As filed with the Securities and Exchange Commission on April 29, 1998
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. 38
and/or
Registration Statement under
The Investment Company Act of 1940
Amendment No. 39
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 May 1, 1998 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.
----------
Title of Securities: Share of beneficial interest.
<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, Growth Opportunities Series, Developing World Series,
Mid-Cap Growth Series, Total Return Series, Research Series, Growth & Income
Series, Value + Growth Series and Global Fixed Income Series
Part A -- Prospectus
<TABLE>
<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
<PAGE>
THE GCG TRUST
CROSS-REFERENCE SHEET
MARKET MANAGER SERIES
PART A -- PROSPECTUS
ITEM HEADING
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and
Policies; Description of
Securities and Investment
Techniques
5. Management of the Fund Management of the Trust
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Securities Other Information; Federal
Income Tax Status; Portfolio
Transactions; Dividends and
Distributions
7. Purchase of Securities Purchase of Shares;
Being Offered Exchanges
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
<PAGE>
Part B -- Statement of Additional Information
</TABLE>
<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 Description of Securities and
Investment Techniques; Investment
Restrictions
14. Management of the Registrant Management of the Trust
15. Control Persons and Principal Other Information
Holders of Securities
16. Investment Advisory and Other Management of the Trust
Services
17. Brokerage Allocation Brokerage and Research Services
18. Capital Stock and Other Securities Voting Rights
19. Purchase, Redemption and Pricing Purchases and Redemptions
20. Tax Status Taxation
21. Underwriters Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<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"), 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 a 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 ING INVESTMENT MANAGEMENT, LLC
HARD ASSETS SERIES VAN ECK ASSOCIATES CORPORATION
REAL ESTATE SERIES EII 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.
GROWTH OPPORTUNITIES SERIES MONTGOMERY ASSET MANAGEMENT, LLC
DEVELOPING WORLD SERIES MONTGOMERY ASSET MANAGEMENT, LLC
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 BARING INTERNATIONAL INVESTMENT LIMITED
LIQUID ASSET SERIES ING INVESTMENT 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 May 1, 1998,
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 May 1, 1998.
TABLE OF CONTENTS
PAGE
PROSPECTUS SYNOPSIS
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES
Diversification
Investment Restrictions
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
Growth Opportunities Series
Developing World Series
Mid-Cap Growth Series
Research Series
Total Return Series
Growth & Income Series
Value + Growth Series
Global Fixed Income Series
Liquid Asset 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.
EII Realty Securities, Inc.
Fred Alger Management, Inc.
ING Investment Management, LLC
Massachusetts Financial Services Company
Robertson, Stephens & Company Investment Management, L.P.
Baring International Investment 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
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. 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. The Series seeks to achieve this objective by
investing in common stock and preferred stock that will be
allocated between categories or "components" of stocks referred
to as the growth component and the value component.
The Rising Dividends Series seeks capital appreciation 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. Dividend income is a secondary objective.
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 Series seeks high total return.
Under normal conditions, at least 65% of he Series' total assets
will be invested in fixed income securities of global issuers
located in at least three different countries, including the United
States. Under normal conditions, the Portfolio Manager expects
that the Portfolio generally will be invested in at least six
different countries, including the United States, although the
Portfolio may at times invest all of its assets in a single country.
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 Liquid Asset Series seeks a high level of current income
consistent with the preservation of capital and liquidity.
THE MANAGER AND PORTFOLIO MANAGERS
The Manager of the Series is Directed Services, Inc. (the
"Manager"), 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 ING Investment Management, LLC
Hard Assets Series Van Eck Associates Corporation
Real Estate Series EII 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.
