As filed with the Securities and Exchange Commission on November 26, 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. 35
and/or
Registration Statement under
The Investment Company Act of 1940
Amendment No. 36
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.
Golden American Life Insurance Company
1001 Jefferson Street
Wilmington, DE 19801
(Name and Address of Agent 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:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 28, 1997 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, Mid-Cap Growth Series, Total Return Series, Research
Series, Growth & Income Series, Value + Growth Series, Global Fixed Income
Series, Growth Opportunities Series and Developing World 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>
MARKET MANAGER SERIES. The Prospectus for the Market Manager Series is not
effected by this Post-Effective Amendment and is included in The GCG Trust's
Post-Effective Amendment No. 32, which was filed with the Securities Exchange
Commission on May 1, 1997.
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>
THE FUND FOR LIFE. The Prospectus and Statement of Additional Information for
The Fund For Life are not effected by this Post-Effective Amendment and is
included in The GCG Trust's Post-Effective Amendment No. 32, which was filed
with the Securities Exchange Commission on May 1, 1997.
<PAGE>
****************
PART A
****************
<PAGE>
THE GCG TRUST
1001 JEFFERSON STREET WILMINGTON, DELAWARE 19801
This Prospectus offers shares of twenty-two portfolios (the
"Series") of The GCG Trust (the "Trust"), which is an open-end,
management investment company. Each Series has its own investment
objective or objectives and investment policies. Shares of the
Series may be sold to separate accounts of insurance companies to
serve as the investment medium for variable life insurance
policies and variable annuity contracts issued by the insurance
companies ("Variable Contracts")and to certain qualified pension
and retirement plans. In the case of Variable Contracts, the
separate accounts invest in shares of one or more of the Series
in accordance with allocation instructions received from owners
of the insurance policies and annuity contracts. Such allocation
rights are described further in the Prospectus for the separate
account.
The Series are managed by Directed Services, Inc. ("DSI"), which
is an indirect wholly owned subsidiary of ING Groep, N.V.
("ING"). DSI and the Trust have retained several investment
advisory firms ("Portfolio Managers") to provide investment
advisory services to the Series. The twenty-two Series and their
respective Portfolio Managers are as follows:
SERIES PORTFOLIO MANAGER
- ------ -----------------
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, LLC
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 MASSACHUSETTS FINANCIAL SERVICES COMPANY
RESEARCH SERIES MASSACHUSETTS FINANCIAL SERVICES COMPANY
TOTAL RETURN SERIES MASSACHUSETTS FINANCIAL SERVICES COMPANY
GROWTH & INCOME SERIES ROBERTSON, STEPHENS & COMPANY INVESTMENT
MANAGEMENT, L.P.
VALUE + GROWTH SERIES ROBERTSON, STEPHENS & COMPANY INVESTMENT
MANAGEMENT, L.P.
GLOBAL FIXED INCOME SERIES CREDIT SUISSE ASSET MANAGEMENT LIMITED
GROWTH OPPORTUNITIES SERIES MONTGOMERY ASSET MANAGEMENT, LLC
DEVELOPING WORLD SERIES MONTGOMERY ASSET MANAGEMENT, LLC
Information about the investment objective or objectives,
investment policies, and restrictions of each Series, along with
a detailed description of the types of securities and other
assets in which each Series may invest, are set forth in this
Prospectus. There can be no assurance that the investment
objective or objectives for any Series will be achieved.
INVESTMENT IN THE LIQUID ASSET SERIES (OR IN ANY OTHER SERIES)IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN
BE NO ASSURANCE THAT THE LIQUID ASSET SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information a
prospective investor should know before investing in any of the
Series. A Statement of Additional Information, dated _________,
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 obtained by writing to the Trust at the
address printed above or by calling the Trust at the Customer
Service Center at the telephone number shown in the accompanying
prospectus.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE SEPARATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ
CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THE SERIES' SHARES ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET
FLUCTUATION, REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ______________, 1997.
TABLE OF CONTENTS
PAGE
PROSPECTUS SYNOPSIS
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES
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
Value Equity Series
Strategic Equity Series
Small Cap Series
Managed Global Series
Liquid Asset Series
Emerging Markets Series
Mid-Cap Growth Series
Research Series
Total Return Series
Growth & Income Series
Value + Growth Series
Global Fixed Income Series
Growth Opportunities Series
Developing World Series
MANAGEMENT OF THE TRUST
The Manager
The Portfolio Managers
Zweig Advisors Inc.
T. Rowe Price Associates, Inc.
Putnam Investment Management, Inc.
Van Eck Associates Corporation
Pilgrim Baxter & Associates, Ltd.
Chancellor LGT Asset Management, Inc.
Kayne Anderson Investment Management, LLC
Eagle Asset Management, Inc.
E.I.I. Realty Securities, Inc.
Fred Alger Management, Inc.
Equitable Investment Services, Inc.
Massachusetts Financial Services Company
Robertson, Stephens & Company Investment Management, L.P.
Credit Suisse Asset Management Limited
Montgomery Asset Management, LLC
Other Expenses
Distributor
Custodian and Other Service Providers
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
Mortgage-Backed Securities
Mortgage Pass-Through Securities
Other Mortgage-Backed Securities
Risks of Mortgage-Backed Securities
Other Asset-Backed Securities
High Yield Bonds
Repurchase Agreements
Restricted and Illiquid Securities
Short Sales
Foreign Securities
Investment in Gold and Other Precious Metals
Futures Contracts
Risks Associated with Futures and Futures Options
Options on Securities
Risks of Options Transactions
Foreign Currency Transactions
Options on Foreign Currencies
Borrowing
Hard Assets Securities
Real Estate Securities
Swaps
INVESTMENT RESTRICTIONS
PURCHASE OF SHARES
NET ASSET VALUE
REDEMPTION OF SHARES
EXCHANGES
PORTFOLIO TRANSACTIONS
Brokerage Services
Portfolio Turnover
DIVIDENDS AND DISTRIBUTIONS
FEDERAL INCOME TAX STATUS
OTHER INFORMATION
Capitalization
Voting Rights
The History of the Managed Global Series
Chancellor Administrative Order
Performance Information
LEGAL COUNSEL
INDEPENDENT AUDITORS
FINANCIAL STATEMENTS
PROSPECTUS SYNOPSIS
THE TRUST
The GCG Trust (the "Trust") is an open-end management investment
company, organized as a Massachusetts business trust on August 3,
1988. This Prospectus offers shares of twenty-two portfolios (the
"Series") of the Trust, each with its own investment objective or
objectives and investment policies. There can be no assurance
that any particular Series' investment objective or objectives
will be attained. The Board of Trustees may establish additional
Series at any time and may discontinue offering a Series at any
time.
The purpose of the Trust is to serve as an investment medium for
(i) variable life insurance policies and variable annuity
contracts ("Variable Contracts") offered by insurance companies,
and (ii) certain qualified pension and retirement plans as
permitted under the federal tax rules relating to the Series
serving as investment mediums for Variable Contracts. See
"Purchase of Shares." In the case of Variable Contracts, the
various Series may be used independently or in combination.
Within the limitations described in the Prospectus for the
applicable Variable Contract, an owner of a Variable Contract
("Variable Contract Owner") may allocate premiums and reallocate
investment value under his or her Variable Contract among various
divisions of the applicable separate account, which, in turn,
invest in the various Series. The assets of each Series are
segregated and a Variable Contract Owner's interest is limited to
the Series in which the divisions selected by the Variable
Contract Owner have invested.
INVESTMENT OBJECTIVES
The investment objective or objectives of each of the Series are
as follows:
The Multiple Allocation Series seeks the highest total return,
consisting of capital appreciation and current income, consistent
with the preservation of capital and elimination of unnecessary
risk. The Series seeks to achieve this objective through
investment in debt and equity securities and the use of certain
sophisticated investment strategies and techniques.
The Fully Managed Series seeks, over the long term, a high total
investment return, consistent with the preservation of capital
and prudent investment risk. The Series seeks to achieve this
objective by investing primarily in common stocks. The Series may
also invest in fixed income securities and money market
instruments to preserve its principal value during uncertain or
declining market conditions. The Series' strategy is based on the
premise that, from time to time, certain asset classes are more
attractive long-term investments than others.
The Limited Maturity Bond Series seeks the highest current income
consistent with low risk to principal and liquidity. The Series
seeks to achieve this objective by investing primarily in a
diversified portfolio of limited maturity debt securities. The
Series also seeks to enhance its total return through capital
appreciation when market factors indicate that capital
appreciation may be available without significant risk to
principal.
The 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, development, production,
management and distribution of hard assets.
The Real Estate Series seeks capital appreciation through
investment in publicly traded equity securities of companies in
the real estate industry. Current income is a secondary
objective.
The All-Growth Series seeks capital appreciation. The Series
seeks to achieve this objective through investment in securities
selected for their long-term growth prospects.
The Capital Appreciation Series seeks to generate long-term
capital growth 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 by
investing in equity securities of high quality companies that
meet the following four criteria: consistent dividend increases;
substantial dividend increases; reinvested profits; and an under-
leveraged balance sheet.
The Emerging Markets Series seeks long-term capital appreciation
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 financial soundness
and high intrinsic value relative to price.
The Strategic Equity Series seeks to achieve capital appreciation
primarily through investment in equity securities based on
various equity market timing techniques. The amount of the
Series' assets allocated to equities shall vary from time to time
to seek positive investment performance from advancing equity
markets and to reduce exposures to equities when the Portfolio
Manager believes that their risk/reward characteristics are less
attractive.
The Small Cap Series seeks to achieve long-term capital
appreciation by investing in equity securities of companies that,
at the time of purchase, have total market capitalization within
the range of companies included in the Russell 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 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 by
investing primarily in equity securities with medium market
capitalization.
The Research Series seeks to provide long-term growth of capital
and future income by investing a substantial portion of its
assets in common stocks or securities convertible into common
stocks of companies believed to possess better than average
prospects for long-term growth.
The Total Return Series seeks to obtain total return by
investment in securities which will provide above-average
income (compared to a Series entirely invested in equity
securities) and opportunities for growth of capital and
income consistent with the prudent employment of capital.
The Growth & Income Series seeks long-term total return by
investing in equity securities and debt securities, focusing on
small- and mid-cap companies that offer the potential for capital
appreciation, current income, or both.
The Value + Growth Series seeks capital appreciation by investing
primarily in growth companies with favorable relationships
between price/earnings ratios and growth rates, in sectors
offering the potential for above-average returns.
The Global Fixed-Income Securities Series seeks high total return
by investing at least 65% of its total assets in fixed income
securities of issuers whose principal activities are outside the
U.S. or foreign currency denominated fixed income securities of
U.S. issuers.
The Growth Opportunities Series seeks capital appreciation by
investing primarily in equity securities, usually common stocks,
of domestic companies of all sizes and emphasizes companies
having market capitalizations of $1 billion or more.
The Developing World Series seeks capital appreciation by
investing primarily in equity securities of companies in
countries having economies and markets generally considered by
the World Bank or the United Nations to be emerging or
developing.
THE MANAGER AND PORTFOLIO MANAGERS
The Manager of the Series is Directed Services, Inc. (the
"Manager"), an indirect wholly owned subsidiary of ING Groep N.V.
("ING"). 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:
SERIES PORTFOLIO MANAGER
- ------ -----------------
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, LLC
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 Massachusetts Financial Services Company
Research Series Massachusetts Financial Services Company
Total Return Series Massachusetts Financial Services Company
Growth & Income Series Robertson, Stephens & Company Investment
Management, L.P.
Value + Growth Series Robertson, Stephens & Company Investment
Management, L.P.
Global Fixed Income Series Credit Suisse Asset Management Limited
Growth Opportunities Series Montgomery Asset Management, LLC
Developing World Series Montgomery Asset Management, LLC
As Manager of the Series, Directed Services, Inc. has overall
responsibility, subject to the supervision of the Board of
Trustees, for engaging portfolio managers and for monitoring and
evaluating the management of the assets of each Series by the
Portfolio Managers, for administering all operations of the
Series, and for providing or procuring all services necessary for
the ordinary operation of the Series. Pursuant to a Management
Agreement, the Trust currently pays the Manager for its services
a monthly fee at the annual rate. See the fee table under
"Management of the Trust -- The Manager."
Each Portfolio Manager has full investment discretion and makes
all determinations with respect to the investment of each 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. The ordinary expenses for the Trust's Series, including
custodial, administrative, transfer agency, portfolio accounting,
auditing, and ordinary legal expenses are paid by the Manager;
whereas, most mutual funds pay for these expenses directly from
their own assets.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Series are offered at the net asset value of each
Series. Shares of each Series may be redeemed without cost at the
net asset value per share of the Series next determined after
receipt of the redemption request. The redemption price may be
more or less than the purchase price.
SPECIAL CHARACTERISTICS AND INVESTMENT RISKS
Certain of the Series may engage in investment techniques that
involve certain risks that are described more fully in the
section "Description of Securities and Investment Techniques."
For example, the Multiple Allocation Series may engage in
various types of futures transactions, may lend its portfolio
securities, may invest in non-U.S. dollar-denominated securities
of foreign, may engage in foreign currency transactions and
options on foreign currencies, may engage in various put and call
options transactions, may invest in gold futures contracts, and
may engage in short sales of securities.
FINANCIAL HIGHLIGHTS
The following tables present condensed financial information with
respect to each Series, except the Mid-Cap Growth, Total Return,
Research, Growth & Income, Value + Growth, Global Fixed Income,
Growth Opportunities and Developing World Series which had not
commenced operations prior to June 30, 1997. 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. Information 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 Managed 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 Insurance Company ("Golden
American") which was the predecessor entity. The information in
the tables for the period of October 21, 1992 (commencement of
operations) 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 investment vehicle.
These charges would reduce the total return to any owner of a
Variable Contract. The following tables should be read in
conjunction with the Trust's financial statements which are
incorporated by reference in the Trust's Statement of Additional
Information from the Trust's Annual Report dated as of December
31, 1996 and from the Trust's Semi-Annual Report dated as of June
30, 1997. The Trust's Annual and Semi-Annual Reports, which
contain further information about the Series' performance, are
available to shareholders upon request and without charge.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
MULTIPLE ALLOCATION SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 12.41 $ 12.52 $ 11.33 $ 11.89 $ 11.41 $ 11.73
------- ------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income............... 0.27 0.56 0.58 0.42 0.24 0.42
Net realized and unrealized
gain/(loss) on investments........ 0.72 0.52 1.56 (0.56) 1.03 (0.18)
------- ------- ------- ------- ------- -------
Total from investment operations.... 0.99 1.08 2.14 (0.14) 1.27 0.24
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ -- (0.58) (0.45) (0.42) (0.24) (0.42)
Distributions from capital gains.... -- (0.61) (0.50) -- (0.55) (0.14)
------- ------- ------- ------- ------- -------
Total distributions................. -- (1.19) (0.95) (0.42) (0.79) (0.56)
------- ------- ------- ------- ------- -------
Net asset value, end of period...... $ 13.40 $ 12.41 $ 12.52 $ 11.33 $ 11.89 $ 11.41
======= ======= ======= ======= ======= =======
Total return........................ 7.98%++ 8.77% 18.93% (1.18)% 11.13% 1.88%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in
000's)............................ $ 268,609 $272,791 $307,691 $299,392 $274,231 $ 116,040
Ratio of operating expenses to
average net assets................ 1.00%+ 1.00% 1.01% 1.00% 1.01% 1.09%
Decrease reflected in above expense
ratio due to expense
limitations....................... -- -- -- -- 0.03% 0.10%
Ratio of net investment income to
average net assets................ 3.88%+ 3.86% 4.42% 3.56% 2.75% 3.65%
Portfolio turnover rate............. 46% 158% 187% 291% 348% 93%
Average commission rate paid(a)..... $ 0.0592 $ 0.0593 N/A N/A N/A N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
+ 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
FULLY MANAGED SERIES*
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 14.82 $ 13.79 $ 11.70 $ 12.99 $ 12.43 $ 11.94
-------- -------- ------- -------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.19 0.56 0.45 0.35 0.19 0.28
Net realized and unrealized gain/(loss) on
investments.............................. 1.02 1.69 1.98 (1.29) 0.75 0.49
-------- -------- ------- -------- ------- -------
Total from investment operations........... 1.21 2.25 2.43 (0.94) 0.94 0.77
-------- -------- ------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income....... -- (0.56) (0.34) (0.35) (0.19) (0.28)
Distributions from capital gains........... -- (0.66) -- -- (0.19) --
-------- -------- ------- -------- ------- -------
Total distributions........................ -- (1.22) (0.34) (0.35) (0.38) (0.28)
-------- -------- ------- -------- ------- -------
Net asset value, end of period............. $ 16.03 $ 14.82 $ 13.79 $ 11.70 $ 12.99 $ 12.43
======== ======== ======= ======== ======= =======
Total return............................... 8.16%++ 16.36% 20.80% (7.27)% 7.59% 6.23%
======== ======== ======= ======== ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (in 000's)....... $ 153,649 $136,660 $118,589 $ 99,854 $108,690 $ 37,696
Ratio of operating expenses to average net
assets................................... 1.00%+ 1.00% 1.01% 1.00% 1.01% 1.04%
Decrease reflected in above expense ratio
due to expense limitations............... -- -- -- -- 0.04% 0.20%
Ratio of net investment income to average
net assets............................... 2.59%+ 3.83% 3.41% 2.62% 2.12% 2.38%
Portfolio turnover rate.................... 24% 45% 113% 66% 55% 27%
Average commission rate paid(a)............ $ 0.0404 $ 0.0597 N/A N/A N/A N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
* 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
LIMITED MATURITY BOND SERIES*
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96# 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 10.43 $ 11.15 $ 9.98 $ 10.62 $ 10.43 $ 10.54
------- ------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.31 0.59 0.60 0.51 0.40 0.60
Net realized and unrealized gain/(loss)
on investments......................... (0.04) (0.13) 0.57 (0.64) 0.23 (0.11)
------- ------- ------- ------- ------- -------
Total from investment operations......... 0.27 0.46 1.17 (0.13) 0.63 0.49
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income..... -- (1.15) -- (0.51) (0.40) (0.60)
Distributions from capital gains......... -- (0.03) -- -- (0.04) --
------- ------- ------- ------- ------- -------
Total distributions...................... -- (1.18) -- (0.51) (0.44) (0.60)
------- ------- ------- ------- ------- -------
Net asset value, end of period........... $ 10.70 $ 10.43 $ 11.15 $ 9.98 $ 10.62 $ 10.43
======= ======= ======= ======= ======= =======
Total return............................. 2.59%++ 4.32% 11.72% (1.19)% 6.20% 4.84%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (in 000's)..... $79,108 $ 81,317 $ 90,081 $ 72,213 $ 72,219 $40,213
Ratio of operating expenses to average
net assets............................. 0.61%+ 0.61% 0.61% 0.60% 0.61% 0.72%
Decrease reflected in above expense ratio
due to expense limitations............. -- -- -- -- 0.04% 0.27%
Ratio of net investment income to average
net assets............................. 5.80%+ 5.33% 5.58% 4.73% 4.64% 5.71%
Portfolio turnover rate.................. 43% 250% 302% 209% 115% 63%
</TABLE>
- ------------------
<TABLE>
<C> <S>
* 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
HARD ASSETS SERIES*
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 17.85 $ 15.04 $ 13.88 $ 13.89 $ 9.31 $10.46
------- ------- ------- ------- ------- ------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income....................... 0.06 0.05 0.15 0.13 0.07 0.14
Net realized and unrealized gain/(loss) on
investments............................... 0.47 4.92 1.34 0.23 4.58 (1.15)
------- ------- ------- ------- ------- ------
Total from investment operations............ 0.53 4.97 1.49 0.36 4.65 (1.01)
------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income........ -- (0.07) (0.13) (0.13) (0.07) (0.14)
Distributions from capital gains............ -- (2.09) (0.20) (0.24) -- --
------- ------- ------- ------- ------- ------
Total distributions......................... -- (2.16) (0.33) (0.37) (0.07) (0.14)
------- ------- ------- ------- ------- ------
Net asset value, end of period.............. $ 18.38 $ 17.85 $ 15.04 $ 13.88 $ 13.89 $ 9.31
======= ======= ======= ======= ======= ======
Total return................................ 2.97%++ 33.17% 10.69% 2.53% 49.93% (9.81)%
======= ======= ======= ======= ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (in 000's)........ $46,984 $ 43,903 $ 27,147 $ 32,879 $ 21,517 $2,916
Ratio of operating expenses to average net
assets.................................... 1.00%+ 1.00% 1.01% 1.00% 1.05% 1.50%
Decrease reflected in above expense ratio
due to expense limitations................ -- -- -- -- 0.08% 0.89%
Ratio of net investment income to average
net assets................................ 0.64%+ 0.34% 0.89% 1.01% 1.03% 1.38%
Portfolio turnover rate..................... 66% 96% 24% 25% 5% 19%
Average commission rate paid(a)............. $0.0380 $ 0.0252 N/A N/A N/A N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
* Prior to January 23, 1997, the Hard Assets Series was named the Natural Resources Series.
+ 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
REAL ESTATE SERIES*
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97## ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 15.98 $ 12.63 $ 11.29 $ 11.18 $ 9.81 $ 9.02
------- ------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................... 0.36 0.70 0.75 0.60 0.32 0.52
Net realized and unrealized gain on
investments............................... 0.68 3.70 1.12 0.11# 1.37# 0.79
------- ------- ------- ------- ------- ------
Total from investment operations............ 1.04 4.40 1.87 0.71 1.69 1.31
------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income........ -- (0.77) (0.53) (0.60) (0.32) (0.52)
Distributions from capital gains............ -- (0.28) -- -- -- --
------- ------- ------- ------- ------- ------
Total distributions......................... -- (1.05) (0.53) (0.60) (0.32) (0.52)
------- ------- ------- ------- ------- ------
Net asset value, end of period.............. $ 17.02 $ 15.98 $ 12.63 $ 11.29 $ 11.18 $ 9.81
======= ======= ======= ======= ======= ======
Total return................................ 6.51%++ 35.30% 16.59% 6.34% 17.27% 13.87%
======= ======= ======= ======= ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (in 000's)........ $61,814 $ 51,135 $ 34,975 $ 37,336 $ 29,000 $3,739
Ratio of operating expenses to average net
assets.................................... 1.00%+ 1.00% 1.01% 1.00% 1.04% 1.18%
Decrease reflected in above expense ratio
due to expense limitations................ -- -- -- -- 0.10% 1.79%
Ratio of net investment income to average
net assets................................ 4.50%+ 5.53% 5.79% 5.31% 4.69% 5.74%
Portfolio turnover rate..................... 12% 31% 53% 64% 38% 18%
Average commission rate paid(a)............. $0.0563 $ 0.0647 N/A N/A N/A N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
* 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.
## 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
ALL-GROWTH SERIES*
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 13.39 $ 13.78 $ 11.86 $ 13.42 $ 12.64 $ 13.05
------- ------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income/(loss).............. (0.01) 0.14 0.18 0.11 0.05 0.08
Net realized and unrealized gain/(loss) on
investments............................. 0.54 (0.23) 2.47 (1.56) 0.78 (0.41)
------- ------- ------- ------- ------- -------
Total from investment operations.......... 0.53 (0.09) 2.65 (1.45) 0.83 (0.33)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income...... -- (0.14) (0.14) (0.11) (0.05) (0.08)
Distributions from capital gains.......... -- (0.16) (0.59) -- -- --
------- ------- ------- ------- ------- -------
Total distributions....................... -- (0.30) (0.73) (0.11) (0.05) (0.08)
------- ------- ------- ------- ------- -------
Net asset value, end of period............ $ 13.92 $ 13.39 $ 13.78 $ 11.86 $ 13.42 $ 12.64
======= ======= ======= ======= ======= =======
Total return.............................. 3.96%++ (0.57)% 22.42% (10.77)% 6.56% (2.59)%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (in 000's)...... $73,569 $ 78,750 $ 93,198 $ 71,218 $ 56,491 $ 24,202
Ratio of operating expenses to average net
assets.................................. 1.00%+ 1.00% 1.01% 1.00% 1.01% 1.31%
Decrease reflected in above expense ratio
due to expense limitations.............. -- -- -- -- 0.01% 0.04%
Ratio of net investment income/(loss) to
average net assets...................... (0.26)%+ 0.86% 1.42% 1.08% 0.52% 0.61%
Portfolio turnover rate................... 268% 118% 81% 196% 29% 20%
Average commission rate paid(a)........... $0.0539 $ 0.0592 N/A N/A N/A N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
* Since February 3, 1997, Pilgrim Baxter & Associates, Ltd. 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
CAPITAL APPRECIATION SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92*
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 15.06 $ 13.51 $ 11.34 $ 11.76 $ 11.00 $ 10.00
-------- -------- -------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income.................. 0.08 0.16 0.19 0.23 0.13 0.12
Net realized and unrealized gain/(loss)
on investments....................... 2.21 2.57 3.22 (0.42) 0.78 1.00
-------- -------- -------- ------- ------- -------
Total from investment operations....... 2.29 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 period......... $ 17.35 $ 15.06 $ 13.51 $ 11.34 $ 11.76 $ 11.00
======== ======== ======== ======= ======= =======
Total return........................... 15.21%++ 20.26% 30.16% (1.59)% 8.31% 10.87%++
======== ======== ======== ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)... $ 168,616 $148,752 $122,227 $ 88,890 $ 87,219 $18,645
Ratio of operating expenses to average
net assets........................... 1.00%+ 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................... 1.02%+ 1.12% 1.53% 1.96% 1.69% 2.06%+
Portfolio turnover rate................ 18% 64% 98% 84% 67% 6%
Average commission rate paid(a)........ $ 0.0594 $ 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
RISING DIVIDENDS SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR YEAR YEAR PERIOD
6/30/97# ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96# 12/31/95 12/31/94 12/31/93*
--------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 15.81 $ 13.30 $ 10.22 $ 10.30 $ 10.00
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.10 0.14 0.13 0.14 0.01
Net realized and unrealized gain/(loss) on
investments......................................... 2.84 2.61 3.04 (0.08) 0.30
-------- ------- ------- ------- -------
Total from investment operations...................... 2.94 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 period........................ $ 18.75 $ 15.81 $ 13.30 $ 10.22 $ 10.30
======== ======= ======= ======= =======
Total return.......................................... 18.60%++ 20.65% 31.06% 0.59% 3.10%++
======== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................. $ 186,459 $126,239 $ 81,210 $50,712 $ 14,430
Ratio of operating expenses to average net assets..... 1.00%+ 1.00% 1.01% 1.00% 0.24%++
Ratio of net investment income to average net
assets.............................................. 1.24%+ 0.99% 1.24% 1.88% 0.34%++
Portfolio turnover rate............................... 12% 15% 43% 26% 3%
Average commission rate paid(a)....................... $ 0.0600 $ 0.0600 N/A N/A N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
* The Rising Dividends Series commenced operations on October 4, 1993.
+ + Annualized
++ 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
EMERGING MARKETS SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
6/30/97 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 9.72 $ 9.06 $ 10.08 $ 12.44 $ 10.00
------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.01 0.04 0.04 -- --
Net realized and unrealized gain/(loss) on
investments....................................... 1.67 0.62 (1.06) (1.89) 2.44
------- ------- ------- ------- -------
Total from investment operations.................... 1.68 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 period...................... $ 11.40 $ 9.72 $ 9.06 $ 10.08 $ 12.44
======= ======= ======= ======= =======
Total return........................................ 17.28%++ 7.28% (10.11)% (15.18)% 24.40%++
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................ $51,421 $ 51,510 $ 47,974 $ 65,224 $31,181
Ratio of operating expenses to average net assets... 1.71%+ 1.55% 1.53% 1.73% 0.38%++
Ratio of net investment income to average net
assets............................................ 0.17%+ 0.38% 0.40% 0.03% 0.00%++
Portfolio turnover rate............................. 110% 136% 141% 106% 0%
Average commission rate paid(a)..................... $0.0008 $ 0.0007 N/A N/A N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
* The Emerging Markets Series commenced operations on October 4, 1993.
** Since March 3, 1997, Putnam Investment Management, Inc. has served as Portfolio Manager for the Emerging
Markets Series. Prior to that date, a different firm served as Portfolio Manager.
+ Annualized
++ 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
VALUE EQUITY SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
6/30/97 ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95*
----------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period...................................... $ 13.92 $ 13.18 $ 10.00
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................... 0.12 0.22 0.08
Net realized and unrealized gain on investments........................... 2.44 1.18 3.44
------- ------- ------
Total from investment operations.......................................... 2.56 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 period............................................ $ 16.48 $ 13.92 $ 13.18
======= ======= ======
Total return.............................................................. 18.39%++ 10.62% 35.21%
======= ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)...................................... $59,329 $ 44,620 $ 28,830
Ratio of operating expenses to average net assets......................... 1.00%+ 1.00% 1.01%
Ratio of net investment income to average net assets...................... 1.75%+ 1.80% 1.53%
Portfolio turnover rate................................................... 68% 131% 86%
Average commission rate paid(a)........................................... $0.0590 $ 0.0575 N/A
</TABLE>
- ------------------
<TABLE>
<C> <S>
* The Value Equity Series commenced operations on January 3, 1995.
+ 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
STRATEGIC EQUITY SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
6/30/97## ENDED ENDED
(UNAUDITED) 12/31/96## 12/31/95*
----------- ---------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period...................................... $ 11.68 $ 10.01 $ 10.00
------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................... 0.13 0.23 0.06
Net realized and unrealized gain/(loss) on investments.................... 0.74 1.71 (0.03)#
------- ------ -------
Total from investment operations.......................................... 0.87 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 period............................................ $ 12.55 $ 11.68 $ 10.01
======= ====== =======
Total return.............................................................. 7.45%++ 19.39% 0.33%++
======= ====== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)...................................... $40,330 $ 30,423 $ 8,067
Ratio of operating expenses to average net assets......................... 1.00%+ 1.00% 1.00%+
Ratio of net investment income to average net assets...................... 2.21%+ 2.05% 4.04%+
Portfolio turnover rate................................................... 64% 133% 29%
Average commission rate paid (a).......................................... $0.0297 $ 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.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
SMALL CAP SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
6/30/97 ENDED
(UNAUDITED) 12/31/96*
----------- ---------
<S> <C> <C>
Net asset value, beginning of period................................................. $ 12.01 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss.................................................................. (0.01) (0.01)
Net realized and unrealized gain on investments...................................... 0.07 2.02
------- -------
Total from investment operations..................................................... 0.06 2.01
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income................................................. -- --
Distributions from capital gains..................................................... -- --
------- -------
Total distributions.................................................................. -- --
------- -------
Net asset value, end of period....................................................... $ 12.07 $ 12.01
======= =======
Total return......................................................................... 0.50%++ 20.10%++
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................................................. $46,949 $34,365
Ratio of operating expenses to average net assets.................................... 0.99%+ 0.99%++
Ratio of net investment loss to average net assets................................... (0.29)%+ (0.08)%++
Portfolio turnover rate.............................................................. 70% 117%
Average commission rate paid(a)...................................................... $0.0693 $0.0621
</TABLE>
- ------------------
<TABLE>
<C> <S>
* The Small Cap Series commenced operations on January 3, 1996.
+ 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.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
MANAGED GLOBAL SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96***# 12/31/95# 12/31/94# 12/31/93# 12/31/92*#
----------- ------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 11.13 $ 9.96 $ 9.26 $ 10.67 $ 10.01 $ 10.00
-------- ------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income............... 0.03 0.04 0.05 0.07 0.06 0.02
Net realized and unrealized
gain/(loss) on investments........ 1.46 1.18 0.65 (1.48) 0.60 (0.01)
-------- ------- ------- ------- ------- -------
Total from investment operations.... 1.49 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 period...... $ 12.62 $ 11.13 $ 9.96 $ 9.26 $ 10.67 $ 10.01
======== ======= ======= ======= ======= =======
Total return........................ 13.39%++ 12.27% 7.56% (13.21)% 6.59% 0.10%++
======== ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in
000's)............................ $ 102,590 $ 86,376 $72,375 $86,209 $88,477 $ 38,699
Ratio of operating expenses to
average net assets................ 1.26%+ 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................ 0.56%+ 0.39% 0.51% 0.69% 0.56% 0.28%++
Portfolio turnover rate............. 120% 141% 44% N/A N/A N/A
Average commission rate paid(a)..... $ 0.0240 $ 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 March 3, 1997, Putnam Investment Management, 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).
+ 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.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
LIQUID ASSET SERIES*
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
6/30/97 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................... 0.024 0.049 0.054 0.040 0.030 0.030
------- ------- ------- ------- ------- -------
Total from investment operations.............. 0.024 0.049 0.054 0.040 0.030 0.030
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.024) (0.049) (0.054) (0.040) (0.030) (0.030)
------- ------- ------- ------- ------- -------
Total distributions........................... (0.024) (0.049) (0.054) (0.040) (0.030) (0.030)
------- ------- ------- ------- ------- -------
Net asset value, end of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return.................................. 2.46%++ 5.01% 5.51% 3.89% 2.64% 3.13%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (in 000's).......... $47,927 $ 39,096 $ 38,589 $ 46,122 $ 16,808 $ 13,206
Ratio of operating expenses to average net
assets...................................... 0.61%+ 0.61% 0.61% 0.61% 0.61% 0.74%
Decrease reflected in above expense ratio due
to expense limitations...................... -- -- -- -- 0.08% 0.50%
Ratio of net investment income to average net
assets...................................... 4.92%+ 4.89% 5.39% 3.89% 2.60% 3.04%
</TABLE>
- ------------------
<TABLE>
<C> <S>
* 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.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Series has a different investment objective or
objectives that are described below. Each Series' portfolio is
managed by its own Portfolio Manager. There can be no assurance
that any of the Series will achieve its investment objective or
objectives. Because each Series seeks a different investment
objective or objectives and has different policies, each is
subject to varying degrees of financial, market, and credit
risks. Each Series is subject to the risk of changing economic
conditions. As with any security, a risk of loss is inherent in
investment in a Series' shares. Therefore, investors should
carefully consider the investment objective or objectives,
investment policies, and potential risks of any Series before
investing.
The different types of securities and investment techniques used
by the individual Series all have attendant risks of varying
degrees. For example, with respect to equity securities, there
can be no assurance of capital appreciation and there is a
substantial risk of decline. With respect to debt securities,
there exists the risk that the issuer of a security may not be
able to meet its obligations on interest or principal payments at
the time called for by the instrument. In addition, the value of
debt instruments generally rises and falls inversely with
interest rates.
Certain types of investments and investment techniques common to
one or more Series are described in greater detail, including the
risks of each, in this Prospectus under "Description of
Securities and Investment Techniques" and in the Statement of
Additional Information.
DIVERSIFICATION
Each Series, unless specifically noted otherwise in Series'
investment objective and policies, 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. A Series classified as "non-
diversified" 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, that Series will meet the
diversification requirements under the Internal Revenue Code
applicable to mutual funds and variable contracts. Further, the
Managed Global Series, which is non-diversified, 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 a
Series is "non-diversified" and may invest in a smaller number of
individual issuers than a series which is "diversified," an
investment in any non-diversified 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.
INVESTMENT RESTRICTIONS
Each Series is subject to investment restrictions that are
described in the Statement of Additional Information. The
investment restrictions so designated and, unless otherwise
noted, the investment objective or objectives of each Series are
"fundamental policies" of each Series, which means that they may
not be changed without a majority vote of shareholders of the
affected Series. Except for these fundamental policies, all
investment policies and practices described in this Prospectus
and in the Statement of Additional Information are not
fundamental, meaning that the Board of Trustees may change them
without shareholder approval.
MULTIPLE ALLOCATION SERIES
The investment objective of the Multiple Allocation Series is to
seek the highest total return, consisting of capital appreciation
and current income, consistent with the preservation of capital
and elimination of unnecessary risk. The Series seeks to achieve
this objective through investment in debt and equity securities
and the use of certain sophisticated investment strategies and
techniques. The Portfolio Manager for the Series is Zweig
Advisors Inc.
In seeking to maximize total return, the Series will follow an
asset allocation strategy contemplating shifts (which may be
frequent) among a wide range of investments and market sectors.
The Series' investments will be designed to maximize total return
during all economic and financial environments, consistent with
the preservation of capital and elimination of unnecessary risk,
as determined by the Portfolio Manager.
The Series will invest up to 60% of its total assets in U.S.
Government securities, including mortgage- and asset-backed
securities, and investment grade debt securities of domestic and
foreign issuers (generally those rated Baa or better by Moody's
Investor Services, Inc. ("Moody's") or BBB or better by Standard
& Poor's Ratings Group ("Standard & Poor's")), and up to 50% of
its total assets in equity securities, including common and
preferred stocks, convertible debt securities, and warrants. If
the Portfolio Manager deems stock market conditions to be
favorable or debt market conditions to be uncertain or
unfavorable, a substantially higher percentage but generally not
more than 60% of the Series' total assets may be invested in such
equity securities. If, however, the Portfolio Manager believes
that the stock market investment environment is uncertain or
unfavorable and justifies a defensive position, then the Series
may decrease its investments in equity securities and increase
its investments in debt securities and/or money market
instruments. During periods when the Portfolio Manager believes
an overall defensive position is advisable, greater than 50% (and
under certain circumstances perhaps all) of the Series' total
assets may be invested in money market instruments and cash.
Furthermore, if the Portfolio Manager believes that inflationary
or monetary conditions warrant a significant investment in
companies involved in gold operations, the Series may invest up
to 10% of its total assets in the equity securities of companies
exploring, mining, developing, producing, or distributing gold or
other precious metals. 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. The
Series may also invest in the securities of other companies
primarily engaged in the exploration, mining, processing,
fabrication, or distribution of other natural resources/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
substantially over short periods of time. See "Description Of
Securities and Investment Techniques--Investment in Gold and
Other Precious Metals" and "Hard Asset Securities" for more
information of these securities.
The Portfolio Manager will determine the extent of the Series'
investment in debt and equity securities, primarily on the basis
of various debt and equity market timing techniques developed by
Dr. Martin Zweig (Ph.D. in Finance) and his staff. The debt
market timing techniques incorporate various indicators,
including the momentum of bond prices, short-term interest rate
trends, inflation indicators and general economic and liquidity
indicators, as well as other market indicators and statistics
which the Portfolio Manager believes tend to point to significant
trends in the overall performance and the risk of the debt
markets. The equity market timing techniques incorporate general
market indicators, including interest rate and monetary analysis,
market sentiment indicators, price and trading volume statistics,
and measures of valuation, as well as other market indicators and
statistics which the Portfolio Manager believes tend to point to
significant trends in the overall performance and the risk of the
stock market. There is no assurance that these debt or equity
market timing techniques will eliminate the risks of debt and
equity investments, correctly predict market trends, or enable
the Series to achieve its investment objective.
The Series may use various investment strategies and techniques
when the Portfolio Manager determines that such use is
appropriate in an effort to meet the Series' investment objective
including: writing "covered" listed put and call equity options,
including options on stock indexes, and purchasing such options
such that premiums paid at time of purchase on listed put and
call options shall not exceed 2% of net assets; purchasing and
selling stock index, interest rate, gold, and other futures
contracts; purchasing options on stock index futures contracts
and futures contracts based upon other financial instruments;
investing in securities of "special situation" companies, "gold
operations" companies; foreign equity securities; purchasing
foreign government securities not in excess of 10% of the value
of its total assets; entering into foreign currency transactions
and options and forward contracts on foreign currencies; entering
into repurchase agreements or reverse repurchase agreements;
investing up to 10% of net assets in illiquid securities; and
lending portfolio securities to brokers, dealers, banks, or other
recognized institutional borrowers of securities. The debt and
equity components of the Series' portfolio may include such
investments.
The maturities of the debt securities in the Series' portfolio
will vary based in large part on the Portfolio Manager's
expectations as to future changes in interest rates. However, the
Portfolio Manager expects that the debt component of the Series'
portfolio will normally be invested primarily in intermediate
debt securities, i.e., those with remaining maturities of five to
ten years, and/or long-term debt securities, i.e., those with
remaining maturities in excess of ten years. The Portfolio
Manager expects that the equity portion of the Series' portfolio
will be widely diversified by both industry and the number of
issuers. The Portfolio Manager expects that the majority of the
stocks in the Series' portfolio will be selected on the basis of
a proprietary computer-driven stock selection model that
evaluates and ranks higher dividend yield stocks. The Portfolio
Manager will consider, from a list of approximately 1,500 of the
most liquid stocks, approximately 750 stocks with the highest
dividend yields. The Portfolio Manager will then use, for the
selection of stocks, a proprietary computer-driven stock
selection model that evaluates and ranks such higher dividend
yield stocks on the basis of various factors, which may include
earnings momentum, earnings growth, price-to-book value, price-to-
earnings, price-to-cash flow, cash flow trend, payout ratio trend
and other market measurements. Such stock selection model may
evolve or be replaced by other stock selection techniques
intended to achieve the Series' objective.
From time to time the Series may invest in companies that are
determined by the Portfolio Manager to represent a "special
situation." A special situation reflects securities which are
expected to be accorded favorable or unfavorable market
recognition within a reasonably estimable period of time, at an
appreciated or depreciated value, respectively, solely by reason
of a development particularly or uniquely applicable to the
issuing company. Developments that may create special situations
include, among others: a buy out; expected market recognition of
asset value; asset reorganization; recapitalization, tender offer
or merger; material litigation; technological breakthrough; and
new management or management policies. However, since the
situations may not develop as anticipated, e.g., a tender offer
may be successfully defended against or a merger may fall
through, the Series could incur losses.
The Series may make short sales of securities. The Series may
make short sales to offset a potential decline in a long position
or a group of long positions, or if the Series' Portfolio Manager
believes that a decline in the price of a particular security or
group of securities is likely as a result of an unfavorable
"special situation" or other reasons. The Portfolio Manager
expects that, even during normal or favorable market conditions,
the Series may make short sales in an attempt to maintain
portfolio flexibility and facilitate the rapid implementation of
investment strategies if the Portfolio Manager believes that the
price of a particular security or group of securities is likely
to decline. The Series may not exceed a total of 25% of net
assets in short sales, but this amount is decreased by the amount
the Series has borrowed. Short sales of unlisted securities may
not exceed 10% of net assets. The Series will not make short
sales of more than 2% of net assets in any one issuer or more
than 2% of the outstanding class of shares of any one issuer.
For additional information, see "Description of Securities and
Investment Techniques--Short Sales."
The Series may from time to time increase its ownership of
securities above the amounts otherwise possible by borrowing from
banks on an unsecured basis and investing the borrowed funds.
The Series may borrow, from banks only, up to 10% of its total
net assets, but may borrow up to 25% for temporary purposes (such
as redemptions). In connection with permissible borrowings the
Series may transfer as collateral securities owned by the Series.
FULLY MANAGED SERIES
The Fully Managed Series' investment objective is to earn, over
the long-term, a high total investment return, consistent with
the preservation of capital and prudent investment risk. It seeks
to achieve this objective by investing primarily in common
stocks. The Series may also invest in fixed income securities and
money market instruments to preserve its principal value during
uncertain or declining market conditions. The Series' strategy is
based on the premise that, from time to time, certain asset
classes are more attractive long term investments than others.
Total investment return consists of current income, including
dividends, interest and discount accruals, and capital
appreciation. Current income will be an important component of
the Series' effort to maximize total return. The Portfolio
Manager for the Series is T. Rowe Price Associates, Inc.
The Portfolio Manager expects that equity securities generally
will constitute 25% to 85% of the Series' overall portfolio, and
that the equity portfolio will be widely diversified by number of
issuers. The Portfolio Manager expects that investment
opportunities generally will be sought among securities of large-
capitalization, established companies, although securities of
smaller, less well known companies may also be selected. The
Series may invest up to 25% of its total assets in preferred
stock.
In selecting investments for the Series, the Portfolio Manager
uses a "valuation" discipline to identify stocks whose prospects
for price appreciation, over time, are believed to exceed the
risk of loss of market value. Through this process, a security's
current market value is analyzed relative to each of the
following: the company's assets, such as natural resources and
real estate; the company's replacement cost of plant and
equipment; the company's consumer or commercial franchises, such
as well-recognized trademarks or established brand names; and the
company's earnings or growth potential. The Portfolio Manager
also seeks to identify securities that have been over-discounted
due to adverse operating results, deteriorating economic or
industry conditions, or unfavorable publicity. By investing after
the adverse conditions are reflected in the price of the
company's securities, the risks associated with such out-of-favor
investments may be limited. The utilization of this contrarian
approach may result in investment selections which are counter to
those of most investors.
It is anticipated that debt securities, including convertible
bonds, may often constitute between 25% and 50% of the Series'
overall portfolio. Debt securities purchased by the Series may be
of any maturity. It is anticipated that the weighted average
maturity of the debt portfolio generally will be between four and
ten years, but may be shorter or longer. The Portfolio Manager
may invest up to 5% of the Series' assets, measured at the time
of investment, in debt securities that are rated below investment
grade or, if not rated, of equivalent quality. See "High Yield
Bonds" in this Prospectus.
The balance of the Series' portfolio will generally be invested
in the following money market instruments which have remaining
maturities not exceeding one year: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities; (ii) negotiable certificates of deposit,
bankers' acceptances and fixed time deposits and other
obligations of domestic banks (including foreign branches) that
have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are
insured by the Federal Deposit Insurance Corporation; (iii)
commercial paper rated at the date of purchase in the two highest
rating categories; and (iv) repurchase agreements. The Series
also may invest in short-term U.S. dollar-denominated obligations
of foreign banks (including U.S. branches) at the time of
purchase, if such banks have more than $1 billion in total
assets.
To maximize potential return, the Portfolio Manager may utilize
the following investment methods: writing "covered" listed put
and call equity options, including options on stock indices, and
purchasing such options; purchasing and selling, for hedging
purposes, stock index, interest rate, and other futures
contracts, and purchasing options on such futures; purchasing
warrants and preferred and convertible preferred stocks; entering
into repurchase agreements and reverse repurchase agreements;
lending portfolio securities to brokers, dealers, banks, or other
recognized institutional borrowers of securities; purchasing
restricted securities; purchasing securities of foreign issuers,
with up to 20% of total net assets invested in foreign equities;
entering into forward currency contracts and currency exchange
transactions for hedging purposes; and borrowing from banks to
purchase securities. The Series will not engage in short sales of
securities other than short sales "against the box." The Series
may invest up to 10% of its net assets in illiquid securities.
See "Description of Securities and Investment Techniques" for
further discussion of these investment methods.
LIMITED MATURITY BOND SERIES
The Limited Maturity Bond Series' primary investment objective is
the highest current income consistent with low risk to principal
and liquidity. As a secondary objective, the Series also seeks to
enhance its total return through capital appreciation when market
factors, such as falling interest rates and rising bond prices,
indicate that capital appreciation may be available without
significant risk to principal. The Portfolio Manager for the
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-intermediate-term debt securities with actual
remaining maturities of seven years or less, and other debt
securities with special features (e.g., puts, variable or
floating coupon rates, maturity extension arrangements, mortgage
pass-throughs, etc.) producing price characteristics similar to
those of short-to-intermediate-term debt securities. Generally,
the Series' portfolio securities are selected from as many as ten
sectors of the fixed income market, each representing a different
type of fixed income investment. The ten sectors are as follows:
(i) U.S. Treasury obligations;
(ii) U.S. Government agency and instrumentality securities;
(iii) repurchase agreements with respect to U.S.
Treasury obligations and U.S. Government agency and
instrumentality securities;
(iv) asset-backed securities, including mortgage-
backed securities issued or guaranteed by U.S.
Government agencies or collateralized by U.S.
Treasury obligations or U.S. Government agency
securities, mortgages pooled by high quality
financial institutions, and other asset-backed
securities representing pools of receivables
unrelated to mortgage loans;
(v) banking industry obligations, including
certificates of deposit, time deposits, and bankers'
acceptances issued by commercial banks;
(vi) savings industry obligations, including
certificates of deposit and time deposits issued by
savings and loan associations;
(vii) corporate debt securities;
(viii)corporate commercial paper, consisting primarily
of unsecured notes with maturities of nine months or
less issued to finance short-term credit needs;
(ix) variable or floating rate securities, the
coupon rates of which vary with a designated money
market index; and
(x) foreign securities denominated in U.S. dollars.
For additional information as to the characteristics and risks of
investments in several of these sectors, see the "Description of
Securities and Investment Techniques" in this Prospectus.
The Portfolio Manager conducts a continuing review of sector
yields and other information. These data are analyzed in light of
market conditions and trends in order to determine which
investment sectors offer the best values on a total return basis.
Where the yield of a sector exceeds that of comparable U.S.
Treasury obligations, the excess yield or "premium" is analyzed
to determine whether and to what extent it reflects additional
risk in that sector. During periods that yield differentials
available in the non-governmental sectors do not appear to
justify the additional risks involved, the Series will invest
more heavily in U.S. Treasury obligations and U.S. Government
agency and instrumentality securities.
Ordinarily, the Series' portfolio will include securities from
five or more of the investment sectors. The Series will not
invest more than 25% of its total assets in a single industry.
And the Series will not invest more than 10% of its total assets
in foreign government securities.
After the sectors for investment have been chosen, individual
securities are selected from within these sectors on the basis of
yield, creditworthiness, and liquidity. The Series will invest in
corporate debt securities and variable or floating rate
securities only if such securities are rated Baa or better by
Moody's or BBB or better by Standard & Poor's, or, if not rated
by Moody's or Standard & Poor's, if the Portfolio Manager
determines that they are of equivalent quality. The Series will
invest in corporate commercial paper only if rated Prime-1 or
Prime-2 by Moody's or A-1 or A-2 by Standard & Poor's, or, if not
rated by Moody's or Standard & Poor's, if the Portfolio Manager
determines that the commercial paper is of equivalent quality.
For additional information, see "Appendix 1: Description of Bond
Ratings" in the Statement of Additional Information.
The Series seeks to reduce risk, increase income, and preserve or
enhance total return by actively managing the maturity of its
portfolio in light of market conditions and trends. When, in the
opinion of the Portfolio Manager, market indicators point to
higher interest rates and lower bond prices, average maturity
generally will be shortened. When falling interest rates and
rising bond prices are indicated, a longer average portfolio
maturity generally can be expected.
During periods of rising or falling interest rates, the Series
may also seek to hedge all or a part of its portfolio against
related changes in securities prices by buying or selling
interest rate futures contracts and options thereon. Such a
strategy involves using the contracts as a maturity management
device that reduces risk and preserves total return while the
Series is restructuring its portfolio in response to the changing
interest rate environment. For information on such contracts, see
"Description of Securities and Investment Techniques."
The dollar-weighted average maturity of the Series' portfolio
will not exceed five years, and, in periods of rapidly rising
interest rates, may be shortened to one year or less. For these
purposes, (i) the maturity of mortgage-backed securities is
determined on an "expected life" basis, (ii) variable or floating
rate securities are deemed to mature at the next interest rate
adjustment date, and (iii) debt securities with put features are
deemed to mature at the next put exercise date. Positions in
interest rate futures contracts (long or short) will be reflected
in average portfolio maturity on the basis of the maturities of
the securities underlying the futures contracts. The Series may
invest in futures contracts, purchase and sell interest rate
futures contracts, and purchase and write options on such futures
contracts.
The Series may invest in private placements of debt securities.
These investments may be considered to be restricted securities.
The Series may invest up to 10% of its net assets in these and
other illiquid securities. The Series may also purchase
securities (including mortgage-backed securities such as GNMA,
FNMA, and FHLMC Certificates) on a when-issued basis. A
description of these techniques and their attendant risks is
contained in the section of this Prospectus entitled "Description
of Securities and Investment Techniques."
The Series may write covered call options and purchase put
options, and purchase call and write put options to close out
options previously written by the Series. The Series may engage
in options transactions to reduce the effect of price
fluctuations of securities owned by the Series (and involved in
the options) on the Series' net asset value per share. This
Series will purchase put options involving portfolio securities
only when the Portfolio Manager believes that a temporary
defensive position is desirable in light of market conditions,
but does not desire to sell the portfolio security. The Series
will engage only in short sales "against the box."
The Series may borrow up to 10% of the value of its net assets,
and for temporary purposes may increase this amount to 25%. The
Series may transfer as collateral securities owned by the Series
in connection with permissible borrowings.
HARD ASSETS SERIES
The 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 Portfolio Manager for the Series is Van Eck
Associates Corporation.
The Portfolio Manager believes securities of some natural
resources companies, sometimes referred to as "hard asset"
companies, offer an opportunity to protect wealth against eroding
monetary values. The Portfolio Manager believes that recent
history indicates that the policies of many governments,
particularly persistent budget deficits and high rates of money
supply growth, have, at times, had long-term inflationary
consequences. Generally, during periods of accelerating
inflation, the prices of many natural resources equity securities
sometimes have risen faster than the rate of inflation; and the
Portfolio Manager believes that they will continue to do so in
the future. During such periods, interest rates and yields on
industrial shares have risen, causing the prices of fixed income
and industrial equity securities to decline. The Portfolio
Manager anticipates that inflation and the price of certain
natural resources will continue on a long-term upward trend with
alternating cycles as credit is over expanded and subsequently
tightened. Since the market action of shares of companies engaged
in certain natural resources activities may move against or
independently of the market trend of industrial shares, the
addition of such shares to an overall portfolio may increase the
return and reduce the fluctuations of such portfolio. There can
be no assurance that an increased rate of return or reduced
fluctuation of a portfolio will be achieved. Thus, an investment
in the Series' shares should be considered part of an overall
investment program rather than a complete investment program.
The Series may invest in securities of foreign issuers, including
securities of South African issuers in which up to 35% of its
assets may be invested. The relative amount of the Series'
investment in foreign issuers will change from time to time, and
the Series is subject to certain guidelines for diversification
of foreign security investments. Investments by the Series in
securities of foreign issuers may involve particular investment
risks. See "Description of Securities and Investment Techniques"
in this Prospectus. Political and social conditions in South
Africa, due to former segregation policies of the South African
government and unsettled political conditions prevailing in South
Africa and neighboring countries, may pose certain risks to the
Series' investments. If aggravated by local or international
developments, such risks could have an adverse effect on
investments in South Africa, including the Series' investments
and, under certain conditions, on the liquidity of the Series'
portfolio and its ability to meet shareholder redemption
requests.
The 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 fluctuations 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 instruments, 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, asset-backed securities,
mortgage-backed securities and repurchase agreements.
