
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 1.71
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.68
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> GCG Small Cap Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 31,563,163
<INVESTMENTS-AT-VALUE> 34,175,393
<RECEIVABLES> 211,078
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,386,471
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,753
<TOTAL-LIABILITIES> 21,753
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,616,430
<SHARES-COMMON-STOCK> 2,862,021
<SHARES-COMMON-PRIOR> 500
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,863,942)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,612,230
<NET-ASSETS> 34,364,718
<DIVIDEND-INCOME> 9,064
<INTEREST-INCOME> 157,714
<OTHER-INCOME> 0
<EXPENSES-NET> 181,677
<NET-INVESTMENT-INCOME> (14,899)
<REALIZED-GAINS-CURRENT> (1,863,942)
<APPREC-INCREASE-CURRENT> 2,612,230
<NET-CHANGE-FROM-OPS> 733,389
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,204,712
<NUMBER-OF-SHARES-REDEEMED> (1,343,191)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 34,359,718
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 180,699
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181,677
<AVERAGE-NET-ASSETS> 18,415,241
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 2.02
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.01
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> GCG Trust Managed Global Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 79,936,509
<INVESTMENTS-AT-VALUE> 84,026,562
<RECEIVABLES> 316,041
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,196,153
<TOTAL-ASSETS> 86,538,756
<PAYABLE-FOR-SECURITIES> 108,854
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,501
<TOTAL-LIABILITIES> 162,355
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,803,088
<SHARES-COMMON-STOCK> 7,763,118
<SHARES-COMMON-PRIOR> 7,274,374
<ACCUMULATED-NII-CURRENT> 171,198
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 138,502
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,263,613
<NET-ASSETS> 86,376,401
<DIVIDEND-INCOME> 1,330,191
<INTEREST-INCOME> 14,397
<OTHER-INCOME> 0
<EXPENSES-NET> 1,025,124
<NET-INVESTMENT-INCOME> 319,464
<REALIZED-GAINS-CURRENT> 7,448,103
<APPREC-INCREASE-CURRENT> 1,405,715
<NET-CHANGE-FROM-OPS> 9,173,282
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (396,393)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,553,974
<NUMBER-OF-SHARES-REDEEMED> (1,101,006)
<SHARES-REINVESTED> 35,776
<NET-CHANGE-IN-ASSETS> 13,957,736
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 878,077
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,025,124
<AVERAGE-NET-ASSETS> 81,239,228
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 1.18
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.05)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.13
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