Growth Opportunities Series Montgomery Asset Management, LLC
Developing World Series Montgomery Asset Management, LLC
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 Baring International Investment Limited
Liquid Asset Series ING Investment 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 an 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 issuers, 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 Growth Opportunities, Developing
World, Mid-Cap Growth, Total Return, Research, Growth & Income, Value
+ Growth and Global Fixed Income Series which had not commenced
operations prior to December 31, 1997. Information in the tables for
the years ended December 31, 1997, 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
for periods ending prior to December 31, 1996 for the Managed Global
Series 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 for the Managed Global Series
has been derived from financial statements of the Managed Global
Account of Separate Account D of Golden American (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, 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 YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 12.41 $ 12.52 $ 11.33 $ 11.89 $ 11.41 $ 11.73 $ 10.26 $ 10.34 $ 10.00
-------- -------- -------- -------- -------- -------- ------- ------- -------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.57 0.56 0.58 0.42 0.24 0.42 0.49 0.57 0.58
Net realized and
unrealized
gain/(loss)
on investments.... 1.58 0.52 1.56 (0.56) 1.03 (0.18) 1.57 (0.08) 0.44
-------- -------- -------- -------- -------- -------- ------- ------- -------
Total from
investment
operations........ 2.15 1.08 2.14 (0.14) 1.27 0.24 2.06 0.49 1.02
-------- -------- -------- -------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.55) (0.58) (0.45) (0.42) (0.24) (0.42) (0.49) (0.57) (0.58)
Distributions from
capital gains..... (0.92) (0.61) (0.50) -- (0.55) (0.14) (0.10) -- (0.10)
-------- -------- -------- -------- -------- -------- ------- ------- -------
Total
distributions..... (1.47) (1.19) (0.95) (0.42) (0.79) (0.56) (0.59) (0.57) (0.68)
-------- -------- -------- -------- -------- -------- ------- ------- -------
Net asset value, end
of year........... $ 13.09 $ 12.41 $ 12.52 $ 11.33 $ 11.89 $ 11.41 $ 11.73 $ 10.26 $ 10.34
======== ======== ======== ======== ======== ======== ======= ======= =======
Total return........ 17.44% 8.77% 18.93% (1.18)% 11.13% 1.88% 20.02% 4.74% 8.92%++
======== ======== ======== ======== ======== ======== ======= ======= =======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year
(in 000's)........ $264,599 $272,791 $307,691 $299,392 $274,231 $116,040 $ 58,578 $ 24,347 $15,513
Ratio of operating
expenses to
average net
assets............ 0.99% 1.00% 1.01% 1.00% 1.01% 1.09% 1.33% 1.24% 2.35%+
Decrease reflected
in above expense
ratio due to
expense
limitations....... -- -- -- -- 0.03% 0.10% 0.13% 0.68% 0.09%+
Ratio of net
investment income
to average
net assets........ 3.88% 3.86% 4.42% 3.56% 2.75% 3.65% 4.43% 5.73% 6.52%+
Portfolio turnover
rate.............. 79% 158% 187% 291% 348% 93% 70% 162% 115%
Average commission
rate paid(a)...... $ 0.0587 $ 0.0593 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Multiple Allocation Series commenced operations on January 24, 1989.