The Series may engage in short sales, and may lend portfolio
securities. The Series may not exceed a total of 25% of net
assets in short sales, but this amount is decreased by the amount
the Series has borrowed. Short sales of unlisted securities may
not exceed 10% of net assets. The Series will not make short
sales of more than 2% of net assets in any one issuer or more
than 2% of the outstanding class of shares of any one issuer.
The Series may purchase securities on margin. The Series may
borrow up to 10% of the value of its net assets and for temporary
purposes may increase this amount to 25%. 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 purchase and
sell interest rate, gold, and other futures contracts. The
Series may also purchase and sell stock index futures contracts
and other futures contracts based upon other financial
instruments, and purchase 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
Companies' 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),
restricted securities, 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
10% 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 above, these
instruments may offer unique investment opportunities. These
techniques are described in "Description of Securities and
Investment Techniques."
REAL ESTATE SERIES
The primary investment objective of the Real Estate Series is
capital appreciation. Current income is a secondary objective.
The Series seeks these objectives primarily through investment in
publicly traded equity securities of companies in the real estate
industry that are listed on national exchanges or the National
Association of Securities Dealers Automated Quotation System
("NASDAQ"). Securities are selected for long-term investment. It
is generally not the policy of the Series to purchase securities
merely for short-term gain, although there may be a limited
number of short-term transactions. The Portfolio Manager for the
Series is E.I.I. Realty Securities, Inc.
The Series will invest not less than 65% of its total assets in
common and preferred stocks and convertible preferred securities
of companies which have at least 50% of the value of their assets
in, or which derive at least 50% of their revenues from, the
ownership, construction, management, or sale of residential,
commercial, or industrial real estate, which include listed
equity real estate investment trusts which own properties, and
listed mortgage real estate investment trusts which make short-
term construction and development mortgage loans or which invest
in long-term mortgages or mortgage pools. The Series may invest
more than 25% of its total assets in any of the foregoing sectors
of the real estate industry. The Series' assets may, however, be
invested in money market instruments and U.S. Government
securities if, in the opinion of the Portfolio Manager, market
conditions warrant a temporary defensive investment strategy.
The Series may invest up to 35% of its total assets in equity,
debt, or convertible securities of issuers whose products and
services are related to the real estate industry, such as
manufacturers and distributors of building supplies, and up to
25% of its total assets in financial institutions which issue or
service mortgages, such as savings and loans or mortgage bankers.
The Series also may invest in the securities of companies
unrelated to the real estate industry but which have significant
real estate holdings believed to be undervalued relative to the
price of the companies' securities.
The Series may invest in mortgage- and asset-backed securities,
repurchase agreements, restricted securities up to 10% of its
assets in illiquid securities, may purchase and write put and
call options on securities it covered or secured, and may
purchase or sell options to effect closing transactions, and on
stock indexes, and may borrow up to 10% of its net assets, and
for temporary purposes may borrow up to 25% of its assets for
such items as large redemptions. The Series will engage only in
short sales "against the box."
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 up to 5% of total
assets in warrants and other rights to purchase securities,
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 convertible bonds that are rated below investment grade by
one of the primary rating agencies (or if not rated, deemed to be
of comparable quality by the Portfolio Manager). See "
Description of Securities and Investment Techniques --High Yield
Bonds."
There are risks inherent in the Series' investment policies.
These risks are discussed in "Description of Securities and
Investment Techniques."
ALL-GROWTH SERIES
The All-Growth Series' investment objective is capital
appreciation. 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 substantially in 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 securities. The equity
securities in which the Series may invest are common stocks,
warrants and rights to purchase common stocks, and debt
securities (including mortgage- and asset-backed securities) and
preferred stock convertible into common stocks. The Series may
invest in convertible 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. The Series may invest in repurchase
agreements. The Series may make short sales of securities but may
not exceed a total of 25% of net assets in short sales. Short
sales of unlisted securities may not exceed 10% of net assets.
The Series will not make short sales of more than 2% of net
assets in any one issuer or more than 2% of the outstanding class
of shares of any one issuer. 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. The Series will borrow only up to
10% (for temporary purposes 25%) of its total net assets. In
connection to permissible borrowings the Series may transfer as
collateral securities owned by the Series. For discussion of the
risks involved in these investment techniques see "Description of
Securities and Investment Techniques--Borrowing."
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.
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 components in an effort to maximize the potential for
achieving the Series' overall objective. The Portfolio Manager
may allocate the assets between the components in its discretion
in any proportion that it deems appropriate. The Portfolio
Manager is free to allocate the Series' assets such that, at any
point in time, there may be little or no assets allocated to one
of the components. The Portfolio Manager may select a particular
security for inclusion in both components, provided that it meets
the criteria for each component. The Portfolio Manager will
select securities for each component based upon the criteria for
each component as described below:
The Growth Component. The securities eligible for this component
are those that the Portfolio Manager believes have the following
characteristics: they have stability and quality of earnings and
positive earnings momentum; have dominant competitive positions;
and demonstrate above-average growth rates as compared to
published 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 selling at a discount to asset
value and securities with a relatively low price/earnings ratio.
The securities eligible for this component may include real
estate stock such as securities of publicly owned companies that,
in the Portfolio Manager's judgment, offer an optimum combination
of current dividend yield, expected dividend growth, and discount
to current real estate value. Real estate stocks may also include
those issued by companies in industries related to real estate,
including companies that own, develop or provide services to
income-producing real estate, and commercial and community
developers, and may include real estate investment trusts and
"land rich" companies, which are companies that are not in the
real estate industry but that have significant real estate
related assets and whose stock price may be affected by the real
estate assets they hold.
If the Portfolio Manager believes that the expected market return
for equity securities over a twelve-month period is less than a
premium over U.S. Treasury bills that equity securities have
historically provided, the Series may, as a temporary defensive
measure, invest up to 40% of its assets in money market
instruments and short-term investment grade debt securities until
market conditions improve. Investment grade securities are
generally those rated at least Baa by Moody's or BBB by Standard
& Poor's, or unrated securities that the Portfolio Manager
determines are of comparable quality. The Series from time to
time may invest in money market instruments to the extent
appropriate, pending investment in the types of securities in
which the Series normally invests or in anticipation of
redemptions. Money market instruments in which the Series may
invest include U.S. Government securities, including mortgage-
and certificates of deposit, bankers' acceptances, time deposits,
commercial paper and other U.S. dollar-denominated obligations of
domestic and foreign corporations, and repurchase agreements.
To maximize potential return, the Portfolio Manager may use the
following investment methods:
The Series may purchase and write put and call options on
securities and stock indexes. The Series may also write
"covered" listed put and call options with respect to 25% or less
of its net assets, may purchase protective puts up to 25% of its
net assets and may purchase calls and puts other than protective
that are up to 5% of its assets. The Series may purchase and sell
interest rate, gold and other futures contracts. The Series may
also purchase and sell stock index futures contracts and other
futures contracts based upon other financial instruments and
purchases options on those contracts. The Series may enter into
repurchase agreements; purchase illiquid securities up to 10% of
net assets and borrow up to 10% of its assets from banks to
purchase securities. The Series may also invest up to 20% of its
total assets in Depositary Receipts. See "Description of
Securities and Investment Techniques" for further discussion of
these investment methods.
The Series may engage in short sales and short sales "against the
box." The Series may not exceed a total of 25% of net assets in
short sales, but this amount is decreased by any amount the
Series has borrowed. Short sales of unlisted securities may not
exceed 10% of net assets and for temporary purposes 25% of net
assets. The Series will not make short sales of more than 2% of
net assets in any one issuer or more than 2% of the outstanding
class of shares of any one issuer. For additional information,
see "Description of Securities and Investment Techniques--Short
Sales."
RISING DIVIDENDS SERIES
The investment objective of the Rising Dividends Series is
capital appreciation. Dividend income is a secondary objective.
The Portfolio Manager for the Series is Kayne Anderson
Investment Management, LLC
In seeking these objectives, the Series normally invests at least
80% of its net assets in equity securities of companies
determined to be of high quality by the Portfolio Manager that
meet the following four criteria:
(i) Consistent dividend increases--The company must have
increased its dividends in seven of the last ten years.
(ii) Substantial dividend increases--The company must have at
least doubled its dividends in the last ten years.
(iii) Reinvested profits--The company must reinvest at least 35%
of its profits annually.
(iv) Under-leveraged balance sheet--The company must have less
than 35% of its total capitalization in long-term debt.
In selecting securities, the Portfolio Manager screens a universe
of over 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 Portfolio Manager to
consider its past and present competitive position within its
respective industry. Each security is analyzed on a proprietary
computer matrix, based on the Portfolio Manager's projections of
each company's growth in earnings, cash flow, and dividends.
Target prices and value ranges are developed from this analysis.
The securities are ranked based on their potential total return
and their risk/reward ratio. 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 anticipated that the Series portfolio will generally
contain a minimum of 30-40 issues. It is the policy of the
Series that no equity security will be acquired if, after its
acquisition, more than 15% of the Series' total assets would be
invested in any one industry or more than 5% would be invested in
any one issuer. The Portfolio Manager does not intend to invest
any of the Series' assets in securities that, at the time of
investment, it believes to be illiquid, but may hold up to 15% of
its assets in these securities. The Portfolio Manager
periodically monitors the Series' equity securities to assure
they meet the four criteria. A security will generally be sold
when it reaches its target price, when negative changes occur in
either the company or its industry, or when any one or more of
the four criteria are no longer satisfied. 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 particular 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 Portfolio Manager deems a suitable investment. Equity
securities are deemed to include common stocks, securities
convertible into common stocks, or rights or warrants to
subscribe for or purchase common stocks.
The Portfolio Manager may enter into forward currency contracts
and currency exchange transactions for hedging purposes. During
those times when equity securities that meet the Portfolio
Manager's investment criteria cannot be found, for temporary
defensive purposes or pending longer-term investment, the Series
may invest any amount of its assets in short-term fixed income
securities or in cash or cash equivalents. The Series may invest
in mortgage- and asset-backed securities, enter repurchase
agreements, invest in foreign equity securities, including
Depositary Receipts, make short sales "against the box," and may
borrow up to 10% of its net assets, and for temporary purposes
may borrow up to 25% of its assets for such items as large
redemptions.
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 diversified by issuer, and normally will be invested in
companies located in at least six different emerging market
countries. The investment philosophy of the Series is to attempt
to capitalize upon emerging capital markets in developing nations
and other nations in which the Portfolio Manager believes that
economic and political factors are likely to produce above
average growth rates. The Portfolio Manager for the Series is
Putnam Investment Management, Inc.
At least 65% of the Series' assets normally will be invested in
the equity securities of issuers in countries that are identified
as emerging market countries in the Morgan Stanley Capital
International Emerging Markets Free Index or the International
Finance Corporation Emerging Market Index, or a country that the
Portfolio Manager otherwise believes is an emerging market
country because it has a developing economy or because its
markets have begun a process of change and are growing in size
and/or sophistication.
The Portfolio Manager will allocate the Series' assets for
investment in emerging market countries in its discretion, taking
into account economic and political factors that may include,
among others, relative market valuation, earnings momentum,
supply and demand, the prospects for relative growth among the
regions and the countries therein, expected levels of inflation,
governmental policies influencing business conditions, the
outlook for currency relationships, and the range of alternative
opportunities available to international investors. The Portfolio
Manager may determine to change its allocation at any time.
For purposes of allocating the Series' investments, a company
will be considered located in the country in which the company is
domiciled, in which it is primarily traded, from which it derives
a significant portion of its revenues, or in which a significant
portion of its goods or services are produced. Equity securities
that may be acquired include common stock and other securities
with equity characteristics, including preferred stock, rights
and warrants, convertible securities, which may consist of debt
securities or preferred stock that may be converted into common
stock or that carry the right to purchase common stock, and
shares of investment companies.
In selecting securities in emerging market countries, the
Portfolio Manager seeks undervalued investment opportunities for
growth. The Portfolio Manager uses a disciplined, value-oriented
investment philosophy that generally stresses the inherent value
of companies under examination, usually based upon the medium
term outlook for such companies. Securities may be considered for
the company's fundamental financial characteristics, its earnings
potential, or the potential for economic development of the
country or region in which the company is located.
To the extent that the Series' assets are not invested in
emerging market equity securities, the remainder of the Series'
assets, which normally will not exceed 35% of net assets, may be
invested in 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; mortgage-backed
securities of banks in emerging market or industrialized
countries, including the United States; instruments issued by
international development agencies; and in high-quality money
market instruments, including commercial paper and other short-
term corporate debt obligations of issuers in industrialized and
emerging market countries. The Portfolio Manager may invest up to
10% of the Series' assets, measured at the time of investment, in
debt securities that are rated below investment grade or, if not
rated, of equivalent quality. See "High Yield Bonds" in this
Prospectus and "Debt Securities" in the Statement of Additional
Information. The Series may borrow up to 10% of the value of its
net assets, and may increase its borrowing to 25% of its assets
for temporary purposes.
The Emerging Markets Series may invest in debt obligations
("sovereign debt") of governmental issuers in emerging market
countries and industrialized countries. The sovereign debt issued
or guaranteed by certain emerging market governmental entities
and corporate issuers in which the Series may invest potentially
involves a high degree of risk and may be deemed the equivalent
in terms of quality to high risk, low rated securities (i.e.,
high yield bonds) and subject to many of the same risks as such
securities. Similarly, the Series may have difficulty disposing
of certain of these debt obligations because there may be a thin
trading market for such securities. In the event a governmental
issuer defaults on its obligations, the Series may have limited
legal recourse against the issuer or guarantor, if any. Remedies
must, in some cases, be pursued in the courts of the defaulting
party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the
political climate in the relevant country. The issuers of the
government debt securities in which the Series may invest have in
the past experienced substantial difficulties in servicing their
external debt obligations, which has led to defaults on certain
obligations and the restructuring of certain indebtedness. See
"Description of Securities and Investment Techniques--High Yield
Bonds" in this Prospectus and "Debt Securities--Sovereign Debt"
in the Statement of Additional Information.
For temporary defensive purposes, the Series may decrease its
investment in emerging market country equity securities, and may
invest to a significant degree in debt securities and bank and
money market instruments as described above. In addition, the
Series may invest significantly in such securities after receipt
of new monies.
Most of the foreign securities in which the Series invests will
be denominated in foreign currencies. The Series may engage in
foreign currency transactions in anticipation of or to protect
itself against fluctuations in currency exchange rates in
relation to the U.S. dollar. Such foreign currency transactions
may include forward foreign currency contracts, currency exchange
transactions on a spot (i.e., cash) basis, put and call options
on foreign currencies, and foreign exchange futures contracts.
For a description on these techniques, see "Description of
Securities and Investment Techniques --Foreign Currency
Transactions" in this Prospectus.
The Emerging Markets Series may use various investment strategies
and techniques to meet its investment objectives, including
purchasing options on securities and writing (selling) secured
put and covered call options on securities, securities indexes,
foreign securities and foreign currencies. The Series may
purchase and sell interest rate, stock indexes and other
financial instrument futures contracts, and may purchase and
write options on such futures contracts. The Series may engage
in options transactions not only on U.S. domestic markets but
also exchanges and other markets outside the U.S. 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 up
to 15% of its assets in illiquid securities. The Series may
invest in warrants and restricted securities. The Series may
make short sales "against the box." These investment techniques
are described under the heading "Description of Securities and
Investment Techniques" in this Prospectus or in the Statement of
Additional Information.
Investment in the securities of foreign issuers involves special
risks and considerations not typically associated with investing
in U.S. companies. For a description of these risks, see
"Description of Securities and Investment Techniques--Foreign
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 countries have experienced significant declines
against the U.S. dollar in recent years, and devaluation may
occur subsequent to investments in those currencies by the
Series. Inflation and rapid fluctuations in inflation rates have
had and may continue to have negative effects on the economies
and securities markets of certain emerging market countries.
Many of the emerging securities markets are relatively small,
have low trading volumes, suffer periods of relative illiquidity,
and are characterized by significant price volatility. There is a
risk in emerging market countries that a future economic or
political crisis could lead to price controls, forced mergers of
companies, expropriation or confiscatory taxation, seizure,
nationalization, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given
country) or creation of government monopolies, any of which may
have a detrimental effect on the Series' investment. In addition,
in many countries there is less publicly available information
about issuers than is available in the United States. Foreign
companies are not generally subject to uniform accounting,
auditing, and financial reporting standards, and auditing
practices and requirements may not be comparable to those
applicable to U.S. companies. Further, the Series may encounter
difficulties or be unable to pursue legal remedies or obtain
judgments in foreign courts.
VALUE EQUITY SERIES
The investment objective of the Value Equity Series is capital
appreciation. Dividend income is a secondary objective. At least
65% of the Series' assets normally will be invested in equity
securities. In seeking these objectives, the Series invests
primarily in equity securities of U.S. and foreign issuers which,
when purchased, meet quantitative standards believed by the
Portfolio Manager to indicate above average financial soundness
and high intrinsic value relative to price. The Portfolio Manager
for the Series is Eagle Asset Management, Inc.
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 investments to U.S. Government and agency
obligations. The portion of total assets invested in common
stocks and debt securities will vary based on the availability of
common stocks meeting the selection criteria and the Portfolio
Manager's judgment of the investment merit of common stocks
relative to debt securities. The Series may also invest cash
balances in certificates of deposit, bankers' acceptances, high
quality commercial paper, U.S. Treasury bills, repurchase
agreements, and other money market instruments. During adverse
market conditions, as a temporary investment posture, the Series
may invest significantly in the debt securities and money market
instruments described above.
The Series may invest without limit in equity securities of
foreign issuers, including American Depositary Receipts. However,
it is expected that under ordinary circumstances, the Series will
not invest more than 25% of its assets in foreign issuers,
measured at the time of investment. For a description of the
risks associated with investment in foreign issuers, see
"Description of Securities and Investment Techniques--Foreign
Securities" in this Prospectus.
It is the policy of the Series that no equity security will be
acquired, if, after its acquisition more than 25% of the Series'
total assets would be invested in any one industry or more than
5% would be invested in any one issuer. The Portfolio Manager
periodically monitors the Series' equity securities to assure
they meet the selection criteria. A security 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 subscribe 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 make short sales "against the box."
The Series may also invest in restricted or illiquid securities;
however, the Portfolio Manager can not invest more than 15% of
the Series' assets in securities that, at the time of investment,
it believes to be illiquid. In pursuing its investment objective
or for hedging purposes, the Series may, but is not required to,
utilize the following investment techniques: writing "covered"
listed put and call options with respect to 25% of its net
assets, may purchase protective puts up to 25% of its net assets
and may purchase calls and puts other than protective that are up
to 5% of its assets; entering into stock index, interest rate,
foreign currency and other financial futures contracts, and
purchasing options on such futures contracts; forward currency
contracts, currency exchange transactions; purchasing mortgage-
backed securities and asset-backed securities; and borrowing from
banks up to 10% of its net assets to purchase securities and up
to 25% of its net assets for temporary purposes. See "Description
of Securities and Investment Techniques" for a discussion of the
risks associated with these investment techniques.
STRATEGIC EQUITY SERIES
The investment objective of the Strategic Equity Series is to
achieve capital appreciation. The Series seeks to achieve this
objective primarily through investment in equity securities. The
amount of the Series' assets allocated to equities shall vary
from time to time to seek positive investment performance from
advancing equity markets and to reduce exposure to equities when
the Portfolio Manager believes that their risk/reward
characteristics are less attractive. The Series' investments in
equities include both (1) stocks that the Portfolio Manager
selects for their "growth" characteristics (which may include
positive earnings momentum and above average earnings growth
rates), and (2) stocks that the Portfolio Manager selects for
their "income" characteristics (which may include above average
dividend yields and favorable dividend growth). To the extent not
invested in equity securities, the Series' assets generally will
be invested in money market instruments or held as cash. The
Series may also invest in debt securities for defensive purposes.
The Portfolio Manager for the Series is Zweig Advisors Inc.
The extent of the Series' investment in equity securities will be
based primarily on various equity market timing techniques
developed by Dr. Martin Zweig and his staff. The equity market
timing techniques incorporate general market indicators,
including interest rate and monetary analysis, market sentiment
indicators, price and trading volume statistics, and measures of
valuation, as well as other market indicators and statistics
which the Portfolio Manager believes tend to point to significant
trends in the overall performance and the risk of the stock
market. For example, if the Portfolio Manager believes that the
stock market investment environment is uncertain or unfavorable
and justifies a defensive position, then the Series may decrease
its investments in equity securities and increase its investments
in money market instruments. During periods when the Portfolio
Manager believes an overall defensive position is advisable,
greater than 50% (and under certain circumstances perhaps all) of
the Series' total assets may be invested in money market
instruments (including mortgage- and asset-backed securities) and
cash. The Portfolio Manager expects that the Series will be fully
invested in equity securities only when the Portfolio Manager
believes that there is very low risk in the stock market. There
is no assurance that these equity market timing techniques will
eliminate the risks of equity investments, correctly predict
market trends, or enable the Series to achieve its investment
objective.
The Portfolio Manager expects that the equity portion of the
Series' portfolio will generally be divided equally between
"growth" stocks and "income" stocks. Although the Portfolio
Manager expects to invest assets proportionately in growth stocks
and income stocks in order to maintain an approximately equal
weighting between growth stocks and income stocks, the relative
weighting of growth stocks and income stocks will fluctuate from
time to time because of, among other things, changes in the
market value of the growth stocks and income stocks. The
Portfolio Manager may change the relative weightings of the
growth stocks and income stocks from time to time if the
Portfolio Manager determines that such changes are appropriate in
view of the then existing market conditions. The equity portion
of the Series' portfolio will be widely diversified by the number
of issues. The Portfolio Manager expects that the majority of the
stocks in the Series' portfolio will be selected on the basis of
proprietary computer-driven stock selection models that evaluate
and rank approximately 1,500 of the most liquid stocks on the
basis of various factors, which may include earnings momentum,
earnings growth, price-to-book value, price-to-earnings, price-to-
cash flow, cash flow trend, price momentum, earnings estimate
revisions, payout ratio trend and other market measurements. Such
stock selection models may evolve or be replaced by other stock
selection techniques intended to achieve the Series' objective.
The Series may invest up to 15% of its assets in illiquid
securities.
The Series may use various investment strategies and techniques
when the Portfolio Manager determines that such use is
appropriate in an effort to meet the Series' investment objective
including: buying "covered" listed put equity options and writing
"covered" listed call equity options, including options on stock
indexes; short sales of securities; purchasing and selling stock
index and other financial instrument futures contracts, and
purchasing options on such futures contracts; purchasing and
selling interest rate, gold and other futures contracts;
investing no more than 10 % of its assets 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. The Series may
not exceed a total of 25% of net assets in short sales, but this
amount is decreased by any amount the Series has borrowed. Short
sales of unlisted securities may not exceed 10 % of net assets.
The Series will not make short sales of more than 2% of net
assets in any one issuer or more than 2% of the outstanding class
of shares of any one issuer. The Series may from time to time
increase its ownership of securities by borrowing from banks on
an unsecured basis and investing the borrowed funds. The Series
may borrow up to 10% of its net assets to purchase securities and
up to 25% of its net assets for temporary purposes. In
connection with permissible borrowings the Series may transfer as
collateral securities owned by the Series.
SMALL CAP SERIES
The investment objective of the Series is long-term capital
appreciation. 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 included in the Russell 2000 Growth Index
("Russell Index") or the S&P Small-Cap 600 Index ("S&P 600
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 600 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 entering a new stage of growth owing to factors such as
management changes or development of new technology, products or
markets, or may be companies providing products or services with
a high unit volume growth rate. In order to afford the Series the
flexibility to take advantage of new opportunities for
investments 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), after receipt of new monies, or during temporary
defensive 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 investing in larger, more established issuers.
Companies in which the Series is likely to invest may have
limited product lines, markets or financial resources 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 appropriate
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 effort to meet the Series' investment
objective: short sales of securities; investing in securities of
foreign issuers (including Depositary Receipts), including not
more than 10% of its total assets in foreign government
securities denominated in U.S. dollars; engaging in futures
contracts, including 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
transactions and options on foreign currencies; entering into
repurchase and reverse repurchase agreements; purchase mortgage-
backed and asset-backed securities; and lending portfolio
securities to brokers, dealers, bankers, and other recognized
institutional borrowers of securities. The Series may not exceed
a total of 25% of net assets in short sales, but this amount is
decreased by any amount the Series has borrowed. 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. The Series may
borrow up to 10% of its net assets to purchase securities and up
to 25% of its net assets for temporary purposes. In connection
with permissible borrowings the Series may transfer as collateral
securities owned by the Series. The Series may invest up to 15%
of its net assets in illiquid securities.
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. The Portfolio Manager
for the Series is Putnam Investment Management, Inc.
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 Securities." 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 inconsistent with the best interests of
shareholders. The Portfolio Manager may temporarily use
alternative strategies, primarily designed to reduce fluctuations
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 purchase mortgage-backed
and asset-backed securities.
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) obligations issued or guaranteed by a foreign government or
any of its political subdivisions, 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 Managed Global Series will only purchase and write
options that are standardized and traded on a U.S. or foreign
exchange or board of trade, or for which an established over-the-
counter market exists. The Series may purchase and sell futures
contracts, and may purchase and write options on such futures
contracts, including stock index futures contracts. The Series
may enter into foreign currency contracts and currency exchange
contracts on a spot basis. 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. The Series may not invest more than 15%
of its net assets in illiquid securities. The Series may not
exceed a total of 25% of net assets in short sales, but this
amount is decreased by any amount the Series has borrowed. The
Series may borrow up to 10% of its net assets to purchase
securities and up to 25% of its net assets for temporary
purposes. In connection with permissible borrowings the Series
may transfer as collateral securities owned by the Series.
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 impossible 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 Account 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 monetary policy. The Portfolio Manager also seeks to
improve yield by taking advantage of yield disparities that
regularly occur in the money markets. For example, market
conditions frequently result in similar securities trading at
different prices. Also, there are frequently differences in the
yield between the various types of money market securities. The
Series seeks to enhance yield by purchasing and selling
securities based upon these yield disparities.
The Series invests in one or more of the following:
(i) U.S. Government Securities. Obligations of the
U.S. Government and its agencies and
instrumentalities maturing in 13 months or less from
the date of acquisition or purchased pursuant to
repurchase agreements that provide for repurchase by
the seller within 13 months from the date of
acquisition;
(ii) Bank Obligations. Obligations of commercial banks
(including foreign branches), savings and loan
associations, and foreign banks with maturities not
exceeding 13 months. Such obligations include
negotiable certificates of deposit, variable rate
certificates of deposit, bankers' acceptances, fixed
time deposits, and commercial paper. Bank money
market instruments in which the Series may invest
must be issued by depository institutions with total
assets of at least $1 billion, except that up to 10%
of total assets may be invested in certificates of
deposit of smaller institutions if such certificates
of deposit are federally insured. Fixed time
deposits, unlike negotiable certificates of deposit,
generally do not have a market and may be subject to
penalties for early withdrawal of funds;
(iii) Commercial Paper. Short-term unsecured
promissory notes with maturities not exceeding nine
months issued in bearer form by bank holding
companies, corporations, and finance companies; and
(iv) Short-Term Corporate Debt Securities. Corporate
debt securities (other than commercial paper)
maturing in 13 months or less.
The Series may invest only in U.S. dollar denominated money
market instruments that present minimal credit risk and, with
respect to at least 95% of its total assets, measured at the time
of investment, that are of the highest quality. The Portfolio
Manager shall determine whether a security presents minimal
credit risk under procedures adopted by the Trust's Board of
Trustees. A money market instrument will be considered to be
highest quality under standards adopted by the Board of Trustees
and consistent with applicable Securities and Exchange Commission
("SEC") rules relating to money market funds. With respect to no
more than 5% of its total assets, measured at the time of
investment, the Series may also invest in money market
instruments that are in the second highest rating category for
short-term debt obligations. A money market instrument will be
considered to be in the second-highest rating category under the
standards described above.
The Series may not invest more than 5% of its total assets,
measured at the time of investment, in securities of any one
issuer that are of the highest quality, except that this
limitation shall not apply to U.S. Government securities and
repurchase agreements thereon. The Series may not invest more
than the greater of 1% of its total assets or $1,000,000,
measured at the time of investment, in securities of any one
issuer that are in the second-highest rating category, except
that this limitation shall not apply to U.S. Government
securities. In the event that an instrument acquired by the
Series is downgraded or otherwise ceases to be of the quality
that is eligible for the Series, the Portfolio Manager, under
procedures approved by the Board of Trustees (or the Board of
Trustees itself if the Portfolio Manager becomes aware an unrated
security is downgraded below high quality (within the first or
second highest rating category) and the Portfolio Manager does
not dispose of the security or such security does not mature
within five business days), shall promptly reassess whether such
security presents minimal credit risk and determine whether or
not to retain the instrument.
From time to time, in the ordinary course of business, the Series
may purchase securities on a when-issued or delayed delivery
basis. The Series shall engage only in short sales "against the
box." The Series may also enter into repurchase agreements, the
Series may purchase mortgage-backed securities, invest up to 10%
in illiquid securities and may borrow up to 10% of its net assets
to purchase securities and up to 25% of its net assets for
temporary purposes. In connection with permissible borrowings
the Series may transfer as collateral securities owned by the
Series. See "Description of Securities and Investment Techniques"
for descriptions of these techniques.
The Series seeks to maintain a net asset value of $1.00 per share
for purposes of purchases and redemptions; however, there can be
no assurance that the net asset value will not vary. The Series
will be affected by general changes in interest rates resulting
in increases or decreases in the value of the obligations held by
the Series.
MID-CAP GROWTH SERIES
The investment objective of the Mid-Cap Growth Series is to
obtain long-term growth of capital. The Series seeks to achieve
its objective by investing primarily in equity securities of
companies with medium market capitalization which the Portfolio
Manager believes have above-average growth potential under normal
circumstances. The Portfolio Manager for the Series is
Massachusetts Financial Services Company.
Medium market capitalization companies whose market
capitalization falls within the range of the Standard and Poor's
MidCap 400 Index (the "S&P MidCap 400 Index") at the time of the
Series' investment. The S&P MidCap 400 Index is a widely
recognized, unmanaged index of mid-cap common stock prices.
Companies whose capitalization falls outside this range after
purchase continue to be considered medium-capitalization
companies for purposes of the Series' investment policy. The
Series may, but is not required to, purchase securities of
companies included in the S&P MidCap 400 Index. This index is
only used by the Series for purposes of defining the market
capitalization range of companies in which the Series will
invest; it is not intended to be used a benchmark against which
the Series compares its investment performance. As of May 31,
1997, the S&P MidCap 400 Index included companies with
capitalizations of between $97 million and $8.2 billion.
The Series may invest a significant portion of its assets in over-
the-counter ("OTC") securities. OTC Securities are any
securities that are not listed on a major exchange but are, as
their name implies, traded over the counter. Investing in
securities traded on the OTC securities market can involve
greater risk than is customarily associated with investing in
securities traded on the New York or American Stock Exchanges
since OTC securities are generally securities of companies which
are smaller or newer than those listed on the New York or
American Stock Exchange. For example, these companies often have
limited product lines, markets, or financial resources, may be
dependent for management on one or a few key persons, and can be
more susceptible to losses. Also, their securities may be thinly
traded (and therefore have to be sold at a discount from current
prices or sold in small lots over an extended period of time),
may be followed by fewer investment research analysts and may be
subject to wider price swings and thus may create a greater risk
of loss than securities of larger capitalization or established
companies. Shares of the Series, therefore, are subject to
greater fluctuation in value than shares of a conservative equity
fund or of a growth fund which invests entirely in proven growth
stocks. Therefore, the Series is intended for long-term investors
who understand and can accept the risks entailed in seeking long-
term growth of capital. The Series is not meant to provide a
vehicle for those who wish to play short-term swings in the stock
market. Accordingly, an investment in shares of the Series
should not be considered a complete investment program. Each
prospective purchaser should take into account his investment
objectives as well as his other investments when considering the
purchase of shares of the Series.
Debt securities of issuers in which the Series may invest include
all types of long- or short-term debt obligations, such as bonds,
debentures, notes and commercial paper. Fixed income securities
in which the Series may invest include securities in the lower
rating categories of recognized rating agencies (and comparable
unrated securities). Fixed income securities in which the Series
may invest also include zero coupon bonds, deferred interest
bonds and bonds on which the interest is payable in kind. Such
investments involve certain risks. For a discussion of the risks
involved in investing in lower-rated securities see "Description
of Securities and Investment Techniques--High Yield Bonds" and
the SAI.
When the Portfolio Manager believes that investing for temporary
defensive purposes is appropriate, such as during periods of
unusual market conditions, part or all of the Series' assets may
be temporarily invested in cash (including foreign currency) or
cash equivalent short-term obligations including, but not limited
to, certificates of deposit, commercial paper, short-term notes,
obligations issued or guaranteed by the U.S. government or any of
its agencies or instrumentalities and repurchase agreements.
The Series may invest 20% or more of its net assets in foreign
securities (not including ADRs); however, under normal market
conditions, the Series expects to invest less than 35% of its net
assets in foreign securities. The Series may invest up to 10% of
its net assets in emerging markets or countries with limited or
developing capital markets. Investing in securities of foreign
issuers generally involves risks not ordinarily associated with
investing in securities of domestic issuers. (See "Description of
Securities and Investment Techniques--Foreign Securities" and the
SAI for a discussion of the risks involved in foreign investing.)
The Series may invest in ADRs which are certificates issued by a
U.S. depository (usually a bank) and represent a specified
quantity of shares of an underlying non-U.S. stock on deposit
with a custodian bank as collateral. Although ADRs are issued by
a U.S. depository, they are subject to many of the risks of
foreign securities such as changes in exchange rates and more
limited information about foreign issuers.
The Series may also purchase illiquid or restricted securities
(such as private placements). The Series' may not invest more
than 15% of its net assets in illiquid securities.
The Series is classified as a "non-diversified" investment
company as described above under "Diversification."
While it is not generally the Series' policy to invest or trade
for short-term profits, the Series may dispose of a Series
security whenever the Portfolio Manager is of the opinion that
such security no longer has an appropriate appreciation potential
or when another security appears to offer relatively greater
appreciation potential. Series changes are made without regard to
the length of time a security has been held, or whether a sale
would result in a profit or loss. Therefore, the rate of Series
turnover is not a limiting factor when a change in the Series is
otherwise appropriate. Because the Series is expected to have a
Series turnover rate of over 100%, transaction costs incurred by
the Series and the realized capital gains and losses of the
Series may be greater than that of a Series with a lesser
turnover rate.
The Series may also enter into repurchase agreements, lend
securities, purchase securities on a "when issued" or on a
"forward delivery" basis (which means that the securities will be
delivered to the Series at a future date usually beyond customary
settlement time), invest in indexed securities (whose value is
linked to foreign currencies, commodities, indices, or other
financial indicators), enter into mortgage "dollar roll"
transactions with selected banks and broker-dealers, purchase
restricted securities, corporate asset-backed securities, options
on securities, options on stock indices, options on foreign
currencies, futures contracts, options on futures contracts and
forward foreign currency exchange contracts.
All of the Series investments and transactions described in this
section are described in greater detail in the Description of
Securities and Investment Techniques section of this Prospectus
and in the SAI.
RESEARCH SERIES
The investment objective of the Research Series is to provide
long-term growth of capital and future income. The portfolio
securities of the Research Series are selected by a committee of
investment research analysts. This committee includes investment
analysts employed not only by the Portfolio Manager but also by a
wholly owned international subsidiary of the Portfolio Manager.
The Series' assets are allocated among industries by the analysts
acting together as a group. Individual analysts are then
responsible for selecting what they view as the securities best
suited to meet the Series' investment objective within their
assigned industry responsibility. The Portfolio Manager for the
Series is Massachusetts Financial Services Company.
The Series' policy is to invest a substantial proportion of its
assets in the common stocks or securities convertible into common
stocks of companies believed to possess better than average
prospects for long-term growth. A smaller proportion of the
assets may be invested in bonds, short-term obligations,
preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities may also
offer opportunities for growth of capital as well as income. In
the case of both growth stocks and income issues, emphasis is
placed on the selection of progressive, well-managed companies.
The Series' debt investments, if any, may consist of investment
grade securities (e.g., rated Baa or better by Moody's or BBB or
better by Standard & Poor's) and, with respect to no more than
10% of its net assets, securities in the lower rated categories
(e.g., rated BA or lower by Moody's or BB or lower by S&P or
Fitch), or securities which the Portfolio Manager believes to be
of similar quality to these lower rated securities (commonly
known as "junk bonds"). For a description of bond ratings, see
the SAI. It is not the Series' policy to rely exclusively on
ratings issued by established credit rating agencies but rather
to supplement such ratings with the Portfolio Manager's own
independent and ongoing review of credit quality. The Series'
achievement of its investment objective may be more dependent on
the Portfolio Manager's own credit analysis than in the case of a
Series investing in primarily higher quality bonds. From time to
time, the Series' management will exercise its judgment with
respect to the proportions invested in growth stocks, income-
producing securities or cash (including foreign currency) and
cash equivalents depending on its view of their relative
attractiveness.
The Series may enter into repurchase agreements, make loans of
its fixed income securities, invest in ADRs, invest up to 20% of
its net assets in foreign securities (not including ADRs), invest
in emerging markets or countries with limited or developing
capital markets, purchase "Rule 144A securities." Investing in
these type of securities involves certain risks. For a
discussion of the risks involved with investing in the above
listed securities transactions see the related section in
"Description of Securities and Investment Techniques" and
the in the SAI.
While it is not generally the Series' policy to invest or trade
for short-term profits, the Series may dispose of a Series
security whenever the Portfolio Manager is of the opinion that
such security no longer has an appropriate appreciation potential
or when another security appears to offer relatively greater
appreciation potential. Series changes are made without regard to
the length of time a security has been held, or whether a sale
would result in a profit or loss. Therefore, the rate of Series
turnover is not a limiting factor when a change in the Series is
otherwise appropriate.
TOTAL RETURN SERIES
The investment objective of the Total Return Series is to
obtain total return by investment in securities which will
provide above-average income (compared to a portfolio entirely
invested in equity securities) and opportunities for growth of
capital and income consistent with the prudent
employment of capital. While current income is the primary
objective, the Series believes that there should also be a
reasonable opportunity for growth of capital and income, since
many securities offering a better than average yield may also
possess growth potential. Thus, in selecting securities for its
Series, the Series considers each of these objectives. Under
normal market conditions, at least 25% of the Series' assets will
be invested in fixed income securities and at least 40% and no
more than 75% of the Series' assets will be invested in equity
securities. The Portfolio Manager for the Series is
Massachusetts Financial Services Company.
The Series' policy is to invest in a broad list of securities,
including short-term obligations. The list may be diversified not
only by companies and industries, but also by type of security.
Fixed income securities and equity securities (which include:
common stocks and preferred stocks; securities such as bonds,
warrants or rights that are convertible into stock; and
depository receipts for those securities) may be held by the
Series. Some fixed income securities may also have a call on
common stock by means of a conversion privilege or attached
warrants. The Series may vary the percentage of assets invested
in any one type of security in accordance with the Portfolio
Manager's interpretation of economic and money market conditions,
fiscal and monetary policy and underlying security values. The
Series' debt, investments may consist of both investment grade
securities (rated Baa or better by Moody's or BBB or better by
S&P, Fitch or Duff & Phelps Credit Rating Co. ("Duff") and
securities that are unrated or are in the lower rating categories
(rated BA or lower by Moody's or BB or lower by S&P, Fitch or
Duff) (commonly known as "junk bonds") including up to 20% of its
assets in nonconvertible fixed income securities that are in
these lower rating categories and comparable unrated securities.
Generally, most of the Series' long-term debt investments will
consist of "investment grade" securities. See the SAI for a
description of these ratings. It is not the Series' policy to
rely exclusively on ratings issued by established credit rating
agencies but rather to supplement such ratings with the Portfolio
Manager's own independent and ongoing review of credit quality.
The Series may also invest in U.S. government securities,
including: (1) U.S. Treasury obligations, which differ only in
their interest rates, maturities and times of issuance; U.S.
Treasury bills (maturities of one year or less); U.S. Treasury
notes (maturities of one to ten years); and U.S. Treasury bonds
(generally maturities of greater than ten years), all of which
are backed by the full faith and credit of the U.S. Government;
and (2) obligations issued or guaranteed by U.S. Government
agencies or instrumentalities, some of which are backed by the
full faith and credit of the U.S. Treasury, e.g., direct pass-
through certificates of GNMA; some of which are supported by the
right of the issuer to borrow from the U.S. Government, e.g.,
obligations of Federal Home Loan Banks; and some of which are
backed only by the credit of the issuer itself, e.g., obligations
of the Student Loan Marketing Association.
The Series may invest in mortgage pass-through securities.
Mortgage pass-through securities are securities representing
interests in "pools" of mortgage loans. Monthly payments of
interest and principal by the individual borrowers on mortgages
are passed through to the holders of the securities (net of fees
paid to the issuer or guarantor of the securities) as the
mortgages in the underlying mortgage pools are paid off. Payment
of principal and interest on some mortgage pass-through
securities (but not the market value of the securities
themselves) may be guaranteed by the full faith and credit of the
U.S. government (in the case of securities guaranteed by GNMA);
or guaranteed by U.S. government-sponsored corporations (such as
FNMA or FHLMC, which are supported only by the discretionary
authority of the U.S. government to purchase the agency's
obligations). Mortgage pass-through securities may also be issued
by non-governmental issuers (such as commercial banks, savings
and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers). Fixed
income securities that the Series may invest in also include zero
coupon bonds, deferred interest bonds and bonds on which the
interest is payable in kind ("PIK bonds"). See "Description of
Securities and Investment Techniques" for a further discussion of
these securities.
The Series may invest in ADRs which are certificates issued by a
U.S. depository (usually a bank), that represent a specified
quantity of shares of an underlying non-U.S. stock on deposit
with a custodian bank as collateral. Although ADRs are issued by
a U.S. depository, they are subject to many of the risks of
foreign securities such as changes in exchange rates and more
limited information about foreign issuers.
The Series may invest up to 20% (and generally expects to invest
between 5% and 20%) of its net assets in foreign securities
(including investments in emerging markets or countries with
limited or developing capital markets) (not including ADRs).
Investing in securities of foreign issuers generally involves
risks not ordinarily associated with investing in securities of
domestic issuers. (See "Description of Securities and Investment
Techniques--Foreign Investments" and the SAI for a discussion of
the risks involved in foreign investing.)
In order to protect the value of the Series' investments from
interest rate fluctuations, the Series may enter into various
hedging transactions, such as interest rate swaps, and the
purchase or sale of interest rate caps, floors and collars. (See
the SAI for information relating to these transactions including
related risks.)
The Series may purchase "144A Securities"; enter into repurchase
agreements; lend Series securities; purchase securities on a
"when issued" or on a "delayed delivery" basis; invest in indexed
securities linked to foreign currencies, indices, or other
financial indicators; enter into mortgage "dollar roll"
transactions; invest a portion of its assets in loan
participations and other direct indebtedness; purchase restricted
securities, corporate asset-backed securities, options on
securities, options on stock indices, options on foreign
currencies, futures contracts, options on futures contracts and
forward foreign currency exchange contracts. See "Description of
Securities and Investment Techniques" for more information
regarding these transactions and the risks associated with them.
While it is not generally the Series' policy to invest or trade
for short-term profits, the Series may dispose of a Series
security whenever the Portfolio Manager is of the opinion that
such security no longer has an appropriate appreciation potential
or when another security appears to offer relatively greater
appreciation potential. Series changes are made without regard to
the length of time a security has been held, or whether a sale
would result in a profit or loss. Therefore, the rate of Series
turnover is not a limiting factor when a change in the Series is
otherwise appropriate. Because the Series is expected to have a
Series turnover rate of over 100%, transactions costs incurred by
the Series and the realized capital gains and losses of the
Series may be greater than that of a Series with a lesser
turnover rate.
GROWTH & INCOME SERIES
The investment objective of the Growth & Income Series is long-
term total return. The Series will pursue this objective
primarily by investing in equity and debt securities, focusing on
small- and mid-cap companies that offer the potential for capital
appreciation, current income, or both. The Portfolio Manager for
the Series is Robertson, Stephens & Company Investment
Management, L.P.
The Series will normally invest the majority of its assets in
common and preferred stocks, convertible securities, bonds, and
notes. Although the Series will focus on companies with market
capitalizations of up to $3 billion, the Series intends to remain
flexible and may invest in securities of larger companies. The
Series may also engage in short sales of securities it expects to
decline in price. The Series may invest a substantial portion of
its assets in securities issued by small, small-cap and mid-cap
companies. Such companies may offer greater opportunities for
capital appreciation than larger companies, but investments in
such companies may involve certain special risks. See Description
of Securities and Investment Techniques--Small Companies" for a
discussion of such risks.
The Series may invest in securities principally traded in foreign
markets and may buy or sell foreign currencies and options and
futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments. The Series also may at
times invest a substantial portion of its assets in securities of
issuers in developing countries. The Series may at times invest a
substantial portion of its assets in securities traded in the
over- the-counter markets in such countries and not on any
exchange, which may affect the liquidity of the investment and
expose the Series to the credit risk of its counterparties in
trading those investments. International investing in general
may involve greater risks than U.S. investments. These risks may
be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets.
The Series may invest without limit in debt securities and other
fixed-income securities. The Series may invest in lower-quality,
high yielding debt securities. Lower-rated debt securities
(commonly called "junk bonds") are considered to be of poor
standing and predominantly speculative. The Series may at times
invest in so-called "zero-coupon" bonds and "payment-in-kind"
bonds. The Series will not necessarily dispose of a security when
its debt rating is reduced below its rating at the time of
purchase, although the Portfolio Manager will monitor the
investment to determine whether continued investment in the
security will assist in meeting the Series' investment objective
Such investments involve certain risks. See "Description of
Securities and Investment Techniques."
To hedge against changes in net asset value or to attempt to
realize a greater current return, the Series may use the
following investment strategies and techniques. The Series may
buy and sell put and call options; index futures contracts and
options on index futures and on indices; warrants on foreign
securities indices; purchase and sell options in the over-the-
counter markets only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the
Portfolio Manager, the pricing mechanism and liquidity of the
over-the-counter markets are satisfactory and the participants
are responsible parties likely to meet their obligations. The
Series will not purchase futures or options on futures or sell
futures if, as a result, the sum of the initial margin deposits
on the Series' existing futures positions and premiums paid for
outstanding options on futures contracts would exceed 5% of the
Series' assets. (For options that are "in-the-money" at the time
of purchase, the amount by which the option is "in-the-money" is
excluded from this calculation.) The Series may lend Series
securities to broker-dealers and may enter into repurchase
agreements.
At times the Series may invest more than 25% of its assets in
securities of issuers in one or more market sectors such as, for
example, the technology sector. A market sector may be made up of
companies in a number of related industries. The Series would
only overweight its investments in a particular market sector if
the Series' Portfolio Manager were to believe the investment
return available from such overweighing in that sector justifies any
additional risk associated with heavily investing in that sector.
When the Series concentrates its investments in a market sector,
financial, economic, business, and other developments affecting
issuers in that sector will have a greater effect on the Series
than if it had not heavily invested its assets in that sector.
At times, the Series' Portfolio Manager may judge that market
conditions make pursuing the Series' basic investment strategy
inconsistent with the best interests of its shareholders. At such
times, the Series' Portfolio Manager may temporarily use
alternative strategies, primarily designed to reduce fluctuations
in the values of the Series' assets. In implementing these
"defensive" strategies, the Series may invest in U.S. Government
securities, other high-quality debt instruments, and other
securities the Series' Portfolio Manager believes to be
consistent with the Series' best interests.
VALUE + GROWTH SERIES
The investment objective of the Value + Growth Series is capital
appreciation. The Series invests primarily in growth companies
with favorable relationships between price/earnings ratios and
growth rates, in sectors offering the potential for above-average
returns. The Portfolio Manager for the Series is Robertson,
Stephens & Company Investment Management, L.P.
In selecting investments for the Series, the primary emphasis of
the Portfolio Manager, is typically on evaluating a company's
management, growth prospects, business operations, revenues,
earnings, cash flows, and balance sheet in relationship to its
share price. The Portfolio Manager may select stocks which it
believes are undervalued relative to the current stock price.
Undervaluation of a stock can result from a variety of factors,
such as a lack of investor recognition of (1) the value of a
business franchise and continuing growth potential, (2) a new,
improved or upgraded product, service or business operation, (3)
a positive change in either the economic or business condition
for a company, (4) expanding or changing markets that provide a
company with either new earnings direction or acceleration, or
(5) a catalyst, such as an impending or potential asset sale or
change in management, that could draw increased investor
attention to a company. The Portfolio Manager also may use
similar factors to identify stocks which it believes to be
overvalued and may engage in short sales of such securities.
The Series may invest a substantial portion of its assets in
securities issued by small companies. Such companies may offer
greater opportunities for capital appreciation than larger
companies, but investments in such companies may involve certain
special risks. See "Description of Securities and Investment
Techniques--Small Companies" for a discussion of such risks.
The Series may invest in securities principally traded in foreign
markets and may buy or sell foreign currencies and options and
futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments. The Series also may at
times invest a substantial portion of its assets in securities of
issuers in developing countries and securities traded in the over-
the-counter markets in such countries and not on any exchange,
which may affect the liquidity of the investment and expose the
Series to the credit risk of its counterparties in trading those
investments. International investing in general may involve
greater risks than U.S. investments. These risks may be
intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. (See
"Description of Securities and Investment Techniques").
The Series may invest in debt securities from time to time if the
Portfolio Manager believes that it might help achieve the Series'
objective. The Series may invest in debt securities to the
extent consistent with its investment policies, although the
Portfolio Manager expects that under normal circumstances, the
Series would not likely invest a substantial portion of its
assets in debt securities. The Series will invest only in
securities rated investment grade (generally securities rated Baa
or better by Moody's or BBB or better by Standard & Poor's) or
considered by the Portfolio Manager to be of comparable quality.
Descriptions of the securities ratings assigned by Moody's and
S&P are contained in the Appendix of the SAI. The Series may at
times invest in so-called "zero-coupon" bonds and "payment-in-
kind" bonds. See "Descriptions of Securities and Investment
Techniques-Zero Coupon Bond." The Series will not necessarily
dispose of a security when its debt rating is reduced below its
rating at the time of purchase, although the Portfolio Manager
will monitor the investment to determine whether continued
investment in the security will assist in meeting the Series'
investment objective.
To hedge against changes in net asset value or to attempt to
increase its investment return the Series may buy and sell: put
and call options; futures contracts; options on futures
contracts; index futures contracts and options on index futures
and on indices; warrants foreign securities indices; purchase no
more than 25% of the value of its net assets long-term exchange-
traded options called Long-Term Equity Anticipation Securities
("LEAPs") and Buy-Write Options Derivatives ("BOUNDs); and
options in the over-the-counter markets but only when appropriate
exchange-traded transactions are unavailable and when, in the
opinion of the Portfolio Manager, the pricing mechanism and
liquidity of over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their
obligations. The Series will not purchase futures or options on
futures or sell futures if, a result, the sum of the initial
margin deposits on the Series' existing futures position and
premiums paid for outstanding options on futures contracts would
exceed 5% of the Series' assets. (For options that are "in-the-
money" at the time of purchase, the amount by which the options
is "in-the-money is excluded from this calculation.)
At times the Series may invest more than 25% of its assets in
securities of issuers in one or more market sectors such as, for
example, the technology sector. A market sector may be made up of
companies in a number of related industries. The Series would
only concentrate its investments in a particular market sector if
the Series' Portfolio Manager were to believe the investment
return available from concentration in that sector justifies any
additional risk associated with concentration in that sector.
When the Series concentrates its investments in a market sector,
financial, economic, business, and other developments affecting
issuers in that sector will have a greater effect on the Series
than if it had not concentrated its assets in that sector.
The Series may lend Series securities to broker-dealers and may
enter into repurchase agreements. These transactions must be
fully collateralized at all times, but involve some risk to the
Series if the other party should default on its obligations and
the Series is delayed or prevented from recovering the
collateral.
At times, the Portfolio Manager may judge that market conditions
make pursuing the Series' basic investment strategy inconsistent
with the best interests of its shareholders. At such times, the
Portfolio Manager may temporarily use alternative strategies,
primarily designed to reduce fluctuations in the values of the
Series' assets. In implementing these "defensive" strategies, the
Series may invest in U.S. Government securities, other high-
quality debt instruments, and other securities the Portfolio
Manager believes to be consistent with the Series' best
interests.
The length of time a Series has held a particular security is not
generally a consideration in investment decisions. The investment
policies of a Series may lead to frequent changes in the Series'
investments, particularly in periods of volatile market
movements. Such portfolio turnover generally involves some
expense to a Series, including brokerage commissions or dealer
markups and other transaction costs on the sale of securities and
reinvestment in other securities. Such sales may result in
realization of taxable capital gains.
GLOBAL FIXED INCOME SERIES
The investment objective of the Global Fixed Income Series is to
provide high total return. The Series will seek to achieve its
objective by investing in both domestic and foreign debt
securities and related foreign currency transactions. The total
return will be sought through a combination of current income,
capital gains and gains in currency positions. The Portfolio
Manager for the Series is Credit Suisse Asset Management,
Limited.
Under normal market conditions, the Series will invest primarily
in securities considered to be goverment securities, such as:
(i) obligations issued or guaranteed by foreign national
governments, their agencies, instrumentalities, or political
subdivisions (including any entity which is majority owned by
such government, agency, instrumentality, or political
subdivision); (ii) U.S. government securities; and (iii) debt
securities issued or guaranteed by supranational organizations.
The Series may also invest in non-government foreign and domestic
debt securities, including corporate debt securities, bank
obligations, mortgage-backed or asset-backed securities, and
repurchase agreements.
As a global portfolio, the Series may invest in
securities issued in any currency and may hold foreign
currencies. Under normal conditions, the Series' Portfolio
Manager expects that the Series generally will be invested in at
least six different countries, including the U.S., although the
Series may at times invest all of its assets in a single country.