+ Annualized
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
5
<PAGE>
- - ---------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
FULLY MANAGED SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 14.82 $ 13.79 $ 11.70 $ 12.99 $ 12.43 $ 11.94 $ 9.51 $10.16 $ 10.00
-------- -------- -------- ------- -------- ------- ------- ------ ------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.39 0.56 0.45 0.35 0.19 0.28 0.29 0.33 0.28
Net realized and
unrealized
gain/(loss) on
investments....... 1.86 1.69 1.98 (1.29) 0.75 0.49 2.43 (0.65) 0.16
-------- -------- -------- ------- -------- ------- ------- ------ ------
Total from
investment
operations........ 2.25 2.25 2.43 (0.94) 0.94 0.77 2.72 (0.32) 0.44
-------- -------- -------- ------- -------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.41) (0.56) (0.34) (0.35) (0.19) (0.28) (0.29) (0.33) (0.28)
Distributions from
capital gains..... (0.93) (0.66) -- -- (0.19) -- -- -- --
-------- -------- -------- ------- -------- ------- ------- ------ ------
Total
distributions..... (1.34) (1.22) (0.34) (0.35) (0.38) (0.28) (0.29) (0.33) (0.28)
-------- -------- -------- ------- -------- ------- ------- ------ ------
Net asset value, end
of year........... $ 15.73 $ 14.82 $ 13.79 $ 11.70 $ 12.99 $ 12.43 $ 11.94 $ 9.51 $ 10.16
======== ======== ======== ======= ======== ======= ======= ====== ======
Total return........ 15.27% 16.36% 20.80% (7.27)% 7.59% 6.23% 28.93% (3.18)% 3.90%++
======== ======== ======== ======= ======== ======= ======= ====== ======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in 000's)... $169,987 $136,660 $118,589 $ 99,854 $108,690 $ 37,696 $ 10,031 $5,426 $ 5,443
Ratio of operating
expenses to
average net
assets............ 0.99% 1.00% 1.01% 1.00% 1.01% 1.04% 1.50% 1.52% 2.69%+
Decrease reflected
in above expense
ratio due to
expense
limitations....... -- -- -- -- 0.04% 0.20% 0.68% 1.27% 0.19%+
Ratio of net
investment income
to average net
assets............ 2.67% 3.83% 3.41% 2.62% 2.12% 2.38% 2.71% 3.38% 3.07%+
Portfolio turnover
rate.............. 48% 45% 113% 66% 55% 27% 68% 100% 196%
Average commission
rate paid(a)...... $ 0.0369 $ 0.0597 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Fully Managed Series commenced operations on January 24, 1989.
** Since January 1, 1995, T. Rowe Price Associates, Inc. has served as Portfolio Manager for the Fully Managed
Series. Prior to that date, a different firm served as Portfolio Manager.
+ Annualized
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
6
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
LIMITED MATURITY BOND SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97# 12/31/96# 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- --------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year............. $ 10.43 $ 11.15 $ 9.98 $ 10.62 $ 10.43 $ 10.54 $ 10.15 $10.16 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------ ------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income........... 0.60 0.59 0.60 0.51 0.40 0.60 0.68 0.72 0.74
Net realized and
unrealized
gain/(loss) on
investments...... 0.09 (0.13) 0.57 (0.64) 0.23 (0.11) 0.42 -- 0.19
------- ------- ------- ------- ------- ------- ------- ------ ------
Total from
investment
operations....... 0.69 0.46 1.17 (0.13) 0.63 0.49 1.10 0.72 0.93
------- ------- ------- ------- ------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income........... (0.81) (1.15) -- (0.51) (0.40) (0.60) (0.68) (0.72) (0.74)
Distributions from
capital gains.... -- (0.03) -- -- (0.04) -- (0.03) (0.01) (0.03)
------- ------- ------- ------- ------- ------- ------- ------ ------
Total
distributions.... (0.81) (1.18) -- (0.51) (0.44) (0.60) (0.71) (0.73) (0.77)
------- ------- ------- ------- ------- ------- ------- ------ ------
Net asset value,
end of year...... $ 10.31 $ 10.43 $ 11.15 $ 9.98 $ 10.62 $ 10.43 $ 10.54 $10.15 $ 10.16
======= ======= ======= ======= ======= ======= ======= ====== ======
Total return....... 6.67% 4.32% 11.72% (1.19)% 6.20% 4.84% 11.27% 7.87% 9.69%++
======= ======= ======= ======= ======= ======= ======= ====== ======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
000's)........... $53,839 $81,317 $ 90,081 $ 72,213 $ 72,219 $ 40,213 $ 16,144 $8,321 $ 2,631
Ratio of operating
expenses to
average net
assets........... 0.61% 0.61% 0.61% 0.60% 0.61% 0.72% 0.87% 0.81% 1.11%+
Decrease reflected
in above expense
ratio due to
expense
limitations...... -- -- -- -- 0.04% 0.27% 0.89% 2.09% 3.22%+
Ratio of net
investment income
to average net
assets........... 5.71% 5.33% 5.58% 4.73% 4.64% 5.71% 6.58% 7.47% 8.56%+
Portfolio turnover
rate............. 81% 250% 302% 209% 115% 63% 465% 373% 354%
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Limited Maturity Bond Series commenced operations on January 24, 1989.
** Since January 2, 1998, ING Investment Management, LLC has served as Portfolio Manager for the Limited
Maturity Bond Series. Prior to that date, Equitable Investment Services, Inc. served as Portfolio Manager
for the Limited Maturity Bond Series. Prior to August 13, 1997, 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>
7
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
HARD ASSETS SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year........ $ 17.85 $ 15.04 $ 13.88 $ 13.89 $ 9.31 $ 10.46 $ 10.11 $ 11.89 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME/(LOSS)
FROM INVESTMENT
OPERATIONS:
Net investment
income/(loss)... 0.14 0.05 0.15 0.13 0.07 0.14 0.13 0.13 (0.35)
Net realized and
unrealized
gain/(loss) on
investments.... 0.99 4.92 1.34 0.23 4.58 (1.15) 0.35 (1.78) 2.26
------- ------- ------- ------- ------- ------- ------ ------- -------
Total from
investment
operations..... 1.13 4.97 1.49 0.36 4.65 (1.01) 0.48 (1.65) 1.91
------- ------- ------- ------- ------- ------- ------ ------- -------
LESS
DISTRIBUTIONS:
Dividends from
net investment
income......... (0.13) (0.07) (0.13) (0.13) (0.07) (0.14) (0.13) (0.13) --
Distributions
from capital
gains.......... (3.80) (2.09) (0.20) (0.24) -- -- -- -- (0.02)
------- ------- ------- ------- ------- ------- ------ ------- -------
Total
distributions... (3.93) (2.16) (0.33) (0.37) (0.07) (0.14) (0.13) (0.13) (0.02)
------- ------- ------- ------- ------- ------- ------ ------- -------
Net asset value,
end of year.... $ 15.05 $ 17.85 $ 15.04 $ 13.88 $ 13.89 $ 9.31 $10.46 $ 10.11 $ 11.89
======= ======= ======= ======= ======= ======= ====== ======= =======
Total return..... 6.22% 33.17% 10.69% 2.53% 49.93% (9.81)% 4.70% (13.84)% 18.96%++
======= ======= ======= ======= ======= ======= ====== ======= =======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end
of year (in
000's)......... $46,229 $43,903 $ 27,147 $ 32,879 $ 21,517 $ 2,916 $2,702 $ 2,552 $ 2,383
Ratio of
operating
expenses to
average net
assets......... 0.99% 1.00% 1.01% 1.00% 1.05% 1.50% 1.50% 1.53% 5.46%+
Decrease
reflected in
above
expense ratio
due to
expense
limitations.... -- -- -- -- 0.08% 0.89% 1.94% 1.93% 1.36%+
Ratio of net
investment
income/(loss)
to average
net assets..... 0.76% 0.34% 0.89% 1.01% 1.03% 1.38% 1.21% 1.21% (3.65)%+
Portfolio
turnover
rate........... 124% 96% 24% 25% 5% 19% 39% 54% 22%
Average
commission rate
paid(a)........ $0.0214 $0.0252 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Hard Assets Series commenced operations on January 24, 1989.