It is currently anticipated that the Series' assets will be
invested principally within, or in the currencies of, Australia,
Canada, Japan, New Zealand, the United States, Scandinavia, and
Western Europe and in securities denominated in the currencies of
those countries or denominated in multinational currency units,
such as the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain
states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Community to reflect changes in the
relative values of the underlying currencies. Securities of
issuers within a given country may be denominated in the currency
of another country. In addition, when the Series' Portfolio
Manager believes that U.S. securities offer superior
opportunities for achieving the Series' investment objective, or
for temporary defensive purposes, the Series may invest
substantially all of its assets in securities of U.S. issuers or
securities denominated in U.S. dollars. The Series may also
acquire securities and currency in less developed countries as
well as in developing countries. International investing in
general may involve greater risks than U.S. investments. These
risks may be intensified in the case of investments in emerging
markets or countries with limited or developing capital markets.
The Series is also authorized to invest in debt securities of
supranational entities. A supranational entity is an entity
designated or supported by the national government of one or more
countries to promote economic reconstruction or development
(i.e., the World Bank, the European Investment Bank and the Asian
Development Bank). The Series is further authorized to invest in
"semi-governmental securities," which are debt securities issued
by entities owned by either a national, state or equivalent
government or are obligations of one of such government
jurisdictions which are not backed by its full faith and credit
and general taxing powers.
The Series may invest in debt securities of any type of issuer,
including foreign and domestic corporations, the 100 largest
foreign commercial banks in terms of total assets, and other
business organizations, domestic and foreign governments and
their political subdivisions, including the U.S. government, its
agencies, and authorities or instrumentalities. The Series may
invest in debt securities with varying maturities. Under current
market conditions, it is expected that the dollar-weighted
average maturity of the Series' debt investments will not exceed
10 years. Generally, the average maturity of the Series' debt
portfolio will be shorter when interest rates worldwide or in a
particular country are expected to rise, and longer when interest
rates are expected to fall. To protect against credit risk, the
Portfolio invests primarily in high-grade debt securities. At
least 65% of the Series' investments will consist of securities
rated within the three highest rating categories of S&P (AAA, AA,
A) or Moody's (AAA, AA or A) or if unrated, will be considered by
the Portfolio Manager to be of equivalent quality. The Series
may engage in certain transactions, which include dollar roll
transactions, reverse repurchase agreements, interest rate
transactions, options on securities and indexes, futures and
options on futures, options on foreign currencies, foreign
exchange transactions and over the counter options. (See
"Description of Securities and Investment Techniques.")
The Series is classified as a "non-diversified" investment
company, as described above.
The Series' net asset value per share fluctuates, depending on
(i) current worldwide market interest rates, (ii) the value of
the currencies in which the Portfolio's securities are
denominated when compared to the U.S. dollar, (iii) the success
of the Portfolio Manager's currency hedging techniques, and (iv)
the creditworthiness of the issuers in which the Series is
invested. In pursuing the Portfolio's investment objective,
however, the Portfolio Manager actively manages the Series in an
effort to minimize the effect of such factors on the Series' net
asset value per share. The Portfolio Manager allocates the
Series' investments among those markets, issuers and currencies
which it believes offer the most attractive combination of high
income and principal stability. In evaluating investments for the
Series, the Portfolio Manager analyzes relative yields and the
appreciation potential of securities in particular markets; world
interest rates and monetary trends; economic, political and
financial market conditions in different countries; credit
quality; and the relationship of individual foreign currencies to
the U.S. dollar. The Portfolio Manager also relies on internally
and externally generated financial, economic, and credit research
to evaluate alternative investment opportunities.
The Series may adjust its portfolio as it deems advisable in view
of prevailing or anticipated market conditions to accomplish the
Series' investment objective. For example, the Portfolio may sell
portfolio securities in anticipation of a movement in interest
rates. Frequency of portfolio turnover will not be a limiting
factor if the Portfolio considers it advantageous to purchase or
sell securities. The Portfolio Manager anticipates that the
Series portfolio turnover rate generally will not exceed 300%. A
higher rate of portfolio turnover may result in correspondingly
higher portfolio transaction costs which would have to be borne
directly by the Trust and ultimately by the shareholders.
GROWTH OPPORTUNITIES SERIES
The investment objective of the Growth Opportunities Series is
capital appreciation which, under normal conditions, it seeks by
investing at least 65% of its total assets in equity securities
of domestic companies. Although such companies may be of any
size, the Series targets companies having total market
capitalizations of $1 billion or more. The Portfolio Manager for
the Series is Montgomery Asset Management, LLC.
The Series emphasizes investments in common stock, but also
invests in other types of equity securities and equity derivative
securities. Current income from dividends interest and other
sources is only incidental. The Series also may invest up to 35%
of its total assets in highly rated debt securities. The
Portfolio Manager does not expect the Series to be consistently
fully invested in equity securities. During periods that the
Portfolio Manager deems appropriate, the Series may take a more
defensive position and be significantly invested in cash and cash
equivalents.
The Series seeks growth at a reasonable value, identifying
companies with sound fundamental value and potential. The Series
selects its investments based on a combination of quantitative
screening techniques and fundamental analysis. The Series
initially identifies a universe of investment candidates by
screening companies based on charges in rates of growth and
valuation ratios such as price to sales, price to earnings and
price to cash flows. Through this process, the Series seeks to
identify rapidly growing companies with reasonable valuations and
accelerating growth rates, or having low valuations and initial
signs of growth. The Series then subjects these companies to a
rigorous fundamental analysis, focusing on balance sheets and
income statements; company visits and discussions with
management; contact with industry specialists and industry
analysts; and review of the competitive environments.
The Series may enter into repurchase agreements and reverse
repurchase agreements, invest in U.S. government securities, up
to 10% of its total net assets in investment companies, leverage
transactions, lend portfolio securities up to 30% of Series total
net assets, when-issued and forward commitment securities,
purchase and write put and call options on securities, currencies
and stock indexes, write "covered" call and put options,. The
Series will not enter into any options on securities, securities
indices or currencies or related options (including options on
futures) if the sum of the initial margin deposits and premiums
paid for any such option or options would exceed 5% of its total
assets, and it will not enter into options with respect to more
than 25% of its total assets The Series may borrow up to one
third of its total net assets, but will not purchase any
securities while borrowings exceed 10%. The Series may invest in
interest rate futures contracts or related options only if the
sum of initial margin deposits on futures contracts, related
options (including options on securities, securities indices and
currencies) and premiums paid for any such related options would
exceed 5% of its total assets. The Series does not purchase
futures contracts or related options if, as a result, more than
one-third of its total assets would be so invested. The Series
may invest in forward currency contracts, but may not invest more
than one-third of its assets in such contracts. The Series may
invest in futures, swaps, including equity swaps, and options on
futures. The Series may invest up to 15% of its total net assets
in illiquid securities. See "Description of Securities and
Investment Techniques."
DEVELOPING WORLD SERIES
The investment objective of the Developing World Series is
capital appreciation which, under normal conditions it seeks by
investing at least 65% of its total assets in equity securities
of Emerging Market Companies. Under normal conditions, the
Series maintains investments in at least six emerging market
countries at all times and invests no more than 35% of its total
assets in any one emerging market country. The Portfolio Manager
for the Series is Montgomery Asset Management, LLC.
The Portfolio Manager regards the following to be emerging market
countries: Latin America (Argentina, Brazil, Chile, Colombia,
Costa Rica, Jamaica, Mexico, Peru, Trinidad and Tobago, Uruguay,
Venezuela); Asia (Bangladesh, China, India, Indonesia, Korea,
Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka,
Taiwan, Thailand, Vietnam); southern and eastern Europe (Czech
Republic, Greece, Hungary, Poland, Portugal, Russia, Turkey); the
Middle East (Israel, Jordan); and Africa (Egypt, Ghana, Ivory
Coast, Kenya, Morocco, Nigeria, South Africa, Tunisia, Zimbabwe).
In the future, the Series may invest in other emerging market
countries.
The Series uses a proprietary, quantitative asset allocation
model created by the Manager. This model employs mean-variance
optimization, a process used in developed markets based on modern
portfolio theory and statistics. Mean-variance optimization
helps determine the percent of assets to invest in each country
to maximize expected returns for a given risk level. The Series'
aims are to invest in those countries that are expected to have
the highest risk/reward trade-off when incorporated into a total
portfolio context. This "top-down" country selection is combined
with "bottom-up" fundamental industry analysis and stock
selection based on original research and publicly available
information and company visits.
The Series invests primarily in common stock but also may invest
in other types of equity and equity derivative securities. It may
invest up to 35% of its total assets in debt securities,
including up to 5% in debt securities rated below investment
grade. See "Description of Securities and Investment Techniques"
and the Statement of Additional Information.
The Series may invest in certain debt securities issued by the
governments of emerging market countries that are, or may be
eligible for, conversion into investments in Emerging Market
Companies under debt conversion programs sponsored by such
governments. If such securities are convertible to equity
investments, the Series deems them to be equity derivative
securities.
The Series may enter into repurchase agreements, U.S. government
securities, up to 10% of its total net assets in investment
companies, leverage transactions, lend portfolio securities up to
30% of Series total net assets, when-issued and forward
commitment securities, purchase and write put and call options on
securities, currencies and stock indexes, write "covered" call
and put options. The Series will not enter into any options on
securities, securities indices or currencies or related options
(including options on futures) if the sum of the initial margin
deposits and premiums paid for any such option or options would
exceed 5% of its total assets, and it will not enter into options
with respect to more than 25% of its total assets. The Series
may borrow up to one third of its total net assets, but will not
purchase any securities while borrowings exceed 10%. The Series
may invest in interest rate futures contracts or related options
only if the sum of initial margin deposits on futures contracts,
related options (including options on securities, securities
indices and currencies) and premiums paid for any such related
options would exceed 5% of its total assets. A Series does not
purchase futures contracts or related options if, as a result,
more than one-third of its total assets would be so invested.
The Series may invest in forward currency contracts, but may not
invest more than one-third of its assets in such contracts. The
Series may invest in futures, swaps, including equity swaps, and
options on futures. The Series may invest up to 15% of its total
net assets in illiquid securities. See "Description of
Securities and Investment Techniques."
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, Elizabeth J. Newell, 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 an indirect wholly
owned subsidiary of ING Groep, N.V. ("ING"). 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 offers, 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 ING. Prior to October 24,
1997, DSI was a wholly owned subsidiary of Equitable of Iowa
Companies and an affiliate of one of the Portfolio Managers,
Equitable Investment Services, Inc.
DSI performs the activities described above in this Prospectus
and below under the caption "Distributor." Under the Management
Agreement, DSI has overall responsibility, subject to the
supervision of the Board of Trustees, for engaging portfolio
managers and for monitoring and evaluating the management of the
assets of each Series by the Portfolio Managers. The Manager is
also responsible for monitoring and evaluating the Portfolio
Managers on a periodic basis, and will consider their performance
records with respect to the investment objectives and policies of
each Series. The Manager may, if appropriate, recommend that the
Trustees consider a change in the Portfolio Manager, although the
Manager does not expect to recommend frequent changes in
Portfolio Managers as a matter of operating procedure for the
Series.
As Manager, DSI is responsible, subject to the supervision of the
Board of Trustees, for providing administrative and other
services necessary for the ordinary operation of the Series in
addition to advisory services. The Manager provides the overall
business management and administrative services necessary for the
Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of
the Series. The Manager is responsible for providing or
procuring, at the Manager's expense, the services reasonably
necessary for the ordinary operation of the Series, including
custodial, administrative, transfer agency, portfolio accounting,
dividend disbursing, auditing, and ordinary legal services. The
Manager also acts as liaison among the various service providers
to the Series, including the custodian, portfolio accounting
agent, Portfolio Managers, and the insurance company or companies
to which the Series offer their shares. The Manager is also
responsible for ensuring that the Series operate in compliance
with applicable legal requirements and for monitoring the
Portfolio Managers for compliance with requirements under
applicable law and with the investment policies and restrictions
of the Series. DSI does not bear the expense of brokerage fees
and other transactional expenses for securities or other assets
(which are generally considered part of the cost for the assets),
taxes (if any) paid by a Series, interest on borrowing, fees and
expenses of the independent trustees, and extraordinary expenses,
such as litigation or indemnification expenses.
Pursuant to the Management Agreement, the Manager is authorized
to exercise full investment discretion and make all
determinations with respect to the investment of a Series' assets
and the purchase and sale of portfolio securities for one or more
Series in the event that at any time no Portfolio Manager is
engaged to manage the assets of a Series. The Management
Agreement may be terminated without penalty by the vote of the
Board of Trustees or the shareholders of the Series, or by the
Manager, upon 60 days' written notice by the Board or the
Manager, and will terminate automatically if assigned as that
term is described in the Investment Company Act of 1940.
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 1.00% 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 and 1.75%
Developing World
Managed Global 1.25% on the first $500 million; and
1.05% on the amount over $500 million.
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
Growth & Income, 1.15% of first $250 million;
Value + Growth, and 1 10% of next $400 million;
Growth Opportunities 1.00% of next $450 million; and
0.95% of amount in excess of $1.1 billion
Mid-Cap Growth 1.00% of first $250 million;
Total Return, and 0.95% of next $400 million;
Research 0.90% of next $450million; and
0.85% of amount in excess of $1.1 billion
Global Fixed Income 1.60%
As compensation for its services during the most recent fiscal
year, the Trust, pursuant to the Management Agreement, paid the
Manager fees which represented the following percentage of each
Series' average daily net assets: Multiple Allocation Series --
0.99%; Fully Managed Series -- 0.99%; Limited Maturity Bond
Series -- 0.60%; Hard Assets Series -- 0.99%; Real Estate Series
- -- 0.99%; All-Growth Series -- 0.99%; Capital Appreciation Series
- -- 0.99%; Rising Dividends Series -- 0.99%; Value Equity Series -
- - 0.99%; Strategic 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 Total
Return, Research, Growth & Income, Value + Growth, Global Fixed
Income, Growth Opportunities, and Developing World Series had not
commenced operations as of the end of the most recent semi-annual
reporting period (ended June 30, 1997). 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 many of the ordinary expenses for each Series,
including custodial, administrative, transfer agency, portfolio
accounting, auditing, and ordinary legal expenses are paid by the
Manager; whereas, most mutual funds pay for these expenses directly
from their own assets.
THE PORTFOLIO MANAGERS
The Trust and the Manager have entered into Portfolio Management
Agreements with each of the Portfolio Managers. Under these
Agreements, the Portfolio Manager of each Series has full
investment discretion and makes all determinations with respect
to the investment of a Series' assets and the purchase and sale
of portfolio securities and other investments. The Portfolio
Management Agreements may be terminated without penalty by the
vote of the Board of Trustees or the shareholders of a Series, by
the Portfolio Manager, or by the Manager, on 60 days' written
notice by any party to a Portfolio Management Agreement and will
terminate automatically if assigned as that term is described in
the 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 Equity Series is Zweig Advisors Inc., located at 900
Third Avenue, New York, NY 10022. The Portfolio Manager was
organized on May 7, 1986 and currently serves as investment
adviser to The Zweig Fund, Inc., a closed-end, diversified
management investment company.
The asset allocation strategy for the Multiple Allocation Series
is determined by Dr. Martin E. Zweig, the day-to-day stock
selection is made by Mr. Jeffrey Lazar, and the day-to-day bond
selection is made by Mr. Carlton Neel. The asset allocation
strategy for the Strategic Equity Series is determined by Dr.
Martin E. Zweig and the portfolio decisions for the Series are
made by Mr. David Katzen.
Dr. Zweig, the President of the Portfolio Manager, has been
engaged in the business of providing investment advisory and
portfolio management services for over 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 controller of the Portfolio Manager since 1986. Mr. Lazar
has also been Vice President of The Zweig Fund, Inc. since 1987
and Vice President of The Zweig Total Return Fund, Inc. since its
inception in 1988.
Mr. Katzen is a Vice President of the Portfolio Manager and has
held senior positions with affiliates of the Portfolio Manager
for more than five years. Mr. Katzen is a Senior Vice President
of The Zweig Series Trust mutual fund and has been the portfolio
manager of its Zweig Strategy Fund and Zweig Appreciation Fund
since their inceptions.
Mr. Neel joined the Portfolio Manager in June 1995. Mr. Neel is a
First Vice President of The Zweig Series Trust mutual fund and
has been the portfolio manager for its Zweig Managed Assets and
Government Securities Series since July 1995. Prior to joining
the Portfolio Manager, Mr. Neel was a Vice President with J.P.
Morgan & Co., Inc.
Pursuant to the Portfolio Management Agreement, the Manager (and
not the Trust) pays Zweig Advisors Inc. a monthly fee equal to an
annual rate of 0.50% of the average daily net assets of the
Multiple Allocation Series and 0.50% of the average daily net
assets of the Strategic Equity Series.
T. ROWE PRICE ASSOCIATES, INC.
The Portfolio Manager to the Fully Managed Series is T. Rowe
Price Associates, Inc. ("T. Rowe Price"), located at 100 East
Pratt St., Baltimore, MD 21202. T. Rowe Price was founded in 1937
by the late Thomas Rowe Price, Jr. As of December 31, 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 following members: Richard P. Howard,
Chairman; Arthur B. Cecil, III; Charles A. Morris; David L. Rea;
George A. Roche; and Richard T. Whitney. The Committee Chairman
has day-to-day responsibility for managing the Fully Managed
Series and works with the Committee in developing and executing
the Fully Managed Series' investment program. Mr. Howard has been
Chairman of the Committee since 1989. He joined T. Rowe Price in
1982 and has been managing investments since 1989.
From the Fully Managed Series' commencement of operations through
December 31, 1994, Weiss, Peck & Greer Advisers, Inc. served as
Portfolio Manager.
Pursuant to a Portfolio Management Agreement, the Manager (and
not the Trust) pays T. Rowe Price a monthly fee equal to an
annual rate of 0.50% of the average daily net assets of the Fully
Managed Series.
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.
VAN ECK ASSOCIATES CORPORATION
The Portfolio Manager to the Hard Assets Series is Van Eck
Associates Corporation ("Van Eck"), located at 99 Park Avenue,
New York, New York 10016. Van Eck acts as investment adviser to
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 operations. Over
the past five years, Mr. Bingham has served as an officer and
portfolio manager for mutual funds for which Van Eck Associates
Corporation serves as investment adviser or sub-investment
adviser.
Mr. Derek van Eck is Director of Global Investments and Executive
Vice President of Van Eck since 1993 and an officer of other
mutual funds advised by Van Eck since 1988. During 1991-93, Mr.
van Eck completed MBA course requirements. He has been serving in
his current capacity with the Series since July 1995.
Total aggregate assets under management of Van Eck Associates
Corporation as of December 31, 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 to 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.
Pilgrim Baxter assumed portfolio management of the All-Growth
Series on February 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 Management, 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 Chancellor LGT's affiliate,
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 are Ted Ujazdowski and Ellen Adams. Mr.
Ujazdowski has served as Managing Director of Chancellor LGT
since 1989. Ms. Adams has served as a Director and Head of
North American Equities since 1995, as Director of Equity
Research from 1993 to 1995, as a Portfolio Manager and Analyst
from 1992 to 1993.
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, LLC
The Portfolio Manager to the Rising Dividends Series is Kayne
Anderson Investment Management, LLC ("Kayne Anderson"), located
at 1800 Avenue of the Stars, Suite 200, Los Angeles, California
90067. The Portfolio Manager is a registered investment adviser
under the Investment Advisors Act of 1940, as amended. It was
organized on June 29, 1994 as a California limited liabilty company.
Kayne Anderson (in its orgiginal form) has been in the business
of furnishing investment advice to institutional and private
clients since 1984, when founded by Richard
A. Kayne and John E. Anderson. Messrs. Kayne, Anderson and
Allan M. Rudnick own in the aggregate over 80% Kayne Anderson.
As of June 30, 1997, Kayne Anderson managed portfolios
which, in the aggregate, amounted to approximately $2.7
billion.
Mr. Rudnick is the Senior Portfolio Manager responsible for
the management of the Rising Dividends Series. Prior to August,
1989, Mr. Rudnick was President of Pilgrim Asset Management
and Chief Investment Officer of the Pilgrim Group of Mutual Funds.
Prior to January 1, 1995, Kayne, Anderson Investment Management,
Inc. served as Portfolio Manager to the Rising Dividends Series.
From January 1, 1995 to September 30, 1997, the portfolio manager
was Kayne Anderson Investment Management, L.P. ("KAIMLP"). On
September 30, 1997, KAIMLP was merged into Kayne Anderson. KAIMLP
became the Portfolio Manager to substitution agreements. No change
in the personnel managing the Rising Dividends Series resulted from
such substitutions.
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. Eagle currently has approximately $3.5 billion in
client assets under management.
The individual responsible for the day-to-day operation of the
Series' investments since September 1, 1996 is Michael J. Chren.
Until assuming responsibilities for the Series, Mr. Chren was Co-
Portfolio Manager of Eagle's Equity Income Division since
January, 1996 and was a research analyst for Eagle since 1994.
Prior to joining Eagle, Mr. Chren served as an investment analyst
since 1986: with Bear, Stearns in 1993, with Raymond James &
Associates, 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 accounts on a discretionary basis. Eagle is a wholly
owned subsidiary of Raymond James Financial, Inc., a publicly
traded company whose shares are listed on the New York Stock
Exchange. Thomas A. James is the principal shareholder of Raymond
James Financial, Inc.
Pursuant to a Portfolio Management Agreement, the Manager (and
not the Trust) pays Eagle a monthly fee equal to an annual rate
of 0.50% of the average daily net assets of the Value Equity
Series.
E.I.I. REALTY SECURITIES, INC.
The Portfolio Manager to the Real Estate Series is E.I.I. Realty
Securities, Inc., located at 667 Madison Avenue, 16th Floor, New
York, NY 10021.
The Portfolio Manager is a professional investment adviser which,
with its affiliates, has 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 estate
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 Manager 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
billion 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 services 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 control 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 to the Limited Maturity Bond Series and the
Liquid Asset Series is Equitable Investment Services,
Inc.,("EISI"), located at 909 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 Manager 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 investment
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 Director since 1986. He
joined the Portfolio Manager as Executive Vice President in 1986,
and has over 18 years of direct investment experience.
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 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 million; and 0.15% of the amount
over $150 million, subject to a minimum annual fee of $35,000
(payable at the end of each calendar year). The Manager (and not
the Trust) pays Equitable Investment Services, Inc. a fee,
payable monthly, 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).
EISI assumed portfolio management of the Limited Maturity Bond
and Liquid Assets Series on August 14, 1996. Bankers Trust
Company served as portfolio manager from May 1, 1992 through
August 13, 1996. Prior to that date, a different firm served as
Portfolio Manager to both Series.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
The Portfolio Manager to the Mid-Cap Growth Series, Research
Series and Total Return Series is Massachusetts Financial
Services Company ("MFS"), located at 500 Boylston Street, Boston,
Massachusetts 02116. MFS is America's oldest mutual fund
organization. MFS and its predecessor organizations have a
history of money management dating from 1924 and the founding of
the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS
organization were approximately $43.9 billion on behalf of
approximately 1.9 million investor accounts as of February 28,
1997. As of such date, the MFS organization managed approximately
$28.9 billion of assets in equity securities and $19.9 billion of
assets in fixed income securities. Approximately $4.0 billion of
assets managed by MFS are invested in securities of foreign
issuers and non-U.S. dollar denominated securities of U.S.
issuers. MFS is a subsidiary of Sun Life Assurance Company of
Canada (U.S.) which in turn is a wholly owned subsidiary of Sun
Life Assurance Company of Canada ("Sun Life"). Sun Life, a
mutual life insurance company, is one of the largest
international life insurance companies and has been operating in
the U.S. since 1895, establishing a headquarters office in the
U.S. in 1973. The executive officers of MFS report to the
Chairman of Sun Life.
Kevin R. Parke is the portfolio manager for the Research Series.
Mr. Parke oversees the selection of Series securities made by
various equity research analysts employed by MFS. Mr. Parke is a
Senior Vice President--Investments of MFS and has been employed
as a portfolio manager by MFS since 1985.
David M. Calabro heads a team of portfolio managers of MFS for
the Total Return Series. Mr. Calabro is a Vice President--
Investments of MFS and manages the equity portion of the Series
along with Judith N. Lamb, a Vice President--Investments of MFS,
Lisa B. Nurme, a Vice President--Investments of MFS and Maura
Shaughnessy, a Vice President--Investments of MFS. Geoffrey L.
Kurinsky, a Senior Vice President--Investment manages the fixed
income portion of the Series and has been employed as a portfolio
manager by MFS since 1987. Mr. Calabro has been employed as a
portfolio manager by MFS since 1992. Ms. Lamb has been employed
as a portfolio manager by MFS since 1992. Ms. Nurme has been
employed as a portfolio manager by MFS since 1987. Ms.
Shaughnessy has been employed as a portfolio manager by MFS since
1991.
John W. Ballen and Mark Regan are the Series managers for the Mid-
Cap Growth Series. Mr. Ballen is a Senior Vice President--
Investments and the Chief Equity Officer of MFS and has been
employed by MFS since 1984. Mr. Regan is a Vice President--
Investments at MFS and has been employed as a Series manager by
MFS since 1989.
MFS and the individuals named previously have served in similar
capacities for similar series of the Equi-Select Series Trust,
the predecessor series of the Mid-Cap Growth, Research and Total
Return Series. Pursuant to the Portfolio Management Agreement,
the Manager (not the Trust) pays to MFS a monthly fee equal to an
annual rate of 0.40 % of first $300 million and 0.25% of average
net assets over and above $300 million for each of the Mid-Cap
Growth, Research and Total Return Series.
ROBERTSON, STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P.
The Portfolio Manager to the Growth & Income and Value + Growth Series
is Robertson, Stephens & Company Investment Management, L.P. ("RSIM,
L.P."), located at 555 California Street, San Francisco, CA 94104.
RSIM, L.P., a California partnership, was formed in 1993 and is
registered as an investment adviser with the U.S. Securities and
Exchange Commission. RSIM, L.P. is a wholly owned indirect subsidiary
of BankAmerica Corp. BankAmerica Corp. is a global financial services
company with approximately $250 billion in assets and an equity capital
base of approximately $20 billion. RSIM, L.P. and its affiliates have
in excess of $5 billion under management in public and private
investment funds.
Ronald E. Elijah joined RSIM, L.P. in 1992 and is the portfolio manager
of the Value + Growth Series. From August 1988 to January 1990, Mr.
Elijah was a securities analyst for Robertson, Stephens & Company LLC
(now BancAmerica Robertson Stephens). From January 1990 to January
1992, Mr. Elijah was an analyst and portfolio manager for Water Street
Capital, which managed short selling investment funds.
John L. Wallace is the portfolio manager for the Growth & Income Series.
Prior to joining RSIM, L.P., Mr. Wallace was Vice President of
Oppenheimer Management Corp., where he was portfolio manager of the
Oppenheimer Main Street Income & Growth Fund.
RSIM, L.P. and the individuals named previously have served in similar
capacities for similar series of the Equi-Select Series Trust, the
predecessor series of the Growth & Income and Value + Growth Series.
Pursuant to the Portfolio Management Agreement, the Manager (not the
Trust) pays to RSIM, L.P. a monthly fee equal to an annual rate of 0.55%
of the first $200 million and 0.45% of over $200 million of average
daily net assets of the Growth & Income Series; and 0.55% of the first
$500 million and 0.45% of over $500 million of average daily net assets
of the Value + Growth Series.
CREDIT SUISSE ASSET MANAGEMENT LIMITED
The Portfolio Manager to the Global Fixed Income Series is Credit
Suisse Asset Management Limited ("Credit Suisse"), located at
Beaufort House, London, England, is the Sub-Adviser for the
International Fixed Income Portfolio of the Trust. Credit Suisse
is a wholly owned subsidiary of Credit Suisse, the second largest
Swiss bank, which in turn is a subsidiary of CS Holding, a Swiss
corporation.
Robert J. Parker and Mark J. Morris are the portfolio managers of
Credit Suisse for the Global Fixed Income Series. Mr. Parker is a
managing director, and President of Credit Suisse. Mr. Parker is
also chief investment officer of the international fixed income
group. Mr. Parker was a founding member of Credit Suisse. Prior
to joining the firm, he spent six years at N.M. Rothschild and
Sons, Limited as assistant director in the investment management
department. He began his career with Lloyds Bank International in
France in the corporate finance department. Mr. Parker earned an
M.A. degree in economics from the University of Cambridge.
Mr. Morris is a director and global fixed income portfolio
manager of Credit Suisse. Mr. Morris has responsibility for both
U.S. and non-U.S. clients. He joined Credit Suisse in 1986 as a
fixed income portfolio manager with primary research
responsibility for Japan, and also to coordinate currency views.
Prior to joining the firm, he worked at Bank of America and
Barclays National Industrial Bank. Mr. Morris earned a B.Sc.
degree in electrical engineering and an M.B.A. in finance from
Cape Town University. He is a member of the Securities Institute.
Credit Suisse and the individuals named previously have served in
similar capacities for a similar series of the Equi-Select Series
Trust, the predecessor series of the Global Fixed Income Series.
Pursuant to the Portfolio Management Agreement, the Manager (not
the Trust) shall pay to Credit Suisse 0.45% of first $200
million, 0.30% of next $500 million, 0.25% of next $1 billion,
0.10% of $2 billion of average daily net asset of the Global
Fixed Income Portfolio.
MONTGOMERY ASSET MANAGEMENT, LLC
The Portfolio Manager of the Growth Opportunities Series and
Developing World Series is Montgomery Asset Management, LLC
("Montgomery"), located at 101 California Street, San Francisco,
CA 9411. Montgomery, a Delaware limited liability company, is a
subsidiary of Commerzbank AG. Montgomery was formed in February
1997 as an investment adviser registered as such with
the SEC under the Investment Advisers Act of 1940, as amended.
Montgomery advises advises private accounts as well as the other
mutual funds. Commerzbank is one of the largest commercially held
banks in Germany, has total assets of approximately $268 billion.
Commerzbank and its affiliates had more than $479 billion in
assets under management as of June 30, 1997. Commerzbank's asset
management operations involve more than 1,000 employees in 13
countries worldwide.
The individuals responsible for the management of the Growth
Opportunities Series are Roger W. Honour, Kathryn M. Peters and
Andrew Pratt.
Roger W. Honour is a senior portfolio manager and principal
at Montgomery. Prior to joining Montgomery in
June 1993, Mr. Honour spent one year as vice president and
portfolio manager at Twentieth Century Investors in Kansas City,
Missouri. From 1990 to 1992, he served as vice president and
portfolio manager at Alliance Capital Management. From 1978 to
1990, Mr. Honour was a vice president with Merrill Lynch Capital
Markets.
Kathryn M. Peters is a portfolio manager and principal at
Montgomery. From 1993
to 1995, Ms. Peters was an associate in the investment banking
division of Donaldson, Lufkin & Jenrette in New York. Prior to
that, she analyzed mezzanine investments for Barclays de Zoete
Wedd in New York. From1988 to 1990, Ms. Peters worked in the
leveraged buy-out group of Marine Midland Bank.
Andrew Pratt, CFA, is a portfolio manager and principal at
Montgomery. He
joined Montgomery from Hewlett-Packard Company, where he was an
equity analyst, managed a portfolio of small capitalization
technology companies, and researched private placement and
venture capital investments. From 1983 through 1988, he worked
in the Capital Markets Group at Fidelity Investments in Boston,
Massachusetts.
The individuals responsible for the management of the Developing
World Series are Josephine S. Jimenez, Bryan L. Sudweeks, Frank
Chiang and Angeline Ee.
Josephine S. Jimenez, CFA, is a managing director and principal
at Montgomery. From 1988
through 1991, Ms. Jimenez worked at Emerging Markets Investors
Corporation/Emerging Markets Management in Washington, D.C. as
senior analyst and portfolio manager.
Bryan L. Sudweeks, Ph.D., CFA, is a senior portfolio manager and
principal at Montgomery. Before joining Montgomery, he
was a senior analyst and portfolio manager at Emerging Markets
Investors Corporation/Emerging Markets Management in Washington,
D.C. Previously, he was a Professor of International Finance and
Investments at George Washington University and served as Adjunct
Professor of International Investments from 1988 until May 1991.
Frank Chiang is a portfolio manager and principal at Montgomery.
From 1993 until joining Montgomery in 1996, Mr. Chiang was managing
director and portfolio manager at TCW Asia Ltd. in Hong Kong.
Angeline Ee is a portfolio manager and principal at Montgomery.
From 1990 until joining the Montgomery in July 1994, Ms. Ee was an
Investment Manager with AIG Investment Corp. in Hong Kong. From
June 1989 until September 1990, Ms. Ee was a co-manager of a
portfolio of Asian equities and bonds at Chase Manhattan Bank in
Singapore.
Pursuant to the Portfolio Management Agreement, the Manager (not
the Trust) pays to Montgomery a monthly fee equal to an annual
rate of 0.50% of average daily net assets of Growth Opportunities
Series and 0.90% of average daily net assets of Developing World
Series.
OTHER EXPENSES
The expenses of the ordinary operations of each Series are borne
by the Manager pursuant to Management Agreement. The Trust bears
the expenses of taxes (if any) paid by a Series, the fees and
expenses of its independent trustees, any extraordinary expenses,
such as any litigation or indemnification expenses, as well as
other expenses as described under "The Manager." Any such Trust
expenses directly attributable to a Series are charged to that
Series; other expenses are allocated among all the Series. For
the Trust's fiscal year ended December 31, 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 -- 1.26%;
Small Cap -- 0.99% and Liquid Asset Series -- 0.61%. The other
Series had not commenced operations as of June 30, 1997.
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,
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 AND OTHER SERVICE PROVIDERS
The Custodian for the Series is Bankers Trust Company. First Data
Investors Services Group of First Data Corporation provides
certain administrative and portfolio accounting services for all
Series.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes certain types of securities
and investment techniques used by one or more Series and
enumerates potential risks associated with these investments. The
actual securities in which a series may invest are described in
"Investment Objectives and Policies."
For more detailed information on these investment techniques, as
well as information on some types of securities in which some or
all of the Series may invest, including information on U.S.
Government securities, debt securities generally, variable and
floating rate securities, reverse repurchase agreements, lending
portfolio securities, warrants, other investment companies, and
short sales, including short sales against the box, see the
Statement of Additional Information.
MORTGAGE-BACKED SECURITIES
MORTGAGE PASS-THROUGH SECURITIES
Many mortgage-backed securities are mortgage pass-through
securities, which are securities representing interests in
"pools" of mortgages in which payments of both interest and
principal on the securities are made periodically, in effect
"passing through" periodic payments made by the individual
borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the
securities and possibly others). Such instruments differ from
typical bonds because principal is repaid monthly over the term
of the loan rather than returned in a lump sum at maturity.
Timely payment of principal and interest on some mortgage pass-
through securities may be guaranteed by the full faith and credit
of the U.S. Government, as in the case of securities guaranteed
by the Government National Mortgage Association, or "GNMA," or
guaranteed by agencies or instrumentalities of the U.S.
Government, as in the case of securities guaranteed by the
Federal National Mortgage Association ("FNMA") or the Federal
Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to
purchase the agency's obligations and not by the full faith and
credit of the U.S. Government. For more information on GNMA
certificates and FNMA and FHLMC mortgage-backed obligations, see
"Mortgage-Backed Securities" in the Statement of Additional
Information.
OTHER MORTGAGE-BACKED SECURITIES
Some Series may purchase mortgage-backed securities issued by
financial institutions such as commercial banks, savings and loan
associations, mortgage banks, and securities broker-dealers (or
affiliates of such institutions established to issue these
securities) in the form of either collateralized mortgage
obligations ("CMOs") or mortgage-backed bonds. CMOs are
obligations fully collateralized directly or indirectly by a pool
of mortgages on which payments of principal and interest are
dedicated to payment of principal and interest on the CMOs.
Payments are passed through to the holders, although not
necessarily on a pro rata basis, on the same schedule as they are
received. Mortgage-backed bonds are general obligations of the
issuer fully collateralized directly or indirectly by a pool of
mortgages. The mortgages serve as collateral for the issuer's
payment obligations on the bonds but interest and principal
payments on the mortgages are not passed through either directly
(as with GNMA certificates and FNMA and FHLMC pass-through
securities) or on a modified basis (as with CMOs). Accordingly, a
change in the rate of prepayments on the pool of mortgages could
change the effective maturity of a CMO but not that of a mortgage-
backed bond (although, like many bonds, mortgage-backed bonds can
provide that they are callable by the issuer prior to maturity).
Although the mortgage-related securities securing these
obligations may be subject to a government guarantee or third-
party support, the obligation itself is not so guaranteed.
Therefore, if the collateral securing the obligation is
insufficient to make payment on the obligation, a holder could
sustain a loss.
RISKS OF MORTGAGE-BACKED SECURITIES
Although mortgage loans constituting a pool of mortgages, such as
those underlying GNMA certificates, may have maturities of up to
30 years, the actual average life of a mortgage-backed security
typically will be substantially less because the mortgages will
be subject to normal principal amortization and may be prepaid
prior to maturity. In the case of mortgage pass-through
securities such as GNMA certificates or FNMA and FHLMC mortgage-
backed obligations, or modified pass-through securities such as
collateralized mortgage obligations issued by various financial
institutions, early repayment of principal arising from
prepayments of principal on the underlying mortgage loans due to
the sale of the underlying property, the refinancing of the loan,
or foreclosure may expose a Series to a lower rate of return upon
reinvestment of the principal. Prepayment rates vary widely and
may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the
mortgage-backed security.
Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the mortgage-backed security. Accordingly, it is
not possible to accurately predict the average life of a
particular pool. Reinvestment of prepayments may occur at higher
or lower rates than the original yield on the certificates.
Therefore, the actual maturity and realized yield on pass-through
or modified pass-through mortgage-backed securities will vary
based upon the prepayment experience of the underlying pool of
mortgages.
With respect to GNMA certificates, although GNMA guarantees
timely payment even if homeowners delay or default, tracking the
"pass-through" payments may, at times, be difficult. Expected
payments may be delayed due to the delays in registering the
newly traded paper securities. The custodian's policies for
crediting missed payments while errant receipts are tracked down
may vary. Other mortgage-backed securities such as those of FHLMC
and FNMA trade in book-entry form and are not subject to this
risk of delays in timely payment of income.
OTHER ASSET-BACKED SECURITIES
Any Series other than the Liquid Asset, Capital Appreciation,
Rising Dividends, and Emerging Markets Series may purchase other
asset-backed securities (unrelated to mortgage loans) such as
"CARS/SM/" ("Certificates for Automobile Receivables") and Credit
Card Receivable Securities and any other asset-backed securities
that may be developed in the future. See the Statement of
Additional Information for a description of these instruments.
HIGH YIELD BONDS
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 quality and which are commonly referred to
as "junk bonds." Investment in such securities generally provides
greater income and increased opportunity for capital appreciation
than investments in higher quality debt securities, but they also
typically entail greater potential price volatility and principal
and income risk.
In general, high yield bonds are not considered to be investment
grade. They are regarded as predominately speculative with
respect to the issuing company's continuing ability to meet
principal and interest payments. The prices of high yield bonds
have been found to be less sensitive to interest rate changes
than higher-rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in high yield
bond prices. In the case of high yield bonds structured as zero-
coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes, and
therefore tend to be more volatile than securities which pay
interest periodically and in cash.
The secondary market on which high yield bonds are traded is
generally less liquid than the market for higher grade bonds.
Less liquidity in the secondary trading market could adversely
affect the price at which a Series could sell a high yield bond,
and could adversely affect the daily net asset value of the
Series' shares. At times of less liquidity, it may be more
difficult to value the high yield bonds because such valuation
may require more research, and elements of judgment may play a
greater role in the valuation because there is less reliable,
objective data available.
REPURCHASE AGREEMENTS
Repurchase agreements permit an investor to maintain liquidity
and earn income over periods of time as short as overnight.
Repurchase agreements may be characterized as loans
collateralized by the underlying securities. In these
transactions, a Series purchases securities such as U.S. Treasury
obligations or U.S. Government securities (the "underlying
securities") from a broker or bank, which agrees to repurchase
the underlying securities on a certain date or on demand and at a
fixed price calculated to produce a previously agreed-upon return
to the Series. If the broker or bank were to default on its
repurchase obligation and the underlying securities were sold for
a lesser amount, the Series would realize a loss, and may incur
disposition costs in connection with liquidating the collateral.
In the event bankruptcy proceedings are commenced with respect to
the seller, realization of the collateral by a Series may be
delayed or limited, and a loss may be incurred if the collateral
securing the repurchase agreement declines in value during the
bankruptcy proceedings.
A Series may engage in repurchase transactions in accordance with
guidelines approved by the Board of Trustees of the Trust, which
include monitoring the creditworthiness of the parties with which
the Series engages in repurchase transactions, obtaining
collateral at least equal in value to the repurchase obligation,
and marking the collateral to market on a daily basis. See the
Statement of Additional Information "Description of Securities
and Investment Techniques" for further information regarding
repurchase agreements.
ILLIQUID SECURITIES
Illiquid securities include repurchase agreements maturing in
more than seven days, unregistered or restricted securities and
any security which a portfolio manager is unable to sell within
seven days or less. Each Series may invest in illiquid
securities up to its illiquidity limit.
RESTRICTED SECURITIES
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 negotiated 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 Series may be obligated to pay all or
part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the
Series may be permitted to sell a security under an effective
registration statement. If, during such a period adverse market
conditions were to develop, the Series might obtain a less
favorable price than prevailed when it decided to sell.
Restricted securities may be priced at fair value as determined
in good faith by the Series' Portfolio Manager.
SHORT SALES
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. When a Series makes a short sale, the proceeds it receives
are retained by the broker until the Series replaces the borrowed
security. In order to deliver the security to the buyer, the
Series must arrange through a broker to borrow the security and,
in so doing, the Series becomes obligated to replace the security
borrowed at its market price at the time of replacement, whatever
that price may be. The Series may have to pay a premium to borrow
the security. The Series must also pay any dividends or interest
payable on the security until the Series replaces the security.
The Series' obligation to replace the security borrowed in
connection with the short sale will be secured by collateral
deposited with the broker, consisting of cash or securities
acceptable to the broker. In addition, with respect to any short
sale, other than short sales against the box, the Series will be
required to deposit collateral consisting of cash, cash items, or
U.S. Government securities in a segregated account with its
custodian in an amount such that the value of the sum of both
collateral deposits is at all times equal to at least 100% of the
current market value of the securities sold short. The deposits
do not necessarily limit the Series' potential loss on a short
sale, which may exceed the entire amount of the collateral.
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
Some Series may invest in equity securities of foreign issuers,
including American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") (collectively, "Depositary Receipts") which are
described below. Some Series may invest in foreign branches of
commercial banks and foreign banks. See the "Banking Industry and
Savings Industry Obligations" discussion in the Statement of
Additional Information for further description of these
securities.
Each Series is subject to the following guidelines for
diversification of foreign security investments. If a Series has
less than 20% of its assets in foreign issuers, then all of such
investment may be in issuers located in one country. If a Series
has at least 20% but less than 40% of its assets in foreign
issuers, then such investment must be allocated to issuers
located in at least two different countries. Similarly, if a
Series has at least 40% but less than 60% of its assets in
foreign issuers, such investment must be allocated to at least
three different countries. Foreign investments must be allocated
to at least four different countries if at least 60% of a Series'
assets is in foreign issuers, and to at least five different
countries if at least 80% is in foreign issuers. if at least.
For purposes of allocating a Series' investments, a company will
be considered located in the country in which it is domiciled, in
which it is primarily traded, from which it derives a significant
portion of its revenues, or in which a significant portion of its
goods or services are produced.
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 U. S. issuers
are not subject to the foreign country diversification
guidelines.
Investments in foreign securities offer potential benefits not
available solely in securities of domestic issuers by offering
the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies
or business cycles different from those of the United States, or
to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to
U.S. markets. Investments in securities of foreign issuers
involve certain risks not ordinarily associated with investments
in securities of domestic issuers. Such risks include
fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions.
Since each of these Series may invest in securities denominated
or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the value of
securities in the portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are
concerned. In addition, with respect to certain countries, there
is the possibility of expropriation of assets, confiscatory
taxation, other foreign taxation, political or social
instability, or diplomatic developments that could adversely
affect investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing, and financial reporting
standards and requirements comparable to or as uniform as those
of U.S. companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign companies are less
liquid and their prices more volatile than securities of
comparable U.S. companies. Transactional costs in non-U.S.
securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in
the 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 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.
"Sovereign Debt" are debt obligations of governmental issuers in
emerging market countries and industrialized countries. The
sovereign debt issued or guaranteed by certain emerging market
governmental entities and corporate issuers in which the Series
may invest potentially involves a high degree of risk and may be
deemed the equivalent in terms of quality to high risk, low rated
securities (i.e., high yield bonds) and subject to many of the
same risks as such securities. Similarly, the Series may have
difficulty disposing of certain of these debt obligations because
there may be a thin trading market for such securities. In the
event a governmental issuer defaults on its obligations, the
Series may have limited legal recourse against the issuer or
guarantor, if any. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the
holder of foreign government debt securities to obtain recourse
may be subject to the political climate in the relevant country.
The issuers of the government debt securities in which the Series
may invest have in the past experienced substantial difficulties
in servicing their external debt obligations, which has led to
defaults on certain obligations and the restructuring of certain
indebtedness. See "Description of Securities and Investment
Techniques--High Yield Bonds" in this Prospectus and "Debt
Securities--Sovereign Debt" in the Statement of Additional
Information.
Dividend and interest income from foreign securities may
generally be subject to withholding taxes by the country in which
the issuer is located and may not be recoverable by a Series or
its investors.
ADRs are Depositary Receipts typically issued by a U.S. bank or
trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs and GDRs are typically
issued by foreign banks or trust companies, although they also
may be issued by U.S. banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or
U.S. corporation. Generally, Depositary Receipts in registered
form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts
may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In
addition, the issuers of the securities underlying unsponsored
Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may be
less information available regarding such issuers and there may
not be a correlation between such information and the market
value of the Depositary Receipts. Depositary Receipts also
involve the risks of other investments in foreign securities.
INDEXED SECURITIES AND STRUCTURED NOTES
Indexed securities are 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
Some Series may invest in gold bullion and coins and other
precious metals (silver or platinum) bullion and in futures
contracts with respect to such metals. In order to qualify as a
regulated 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 Series will be
delivered to and stored with a qualified custodian bank. Metal
investments do not generate interest or dividend income.
Metal investments are considered speculative and are affected by
various worldwide economic, financial, and political factors.
Prices may fluctuate sharply over short time periods due to
changes in inflation expectations in various countries, metal
sales by central banks of governments or international agencies,
speculation, changes in industrial and commercial demand, and
governmental prohibitions or restriction on the private ownership
of certain precious metals or minerals. Furthermore, at the
present time, there are four major producers of gold bullion: the
Republic of South Africa, the United States, Canada, and
Australia. Political and economic conditions in these countries
will have a direct effect on the mining and distribution of gold
and, consequently, on its price. Many of these risks also may
affect the value of securities of companies engaged in operations
respecting gold and other precious metals.
FUTURES CONTRACTS
Some Series may engage in futures contracts. They may purchase
and sell interest rate, stock index, gold and other futures
contracts based upon other financial instruments. They may also
purchase and write 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.
These Series may engage in such futures transactions as an
adjunct to their securities activities. The transactions in
futures contracts must constitute bona fide hedging or other
strategies under regulations promulgated by the Commodities
Futures Trading Commission (the "CFTC"), under which a Series
engaging in futures transactions would not be a "commodity pool."
At the time a Series purchases a futures contract, an amount of
cash 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 options. The value of a futures contract may decline.
While a Series' transactions in futures may protect the Series
against adverse movements in the general level of interest rates
or other economic conditions, such transactions could also
preclude the Series from the opportunity to benefit from
favorable movements in the level of interest rates or other
economic conditions. With respect to transactions for hedging,
there can be no guarantee that there will be correlation between
price movements in the hedging vehicle and in the portfolio
securities being hedged. An incorrect correlation could result in
a loss on both the hedged securities in a Series and the hedging
vehicle so that the Series' return might have been better if
hedging had not been attempted. The degree of imperfection of
correlation depends on circumstances such as variations in
speculative market demand for futures and futures options on
securities, including technical influences in futures trading and
futures options, and differences between the financial
instruments being hedged and the instruments underlying the
standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of
issuers. A decision as to whether, when, and how to hedge
involves the exercise of skill and judgment and even a well-
conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected interest rate trends.
There can be no assurance that a liquid market will exist at a
time when a Series seeks to close out a futures contract or a
futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures
contract prices during a single day; once the daily limit has
been reached on a particular contract, no trades may be made that
day at a price beyond that limit. In addition, certain of these
instruments are relatively new and without a significant trading
history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. The daily
limit governs only price movements during a particular trading
day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable
positions. For example, futures prices have occasionally moved to
the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial
losses. Lack of a liquid market for any reason may prevent the
Series from liquidating an unfavorable position and the Series
would remain obligated to meet margin requirements and continue
to incur losses until the position is closed.
Any Series, other than the Emerging Market Series and Managed
Global Series, will only enter into futures contracts or futures
options which are standardized and traded on a U.S. exchange or
board of trade, or, in the case of futures options, for which an
established over-the-counter market exists. A Series will not
enter into a futures contract or purchase a futures option if
immediately thereafter the initial margin deposits for futures
contracts held by the Series plus premiums paid by it for open
futures options positions, less the amount by which any such
positions are "in-the-money," would exceed 5% of the Series'
total assets.
Foreign markets may offer advantages such as trading in indices
that are not currently traded in the United States. Foreign
markets, however, may have greater risk potential than domestic
markets. Unlike trading on domestic commodity exchanges, trading
on foreign commodity markets is not regulated by the CFTC and may
be subject to greater risk than trading on domestic exchanges.
For example, some foreign exchanges are principal markets so that
no common clearing facility exists and a trader may look only to
the broker for performance of the contract. Trading in foreign
futures or foreign options contracts may not be afforded certain
of the protective measures provided by the Commodity Exchange
Act, the CFTC's regulations, and the rules of the National
Futures Association and any domestic exchange, including the
right to use reparations proceedings before the CFTC and
arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received
for foreign futures or foreign options transactions may not be
provided the same protections as funds received in respect of
transactions on United States futures exchanges. A Series could
incur losses or lose any profits that had been realized in
trading by adverse changes in the exchange rate of the currency
in which the transaction is denominated. Transactions on foreign
exchanges may include both commodities that are traded on
domestic exchanges and boards of trade and those that are not.
The Trust reserves the right to engage in other types of futures
transactions in the future and to use futures and related options
for other than hedging purposes to the extent permitted by
regulatory authorities.
OPTIONS ON SECURITIES
Some Series may engage in transactions on options on securities,
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, may purchase and write put and call options on
securities, may write call and put options only if they are
covered or secured, and may purchase or sell options to effect
closing transactions, may buy covered listed put equity options
and sell covered listed call equity options, including options on
stock indices, may purchase protective puts, and may purchase
calls and puts other than protective puts. Some Series may engage
in options transactions not only on U.S. domestic markets but
also on exchanges and other markets outside the United States.
Series able to invest in options 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.
A Series may purchase long-term exchange-traded equity options
called Long-Term Equity Anticipation Securities ("LEAPs") and Buy-
Write Option Unitary Derivatives ("BOUNDs"). LEAPs provide a
holder the opportunity to participate in the underlying
securities' appreciation in excess of a fixed dollar amount, and
BOUNDs provide a holder the opportunity to retain dividends on
the underlying securities while potentially participating in the
underlying securities' capital appreciation up to a fixed dollar
amount.
RISKS OF OPTIONS TRANSACTIONS
The purchase and writing of options involves certain risks.
During the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity to profit
from a price increase in the underlying securities above the
exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no
control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has
received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option
and must deliver the underlying securities at the exercise price.
If a put or call option purchased by the Series is not sold when
it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than
the exercise price or, in the case of a call, remains less than
or equal to the exercise price, the Series will lose its entire
investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements
in a related security, the price of the put or call option may
move more or less than the price of the related security.
There can be no assurance that a liquid market will exist when a
Series seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options
markets, a Series may be unable to close out a position. If a
Series cannot effect a closing transaction, it will not be able
to sell the underlying security while the previously written
option remains outstanding, even though it might otherwise be
advantageous to do so. Possible reasons for the absence of a
liquid secondary market on a national securities exchange could
include: insufficient trading interest, restrictions imposed by
national securities exchanges, trading halts or suspensions with
respect to call options or their underlying securities,
inadequacy of the facilities of national securities exchanges or
The Options Clearing Corporation due to a high trading volume or
other event, and a decision by one or more national securities
exchanges to discontinue the trading of call options or to impose
restrictions on types of orders.
Since option premiums paid or received by a Series, as compared
to underlying investments, are small in relation to the market
value of such investments, buying and selling put and call
options offer large amounts of leverage. Thus, the leverage
offered by trading in options could result in the Series' net
asset value being more sensitive to changes in the value of the
underlying securities.
FOREIGN CURRENCY TRANSACTIONS
A forward currency contract is an obligation to purchase or sell
a currency against another currency at a future date and price as
agreed upon by the parties. A Series may either accept or make
delivery of the currency at the maturity of the forward contract
or, prior to maturity, enter into a closing transaction involving
the purchase or sale of an offsetting contract. A Series will
engage in forward currency transactions in anticipation of or to
protect itself against fluctuations in currency exchange rates,
as further described in the Statement of Additional Information.
A Series will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a
Series may either sell the portfolio security and make delivery
of the foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity
date, the same amount of the foreign currency. If the Series
retains the portfolio security and engages in an offsetting
transaction, the Series will incur a gain or a loss to the extent
that there has been movement in forward contract prices. For more
information on closing a forward currency position, including
information on associated risks, see the Statement of Additional
Information.
Forward contracts are not traded on regulated commodities
exchanges. There can be no assurance that a liquid market will
exist when a Series seeks to close out a forward currency
position, in which case a Series might not be able to effect a
closing purchase transaction at any particular time. In addition,
a Series entering into a forward foreign currency contract incurs
the risk of default by the counter party to the transaction.
While forward foreign currency contracts tend to minimize the
risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain
which might result should the value of such currency increase.
Although the Series values its assets daily in terms of U.S.
dollars, it does not intend physically to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. The Series
may do so from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Series at one
rate, while offering a lesser rate of exchange should the Series
desire to resell that currency to the dealer.
OPTIONS ON FOREIGN CURRENCIES
A Series may purchase call and put options on foreign currencies
as a hedge against changes in the value of the U.S. dollar (or
another currency) in relation to a foreign currency in which
portfolio securities of the Series may be denominated. For a
general description and other information on options on foreign
currencies, see "Options on Foreign Currencies" in the Statement
of Additional Information. Hedging against a change in the value
of a foreign currency does not eliminate fluctuations in the
prices of portfolio securities or prevent losses if the prices of
such securities decline. Furthermore, such hedging transactions
reduce or preclude the opportunity for gain if the value of the
hedged currency should change relative to the U.S. dollar. A
Series will not speculate in options on foreign currencies. A
Series may invest in options on foreign currency which are either
listed on a domestic securities exchange or traded on a
recognized foreign exchange.
An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series.
Although a Series will purchase only exchange-traded options,
there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any
particular time. In the event no liquid secondary market exists,
it might not be possible to effect closing transactions in
particular options. If a Series cannot close out an exchange-
traded option which it holds, it would have to exercise its
option in order to realize any profit and would incur
transactional costs on the sale of the underlying assets.
BORROWING
Leveraging by means of borrowing will exaggerate the effect of
any increase or decrease in the value of portfolio securities on
a Series' net asset value; money borrowed will be subject to
interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances), which
may or may not exceed the income received from the securities
purchased with borrowed funds. The use of borrowing tends to
result in a faster than average movement, up or down, in the net
asset value of the Series' shares. A Series also may be required
to maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a line
of credit; either of these requirements would increase the cost
of borrowing over the stated interest rate.
Reverse repurchase agreements, short sales of securities, and
short sales of securities against the box will be included as
borrowing subject to the borrowing limitations described above,
except those Series that are permitted to engage in short sales
of securities with respect to an additional 15% of the Series'
net assets in excess of the limits otherwise applicable to
borrowing. Securities purchased on a when-issued or delayed
delivery basis will not be subject to the Series' borrowing
limitations to the extent that a Series establishes and maintains
liquid assets in a segregated account with the Trust's custodian
equal to the Series' obligations under the when-issued or delayed
delivery arrangement.
HARD ASSET SECURITIES
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
Real estate securities include real estate investment trusts
("REITs") and other companies in the real estate industry or
companies with substantial real estate investments. 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
Swap agreements are two-party contracts 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 "notional
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
positions 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.
ZERO-COUPON BONDS
Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals
during the life of the security. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on the
bonds either in cash or in additional bonds. The values of zero-
coupon bonds and payment-in-kind bonds are subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently, and may involve greater
credit risk than such bonds.
Zero coupon and deferred interest bonds are debt obligations
which are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity or
the first interest payment date at a rate of interest reflecting
the market rate of the security at the time of issuance. While
zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide that the issuer thereof
may, at its option, pay interest on such bonds in cash or in the
form of additional debt obligations. Such investments benefit the
issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments may
experience greater volatility in market value due to changes in
interest rates than debt obligations which make regular payments
of interest. The Series will accrue income on such investments
for tax and accounting purposes, as required, which is
distributable to shareholders and which, because no cash is
received at the time of accrual, may require the liquidation of
other Series securities to satisfy the Series' distribution
obligations.
SMALL COMPANIES
Certain small- and mid-cap companies may present greater
opportunities for investment return, but may also involve greater
risks. They may have limited product lines, markets, or financial
resources, or may depend on a limited management group. Their
securities may trade less frequently and in limited volume. As a
result, the prices of these securities may fluctuate more than
prices of securities of larger, widely traded companies.
INVESTMENT RESTRICTIONS
The Series are subject to investment restrictions that are
described in the Statement of Additional Information. Those
investment restrictions so designated and the investment
objective of each Series are "fundamental policies" of the
Series, which means that they may not be changed without a
majority vote of the shareholders of the affected Series. Except
for those restrictions specifically identified as fundamental and
each Series' investment objective, all other investment policies
and practices described in this Prospectus and the Statement of
Additional Information are not fundamental, meaning that the
Board of Trustees may change them without shareholder approval.
The vote of a majority of the outstanding voting securities of a
Series means the vote, at an annual or special meeting, of (a)
67% or more of the voting securities present at such meeting, if
the holders of more than 50% of the outstanding voting securities
of such Series are present or represented by proxy; or (b) more
than 50% of the outstanding voting securities of such Series,
whichever is less.
The investment restrictions are stated in full in the Statement
of Additional Information, and a brief description of some of
them follows. A Series will not, with respect to 75% of its
assets, invest more than 5% of its assets (taken at market value
at the time of such investment) in securities of any one issuer,
except that this restriction does not apply to U.S. Government
securities 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 activities, provided that such
concentration for these two Series is permitted under tax law
requirements for regulated investment companies that are
investment vehicles for variable contracts.
PURCHASE OF SHARES
Shares of the Series may be offered for purchase by separate
accounts of insurance companies to serve as an investment medium
for the Variable Contracts issued by the insurance companies and
to certain qualified pension and retirement plans, as permitted
under the federal tax rules relating to the Series serving as
investment mediums for Variable Contracts. Shares of the Series
are sold to insurance company separate accounts funding both
variable annuity contracts and variable life insurance contracts
and may be sold to insurance companies that are not affiliated.
The Trust currently does not foresee any disadvantages to
Variable Contract Owners or other investors arising from offering
the Trust's shares to separate accounts of unaffiliated insurers,
separate accounts funding both life insurance policies and
annuity contracts, or certain qualified pension and retirement
plans; however, due to differences in tax treatment or other
considerations, it is theoretically possible that the interests
of owners of various contracts or pension and retirement plans
participating in the Trust might at some time be in conflict.
However, the Board of Trustees and insurance companies whose
separate accounts invest in the Trust are required to monitor
events in order to identify any material conflicts between
variable annuity contract owners and variable life policy owners,
between separate accounts of unaffiliated insurers, and between
various contract owners and pension and retirement plans. The
Board of Trustees will determine what action, if any, should be
taken in the event of such a conflict. If such a conflict were to
occur, one or more insurance company separate accounts might
withdraw their investment in the Trust. This might force the
Trust to sell securities at disadvantageous prices.
Shares of each Series are sold at their respective net asset
values (without a sales charge) next computed after receipt of a
purchase order by an insurance company whose separate account
invests in the Trust.
NET ASSET VALUE
A Series' net asset value is determined by dividing the value of
each Series' net assets by the number of its shares outstanding.
That determination is made once each business day, Monday through
Friday, at or about 4:00 p.m., New York City time, on each day
that the New York Stock Exchange is open for trading. The Board
of Trustees has established procedures to value each Series'
assets to determine net asset value. In general, these valuations
are based on actual or estimated market value, with special
provisions for assets not having readily available market
quotations and short-term debt securities. The net asset values
per share of each Series will fluctuate in response to changes in
market conditions and other factors, except that the net asset
value of the shares of the Liquid Asset Series will not fluctuate
in response to changes in market conditions for so long as the
Series is using the amortized cost method of valuation.
The Liquid Asset Series' portfolio securities are valued using
the amortized cost method of valuation. This involves valuing a
security at cost on the date of acquisition and thereafter
assuming a constant accretion of a discount or amortization of a
premium to maturity. See the Statement of Additional Information
for a description of certain conditions and procedures followed
by the Series in connection with amortized cost valuation.
All other Series are valued as follows:
Portfolio securities for which market quotations are readily
available are stated at market value. Market value is determined
on the basis of last reported sales price, or, if no sales are
reported, the mean between representative bid and asked
quotations obtained from a quotation reporting system or from
established market makers. In other cases, securities are valued
at their fair value as determined in good faith by the Board of
Trustees, although the actual calculations will be made by
persons acting under the direction of the Board and subject to
the Board's review. Money market instruments are valued at market
value, except that instruments maturing in sixty days or less may
be valued using the amortized cost method of valuation. The value
of a foreign security is determined in its national currency
based upon the price on the foreign exchange as of its close of
business immediately preceding the time of valuation. Securities
traded in over-the-counter markets outside the United States are
valued at the last available price in the over-the-counter market
prior to the time of valuation.
Debt securities, including those to be purchased under firm
commitment agreements (other than obligations having a maturity
sixty days or less at their date of acquisition valued under the
amortized cost method), are normally valued on the basis of
quotes obtained from brokers and dealers or pricing services,
which take into account appropriate factors such as institutional-
size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics,
and other market data. Debt obligations having a maturity of
sixty days or less may be valued at amortized cost unless the
Portfolio Manager believes that amortized cost does not
approximate market value.
When a Series writes a put or call option, the amount of the
premium is included in the Series' assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted
to the current market value of the option. The premium paid for
an option purchased by the Series is recorded as an asset and
subsequently adjusted to market value. Futures and options
thereon which are traded on commodities exchanges or boards of
trade will be valued at their closing settlement price on such
exchange or board of trade. Foreign securities quoted in foreign
currencies generally are valued at appropriately translated
foreign market closing prices.
Trading in securities on exchanges and over-the-counter markets
in European and Pacific Basin countries is normally completed
well before 4:00 p.m., New York City time. Trading on these
exchanges may not take place on all New York business days and in
addition, trading takes place in various foreign markets on days
which are not business days in New York and on which the Trust's
net asset value is not calculated. As a result, the calculation
of the net asset value of a Series investing in foreign
securities may not take place contemporaneously with the
determination of the prices of the securities included in the
calculation. Further, under the Trust's procedures, the prices of
foreign securities are determined using information derived from
pricing services and other sources. Prices derived under these
procedures will be used in determining daily net asset value.
Information that becomes known to the Trust or its agents after
the time that the net asset value is calculated on any business
day may be assessed in determining net asset value per share
after the time of receipt of the information, but will not be
used to retroactively adjust the price of the security so
determined earlier or on a prior day. Events that may affect the
value of these securities that occur between the time their
prices are determined and the time the Series' net asset value is
determined may not be reflected in the calculation of net asset
value of the Series unless the Manager or the Portfolio Manager,
acting under authority delegated by the Board of Trustees, deems
that the particular event would materially affect net asset
value. In this event, the securities would be valued at fair
market value as determined in good faith by the Board of Trustees
of the Trust, although the actual calculations will be made by
the Manager or the Portfolio Manager acting under the direction
of the Board and subject to the Board's review.
REDEMPTION OF SHARES
Shares of any Series may be redeemed on any business day.
Redemptions are effected at the per share net asset value next
determined after receipt of the redemption request by an
insurance company whose separate account invests in the Series.
Redemption proceeds normally will be paid within seven days
following receipt of instructions in proper form. The right of
redemption may be suspended by the Trust or the payment date
postponed beyond seven days when the New York Stock Exchange is
closed (other than customary weekend and holiday closings) or for
any period during which trading thereon is restricted because an
emergency exists, as determined by the SEC, making disposal of
portfolio 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 Series described in this Prospectus. Exchanges are
treated as a redemption of shares of one Series and a purchase of
shares of one or more of the other Series and are effected at the
respective net asset values per share of each Series on the date
of the exchange. The Trust reserves the right to modify or
discontinue its exchange privilege at any time without notice.
Variable Contract Owners do not deal directly with the Trust with
respect to the purchase, redemption, or exchange of shares of the
Series, and should refer to the prospectus for the applicable
Variable Contract for information on allocation of premiums and
on transfers of account value among divisions of the pertinent
insurance company separate account that invest in the Series.
The Trust reserves the right to discontinue offering shares of
one or more Series at any time. In the event that a Series ceases
offering its shares, any investments allocated by an insurance
company to such Series will be invested in the Liquid Asset
Series or any successor to such Series.
PORTFOLIO TRANSACTIONS
BROKERAGE SERVICES
Pursuant to the Portfolio Management Agreements, the Portfolio
Manager places orders for the purchase and sale of portfolio
investments for the Series' accounts with brokers or dealers
selected by the Portfolio Manager in its discretion. In executing
transactions, the Portfolio Manager will attempt to obtain the
best execution for a Series, taking into account such factors as
price (including the applicable brokerage commission or dollar
spread), size of order, the nature of the market for the
security, the timing of the transaction, the reputation, the
experience and financial stability of the broker dealer involved,
the quality of the service, the difficulty of execution,
execution capabilities, and operational facilities of the firms
involved, and the firm's risk in positioning a block of
securities. In transactions on stock exchanges in the United
States, payments of brokerage commissions are negotiated. In
effecting purchases and sales of portfolio securities in
transactions on U.S. stock exchanges for the account of a Series,
the Portfolio Manager may pay higher commission rates than the
lowest available when the Portfolio Manager believes it is
reasonable to do so in light of the value of the brokerage and
research services provided by the broker effecting the
transaction. In the case of securities traded on some foreign
stock exchanges, brokerage commissions may be fixed and the
Portfolio Manager may be unable to negotiate commission rates for
these transactions. In the case of securities traded on the over-
the-counter markets, there is generally no stated commission, but
the price includes an undisclosed commission or markup.
Some securities considered for investment by the Series may also
be 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 execution
at least as favorable as other qualified brokers. SEC rules
further require that commission paid to such an affiliated broker-
dealer or Portfolio Manager by a Series on exchange transactions
not exceed "usual and customary brokerage commissions."
PORTFOLIO TURNOVER
For reporting purposes, each Series' portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or
sales of portfolio securities for the fiscal year by the monthly
average of the value of portfolio securities owned by the Series
during the fiscal year. In determining such portfolio turnover,
all securities whose maturities at the time of acquisition were
one year or less are excluded. A 100% portfolio turnover rate
would occur, for example, if all of the securities in the
portfolio (other than short-term securities) were replaced once
during the fiscal year. The portfolio turnover rate for each of
the Series will vary from year to year, and depending on market
conditions, turnover could be greater in periods of unusual
market movement and volatility. A higher turnover rate would
result in heavier brokerage commissions or other transactional
expenses which must be borne, directly or indirectly, by a Series
and ultimately by the Series' shareholders. The portfolio
turnover rates for each Series are presented in the data shown in
"Financial Highlights" in this Prospectus.
DIVIDENDS AND DISTRIBUTIONS
Net investment income of the Liquid Asset Series is declared as a
dividend daily and paid monthly. For all other Series, net
investment income will be paid annually, except that the Limited
Maturity Bond Series may declare a dividend monthly or quarterly.
Any net realized long-term capital gains (the excess of net long-
term capital gains over net short-term capital losses) for any
Series will be declared and paid at least once annually. Net
realized short-term capital gains may be declared and paid more
frequently.
Any distributions made by any Series will be automatically
reinvested in additional shares of that Series, unless an
election is made by a shareholder to receive distributions in
cash. Dividends or distributions by a Series other than the
Liquid Asset Series (which attempts to maintain a constant $1.00
per share net asset value) will reduce the per share net asset
value by the per share amount so paid.
FEDERAL INCOME TAX STATUS
Each Series intends to qualify each year and elect to be treated
as a regulated investment company under Subchapter M of the
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,
diversification of assets, income distribution, and other
requirements, to the extent it distributes its investment company
taxable income and its net capital gains. Distributions of
investment company taxable income and net realized capital gains
are automatically reinvested in additional shares of the Series,
unless an election is made by a shareholder to receive
distributions in cash. Tax consequences to the Variable Contract
Owners are described in the prospectuses for the pertinent
separate accounts.
Certain requirements relating to the qualification of a Series as
a regulated investment company under the Code may limit the
extent to which a Series will be able to engage in transactions
in options, futures contracts, or forward contracts.
To comply with regulations under Section 817(h) of the Code, each
Series generally will be required to diversify its investments,
so that on the last day of each quarter of a calendar year, no
more than 55% of the value of its assets is represented by any
one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three
investments, and no more than 90% is represented by any four
investments. For this purpose, securities of a single issuer are
treated as one investment and each U.S. Government agency or
instrumentality is treated as a separate issuer. Any security
issued, guaranteed, or insured (to the extent so guaranteed or
insured) by the 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 instrumentality, whichever is
applicable. These regulations will limit the ability of a Series
to invest more than 55% of its assets in direct obligations of
the U.S. Treasury or in obligations which are deemed to be issued
by a particular agency or instrumentality of the U.S. Government.
If a Series fails to meet the diversification requirements under
Code Section 817(h), income with respect to Variable Contracts
invested in the Series at any time during the calendar quarter in
which the failure occurred could become currently taxable to the
owners of such Variable Contracts and income for prior periods
with respect to such Contracts also would be taxable, most likely
in the year of the failure to achieve the required
diversification. Other adverse tax consequences also could ensue.
If a Series failed to qualify as a regulated investment company,
the results would be substantially the same as a failure to meet
the diversification requirements under Code Section 817(h).
In connection with the issuance of the regulations governing
diversification under Section 817(h) of the Code, the Treasury
Department announced that it would issue future regulations or
rulings addressing the circumstances in which a Variable Contract
Owner's control of the investments of a separate account may
cause the contract owner, rather than the insurance company, to
be treated as the owner of the assets held by the separate
account. If the Variable Contract Owner is considered the owner
of the securities underlying the separate account, income and
gains produced by those securities would be included currently in
the Variable Contract Owner's gross income. 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 objectives, investment
policies, or investment restrictions. While a Series' investment
objective is fundamental and may be changed only by a vote of a
majority of its outstanding shares, the Trustees have reserved
the right to modify the investment policies of a Series as
necessary to prevent any such prospective rules and regulations
from causing the Variable Contract Owners to be considered the
owners of the Series underlying the separate accounts.
See "Taxation" in the Trust's Statement of Additional Information
for more information on taxes, including information on the
taxation of distributions from a Series. Reference is made to the
prospectus or offering memorandum of the applicable separate
account for information regarding the federal income tax
treatment respecting a Variable Contract.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on
August 3, 1988, and currently consists of twenty-four portfolios
that are operational, twenty-two 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.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Trust. However, the Declaration of Trust disclaims liability
of the shareholders, Trustees, or officers of the Trust for acts
or obligations of the Trust, which are binding only on the assets
and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into
or executed by the Trust or the Trustees. The Declaration of
Trust provides for indemnification out of Trust property for all
loss and expense of any shareholder held personally liable for
the obligations of the Trust. The risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet
its obligations and thus should be considered remote.
VOTING RIGHTS
Shareholders of the Series are given certain voting rights. Each
share of each Series will be given one vote, unless a different
allocation of voting rights is required under applicable law for
a mutual fund that is an investment medium for variable insurance
products.
Massachusetts business trust law does not require the Trust to
hold annual shareholder meetings, although special meetings may
be called for a specific Series, or for the Trust as a whole, for
purposes such as electing or removing Trustees, changing
fundamental policies, or approving a contract for investment
advisory services. In the case of Variable Contracts, in
accordance with current laws, it is anticipated that an insurance
company issuing a Variable Contract funded by a Separate Account
that invests in a Series and that is registered with the SEC as a
unit investment trust will request voting instructions from
Variable Contract Owners and will vote shares or other voting
interests in the separate account in proportion to the voting
instructions received.
HISTORY OF THE MANAGED GLOBAL SERIES
The Managed Global Series is a successor for accounting purposes
to the Managed 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
exchanged 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, consented 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, Investment Advisers Act of 1940 Release No.
1447, October 18, 1994.
The SEC's order alleges that, during the period October 1988
through August 1992, CCM and Messrs. Saxena and Long did not
adequately disclose the conflict of interest arising from certain
personal trades by Mr. Saxena and that CCM did not maintain all
required records of Mr. Saxena's personal trades. Specifically,
the SEC order states that (i) CCM should have disclosed that its
employees purchased privately issued securities for their
personal accounts and subsequently invested for clients in
publicly traded securities of the same issuers, and (ii) CCM and
Mr. Saxena should have disclosed, when investing for clients in
companies founded by a venture capitalist that over a year
earlier, Mr. Saxena had invested for his own account, at nominal
prices, in securities of two of those companies and a third
company founded by the venture capitalist after providing advice
to the venture capitalist. The SEC did not allege that these acts
were intended to harm CCM's clients and acknowledged that clients
profited from the transactions examined.
The order censured CCM and Messrs. Saxena and Long and ordered
them to comply with certain provisions of the Investment Advisers
Act and fined Mr. Saxena.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and effective
yield of its Liquid Asset Series, the current yield of the
remaining Series, and the total return of all Series in
advertisements and sales literature. In the case of Variable
Contracts, performance information for the Series will not be
advertised or included in sales literature unless accompanied by
comparable performance information for a separate account to
which the Series offers their shares.
Current yield for the Liquid Asset Series will be based on income
received by a hypothetical investment over a given 7-day period
(less expenses accrued during the period), and then "annualized"
(i.e., assuming that the 7-day yield would be received for 52
weeks, stated in terms of an annual percentage return on the
investment). "Effective yield" for the Liquid Asset Series is
calculated in a manner similar to that used to calculate yield,
but reflects the compounding effect of earnings on reinvested
dividends.
For the remaining Series, any quotations of yield will be based
on all investment income per share earned during a given 30-day
period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and will be computed
by dividing net investment income by the maximum public offering
price per share on the last day of the period.
Quotations of average annual total return for any Series will be
expressed in terms of the average annual compounded rate of
return on a hypothetical investment in the Series over a period
of one, five, or ten years (or, if less, up to the life of the
Series), will reflect the deduction of a proportional share of
Series expenses (on an annual basis), and will assume that all
dividends and distributions are reinvested when paid. Quotations
of total return may also be shown for other periods.
Quotations of yield or total return for the Series will not take
into account charges or deductions against any separate account
to which the Series' shares are sold or charges and deductions
against the pertinent Variable Contract, although comparable
performance information for the separate account will take such
charges into account. Performance information for any Series
reflects only the performance of a hypothetical investment in the
Series during the particular time period on which the
calculations are based. Performance information should be
considered in light of the Series' investment objectives and
policies, characteristics, and quality of the portfolios, and the
market conditions during the given time period, and should not be
considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield
and total return for the Series, see the Statement of Additional
Information.
LEGAL COUNSEL
Sutherland, Asbill & Brennan, LLP 1275 Washington Avenue, NW,
Washington, D.C. 20004-2440 serves as 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, 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 Trust's
unaudited financial statements as of June 30, 1997 for all Series
are incorporated by reference in the Statement of Additional
Information from the Trust's Semi-Annual Report dated as of June
30, 1997. 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 except the Managed Global Series for the years
ended December 31, 1992, 1991, 1990, and 1989 was audited by another
independent auditor. The Semi-Annual report is unaudited. These financial
statements do not include information on the Mid-Cap Growth,
Research, Total Return, Growth & Income, Value + Growth, Global
Fixed Income, Growth Opportunities, and Developing World Series
because the Series had not commenced operations on June 30, 1997.
The information in the financial statements for the Managed
Global Series is presented as if the reorganization described
under "Other Information--History of the Managed Global Series"
had always been in effect. Information 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.
<PAGE>
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PART B
****************
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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
____________, 1997.
This Statement of Additional Information discusses twenty-three
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 Mid-Cap Growth Series, the
Research Series, the Total Return Series, the Growth & Income
Series, the Value + Growth Series, the Global Fixed Income
Series, the Growth Opportunities Series, the Developing World
Series and the Market Manager Series. The Series' Manager is
Directed Services, Inc. (the "Manager").
This Statement of Additional Information is intended to
supplement the information provided to investors in the
Prospectus of The GCG Trust dated _____________, 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
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. Government Securities
Debt Securities
High Yield Bonds
Brady Bonds
Sovereign Debt
Mortgage-Backed Securities
GNMA Certificates
FNMA and FHLMC Mortgage-Backed Obligations
Collateralized Mortgage Obligations (CMOs)
Other Mortgage-Backed Securities
Other Asset-Backed Securities
Variable and Floating Rate Securities
Banking Industry and Savings Industry Obligations
Commercial Paper
Repurchase Agreements
Reverse Repurchase Agreements
Lending Portfolio Securities
Warrants
Other Investment Companies
Short Sales
Short Sales Against the Box
Futures Contracts and Options on Futures Contracts
General Description of Futures Contracts
Interest Rate Futures Contracts
Options on Futures Contracts
Stock Index Futures Contracts
Gold Futures Contracts
Limitations
Options on Securities and Securities Indexes
Purchasing Options on Securities
Writing Covered Call and Secured Put Options
Options on Securities Indexes
Over-the-Counter Options
General
When-Issued or Delayed Delivery Securities
Foreign Currency Transactions
Options on Foreign Currencies
Common Stock and Other Equity Securities
Convertible Securities
Currency Management
Dollar Roll Transactions
Equity and Debt Securities Issued or Guaranteed by
Supranational Organizations
Exchange Rate Related Securities
Geographical and Industry Concentration
Illiquid Securities
Restricted Securities
Lease Obligation Bonds
Small Companies
Strategic Transactions
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INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
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, and the Liquid Asset Series
Total Return Series, Research Series, Mid-Cap Growth Series and
Global Fixed Income Series
Value + Growth Series
Growth & Income Series
Growth Opportunities and Developing World Series
Non-Fundamental Investment Restrictions
Rising Dividends Series, Emerging Markets Series, Value Equity
Series, Strategic Equity Series, Small Cap Series, Managed Global
Series and Market Manager Series
Total Return Series, Research Series, Mid-Cap Growth Series and
Global Fixed Income Series
Value + Growth Series
Growth & Income Series
Growth Opportunities and Developing World Series
MANAGEMENT OF THE TRUST
The Management Agreement
Distribution of Trust Shares
Purchases and Redemptions
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions
Brokerage and Research Services
NET ASSET VALUE
PERFORMANCE INFORMATION
TAXATION
Distributions
Other Taxes
OTHER INFORMATION
Capitalization
Voting Rights
Custodian and Other Service Providers
Independent Auditors
Counsel
Registration Statement
FINANCIAL STATEMENTS
APPENDIX 1: Description of Bond Ratings A-1
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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
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.
Certain 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
For any Series that does not specify any particular rating
criteria, that Series may invest in debt securities as stated in
each series investment objectives and policies in the Prospectus.
Some 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
1
<PAGE>
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
"High Yield Bonds" (which are commonly referred to as "junk
bonds"), are bonds rated lower than Baa or BBB, or, if not rated
by Moody's or Standard & Poor's, of equivalent quality In
general, high yield bonds are not considered to be investment
grade, and investors should consider the risks associated with
high yield bonds before investing in the pertinent Series.
Investment in such securities generally provides greater income
and increased opportunity for capital 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.
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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
"Brady Bonds," are created through the exchange of existing
commercial bank loans to sovereign entities for new obligations
in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Bonds are not considered U.S. Government
securities and are considered speculative. Brady Plan debt
restructuring 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, Panama, Poland 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
Debt obligations known as "Sovereign debt" are debt
obligations of governmental issuers in emerging market countries
and industrialized countries. Some 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.
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Certain emerging market countries are among the largest
debtors to commercial banks and foreign governments. The issuer
or governmental authority that controls the repayment of
sovereign debt may not be willing or able to repay the principal
and/or pay interest when due in accordance 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
GNMA CERTIFICATES. Government National Mortgage Association
("GNMA") certificates are mortgage-backed securities representing
part ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by the full faith
and credit of the U.S. Government. GNMA is a wholly owned U.S.
Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions
approved by GNMA (such as savings and loan institutions,
commercial banks, and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Interests in pools of mortgage-backed securities differ from
other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these
securities provide a periodic payment which consists 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
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missed
payments while errant receipts are tracked down may vary. Other
mortgage-backed securities, such as those of the Federal Home
Loan Mortgage Corporation ("FHLMC") and the Federal National
Mortgage Association ("FNMA"), trade in book- entry form and
should not be subject to the risk of delays in timely payment of
income.
Although the mortgage loans in the pool will have maturities
of up to 30 years, the actual average life of the GNMA
certificates typically will be substantially less because the
mortgages will be subject to normal principal amortization and
may be prepaid prior to maturity. Early repayments of principal
on the underlying mortgages may expose a Series to a lower rate
of return upon reinvestment of principal. Prepayment rates vary
widely and may be affected by changes in market interest rates.
In periods of falling interest rates, the rate of prepayment
tends to increase, thereby shortening the actual average life of
the GNMA certificates. Conversely, when interest rates are
rising, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the GNMA certificates.
Accordingly, it is not possible to accurately predict the average
life of a particular pool. Reinvestment of prepayments may occur
at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to
reinvest prepayments of principal at current rates, GNMA
certificates can be less effective than typical bonds of similar
maturities at "locking in" yields during periods of declining
interest rates, although they may have comparable risks of
decline in value during periods of rising interest rates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. Government-
related guarantors (i.e., not backed by the full faith and credit
of the U.S. Government) include the FNMA and the FHLMC. FNMA, a
federally chartered and privately owned corporation, issues pass-
through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely payment
of principal and interest, but this guarantee is not backed by
the full faith and credit of the U.S. Government. FNMA also
issues REMIC Certificates, which represent an interest in a trust
funded with FNMA Certificates. REMIC Certificates are guaranteed
by FNMA, and not by the full faith and credit of the U.S.
Government.
FNMA is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the
Secretary of Housing and Urban Development. FNMA purchases
conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved
seller/servicers which include state and federally chartered
savings and loan associations, mutual savings banks, commercial
banks, credit unions, and mortgage bankers. FHLMC, a corporate
instrumentality of the United States, was created by Congress in
1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates
("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. 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
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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.
Some Series may buy 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
Asset-backed securities (unrelated to mortgage loans) are
securities such as "CARS/SM/" ("Certificates for Automobile
Receivables/SM/") and Credit Card Receivable Securities. The
Market Manager Series may not invest in these 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
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more rapidly than are Automobile Contracts.
Most of the Credit Card Receivable Securities issued publicly to
date have been Pass-Through Certificates. In order to lengthen
the maturity of Credit Card Receivable Securities, most such
securities provide for a fixed period during which only interest
payments on the underlying Accounts are passed through to the
security holder and principal payments received on such Accounts
are used to fund the transfer to the pool of assets supporting
the related Credit Card Receivable Securities of additional
credit card charges made on an Account. The initial fixed period
usually may be shortened upon the occurrence of specified events
which signal a potential deterioration in the quality of the
assets backing the security, such as the imposition of a cap on
interest rates. The ability of the issuer to extend the life of
an issue of Credit Card Receivable Securities thus depends upon
the continued generation of additional principal amounts in the
underlying Accounts during the initial period and the non-
occurrence of specified events. The Tax Reform Act of 1986,
pursuant to which a taxpayer's ability to deduct consumer
interest in his or her federal income tax calculation was
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
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
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"). Some 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 some Series may also invest in obligations of
foreign branches of commercial banks and foreign banks if the
securities are not U.S. dollar-denominated. See "Foreign
Securities" discussion in The GCG Trust Prospectus for further
information regarding risks attending investment in foreign
securities.
Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, which are
normally drawn by an importer or exporter to pay for specific
merchandise, and which are "accepted" by a bank, meaning, in
effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed-time deposits are
bank obligations payable at a stated maturity date and bearing
interest at a fixed rate. Fixed-time deposits may be withdrawn
on demand by the investor, but may be subject to
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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% or 15%,
depending on the Series, 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.
Certain of the 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.
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.
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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 the Series. The Portfolio
Manager, in accordance with procedures established by the Board
of Trustees, also evaluates the creditworthiness and financial
responsibility of the banks and brokers or dealers with which the
Series enters into repurchase agreements.
A Series may engage in repurchase transactions in accordance
with guidelines approved by the Board of Trustees of the Trust,
which include monitoring the creditworthiness of the parties with
which a Series engages in repurchase transactions, obtaining
collateral at least equal in value to the repurchase obligation,
and marking the collateral to market on a daily basis.
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 that Series' limitation, either
10% or 15% of the net assets of the Series, depending on the
Series, on investing in illiquid securities. 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.
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REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement 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
Some Series may lend portfolio securities to broker-dealers
or institutional investors for the purpose of realizing
additional income. A Series will only enter into this
transaction if (1) the loan is fully collateralized at all times
with U.S. Government securities, cash, or cash equivalents (cash,
U.S. Government securities, negotiable certificates of deposit,
bankers' acceptances, or letters of credit) maintained on a daily
marked-to-market basis, in an amount at least equal to the value
of the securities loaned; (2) it may at any time call the loan
and obtain the return of the securities loaned within five
business days; (3) it will receive any interest or dividends paid
on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed 30% of the total
assets of the Series. As with other extensions of secured
credit, loans of portfolio securities involve some risk of loss
of rights in the collateral should the borrower fail financially.
Accordingly, the Series' Portfolio Manager will monitor the value
of the collateral, which will be marked-to- market daily, and
will monitor the creditworthiness of the borrowers. There is no
assurance that a borrower will return any securities loaned;
however, as discussed above, a borrower of securities from a
Series must maintain with the 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
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
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
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
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
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. 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
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security, ordinarily the
Series would give up income on its investment, since long-term
rates normally exceed short-term rates.
OPTIONS ON 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. 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 contract 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.
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.
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GOLD FUTURES CONTRACTS. 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
may be able to enter into gold futures contracts only for the
purpose of hedging its holdings or intended holdings of gold
stocks and 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.
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 securities
(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.
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A Series may not maintain open short positions in futures
contracts or call options written on futures contracts if, in the
aggregate, the market value of all such open positions exceeds
the current value of its portfolio securities, plus or minus
unrealized gains and losses on the open positions, adjusted for
the historical relative volatility of the relationship between
the Series and the positions. For this purpose, to the extent
the Series has written call options on specific securities it
owns, the value of those securities will be deducted from the
current market value of the securities portfolio.
In compliance with the requirements of the Commodity Futures
Trading Commission ("CFTC") under which an investment company may
engage in futures transactions, the Trust will comply with
certain regulations of the CFTC to qualify for an exclusion from
being a "commodity pool." The regulations require that the Trust
enter into futures and options (1) for "bona fide hedging"
purposes, without regard to the percentage of assets committed to
initial margin and options premiums, or (2) for other strategies,
provided that the aggregate initial margin and premiums required
to establish such positions do not exceed 5% of the liquidation
value of a Series' portfolio, after taking into account
unrealized profits and unrealized gains on any such contracts
entered into.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
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.
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
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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.
OVER-THE-COUNTER OPTIONS. Certain Series may write or
purchase options in privately negotiated domestic or foreign
transactions ("OTC Options"), as well as exchange-traded or
"listed" options. OTC Options can be closed out only by agreement
with the other party to the transaction, and thus any OTC Options
purchased by a Series will be considered an Illiquid Security. In
addition, certain OTC Options on foreign currencies are traded
through financial institutions acting as market-makers in such
options and the underlying currencies.
The staff of the SEC has taken the position that purchased over-
the-counter options and assets used to cover written over-the-
counter options are illiquid and, therefore, together with other
illiquid securities, cannot exceed a certain percentage of a
Series' assets (the "SEC illiquidity ceiling"). Except as
provided below, the Series intend to write over-the-counter
options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the
contracts which such Series have in place with such primary
dealers will provide that each Series has the absolute right to
repurchase any option it writes at any time at a price which
represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event
will exceed a price determined pursuant to a formula in the
contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by the
Series for writing the option, plus the amount, if any, of the
option's intrinsic value (i.e., the amount that the option is in-
the-money). The formula may also include a factor to account for
the difference between the price of the security and the strike
price of the option if the option is written out-of- money. A
Series will treat all or a part of the formula price as illiquid
for purposes of the SEC illiquidity ceiling. Certain Series may
also write over-the-counter options with non-primary dealers,
including foreign dealers, and will treat the assets used to
cover these options as illiquid for purposes of such SEC
illiquidity ceiling.
OTC Options entail risks in addition to the risks of exchange-
traded options. Exchange-traded options are in effect guaranteed
by the Options Clearing Corporation, while a Series relies on the
party from whom it purchases an OTC Option to perform if the
Series exercises the option. With OTC Options, if the transacting
dealer fails to make or take delivery of the securities or amount
of foreign currency underlying an option it has written, in
accordance with the terms of that option, the Series will lose
the premium paid for the option as well as any anticipated
benefit of the transaction. Furthermore, OTC Options are less
liquid than exchange-traded options.
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
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premium received from
a closing sale transaction is more than the premium paid to
purchase the option, the Series will realize a capital gain or,
if it is less, the Series will realize a capital loss. The
principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current
market price of the underlying security in relation to the
exercise price of the option, the volatility of the underlying
security, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a
Series is recorded as an asset of the Series and subsequently
adjusted. The premium received for an option written by a Series
is included in the Series' assets and an equal amount is included
in its liabilities. The value of an option purchased or written
is marked to market daily and valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange
or no closing price is available, at the mean between the last
bid and asked prices.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
All Series except the Market Manager Series may purchase
securities on a when issued or delayed delivery basis if the
Series holds, and maintains until the settlement date in a
segregated account, cash 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
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 anticipates 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 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.
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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
A call option on a foreign currency gives the buyer the
right to buy, and a put option the right to sell, a certain
amount of foreign currency at a specified price during a fixed
period of time. Currently, options are traded on the following
foreign currencies on a domestic exchange: British Pound,
Canadian Dollar, German Mark, Japanese Yen, French Franc, and
Swiss Franc. A Series may enter into closing sale transactions
with respect to such options, exercise them, or permit them to
expire.
A Series may employ hedging strategies with options on
currencies before the Series purchases a foreign security
denominated in the hedged currency that the Series anticipates
acquiring, during the period the Series holds the foreign
security, or between the date the foreign security is purchased
or sold and the date on which payment therefor is made or
received.
In those situations where foreign currency options may not
be readily purchased (or where such options may be deemed
illiquid) in the currency in which the hedge is desired, the
hedge may be obtained by purchasing or selling an option on a
"surrogate" currency, i.e., a currency where there is tangible
evidence of a direct correlation in the trading value of the two
currencies. A surrogate currency is a currency that can act, for
hedging purposes, as a substitute for a particular currency
because the surrogate currency's exchange rate movements parallel
that of the primary currency. Surrogate currencies are used to
hedge an illiquid currency risk, when no liquid hedge instruments
exist in world currency markets for the primary currency.
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COMMON STOCK AND OTHER EQUITY SECURITIES
Common Stocks represent an equity (ownership) interest in a
corporation. This ownership interest generally gives a Series the
right to vote on measures affecting the company's organization
and operations.
Certain of the Series may also buy securities such as
convertible debt, preferred stock, warrants or other securities
exchangeable for shares of Common Stock. In selecting equity
investments for a Series, the Adviser or Portfolio Manager will
generally invest the Series' assets in industries and companies
that it believes are experiencing favorable demand for their
products and services and which operate in a favorable
competitive and regulatory climate.
CONVERTIBLE SECURITIES
A convertible security is a security that may be converted
either at a stated price or rate within a specified period of
time into a specified number of shares of Common Stock. By
investing in Convertible Securities, a Series seeks the
opportunity, through the conversion feature, to participate in
the capital appreciation of the Common Stock into which the
securities are convertible, while earning a higher fixed rate of
return than is available in Common Stocks.
CURRENCY MANAGEMENT
A Series' flexibility to participate in higher yielding debt
markets outside of the United States may allow the Series to
achieve higher yields than those generally obtained by domestic
money market funds and short-term bond investments. When a Series
invests significantly in securities denominated in foreign
currencies, however, movements in foreign currency exchange rates
versus the U.S. dollar are likely to impact the Series' share
price stability relative to domestic short-term income funds.
Fluctuations in foreign currencies can have a positive or
negative impact on returns. Normally, to the extent that the
Series is invested in foreign securities, a weakening in the U.S.
dollar relative to the foreign currencies underlying a Series'
investments should help increase the net asset value of the
Series. Conversely, a strengthening in the U.S. dollar versus the
foreign currencies in which a Series' securities are denominated
will generally lower the net asset value of the Series. Each
Series' Adviser or Portfolio Manager attempts to minimize
exchange rate risk through active Series management, including
hedging currency exposure through the use of futures, options and
forward currency transactions and attempting to identify bond
markets with strong or stable currencies. There can be no
assurance that such hedging will be successful and such
transactions, if unsuccessful, could result in additional losses
or expenses to a Series.
DOLLAR ROLL TRANSACTIONS
Certain Series seeking a high level of current income may
enter into dollar rolls or "covered rolls" in which the Series
sells securities (usually Mortgage-Backed Securities) and
simultaneously contracts to purchase, typically in 30 to 60 days,
substantially similar, but not identical securities, on a
specified future date. The proceeds of the initial sale of
securities in the Dollar Roll Transactions may be used to
purchase long-term securities which will be held during the roll
period. During the roll period, the Series forgoes principal and
interest paid on the securities sold at the beginning of the roll
period. The Series is compensated by the difference between the
current sales price and the forward price for the future purchase
(often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an
offsetting cash position or cash equivalent securities position
that matures on or before the forward settlement date of the
dollar roll transaction. As used herein the term "dollar roll"
refers to dollar rolls that are not "covered rolls." At the end
of the roll commitment period, the Series may or may not take
delivery of the securities the Series has contracted to purchase.
The Series will establish a segregated account with its
custodian in which it will maintain cash, U.S. Government
Securities or other liquid high- grade debt obligations equal in
value at all times to its obligations in respect of dollar rolls,
and, accordingly, the Series will not treat such obligations as
senior securities for purposes of the 1940 Act. "Covered rolls"
are not subject to these segregation requirements. Dollar Roll
Transactions may be considered borrowings and are, therefore,
subject to the borrowing limitations applicable to the Series.
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EQUITY AND DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL
ORGANIZATIONS
Series authorized to invest in securities of foreign issuers
may invest assets in equity and debt securities issued or
guaranteed by Supranational Organizations, such as obligations
issued or guaranteed by the Asian Development Bank, Inter-
American Development Bank, International Bank for Reconstruction
and Development (World Bank), African Development Bank, European
Coal and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
EXCHANGE RATE RELATED SECURITIES
Certain of the Series may invest in securities which are
indexed to certain specific foreign currency exchange rates. The
terms of such security would provide that the principal amount or
interest payments are adjusted upwards or downwards (but not
below zero) at payment to reflect fluctuations in the exchange
rate between two currencies while the obligation is outstanding,
depending on the terms of the specific security. A Series will
purchase such security with the currency in which it is
denominated and will receive interest and principal payments
thereon in the currency, but the amount of principal or interest
payable by the issuer will vary in proportion to the change (if
any) in the exchange rate between the two specific currencies
between the date the instrument is issued and the date the
principal or interest payment is due. The staff of the SEC is
currently considering whether a mutual fund's purchase of this
type of security would result in the issuance of a "senior
security" within the meaning of the 1940 Act. The Trust believes
that such investments do not involve the creation of such a
senior security, but nevertheless undertakes, pending the
resolution of this issue by the staff, to establish a segregated
account with respect to such investments and to maintain in such
account cash not available for investment or U.S. Government
Securities or other liquid high quality debt securities having a
value equal to the aggregate principal amount of outstanding
securities of this type.
Investment in Exchange Rate-Related Securities entails
certain risks. There is the possibility of significant changes in
rates of exchange between the U.S. dollar and any foreign
currency to which an Exchange Rate-Related Security is linked. In
addition, there is no assurance that sufficient trading interest
to create a liquid secondary market will exist for a particular
Exchange Rate-Related Security due to conditions in the debt and
foreign currency markets. Illiquidity in the forward foreign
exchange market and the high volatility of the foreign exchange
market may from time to time combine to make it difficult to sell
an Exchange Rate-Related Security prior to maturity without
incurring a significant price loss.
GEOGRAPHICAL AND INDUSTRY CONCENTRATION
Where a Series invests at least 25% of its assets in Bank
Obligations, the Series' investments may be subject to greater
risk than a Series that does not concentrate in the banking
industry. In particular, Bank Obligations may be subject to the
risks associated with interest rate volatility, changes in
federal and state laws and regulations governing banking and the
inability of borrowers to pay principal and interest when due. In
addition, foreign banks present the risks of investing in foreign
securities generally and are not subject to reserve requirements
and other regulations comparable to those of U.S. Banks.
ILLIQUID SECURITIES
Illiquid securities are securities that are not readily
marketable, including, where applicable: (1) Repurchase
Agreements with maturities greater than seven calendar days; (2)
time deposits maturing in more than seven calendar days; (3) to
the extent a liquid secondary market does not exist for the
instruments, futures contracts and options thereon; (4) certain
over-the-counter options, as described in the SAI; (5) certain
variable rate demand notes having a demand period of more than
seven days; and (6) securities the disposition of which is
restricted under Federal securities laws (excluding Rule 144A
Securities, described below).
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RESTRICTED SECURITIES
The Series may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act")
("restricted securities"), including those that can be offered
and sold to "qualified institutional buyers" under Rule 144A
under the 1933 Act ("Rule 144A securities"). The Trust's Board of
Trustees confirms based upon information and recommendations
provided by the Portfolio Manager that a specific Rule 144A
security is liquid and thus not subject to the limitation on
investing in illiquid investments. The Board of Trustees has
adopted guidelines and has delegated to the Portfolio Manager the
daily function of determining and monitoring the liquidity of
Rule 144A securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
This investment practice could have the effect of decreasing the
level of liquidity in the Series to the extent that qualified
institutional buyers become for a time uninterested in purchasing
Rule 144A securities held in the investment Series. Subject to
limitation on investments in illiquid investments and subject to
the diversification requirements of the Internal Revenue Code of
1986, as amended (the "Code"), the Series may also invest in
restricted securities that may not be sold under Rule 144A, which
presents certain risks. As a result, the Series might not be able
to sell these securities when the Portfolio Manager wishes to do
so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available.
Therefore, judgment may at times play a greater role in valuing
these securities than in the case of unrestricted securities
LEASE OBLIGATION BONDS
Lease Obligation Bonds are mortgages on a facility that is
secured by the facility and are paid by a lessee over a long
term. The rental stream to service the debt as well as the
mortgage are held by a collateral trustee on behalf of the public
bondholders. The primary risk of such instrument is the risk of
default. Under the lease indenture, the failure to pay rent is an
event of default. The remedy to cure default is to rescind the
lease and sell the assets. If the lease obligation is not readily
marketable or market quotations are not readily available, such
lease obligations will be subject to a Series' limit on Illiquid
Securities.
SMALL COMPANIES
Certain of the Series may invest in small companies, some of
which may be unseasoned. Such companies may have limited product
lines, markets, or financial resources and may be dependent on a
limited management group. While the markets in securities of such
companies have grown rapidly in recent years, such securities may
trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more
sharply than those of other securities, and a Series may
experience some difficulty in establishing or closing out
positions in these securities at prevailing market prices. There
may be less publicly available information about the issuers of
these securities or less market interest in such securities
than in the case of larger companies, and it may take a longer
period of time for the prices of such securities to reflect the
full value of their issuers' underlying earnings potential or
assets.
Some securities of smaller issuers may be restricted as to
resale or may otherwise be highly illiquid. The ability of a
Series to dispose of such securities may be greatly limited, and
a Series may have to continue to hold such securities during
periods when the Adviser or a Portfolio Manager would otherwise
have sold the security. It is possible that the Adviser or a Sub-
Adviser or its affiliates or clients may hold securities issued
by the same issuers, and may in some cases have acquired the
securities at different times, on more favorable terms, or at
more favorable prices, than a Series which it manages.
STRATEGIC TRANSACTIONS
Subject to the investment limitations and restrictions for
each of the Series as stated elsewhere in the Prospectus and SAI
of the Trust, certain of the Series may, but are not required to,
utilize various investment strategies as described in this
Appendix to hedge various market risks, to manage the effective
maturity or duration of Fixed-Income Securities, or to seek
potentially higher returns. Utilizing these investment
strategies, the Series may purchase and sell, to the extent not
otherwise limited or restricted for such Series, exchange-listed
and over-the-counter put and call options on securities, equity
and fixed-income indexes and other financial instruments,
purchase and sell financial futures contracts and options
thereon, enter into various Interest Rate Transactions such as
swaps, caps, floors or collars, and enter into various currency
transactions such as currency forward contracts,
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currency futures
contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic
Transactions").
Strategic Transactions may be used to attempt to protect
against possible changes in the market value of securities held
in or to be purchased for the Series resulting from securities
markets or currency exchange rate fluctuations, to protect the
Series' unrealized gains in the value of its Series securities,
to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the
Series, or to establish a position in the derivatives markets as
a temporary substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to seek
potentially higher returns, although no more than 5% of the
Series' assets will be used as the initial margin or purchase
price of options for Strategic Transactions entered into for
purposes other than "bona fide hedging" positions as defined in
the regulations adopted by the Commodity Futures Trading
Commission. Any or all of these investment techniques may be used
at any time, as use of any Strategic Transaction is a function of
numerous variables including market conditions. The ability of
the Series to utilize these Strategic Transactions successfully
will depend on the Adviser's or Portfolio Manager's ability to
predict, which cannot be assured, pertinent market movements. The
Series will comply with applicable regulatory requirements when
utilizing Strategic Transactions. Strategic Transactions
involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk
management or Series management purposes.
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. These are broken into
two section for different groups of Series into fundamental and
non-fundamental policies. Fundamental policies and restrictions
of each Series 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. Non-fundamental
policies and restrictions may be changed by a vote of the Board
of Trustees and without shareholder approval, consistent with the
Investment Company Act, changes in relevant SEC interpretations.
FUNDAMENTAL INVESTMENT RESTRICTIONS
FOR 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 MARKET MANAGER SERIES,
AND THE LIQUID ASSET 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 instrumentalities;
(3) Invest in a security if more than 25% of its total assets
(taken at market value at the time of such investment) would be
invested in the securities of issuers in any particular
industry, except that this restriction does not apply: (a) to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (or repurchase agreements with
respect thereto), (b) with respect to the Liquid Asset Series,
to securities or
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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 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
Hard Assets 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 and Liquid Asset Series, make short sales
of securities, except short sales against the box, and except
that this restriction shall not apply to the Multiple
Allocation, Hard Assets, All-Growth or Capital Appreciation
Series, which may engage in short sales within the limitations
described in the Prospectus and in the Statement of Additional
Information;
(10) Borrow money or pledge, mortgage, or hypothecate its
assets, except that a Series may: (a) borrow from banks, but
only if immediately after each borrowing and continuing
thereafter there is asset coverage of 300%; and (b) enter into
reverse repurchase agreements and transactions in options,
futures, options on futures, and forward currency contracts as
described in the Prospectus and in the Statement of Additional
Information. (The deposit of assets in escrow in connection
with the writing of covered put and call options and the
purchase of securities on a "when-issued" or delayed delivery
basis and collateral arrangements with respect to initial or
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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, except for the All-Growth Series, more than 15%
of the total assets of the Series, (taken at market value at
the time of such investment) would be invested in such
securities;
(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 Multiple Allocation and Strategic Equity Series may
engage in futures contracts on gold; and
(d) this restriction shall not apply to the Managed Global
and the Hard Assets 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.
FOR THE TOTAL RETURN SERIES, RESEARCH SERIES, MID-CAP GROWTH
SERIES AND GLOBAL FIXED INCOME SERIES:
A Series may not:
(1) With respect to 75% of its total assets, purchase the
securities of any issuer if such purchase would cause more than
5% of the value of a Series total assets to be invested in
securities of any one issuer (except securities issued or
guaranteed by the U.S. Government or any agency or
instrumentality thereof), or purchase more than 10% of the
outstanding voting securities of any one issuer; provided that
this restriction shall not apply to the Global Fixed Income
Series or the Mid-Cap Growth Series;
(2) invest more than 25% of the value of the Series total
assets in the securities of companies engaged in any one
industry (except securities issued by the U.S. Government, its
agencies and instrumentalities);
(3) borrow money except from banks as a temporary measure for
extraordinary or emergency purposes or by entering into reverse
repurchase agreements (each Series of the Trust is required to
maintain asset coverage (including borrowings) of 300% for all
borrowings), except Global Fixed Income Series may also borrow
to enhance income;
(4) make loans to other persons, except loans of portfolio
securities and except to the extent that the purchase of debt
obligations in accordance with its investment objectives and
policies or entry into repurchase agreements may be deemed to
be loans;
(5) purchase or sell any commodity contract, except that each
Series may purchase and sell futures contracts based on debt
securities, indexes of securities, and foreign currencies and
purchase and write options on securities, futures contracts
which it may purchase, securities indexes, and foreign
currencies and purchase forward contracts. (Securities
denominated in gold or other precious metals or whose value is
determined by the value of gold or other precious metals are
not considered to be commodity contracts.) The Mid-Cap Growth,
Research and Total Return Series reserve the freedom of action
to hold and to sell real estate or mineral leases,
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commodities
or commodity contracts acquired as a result of the ownership of
securities. The Mid-Cap Growth, Research and Total Return
Series will not purchase securities for the purpose of
acquiring real estate or mineral leases, commodities or
commodity contracts (except for options, futures contracts,
options on futures contracts and forward contracts).
(6) underwrite securities of any other company, although it may
invest in companies that engage in such businesses if it does
so in accordance with policies established by the Trust's Board
of Trustees, and except to the extent that the Series may be
considered an underwriter within the meaning of the Securities
Act of 1933, as amended, in the disposition of restricted
securities;
(7) purchase or sell real estate, although it may purchase and
sell securities which are secured by or represent interests in
real estate, mortgage-related securities, securities of
companies principally engaged in the real estate industry and
participation interests in pools of real estate mortgage loans,
and it may liquidate real estate acquired as a result of
default on a mortgage; and
(8) issue any class of securities which is senior to a Series
shares of beneficial interest except as permitted under the
Investment Company Act of 1940 or by order of the SEC.
FOR THE VALUE + GROWTH SERIES:
The Series may not:
(1) purchase or sell commodities or commodity contracts, or
interests in oil, gas, or other mineral leases, or other
mineral exploration or development programs, although it may
invest in companies that engage in such businesses to the
extent otherwise permitted by the Series investment policies
and restrictions and by applicable law, except as required in
connection with otherwise permissible options, futures and
commodity activities as described elsewhere in the Prospectus
and this Statement;
(2) purchase or sell real estate, although it may invest in
securities secured by real estate or real estate interests, or
issued by companies, including real estate investment trusts,
that invest in real estate or real estate interests;
(3) make short sales or purchases on margin, although it may
obtain short-term credit necessary for the clearance of
purchases and sales of its portfolio securities and except as
required in connection with permissible options, futures, short
selling and leverage activities as described elsewhere in the
Prospectus and this Statement (the short sale restriction is
non-fundamental);
(4) with respect to 75% of its total assets, invest in the
securities of any one issuer (other than the U.S. Government
and its agencies and instrumentalities) if immediately after
and as a result of such investment more than 5% of the total
assets of a Series would be invested in such issuer. There are
no limitations with respect to the remaining 25% of its total
assets, except to the extent other investment restrictions may
be applicable.