** Prior to January 23, 1997, the Hard Asset 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>
8
<PAGE
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
REAL ESTATE SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 15.98 $ 12.63 $ 11.29 $ 11.18 $ 9.81 $ 9.02 $ 7.05 $ 9.53 $ 10.00
------- ------- ------- ------- ------- ------ ----- ------ -----
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ 0.69 0.70 0.75 0.60 0.32 0.52 0.42 0.50 0.05
Net realized and
unrealized
gain/(loss) on
investments....... 2.93 3.70 1.12 0.11# 1.37# 0.79 1.97 (2.48) (0.06)
------- ------- ------- ------- ------- ------ ----- ------ -----
Total from
investment
operations........ 3.62 4.40 1.87 0.71 1.69 1.31 2.39 (1.98) (0.01)
------- ------- ------- ------- ------- ------ ----- ------ -----
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.63) (0.77) (0.53) (0.60) (0.32) (0.52) (0.42) (0.50) (0.05)
Distributions from
capital gains..... (0.70) (0.28) -- -- -- -- -- -- (0.30)
Paid in Capital..... -- -- -- -- -- -- -- -- (0.11)
------- ------- ------- ------- ------- ------ ----- ------ -----
Total
distributions..... (1.33) (1.05) (0.53) (0.60) (0.32) (0.52) (0.42) (0.50) (0.46)
------- ------- ------- ------- ------- ------ ----- ------ -----
Net asset value, end
of year........... $ 18.27 $ 15.98 $ 12.63 $ 11.29 $ 11.18 $ 9.81 $ 9.02 $ 7.05 $ 9.53
======= ======= ======= ======= ======= ====== ===== ====== =====
Total return........ 22.79% 35.30% 16.59% 6.34% 17.27% 13.87% 34.06% (20.78)% (1.22)%++
======= ======= ======= ======= ======= ====== ===== ====== =====
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in 000's)... $ 75,530 $ 51,135 $ 34,975 $ 37,336 $ 29,000 $3,739 $ 710 $ 320 $ 670
Ratio of operating
expenses to
average net
assets............ 0.99% 1.00% 1.01% 1.00% 1.04% 1.18% 1.53% 1.48% 5.79%+
Decrease reflected
in above expense
ratio due to
expense
limitations....... -- -- -- -- 0.10% 1.79% 11.17% 10.80% 1.32%+
Ratio of net
investment income
to average net
assets............ 4.49% 5.53% 5.79% 5.31% 4.69% 5.74% 5.00% 5.95% 0.55%+
Portfolio turnover
rate.............. 41% 31% 53% 64% 38% 18% 54% 47% 83%
Average commission
rate paid(a)...... $ 0.0585 $ 0.0647 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Real Estate Series commenced operations on January 24, 1989.
** Since January 1, 1995, EII Realty Securities, Inc. has served as Portfolio Manager for the Real Estate
Series. Prior to that date, a different firm served as Portfolio Manager.
+ Annualized
++ Non-annualized
# The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities
due to timing of sales and redemptions of Series shares.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
9
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
ALL-GROWTH SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year........... $ 13.39 $ 13.78 $ 11.86 $ 13.42 $ 12.64 $ 13.05 $ 9.65 $10.59 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------- ------
INCOME/(LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income............ (0.06) 0.14 0.18 0.11 0.05 0.08 0.11 0.19 0.09
Net realized and
unrealized
gain/(loss) on
investments....... 0.84 (0.23) 2.47 (1.56) 0.78 (0.41) 3.40 (0.94) 0.66
------- ------- ------- ------- ------- ------- ------- ------- ------
Total from
investment
operations........ 0.78 (0.09) 2.65 (1.45) 0.83 (0.33) 3.51 (0.75) 0.75
------- ------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.03) (0.14) (0.14) (0.11) (0.05) (0.08) (0.11) (0.19) (0.09)
Distributions from
capital gains..... (0.37) (0.16) (0.59) -- -- -- -- -- --
Paid in Capital..... -- -- -- -- -- -- -- -- (0.07)
------- ------- ------- ------- ------- ------- ------- ------- ------
Total
distributions..... (0.40) (0.30) (0.73) (0.11) (0.05) (0.08) (0.11) (0.19) (0.16)
------- ------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end
of year........... $ 13.77 $ 13.39 $ 13.78 $ 11.86 $ 13.42 $ 12.64 $ 13.05 $ 9.65 $ 10.59
======= ======= ======= ======= ======= ======= ======= ======= ======
Total return........ 5.87% (0.57)% 22.42% (10.77)% 6.56% (2.59)% 36.48% (7.35)% 7.20%++
======= ======= ======= ======= ======= ======= ======= ======= ======
RATIOS TO AVERAGE
NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
year
(in 000's)........ $ 73,856 $ 78,750 $ 93,198 $ 71,218 $ 56,491 $ 24,202 $ 11,857 $5,005 $ 3,572
Ratio of operating
expenses to
average net
assets............ 0.99% 1.00% 1.01% 1.00% 1.01% 1.31% 1.48% 1.51% 3.23%+
Decrease reflected
in above expense
ratio due to
expense
limitations....... -- -- -- -- 0.01% 0.04% 0.40% 1.51% 0.38%+
Ratio of net
investment income
to average net
assets............ (0.47)% 0.86% 1.42% 1.08% 0.52% 0.61% 0.94% 1.99% 0.94%+
Portfolio turnover
rate.............. 325% 118% 81% 196% 29% 20% 31% 88% 54%
Average commission
rate paid(a)...... $ 0.0533 $ 0.0592 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The All-Growth Series commenced operations on January 24, 1989.