(5) mortgage, hypothecate, or pledge any of its assets as
security for any of its obligations, except as required for
otherwise permissible borrowings (including reverse repurchase
agreements), short sales, financial options and other hedging
activities;
(6) make loans to other persons, except loans of portfolio
securities and except to the extent that the purchase of debt
obligations in accordance with its investment objectives and
policies or entry into repurchase agreements may be deemed to
be loans;
(7) borrow money, except from banks for temporary or emergency
purposes or in connection with otherwise permissible leverage
activities, and then only in an amount not in excess of 5% of
the Series total assets (in any case as determined at the
lesser of acquisition cost or current market value and
excluding collateralized reverse repurchase agreements);
(8) underwrite securities of any other company, although it may
invest in companies that engage in such businesses if it does
so in accordance with policies established by the Trust's Board
of Trustees, and except to the
24
<PAGE>
extent that the Series may be
considered an underwriter within the meaning of the Securities
Act of 1933, as amended, in the disposition of restricted
securities;
(9) invest more than 25% of the value of the Series total
assets in the securities of companies engaged in any one
industry (except securities issued by the U.S. Government, its
agencies and instrumentalities);
(10) issue senior securities, as defined in the 1940 Act,
except that this restriction shall not be deemed to prohibit
the Series from making any otherwise permissible borrowings,
mortgages or pledges, or entering into permissible reverse
repurchase agreements, and options and futures transactions;
(11) own, directly or indirectly, more than 25% of the voting
securities of any one issuer or affiliated person of the
issuer; and
(12) purchase the securities of other investment companies,
except as permitted by the 1940 Act or as part of a merger,
consolidation, acquisition of assets or similar reorganization
transaction.
FOR THE GROWTH & INCOME SERIES:
The Series may not:
(1) issue any class of securities which is senior to the Series
shares of beneficial interest, except that the Series may
borrow money to the extent contemplated by Restriction 3 below;
(2) purchase securities on margin (but a Series may obtain such
short-term credits as may be necessary for the clearance of
transactions). (Margin payments or other arrangements in
connection with transactions in short sales, futures contracts,
options, and other financial instruments are not considered to
constitute the purchase of securities on margin for this
purpose);
(3) borrow more than one-third of the value of its total assets
less all liabilities and indebtedness (other than such
borrowings) not represented by senior securities;
(4) underwrite securities of any other company, although it may
invest in companies that engage in such businesses if it does
so in accordance with policies established by the Trust's Board
of Trustees, and except to the extent that the Series may be
considered an underwriter within the meaning of the Securities
Act of 1933, as amended, in the disposition of restricted
securities;
(5) as to 75% of the Series total assets, purchase any security
(other than obligations of the U.S. Government, its agencies or
instrumentalities) if as a result: (i) more than 5% of the
Series total assets (taken at current value) would then be
invested in securities of a single issuer, or (ii) more than
25% of the Series total assets (taken at current value) would
be invested in a single industry;
(6) invest in securities of any issuer if any officer or
Trustee of the Trust or any officer or director of the
Portfolio Manager owns more than 1/2 of 1% of the outstanding
securities of such issuer, and such officers, Trustees and
directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer; and
(7) make loans to other persons, except loans of portfolio
securities and except to the extent that the purchase of debt
obligations in accordance with its investment objectives and
policies or entry into repurchase agreements may be deemed to
be loans.
FOR THE GROWTH OPPORTUNITIES AND DEVELOPING WORLD SERIES:
A Series may not:
(1) With respect to 75% of its total assets, invest in the
securities of any one issuer (other than the U.S. Government
and its agencies and instrumentalities) if immediately after
and as a result of such investment more
25
<PAGE>
than 5% of the total
assets of a Series would be invested in such issuer. There are
no limitations with respect to the remaining 25% of its total
assets, except to the extent other investment restrictions may
be applicable.
(2) Make loans to others, except (a) through the purchase of
debt securities in accordance with its investment objective and
policies, (b) through the lending of up to 30% of its portfolio
securities as described above and in its Prospectus, or (c) to
the extent the entry into a repurchase agreement or a reverse
dollar roll transaction is deemed to be a loan.
(3) (a) Borrow money, except for temporary or emergency
purposes from a bank, or pursuant to reverse repurchase
agreements or dollar roll transactions for a Series that uses
such investment techniques and then not in excess of one-third
of the value of its total assets (at the lower of cost or fair
market value). Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least
300% of all borrowings (excluding any fully collateralized
reverse repurchase agreements and dollar roll transactions the
Series may enter into), and no additional investments may be
made while any such borrowings are in excess of 10% of total
assets.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with permissible borrowings and permissible forward
contracts, futures contracts, option contracts or other hedging
transactions.
(4) Except as required in connection with permissible hedging
activities, purchase securities on margin or underwrite
securities. (This does not preclude a Series from obtaining
such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities.)
(5) Buy or sell real estate or commodities or commodity
contracts; however, a Series, to the extent not otherwise
prohibited in the Prospectus or this Statement of Additional
Information, may invest in securities secured by real estate or
interests therein or issued by companies which invest in real
estate or interests therein, including real estate investment
trusts, and may purchase or sell currencies (including forward
currency exchange contracts), futures contracts and related
options generally as described in the Prospectus and this
Statement of Additional Information.
(6) Invest in securities of other investment companies, except
to the extent permitted by the Investment Company Act and
discussed in the Prospectus or this Statement of Additional
Information, or as such securities may be acquired as part of a
merger, consolidation or acquisition of assets.
(7) Invest more than 25% of the value of the Series total
assets in the securities of companies engaged in any one
industry (except securities issued by the U.S. Government, its
agencies and instrumentalities);
(8) Issue senior securities, as defined in the Investment
Company Act, except that this restriction shall not be deemed
to prohibit a Series from (a) making any permitted borrowings,
mortgages or pledges, or (b) entering into permissible
repurchase and dollar roll transactions.
(9) Invest in commodities, except for futures contracts or
options on futures contracts if, as a result thereof, more than
5% of a Series' total assets (taken at market value at the time
of entering into the contract) would be committed to initial
deposits and premiums on open futures contracts and options on
such contracts.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
FOR THE RISING DIVIDENDS SERIES, EMERGING MARKETS SERIES, VALUE
EQUITY SERIES, STRATEGIC EQUITY SERIES, SMALL CAP SERIES, MANAGED
GLOBAL SERIES AND MARKET MANAGER SERIES:
A Series may not:
(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
26
<PAGE>
(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.
FOR THE MANAGED GLOBAL SERIES:
The 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 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.
FOR THE TOTAL RETURN SERIES, RESEARCH SERIES, MID-CAP GROWTH
SERIES AND GLOBAL FIXED INCOME SERIES:
A Series may not:
(1) invest more than 10% (except 15% with respect to the Global
Fixed Income Series, Mid-Cap Growth Series and Total Return
Series) of the net assets of a Series (taken at market value)
in illiquid securities, including repurchase agreements
maturing in more than seven days;
(2) purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, and except that it may make margin
payments in connection with options, futures contracts, options
on futures contracts and forward foreign currency contracts and
in connection with swap agreements;
(3) make short sales of securities unless such Series owns an
equal amount of such securities or owns securities which,
without payment of any further consideration, are convertible
into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short; and
(4) make investments for the purpose of gaining control of a
company's management.
FOR THE VALUE + GROWTH SERIES:
The Series may not:
(1) except as required in connection with otherwise permissible
options and futures activities, invest more than 5% of the
value of the Series total assets in rights or warrants (other
than those that have been acquired in units or attached to
other securities), or invest more than 2% of its total assets
in rights or warrants that are not listed on the New York or
American Stock Exchange;
(2) participate on a joint basis in any trading account in
securities, although the Portfolio Manager may aggregate orders
for the sale or purchase of securities with other accounts it
manages to reduce brokerage costs or to average prices;
(3) invest, in the aggregate, more than 10% of its net assets
in illiquid securities;
(4) purchase or write put, call, straddle or spread options
except as described in the Prospectus or Statement of
Additional Information;
(5) purchase or retain in the Series portfolio any security if
any officer, trustee or shareholder of the issuer is at the
same time an officer, trustee or employee of the Trust or of
its Portfolio Manager and such person owns
27
<PAGE>
beneficially more
than 1/2 of 1% of the securities and all such persons owning
more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of the issuer;
(6) invest in real estate limited partnerships or invest more
than 10% of the value of its total assets in real estate
investment trusts;
(7) buy or sell physical commodities;
(8) invest or engage in arbitrage transactions;
(9) invest more than 40% of its total assets in the securities
of companies operating exclusively in one foreign country;
(10) purchase securities of other open-end investment
companies;
(11) under normal market conditions, invest less than 65% of
its total assets in companies listed on a nationally recognized
securities exchange or traded on the National Association of
Securities Dealers Automated Quotation System.
(12) purchase the securities of any company for the purpose of
exercising management or control;
(13) purchase more than 10% of the outstanding voting
securities of any one issuer; and
(14) invest more than 5% of the value of its total assets in
securities of any issuer which has not had a record, together
with its predecessors, of at least three years of continuous
operations.
FOR THE GROWTH & INCOME SERIES:
The Series may not:
(1) invest in warrants (other than warrants acquired by the
Series as a part of a unit or attached to securities at the
time of purchase) if, as a result, such investment (valued at
the lower of cost or market value) would exceed 5% of the value
of the Series net assets, provided that not more than 2% of the
Series net assets may be invested in warrants not listed on the
New York or American Stock Exchanges;
(2) purchase or sell commodities or commodity contracts, except
that the Series may purchase or sell financial futures
contracts, options on financial futures contracts, and futures
contracts, forward contracts, and options with respect to
foreign currencies, and may enter into swap transactions;
(3) purchase securities restricted as to resale if, as a
result, (i) more than 10% of the Series total assets would be
invested in such securities, or (ii) more than 5% of the Series
total assets (excluding any securities eligible for resale
under Rule 144A under the Securities Act of 1933) would be
invested in such securities;
(4) invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities
restricted as to resale, and (c) repurchase agreements maturing
in more than seven days, if, as a result, more than 15% of the
Series net assets (taken at current value) would then be
invested in the aggregate in securities described in (a), (b),
and (c) above;
(5) invest in securities of other registered investment
companies, except by purchases in the open market involving
only customary brokerage commissions and as a result of which
not more than 5% of its total assets (taken at current value)
would be invested in such securities, or except as part of a
merger, consolidation, or other acquisition;
(6) invest in real estate limited partnerships;
28
<PAGE>
(7) purchase any security if, as a result, the Series would
then have more than 5% of its total assets (taken at current
value) invested in securities of companies (including
predecessors) less than three years old;
(8) purchase or sell real estate or interests in real estate,
including real estate mortgage loans, although it may purchase
and sell securities which are secured by real estate and
securities of companies, including limited partnership
interests, that invest or deal in real estate and it may
purchase interests in real estate investment trusts. (For
purposes of this restriction, investments by a Series in
mortgage-backed securities and other securities representing
interests in mortgage pools shall not constitute the purchase
or sale of real estate or interests in real estate or real
estate mortgage loans.);
(9) make investments for the purpose of exercising control or
management;
(10) invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may
invest in the common stocks of companies that invest in or
sponsor such programs;
(11) acquire more than 10% of the voting securities of any
issuer;
(12) invest more than 15%, in the aggregate, of its total
assets in the securities of issuers which, together with any
predecessors, have a record of less than three years continuous
operation and securities restricted as to resale (including any
securities eligible for resale under Rule 144A under the
Securities Act of 1933); or
(13) purchase or sell puts, calls, straddles, spreads, or any
combination thereof, if, as a result, the aggregate amount of
premiums paid or received by the Series in respect of any such
transactions then outstanding would exceed 5% of its total
assets.
FOR THE GROWTH OPPORTUNITIES AND DEVELOPING WORLD SERIES:
A Series may not:
(1) Invest, in the aggregate, more than 15% of its net assets
in illiquid securities, including (under current SEC
interpretations) restricted securities (excluding liquid Rule
144A-eligible restricted securities), securities which are not
otherwise readily marketable, repurchase agreements that mature
in more than seven days and over-the-counter options (and
securities underlying such options) purchased by a Series.
(2) Invest in any issuer for purposes of exercising control or
management of the issuer.
(3) Except as described in the Prospectus and this Statement of
Additional Information, acquire or dispose of put, call,
straddle or spread options subject to the following conditions
(a) such options are written by other persons, and
(b) the aggregate premiums paid on all such options which are
held at any time do not exceed 5% of the Series' total
assets.
(4) Except as described in the Prospectus and this Statement of
Additional Information, engage in short sales of securities.
(5) Purchase more than 10% of the outstanding voting
securities of any one issuer.
If a percentage restriction is adhered to at the time of
investment, a subsequent increase or decrease in a percentage
resulting from a change in the values of assets will not
constitute a violation of that restriction, except as otherwise
noted.
29
<PAGE>
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:
NAME AND ADDRESS POSITION BUSINESS AFFILIATIONS AND
WITH THE PRINCIPAL OCCUPATIONS
TRUST
Terry L. Kendall* Chairman of Director, and Chief
Golden American Life the Board Executive Officer, Golden
Insurance Co. and American Life Insurance
1001 Jefferson Street President Company; Executive Vice
Wilmington, DE 19801 President, Equitable of Iowa
Companies; formerly,
President and Chief
Executive Officer, United
Pacific and Chief Executive
Officer, United Pacific. Age
51.
Barnett Chernow Vice Executive Vice President,
Golden American Life President Golden American Life
Insurance Co. Insurance Company; Executive
1001 Jefferson Street Vice President, Directed
Wilmington, DE 19801 Services, Inc.; Senior Vice
President and Chief
Financial Officer, Reliance
Insurance Company, August
1977 to July 1993. Age 47.
J. Michael Earley Trustee President, and Chief
665 Locust Street Executive Officer, Bankers
Des Moines, IA 50309 Trust Company, Des Moines,
Iowa since July 1992;
President and Chief
Executive Officer, Mid-
America Savings Bank,
Waterloo, Iowa from April,
1987 to June, 1992. Age 51.
R. Barbara Gitenstein Trustee Trustee Provost, Drake
Provost Office University since July 1992;
202 Old Main Assistant Provost, State
Drake University University of New York from
2507 University August, 1991 to July, 1992;
Avenue Associate Provost, State
Des Moines, IA 50311- University of New York -
4505 Oswego from January, 1989 to
August, 1991. Age 49.
Robert A. Grayson Trustee Co-founder, Grayson
Grayson Associates Associates, Inc.; Adjunct
108 Loma Media Road Professor of Marketing, New
Santa Barbara, CA York University School of
Business Administration;
former Director, The Golden
Financial Group, Inc.; 93103
former Senior Vice
President, David & Charles
Advertising. Age 70.
Myles R. Tashman Secretary Executive Vice President and
Golden American Life Secretary, Golden American
Insurance Co. Life Insurance Company;
1001 Jefferson Street Executive Vice President and
Wilmington, DE 19801 Secretary, Directed
Services, Inc.; Secretary of
GCG Trust; formerly, Senior
Vice President and General
Counsel, United Pacific Life
Insurance Company (1986-
1993). Age 55.
30
<PAGE>
Paul R. Schlaack Trustee President, Chief Executive
909 Locust Street. Officer and Director,
Des Moines, IA 50309 Equitable Investment
Services, Inc. since 1984.
Age 50.
Stanley B. Seidler Trustee President, Iowa Periodicals,
P.O. Box. 1297 Inc. since 1990 and
3301 McKinley Avenue President, Excell Marketing
Des Moines, IA 50321 L.C. since 1994. Age 69.
M. Norvel Young Trustee Chancellor Emeritus and
Pepperdine University Board of Regents, Pepperdine
Malibu, CA 90263 University; Director of
Imperial 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 82.
Mary Bea Wilkinson Treasurer President, First Golden
Golden American Life American Life Insurance Co.
Insurance Co. of NY; Senior Vice President
1001 Jefferson Street and Treasurer, Golden
Wilmington, DE 19801 American Life Insurance Co.;
and President and Treasurer,
Directed Services, Inc.
October 1993 to December
1996; 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 41.
Roger B. Vincent Trustee President, Springwell
Springwell Corporation; Director
Corporation Petralone, Inc.; formerly,
230 Park Avenue, Managing Director Bankers
New York, NY 10169 Trust Company. Age 52.
Elizabeth J. Newell Trustee President and Chief
KRAGIE/NEWELL, Inc. Executive Officer of
2633 Fleur Drive KRAGIE/NEWELL, Inc. Age 50
Des Moines, IA 50321
*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 October 31, 1997, none of the Trustees directly owns
shares of the Series. In addition, as of October 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
31
<PAGE>
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 June 30, 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 Market Manager 13.02%
Charitable Remainder
Trust
Darald Libby Market Manager 8.13%
Charitable Remainder
Unit Trust
George Berman Market Manager 7.24%
Charitable Remainder
Trust
Sanford Lugar Market Manager 5.83%
In addition, as of October 31, 1997 the General Account of
Golden American owned 9.67% of the shares of the Emerging Markets
Series and Security Equity Life owned beneficially 33.50% of the
shares of the Limited Maturity Bond 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 Equitable of Iowa Companies ("Equitable of Iowa"),
which, in turn, is a subsidiary of ING Groep, N.V. ("ING"). 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 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
32
<PAGE>
periodic
reports to shareholders of the Series as required by applicable
law in connection with the Series; (vi) preparing and arranging
for the filing of such registration statements and other
documents with the Securities and Exchange Commission and other
federal and state regulatory authorities as may be required by
applicable law in connection with the Series; (vii) taking such
other action with respect to the Trust, as may be required by
applicable law, including without limitation the rules and
regulations of the SEC and other regulatory agencies; and (viii)
providing the Trust at the Manager's expense, with adequate
personnel, office space, communications facilities, and other
facilities necessary for operation of the Series contemplated in
the Management Agreement. Other responsibilities of the Manager
are described in the Prospectus.
The Manager shall make its officers and employees available
to the Board of Trustees and Officers of the Trust for
consultation and discussions regarding the supervision and
administration of the Series.
Pursuant to the Management Agreement, the Manager is
authorized to exercise full investment discretion and make all
determinations with respect to the investment of a Series' assets
and the purchase and sale of portfolio securities for one or more
Series in the event that at any time no Portfolio Manager is
engaged to manage the assets of such Series.
The Management Agreement shall continue in effect until
October 24, 1999, 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 October 24, 1997, was approved by shareholders at
a meeting held on October 9, 1997, 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 August 19, 1997. The Management Agreement may be
terminated without penalty by vote of the Trustees or the
shareholders of the Series or by the Manager, on 60 days' written
notice by either party to the Management Agreement, and will
terminate automatically if assigned as that term is described in
the 1940 Act.
Prior to October 24, 1997, DSI served as the manager to the
Trust pursuant to a Management Agreement dated August 13, 1996,
and prior to August 13, 1996, DSI served as manager to the
Trust 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
six months ending June 30, 1997 were as follows: Multiple
Allocation Series -- $1,306,206; Strategic Equity Series --
$172,780; Fully Managed Series -- $698,382; Limited Maturity
Bond Series -- $238,597; Hard Assets Series -- $218,693; Real
Estate Series -- $272,711; All-Growth Series -- $352,916; Capital
Appreciation Series -- $762,748; Rising Dividends Series --
$738,987; Emerging Markets Series -- $438,078; Liquid Asset
Series -- $135,093; Small Cap Series -- $186,623 and Value Equity
Series -- $245,698. 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 Manager 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 -- $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.
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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 October
24, 1997. The Portfolio Management Agreements were approved by
the Trustees of the Trust at a meeting held on August 19, 1997 and
were approved by shareholders of each Series of the Trust at a
meeting held on October 9, 1997.
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 six months ending June 30, 1997, the Manager (and not the
Trust) paid the Portfolio Managers the following amounts:
Zweig Advisors Inc. -- $661,680 for the Multiple Allocation
Series and $87,524 for the Strategic Equity Series; T. Rowe
Price Associates, Inc.-- $353,777 for the Fully Managed Series;
Putnam Investment Management, Inc. -- $230,137 for the Emerging
Markets Series and $287,654 for the Managed Global Series;
Van Eck Associates Corp. -- $110,782 for the Hard Assets
Series; Chancellor LGT Asset Management Inc. -- $386,382
for the Capital Appreciation Series; Kayne Anderson
Investment Management, L.P. -- $374,346 for the Rising Dividends
Series; E.I.I. Realty Securities, Inc. -- $138,146 for the Real
Estate Series; Eagle Asset Management, Inc. -- $125,208 for the
Value Equity Series; and Pilgrim Baxter & Associated, LTd. --
$184,656 for the All-Growth Series; Equitable Investment Services,
Inc. -- $39,971 for Liquid Assets Series, $101,341 for Limited
Maturity Bond Series and $14,830 for Market Manager Series; and
Fred Alger Management, Inc. -- $94,537 for Small Cap 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 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 Management, Inc. --
$559,368 for the 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 Management, 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
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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.
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.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager for a Series places all orders for the
purchase and sale of portfolio securities, options, and futures
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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.
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
36
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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.
Watermark Securities, Inc., Zweig Securities Corp., KA
Associates, 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 period ending June 30, 1997, 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, All-
Growth Series and Small Cap Series paid brokerage commissions
of $177,100, $44,425, $59,326, $0, $474,731, $0, $0, $115,776,
$42,379, $44,192, $64,643, $109,721,$528,964, $199,599, and
$58,256, respectively. The Multiple Allocation Series and
Strategic Equity Series paid brokerage commissions of $14,017
and $1,788 (7.91% and 4.02% of its total brokerage commissions),
repectively, to Zweig Securities. The Value Equity Series paid
brokerage commissions of $10,419 (9.49% of its total brokerage
commissions) to Raymond James & Associates, Inc. The Hard Assets
Series paid brokerage commissions of $900 (0.77% of its total
brokerage commissions) to Raymond James & Associates, Inc. The
Small Cap Series paid brokerage commissions of $57,121 (98.05% of
its total brokerage commissions) to Fred Alger.
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, respectively. The Managed Global
Series paid brokerage commissions of $3,041 (1.59% of its total
brokerage commissions) to Jardine Fleming. The Strategic 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, 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.
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The Liquid Asset Series' portfolio securities are valued
using the amortized cost method of valuation. This involves
valuing a security at cost on the date of acquisition and
thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity, regardless of the impact
of fluctuating interest rates on the market value of the
instrument. While this method provides certainty in valuation,
it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Series
would receive if it sold the instrument. During such periods the
yield to investors in the Series may differ somewhat from that
obtained in a similar investment company which uses available
market quotations to value all of its portfolio securities.
The Securities and Exchange Commission's regulations require
the Liquid Asset Series to adhere to certain conditions. The
Trustees, as part of their responsibility within the overall duty
of care owed to the shareholders, are required to establish
procedures reasonably designed, taking into account current
market conditions and the Series' investment objectives, to
stabilize the net asset value per share as computed for the
purpose of distribution and redemption at $1.00 per share. The
Trustees' procedures include a requirement to periodically
monitor, as appropriate and at such intervals as are reasonable
in light of current market conditions, the relationship between
the amortized cost value per share and the net asset value per
share based upon available indications of market value. The
Trustees will consider what steps should be taken, if any, in the
event of a difference of more than 1/2 of 1% between the two.
The Trustees will take such steps as they consider appropriate
(e.g., selling securities to shorten the average portfolio
maturity) to minimize any material dilution or other unfair
results which might arise from differences between the two. The
Series also is required to maintain a dollar-weighted average
portfolio maturity of 90 days or less, to limit its investments
to instruments having remaining maturities of 13 months or less
(except securities held subject to repurchase agreements having
13 months or less to maturity) and to invest only in securities
determined by the Portfolio Manager under procedures established
by the Board of Trustees to be of high quality with minimal
credit risks.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the current yield
and effective yield of its Liquid Asset Series, the yield of the
remaining Series, and the total return of all Series in
advertisements or sales literature. In the case of Variable
Contracts, performance information for the Series will not be
advertised or included in sales literature unless accompanied by
comparable performance information for a separate account to
which the Series offer their shares.
Current yield for Liquid Asset Series will be based on the
change in the value of a hypothetical investment (exclusive of
capital charges) over a particular seven-day period, less a pro-
rata share of Series expenses accrued over that period (the "base
period"), and stated as a percentage of the investment at the
start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with
the resulting yield figure carried to at least the nearest
hundredth of one percent. "Effective yield" for the Liquid Asset
Series assumes that all dividends received during an annual
period have been reinvested. Calculation of "effective yield"
begins with the same "base period return" used in the calculation
of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
Effective Yield = [ ( (Base Period Return) + 1 ) ^ 365/7 ] - 1
Quotations of yield for the remaining Series will be based
on all investment income per share earned during a particular 30-
day period (including dividends and interest and calculated in
accordance with a standardized yield formula adopted by the
Securities and Exchange Commission), less expenses accrued during
the period ("net investment income"), and are computed by
dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following
formula:
YIELD = 2 [((a-b)/cd + 1 )^6 - 1 ]
where,
a = dividends and interest earned during the period,
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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 June 30, 1997 and for the five- and one-year periods ended
June 30, 1997 the average annual total return for each Series
was as follows: 9.44%, 9.79%, and 15.42% for the Multiple
Allocation Series; 9.13, 10.87%, and 18.15% for the Fully Managed
Series; 6.74%, 5.14%, and 6.35% for the Limited Maturity Bond
Series; 5.64%, 5.20%, and 2.11% for the All-Growth Series;
11.49%, 18.48%, and 34.82% for the Real Estate Series; 10.14%,
15.21%, and 14.76% for the Hard Assets Series; and 5.15%, 4.13%,
and 5.02% for the Liquid Asset Series. For the period of May 4,
1992 (inception of the Capital Appreciation Series) to June 30,
1997 and for the five- and one-year period ended June 30,
1997, the average total return for the Capital Appreciation
Series was 15.77%, 16.53%, and 26.38%. For the period of October
1, 1993 (inception of the Rising Dividends and Emerging Markets
Series) to June 30, 1997 and for the one-year period ended
June 30, 1997, the average total return for the Rising Dividends
Series was 19.48% and 30.08% and the average annual total return
for the Emerging Markets Series was 4.85% and 14.00%. For the
period of November 14, 1994 (inception of the Market Manager
Series) to June 30, 1997 and for the one-year period ended
June 30, 1997, the average total return for the Market Manager
Series was 23.78% and 29.70%. For the period of January 1, 1995
(inception of the Value Equity Series) to June 30, 1997 and for
the one-year period ended June 30, 1997, the average total return
for the Value Equity Series was 25.79% and 29.40%. For the period
of October 2, 1995 (inception of the Strategic Equity Series) to
June 30, 1997 and for the one-year period ended June 30, 1997,
the average total return for the Strategic Equity Series was 15.56%
and 15.58%. For the period ended January 3, 1996 (inception for
the Small Cap Series) to June 30, 1997, and for the one-year period
ended June 30, 1997 the total return for the Small Cap Series was
13.45% and 1.68%.
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 June 30, 1997 and for
the one-year period ended June 30, 1997, the average total
return for the Managed Global Series was 5.19% and 15.62%,
respectively.
Each Series may be categorized as to its market
capitalization make-up ("large cap," mid cap" or "small cap")
with regard to the market capitalization of the issuers whose
securities it holds. A Series average or median market
capitalization may also be cited. Certain other statistical
measurements may be used to provide measures of a Series'
characteristics. Some of these statistical measures include
without limitation: median or average P/E ratios, duration and
beta. Median and average P/E ratios are measures describing the
relationship between the price of a Series' various securities
and their earnings per share. Duration is a weighted-average
term-to-maturity of the bond's cash flows, the weights being the
present value of each cash flow as a percentage of the bond's
full price.
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Beta is a historical measure of a portfolio's market
risk; a Beta of 1.10 indicates that the portfolio's returns
tended to be 10% higher (lower) than the market return during
periods in which market returns were positive (negative).
Performance information for a Series may be compared, in
advertisements, sales literature, and reports to shareholders to:
(i) the Standard & Poor's 500 Stock Index ("S&P 500"), the Dow
Jones Industrial Average ("DJIA"), the Lehman Brothers Government
Bond Index, the Donoghue Money Market Institutional Averages, the
Lehman Brothers Government Corporate Index, the Salomon High
Yield Index, or other indices that measure performance of a
pertinent group of securities, (ii) other groups of mutual funds
tracked by Lipper Analytical Services, Inc., a widely used
independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii)
the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Series. Unmanaged
indices may assume the reinvestment of dividends but generally do
not reflect deductions for administrative and management costs
and expenses.
Reports and promotional literature may also contain other
information including (i) the ranking of any Series derived from
rankings of mutual funds or other investment products tracked by
Lipper Analytical Services, Inc. or by other rating services,
companies, publications, or other persons who rank mutual funds
or other investment products on overall performance or other
criteria, and (ii) the effect of tax deferred compounding on a
Series' investment returns, or returns in general, which may be
illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return
from an investment in a Series (or returns in general) on a tax-
deferred basis (assuming one or more tax rates) with the return
on a taxable basis.
In addition, reports and promotional literature may contain
information concerning the Manager, the Portfolio Managers, or
affiliates of the Trust, the Manager, or the Portfolio Managers,
including (i) performance rankings of other mutual funds managed
by a Portfolio Manager, or the individuals employed by a
Portfolio Manager who exercise responsibility for the day-to-day
management of a Series, including rankings of mutual funds
published by Morningstar, Inc., Value Line Mutual Fund Survey, or
other rating services, companies, publications, or other persons
who rank mutual funds or other investment products on overall
performance or other criteria; (ii) lists of clients, the number
of clients, or assets under management; and (iii) information
regarding services rendered by the Manager to the Trust,
including information related to the selection and monitoring of
the Portfolio Managers. Reports and promotional literature may
also contain a description of the type of investor for whom it
could be suggested that a Series is intended, based upon each
Series' investment objectives.
In the case of Variable Contracts, quotations of yield or
total return for a Series will not take into account charges and
deductions against any Separate Accounts to which the Series
shares are sold or charges and deductions against the life
insurance policies or annuity contracts issued by Golden
American, although comparable performance information for the
Separate Account will take such charges into account.
Performance information for any Series reflects only the
performance of a hypothetical investment in the Series during the
particular time period on which the calculations are based.
Performance information should be considered in light of the
Series' investment objective or objectives and investment
policies, the characteristics and quality of the portfolios, and
the market conditions during the given time period, and should
not be considered as a representation of what may be achieved in
the future.
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
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with respect to its business
of investing in such stock, securities, or currencies (to satisfy
this requirement, it is intended that the Series investing in
gold and other commodities will be managed so that the gross
income derived from its investments in gold and other commodities
and future contracts on gold and other commodities, when combined
with any other gross income of the Series which is not derived
from qualifying sources, will not exceed 10% of the Series' gross
income during any fiscal year); (ii) derive in each taxable year
less than 30% of its gross income from the sale or other
disposition of certain assets held less than three months (namely
(a) stock or securities, (b) options, futures, and forward
contracts (other than those on foreign currencies), and (c)
foreign currencies (including options, futures, and forward
contracts on such currencies) not directly related to a Series'
principal business of investing in stocks or securities (or
options and futures with respect to stocks and securities));
(iii) diversify its holdings so that, at the end of each quarter
of the taxable year, (a) at least 50% of the market value of the
Series' assets is represented by cash, cash items, U.S.
Government securities, the securities of other regulated
investment companies, and other securities, with such other
securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the
Series' total assets and 10% of the outstanding voting securities
of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other
regulated investment companies), or of two or more issuers which
the Series controls (as that term is defined in the relevant
provisions of the Code) and which are determined to be engaged in
the same or similar trades or businesses or related trades or
businesses; and (iv) distribute at least 90% of its investment
company taxable income (which includes, among other items,
dividends, interest, and net short-term capital gains in excess
of any net long-term capital losses) each taxable year.
A Series qualifying as a regulated investment company
generally will not be subject to U.S. federal income tax on its
investment company taxable income and net capital gains (any net
long-term capital gains in excess of the net short- term capital
losses), if any, that it distributes to shareholders. Each
Series intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable
income and any net capital gains.
Generally, regulated investment companies, like the Series,
must distribute amounts on a timely basis in accordance with a
calendar year distribution requirement in order to avoid a
nondeductible 4% excise tax. Generally, to avoid the tax, a
regulated investment company must distribute during each calendar
year, an amount at least equal to the sum of (i) 98% of its
ordinary income (not taking into account any capital gains or
losses) for the calendar year, (ii) 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary
losses) for the twelve-month period ending on October 31 of the
calendar year, and (iii) all ordinary income and capital gains
for previous years that were not distributed during such years.
To avoid application of the excise tax, 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
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from the sale of PFIC stock
as well as certain distributions from a PFIC. All excess
distributions are taxable as ordinary income.
A Series may be able to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently may be
available, a Series generally would be required to include in its
gross income its share of the earnings of a PFIC on a current
basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed
above, relating to the taxation of excess distributions, would
not apply. In addition, another election may be available that
would involve marking to market a Series' PFIC stock at the end
of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as
though they were realized although any such gains recognized will
be ordinary income rather than capital gain. 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.
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
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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.
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.
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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.
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.
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VOTING RIGHTS
Shareholders of the Series are given certain voting rights.
Each share of each Series will be given one vote, unless a
different allocation of voting rights is required under
applicable law for a mutual fund that is an investment medium for
variable insurance products.
Massachusetts business trust law does not require the Trust
to hold annual shareholder meetings, although special meetings
may be called for a specific Series, or for the Trust as a whole,
for purposes such as electing or removing Trustees, changing
fundamental policies, or approving a contract for investment
advisory services. The Trust will be required to hold a meeting
to elect Trustees to fill any existing vacancies on the Board if,
at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the
Agreement and Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares or other
voting interests of the Trust may remove a person serving as
Trustee either by declaration in writing or at a meeting called
for such purpose. The Trust's shares do not have cumulative
voting rights. The Trustees are required to call a meeting for
the purpose of considering the removal of a person serving as
Trustee, if requested in writing to do so by the holders of not
less than 10% of the outstanding shares of the Trust. The Trust
is required to assist in shareholders' communications.
CUSTODIAN AND OTHER SERVICE PROVIDERS
The Custodian for the Series is Bankers Trust Company, 280
Park Avenue, New York, New York 10017. 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 LLP, 200 Clarendon Street, Boston, MA 02116-
5072, serves as independent auditors for the Trust.
COUNSEL
Sutherland, Asbill & Brennan, LLP, 1275 Washington Avenue, NW,
Washington, D.C. 20004-2440 acts as 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, 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.
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The Trust's unaudited financial statements dated as of June
30, 1997 for all Series, including notes thereto, are
incorporated by reference in this Statement of Additional
Information from the Trust's Semi-Annual Report dated as of June
30, 1997.
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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.
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PART C
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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, Research
Series, Total Return Series, Growth & Income Series, Value +
Growth, Global Fixed Income Series, Growth Opportunities
Series, and Developing World Series which had not commenced
operations as of June 30, 1997)
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):
(a)The audited financial statements(for all series except
the Mid-Cap Growth Series, Research Series,
Total Return Series, Growth & Income Series, Value & Growth,
Global Fixed Income Series, Growth Opportunities Series, and
Developing World Series) 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
(b)The unaudited financial statements(for all series except
the Mid-Cap Growth Series, Research Series,
Total Return Series, Growth & Income Series, Value & Growth,
Global Fixed Income Series, Growth Opportunities Series, and
Developing World Series) dated as of June 30, 1997 are
incorporated by reference from the Trust's Semi-Annual
Report dated as of June 30, 1997.
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Portfolio of Investments
Notes to Financial Statements
<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)
(c) Amendment to the Restated Agreement and Declaration of
Trust (adding the Mid-Cap Growth Series, Research Series,
Total Return Series, Growth & Income Series, Value + Growth
Series, Global Fixed Income Series, Growth Opportunities
Series & Developing World Series) (15)
(2) By-laws (4)
(3) Not Applicable
(4) Not Applicable
(5) (a) (i) Management Agreement (for all Series except The
Fund For Life)
(ii) Form of Management Agreement (for The Fund For Life)(5)
(b) Portfolio Management Agreements
(i) Portfolio Management Agreement with Pilgrim
Baxter & Associates, Ltd.
(ii) Portfolio Management Agreement with Chancellor
LGT Asset Management, Inc.
(iii) Portfolio Management Agreement with Putnam
Investment Management, Inc.
(iv) Portfolio Management Agreement with T. Rowe
Price Associates, Inc.
(v) Portfolio Management Agreement with Van Eck
Associates Corporation
(vi) Portfolio Management Agreement with Equitable
Investment Services, Inc.
(vii) Portfolio Management Agreement with Zweig
Advisors Inc.
(viii) Portfolio Management Agreement with E.I.I.
Realty Securities, Inc.
(ix) Portfolio Management Agreement with Kayne
Anderson Investment Management, LLC.
(x) Portfolio Management Agreement with Fred Alger
Management, Inc.
(xi) Portfolio Management Agreement with Eagle
Asset Management, Inc.
(xii) Portfolio Management Agreement with
Credit Suisse Asset Management Limited,
Massachusetts Financial Services Company,
Robertson, Stephens & Company Investment
Management, L.P, and
Montgomery Asset Management, L.P. (15)
- 2-
<PAGE>
(c) Form of Administrative Services Agreement for The Fund For
Life (5)
(d) Administration and Fund Accounting Agreement among the
Trust, Directed Services, Inc., and First Data
Corporation. (14)
(6) Distribution Agreement (3)
(7) Not Applicable
(8) (a) (i) Custodian Agreement (6)
(ii) Form of Addendum to Custodian Agreement (7)
(iii) Form of Addendum to Custodian Agreement (adding the
Market Manager Series and Value Equity Series) (8)
(iv) Form of Addendum to the Custodian Agreement (adding the
Strategic Equity Series) (9)
(v) Form of Addendum to the Custodian Agreement (adding the
Small Cap Series) (10)
(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)(2)
(viii) Form of Addendum to the Custodian Agreement (adding
Mid-Cap Growth Series, Research Series, Total Return
Series, Growth & Income Series, Value & Growth,
Global Fixed Income Series, Growth Opportunities
Series, and Developing World Series) (15)
(9) (a) (i) Transfer Agency and Service Agreement (11)
(ii) Form of Addendum to the Transfer Agency and Service
Agreement for The Fund For Life, Zero Target 2002
Series, and Capital Appreciation Series
(b) (i) Form of Organizational Agreement for Golden American Life
Insurance Company (11)
(ii) Assignment Agreement for Organizational Agreement
(iii) Form of Organizational Agreement for The Mutual
Benefit Life Insurance Company
(iv) Assignment Agreement for Organizational Agreement
(v) Form of Addendum to Organizational Agreement (adding
Market Manager Series and Value Equity Series)
(vi) Form of Addendum to the Organizational Agreement (adding
the Strategic Equity Series) (9)
(vii) Form of Addendum to the Organizational Agreement (adding
the Small Cap Series) (10)
(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, Research Series, Total Return
Series, Growth & Income Series, Value & Growth, Global
Fixed Income Series, Growth Opportunities Series, and
Developing World Series (15)
(c) (i) Form of Settlement Agreement for Golden American Life
Insurance Company (11)
(ii) Assignment Agreement for Settlement Agreement
(iii) Form of Settlement Agreement for The Mutual Benefit Life
Insurance Company (12)
(iv) Form of Assignment Agreement for Settlement Agreement (12)
- 3-
<PAGE>
(d) Indemnification Agreement
(e) (i) Form of Expense Reimbursement Agreement
(ii) Amendment No. 1 to the Expense Reimbursement Agreement (6)
(iii) Amendment No. 2 to the Expense Reimbursement Agreement (6)
(iv) Amendment No. 3 to the Expense Reimbursement Agreement (6)
(v) Amendment No. 4 to the Expense Reimbursement Agreement (6)
(10) Opinion and Consent of Counsel (11)
(11) Consent of Ernst & Young LLP, independent auditors
(12) Not Applicable
(13) (a) Initial Capital Agreement (11)
(b) Form of Initial Capital Agreement for The Fund For Life (6)
(14) Not Applicable
(15) Not Applicable
(16) Schedule showing computation of performance quotations provided in
response to Item 22 (unaudited) (13)
(17) Financial Data Schedules
(18) Secretary's Certificate pursuant to Rule 483(b) (8)
(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) Incorporated by reference to Post-Effective Amendment No. 32 to the
Registration Statement on Form N-1A of The GCG Trust as filed on May
1, 1997, File No. 33-23512.
(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) 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.
(6) Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A of The GCG Trust as filed on May
3, 1993, File No. 33-23512.
- 4-
<PAGE>
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Western Capital Specialty
Managers Trust as filed on November 23, 1988, File No. 33-23512.
(12) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A of The Specialty Managers Trust
as filed on April 23, 1991, File No. 33- 23512.
(13) 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.
(14) 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 8, 1995, File No. 33-23512.
(15) Incorporated by reference to Post-Effective Amendment No. 33 to the
Registration Statement on Form N-1A of The GCG Trust as filed on
September 2, 1997, 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 Security Equity Life Insurance Company, a separate
account of Equitable Life Insurance Company of Iowa, and Golden
American Life Insurance Company and its separate accounts own all
of the outstanding shares of Registrant.
MBL, Security Equity Life Insurance Company, a separate account of
Equitable Life Insurance Company of Iowa, 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 7
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
year, had substantial affiliations with 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 each including Mr. Kendall serves as directors of each of EIC's
subsidiaries. In addition to DSI 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 909 Loccust 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
Beth B. Neppl Director Vice President of Human Resources of EIC
Paul R. Schlaack Director President and Chief Executive Officer of EISI
Jerome L. Sychowski Director Senior Vice President and Chief Investment
Officer of EIC
</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.
Barnett Chernow Executive Vice President Executive Vice President, Golden American
Life Insurance Company; 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, LLC
For information regarding Kayne Anderson Investment Management, LLC,
reference is made to Form ADV of Kayne Anderson Investment Management,
LLC, 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 LGT Asset Management, Inc.
For information regarding Chancellor LGT Asset Management, Inc. ("Chancellor"),
reference is made to Form ADV of Chancellor, SEC File No. 801-10254, which
is incorporated by reference.
- 8-
<PAGE>
Putnam Investment Management, Inc.
For information regarding Putnam Investment Management, Inc., reference is made
to Form ADV of Putnam Investment Management, 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.
Credit Suisse Asset Management Limited
For information regarding Credit Suisse Asset Management Limited, reference is
made to Form ADV of Credit Suisse Asset Management Limited, SEC File No.
801-40177, which is incorporated by reference.
Massachusetts Financial Services Company
For information regarding Massachusetts Financial Services Company, reference is
made to Form ADV of Massachusetts Financial Services Company, SEC File No.
801-17352, which is incorporated by reference.
Robertson, Stephens & Company Investment Management, L.P.
For information regarding Robertson, Stephens & Company Investment Management,
L.P., reference is made to Form ADV of Robertson, Stephens & Company Investment
Management, L.P., SEC File No. 801-144125, which is incorporated by
reference.
Montgomery Asset Management, LLC
For information regarding Montgomery Asset Management, LLC, reference is made
to Form ADV of Montgomery Asset Management, LLC, SEC File No. 801-54803,
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.
(b) The following officers of Directed Services, Inc. hold positions with
the registrant: 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
and at the offices of First Data Investor Services Group, Inc. located
at 4400 Computer Drive, Westborough, MA 01581.
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 certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 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 November 26, 1997.
THE GCG TRUST
(Registrant)
--------------------------
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. 35 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 November 26, 1997.
Signature Title
President and Trustee
- ---------------------
Terry L. Kendall*
Trustee
- ---------------------
J. Michael Earley*
Trustee
- ---------------------
R. Barbara Gitenstein*
Trustee
- ---------------------
Robert A. Grayson*
Trustee
- ---------------------
Elizabeth J. Newell
Chairman of the Board
- ---------------------
Paul R. Schlaack*
Trustee
- ---------------------
Stanley B. Seidler*
Trustee
- ---------------------
Roger B. Vincent*
Treasurer
- ---------------------
Mary Bea Wilkinson*
Trustee
- ---------------------
M. Norvel Young*
*By: /s/ Marilyn Talman
-----------------------
Marilyn Talman
as Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Number Exhibit Name Exhibit
5(a)(i) Management Agreement(for all Series except The EX99.B5ai
Fund For Life)
5(b)(i) Portfolio Management Agreement with Pilgrim EX99.B5bi
Baxter & Associates, Ltd.
5(b)(ii) Portfolio Management Agreement with Chancellor EX99.B5bii
LGT Asset Management, Inc.
5(b)(iii) Portfolio Management Agreement with Putnam EX99.B5biii
Investment Management, Inc.
5(b)(iv) Portfolio Management Agreement with T. Rowe EX99.B5biv
Price Associates, Inc.
5(b)(v) Portfolio Management Agreement with Van Eck EX99.B5bv
Associates Corporation
5(b)(vi) Portfolio Management Agreement with Equitable EX99.B5bvi
Investment Services, Inc.
5(b)(vii) Portfolio Management Agreement with Zweig Advisors EX99.B5bvii
Inc.
5(b)(viii) Portfolio Management Agreement with E.I.I. EX99.B5bviii
Realty Securities, Inc.
5(b)(ix) Portfolio Management Agreement with Kayne EX99.B5bix
Anderson Investment Management, LLC
5(b)(x) Portfolio Management Agreement with Fred Alger EX99.B5bx
Management, Inc.
5(b)(xi) Portfolio Management Agreement with Eagle EX99.B5bxi
Asset Management, Inc.
9(a)(ii) Form of Addendum to the Transfer Agency and EX99.B9aii
Service Agreement for The Fund For Life, Zero
Target 2002 Series, and Capital Appreciation Series
9(b)(ii) Assignment Agreement for Organizational Agreement EX99.B9bii
9(b)(iii) Form of Organizational Agreement for the EX99.B9biii
Mutual Benefit Life Insurance Company
9(b)(iv) Assignment Agreement for Organizational Agreement EX99.B9biv
9(b)(v) Form of Addendum to Organizational Agreement EX99.B9bv
9(c)(ii) Assignment Agreement for Settlement Agreement EX99.B9cii
9(d) Indemnificatiom Agreement EX99.B9d
9(e)(i) Expense Reimbursement Agreement EX99.B9ei
11 Consent of Ernst & Young LLP EX99.B11
17 Financial Data Schedules
19 Powers of Attorney EX99.B19
MANAGEMENT AGREEMENT
Agreement made this 24th day of October, 1997 between The GCG Trust
("Trust"), a Massachusetts business trust, and Directed Services, Inc.
("Manager"), a New York corporation (the "Agreement").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
in separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust currently offers shares in multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future; and
WHEREAS, the Trust desires to avail itself of the services of the Manager
for the provision of advisory, management, administrative, and other services
for the Trust; and
WHEREAS, the Manager is willing to render such services to the Trust.
Therefore, in consideration of the premises, the promises and mutual
covenants herein contained, it is agreed between the parties as follows:
1. APPOINTMENT. The Trust hereby appoints the Manager, subject to the
direction of the Board of Trustees, for the period and on the terms set forth
in this Agreement, to provide advisory, management, administrative, and other
services, as described herein, with respect to the Series identified on
Schedule A, such series together with all other series subsequently
established by the Trust with respect to which the Trust desires to retain the
Manager to render advisory, management, administrative, and other services
hereunder and with respect to which the Manager is willing to do so being
herein collectively referred to as the "Series." The Manager accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided. In the event the Trust establishes one or more
series other than the Series with respect to which it desires to retain the
Manager to render advisory, management, administrative, and other services
hereunder, it shall notify the Manager in writing. If the Manager is willing
to render such services it shall notify the Trust in writing, whereupon such
series shall become a Series hereunder.
2. SERVICES OF THE MANAGER. The Manager represents and warrants that
it is registered as an investment adviser under the Investment Advisers Act of
1940 and in all states where required, and will maintain such registration for
so long as required by applicable law. Subject to the general supervision of
the Board of Trustees of the Trust, the Manager shall provide the following
advisory, management, administrative, and other services with respect to the
Series:
(a) Provide general, overall advice and guidance with respect to
the Series and provide advice and guidance to the Trust's Trustees, and
oversee the management of the investments of the Series and the composition of
each Series' portfolio of securities and investments, including cash, and the
purchase, retention and disposition thereof, in accordance with each
Series' investment
1
<PAGE>
objective or objectives and policies as stated in the Trust's current
registration statement, which management shall be provided by others selected
by the Manager and approved by the Board of Trustees as provided below or
directly by the Manager as provided in Section 3 of this Agreement;
(b) Analyze, select and recommend for consideration by the Trust's
Board of Trustees investment advisory firms (however organized) to provide
investment advice to one or more of the Series, and, at the expense of the
Manager, engage (which engagement may also be by the Trust) such investment
advisory firms to render investment advice and manage the investments of such
Series and the composition of each such Series' portfolio of securities and
investments, including cash, and the purchase, retention and disposition
thereof, in accordance with the Series' investment objective or objectives and
policies as stated in the Trust's current registration statement (any such
firms approved by the Board of Trustees and engaged by the Trust and/or the
Manager are referred to herein as "Portfolio Managers");
(c) Periodically monitor and evaluate the performance of the
Portfolio Managers with respect to the investment objectives and policies of
the Series;
(d) Monitor the Portfolio Managers for compliance with the
investment objective or objectives, policies and restrictions of each Series,
the 1940 Act, Subchapter M of the Internal Revenue Code, Section 817(h) of the
Internal Revenue Code, and if applicable, regulations under such provisions,
and other applicable law;
(e) If appropriate, analyze and recommend for consideration by the
Trust's Board of Trustees termination of a contract with a Portfolio Manager
under which the Portfolio Manager provided investment advisory services to one
or more of the Series;
(f) Supervise Portfolio Managers with respect to the services that
such Portfolio Managers provide under respective portfolio management
agreements ("Portfolio Management Agreements"), although the Manager is not
authorized, except as provided in Section 3 of the Agreement, directly to make
determinations with respect to the investment of a Series' assets or the
purchase or sale of portfolio securities or other investments for a Series;
(g) Provide all supervisory, management, and administrative
services reasonably necessary for the operation of the Series other than the
investment advisory services performed by the Portfolio Managers, including
but not limited to, (i) coordinating all matters relating to the operation of
the Series, including any necessary coordination among the Portfolio Managers,
custodian, transfer agent, dividend disbursing agent, and portfolio accounting
agent (including pricing and valuation of the Series' portfolios),
accountants, attorneys, and other parties performing services or operational
functions for the Trust, (ii) providing the Trust and the Series, at the
Manager's expense, with the services of a sufficient number of persons
competent to perform such administrative and clerical functions as are
necessary to ensure compliance with federal securities laws and to provide
effective supervision and administration of the Series; (iii) maintaining or
supervising the maintenance by third parties selected by the Manager of such
books and records of the Trust and the Series as may be required by applicable
federal or state law; (iv) preparing or supervising the preparation by third
parties selected by the Manager of all federal, state, and local tax returns
and reports relating to the Series required by applicable
2
<PAGE>
law; (v) preparing and filing and arranging for the distribution of proxy
materials and periodic reports to shareholders of the Series as required by
applicable law; (vi) preparing and arranging for the filing of registration
statements and other documents with the Securities and Exchange Commission
(the "SEC") and other federal and state regulatory authorities as may be
required by applicable law; (vii) taking such other action with respect to the
Trust as may be required by applicable law in connection with the Series,
including without limitation the rules and regulations of the SEC and other
regulatory agencies; and (viii) providing the Trust, at the Manager's expense,
with adequate personnel, office space, communications facilities, and other
facilities necessary for operation of the Series as contemplated in this
Agreement;
(h) Provide or procure on behalf of the Trust and the Series, and
at the expense of the Manager, the following services for the Series: (i)
custodian services to provide for the safekeeping of the Series' assets; (ii)
portfolio accounting services to maintain the portfolio accounting records for
the Series; (iii) transfer agency services for the Series; (iv) dividend
disbursing services for the Series, and (v) other services necessary for the
ordinary operation of the Series. The Trust may, but is not required to, be a
party to any agreement with any third person contracted to provide the
services referred to in this Section 2(h);
(i) Render to the Board of Trustees of the Trust such periodic and
special reports as the Board may reasonably request; and
(j) Make available its officers and employees to the Board of
Trustees and officers of the Trust for consultation and discussions regarding
the administration and management of the Series and services provided to the
Trust under this Agreement.
3. INVESTMENT MANAGEMENT AUTHORITY. In the event that a Portfolio
Management Agreement pertaining to a Series is terminated or if, at any time,
no Portfolio Manager is engaged to manage the assets of a Series of the Trust,
then with respect to any such Series, the Manager, subject to the supervision
of the Trust's Board of Trustees, will provide a continuous investment program
for the Series' portfolio and determine the composition of the assets of the
Series' portfolio, including determination of the purchase, retention, or sale
of the securities, cash, and other investments contained in the portfolio.
The Manager will provide investment research and conduct a continuous program
of evaluation, investment, sales, and reinvestment of the Series' assets by
determining the securities and other investments that shall be purchased,
entered into, sold, closed, or exchanged for the Series, when these
transactions should be executed, and what portion of the assets of the Series
should be held in the various securities and other investments in which it may
invest, and the Manager is hereby authorized to execute and perform such
services on behalf of the Series. To the extent permitted by the investment
policies of the Series, the Manager shall make decisions for the Series as to
foreign currency matters and make determinations as to, and execute and
perform, foreign currency exchange contracts on behalf of the Series. The
Manager will provide the services under this Agreement in accordance with the
Series' investment objective or objectives, policies, and restrictions as
stated in the Trust's Registration Statement filed with the SEC, as amended.
Furthermore:
(a) The Manager will (1) take all steps necessary to manage the
Series so that it will qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, (2) take all steps necessary to
manage the Series so as to ensure compliance by the Series with the
diversification requirements of
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Section 817(h) of the Internal Revenue Code and regulations issued thereunder,
and (3) use reasonable efforts to manage the Series so as to ensure compliance
by the Series with any other rules and regulations pertaining to investment
vehicles underlying variable annuity or variable life insurance policies. In
managing the Series in accordance with these requirements, the Manager shall
be entitled to receive and act upon advice of counsel to the Trust or counsel
to the Manager.
(b) The Manager will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Trust's Board of
Trustees, and the provisions of the Registration Statement of the Trust under
the Securities Act of 1933 and the 1940 Act, as supplemented or amended.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Series as well as any other
investment advisory clients, the Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate the
securities to be so sold or purchased with those of its other clients where
such aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Manager in a manner that is fair and equitable in the judgment
of the Manager in the exercise of its fiduciary obligations to the Trust and
to such other clients.
(d) In connection with the purchase and sale of securities of the
Series, the Manager will arrange for the transmission to the custodian for the
Trust on a daily basis, of such confirmation, trade tickets, and other
documents and information, including, but not limited to, Cusip, Sedol, or
other numbers that identify securities to be purchased or sold on behalf of
the Series, as may be reasonably necessary to enable the custodian to perform
its administrative and record keeping responsibilities with respect to the
Series. With respect to portfolio securities to be purchased or sold through
the Depository Trust Company, the Manager will arrange for the automatic
transmission of the confirmation of such trades to the Trust's custodian.
(e) The Manager will assist the custodian or portfolio accounting
agent for the Trust in determining, consistent with the procedures and
policies stated in the Registration Statement for the Trust, the value of any
portfolio securities or other assets of the Series for which the custodian or
portfolio accounting agent seeks assistance or review from the Manager. The
Manager will monitor on a daily basis the determination by the custodian or
portfolio accounting agent for the Trust of the value of portfolio securities
and other assets of the Series and the determination of net asset value of the
Series.
(f) The Manager will make available to the Trust, promptly upon
request, all of the Series' investment records and ledgers as are necessary to
assist the Trust to comply with requirements of the 1940 Act and the
Investment Advisers Act of 1940, as well as other applicable laws. The
Manager will furnish to regulatory authorities having the requisite authority
any information or reports in connection with such services which may be
requested in order to ascertain whether the operations of the Trust are being
conducted in a manner consistent with applicable laws and regulations.
(g) The Manager will regularly report to the Trust's Board of
Trustees on the investment program for the Series and the issuers and
securities represented in the Series' portfolio, and will furnish the Trust's
Board of Trustees with respect to the Series such periodic and special reports
as the Trustees may reasonably request.
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(h) The Manager will not disclose or use any records or information
obtained pursuant to this Agreement (excluding investment research and
investment advice) in any manner whatsoever except as required to carry out
its duties as investment manager and administrator pursuant to this Section 3
or in the ordinary course of business in connection with placing orders for
the purchase and sale of securities, and will keep confidential any
information obtained pursuant to this Agreement, and disclose such information
only if the Board of Trustees of the Trust has authorized such disclosure, or
if such disclosure is expressly required by applicable federal or state law or
regulations or regulatory authorities having the requisite authority.
(i) In rendering the services required under this Section of this
Agreement, the Manager may, from time to time, employ or associate with itself
such person or persons as it believes necessary to assist it in carrying out
its obligations under this Agreement. The Manager shall be responsible for
making reasonable inquires and for reasonably ensuring that any employee of
the Manager, any person or firm that the Manager has employed or with which it
has associated, or any employee thereof has not, to the best of the Manager's
knowledge, in any material connection with the handling of Trust assets:
(i) been convicted, in the last ten (10) years, of any felony
or misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, or involving
violations of Sections 1341, 1342, or 1343 of Title 18, United States Code; or
(ii) been found by any state regulatory authority, within the
last ten (10) years, to have violated or to have acknowledged violation of any
provision of any state insurance law involving fraud, deceit, or knowing
misrepresentation; or
(iii) been found by any federal or state regulatory
authorities, within the last ten (10) years, to have violated or to have
acknowledged violation of any provisions of federal or state securities laws
involving fraud, deceit, or knowing misrepresentation.
(j) In connection with its responsibilities under this Section 3,
the Manager is responsible for decisions to buy and sell securities and other
investments for the Series' portfolio, broker-dealer selection, and
negotiation of brokerage commission rates. The Manager's primary
consideration in effecting a security transaction will be to obtain the best
execution for the Series, taking into account the factors specified in the
Prospectus and/or Statement of Additional Information for the Trust, which
include price (including the applicable brokerage commission or dollar
spread), the size of the order, the nature of the market for the security, the
timing of the transaction, the reputation, experience and financial stability
of the broker- dealer involved, the quality of the service, the difficulty of
execution, execution capabilities and operational facilities of the firms
involved, and the firm's risk in positioning a block of securities.
Accordingly, the price to the Series in any transaction may be less favorable
than that available from another broker-dealer if the difference is reasonably
justified, in the judgment of the Manager in the exercise of its fiduciary
obligations to the Trust, by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Manager shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Series to pay a broker-dealer for effecting a portfolio
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<PAGE>
investment transaction in excess of the amount of commission another broker-
dealer would have charged for effecting that transaction, if the Manager or
its affiliate determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Manager's or its affiliate's overall responsibilities with
respect to the Series and to their other clients as to which they exercise
investment discretion. To the extent consistent with these standards and in
accordance with Section 11(a) of the Securities and Exchange Act of 1934 and
Rule 11a2-2(T) thereunder, the Manager is further authorized to allocate the
orders placed by it on behalf of the Series to the Manager if it is registered
as a broker-dealer with the SEC, to its affiliated broker-dealer, or to such
brokers and dealers who also provide research or statistical material or other
services to the Series, the Manager or an affiliate of the Manager. Such
allocation shall be in such amounts and proportions as the Manager shall
determine consistent with the above standards, and the Manager will report on
said allocation regularly to the Board of Trustees of the Trust indicating the
broker-dealers to which such allocations have been made and the basis
therefor.
4. CONFORMITY WITH APPLICABLE LAW. The Manager, in the performance of
its duties and obligations under this Agreement, shall act in conformity with
the Registration Statement of the Trust and with the instructions and
directions of the Board of Trustees of the Trust and will conform to, and
comply with, the requirements of the 1940 Act and all other applicable federal
and state laws and regulations.
5. EXCLUSIVITY. The services of the Manager to the Trust under this
Agreement are not to be deemed exclusive, and the Manager, or any affiliate
thereof, shall be free to render similar services to other investment
companies and other clients (whether or not their investment objectives and
policies are similar to those of any of the Series) and to engage in other
activities, so long as its services hereunder are not impaired thereby.
6. DOCUMENTS. The Trust has delivered properly certified or
authenticated copies of each of the following documents to the Manager and
will deliver to it all future amendments and supplements thereto, if any:
(a) certified resolution of the Board of Trustees of the Trust
authorizing the appointment of the Manager and approving the form of this
Agreement;
(b) the Registration Statement as filed with the SEC and any
amendments thereto; and
(c) exhibits, powers of attorney, certificates and any and all
other documents relating to or filed in connection with the Registration
Statement described above.
7. RECORDS. The Manager agrees to maintain and to preserve for the
periods prescribed under the 1940 Act any such records as are required to be
maintained by the Manager with respect to the Series by the 1940 Act. The
Manager further agrees that all records which it maintains for the Series are
the property of the Trust and it will promptly surrender any of such records
upon request.
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<PAGE>
8. EXPENSES. During the term of this Agreement, the Manager will pay
all expenses incurred by it in connection with its activities under this
Agreement, except such expenses as are assumed by the Trust under this
Agreement and such expenses as are assumed by a Portfolio Manager under its
Portfolio Management Agreement. The Manager further agrees to pay all
salaries, fees and expenses of any officer or trustee of the Trust who is an
officer, director or employee of the Manager or any of its affiliates. The
Manager shall be responsible for all of the expenses of its operations and for
the following expenses:
(a) Expenses of all audits by the Trust's independent public
accountants;
(b) Expenses of the Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder record keeping services;
(c) Expenses of the Trust's custodial services, including
recordkeeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
each Series' net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses
of International Management reports (as appropriate) for each Series;
(f) Expenses of maintaining the Trust's tax records;
(g) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of the
Trust to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's existence and qualification to do business, and the
registration of shares with federal and state securities or insurance
authorities;
(h) The Trust's ordinary legal fees, including the legal fees
related to the registration and continued qualification of the Trust's shares
for sale;
(i) Costs of printing stock certificates representing shares of the
Trust;
(j) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(k) Association membership dues; and
(l) Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
Commencing with the date of this Agreement, the Manager is responsible for any
remaining unamortized organizational expenses of the Series as of the date of
this Agreement.
The Trust shall be responsible for the following expenses:
(a) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Manager or an affiliate of the Manager;
(b) Taxes levied against the Trust;
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(c) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Trust;
(d) Costs, including the interest expense, of borrowing money;
(e) Trustees' fees and expenses to Trustees who are not officers,
employees, or stockholders of the Manager, any Portfolio Manager, or any
affiliates of either; and
(f) Extraordinary expenses as may arise, including extraordinary
consulting expenses and extraordinary legal expenses incurred in connection
with litigation, proceedings, other claims (unless the Manager is responsible
for such expenses under Section 10 of this Agreement or a Portfolio Manager is
responsible for such expenses under the Section entitled "Liability" of a
Portfolio Management Agreement), and the legal obligations of the Trust to
indemnify its trustees, officers, employees, shareholders, distributors, and
agents with respect thereto.
9. COMPENSATION. For the services provided by the Manager pursuant to
this Agreement, the Trust will pay to the Manager a fee at an annual rate
equal to a percentage of the average daily net assets of each Series as shown
on Schedule B to this Agreement. This fee shall be computed and accrued daily
and payable as shown on Schedule B.
10. LIABILITY OF THE MANAGER. The Manager may rely on information
reasonably believed by it to be accurate and reliable. Except as may
otherwise be required by the 1940 Act or the rules thereunder, neither the
Manager nor its stockholders, officers, directors, employees, or agents shall
be subject to, and the Trust will indemnify such persons from and against, any
liability for, or any damages, expenses, or losses incurred in connection
with, any act or omission connected with or arising out of any services
rendered under this Agreement, except by reason of willful misfeasance, bad
faith, or gross negligence in the performance of the Manager's duties, or by
reason of reckless disregard of the Manager's obligations and duties under
this Agreement. Except as may otherwise be required by the 1940 Act or the
rules thereunder, neither the Manager nor its stockholders, officers,
directors, employees, or agents shall be subject to, and the Trust will
indemnify such persons from and against, any liability for, or any damages,
expenses, or losses incurred in connection with, any act or omission by a
Portfolio Manager or any of the Portfolio Manager's stockholders or partners,
officers, directors, employees, or agents connected with or arising out of any
services rendered under a Portfolio Management Agreement, except by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Manager's duties under this Agreement, or by reason of reckless disregard of
the Manager's obligations and duties under this Agreement.
11. CONTINUATION AND TERMINATION. This Agreement shall become effective
on the date first written above. Unless terminated as provided herein, the
Agreement shall continue in full force and effect for two (2) years from the
effective date of this Agreement, and shall continue from year to year
thereafter with respect to each Series so long as such continuance is
specifically approved at least annually (i) by the vote of a majority of the
Board of Trustees of the Trust, or (ii) by vote of a majority of the
outstanding voting shares of the Trust, and provided continuance is also
approved by the vote of a majority of the Board of Trustees of the Trust who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of the Trust or the Manager, cast in person at a meeting called for
the purpose of voting on such approval. This Agreement may not be amended in
any material respect without a majority vote
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of the outstanding voting shares (as defined in the 1940 Act). However, any
approval of this Agreement by the holders of a majority of the outstanding
shares (as defined in the 1940 Act) of a Series shall be effective to continue
this Agreement with respect to such Series notwithstanding (i) that this
Agreement has not been approved by the holders of a majority of the
outstanding shares of any other Series or (ii) that this Agreement has not
been approved by the vote of a majority of the outstanding shares of the
Trust, unless such approval shall be required by any other applicable law or
otherwise. This Agreement may be terminated by the Trust at any time, without
the payment of any penalty, by vote of a majority of the entire Board of
Trustees of the Trust or by a vote of a majority of the outstanding voting
shares of the Trust, or with respect to a Series, by vote of a majority of the
outstanding voting shares of such Series, on sixty (60) days' written notice
to the Manager, or by the Manager at any time, without the payment of any
penalty, on sixty (60) days' written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its "assignment" (as
described in the 1940 Act).
12. USE OF NAME. It is understood that the name or any derivative
thereof or logo associated with the name Directed Services, Inc. is the
valuable property of the Manager, and that the Trust and/or the Series have
the right to use such name (or derivative or logo) only so long as this
Agreement shall continue with respect to such Trust and/or Series. Upon
termination of this Agreement, the Trust (or Series) shall forthwith cease to
use such name (or derivative or logo) and, in the case of the Trust, shall
promptly amend its Agreement and Declaration of Trust to change its name (if
such name is included therein).
13. NOTICE. Notices of any kind to be given to the Manager by the Trust
shall be in writing and shall be duly given if mailed or delivered to the
Manager at 1001 Jefferson Street, Suite 400, Wilmington, Delaware 19801, or at
such other address or to such individual as shall be specified by the Manager
to the Trust. Notices of any kind to be given to the Trust by the Manager
shall be in writing and shall be duly given if mailed or delivered to 1001
Jefferson Street, Suite 400, Wilmington, Delaware 19801, or at such other
address or to such individual as shall be specified by the Trust to the
Manager.
14. TRUST OBLIGATION. A copy of the Trust's Amended and Restated
Agreement and Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and notice is hereby given that the Agreement
has been executed on behalf of the Trust by the Trustees of the Trust in their
capacity as trustees and not individually. The obligations of this Agreement
shall only 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.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
16. APPLICABLE LAW.
(a) This Agreement shall be governed by the laws of the State of
Delaware, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
(b) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
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(c) The captions of this Agreement are included for convenience
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE GCG TRUST
/s/Marilyn Talman By:/s/Terry Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
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SCHEDULE A
The Series of The GCG Trust, as described in the attached Management
Agreement, to which Directed Services, Inc. shall act as Manager are as
follows:
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Hard Assets Series
Real Estate Series
All-Growth Series
Liquid Assets Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series
Managed Global Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Directed Services, Inc. (the "Manager") to
the following Series of The GCG Trust (the "Trust"), pursuant to the attached
Management Agreement, the Trust will pay the Manager a fee, payable monthly
for each Series except the Market Manager Series, which will be payable
quarterly, based on the average daily net assets of the Series at the
following annual rates of the average daily net assets of the Series.
SERIES RATE
------ ----
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Hard Assets, Real Estate, All-Growth, 0.95% of next $1.25 billion;
Capital Appreciation, Rising Dividends, 0.90% of next $1.5 billion;
Value Equity, Strategic Equity, and and
Small Cap Series: 0.85% of amount in excess of $3.5
billion
Limited Maturity Bond and Liquid Asset
Series: 0.60% of first $200 million;
0.55% of next $300 million;
and
0.50% of amount in excess of $500
million
Emerging Markets Series: 1.75%
Market Manager Series: 1.00%
Managed Global Series: 1.35% of first $500 million;
1.15% of amount in excess of $500
million
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THE GCG TRUST
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 24th day of October, 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
October 24, 1997, 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
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
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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.
(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
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and record keeping 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
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
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(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,
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,
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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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping 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;
(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;
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(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.
(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.
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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.
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
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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
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, 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
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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 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.
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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 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).
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(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 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.
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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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
PILGRIM BAXTER & ASSOCIATES, LTD.
/s/John M. Zerr By:/s/Eric C. Schneider
- --------------------------------- ----------------------------------
Attest
General Counsel and Secretary Chief Finacial Officer
- ---------------------------------- -------------------------------------
Title Title
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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
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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%
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THE GCG TRUST
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made as of the 24th day of October, 1997 among The GCG
Trust (the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and Chancellor LGT Asset Management, Inc.
("Portfolio Manager"), a Delaware corporation.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, management investment
company;
WHEREAS, the Trust is authorized to issue separate series, each of which
will offer a separate class of shares of beneficial interest, each series
having its own investment objective or objectives, policies, and limitations;
WHEREAS, the Trust currently offers shares in 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
October 24, 1997, 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 Chancellor
LGT Asset Management, 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 notify the Portfolio Manager in writing. If the Port
folio 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 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
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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 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
("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) manage each Series so that it
will qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code, (2) manage each Series so as to ensure compliance by
the Series with the diversification requirements of Section 817(h) of the
Internal Revenue Code and regulations issued thereunder, and (3) use
reasonable efforts to manage the Series so as to ensure compliance by each
Series with any other rules and regulations pertaining to investment vehicles
underlying variable annuity or variable life insurance policies. The Manager
or the Trust will notify the Portfolio Manager of any pertinent changes,
modifications to, or interpretations of Section 817(h) of the Internal Revenue
Code and regulations issued thereunder.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board
of Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Trust under the Securities Act
of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy. The Manager or the Trust
will notify the Portfolio Manager of pertinent provisions of applicable state
insurance law with which the Portfolio Manager must comply under this
Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of 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 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 record keeping responsibilities with respect to the Series.
With respect to
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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 daily basis the
determination by the custodian and portfolio accounting agent for the Trust of
the valuation of portfolio securities and other investments of the Series.
The Portfolio Manager will assist 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
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
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(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 firm involved, and the firm's
risk in positioning a block of securities. Accordingly, the price to the
Series in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified, in the
judgment of the Portfolio Manager in the exercise of its fiduciary obligations
to the Trust, by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees may determine and consistent
with Section 28(e) of the Securities Exchange Act of 1934, the Portfolio
Manager shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Series to pay a broker-dealer for effecting a portfolio investment
transaction in excess of the amount of commission another broker- dealer would
have charged for effecting that transaction, if the Portfolio Manager or its
affiliate determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker- dealer, viewed in terms of either that particular
transaction or the Portfolio Manager's or its affiliate's overall
responsibilities with respect to the Series and to their other clients as to
which they exercise investment discretion. To the extent consistent with
these standards, the Portfolio Manager is further authorized to allocate the
orders placed by it on behalf of the Series to the Portfolio Manager if it is
registered as a broker-dealer with the SEC, to its affiliated broker-dealer,
or to such brokers and dealers who also provide research or statistical
material, or other services to the Series, the Portfolio Manager, or an
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 or indirectly, to the Portfolio Manager, such Registration Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any
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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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
each Series's net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses
of International Management Reports (as appropriate) for each Series;
(f) Expenses of maintaining the Trust's tax records;
(g) 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;
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(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
15 of this Agreement), and the legal obligations of the Trust to indemnify its
Trustees, officers, employees, shareholders, distributors, and agents with
respect thereto; and
(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 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 result in any of these
actions, (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable
basis for believing that the Series has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or
the Regulations thereunder. The Portfolio Manager further agrees to notify
the Manager and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the 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. INSURANCE COMPANY OFFEREES. All parties acknowledge that the Trust
will offer its shares so that it may serve as an investment vehicle for
variable annuity contracts and variable life insurance policies issued by
insurance companies. The Trust and the Manager agree that shares of the Series
may be offered only to the separate accounts and general account of insurance
companies that are approved in writing by the Portfolio Manager. The
Portfolio Manager agrees that shares of this Series may be offered to separate
accounts and the general account of Golden American Variable Life Insurance
Company and to the general and separate accounts of any insurance companies
that are or become affiliated with Golden American Life Insurance Company. The
Manager and Trust agree that the Portfolio Manager shall be under no
obligation to investigate insurance companies to which the Trust offers or
proposes to offer its shares.
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10. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-
3 under the 1940 Act, the Portfolio Manager hereby agrees that all records
which it maintains for the Series are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the Trust's
or the Manager's request, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. The Portfolio Manager further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-l under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
11. COOPERATION. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the Securities and
Exchange Commission and state insurance regulators) in connection with any
investigation or inquiry relating to this Agreement or the Trust.
12. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. The Manager and the
Trust agree that neither the Trust, the Manager, nor affiliated persons of the
Trust or the Manager shall give any information or make any representations or
statements in connection with the sale of shares of the Series concerning the
Portfolio Manager or the Series other than the information or representations
contained in the Registration Statement, prospectus, or statement of
additional information for the Trust shares, as they may be amended or
supplemented from time to time, or in reports or proxy statements for the
Trust, or in sales literature or other promotional material approved in
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.
13. CONTROL. Notwithstanding any other provision of the Agreement, it
is understood and agreed that the Trust shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and reserve the right to direct, approve, or disapprove any action
hereunder taken on its behalf by the Portfolio Manager.
14. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not
their investment objectives and policies are similar to those of the Series)
or from engaging in other activities.
15. LIABILITY. Except as may otherwise be required by the 1940 Act or
the rules thereunder or other applicable law, the Trust and the Manager agree
that the Portfolio Manager, any affiliated person of the Portfolio Manager,
and each person, if any, who, within the meaning of Section 15 of the 1933 Act
controls the Portfolio Manager shall not be liable for, or subject to any
damages, expenses, or losses in connection with, any act or omission connected
with or arising out of any services rendered under this Agreement, except by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Portfolio Manager's duties, or by reason of reckless
disregard of the Portfolio Manager's obligations and duties under this
Agreement.
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16. INDEMNIFICATION.
(a) The Manager agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person of the Portfolio Manager, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act controls
("controlling person") the Portfolio Manager (all of such persons being
referred to as "Portfolio Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities, or litigation (including legal and other
expenses) to which a Portfolio Manager Indemnified Person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, 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 15 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated
person of the Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls ("controlling person") the Manager (all
of such persons being referred to as "Manager Indemnified Persons") against
any and all losses, claims, damages, liabilities, or litigation (including
legal and other expenses) to which a Manager Indemnified Person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, 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 16 with respect to any claim made against a Portfolio Manager
Indemnified Person unless such Portfolio Manager Indemnified Person shall have
notified the Manager in writing within a reasonable time after the summons,
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
16. In case any such action is brought against the Portfolio Manager
Indemnified Person, the Manager will be entitled to participate, at its own
expense, in the defense thereof or, after notice to the Portfolio Manager
Indemnified Person, to assume the defense thereof, with counsel satisfactory
to the Portfolio Manager Indemnified Person. If the Manager assumes the
defense 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 16 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 16. In case
any such action is brought against the Manager Indemnified Person, the
Portfolio Manager will be entitled to participate, at its own expense, in the
defense thereof or, after notice to the Manager Indemnified Person, to assume
the defense thereof, with counsel satisfactory to the Manager Indemnified
Person. If the Portfolio Manager assumes the defense 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
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satisfactory to the Portfolio Manager and to the Manager Indemnified Person.
The Manager Indemnified Person shall bear the fees and expenses of any
additional counsel retained by it, and the Portfolio Manager shall not be
liable to the Manager Indemnified Person under this Agreement for any legal or
other expenses subsequently incurred by the Manager Indemnified Person
independently in connection with the defense thereof other than reasonable
costs of investigation. The Portfolio Manager shall not have the right to
compromise on or settle the litigation without the prior written consent of
the Manager Indemnified Person if the compromise or settlement results, or may
result in a finding of wrongdoing on the part of the Manager Indemnified
Person.
17. DURATION AND TERMINATION. This Agreement shall become effective on
the date 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) 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), 10, 11, 12, 15, 16, and 19 of this
Agreement shall remain in effect, as well as any applicable provision of this
Paragraph numbered 17.
18. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is
required by applicable law.
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19. USE OF NAME.
(a) It is understood that the name "Directed Services, Inc." or any
derivative thereof or logo associated with that name is the valuable property
of the Manager and/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 "Chancellor LGT Asset
Management, 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).
20. 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.
21. 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 17 of this Agreement,
this Agreement may only be assigned by any party with the prior written
consent of the other parties.
(d) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, 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.
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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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
CHANCELLOR LGT ASSET
MANAGEMENT, INC.
/s/Sharon J. Spodan By:/s/Daniel R. Waltcher
- --------------------------------- ----------------------------------
Attest
Vice President Managing Director
- ---------------------------------- -------------------------------------
Title Title
12
<PAGE>
SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which Chancellor LGT Asset Management, Inc.
shall act as Portfolio Manager is as follows:
Capital Appreciation Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Chancellor LGT Asset Management, Inc.
("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
------ ----
Capital Appreciation 0.50%
14
<PAGE>
SUB-ADVISORY AGREEMENT
THE GCG TRUST
October 24, 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 October 24, 1997 (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 objective(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 record keeping
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 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 Sub-Adviser or its affiliates
2
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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.
3
<PAGE>
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 the date set
forth above (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
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-
4
<PAGE>
Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed
to be 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-Adviser 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
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.
5
<PAGE>
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/David L. Jacobson
----------------------------------
THE GCG TRUST
By:/s/Terry Kendall
----------------------------------
THE GCG TRUST
Accepted:
PUTNAM INVESTMENT MANAGEMENT, INC.
By:Gordon Silver
-----------------------------------
6
<PAGE>
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%
C-7
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PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 24th day of October, 1997 among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and T. Rowe Price Associates, Inc.
("Portfolio Manager"), a Maryland 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
October 24, 1997, 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 the Portfolio
Manager to render investment advisory services 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 provide
investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Series' assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Series, when these transactions should be
executed, and what portion of the
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<PAGE>
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, and provided 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 as to ensure compliance by the Series with the
diversification requirements of Section 817(h) of the Internal Revenue Code
and regulations issued thereunder, and (3) use reasonable efforts to manage
the Series so as to ensure compliance by the Series with any other rules and
regulations pertaining to investment vehicles underlying variable annuity or
variable life insurance policies. The Manager or the Trust will notify the
Portfolio Manager of any pertinent changes, modifications to, or
interpretations of Section 817(h) of the Internal Revenue Code and regulations
issued thereunder. In managing the Series in accordance with these
requirements, the Portfolio Manager shall be entitled to act and rely upon
advice of counsel to the Trust, counsel to the Manager, or counsel to the
Portfolio Manager, such counsel to be reasonably acceptable to the Manager.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board
of Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Trust under the Securities Act
of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy. The Manager or the Trust
will notify the Portfolio Manager of pertinent provisions of applicable state
insurance law with which the Portfolio Manager must comply under this
Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of the Series as well as of
other investment advisory clients of the Portfolio Manager or any of its
affiliates, the Portfolio Manager may, to the extent permitted by applicable
laws and regulations, but shall not be obligated to, aggregate the securities
to be so sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Portfolio Manager in a manner that is fair and equitable in the
judgment of the Portfolio Manager in the exercise of its fiduciary obligations
to the Trust and to such other clients, subject to reasonable review by the
Manager and the Board of Trustees.
(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
2
<PAGE>
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 record keeping 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 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 reasonably 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.
(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 shall be agreed upon by the
Trustees, the Manager, and the Portfolio Manager, which agreement shall not be
unreasonably withheld.
(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
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
3
<PAGE>
(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,
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 or will review the post-effective amendment to the Registration
Statement for the Trust filed or to be filed with the Securities and Exchange
Commission that contains or will contain disclosure about the Portfolio
Manager that has been provided by the Portfolio Manager, and represents and
warrants that, with respect to the disclosure about the Portfolio Manager or
information relating, directly or indirectly, to the Portfolio Manager,
such Registration
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Statement, to the extent it contains information provided by or respecting the
Portfolio Manager, contains or will contain, as of the date of filing with the
Securities and Exchange Commission, 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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping 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;
(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;
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(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 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 or Section 15 of this Agreement), and the legal obligations of the Trust to
indemnify its Trustees, officers, employees, shareholders, distributors, and
agents with respect thereto; and
(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 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 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 or might not comply
with the diversification provisions of Section 817(h) of the Internal Revenue
Code or the Regulations thereunder. The Portfolio Manager further agrees to
notify the Manager and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect (provided such Registration Statement
or a prospectus for the Trust is provided to the Portfolio Manager).
(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.
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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-1 under the 1940 Act.
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, the Portfolio Manager will
use its best efforts to comment within 30 days.
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. The Portfolio Manager may rely upon information
reasonably believed by it to be accurate and reliable. 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.
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15. LIABILITY RESPECTING TAX COMPLIANCE. Notwithstanding Section 14,
the Portfolio Manager shall be liable for all losses, claims, damages,
liabilities, or litigation (including reasonable legal and other expenses)
incurred by the Trust or 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 the Manager, arising out of the Portfolio Manager's
responsibilities as Portfolio Manager of the Series which are based upon a
failure to comply with Section 2, Paragraph (a)(1) or (2) of this Agreement.
16. DURATION AND TERMINATION. This Agreement shall become effective on
the date first indicated above. Unless sooner 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 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,
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.
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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 "T. Rowe Price Associates, 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.
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.
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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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
T. ROWE PRICE ASSOCIATES, INC.
By:/s/Darrell N. Bramman
- ---------------------------------- -------------------------------------
Attest
Vice President
- ---------------------------------- -------------------------------------
Title Title
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which T. Rowe Price Associates, Inc. shall
act as Portfolio Manager is as follows:
Fully Managed Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by T. Rowe Price Associates, Inc. ("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 rate of the average daily net assets of the Series:
SERIES RATE
------ ----
Fully Managed Series 0.50%
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PORTFOLIO MANAGEMENT AGREEMENT
Agreement made this 24th day of October, 1997 among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and Van Eck Associates Corporation
("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 October 24,
1997, 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 Van Eck
Associates Corporation to act as Portfolio Manager to the Hard Assets Series
(the "Series") for the periods and on the terms set forth in this Agreement.
The Portfolio Manager accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. 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.
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2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the
Trust's Board of Trustees and the Manager, the Portfolio Manager will provide
a continuous investment program for the Series' portfolio and determine the
composition of the assets of the Series' portfolio, including determination of
the purchase, retention, or sale of the securities, cash, and other
investments contained in the portfolio. The Portfolio Manager will provide
investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Series' assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Series, when these transactions should be
executed, and what portion of the assets of the Series should be held in the
various securities and other investments in which it may invest, and the
Portfolio Manager is hereby authorized to execute and perform such services on
behalf of the Series. To the extent permitted by the investment policies of
the Series, the Portfolio Manager shall make decisions for the Series as to
foreign currency matters and make determinations as to and execute and perform
foreign currency exchange contracts on behalf of the Series. The Portfolio
Manager will provide the services under this Agreement in accordance with the
Series' investment objective or objectives, policies, and restrictions as
stated in the Trust's Registration Statement filed with the Securities and
Exchange Commission ("SEC"), as amended, copies of which shall be sent to the
Portfolio Manager by the Manager. The Portfolio Manager further agrees as
follows:
(a) The Portfolio Manager will (1) use reasonable efforts to manage
the Series so that it will qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, (2) manage the Series so as to
ensure compliance by the Series with the diversification requirements of
Section 817(h) of the Internal Revenue Code and regulations issued thereunder,
and (3) use reasonable efforts to manage the Series so as to ensure compliance
by the Series with any other rules and regulations pertaining to investment
vehicles underlying variable annuity or variable life insurance policies. The
Manager or the Trust will notify the Portfolio Manager of any pertinent
changes, modifications to, or interpretations of Section 817(h) of the
Internal Revenue Code and regulations issued thereunder.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board
of Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Trust under the Securities Act
of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy. The Manager or the Trust
will notify the Portfolio Manager of pertinent provisions of applicable state
insurance law with which the Portfolio Manager must comply under this
Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of the Series as well as of
other investment advisory clients of the Portfolio Manager or any of its
affiliates, the Portfolio Manager may, to the extent permitted by applicable
laws and regulations, including but not limited to Section 17(d) of the 1940
Act, but shall not be obligated to, aggregate the securities to be so sold or
purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Registration Statement. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Portfolio Manager in
a manner that is fair and equitable in the judgment of the Portfolio Manager
in the exercise of its fiduciary obligations to the Trust and to such other
clients.
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(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 Trust on a daily basis, such
confirmation, trade tickets, and other documents and information, including,
but not limited to, Cusip, Sedol, or other numbers that identify securities to
be purchased or sold on behalf of the Series, as may be reasonably necessary
to enable the custodian and portfolio accounting agent to perform its
administrative and record keeping 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 daily basis the
determination by the custodian and portfolio accounting agent for the Trust of
the valuation of portfolio securities and other investments of the Series.
The Portfolio Manager will assist 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) The Portfolio Manager will not disclose or use any records or
information obtained pursuant to this Agreement (excluding investment research
and investment advice) in any manner whatsoever except as expressly authorized
in this Agreement or in the ordinary course of business in connection with
placing orders for the purchase and sale of securities, and will keep
confidential any information obtained pursuant to this Agreement, and disclose
such information only if the Board of Trustees of the Trust has authorized
such disclosure, or if such disclosure is required by applicable federal or
state law or regulations or regulatory authorities having the requisite
authority. The Trust and the Manager will not disclose or use any records or
information respecting the Portfolio Manager obtained pursuant to this
Agreement in any manner whatsoever except as expressly authorized in this
Agreement, and will keep confidential any information obtained pursuant to
this Agreement, and disclose such information only as expressly authorized in
this Agreement, if the Board of Trustees of the Trust has authorized such
disclosure, or if such disclosure is required by applicable federal or state
law or regulations or regulatory authorities having the requisite authority.
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(i) In rendering the services required under this Agreement, the
Portfolio Manager may, from time to time, employ or associate with itself such
person or persons as it believes necessary to assist it in carrying out its
obligations under this Agreement. However, the Portfolio Manager may not
retain as subadviser any company that would be an "investment adviser," as
that term is defined in the 1940 Act, to the Series unless the contract with
such company is approved by a majority of the Trust's Board of Trustees and a
majority of Trustees who are not parties to any agreement or contract with
such company and who are not "interested persons," as defined in the 1940 Act,
of the Trust, the Manager, or the Portfolio Manager, or any such company that
is retained as subadviser, and is approved by the vote of a majority of the
outstanding voting securities of the applicable Series of the Trust to the
extent required by the 1940 Act. The Portfolio Manager shall be responsible
for making reasonable inquiries and for reasonably ensuring that any employee
of the Portfolio Manager, any subadviser that the Portfolio Manager has
employed or with which it has associated with respect to the Series, or any
employee thereof has not, to the best of the Portfolio Manager's knowledge, in
any material connection with the handling of Trust assets:
(i) been convicted, in the last ten (10) years, of any felony
or misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, involving violations
of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving
the purchase or sale of any security; or
(ii) been found by any state regulatory authority, within the
last ten (10) years, to have violated or to have acknowledged violation of any
provision of any state insurance law involving fraud, deceit, or knowing
misrepresentation; or
(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
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<PAGE>
effecting a portfolio investment transaction in excess of the amount of
commission another broker- dealer would have charged for effecting that
transaction, if the Portfolio Manager or its affiliate determines in good
faith that such amount of commission was reasonable in relation to the value
of the brokerage and research services provided by such broker- dealer, viewed
in terms of either that particular transaction or the Portfolio Manager's or
its affiliate's overall responsibilities with respect to the Series and to
their other clients as to which they exercise investment discretion. To the
extent consistent with these standards, the Portfolio Manager is further
authorized to allocate the orders placed by it on behalf of the Series to the
Portfolio Manager if it is registered as a broker-dealer with the SEC, to its
affiliated broker-dealer, or to such brokers and dealers who also provide
research or statistical material, or other services to the Series, the
Portfolio Manager, or an affiliate of the Portfolio Manager. Such allocation
shall be in such amounts and proportions as the Portfolio Manager shall
determine consistent with the above standards, and the Portfolio Manager will
report on said allocation regularly to the Board of Trustees of the Trust
indicating the broker-dealers to which such allocations have been made and the
basis therefor.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has
reviewed the initial Registration Statement for the Trust filed with the
Securities and Exchange Commission and represents and warrants that, with
respect to the disclosure about the Portfolio Manager or information relating,
directly or indirectly, to the Portfolio Manager, such Registration Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any statement of a material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
The Portfolio Manager further represents and warrants that it is a duly
registered investment adviser under the Investment Advisers Act of 1940, as
amended ("Advisers Act") and a duly registered investment adviser in all
states in which the Portfolio Manager is required to be registered.
5. EXPENSES. During the term of this Agreement, the Portfolio Manager
will pay all expenses incurred by it and its staff and for their activities in
connection with its portfolio management under this Agreement. The 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 Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Trust's custodial services including
recordkeeping services provided by the custodian;
(d) Expenses of maintaining the Trust's tax records;
(e) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Portfolio Manager or an affiliate of the Portfolio
Manager;
(f) Taxes levied against the Trust;
(g) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Series;
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(h) Costs, including the interest expense, of borrowing money;
(i) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of the
Trust to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's existence, and the regulation of shares with
federal and state securities or insurance authorities;
(j) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(k) Costs of printing stock certificates representing shares of the
Trust;
(l) Trustees' fees and expenses to Trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate thereof;
(m) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(n) Association membership dues;
(o) Extraordinary expenses of the Trust as may arise including
expenses incurred in connection with litigation, proceedings, and other claims
(unless the Portfolio Manager is responsible for such expenses under Section
15 of this Agreement), and the legal obligations of the Trust to indemnify its
Trustees, officers, employees, shareholders, distributors, and agents with
respect thereto; and
(p) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the Manager will pay the
Portfolio Manager a fee, payable monthly, based on the average daily net
assets of the Series at the annual rate of .50% of the average daily net
assets of the Series.
7. SEED MONEY. The Manager agrees that the Portfolio Manager shall not
be responsible for providing money for the initial capitalization of the Trust
or the Series.
8. COMPLIANCE.
(a) The Portfolio Manager agrees that it shall immediately notify
the Manager and the Trust (1) in the event that the Securities and Exchange
Commission has censured the Portfolio Manager; placed limitations upon its
activities, functions or operations; suspended or revoked its registration as
an investment adviser; or has commenced proceedings or an investigation that
may result in any of these actions, (2) upon having a reasonable basis for
believing that the Series has ceased to qualify or might not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code,
or (3) upon having a reasonable basis for believing that the Series has ceased
to comply with the diversification provisions of Section 817(h) of the
Internal Revenue Code or the Regulations thereunder. The Portfolio Manager
further agrees to notify the Manager and the Trust immediately of any material
fact known to the Portfolio Manager respecting or relating to the Portfolio
Manager that is not contained in the Registration Statement or prospectus for
the Trust, or any amendment or supplement thereto, or of any statement
contained therein that becomes untrue in any material respect.
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(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the Securities and Exchange Commission
has censured the Manager or the Trust; placed limitations upon either of their
activities, functions, or operations; suspended or revoked the Manager's
registration as an investment adviser; or has commenced proceedings or an
investigation that may result in any of these actions, (2) upon having a
reasonable basis for believing that the Series has ceased to qualify or might
not qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code, or (3) upon having a reasonable basis for believing
that the Series has ceased to comply with the diversification provisions of
Section 817(h) of the Internal Revenue Code or the Regulations thereunder.
9. INSURANCE COMPANY OFFEREES. All parties acknowledge that the Trust
will offer its shares so that it may serve as an investment vehicle for
variable annuity contracts and variable life insurance policies issued by
insurance companies. The Trust and the Manager agree that shares of the Series
may be offered only to the separate accounts and general account of insurance
companies that are approved in writing by the Portfolio Manager. The
Portfolio Manager agrees that shares of this Series may be offered to separate
accounts and the general account of Golden American Life Insurance Company and
to separate accounts and the general accounts of any insurance companies that
are affiliated with Golden American Life Insurance Company. The Manager and
Trust agree that the Portfolio Manager shall be under no obligation to
investigate insurance companies to which the Trust offers or proposes to offer
its shares.
10. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-
3 under the 1940 Act, the Portfolio Manager hereby agrees that all records
which it maintains for the Series are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the Trust's
or the Manager's request, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. The Portfolio Manager further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-l under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
11. COOPERATION. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the Securities and
Exchange Commission and state insurance regulators) in connection with any
investigation or inquiry relating to this Agreement or the Trust.
12. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. The Manager and the
Trust agree that neither the Trust, the Manager, nor affiliated persons of the
Trust or the Manager shall give any information or make any representations or
statements in connection with the sale of shares of the Series concerning the
Portfolio Manager or the Series other than the information or representations
contained in the Registration Statement, prospectus, or statement of
additional information for the Trust shares, as they may be amended or
supplemented from time to time, or in reports or proxy statements for the
Trust, or in sales literature or other promotional material approved in
writing in advance by the Portfolio Manager, except with the prior written
permission of the Portfolio Manager. The parties agree that in the event that
the Manager or an affiliated person of the Manager sends sales literature or
other promotional material to the Portfolio Manager for its written approval
and the Portfolio Manager has not commented within 30 days, the Manager and
its affiliated persons may use and distribute such sales literature or other
promotional material, although, in such event, the Portfolio Manager shall not
be deemed to have consented to such use and distribution.
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13. CONTROL. Notwithstanding any other provision of the Agreement, it
is understood and agreed that the Trust shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and reserve the right to direct, approve, or disapprove any action
hereunder taken on its behalf by the Portfolio Manager.
14. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not
their investment objectives and policies are similar to those of the Series)
or from engaging in other activities.
15. LIABILITY. Except as may otherwise be required by the 1940 Act or
the rules thereunder or other applicable law, the Trust and the Manager agree
that the Portfolio Manager, any affiliated person of the Portfolio Manager,
and each person, if any, who, within the meaning of Section 15 of the 1933 Act
controls the Portfolio Manager shall not be liable for, or subject to any
damages, expenses, or losses in connection with, any act or omission connected
with or arising out of any services rendered under this Agreement, except by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Portfolio Manager's duties, or by reason of reckless
disregard of the Portfolio Manager's obligations and duties under this
Agreement.
16. INDEMNIFICATION.
(a) The Manager agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person of the Portfolio Manager, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act controls
("controlling person") the Portfolio Manager (all of such persons being
referred to as "Portfolio Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities, or litigation (including legal and other
expenses) to which a Portfolio Manager Indemnified Person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute,
at common law or otherwise, arising out of the Manager's responsibilities to
the Trust which (1) may be based upon any misfeasance, malfeasance, or
nonfeasance by the Manager, any of its employees or representatives or any
affiliate of 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 any
Series, or any amendment thereof or any supplement thereto, or the omission or
alleged omission to state therein a material fact known or which should have
been known to the Manager and was required to be stated therein or necessary
to make the statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Manager or the
Trust or to any affiliated person of the Manager by a Portfolio Manager
Indemnified Person; provided however, that in no case shall the indemnity in
favor of the Portfolio Manager Indemnified Person be deemed to protect such
person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties, or by reason of its reckless disregard of
obligations and duties under this Agreement.
(b) Notwithstanding Section 15 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated
person
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of the Manager, and each person, if any, who, within the meaning of Section 15
of the 1933 Act, controls ("controlling person") the Manager (all of such
persons being referred to as "Manager Indemnified Persons") against any and
all losses, claims, damages, liabilities, or litigation (including legal and
other expenses) to which a Manager Indemnified Person may become subject under
the 1933 Act, 1940 Act, the Advisers Act, under any other statute, at common
law or otherwise, arising out of the Portfolio Manager's responsibilities as
Portfolio Manager of the Series which (1) may be based upon any misfeasance,
malfeasance, or nonfeasance by the Portfolio Manager, any of its employees or
representatives, or any affiliate of or any person acting on behalf of the
Portfolio Manager, (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 any Series, or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact known or which should have been known to the Portfolio
Manager and was required to be stated therein or necessary to make the
statements therein not misleading, if such a statement or omission was made in
reliance upon information furnished to the Manager, the Trust, or any
affiliated person of the Manager or Trust by the Portfolio Manager or any
affiliated person of the Portfolio Manager; provided, however, that in no case
shall the indemnity in favor of a Manager Indemnified Person be deemed to
protect such person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this
Section 16 with respect to any claim made against a Portfolio Manager
Indemnified Person unless such Portfolio Manager Indemnified Person shall have
notified the Manager in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Portfolio Manager Indemnified Person (or after such
Portfolio Manager Indemnified Person shall have received notice of such
service on any designated agent), but failure to notify the Manager of any
such claim shall not relieve the Manager from any liability which it may have
to the Portfolio Manager Indemnified Person against whom such action is
brought otherwise than on account of this Section 16. In case any such action
is brought against the Portfolio Manager Indemnified Person, the Manager will
be entitled to participate, at its own expense, in the defense thereof or,
after notice to the Portfolio Manager Indemnified Person, to assume the
defense thereof, with counsel satisfactory to the Portfolio Manager
Indemnified Person. If the Manager assumes the defense and the selection of
counsel by the Manager to represent both the Manager and the Portfolio Manager
Indemnified Person would result in a conflict of interests and therefore,
would not, in the reasonable judgment of the Portfolio Manager Indemnified
Person, adequately represent the interests of the Portfolio Manager
Indemnified Person, the Manager will, at its own expense, assume the defense
with counsel to the Manager and, also at its own expense, with separate
counsel to the Portfolio Manager Indemnified Person which counsel shall be
satisfactory to the Manager and to the Portfolio Manager Indemnified Person.
The Portfolio Manager Indemnified Person shall bear the fees and expenses of
any additional counsel retained by it, and the Manager shall not be liable to
the Portfolio Manager Indemnified Person under this Agreement for any legal or
other expenses subsequently incurred by the Portfolio Manager Indemnified
Person independently in connection with the defense thereof other than
reasonable costs of investigation. The Manager shall not have the right to
compromise on or settle the litigation without the prior written consent of
the Portfolio Manager Indemnified Person if the compromise or settlement
results, or may result in a finding of wrongdoing on the part of the Portfolio
Manager Indemnified Person.
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(d) The Portfolio Manager shall not be liable under Paragraph (b)
of this Section 16 with respect to any claim made against a Manager
Indemnified Person unless such Manager Indemnified Person shall have notified
the Portfolio Manager in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Manager Indemnified Person (or after such Manager
Indemnified Person shall have received notice of such service on any
designated agent), but failure to notify the Portfolio Manager of any such
claim shall not relieve the Portfolio Manager from any liability which it may
have to the Manager Indemnified Person against whom such action is brought
otherwise than on account of this Section 16. In case any such action is
brought against the Manager Indemnified Person, the Portfolio Manager will be
entitled to participate, at its own expense, in the defense thereof or, after
notice to the Manager Indemnified Person, to assume the defense thereof, with
counsel satisfactory to the Manager Indemnified Person. If the Portfolio
Manager assumes the defense and the selection of counsel by the Portfolio
Manager to represent both the Portfolio Manager and the Manager Indemnified
Person would result in a conflict of interest and therefore, would not, in the
reasonable judgment of the Manager Indemnified Person, adequately represent
the interests of the Manager Indemnified Person, the Portfolio Manager will,
at its own expense, assume the defense with counsel to the Portfolio Manager
and, also at its own expense, with separate counsel to the Manager Indemnified
Person which counsel shall be satisfactory to the Portfolio Manager and to the
Manager Indemnified Person. The Manager Indemnified Person shall bear the
fees and expenses of any additional counsel retained by it, and the Portfolio
Manager shall not be liable to the Manager Indemnified Person under this
Agreement for any legal or other expenses subsequently incurred by the Manager
Indemnified Person independently in connection with the defense thereof other
than reasonable costs of investigation. The Portfolio Manager shall not have
the right to compromise on or settle the litigation without the prior written
consent of the Manager Indemnified Person if the compromise or settlement
results, or may result in a finding of wrongdoing on the part of the Manager
Indemnified Person.
17. DURATION AND TERMINATION. This Agreement shall become effective on
the date of its execution. Unless terminated as provided herein, the
Agreement shall remain in full force and effect for two (2) years from such
date and continue on an annual basis with respect to each Series unless
terminated as provided in this Section; provided that such annual continuance
is specifically approved each year by (a) the vote of a majority of the entire
Board of Trustees of the Trust, or by the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of each Series, and
(b) the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons (as such term is defined in the 1940 Act) of
any such party to this Agreement cast in person at a meeting called for the
purpose of voting on such approval. The Portfolio Manager shall not provide
any services for such Series or receive any fees on account of such Series
with respect to which this Agreement is not approved as described in the
preceding sentence. Notwithstanding the foregoing, this Agreement may be
terminated: (a) by the Manager at any time without penalty, upon sixty (60)
days' written notice to the Portfolio Manager and the Trust, (b) at any time
without payment of any penalty by the Trust, upon the vote of a majority of
the Trust's Board of Trustees or a majority of the outstanding voting
securities of each Series, upon sixty (60) days' written notice to the Manager
and the Portfolio Manager, or (c) by the Portfolio Manager at any time without
penalty, upon sixty (60) days' written notice to the Manager and the Trust.
In the event of termination for any reason, all records of each Series for
which the
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Agreement is terminated shall promptly be returned to the Manager or the
Trust, free from any claim or retention of rights in such record by the
Portfolio Manager, although the Portfolio Manager may, at its own expense,
make and retain a copy of such records. The Agreement shall automatically
terminate in the event of its assignment (as such term is defined in the 1940
Act). In the event this Agreement is terminated or is not approved in the
manner described above, the Sections or Paragraphs numbered 2(f), 2(h), 10,
11, 12, 15, 16, and 19 of this Agreement shall remain in effect, as well as
any applicable provision of this Paragraph numbered 17.
18. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is
required by applicable law.
19. USE OF NAME.
(a) It is understood that the name "Directed Services, Inc." or any
derivative thereof or logo associated with that name is the valuable property
of the Manager and its affiliates, and that the Portfolio Manager has the
right to use such name (or 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 Van Eck 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).
20. 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.
21. 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.
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(b) The captions of this Agreement are included for convenience
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
(c) To the extent permitted under Section 17 of this Agreement,
this Agreement may only be assigned by any party with the prior written
consent of the other parties.
(d) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, 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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
VAN ECK ASSOCIATES CORPORATION
/s/Thaddeus Leszczynski By:/s/Philip D. DeFeo
- ---------------------------------- -------------------------------------
Attest
Secretary President & CEO
- ---------------------------------- -------------------------------------
Title Title
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PORTFOLIO MANAGEMENT AGREEMENT
Agreement made this 24th day of October, 1997, 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 October
24, 1997, 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
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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 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 the Registration Statement.
In such event, allocation of the securities so purchased or sold, as well as
the expenses
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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 record keeping 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 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
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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
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
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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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
each Series' net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses
of International Management Reports (as appropriate) for each Series;
(f) Expenses of maintaining the Trust's tax records;
(g) 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;
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(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, (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.
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(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 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,
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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 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.
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(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.
(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
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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 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
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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) 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 addition, this
Agreement shall terminate with respect to a Series in the event that it is not
initially 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).
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(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.
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.
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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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
EQUITABLE INVESTMENT
SERVICES, INC.
/s/Eric Engstrom By:/s/Kimberly K. Krumviede
- ---------------------------------- -------------------------------------
Attest
Financial Analyst Secretary/Treasurer
- ---------------------------------- -------------------------------------
Title Title
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which Equitable Investment Services, Inc.
shall act as Portfolio Manager are as follows:
Limited Maturity Bond Series
Liquid Asset Series
Market Manager Series
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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 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
------ ----
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 $35,000
(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.
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PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 24th day of October, 1997 among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and Zweig Advisors Inc. ("Portfolio
Manager"), a Delaware corporation.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, management investment
company;
WHEREAS, the Trust is authorized to issue separate series, each of which
will offer a separate class of shares of beneficial interest, each series
having its own investment objective or objectives, policies, and limitations;
WHEREAS, the Trust currently offers shares in 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 October
24, 1997, 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 Zweig
Advisors 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
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 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
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each Series, when these transactions should be 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 each 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 each Series' investment
objective or objectives, policies, and restrictions as stated in the Trust's
Registration Statement filed with the Securities and Exchange Commission
("SEC"), as amended, copies of which shall be sent to the Portfolio Manager by
the Manager. The Portfolio Manager further agrees as follows:
(a) The Portfolio Manager will (1) use reasonable efforts to manage
each Series so that it will qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, (2) manage each Series so as to
ensure compliance by the Series with the diversification requirements of
Section 817(h) of the Internal Revenue Code and regulations issued thereunder,
and (3) use reasonable efforts to manage each Series so as to ensure
compliance by each Series with any other rules and regulations pertaining to
investment vehicles underlying variable annuity or variable life insurance
policies. The Manager or the Trust will notify the Portfolio Manager of any
pertinent changes, modifications to, or interpretations of Section 817(h) of
the Internal Revenue Code and regulations issued thereunder. In managing each
Series in accordance with these requirements, the Portfolio Manager shall be
entitled to receive and act upon advice of counsel to the Trust, counsel to
the Manager, or counsel to the Portfolio Manager that is also acceptable to
the Manager.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board
of Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Trust under the Securities Act
of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy. The Manager or the Trust
will notify the Portfolio Manager of pertinent provisions of applicable state
insurance law with which the Portfolio Manager must comply under this
Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of 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, including but not limited to Section 17(d) of the 1940 Act, but
shall not be obligated to, aggregate the securities to be so sold or purchased
with those of its other clients where such aggregation is not inconsistent
with the policies set forth in the Registration Statement. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Portfolio Manager in a manner
that is fair and equitable in the judgment of the Portfolio Manager in the
exercise of its fiduciary obligations to the Trust and to such other clients.
(d) In connection with the purchase and sale of securities for the
Series, the Portfolio Manager will arrange for the transmission to the
custodian and portfolio accounting agent for the Trust on a daily basis, such
confirmation, trade tickets, and other documents and information, including,
but not limited
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to, Cusip, Sedol, or other numbers that identify securities to be purchased or
sold on behalf of each Series, as may be reasonably necessary to enable the
custodian and portfolio accounting agent to perform its administrative and
record keeping 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 daily basis the
determination by the custodian and portfolio accounting agent for the Trust of
the valuation of portfolio securities and other investments of the Series.
The Portfolio Manager will assist 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 each 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
"Adviser Act"), as well as other applicable laws. The Portfolio Manager will
furnish to regulatory authorities having the requisite authority any
information or reports in connection with such services which may be requested
in order to ascertain whether the operations of the Trust are being conducted
in a manner consistent with applicable laws and regulations.
(g) The Portfolio Manager will provide reports to the Trust's Board
of Trustees for consideration at meetings of the Board on the investment
program for each Series and the issuers and securities represented in each
Series' portfolio, and will furnish the Trust's Board of Trustees with respect
to each Series such periodic and special reports as the Trustees and the
Manager may reasonably request.
(h) The Portfolio Manager will not disclose or use any records or
information obtained pursuant to this Agreement (excluding investment research
and investment advice) in any manner whatsoever except as expressly authorized
in this Agreement or in the ordinary course of business in connection with
placing orders for the purchase and sale of securities, and will keep
confidential any information obtained pursuant to this Agreement, and disclose
such information only if the Board of Trustees of the Trust has authorized
such disclosure, or if such disclosure is required by applicable federal or
state law or regulations or regulatory authorities having the requisite
authority. The Trust and the Manager will not disclose or use any records or
information respecting the Portfolio Manager obtained pursuant to this
Agreement in any manner whatsoever except as expressly authorized in this
Agreement, and will keep confidential any information obtained pursuant to
this Agreement, and disclose such information only as expressly authorized in
this Agreement, if the Board of Trustees of the Trust has authorized such
disclosure, or if such disclosure is required by applicable federal or state
law or regulations or regulatory authorities having the requisite authority.
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(i) In rendering the services required under this Agreement, the
Portfolio Manager may, from time to time, employ or associate with itself such
person or persons as it believes necessary to assist it in carrying out its
obligations under this Agreement. However, the Portfolio Manager may not
retain as subadviser any company that would be an "investment adviser," as
that term is defined in the 1940 Act, to the Series unless the contract with
such company is approved by a majority of the Trust's Board of Trustees and a
majority of Trustees who are not parties to any agreement or contract with
such company and who are not "interested persons," as defined in the 1940 Act,
of the Trust, the Manager, or the Portfolio Manager, or any such company that
is retained as subadviser, and is approved by the vote of a majority of the
outstanding voting securities of the applicable Series of the Trust to the
extent required by the 1940 Act. The Portfolio Manager shall be responsible
for making reasonable inquiries and for reasonably ensuring that any employee
of the Portfolio Manager, any subadviser that the Portfolio Manager has
employed or with which it has associated with respect to the Series, or any
employee thereof has not, to the best of the Portfolio Manager's knowledge, in
any material connection with the handling of Trust assets:
(i) been convicted, in the last ten (10) years, of any felony
or misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, involving violations
of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving
the purchase or sale of any security; or
(ii) been found by any state regulatory authority, within the
last ten (10) years, to have violated or to have acknowledged violation of any
provision of any state insurance law involving fraud, deceit, or knowing
misrepresentation; or
(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 a 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 a 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 a Series to pay a broker-dealer for
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effecting a portfolio investment transaction in excess of the amount of
commission another broker- dealer would have charged for effecting that
transaction, if the Portfolio Manager or its affiliate determines in good
faith that such amount of commission was reasonable in relation to the value
of the brokerage and research services provided by such broker- dealer, viewed
in terms of either that particular transaction or the Portfolio Manager's or
its affiliate's overall responsibilities with respect to the Series and to
their other clients as to which they exercise investment discretion. To the
extent consistent with these standards, the Portfolio Manager is further
authorized to allocate the orders placed by it on behalf of the Series to the
Portfolio Manager if it is registered as a broker-dealer with the SEC, to its
affiliated broker-dealer, or to such brokers and dealers who also provide
research or statistical material, or other services to the Series, the
Portfolio Manager, or an affiliate of the Portfolio Manager. Such allocation
shall be in such amounts and proportions as the Portfolio Manager shall
determine consistent with the above standards, and the Portfolio Manager will
report on said allocation regularly to the Board of Trustees of the Trust
indicating the broker-dealers to which such allocations have been made and the
basis therefor.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has
reviewed the initial Registration Statement for the Trust filed with the
Securities and Exchange Commission and represents and warrants that, with
respect to the disclosure about the Portfolio Manager or information relating,
directly or indirectly, to the Portfolio Manager, such Registration Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any statement of a material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
The Portfolio Manager further represents and warrants that it is a duly
registered investment adviser under the Investment Advisers Act of 1940, as
amended ("Advisers Act") and a duly registered investment adviser in all
states in which the Portfolio Manager is required to be registered.
5. EXPENSES. During the term of this Agreement, the Portfolio Manager
will pay all expenses incurred by it and its staff and for their activities in
connection with its portfolio management under this Agreement. The 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 Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder record keeping services;
(c) Expenses of the Trust's custodial services including record
keeping services provided by the custodian;
(d) Expenses of maintaining the Trust's tax records;
(e) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Portfolio Manager or an affiliate of the Portfolio
Manager;
(f) Taxes levied against the Trust;
(g) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Series;
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(h) Costs, including the interest expense, of borrowing money;
(i) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of the
Trust to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's existence, and the regulation of shares with
federal and state securities or insurance authorities;
(j) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(k) Costs of printing stock certificates representing shares of the
Trust;
(l) Trustees' fees and expenses to Trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate thereof;
(m) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(n) Association membership dues;
(o) Extraordinary expenses of the Trust as may arise including
expenses incurred in connection with litigation, proceedings, and other claims
(unless the Portfolio Manager is responsible for such expenses under Section
15 of this Agreement), and the legal obligations of the Trust to indemnify its
Trustees, officers, employees, shareholders, distributors, and agents with
respect thereto; and
(p) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the 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 Trust
or 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 Securities and Exchange
Commission has censured the Portfolio Manager; placed limitations upon its
activities, functions or operations; suspended or revoked its registration as
an investment adviser; or has commenced proceedings or an investigation that
may result in any of these actions, (2) upon having a reasonable basis for
believing that a 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 a Series has ceased
to comply with the diversification provisions of Section 817(h) of the
Internal Revenue Code or the Regulations thereunder. The Portfolio Manager
further agrees to notify the Manager and the Trust immediately of any material
fact known to the Portfolio Manager respecting or relating to the Portfolio
Manager that is not contained in the Registration Statement or prospectus for
the Trust, or any amendment or supplement thereto, or of any statement
contained therein that becomes untrue in any material respect.
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(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the Securities and Exchange Commission
has censured the Manager or the Trust; placed limitations upon either of their
activities, functions, or operations; suspended or revoked the Manager's
registration as an investment adviser; or has commenced proceedings or an
investigation that may result in any of these actions, (2) upon having a
reasonable basis for believing that a 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 a Series has ceased to comply with the diversification provisions of
Section 817(h) of the Internal Revenue Code or the Regulations thereunder.
9. INSURANCE COMPANY OFFEREES. All parties acknowledge that the Trust
will offer its shares so that it may serve as an investment vehicle for
variable annuity contracts and variable life insurance policies issued by
insurance companies. The Trust and the Manager agree that shares of the Series
may be offered only to the separate accounts and general account of insurance
companies that are approved in writing by the Portfolio Manager. The
Portfolio Manager agrees that shares of the Series may be offered to separate
accounts and the general account of Golden American Life Insurance Company and
to separate accounts and the general accounts of any insurance companies that
are affiliated with Golden American Life Insurance Company. The Manager and
Trust agree that the Portfolio Manager shall be under no obligation to
investigate insurance companies to which the Trust offers or proposes to offer
its shares.
10. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-
3 under the 1940 Act, the Portfolio Manager hereby agrees that all records
which it maintains for the Series are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the Trust's
or the Manager's request, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. The Portfolio Manager further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-l under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
11. COOPERATION. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the Securities and
Exchange Commission and state insurance regulators) in connection with any
investigation or inquiry relating to this Agreement or the Trust.
12. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. The Manager and the
Trust agree that neither the Trust, the Manager, nor affiliated persons of the
Trust or the Manager shall give any information or make any representations or
statements in connection with the sale of shares of the Series concerning the
Portfolio Manager or the Series other than the information or representations
contained in the Registration Statement, prospectus, or statement of
additional information for the Trust shares, as they may be amended or
supplemented from time to time, or in reports or proxy statements for the
Trust, or in sales literature or other promotional material approved in
writing in advance by the Portfolio Manager, except with the prior written
permission of the Portfolio Manager. The parties agree that in the event that
the Manager or an affiliated person of the Manager sends sales literature or
other promotional material to the Portfolio Manager for its written approval
and the Portfolio Manager has not commented within 30 days, the Manager and
its affiliated persons may use and distribute such sales literature or other
promotional material, although, in such event, the Portfolio Manager shall not
be deemed to have consented to such use and distribution.
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13. CONTROL. Notwithstanding any other provision of the Agreement, it
is understood and agreed that the Trust shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and reserve the right to direct, approve, or disapprove any action
hereunder taken on its behalf by the Portfolio Manager.
14. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not
their investment objectives and policies are similar to those of a Series) or
from engaging in other activities.
15. LIABILITY. Except as may otherwise be required by the 1940 Act or
the rules thereunder or other applicable law, the Trust and the Manager agree
that the Portfolio Manager, any affiliated person of the Portfolio Manager,
and each person, if any, who, within the meaning of Section 15 of the 1933 Act
controls the Portfolio Manager shall not be liable for, or subject to any
damages, expenses, or losses in connection with, any act or omission connected
with or arising out of any services rendered under this Agreement, except by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Portfolio Manager's duties, or by reason of reckless
disregard of the Portfolio Manager's obligations and duties under this
Agreement.
16. INDEMNIFICATION.
(a) The Manager agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person of the Portfolio Manager, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act controls
("controlling person") the Portfolio Manager (all of such persons being
referred to as "Portfolio Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities, or litigation (including legal and other
expenses) to which a Portfolio Manager Indemnified Person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute,
at common law or otherwise, arising out of the Manager's responsibilities to
the Trust which (1) may be based upon any misfeasance, malfeasance, or
nonfeasance by the Manager, any of its employees or representatives or any
affiliate of the Manager, any portfolio manager of any other series of the
Trust, or person acting on behalf of the Manager or (2) may be based upon any
untrue statement or alleged untrue statement of a material fact supplied by,
or which is the responsibility of, the Manager and contained in the
Registration Statement or prospectus covering shares of the Trust or any
Series, or any amendment thereof or any supplement thereto, or the omission or
alleged omission to state therein a material fact known or which should have
been known to the Manager and was required to be stated therein or necessary
to make the statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Manager or the
Trust or to any affiliated person of the Manager by a Portfolio Manager
Indemnified Person; provided however, that in no case shall the indemnity in
favor of the Portfolio Manager Indemnified Person be deemed to protect such
person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties, or by reason of its reckless disregard of
obligations and duties under this Agreement.
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(b) Notwithstanding Section 15 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated
person of the Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls ("controlling person") the Manager (all
of such persons being referred to as "Manager Indemnified Persons") against
any and all losses, claims, damages, liabilities, or litigation (including
legal and other expenses) to which a Manager Indemnified Person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of the Portfolio Manager's
responsibilities as Portfolio Manager of the Series which (1) may be based
upon any misfeasance, malfeasance, or nonfeasance by the Portfolio Manager,
any of its employees or representatives, or any affiliate of or any person
acting on behalf of the Portfolio Manager, or (2) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or prospectus covering the shares of the Trust or any
Series, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact known or which should have been
known to the Portfolio Manager and was required to be stated therein or
necessary to make the statements therein not misleading, if such a statement
or omission was made in reliance upon information furnished to the Manager,
the Trust, or any affiliated person of the Manager or Trust by the Portfolio
Manager or any affiliated person of the Portfolio Manager; provided, however,
that in no case shall the indemnity in favor of a Manager Indemnified Person
be deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this
Section 16 with respect to any claim made against a Portfolio Manager
Indemnified Person unless such Portfolio Manager Indemnified Person shall have
notified the Manager in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Portfolio Manager Indemnified Person (or after such
Portfolio Manager Indemnified Person shall have received notice of such
service on any designated agent), but failure to notify the Manager of any
such claim shall not relieve the Manager from any liability which it may have
to the Portfolio Manager Indemnified Person against whom such action is
brought otherwise than on account of this Section 16. In case any such action
is brought against the Portfolio Manager Indemnified Person, the Manager will
be entitled to participate, at its own expense, in the defense thereof or,
after notice to the Portfolio Manager Indemnified Person, to assume the
defense thereof, with counsel satisfactory to the Portfolio Manager
Indemnified Person. If the Manager assumes the defense and the selection of
counsel by the Manager to represent both the Manager and the Portfolio Manager
Indemnified Person would result in a conflict of interests and therefore,
would not, in the reasonable judgment of the Portfolio Manager Indemnified
Person, adequately represent the interests of the Portfolio Manager
Indemnified Person, the Manager will, at its own expense, assume the defense
with counsel to the Manager and, also at its own expense, with separate
counsel to the Portfolio Manager Indemnified Person which counsel shall be
satisfactory to the Manager and to the Portfolio Manager Indemnified Person.
The Portfolio Manager Indemnified Person shall bear the fees and expenses of
any additional counsel retained by it, and the Manager shall not be liable to
the Portfolio Manager Indemnified Person under this Agreement for any legal or
other expenses subsequently incurred by the Portfolio Manager Indemnified
Person independently in connection with the defense thereof other than
reasonable costs of investigation. The Manager shall not have the right to
compromise on or settle the litigation without the prior written consent of
the Portfolio Manager Indemnified Person if the compromise or settlement
results, or may result in a finding of wrongdoing on the part of the Portfolio
Manager Indemnified Person.
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(d) The Portfolio Manager shall not be liable under Paragraph (b)
of this Section 16 with respect to any claim made against a Manager
Indemnified Person unless such Manager Indemnified Person shall have notified
the Portfolio Manager in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Manager Indemnified Person (or after such Manager
Indemnified Person shall have received notice of such service on any
designated agent), but failure to notify the Portfolio Manager of any such
claim shall not relieve the Portfolio Manager from any liability which it may
have to the Manager Indemnified Person against whom such action is brought
otherwise than on account of this Section 16. In case any such action is
brought against the Manager Indemnified Person, the Portfolio Manager will be
entitled to participate, at its own expense, in the defense thereof or, after
notice to the Manager Indemnified Person, to assume the defense thereof, with
counsel satisfactory to the Manager Indemnified Person. If the Portfolio
Manager assumes the defense and the selection of counsel by the Portfolio
Manager to represent both the Portfolio Manager and the Manager Indemnified
Person would result in a conflict of interests and therefore, would not, in
the reasonable judgment of the Manager Indemnified Person, adequately
represent the interests of the Manager Indemnified Person, the Portfolio
Manager will, at its own expense, assume the defense with counsel to the
Portfolio Manager and, also at its own expense, with separate counsel to the
Manager Indemnified Person which counsel shall be satisfactory to the
Portfolio Manager and to the Manager Indemnified Person. The Manager
Indemnified Person shall bear the fees and expenses of any additional counsel
retained by it, and the Portfolio Manager shall not be liable to the Manager
Indemnified Person under this Agreement for any legal or other expenses
subsequently incurred by the Manager Indemnified Person independently in
connection with the defense thereof other than reasonable costs of
investigation. The Portfolio Manager shall not have the right to compromise
on or settle the litigation without the prior written consent of the Manager
Indemnified Person if the compromise or settlement results, or may result in a
finding of wrongdoing on the part of the Manager Indemnified Person.
17. DURATION AND TERMINATION. This Agreement shall become effective on
the date 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 with respect to each Series unless
terminated as provided in this Section; provided that such annual continuance
is specifically approved each year by (a) the vote of a majority of the entire
Board of Trustees of the Trust, or by the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of each Series, and
(b) the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons (as such term is defined in the 1940 Act) of
any such party to this Agreement cast in person at a meeting called for the
purpose of voting on such approval. The Portfolio Manager shall not provide
any services for such Series or receive any fees on account of such Series
with respect to which this Agreement is not approved as described in the
preceding sentence. Notwithstanding the foregoing, this Agreement may be
terminated: (a) by the Manager at any time without penalty, upon sixty (60)
days' written notice to the Portfolio Manager and the Trust, (b) at any time
without payment of any penalty by the Trust, upon the vote of a majority of
the Trust's Board of Trustees or a majority of the outstanding voting
securities of each Series, upon sixty (60) days' written notice to the Manager
and the Portfolio Manager, or (c) by the Portfolio Manager at any time without
penalty, upon sixty (60) days' written notice to the Manager and the Trust.
In the event of termination for any reason, all records of each Series for
which the
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Agreement is terminated shall promptly be returned to the Manager or the
Trust, free from any claim or retention of rights in such record by the
Portfolio Manager, although the Portfolio Manager may, at its own expense,
make and retain a copy of such records. The Agreement shall automatically
terminate in the event of its assignment (as such term is defined in the 1940
Act). In the event this Agreement is terminated or is not approved in the
manner described above, the Sections or Paragraphs numbered 2(f), 2(h), 10,
11, 12, 15, 16, and 19 of this Agreement as well as any applicable provision
of this Paragraph numbered 17 shall remain in effect.
18. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is
required by applicable law.
19. USE OF NAME.
(a) It is understood that the name "Directed Services, Inc." or any
derivative thereof or logo associated with that name is the valuable property
of the Manager and its affiliates, and that the Portfolio Manager has the
right to use such name (or derivative or logo) only with the approval of the
Manager and only so long as the Manager is Manager to the Trust and/or the
Series. Upon termination of the Management Agreement between the Trust and
the Manager, the Portfolio Manager shall forthwith cease to use such name (or
derivative or logo).
(b) It is understood that the word Zweig or any derivative thereof
or logo associated with that word is the property right of Martin E. Zweig,
and that the Trust and/or the Series have the right to use such word (or
derivative or logo) in offering materials of the Trust only with the approval
of the Portfolio Manager and only so long as the Portfolio Manager is a
portfolio manager to the Trust and/or the Series. Upon termination of this
Agreement between the Trust, the Manager, and the Portfolio Manager, the Trust
shall forthwith cease to use such word (or derivative or logo).
20. 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.
21. 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.
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(b) The captions of this Agreement are included for convenience
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
(c) To the extent permitted under Section 17 of this Agreement,
this Agreement may only be assigned by any party with the prior written
consent of the other parties.
(d) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, 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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest Title
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
ZWEIG ADVISORS INC.
/s/Jefrey Lazar By:/s/Martin E. Zweig
- ---------------------------------- -------------------------------------
Attest
Secretary Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
Martin E. Zweig hereby consents and agrees to the use of the word "Zweig"
upon the terms and conditions set forth in Section 19 of the foregoing
Agreement.
/s/Martin E. Zweig
-----------------------------
Martin E. Zweig
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SCHEDULE A
The Series of the GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which Zweig Advisors Inc. shall act as
Portfolio Manager are as follows:
Multiple Allocation Series
Strategic Equity Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Zweig Advisors Inc. ("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
------ ----
Multiple Allocation Series 0.50%
Strategic Equity Series 0.50%
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PORTFOLIO MANAGEMENT AGREEMENT
Agreement made this 24th day of October, 1997 among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and E.I.I. Realty Securities, Inc.
("Portfolio Manager"), a New York 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 October
24, 1997, 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 E.I.I. Realty
Securities, Inc. 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 provide
investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Series' assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for
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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 as to ensure compliance by the Series with the
diversification requirements of Section 817(h) of the Internal Revenue Code
and regulations issued thereunder, and (3) use reasonable efforts to manage
the Series so as to ensure compliance by the Series with any other rules and
regulations pertaining to investment vehicles underlying variable annuity or
variable life insurance policies. The Manager or the Trust will notify the
Portfolio Manager of any pertinent changes, modifications to, or
interpretations of Section 817(h) of the Internal Revenue Code and regulations
issued thereunder.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board
of Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Trust under the Securities Act
of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy. The Manager or the Trust
will notify the Portfolio Manager of pertinent provisions of applicable state
insurance law with which the Portfolio Manager must comply under this
Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of the Series as well as of
other investment advisory clients of the Portfolio Manager or any of its
affiliates, the Portfolio Manager may, to the extent permitted by applicable
laws and regulations, but shall not be obligated to, aggregate the securities
to be so sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Portfolio Manager in a manner that is fair and equitable in the
judgment of the Portfolio Manager in the exercise of its fiduciary obligations
to the Trust and to such other clients, subject to review by the Manager and
the Board of Trustees.
(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
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and record keeping 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 daily 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 assist 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
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
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(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,
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 or indirectly, to the Portfolio Manager, such Registration Statement
contains, as of
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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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping 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;
(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;
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(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 result in any of these
actions, (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable
basis for believing that the Series has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or
the Regulations thereunder. The Portfolio Manager further agrees to notify
the Manager and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the 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
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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 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.
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.
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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, 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, 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 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
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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 such
date 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 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,
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
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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 "E.I.I. Realty Securities, 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.
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.
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(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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -------------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
E.I.I. REALTY SECURITIES, INC.
/s/David P. O'Connor By:/s/Cydney C. Donnell
- ---------------------------------- -------------------------------------
Attest
Vice President Managing Director
- ---------------------------------- -------------------------------------
Title Title
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which E.I.I. Realty Securities, Inc. shall
act as Portfolio Manager is as follows:
Real Estate Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by E.I.I. Realty Securities, Inc. ("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 rate of the average daily net assets of the Series:
SERIES RATE
------ ----
Real Estate Series 0.50% of net assets
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PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 24th day of October, 1997 among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and Kayne, Anderson Investment
Management, L.P. ("Portfolio Manager"), a California limited partnership.
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
October 24, 1997, 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 Kayne,
Anderson Investment Management, L.P. to act as Portfolio Manager to the Rising
Dividends Series (the "Series") for the periods and on the terms set forth in
this Agreement. The Portfolio Manager accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
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 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
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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 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
("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 each 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 each Series so as to ensure compliance by the Series with the
diversification requirements of Section 817(h) of the Internal Revenue Code
and regulations issued thereunder, and (3) use reasonable efforts to manage
the Series so as to ensure compliance by each Series with any other rules and
regulations pertaining to investment vehicles underlying variable annuity or
variable life insurance policies. The Manager or the Trust will notify the
Portfolio Manager of any pertinent changes, modifications to, or
interpretations of Section 817(h) of the Internal Revenue Code and regulations
issued thereunder.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board
of Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Trust under the Securities Act
of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy. The Manager or the Trust
will notify the Portfolio Manager of pertinent provisions of applicable state
insurance law with which the Portfolio Manager must comply under this
Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of 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 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
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enable the custodian and portfolio accounting agent to perform its
administrative and record keeping 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 daily 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 assist 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
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
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(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 firm involved, and the firm's
risk in positioning a block of securities. Accordingly, the price to the
Series in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified, in the
judgment of the Portfolio Manager in the exercise of its fiduciary obligations
to the Trust, by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees may determine and consistent
with Section 28(e) of the Securities Exchange Act of 1934, the Portfolio
Manager shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Series to pay a broker-dealer for effecting a portfolio investment
transaction in excess of the amount of commission another broker- dealer would
have charged for effecting that transaction, if the Portfolio Manager or its
affiliate determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker- dealer, viewed in terms of either that particular
transaction or the Portfolio Manager's or its affiliate's overall
responsibilities with respect to the Series and to their other clients as to
which they exercise investment discretion. To the extent consistent with
these standards, the Portfolio Manager is further authorized to allocate the
orders placed by it on behalf of the Series to the Portfolio Manager if it is
registered as a broker-dealer with the SEC, to its affiliated broker-dealer,
or to such brokers and dealers who also provide research or statistical
material, or other services to the Series, the Portfolio Manager, or an
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 or
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<PAGE>
indirectly, to the Portfolio Manager, such Registration Statement contains, as
of the date hereof, no untrue statement of any material fact and does not omit
any statement of a material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading. The
Portfolio Manager further represents and warrants that it is a duly registered
investment adviser under the 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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
each Series's net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses
of International Management Reports (as appropriate) for each Series;
(f) Expenses of maintaining the Trust's tax records;
(g) 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;
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(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
15 of this Agreement), and the legal obligations of the Trust to indemnify its
Trustees, officers, employees, shareholders, distributors, and agents with
respect thereto; and
(r) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the Manager will pay the
Portfolio Manager a fee, payable monthly, based on the average daily net
assets of the Series at the annual rate of 0.50% of the average daily net
assets of the Series.
7. SEED MONEY. The Manager agrees that the Portfolio Manager shall not
be responsible for providing money for the initial capitalization of the
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 result in any of these
actions, (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable
basis for believing that the Series has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or
the Regulations thereunder. The Portfolio Manager further agrees to notify
the Manager and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the 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. INSURANCE COMPANY OFFEREES. All parties acknowledge that the Trust
will offer its shares so that it may serve as an investment vehicle for
variable annuity contracts and variable life insurance policies issued by
insurance companies. The Trust and the Manager agree that shares of the
Series may be
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offered only to the separate accounts and general account of insurance
companies that are approved in writing by the Portfolio Manager. The
Portfolio Manager agrees that shares of this Series may be offered to separate
accounts and the general account of Golden American Life Insurance Company and
to the general and separate accounts of any insurance companies that are or
become affiliated with Golden American Life Insurance Company. The Manager
and Trust agree that the Portfolio Manager shall be under no obligation to
investigate insurance companies to which the Trust offers or proposes to offer
its shares.
10. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-
3 under the 1940 Act, the Portfolio Manager hereby agrees that all records
which it maintains for the Series are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the Trust's
or the Manager's request, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. The Portfolio Manager further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-l under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
11. COOPERATION. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the Securities and
Exchange Commission and state insurance regulators) in connection with any
investigation or inquiry relating to this Agreement or the Trust.
12. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. The Manager and the
Trust agree that neither the Trust, the Manager, nor affiliated persons of the
Trust or the Manager shall give any information or make any representations or
statements in connection with the sale of shares of the Series concerning the
Portfolio Manager or the Series other than the information or representations
contained in the Registration Statement, prospectus, or statement of
additional information for the Trust shares, as they may be amended or
supplemented from time to time, or in reports or proxy statements for the
Trust, or in sales literature or other promotional material approved in
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.
13. CONTROL. Notwithstanding any other provision of the Agreement, it
is understood and agreed that the Trust shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and reserve the right to direct, approve, or disapprove any action
hereunder taken on its behalf by the Portfolio Manager.
14. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not
their investment objectives and policies are similar to those of the Series)
or from engaging in other activities.
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15. LIABILITY. Except as may otherwise be required by the 1940 Act or
the rules thereunder or other applicable law, the Trust and the Manager agree
that the Portfolio Manager, any affiliated person of the Portfolio Manager,
and each person, if any, who, within the meaning of Section 15 of the 1933 Act
controls the Portfolio Manager shall not be liable for, or subject to any
damages, expenses, or losses in connection with, any act or omission connected
with or arising out of any services rendered under this Agreement, except by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Portfolio Manager's duties, or by reason of reckless
disregard of the Portfolio Manager's obligations and duties under this
Agreement.
16. INDEMNIFICATION.
(a) The Manager agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person of the Portfolio Manager, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act controls
("controlling person") the Portfolio Manager (all of such persons being
referred to as "Portfolio Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities, or litigation (including legal and other
expenses) to which a Portfolio Manager Indemnified Person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, 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 15 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated
person of the Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls ("controlling person") the Manager (all
of such persons being referred to as "Manager Indemnified Persons") against
any and all losses, claims, damages, liabilities, or litigation (including
legal and other expenses) to which a Manager Indemnified Person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, 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
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<PAGE>
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.
(c) The Manager shall not be liable under Paragraph (a) of this
Section 16 with respect to any claim made against a Portfolio Manager
Indemnified Person unless such Portfolio Manager Indemnified Person shall have
notified the Manager in writing within a reasonable time after the summons,
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
16. In case any such action is brought against the Portfolio Manager
Indemnified Person, the Manager will be entitled to participate, at its own
expense, in the defense thereof or, after notice to the Portfolio Manager
Indemnified Person, to assume the defense thereof, with counsel satisfactory
to the Portfolio Manager Indemnified Person. If the Manager assumes the
defense 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 16 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
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Indemnified Person against whom such action is brought otherwise than on
account of this Section 16. In case any such action is brought against the
Manager Indemnified Person, the Portfolio Manager will be entitled to
participate, at its own expense, in the defense thereof or, after notice to
the Manager Indemnified Person, to assume the defense thereof, with counsel
satisfactory to the Manager Indemnified Person. If the Portfolio Manager
assumes the defense 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.
17. 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) 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
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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), 10, 11, 12, 15, 16, and 19 of this
Agreement shall remain in effect, as well as any applicable provision of this
Paragraph numbered 17.
18. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is
required by applicable law.
19. USE OF NAME.
(a) It is understood that the name "Directed Services, Inc." or any
derivative thereof or logo associated with that name is the valuable property
of the Manager and/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 "Kayne, Anderson Investment
Management, L.P." 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).
20. 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.
21. 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.
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(c) To the extent permitted under Section 17 of this Agreement,
this Agreement may only be assigned by any party with the prior written
consent of the other parties.
(d) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, 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/Christopher Smythe By:/s/Terry Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Treasurer President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Christopher Smythe By:/s/David L. Jacobson
- ---------------------------------- -----------------------------------
Attest
Vice President, Mutaul Fund Actng Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
KAYNE, ANDERSON INVESTMENT
MANAGEMENT, L.P.
By:/s/Allan M. Rudnick
- ---------------------------------- ----------------------------------
Attest
CIO
- ---------------------------------- -------------------------------------
Title Title
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PORTFOLIO MANAGEMENT AGREEMENT
Agreement made this 24th day of October, 1997 among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and Fred Alger Management, Inc.
("Portfolio Manager"), a New York 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
October 24, 1997, 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; and
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 Fred Alger
Management, Inc. 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.
2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the
Trust's Board of Trustees and the Manager, the Portfolio Manager will provide
a continuous investment program for the Series' portfolio and determine the
composition of the assets of the Series' portfolio, including determination of
the purchase, retention, or sale of the securities, cash, and other
investments contained in the portfolio. The Portfolio Manager will provide
investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Series' assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Series, when these transactions should be
executed, and what portion of the assets of the Series should be held in the
various securities and other investments in which it may invest, and the
Portfolio Manager is hereby authorized to execute and perform such services on
behalf of the Series. To the extent permitted by the investment policies of
the Series, the Portfolio Manager shall make decisions for the Series as to
foreign currency matters and make
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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 the Series 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
the Series 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) In performing its services hereunder, the Portfolio Manager
will conform with the 1940 Act and all rules and regulations thereunder, all
other applicable federal and state laws and regulations, with any applicable
procedures adopted by the Trust's Board of Trustees of which the Portfolio
Manager has been sent a copy, and all applicable 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 where such
aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Portfolio Manager in a manner that is fair and equitable in the
judgment of the Portfolio Manager in the exercise of its fiduciary obligations
to the Trust and to such other clients, subject to review by the Manager, who
will be promptly notified, and the Board of Trustees.
(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 record keeping 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.
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(e) The Portfolio Manager will monitor on a daily 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 assist the Manager, 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 and
liquidity 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. The Portfolio Manager will be
responsible for monitoring and maintaining industry classifications for
purposes of compliance with investment concentration requirements under the
1940 Act.
(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, 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, and will attend Board meetings upon the request of the
Board of Trustees.
(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
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
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(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, the execution
capabilities and operational facilities of the firm involved, and the firm's
risk in positioning a block of securities. Accordingly, the price to the
Series in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified, in the
judgment of the Portfolio Manager in the exercise of its fiduciary obligations
to the Trust, by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees may determine and consistent
with Section 28(e) of the Securities Exchange Act of 1934, the Portfolio
Manager shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Series to pay a broker-dealer for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction, if the Portfolio Manager or its
affiliate determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Portfolio Manager's or its affiliate's overall
responsibilities with respect to the Series and to their other clients as to
which they exercise investment discretion. To the extent consistent with
these standards, the Portfolio Manager is further authorized to allocate the
orders placed by it on behalf of the Series to the Portfolio Manager if it is
registered as a broker-dealer with the SEC, to its affiliated broker-dealer,
or to such brokers and dealers who also provide research or statistical
material, or other services to the Series, the Portfolio Manager, or an
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 and provided to the
Portfolio Manager 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 or indirectly, to the
Portfolio Manager, such
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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 for purposes of this Agreement.
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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
the Series' net assets;
(e) Expenses of obtaining daily pricing 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;
(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;
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(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 as described on Schedule B.
7. SEED MONEY. The Trust and the Manager agree that the Portfolio
Manager shall not be responsible for providing money for the initial
capitalization of the Series.
8. COMPLIANCE. 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 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, (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, or (4) upon discovery of any error in the pricing, trading, or
maintenance of the Series. 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 provided to the
Portfolio Manager by the Manager, or any amendment or supplement thereto, or
of any statement contained therein that becomes untrue in any material
respect. 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, (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, or (4) upon discovery of any error in the pricing, trading, or
maintenance of the Series.
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
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preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained with respect to the management of the
Series= portfolio by Rule 31a-l(b) and (f) under the 1940 Act and to preserve
the records with respect to the management of the Series= portfolio 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, its affiliates, 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 (which information and representations, insofar as they pertain
to the Portfolio Manager and its affiliates, shall have been made only in
reliance on and in conformity with information supplied by the Portfolio
Manager or an affiliate), 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 7 days, the Manager and its
affiliated persons may use and distribute such sales literature or other
promotional material, and the Portfolio Manager shall 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.
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 the Portfolio Manager's negligent performance of its duties, or by
reason of any violation of the Portfolio Manager's obligations and duties
under this Agreement.
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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, arising out of the
Manager's responsibilities to the Trust which (1) may be based upon any
willful misfeasance, bad faith, or gross negligence in the performance of
duties under this Agreement or reckless disregard of obligations and duties
under this Agreement 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 or the Trust
and contained in the Registration Statement or prospectus covering shares of
the Trust or the 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 or the Trust 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, 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 under this Agreement which (1) may be
based upon any willful misfeasance, bad faith, or gross negligence in the
performance of duties under this Agreement or reckless disregard of
obligations and duties under this Agreement 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 any negligence in the
performance of its obligations under 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
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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.
(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
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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 above 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 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. Any
approval of this Agreement by the holders of a majority of the outstanding
shares (as defined in the 1940 Act) of the 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 applicable law or
otherwise. Notwithstanding the foregoing, this Agreement may be terminated:
(a) by the Manager at any time without penalty, upon sixty (60) days' written
notice to the Portfolio Manager and the Trust, (b) at any time without payment
of any penalty by the Trust, upon the vote of a majority of the Trust's Board
of Trustees or a majority of the outstanding voting securities of the 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 the 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. This 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
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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 "Fred Alger Management, 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 only with the approval of the Portfolio Manager and
only 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.
20. MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of the State of
Delaware, without giving effect to any provisions relating to conflict of
laws, 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.
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(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 Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Secretary President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman By:/s/David L. Jacobson
- ---------------------------------- -----------------------------------
Attest
Vice President Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
FRED ALGER MANAGEMENT, INC.
/s/ By:/s/Gregory S. Duch
- ---------------------------------- -----------------------------------
Attest
Executive Vice President
- ---------------------------------- -------------------------------------
Title Title
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement to which Fred Alger Management, Inc. shall act
as Portfolio Manager are as follows:
SMALL CAP SERIES
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Fred Alger Management, Inc. ("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
------ ----
Small Cap Series 0.50% of net assets
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PORTFOLIO MANAGEMENT AGREEMENT
Agreement made this 24th day of October, 1997 among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
("Manager"), a New York corporation, and Eagle Asset Management, Inc.
("Portfolio Manager"), a Florida 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
October 24, 1997, 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 Eagle Asset
Management, Inc. 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 provide
investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Series' assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for
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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 as to ensure compliance by the Series with the
diversification requirements of Section 817(h) of the Internal Revenue Code
and regulations issued thereunder, and (3) use reasonable efforts to manage
the Series so as to ensure compliance by the Series with any other rules and
regulations pertaining to investment vehicles underlying variable annuity or
variable life insurance policies. The Manager or the Trust will notify the
Portfolio Manager of any pertinent changes, modifications to, or
interpretations of Section 817(h) of the Internal Revenue Code and regulations
issued thereunder.
(b) The Portfolio Manager will conform with the 1940 Act and all
rules and regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the Trust's Board
of Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Trust under the Securities Act
of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy. The Manager or the Trust
will notify the Portfolio Manager of pertinent provisions of applicable state
insurance law with which the Portfolio Manager must comply under this
Paragraph 2(b).
(c) 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 record keeping 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.
(d) The Portfolio Manager will monitor on a daily 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 assist 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.
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(e) 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.
(f) 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.
(g) In rendering the services required under this Agreement, the
Portfolio Manager may, from time to time, employ or associate with itself such
person or persons as it believes necessary to assist it in carrying out its
obligations under this Agreement. However, the Portfolio Manager may not
retain as subadviser any company that would be an "investment adviser," as
that term is defined in the 1940 Act, to the Series unless the contract with
such company is approved by a majority of the Trust's Board of Trustees and a
majority of Trustees who are not parties to any agreement or contract with
such company and who are not "interested persons," as defined in the 1940 Act,
of the Trust, the Manager, or the Portfolio Manager, or any such company that
is retained as subadviser, and is approved by the vote of a majority of the
outstanding voting securities of the applicable Series of the Trust to the
extent required by the 1940 Act. The Portfolio Manager shall be responsible
for making reasonable inquiries and for reasonably ensuring that any employee
of the Portfolio Manager, any subadviser that the Portfolio Manager has
employed or with which it has associated with respect to the Series, or any
employee thereof has not, to the best of the Portfolio Manager's knowledge, in
any material connection with the handling of Trust assets:
(i) been convicted, in the last ten (10) years, of any felony
or misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, involving violations
of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving
the purchase or sale of any security; or
(ii) been found by any state regulatory authority, within the
last ten (10) years, to have violated or to have acknowledged violation of any
provision of any state insurance law involving fraud, deceit, or knowing
misrepresentation; or
(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.
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<PAGE>
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,
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 or indirectly, to the Portfolio Manager, such Registration Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any statement of a material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
The Portfolio Manager further represents and warrants that it is a duly
registered investment adviser under the 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:
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(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 record keeping services;
(c) Expenses of the Series' custodial services including record
keeping 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;
(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.
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<PAGE>
6. COMPENSATION. For the services provided, the Manager will pay the
Portfolio Manager a fee, payable monthly, as described on Schedule B. Such
fee shall be paid without regard to any reduction in the fee paid to the
Manager as a result of any statutory or regulatory limitation on investment
company expenses.
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 result in any of these
actions, (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable
basis for believing that the Series has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or
the Regulations thereunder. The Portfolio Manager further agrees to notify
the Manager and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the 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 Securities and
Exchange Commission and state insurance regulators) in connection with any
investigation or inquiry relating to this Agreement or the Trust.
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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.
13. OTHER ACTIVITIES OF PORTFOLIO MANAGER. The Manager agrees that the
Portfolio Manager and any of its officers, directors or employees, and persons
affiliated with it or with any such partner or employee may render investment
management or advisory services to other investors and institutions, and such
investors and institutions may own, purchase or sell, securities or other
interests in property the same as or similar to those which are selected for
purchase, holding or sale for the Series, and the Portfolio Manager shall be
in all respects free to take action with respect to investments in securities
or other interests in property the same as or similar to those selected for
purchase, holding or sale for the Series. On occasions when the Portfolio
Manager deems the purchase or sale of a security to be in the best interests
of the Series, as well as other clients of the Portfolio Manager, the
Portfolio Manager, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. 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 the manner the Portfolio
Manager considers to be most equitable and consistent with its fiduciary
obligations to the Series and to such other clients. Nothing in this
Agreement shall impose upon the Portfolio Manager any obligation to purchase
or sell or recommend for purchase or sale, for the Series any security which
it, its officers, directors, affiliates or employees may purchase or sell for
the Portfolio Manager or such partner's, affiliate's or employee's own
accounts or for the account of any other client, advisory or otherwise.
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 to the Trust or its
shareholders for, or subject to any damages, expenses, or losses in
connection with, any act or
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<PAGE>
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, 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, 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
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<PAGE>
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.
(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
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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 such
date 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 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(e), 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.
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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 "Eagle Asset Management, 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.
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.
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(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/Christopher Smythe By:/s/Terry Kendall
- --------------------------------- ----------------------------------
Attest
Assistant Treasurer President
- ---------------------------------- -------------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Christopher Smythe By:/s/David L. Jacobson
- ---------------------------------- -----------------------------------
Attest
Vice President, Mutaul Fund Actng Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
EAGLE ASSET MANAGEMENT, INC.
/s/Stephen W. Faber By:/s/Brian C. Lee
- ---------------------------------- -----------------------------------
Attest
Secretary and Corporate Counsel Senior Vice President
- ---------------------------------- -------------------------------------
Title Title
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which Eagle Asset Management, Inc. shall
act as Portfolio Manager is as follows:
Value Equity Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Eagle Asset Management, Inc. ("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 rate of the average daily net assets of the Series:
SERIES RATE
------ ----
Value Equity Series 0.50% of net assets
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EXHIBIT 9(A)(II)
FORM OF ADDENDUM TO THE TRANSFER AGENCY AND
SERVICE AGREEMENT FOR
THE FUND FOR LIFE,
ZERO TARGET 2002 SERIES, AND CAPITAL APPRECIATION SERIES
<PAGE>
ADDENDUM TO TRANSFER AGENCY AND SERVICE AGREEMENT
The Transfer Agency and Service Agreement, made the __ day
of _____, 1989 between The GCG Trust (formerly, The Specialty
Managers Trust and Western Capital Specialty Managers Trust) (the
"Trust"), a Massachusetts business trust having its principal
place of business at 909 Third Avenue, New York, New York 10022,
and State Street Bank and Trust Company (the "Bank"), a
Massachusetts Trust Company having its principal place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the
"Agreement"), is hereby amended by the addition of the provisions
set forth in this Addendum to the Agreement, which is dated as of
the ____ day of ____, 1991.
WITNESSTH:
WHEREAS, the Trust has previously established and currently
offers seven separate series designated as Liquid Asset Series,
Limited Maturity Bond Series, All-Growth Series, Natural
Resources Series, Real Estate Series, Fully Managed Series, and
Multiple Allocation Series (the "Initial Portfolios"); and
WHEREAS, the Trust has subsequently established five new
series designated as The Masters Series, The Intermediate Bond
Series, Zero Target 2002 Series, Capital Appreciation Series, and
The Fund for Life; and
WHEREAS, the Trust desires to appoint the Bank as Transfer
Agent, Dividend Disbursing Agent and Agent in connection with
certain other activities for The Masters Series, The Intermediate
Bond Series, Zero Target 2002 Series, Capital Appreciation
Series, and The Fund for Life on the terms set forth in the
Agreement and herein and the Bank is willing to accept such
appointment;
NOW THEREFORE, in consideration of the mutual promises and
covenants contained in this Addendum, it is agreed between the
parties hereto as follows:
<PAGE>
In addition to its responsibilities as
specified in the Agreement, the Trust hereby
constitutes and appoints the Bank as Transfer
Agent, Dividend Disbursing Agent and Agent in
connection with certain other activities with
respect to The Masters Series, The
Intermediate Bond Series, Zero Target 2002
Series, Capital Appreciation Series and The
Fund for Life which, together with all other
Portfolios previously established by the
Fund, shall be Portfolios under the Agreement
as provided in Article 8, subject to the
terms and conditions as specified in the
Agreement and this Addendum and the fees to
be paid to the Bank shall be the same amount
set forth in the Agreement for each of the
Initial Portfolios, or such other fees as may
be negotiated by the parties hereto.
This Addendum shall take effect with respect to such
Portfolios as of the day such Portfolios begin operations.
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be executed as of the date indicated above.
THE GCG TRUST
Attest: By ____________________________
STATE STREET BANK AND TRUST COMPANY
Attest: By ____________________________
- 2 -
Exhibit 9(b)(ii)
Assignment Agreement for Organizational Agreement
(for Golden American Life Insurance Company)
<PAGE>
ASSIGMENT AGREEMENT FOR
ORGANIZATIONAL AGREEMENT
AGREEMENT, made this 20th day of March, 1991, by and among
Specialty Advisors Corp. ("SAC") (formerly Western Capital
Variable Advisors Corp.), a California corporation; Directed
Services, Inc. ("DSI"), a New York corporation; Golden American
Life Insurance Company ("Golden American"), a stock life
insurance company incorporated under the laws of the State of
Minnesota, on its own behalf and on behalf of any separate
accounts of Golden American shown on Exhibit A of the
Organizational Agreement, as defined below; and The Specialty
Managers Trust, a Massachusetts business trust ("Trust").
WHEREAS, the Trust is registered with the Securities and
Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended ("Act"), and
the Trust issues shares in several different classes, each of
which is known as a "Series"; and
WHEREAS, the Trust, SAC, and Golden American entered into an
Organizational Agreement dated December 28, 1988 ("Organizational
Agreement"); and
WHEREAS, SAC has served as Manager to the Trust pursuant to
a Management Agreement between the Trust and SAC dated November
1, 1988; and
<PAGE>
WHEREAS, the Trust and SAC have terminated the Management
Agreement with SAC, effective at the close of business on March
20, 1991; and
WHEREAS, commencing March 21, 1991, DSI has agreed to serve
as Manager to the Trust pursuant to a new Management Agreement
between the Trust and DSI dated March 20, 1991; and
WHEREAS, SAC, Golden American and the Trust desire to assign
SAC's interest in the Organizational Agreement to DSI and DSI
desires to be the assignee of SAC's interest.
NOW, THEREFORE, it is agreed as follows:
1. ASSIGNMENT. Effective as of March 21, 1991, SAC hereby
assigns to DSI all of its interest in the Organizational
Agreement.
2. PERFORMANCE OF DUTIES. DSI hereby assumes and agrees to
perform all of SAC's duties and obligations under the
Organizational Agreement and be subject to all of the terms and
conditions of said Agreement as if they applied to SAC. DSI
shall not be responsible for any claim or demand arising under
the Organizational Agreement from services rendered prior to the
effective date of this Assignment Agreement unless otherwise
agreed by DSI, and SAC shall not be responsible for any claim or
demand arising under the Organizational Agreement from services
rendered after the effective date of this Assignment Agreement
unless otherwise agreed by SAC.
- 2 -
<PAGE>
3. REPRESENTATION OF DSI. DSI represents and warrants
that it is registered as an investment adviser under the
Investment Advisers Act of 1940 and will remain registered as
long as required by applicable law.
4. CONSENT. The Trust and Golden American hereby consent
to this assignment by SAC of its rights under the Organizational
Agreement to DSI and the assumption by DSI of SAC's interest in
such Agreement and the duties and obligations thereunder, and
agree, subject to the terms and conditions of said Agreement, to
look to DSI for the performance of the duties and obligations
formerly owed by SAC under said Agreement.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment Agreement to be executed by their authorized officers
hereunto duly attested as of the date and year written above.
SPECIALTY ADVISORS CORP.
____________________ By: ___________________
Attest
____________________ ___________________________________
Title Title
DIRECTED SERVICES, INC.
____________________ By: ___________________
Attest
____________________ ___________________________________
Title Title
- 4 -
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
____________________ By: ___________________
Attest
____________________ ___________________________________
Title Title
THE SPECIALTY MANGERS TRUST
____________________ By: ___________________
Attest
____________________ ___________________________________
Title Title
- 5 -
EXHIBIT 9 (B)(III)
FORM OF ORGANIZATINAL AGREEMENT FOR THE
MUTUAL BENEFIT LIFE INSURANCE COMPANY
<PAGE>
ORGANIZATIONAL AGREEMENT AMONG
THE SPECIALTY MANAGERS TRUST
AND
SPECIALTY ADVISORS CORP.
AND
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
Agreement dated as of January __, 1990, (the "Agreement"),
by and among The Specialty Managers Trust ("Trust"), Variable
Advisors Corp. ("Advisors Corp.") and The Mutual Benefit Life
Insurance Company ("MBL"), on its own behalf and on behalf of
Mutual Benefit Variable Contract Account - 11 ("Account").
WHEREAS, MBL is a mutual life insurance company incorporated
under the laws of the State of New Jersey; and
WHEREAS, the Account is registered as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act") and
interests in the Policies, as hereinafter defined, are registered
under the Securities Act of 1933 ("1933 Act"); and
WHEREAS, the Trust is registered as an open-end management
investment company under the 1940 Act, and shares of the
portfolios of the Trust are registered under the 1933 Act, and
the Trust will initially consist of seven separate series and is
authorized to create additional series in the future; and
WHEREAS, shares of the series of the Trust shown on Exhibit
A ("Series") will be sold to the Account to fund benefits under
variable annuity contracts (collectively "Policies") to be issued
by MBL through the Account after the Trust's Registration
Statement is declared effective by the Securities and Exchange
Commission ("SEC"); and
WHEREAS, Advisors Corp. will act as the Trust's Manager,
pursuant to a Management Agreement, a copy of which is attached
hereto as Exhibit B, entered into by Advisors Corp. and the
Trust; and
WHEREAS, Advisors Corp. is, and for the duration of this
Agreement, will remain if required by applicable law, duly
registered as an investment adviser under the Investment
Advisers Act of 1940.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and the
mutual promises and covenants hereinafter set forth, the parties
hereby agree as follows:
1. Advisors Corp. and the Trust will take all such actions
as are necessary to permit the sale, redemption and
exchange of the shares of each Series of the Trust for
the shares of any other Series of the Trust to the
Account including, but not limited to, organization of
the Trust, as a Massachusetts business Trust and
registration of the Trust under the 1940 Act and
registration of the shares of each Series under the 1933
Act. Advisors Corp. and the Trust shall amend the
Registration Statement for the Trust from time to time
as required in order to effect the continuous offering
of shares of each Series of the Trust. The Trust's
responsibility to make shares of the Series available to
the Account shall be governed by the Settlement
Agreement among the Trusts, the Account and Western
Capital Financial Group.
2. Advisors Corp. will pay, on behalf of the Trust, all
expenses of the Trust incurred on or prior to the
commencement of operations of the Trust, including, but
not limited to, legal fees, auditing fees, SEC
registration fees, and organizational fees, that are
determined to be "organization costs" of the Trust (the
"Organizational Costs").
3. Such Organizational Costs will be recovered by Advisors
Corp. from the Trust over a period not more than five
years.
4. The parties agrees that MBL shall not be required to
invest any "seed money" in the Trust.
5. With respect to any of the Policies funded by the
Account, MBL agrees that MBL will take all necessary
steps to ensure that any contract described in its
prospectus as an annuity and funded by the Account will
qualify as an annuity under Section 72 of the Internal
Revenue Code of 1986, as amended (the "Code").
6. MBL represents and warrants: (1) that it will take all
necessary steps to ensure that the Policies will be registered
under the 1933 Act during the term of this Agreement; (2) that
the Policies will be issued in compliance with all applicable
federal and state laws; (3) that it shall amend the Registration
Statement respecting the Policies from time to time as required
to effect the continuous offerings of the Policies; (4) that it
is an insurance company duly organized and in
<PAGE>
3
good standing under New Jersey law; (5) that it has
established the Account as a duly organized, validly
existing segregated asset account, established by
resolutions of its Board of Directors; and (6) that the
Account is, and will be during the term of this
Agreement, a duly registered unit investment trust under
the 1940 Act to serve as segregated investment account
for the Policies. MBL will pay all expenses in
connection with organizing the Account, developing the
Policies and preparing and filing with the SEC a
Registration Statement for the Policies, obtaining
authorizations to offer the Polices in the various
states and other initial expenses associated with the
Policies.
7. MBL shall vote shares of each Series of the Trust held
in the Account or a division thereof at regular and
special meetings of the Trust in accordance with
instructions timely received by MBL (or its designated
agent) from owners of Policies funded by the Account or
division thereof having a voting interest in the Series.
MBL shall vote shares of a Series of the Trust held in a
the Account or a division thereof that are attributable
to the Policies as to which no timely instructions are
received, as well as shares not attributable to the
Policies and owned beneficially by MBL in the same
proportion as the votes cast by owners of the Policies
funded by that Variable Account or division thereof
having a voting interest in the Series from whom
instructions have been timely received. MBL shall vote
shares of each Series of the Trust held in its general
account, if any, in the same proportion as the votes
cast with respect to shares of the Series held in all
the Variable Accounts of MBL or divisions thereof, in
the aggregate. In the event of a shareholder meeting,
MBL agrees to provide the Trust and/or Advisors Corp.
with a list of the names and addresses of owners of the
Policies within five (5) days of receipt of a written
request for such list. The party requesting such list
shall bear the reasonable cost incurred by MBL in
preparing and providing such list, which shall be paid
upon delivery of the list. MBL further agrees to
provide notice to the Trust and to Advisors Corp. if MBL
or an affiliate has reason to know about a meeting of
owners of the Policies or shareholders of the Trust.
The trust agrees to bear all costs associates with the
preparation of its proxy statement, and agrees to
reimburse MBL for costs, if any, incurred by MBL in
connection with the printing, mailing, and solicitation
of the proxies and proxy statements.
<PAGE>
4
8. Advisors Corp. and the Trust will use reasonable efforts
to manage each Series of the Trust so that each such
Series will qualify as a "Regulated Investment Company"
under Subchapter M of the Code and will use reasonable
efforts to maintain such qualification and will notify
MBL immediately upon having a reasonable basis for
believing that the Trust (or any Series thereof) has
ceased to so qualify or might not so qualify in the
future. MBL shall also notify the Trust and Advisors
Corp. immediately upon having a reasonable basis for
believing that the Trust (or any Series thereof) has
ceased to qualify as a Regulated Investment Company or
might not so qualify in the future, PROVIDED HOWEVER,
that MBL's agreement to notify Advisors Corp. and the
Trust with respect to any matter contained in this
paragraph will in no way alleviate or relieve Advisors
Corp.'s and the Trust's responsibility under this
Section 8.
9. Advisors Corp. and the Trust will take all necessary
steps to ensure that the Trust (and each Series thereof)
will comply with the diversification provisions of
Section 817(h) of the Code and the regulations issued
thereunder relating to the diversification requirements
for variable annuity contracts and any prospective
amendments or other modifications to Section 817 or
regulations thereunder and will notify MBL immediately
upon having a reasonable basis for believing that the
Trust (or any Series thereof) has ceased to comply.
MBL shall notify the Trust and Advisors Corp.
immediately upon having a reasonable basis for believing
that the Trust (or any Series thereof) has ceased to
comply with the diversification provisions of Section
817(h) of the Code or the regulations issued thereunder
and any prospective amendments or other modifications to
Section 817 or regulations thereunder, PROVIDED HOWEVER,
that MBL's agreement to notify Advisors Corp. and the
Trust with respect to the above matter contained in this
Section 9 will in no way alleviate or relieve Advisors
Corp.'s and the Trust's responsibility under this
Section 9.
MBL shall promptly notify the Trust and Advisors Corp.
of any pertinent changes, modifications to, or
interpretations of Section 817(h) of the Code and the
regulations issued thereunder and any successor thereto,
or any prospective amendments or other modifications to
Section 817 or regulations thereunder.
<PAGE>
5
For purposes of monitoring whether the Trust and the
Account are eligible for the start-up period during
which the Account shall be considered to be adequately
diversified under paragraph (c)(2)(i) of Tres. Reg.
1.817-5 (or any successor thereto), MBL shall monitor
amounts allocated to the Account or (divisions thereof)
("Allocated Amounts") by owners of Policies funded by
the Account (or divisions thereof) during the first year
after any amount received under one of the Policies is
first allocated to the Account (or division thereof)
("First Year") to ensure that no more than thirty (30)
percent of the amount allocated to the Account (or
division thereof), as of any date during such year, is
attributable to premium an investment income that was
received more than one year before such date (the
percentage of such Allocated Amount being referred to
hereafter as the "Old Money Percentage"). For this
purpose, premium income and investment income shall be
treated as received as provided in Tres. Reg. 1.817-5(T)
(or any successor thereto) or other applicable law and
determinations under this provision shall be made
consistent with Tres. Reg. 1.817-5(c)(2) or any
successor thereto.
MBL will notify Advisors Corp. immediately in the event
that the Old Money Percentage equals or exceeds twenty
(20) percent as of any date during the First Year,
determined as prescribed above; and in the event that
the Old Money Percentage equals or exceeds thirty (30)
percent during the First Year, shall notify Advisors
Corp. and the Trust immediately and advise such parties
that the Account shall no longer be considered
adequately diversified during the First Year under
paragraph (c)(2)(i) of Regulation 1.817-5. MBL agrees
that Advisors Corp. and the Trust shall not be liable
for failure to meet their responsibilities under this
Section 9 during the First Year if MBL fails to comply
with the monitoring and notice responsibilities
specified in this Section 9.
10. The Trust and Advisors Corp. agree that separate
accounts of MBL and of other insurance companies
acceptable to the Trust and Advisors Corp. will have the
right to purchase and sell shares of the Series of the
Trust.
11. Advisors Corp. and the Trust will provide MBL and its
auditors with any information it may reasonable request,
and with access to such books and records that relate to
the ordinary operating expenses of the Trust.
<PAGE>
6
12. The Trust will not sell or permit the sale of shares of the
Trust to separate accounts of life insurance companies that are
not affiliates of MBL without first obtaining an appropriate
exemptive order from the SEC, unless the rules under the 1940 Act
are amended to permit "shared funding" without first obtaining
individual exemptive relief. With respect to serving as the
common investment vehicle for (1) both variable annuity contracts
and variable life insurance policies, or (2) for variable life
insurance policies of one insurer and variable life insurance
policies and/or variable annuity contracts of another insurer,
the parties agree to comply with any conditions imposed under any
exemptive order issued by the Securities and Exchange Commission,
or as specified in Rule 6e-2 or Rule 6e-3(T) under the 1940 Act
or, if permanently adopted, Rule 6e-3, as amended, whichever is
applicable.
13. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities having jurisdiction
(including without limitation the SEC, the NASD and state
insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
MBL agrees that neither it nor any of its affiliates
shall give any information or make any representations
or statements on behalf of the Trust or concerning the
Trust in connection with the offer or sale of the
Policies other than the information or representations
contained in the Registration statement for the Trust's
shares, as such Registration Statement 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 by the Trust or
Advisors Corp., except with the written permission of
the Trust or Advisors Corp.
Advisors Corp. agrees that neither it nor any of its
affiliates shall give any information or make any
representations or statements on behalf of the Policies
or concerning the Policies in connection with their
offer or sale other than the information or
representations contained in the Registration Statement
for the Account, as such Registration Statement may be
amended or supplemented from time to time, or in reports
for the Polices or in sales literature or other
promotional material approved by MBL or its affiliates,
except with the written permission of MBL or its
affiliates.
<PAGE>
7
14. No later than 15 working days prior to filing with the SEC:
(a) any post-effective amendment to the Trust's registration
statement, (b) an application for exemption, (c) a request for a
no-action letter, or, (d) any special request or amendment, ((a),
(b), (c), and (d) collectively referred to as "Trust
document(s)"), the Trust shall forward a draft of the Trust
document, marked to show changes, to MBL for MBL's review. MBL
shall complete its review and send comments to the Trust within 5
working days of receipt of such draft. Following receipt of
such comments, the Trust shall promptly discuss the comments with
MBL, and will promptly transmit to MBL a draft of any further
changes to the Trust document via facsimile transmission,
messenger or overnight express mail, prior to filing with the
SEC.
No later than 15 working days prior to filing with the
SEC: (a) any post-effective amendment to the
registration statement of the Account, (b) an
application for exemption, (c) a request for a no-action
letter, or (d) any special request or amendment ((a),
(b), (c), and (d), collectively referred to as "MBL
document(s)"), MBL shall forward a draft of the MBL
document, marked to show changes, to the Trust for the
Trust's review. The Trust shall complete its review and
send comments to MBL within 5 working days of receipt of
such draft. Following receipt of such comments, MBL
shall promptly discuss the comments to the Trust a draft
of any further changes to the MBL document via facsimile
transmission, messenger, or overnight express mail,
prior to the filing with the SEC.
15. (a) Subject to the limitations of subparagraphs (b)and (c)
of this Section 17 of this Agreement, Advisors Corp.
agrees to indemnify and hold harmless MBL and each of
its directors, officers, and employees and each person,
if any, who controls MBL within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified
Parties") against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with
the written consent of Advisors Corp.) or litigation
expenses (including legal and other expenses) to which
the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities, or expenses (or
actions in respect thereof) or settlements are related
to the operation of the Trust, and; (i) arise as a
result of any failure by Advisors Corp. to provide the
services and furnish the materials under the terms of
this Agreement to which it is subject (including a
failure to meet its responsibilities under Sections 8
<PAGE>
8
and 9 of this Agreement); or (ii) arise out of or result
from any material breach of any representation or
warranty made by Advisors Corp. in this Agreement or
arise out of or result from any other material breach of
this Agreement by Advisors Corp.
(b) Advisors Corp. shall not be liable under Section
15(a) of this Agreement with respect to any losses,
claims, damages, liabilities, or litigation expenses to
which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of
such Indemnified Party's duties, or by reason of such
Indemnified Party's reckless disregard of obligations
and duties under this Agreement or to MBL or the
Account, whichever is applicable.
(c) Advisors Corp. shall not be liable under Section
15(a) of this Agreement with respect to any claim made
against an Indemnified Party unless such Indemnified
Party shall have notified Advisors Corp. in writing
within a reasonable time after the summons or other
first legal process giving the information of the nature
of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated
agent), but failure to notify Advisors Corp. of any such
claim shall not relieve Advisors Corp. from any
liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on
account of Section 15(a) of this Agreement. In case any
action is brought against the Indemnified Parties,
Advisors Corp. will be entitled to participate, at its
own expense, in the defense thereof. Advisors Corp. also
shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action,
and, after notice to such party Advisors Corp.'s
election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional
counsel retained by it, Advisors Corp. shall not be
liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party
independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) Subject to the limitations of subparagraphs (e) and (f) of
this Section 15 of this Agreement, the Trust agrees to indemnify
and hold harmless MBL and each of its directors, officers, and
employees and each person, if any, who controls MBL within the
meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties") against any and all losses, claims,
damages,
<PAGE>
9
liabilities (including amounts paid in settlement
with the written consent of the Trust) or litigation
expenses (including legal and other expenses) to which
the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities, or expenses (or
actions in respect thereof) or settlements are related
to the operation of the Trust, and; (i) arise as a
result of any failure of the Trust to provide the
services and furnish the materials under the terms of
this Agreement to which it is subject (including a
failure to meet its responsibilities under Sections 8
and 9 of this Agreement); or (ii) arise out of or result
from any material breach of any representation or
warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this
Agreement by the Trust.
(e) The Trust shall not be liable under Section 15(d)
of this Agreement with respect to any losses, claims,
damages, liabilities, or litigation expenses to which an
Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties, or by reason of such
Indemnified Party's reckless disregard of obligations
and duties under this Agreement or to MBL or the
Account, whichever is applicable.
(f) The Trust shall not be liable under Section 15(d)
of this Agreement with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall
have notified the Trust in writing within a reasonable
time after the summons or other first legal process
giving the information of the nature of the claim shall
have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of
such service on any designated agent), but failure to
notify the Trust of any such claim shall not relieve the
Trust from any liability which it may have to the
Indemnified Party against whom such action is brought
otherwise than on account of Section 15(d) of this
Agreement. In case any action is brought against the
Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof.
The Trust also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in
the action, and, after notice to such party the Trust's
election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any
additional counsel retained by it, Advisors Corp. shall
not be liable to such party under this Agreement for any
<PAGE>
10
legal or other expenses subsequently incurred by
such party independently in connection with the defense
thereof other than reasonable costs of investigation.
16. (a) Subject to the limitations of subsections (b) and (c) of
this Section 16, MBL agrees to indemnify and hold
harmless Advisors Corp. and the Trust and each of its
trustees, directors, officers, and employees and each
person, if any, who controls Advisors Corp. or the Trust
within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties") against any
and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of
MBL) or litigation expenses (including legal and other
expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities, or
expenses (or actions in respect thereof) or settlements
are related to the operation of the Account or the
Trust, and: (i) arise as a result of any failure of MBL
or any of its affiliates to provide the services and
furnish the materials under the terms of this Agreement
(including a failure to meet its responsibilities under
Sections 5 and 9 of this Agreement); or (ii) arise out
of or result from any material breach by MBL or any of
its affiliates of any representation or warranty made by
MBL in this Agreement or arise out of or result from any
other material breach of this Agreement by MBL or any of
its affiliates.
(b) MBL shall not be liable under Section 16 of this
Agreement with respect to any losses, claims, damages,
liabilities, or litigation expenses to which an
Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties, or by reason of such
Indemnified Party's reckless disregard of obligations
and duties under this Agreement or to Advisors Corp. or
the Trust, whichever is applicable.
(c) MBL shall not be liable under Section 16 of this Agreement
with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified MBL in writing
within a reasonable time after the summons or other first legal
process giving the information of the nature of the claim shall
have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify MBL of any such
claim shall not relieve MBL or its affiliates from any liability
which it may have to the
<PAGE>
11
Indemnified Party against whom such action is brought
otherwise than on account of Section 16. In case any
action is brought against the Indemnified Parties, MBL
will be entitled to participate, at its own expense, in
the defense thereof. MBL also shall be entitled to
assume the defense thereof, with counsel satisfactory to
the party named in the action, and, after notice to
such party MBL's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, MBL shall not
be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such
party independently in connection with the defense
thereof other than reasonable costs of investigation.
17. Each party to this Agreement agrees to promptly notify
the other parties of the commencement of any litigation
or proceedings against it or any of its officers,
trustees, directors or employees in connection with this
Agreement, the issuance or sale of the Policies, the
operation of the Account, or the sale or acquisition of
shares of the Trust.
18. This Agreement may be terminated without cause by any of the
parties upon giving one hundred and twenty (120) days' written
notice of the other parties, PROVIDED HOWEVER, that if any party
fails to carry out its responsibilities enumerated under this
Agreement in any material respect, the other parties shall have
the right to terminate this Agreement within sixty days of
notification to the party so failing to carry out its
responsibilities, and further provided, in the event the Trust is
made available to separate accounts of insurance companies other
than MBL, that if a majority of the disinterested Trustees
determine that an irreconcilable material conflict exists among
the interests of contract owners and policyowners of segregated
asset accounts or the interests of persons for which the Trustees
are required to monitor under the conditions referred to in
Section 12 of this Agreement, then any party shall have the right
to terminate this Agreement immediately. Upon termination of
this agreement, all authorizations, rights and obligations under
this Agreement, except for the provisions contained in Sections
15 and 16 hereof, shall cease.
This Agreement shall terminate upon the termination of
the "Variable Life and Annuity Agreement" between MBL
and the Golden Financial Group, Inc. ("GFG"), dated May
31, 1989, whereby GFG is to provide certain services to
MBL with regard to the design, regulatory approval and
administrations of the Policies.
<PAGE>
12
This Agreement shall also terminate:
(i) at the option of MBL upon the institution
of formal proceedings against the Trust,
Advisors Corp. or an affiliate by the NASD, the
SEC, or any state securities or insurance
department of any other regulatory body
provided that MBL determines in good faith, in
MBL's sole judgment, that such institution
will have a material adverse impact on the
Trust's, Advisors Corp.'s or the affiliate's
ability to perform its obligations under this
Agreement; or
(ii) at the option of the Trust or Advisors
Corp. upon the institution of formal
proceedings against MBL brought by the NASD,
the SEC, or any formal proceedings involving a
material matter brought by any state securities
or state insurance department or any other
regulatory body regarding MBL provided that the
Trust or Advisors Corp. determines in good
faith, in its sole judgment, that such
institution will have a material adverse impact
on MBL's ability to perform its obligations
under this Agreement; or
(iii) at the option of either the Trust,
Advisors Corp. or MBL, upon the filing of a
voluntary or involuntary petition in
bankruptcy, or any equivalent state court
proceeding, concerning any party, or upon
appointment of a receiver by a regulatory body
having appropriate jurisdiction over any party,
or upon the occurrence of any party's failing
to meet the minimum net capital requirements,
if any, applicable to it under appropriate
insurance or securities laws; or
(iv) at the option of the Trust, Advisors
Corp., or MBL if the Management Agreement
between the Trust and its Manager is
terminated, or the Organizational Agreement
among MBL, the Trust and the Trust's Manager
terminates, or the Settlement Agreement among
MBL, the Trust and Western Capital Financial
Group terminates.
19. Unless earlier terminated pursuant to Section 18 hereof,
this Agreement shall remain in effect for a one year
period beginning on its date of execution and will
continue thereafter in effect from year to year. Upon
termination of this Agreement, all authorizations,
<PAGE>
13
rights and obligations impose on the parties under this
Agreement except for the indemnification provisions
contained in Section 15 and 16 above shall cease. The
parties further agree that in the event of a termination
of this Agreement, each party shall cooperate with the
other parties to ensure that existing policyowners will
not suffer any adverse consequences resulting from such
termination.
20. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws
of the State of New York.
21. This Agreement shall be subject to the provisions of the
1933 Act, the Securities Exchange Act of 1934 and the
1940 Act and the rules, regulations and rulings
thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant and
the terms hereof shall be interpreted an construed in
accordance therewith. The term "affiliate" as used in
this Agreement shall mean an "affiliated person" as
defined in Section 2(a)(3) of the 1940 Act. This
Agreement may not be assigned by any party without the
written consent of the other parties to this Agreement.
22. 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.
23. Any notice shall be sufficiently given when sent by
registered or certified mail to the other parties at the
address of such parties set forth below or at such other
address as such party may from time to time specify in
writing to the other parties:
To: The Mutual Benefit Life Insurance Company
520 Broad Street
Newark, New Jersey 07102-3184
Attn: Frank D. Casciano
Vice President and Deputy General Counsel
To: The Specialty Managers Trust
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
with a copy to
Jeffrey S. Puretz
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
<PAGE>
14
To: Variable Advisors Corp.
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
24. The rights remedies and obligations contained in this
Agreement are cumulative and are in addition to any and
all rights, remedies and obligations, at law or in
equity, which the parties hereto are entitled to under
state or federal laws.
25. A copy of the Trust's Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts.
The Declaration of Trust has been executed on behalf of
the Trust by certain Trustees 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, employee or
shareholder of the Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
THE SPECIALTY MANAGERS TRUST
By:
---------------------
Charles F. Parisi
President
Attest:
-------------------------
Name:
Title:
VARIABLE ADVISORS CORP.
By:
---------------------
Charles F. Parisi
President
Attest:
-------------------------
Name:
Title:
<PAGE>
15
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
By:
------------------------
Name: Henry E. Kates
CHECK
Attest:
--------------------------
Name: Frank D. Casciano
CHECK
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
on behalf of the Account
By:
------------------------
Name: Henry E. Kates
CHECK
Attest:
--------------------------
Name: Frank D. Casciano
CHECK
<PAGE>
16
EXHIBIT A
TO
ORGANIZATIONAL AGREEMENT AMONG
THE SPECIALTY MANAGERS TRUST
and
VARIABLE ADVISORS CORP.
and
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Exhibit 9(b)(iv)
ASSIGNMENT AGREEMENT FOR
ORGANIZATIONAL AGREEMENT
(for the mutual benefit life insurance company)
<PAGE>
ASSIGNMENT AGREEMENT FOR
ORGANIZATIONAL AGREEMENT
AGREEMENT, made this 20th day of March, 1991, by and among
Specialty Advisors Corp. ("SAC") (formerly Variable Advisors
Corp.), a California corporation; Directed Services, Inc.
("DSI"), a New York corporation; The Mutual Benefit Life
Insurance Company ("MBL"), a mutual life insurance company
incorporated under the laws of the State of New Jersey, on its
own behalf and on behalf of Mutual Benefit Variable Contract
Account-11; and The Specialty Managers Trust, a Massachusetts
business trust ("Trust").
WHEREAS, the Trust is registered with the Securities and
Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended ("Act"), and
the Trust issues shares in several different classes, each of
which is known as a "Series"; and
WHEREAS, the Trust, SAC and MBL entered into an
Organizational Agreement dated May 21, 1990 ("Organizational
Agreement"); and
WHEREAS, SAC has served as Manager to the Trust pursuant to
a Management Agreement between the Trust and SAC dated November
1, 1988; and
WHEREAS, the Trust and SAC have terminated the Management
Agreement with SAC, effective at the close of business on March
20, 1991; and
WHEREAS, commencing March 21, 1991, DSI has agreed to serve
as Manager to the Trust pursuant to a new Management Agreement
between the Trust and DSI dated March 20, 1991; and
WHEREAS, SAC, MBL and the Trust desire to assign SAC's
interest in the Organizational Agreement to DSI, and DSI desires
to be the assignee of SAC's interest.
NOW, THEREFORE, it is agreed as follows:
1. ASSIGNMENT. Effective as of March 21, 1991, SAC hereby
assigns to DSI all of its interest in the Organizational
Agreement.
<PAGE>
2. PERFORMANCE OF DUTIES. DSI hereby assumes and agrees
to perform all of SAC's duties and obligations under the
Organizational Agreement and be subject to all of the terms and
conditions of said Agreement as if they applied to SAC. DSI
shall not be responsible for any claim or demand arising under
the Organizational Agreement from services rendered prior to the
effective date of this Assignment Agreement unless otherwise
agreed by DSI, and SAC shall not be responsible for any claim or
demand arising under the Organizational Agreement from services
rendered after the effective date of this Assignment Agreement
unless otherwise agreed by SAC.
-2-
<PAGE>
3. REPRESENTATION OF DSI. DSI represents and warrants
that it is registered as an investment adviser under the
Investment Advisers Act of 1940 and will remain registered as
long as required by applicable law.
4. CONSENT. The Trust and MBL hereby consent to this
assignment by SAC of its rights under the Organizational
Agreement to DSI and the assumption by DSI of SAC's interest in
such Agreement and the duties and obligations thereunder, and
agree, subject to the terms and conditions of said Agreement, to
look to DSI for the performance of the duties and obligations
formerly owed by SAC under said Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this
Assignment Agreement to be executed by their duly authorized
officers hereunto duly attested as of the date and year written
above.
SPECIALTY ADVISORS CORP.
_______________________ By: _______________________________
Attest
_______________________ _______________________________
Title Title
DIRECTED SERVICES, INC.
_______________________ By: _______________________________
Attest
_______________________ _______________________________
Title Title
-4-
<PAGE>
THE MUTUAL BENEFIT LIFE
INSURANCE COMPANY
_______________________ By: _______________________________
Attest
_______________________ _______________________________
Title Title
THE SPECIALTY MANAGERS TRUST
_______________________ By: _______________________________
Attest
_______________________ _______________________________
Title Title
-5-
EXHIBIT (9)(B)(V)
FORM OF ADDENDUM TO
ORGANIZATION AGREEMENT
<PAGE>
ADDENDUM TO ORGANZATIONAL 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, is hereby amended by the addition of the provisions set
forth in this Addendum to the Organizational Agreement, which is
dated as of the ___ day of ____________________, 1994.
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 two new series designated
as the Market Manager Series and Value Equity Series; and
WHEREAS, the Trust and Golden American desire that the
Market Manager Series and Value Equity Series be sold to the
separate accounts of Golden American to fund benefits under
variable life insurance policies and variable annuity contracts
issued by Golden American.
NOW THEREFORE, in consideration of the mutual promises and
covenants contained in this Addendum, it is agreed between the
parties hereto as follows:
1. The Market Manager Series and Value Equity Series, together
with all other Series listed on Exhibit B to the Organizational
Agreement, shall be series under the Organizational Agreement.
2. Exhibit B to the Organizational Agreement shall be replaced
with a new Exhibit B, a copy of which is attached hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be executed as of the date indicated above.
THE GCG TRUST
_____________________ By: __________________________
Attest: Title:
Title:
DIRECTED SERVICES, INC.
_____________________ By: __________________________
Attest: Title:
Title:
GOLDEN AMERICAN LIFE INSURANCE
COMPANY
_____________________ By: __________________________
Attest: Title:
Title:
- 2 -
<PAGE>
EXHIBIT B
TO
ORGANIZATIONAL AGREEMENT AMONG
THE GCG TRUST
and
DIRECTED SERVICES, INC.
and
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
The Fund For Life
Emerging Markets Series
Rising Dividends Series
Market Manager Series
Value Equity Series
Exhibit 9(c)(ii)
Assignment Agreement for Settlement Agreement
(for Golden American Life Insurance Company)
<PAGE>
ASSIGNMENT AGREEMENT FOR
SETTLEMENT AGREEMENT
AGREEMENT, made this 20th day of March, 1991, by and among
Western Capital Financial Group ("Western Capital"), a California
corporation; Directed Services, Inc. ("DSI"), a New York
corporation; Golden American Life Insurance Company ("Golden
American"), a stock life insurance company incorporated under the
laws of the State of Minnesota, on its own behalf and on behalf
of any separate accounts of Golden American shown on Exhibit A to
the Settlement Agreement as defined below; and The Specialty
Managers Trust, a Massachusetts business trust ("Trust").
WHEREAS, the Trust is registered with the Securities and
Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended ("Act"), and
the Trust issues shares in several different classes, each of
which is known as a "Series"; and
WHEREAS, the Trust, Western Capital and Golden American
entered into an Settlement Agreement dated December 28, 1988
("Settlement Agreement"); and
WHEREAS, Western Capital has served as Distributor to the
Trust pursuant to a Distribution Agreement between the Trust and
Western Capital dated December 27, 1988; and
<PAGE>
WHEREAS, the Trust and Western Capital have terminated the
Distribution Agreement with Western Capital, effective at the
close of business on March 20, 1991; and
WHEREAS, commencing March 21, 1991, DSI has agreed to serve
as Distributor to the Trust pursuant to a new Distribution
Agreement between the Trust and DSI dated March 20, 1991; and
WHEREAS, Western Capital, Golden American and the Trust
desire to assign Western Capital's interest in the Settlement
Agreement to DSI, and DSI desires to be the assignee of Western
Capital's interest.
NOW, THEREFORE, it is agreed as follows:
1. ASSIGNMENT. Effective as of March 21, 1991, Western
Capital hereby assigns to DSI all of its interest in the
Settlement Agreement.
2. PERFORMANCE OF DUTIES. DSI hereby assumes and agrees
to perform all of Western Capital's duties and obligations under
the Settlement Agreement and be subject to all of the terms and
conditions of said Agreement as if they applied to Western
Capital. DSI shall not be responsible for any claim or demand
arising under the Settlement Agreement from services rendered
prior to the effective date of this Assignment Agreement unless
otherwise agreed by DSI, and Western Capital shall not be
responsible for any claim or demand arising under the Settlement
Agreement from services rendered after the effective date of this
Assignment Agreement unless otherwise agreed by Western Capital.
-2-
<PAGE>
3. REPRESENTATION OF DSI. DSI represents and warrants
that it is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended and is a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD").
4. CONSENT. The Trust and Golden American hereby consent
to this assignment by Western Capital of its rights under the
Settlement Agreement to DSI and the assumption by DSI of Western
Capital's interest in such Agreement and the duties and
obligations thereunder, and agree, subject to the terms and
conditions of said Agreement, to look to DSI for the performance
of the duties and obligations formerly owed by Western Capital
under said Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this
Assignment Agreement to be executed by their duly authorized
officers hereunto duly attested as of the date and year written
above.
WESTERN CAPITAL FINANCIAL GROUP
_______________________ By: _______________________________
Attest Andrew D. Westhem
Vice President President
Title Title
DIRECTED SERVICES, INC.
_______________________ By: _______________________________
Attest
Secretary Executive Vice President
Title Title
-4-
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
_______________________ By: _______________________________
Attest F. H. Davidson
Executive Vice President President
Title Title
THE SPECIALTY MANAGERS TRUST
_______________________ By: _______________________________
Attest F. H. Davidson
Outside Counsel Vice President
Title Title
-5-
EXHIBIT 9(D)
INDEMNIFICATION AGREEMENT
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made this 20th day of
March, 1991 between The Specialty Managers Trust (the "Trust"), a
Massachusetts business trust registered with the Securities and
Exchange Commission (the "SEC") as an open-end management
investment company, and Directed Services, Inc. ("DSI") (whose
name is scheduled to be changed to Golden Financial Group, Inc.
on or about May 1, 1991), a New York corporation.
WHEREAS, the Trust issues shares in several different
classes, each class known as a Series; and
WHEREAS, Specialty Advisors Corp. ("SAC"), a California
corporation was the sponsor of the Trust and, pursuant to a
Management Agreement between SAC and the Trust dated as of
November 1, 1988, served as the Manager of Trust from the Trust's
commencement of operations through March 20, 1991; and
WHEREAS, Golden American and Golden American's parent
company, The Mutual Benefit Life Insurance Company ("Mutual
Benefit"), through certain of their separate accounts, invest in
shares of the operating Series of the Trust; and
WHEREAS, Golden American and Mutual Benefit issue variable
annuity contracts and variable life insurance contracts (the
"Variable Contracts") that are funded by the separate accounts
that invest in the operating Series of the Trust; and
WHEREAS, as a result of a routine examination of the Trust
by the staff of the SEC in November of 1990 (the "SEC
Examination"), the SEC staff has advised SAC and the Trust that
the staff believes that there are several potential deficiencies
relating to the Trust or to SAC as investment adviser, and the
SEC staff has advised SAC that it may bring an enforcement action
against SAC relating to the potential deficiencies; and
WHEREAS, SAC is reviewing the potential deficiencies that
have been identified by the SEC staff; and
WHEREAS, by resolution adopted at a meeting on February 25,
1991, the Trust's Board of Trustees formed a Special Committee
("Special Committee") to consider and review issues raised as a
result of the SEC Examination and to conduct such inquires as the
Special Committee deems necessary and appropriate in furtherance
of its consideration and review of such issues; and
<PAGE>
WHEREAS, SAC and the Trust entered into a Mutual Consent to
Terminate the Management Agreement, pursuant to which the
Management Agreement between SAC and the Trust will be terminated
as of the close of business on March 20, 1991; and
WHEREAS, pursuant to a new Management Agreement between
Directed Services, Inc. and the Trust dated as of March 20, 1991,
(the "Management Agreement") Directed Services, Inc. ("DSI"), an
indirect subsidiary of Mutual Benefit, has agreed to serve as
Manager for the operating Series of the Trust commencing on March
21, 1991.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties do hereby agree as
follows:
1. GENERAL INDEMNIFICATION.
In partial consideration for the Trust offering shares of
its Series solely to separate accounts of Golden American
and Mutual Benefit, DSI agrees to hold harmless and
indemnify the Trust and the members of the Special Committee
from and against any and all claims, suits, damages, costs,
losses, expenses, liabilities, penalties, obligations of any
kind arising out of or resulting from the SEC Examination,
including, but not limited to, the following expenses:
(i) fees and expenses of legal counsel to the Trust with respect
to services rendered to the Trust;
(ii) fees and expenses of legal counsel to the Special Committee
with respect to services rendered to the Special Committee and
the members thereof;
(iii) fees and expenses of independent auditors of the Trust
with respect to services rendered to the Trust and the Special
Committee;
(iv) costs of any formal or informal proceedings brought by the
SEC with respect to the Trust or the members of the Special
Committee and any settlement thereof;
(v) costs of any formal or informal proceedings brought by any
other persons for claims that arise directly or indirectly as a
result of deficiencies or issues relating to the Trust and
indemnified by the SEC staff in connection with the SEC
Examinations and any settlement thereof;
(vi) the costs associated with compensating owners of Variable
Contracts or making payments to the separate accounts for losses
suffered as a result of
- 2 -
<PAGE>
any incorrect calculations identified as a result of
the SEC Examination of the daily net asset value per
share of any of the operating Series of the Trust;
and
(vii) expenses associated with appointment of DSI to replace
SAC as Manager to the Trust's operating Series, including the
expenses associated with a special meeting of the Board of
Trustees to consider the Management Agreement with DSI and a
special meeting of shareholders to seek approval of the
Management Agreement.
DSI agrees that the Trust will not bear any of the above
mentioned expenses. The parties further agree that this
Agreement Trust shall not be construed to render DSI
responsible for expenses of SAC, arising from the SEC
Examination of the Trust.
2. DURATION.
This Agreement shall be effective as of the date indicated
above (although the expenses covered by this Agreement may
have arisen prior to such date) and continue in force for
three calendar years from such date, unless modified by a
written instrument executed by the parties hereto; provided
however, that DSI shall continue to be obligated after such
three-year period under the Agreement with respect to all
matters that have been the subject of a claim made for
indemnification during such period but which have not been
finally determined or resolved by the parties.
3. SUCCESSORS.
This Agreement shall be binding on and inure to the benefit
of the heirs, executors, administrators and assigns of the
respective parties hereto. This Agreement may not be
assigned by DSI without the written consent of the Trust
which may not be unreasonably withheld.
4. MODIFICATION.
This Agreement may be modified only by an instrument in
writing executed by the parties.
5. GOVERNING LAW.
This Agreement shall be governed by the law of New York.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below on
the date first above written.
THE SPECIALTY MANAGERS TRUST
________________________ By: ____________________________
Attest:
_____________________________ _________________________________
Title Title
DIRECTED SERVICES, INC.
________________________ By: ____________________________
Attest:
_____________________________ _________________________________
Title Title
- 4 -
EXHIBIT 9(E)(I)
FORM OF EXPENSE REIMBURSEMENT AGREEMENT
<PAGE>
EXPENSE REIMBURSEMENT AGREEMENT
This Agreement is entered into effective as of the 20th day
of March, 1991, by and between The Specialty Managers Trust (the
"Trust"), a Massachusetts business trust, and Directed Services,
Inc. ("Manager"), a New York corporation, whose name is scheduled
to be changed to The Golden Financial Group, Inc. on or about May
1, 1991.
WHEREAS, the Trust is an open-end diversified management
investment company issuing shares in several different classes,
each class known as a Series; and
WHEREAS, Golden American Life Insurance Company ("Golden
American") and The Mutual Benefit Life insurance Company ("MBL"),
through certain of their respective separate accounts, invest in
shares of the operating Series of the Trust; and
WHEREAS, the parties hereto wish to limit the ordinary
operating expenses of the Trust borne by owners of the variable
annuities and variable life insurance policies issued or to be
issued by Golden American or MBL (the "Policies"):
NOW, THEREFORE, the parties do hereby agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the
first day of May, 1991, and shall continue through the close of
business on December 31, 1991, unless earlier terminated by
mutual agreement of the parties, expressed in a writing signed by
all of the parties hereto.
2. REIMBURSEMENT OF EXPENSES OF THE SERIES OF THE TRUST. In
partial consideration for the Trust offering its shares solely to
separate accounts of Golden American and MBL, Manager hereby
agrees to pay the Trust the amount by which the ordinary
operating expenses of each of the Series exceeds the percentage
of the average daily net assets of each Series as set forth
below:
(i) Liquid Asset Series .80%
(ii) Limited Maturity Bond Series .90%
(iii) All Growth Series 1.50%
(iv) Natural Resources Series 1.50%
(v) Real Estate Series 1.50%
(vi) Multiple Allocation Series 1.50%
(vii) Fully Managed Series 1.50%
<PAGE>
Page 2
In no event shall the Manager, under this Reimbursement
Agreement, pay to the Trust any amount with respect to any
extraordinary expenses of the Trust.
3. FREQUENCY OF REIMBURSEMENTS. The amount of reimbursement,
if any, for each operating Series of the Trust shall be
determined monthly. Manager hereby agrees to pay the Trust any
amount due hereunder not later than the 15th day of the following
calendar month.
4. PROVISION OF FINANCIAL STATEMENTS. For such period as the
Manager is obligated to pay any of the ordinary operating
expenses of the Trust pursuant to the provisions of this
Agreement, Manager hereby agrees to provide the Board of Trustees
of the Trust on a quarterly basis the unaudited financial
statements of Manager and on an annual basis the audited
financial statements of the Manager.
5. ASSIGNMENT AND MODIFICATION. This Agreement may be modified
or assigned only by a writing signed by all of the parties.
6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first written above.
DIRECTED SERVICES, INC.
By: ____________________________
THE SPECIALTY MANAGERS TRUST
By: ____________________________
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial High-
lights," "Independent Auditors," and "Financial Statements" in the Prospectus
and "Independent Auditors" in the Statement of Additional Information included
in Post-Effective Amendment No. 35 to the Registration Statement (Form N-1A,
No. 33-23512) of The GCG Trust.
We also consent to the incorporation by reference into the Statement of
Additional Information of our report dated February 13, 1997 on the financial
statements included in the Annual Report of The GCG Trust for the year ended
December 31, 1996.
/s/ERNST & YOUNG LLP
November 21, 1997
Boston, Massachusetts
19 -- POWERS OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the each of the undersigned, being
a duly elected Trustee and/or Officer of The GCG Trust (the "Trust"),
individually constitutes and appoints Myles R. Tashman, and Marilyn Talman, and
each of them, his or her true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution for him or her in his or her name,
place and stead, in any and all capacities, to sign on behalf of the Trust
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 each 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.
Trustees:
J. Michael Earley /s/J. Michael Earley August 25, 1997
--------------------
R. Barbara Gitenstein /s/R. Barbara Gitenstein August 25, 1997
------------------------
Robert A. Grayson /s/Robert A. Grayson August 26, 1997
--------------------
Terry L. Kendall, President /s/Terry L. Kendall August 19, 1997
--------------------
Paul R. Schlaack, Chairman /s/Paul R. Schlaack August 26, 1997
--------------------
Stanley B. Seidler /s/Stanley B. Seidler August 26, 1997
---------------------
Roger B. Vincent /s/Roger B. Vincent August 19, 1997
--------------------
M. Norvel Young /s/M. Norvel Young August 28, 1997
--------------------
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> GCG Trust Multiple Allocation Series
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 250,364,994
<INVESTMENTS-AT-VALUE> 270,286,392
<RECEIVABLES> 2,800,177
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 257,158
<TOTAL-ASSETS> 273,343,727
<PAYABLE-FOR-SECURITIES> 4,665,735
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,047
<TOTAL-LIABILITIES> 4,734,782
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 228,059,116
<SHARES-COMMON-STOCK> 20,045,285
<SHARES-COMMON-PRIOR> 21,984,529
<ACCUMULATED-NII-CURRENT> 7,495,968
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,132,404
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,921,457
<NET-ASSETS> 268,608,945
<DIVIDEND-INCOME> 1,501,724
<INTEREST-INCOME> 4,951,777
<OTHER-INCOME> 0
<EXPENSES-NET> 1,317,131
<NET-INVESTMENT-INCOME> 5,136,370
<REALIZED-GAINS-CURRENT> 10,378,621
<APPREC-INCREASE-CURRENT> 4,995,412
<NET-CHANGE-FROM-OPS> 20,510,403
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 236,842
<NUMBER-OF-SHARES-REDEEMED> (2,176,086)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,182,270)
<ACCUMULATED-NII-PRIOR> 2,359,598
<ACCUMULATED-GAINS-PRIOR> 2,753,783
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,306,206
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,317,131
<AVERAGE-NET-ASSETS> 266,840,945
<PER-SHARE-NAV-BEGIN> 12.41
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.72
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.40
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 130,395,017
<INVESTMENTS-AT-VALUE> 152,064,315
<RECEIVABLES> 1,568,892
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 153,456
<TOTAL-ASSETS> 153,786,663
<PAYABLE-FOR-SECURITIES> 131,626
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,633
<TOTAL-LIABILITIES> 137,259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,815,474
<SHARES-COMMON-STOCK> 9,585,343
<SHARES-COMMON-PRIOR> 9,223,011
<ACCUMULATED-NII-CURRENT> 2,841,704
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,322,928
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,669,298
<NET-ASSETS> 153,649,404
<DIVIDEND-INCOME> 1,101,627
<INTEREST-INCOME> 1,432,791
<OTHER-INCOME> 0
<EXPENSES-NET> 703,912
<NET-INVESTMENT-INCOME> 1,830,506
<REALIZED-GAINS-CURRENT> 5,568,339
<APPREC-INCREASE-CURRENT> 4,109,117
<NET-CHANGE-FROM-OPS> 11,507,962
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 730,617
<NUMBER-OF-SHARES-REDEEMED> (368,285)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 16,989,873
<ACCUMULATED-NII-PRIOR> 1,011,198
<ACCUMULATED-GAINS-PRIOR> 1,754,589
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 698,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 703,912
<AVERAGE-NET-ASSETS> 142,773,861
<PER-SHARE-NAV-BEGIN> 14.82
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.03
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 76,632,986
<INVESTMENTS-AT-VALUE> 76,554,231
<RECEIVABLES> 2,552,003
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,708
<TOTAL-ASSETS> 79,107,942
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90
<TOTAL-LIABILITIES> 90
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,493,570
<SHARES-COMMON-STOCK> 7,393,046
<SHARES-COMMON-PRIOR> 7,798,760
<ACCUMULATED-NII-CURRENT> 3,163,790
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (470,753)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (78,755)
<NET-ASSETS> 79,107,852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,523,112
<OTHER-INCOME> 0
<EXPENSES-NET> 241,786
<NET-INVESTMENT-INCOME> 2,281,326
<REALIZED-GAINS-CURRENT> (38,182)
<APPREC-INCREASE-CURRENT> (182,010)
<NET-CHANGE-FROM-OPS> 2,061,134
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 432,358
<NUMBER-OF-SHARES-REDEEMED> (838,072)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,209,324)
<ACCUMULATED-NII-PRIOR> 882,464
<ACCUMULATED-GAINS-PRIOR> (432,571)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 238,598
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 241,786
<AVERAGE-NET-ASSETS> 79,302,684
<PER-SHARE-NAV-BEGIN> 10.43
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.70
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 41,201,480
<INVESTMENTS-AT-VALUE> 46,968,636
<RECEIVABLES> 594,283
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,697
<TOTAL-ASSETS> 47,566,616
<PAYABLE-FOR-SECURITIES> 581,456
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 961
<TOTAL-LIABILITIES> 582,417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,145,958
<SHARES-COMMON-STOCK> 2,556,083
<SHARES-COMMON-PRIOR> 2,458,892
<ACCUMULATED-NII-CURRENT> 154,346
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,918,406
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,765,489
<NET-ASSETS> 46,984,199
<DIVIDEND-INCOME> 253,681
<INTEREST-INCOME> 105,793
<OTHER-INCOME> 0
<EXPENSES-NET> 217,841
<NET-INVESTMENT-INCOME> 141,633
<REALIZED-GAINS-CURRENT> 3,853,614
<APPREC-INCREASE-CURRENT> (2,662,684)
<NET-CHANGE-FROM-OPS> 1,332,563
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 409,456
<NUMBER-OF-SHARES-REDEEMED> (312,265)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,080,799
<ACCUMULATED-NII-PRIOR> 12,713
<ACCUMULATED-GAINS-PRIOR> 1,064,792
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 216,095
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 217,841
<AVERAGE-NET-ASSETS> 44,697,271
<PER-SHARE-NAV-BEGIN> 17.85
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.38
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 47,252,971
<INVESTMENTS-AT-VALUE> 60,706,750
<RECEIVABLES> 1,442,669
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 83,477
<TOTAL-ASSETS> 62,232,896
<PAYABLE-FOR-SECURITIES> 419,341
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 419,342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,104,097
<SHARES-COMMON-STOCK> 3,631,571
<SHARES-COMMON-PRIOR> 3,200,267
<ACCUMULATED-NII-CURRENT> 1,705,178
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,550,500
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,453,779
<NET-ASSETS> 61,813,554
<DIVIDEND-INCOME> 1,410,777
<INTEREST-INCOME> 107,869
<OTHER-INCOME> 0
<EXPENSES-NET> 275,164
<NET-INVESTMENT-INCOME> 1,243,482
<REALIZED-GAINS-CURRENT> 1,028,756
<APPREC-INCREASE-CURRENT> 1,363,360
<NET-CHANGE-FROM-OPS> 3,635,598
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 703,491
<NUMBER-OF-SHARES-REDEEMED> (272,187)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,678,946
<ACCUMULATED-NII-PRIOR> 461,696
<ACCUMULATED-GAINS-PRIOR> 521,744
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 272,712
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 275,164
<AVERAGE-NET-ASSETS> 55,779,397
<PER-SHARE-NAV-BEGIN> 15.98
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.68
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.02
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 67,435,098
<INVESTMENTS-AT-VALUE> 73,258,760
<RECEIVABLES> 576,753
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73,835,513
<PAYABLE-FOR-SECURITIES> 266,498
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 266,498
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,017,847
<SHARES-COMMON-STOCK> 5,283,664
<SHARES-COMMON-PRIOR> 5,880,233
<ACCUMULATED-NII-CURRENT> 74,021
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,653,485
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,823,662
<NET-ASSETS> 73,569,015
<DIVIDEND-INCOME> 122,965
<INTEREST-INCOME> 139,648
<OTHER-INCOME> 0
<EXPENSES-NET> 356,073
<NET-INVESTMENT-INCOME> (93,460)
<REALIZED-GAINS-CURRENT> 8,277,223
<APPREC-INCREASE-CURRENT> (5,502,604)
<NET-CHANGE-FROM-OPS> 2,681,159
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 162,701
<NUMBER-OF-SHARES-REDEEMED> (759,270)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,180,930)
<ACCUMULATED-NII-PRIOR> 167,481
<ACCUMULATED-GAINS-PRIOR> (5,623,738)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 352,917
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 356,073
<AVERAGE-NET-ASSETS> 72,244,349
<PER-SHARE-NAV-BEGIN> 13.39
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.54
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<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> 07
<NAME> GCG Trust Liquid Asset Series
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 46,919,260
<INVESTMENTS-AT-VALUE> 46,919,260
<RECEIVABLES> 1,008,125
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,469
<TOTAL-ASSETS> 47,934,854
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,740
<TOTAL-LIABILITIES> 7,740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,929,255
<SHARES-COMMON-STOCK> 47,929,285
<SHARES-COMMON-PRIOR> 39,097,362
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 47,927,114
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,244,389
<OTHER-INCOME> 0
<EXPENSES-NET> 136,602
<NET-INVESTMENT-INCOME> 1,107,787
<REALIZED-GAINS-CURRENT> (522)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,107,265
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,107,787)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49,212,311
<NUMBER-OF-SHARES-REDEEMED> (41,488,175)
<SHARES-REINVESTED> 1,107,787
<NET-CHANGE-IN-ASSETS> 8,831,401
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,619)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 135,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136,602
<AVERAGE-NET-ASSETS> 45,447,732
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.02)
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 124,231,905
<INVESTMENTS-AT-VALUE> 170,106,851
<RECEIVABLES> 5,216,843
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 400
<TOTAL-ASSETS> 175,324,094
<PAYABLE-FOR-SECURITIES> 6,244,730
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 463,035
<TOTAL-LIABILITIES> 6,707,765
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,529,030
<SHARES-COMMON-STOCK> 9,721,030
<SHARES-COMMON-PRIOR> 9,879,660
<ACCUMULATED-NII-CURRENT> 1,123,654
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,088,699
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,874,946
<NET-ASSETS> 168,616,329
<DIVIDEND-INCOME> 1,310,155
<INTEREST-INCOME> 248,104
<OTHER-INCOME> 0
<EXPENSES-NET> 768,883
<NET-INVESTMENT-INCOME> 789,376
<REALIZED-GAINS-CURRENT> 5,024,483
<APPREC-INCREASE-CURRENT> 16,573,089
<NET-CHANGE-FROM-OPS> 22,386,948
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 669,519
<NUMBER-OF-SHARES-REDEEMED> (828,149)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 19,863,831
<ACCUMULATED-NII-PRIOR> 334,278
<ACCUMULATED-GAINS-PRIOR> 2,064,216
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 762,748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 768,883
<AVERAGE-NET-ASSETS> 155,945,851
<PER-SHARE-NAV-BEGIN> 15.06
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 2.21
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.35
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 155,649
<INVESTMENTS-AT-VALUE> 199,069
<RECEIVABLES> 301
<ASSETS-OTHER> 12,882
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 212,252
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,049
<TOTAL-LIABILITIES> 17,049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,250
<SHARES-COMMON-STOCK> 23,259
<SHARES-COMMON-PRIOR> 26,426
<ACCUMULATED-NII-CURRENT> 2,834
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,699
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 43,420
<NET-ASSETS> 195,203
<DIVIDEND-INCOME> 2,248
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,420
<NET-INVESTMENT-INCOME> (172)
<REALIZED-GAINS-CURRENT> 2,261
<APPREC-INCREASE-CURRENT> 16,286
<NET-CHANGE-FROM-OPS> 18,375
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (3,166)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,928)
<ACCUMULATED-NII-PRIOR> 262
<ACCUMULATED-GAINS-PRIOR> 32,582
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 287
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,368
<AVERAGE-NET-ASSETS> 193,000
<PER-SHARE-NAV-BEGIN> 7.61
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.79
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.39
<EXPENSE-RATIO> 2.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> GCG Trust Rising Dividends Series
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 129,601,198
<INVESTMENTS-AT-VALUE> 186,234,637
<RECEIVABLES> 263,238
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 15
<TOTAL-ASSETS> 186,497,890
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,459
<TOTAL-LIABILITIES> 38,459
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126,491,070
<SHARES-COMMON-STOCK> 9,942,000
<SHARES-COMMON-PRIOR> 7,983,033
<ACCUMULATED-NII-CURRENT> 1,159,009
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,175,913
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 56,633,439
<NET-ASSETS> 186,459,431
<DIVIDEND-INCOME> 1,341,107
<INTEREST-INCOME> 335,496
<OTHER-INCOME> 0
<EXPENSES-NET> 744,316
<NET-INVESTMENT-INCOME> 932,287
<REALIZED-GAINS-CURRENT> 1,966,681
<APPREC-INCREASE-CURRENT> 23,913,658
<NET-CHANGE-FROM-OPS> 26,812,626
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,327,601
<NUMBER-OF-SHARES-REDEEMED> (368,634)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 60,220,790
<ACCUMULATED-NII-PRIOR> 226,722
<ACCUMULATED-GAINS-PRIOR> 209,232
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 738,988
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 744,316
<AVERAGE-NET-ASSETS> 151,310,017
<PER-SHARE-NAV-BEGIN> 15.81
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 2.84
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.75
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 45,470,421
<INVESTMENTS-AT-VALUE> 50,718,741
<RECEIVABLES> 1,471,431
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,402,894
<TOTAL-ASSETS> 53,593,066
<PAYABLE-FOR-SECURITIES> 2,170,781
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,087
<TOTAL-LIABILITIES> 2,171,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,360,991
<SHARES-COMMON-STOCK> 4,511,442
<SHARES-COMMON-PRIOR> 5,301,626
<ACCUMULATED-NII-CURRENT> 94,245
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,166,345)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,132,307
<NET-ASSETS> 51,421,198
<DIVIDEND-INCOME> 372,130
<INTEREST-INCOME> 145,067
<OTHER-INCOME> 0
<EXPENSES-NET> 471,397
<NET-INVESTMENT-INCOME> 45,800
<REALIZED-GAINS-CURRENT> 4,308,870
<APPREC-INCREASE-CURRENT> 4,530,314
<NET-CHANGE-FROM-OPS> 8,884,984
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889,320
<NUMBER-OF-SHARES-REDEEMED> (1,679,504)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (89,235)
<ACCUMULATED-NII-PRIOR> 48,445
<ACCUMULATED-GAINS-PRIOR> (12,475,215)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 438,078
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 471,397
<AVERAGE-NET-ASSETS> 55,728,346
<PER-SHARE-NAV-BEGIN> 9.72
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.67
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.40
<EXPENSE-RATIO> 1.71
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 3,936,815
<INVESTMENTS-AT-VALUE> 6,176,271
<RECEIVABLES> 4,789
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 173
<TOTAL-ASSETS> 6,181,233
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,362
<TOTAL-LIABILITIES> 4,362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,657,433
<SHARES-COMMON-STOCK> 397,698
<SHARES-COMMON-PRIOR> 422,420
<ACCUMULATED-NII-CURRENT> 70,679
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 209,303
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,239,456
<NET-ASSETS> 6,176,871
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 100,184
<OTHER-INCOME> 0
<EXPENSES-NET> 29,717
<NET-INVESTMENT-INCOME> 70,467
<REALIZED-GAINS-CURRENT> 209,303
<APPREC-INCREASE-CURRENT> 694,698
<NET-CHANGE-FROM-OPS> 974,468
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (24,722)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 592,011
<ACCUMULATED-NII-PRIOR> 212
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,486
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29,717
<AVERAGE-NET-ASSETS> 5,949,424
<PER-SHARE-NAV-BEGIN> 13.22
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 2.13
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.53
<EXPENSE-RATIO> 1.01
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 47,708,874
<INVESTMENTS-AT-VALUE> 56,951,294
<RECEIVABLES> 211,728
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,739,865
<TOTAL-ASSETS> 59,902,887
<PAYABLE-FOR-SECURITIES> 509,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,438
<TOTAL-LIABILITIES> 574,288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,090,875
<SHARES-COMMON-STOCK> 3,599,472
<SHARES-COMMON-PRIOR> 3,204,698
<ACCUMULATED-NII-CURRENT> 588,706
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,410,103
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,238,915
<NET-ASSETS> 59,328,599
<DIVIDEND-INCOME> 610,226
<INTEREST-INCOME> 72,742
<OTHER-INCOME> 0
<EXPENSES-NET> 247,572
<NET-INVESTMENT-INCOME> 435,396
<REALIZED-GAINS-CURRENT> 3,009,709
<APPREC-INCREASE-CURRENT> 5,251,663
<NET-CHANGE-FROM-OPS> 8,696,768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 646,276
<NUMBER-OF-SHARES-REDEEMED> (251,502)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,708,255
<ACCUMULATED-NII-PRIOR> 153,310
<ACCUMULATED-GAINS-PRIOR> 400,394
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 245,698
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 247,572
<AVERAGE-NET-ASSETS> 50,278,244
<PER-SHARE-NAV-BEGIN> 13.92
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 2.44
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.48
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 36,153,778
<INVESTMENTS-AT-VALUE> 40,261,261
<RECEIVABLES> 50,395
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 25,932
<TOTAL-ASSETS> 40,337,588
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,421
<TOTAL-LIABILITIES> 7,421
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,700,546
<SHARES-COMMON-STOCK> 3,213,676
<SHARES-COMMON-PRIOR> 2,604,255
<ACCUMULATED-NII-CURRENT> 473,826
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,057,453
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,098,342
<NET-ASSETS> 40,330,167
<DIVIDEND-INCOME> 299,798
<INTEREST-INCOME> 262,358
<OTHER-INCOME> 0
<EXPENSES-NET> 174,026
<NET-INVESTMENT-INCOME> 388,130
<REALIZED-GAINS-CURRENT> 582,349
<APPREC-INCREASE-CURRENT> 1,787,735
<NET-CHANGE-FROM-OPS> 2,758,214
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 690,202
<NUMBER-OF-SHARES-REDEEMED> (80,781)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,906,746
<ACCUMULATED-NII-PRIOR> 85,696
<ACCUMULATED-GAINS-PRIOR> 475,104
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,781
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 174,026
<AVERAGE-NET-ASSETS> 35,355,261
<PER-SHARE-NAV-BEGIN> 11.68
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.74
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.55
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 37,913,557
<INVESTMENTS-AT-VALUE> 46,510,777
<RECEIVABLES> 476,780
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 597,446
<TOTAL-ASSETS> 47,585,003
<PAYABLE-FOR-SECURITIES> 635,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 635,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,133,934
<SHARES-COMMON-STOCK> 3,891,076
<SHARES-COMMON-PRIOR> 2,862,021
<ACCUMULATED-NII-CURRENT> (55,548)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,726,353)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,597,220
<NET-ASSETS> 46,949,253
<DIVIDEND-INCOME> 47,807
<INTEREST-INCOME> 84,677
<OTHER-INCOME> 0
<EXPENSES-NET> 188,032
<NET-INVESTMENT-INCOME> (55,548)
<REALIZED-GAINS-CURRENT> (4,862,411)
<APPREC-INCREASE-CURRENT> 5,984,990
<NET-CHANGE-FROM-OPS> 1,067,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,560,060
<NUMBER-OF-SHARES-REDEEMED> (531,005)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 12,584,535
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,863,942)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 186,623
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 188,032
<AVERAGE-NET-ASSETS> 38,197,346
<PER-SHARE-NAV-BEGIN> 12.01
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.07
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 92,985,617
<INVESTMENTS-AT-VALUE> 102,962,395
<RECEIVABLES> 2,486,615
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,083,076
<TOTAL-ASSETS> 106,532,086
<PAYABLE-FOR-SECURITIES> 3,701,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 241,101
<TOTAL-LIABILITIES> 3,942,351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,165,181
<SHARES-COMMON-STOCK> 8,130,941
<SHARES-COMMON-PRIOR> 7,763,118
<ACCUMULATED-NII-CURRENT> 423,096
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,657,022
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,344,436
<NET-ASSETS> 102,589,735
<DIVIDEND-INCOME> 698,330
<INTEREST-INCOME> 123,313
<OTHER-INCOME> 0
<EXPENSES-NET> 569,745
<NET-INVESTMENT-INCOME> 251,898
<REALIZED-GAINS-CURRENT> 5,558,953
<APPREC-INCREASE-CURRENT> 6,102,586
<NET-CHANGE-FROM-OPS> 11,913,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,090,834
<NUMBER-OF-SHARES-REDEEMED> (723,011)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 16,213,334
<ACCUMULATED-NII-PRIOR> 171,198
<ACCUMULATED-GAINS-PRIOR> 98,069
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 565,230
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 569,745
<AVERAGE-NET-ASSETS> 91,276,795
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 1.46
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.62
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