** Since February 3, 1997, Pilgrim Baxter & Axxociates, 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>
10
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
CAPITAL APPRECIATION SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 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 year................... $ 15.06 $ 13.51 $ 11.34 $ 11.76 $ 11.00 $ 10.00
-------- -------- -------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.16 0.16 0.19 0.23 0.13 0.12
Net realized and unrealized gain/(loss) on
investments........................................ 4.19 2.57 3.22 (0.42) 0.78 1.00
-------- -------- -------- ------- ------- -------
Total from investment operations..................... 4.35 2.73 3.41 (0.19) 0.91 1.12
-------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.16) (0.17) (0.15) (0.23) (0.13) (0.12)
Distributions from capital gains..................... (1.60) (1.01) (1.09) -- (0.02) --
-------- -------- -------- ------- ------- -------
Total distributions.................................. (1.76) (1.18) (1.24) (0.23) (0.15) (0.12)
-------- -------- -------- ------- ------- -------
Net asset value, end of year......................... $ 17.65 $ 15.06 $ 13.51 $ 11.34 $ 11.76 $ 11.00
======== ======== ======== ======= ======= =======
Total return......................................... 28.95% 20.26% 30.16% (1.59)% 8.31% 10.87%++
======== ======== ======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................... $193,986 $148,752 $122,227 $ 88,890 $ 87,219 $18,645
Ratio of operating expenses to average net assets.... 0.99% 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............................................. 0.95% 1.12% 1.53% 1.96% 1.69% 2.06%+
Portfolio turnover rate.............................. 51% 64% 98% 84% 67% 6%
Average commission rate paid(a)...................... $ 0.0599 $ 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>
11
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
RISING DIVIDENDS SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96# 12/31/95 12/31/94 12/31/93*
-------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 15.81 $ 13.30 $ 10.22 $ 10.30 $ 10.00
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.14 0.14 0.13 0.14 0.01
Net realized and unrealized gain/(loss) on investments...... 4.57 2.61 3.04 (0.08) 0.30
-------- -------- ------- ------- -------
Total from investment operations............................ 4.71 2.75 3.17 0.06 0.31
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.13) (0.13) (0.09) (0.14) (0.01)
Distributions from capital gains............................ (0.35) (0.11) -- -- --
-------- -------- ------- ------- -------
Total distributions......................................... (0.48) (0.24) (0.09) (0.14) (0.01)
-------- -------- ------- ------- -------
Net asset value, end of year................................ $ 20.04 $ 15.81 $ 13.30 $ 10.22 $ 10.30
======== ======== ======= ======= =======
Total return................................................ 29.82% 20.65% 31.06% 0.59% 3.10%++
======== ======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $ 252,191 $ 126,239 $ 81,210 $ 50,712 $14,430
Ratio of operating expenses to average net assets........... 0.99% 1.00% 1.01% 1.00% 0.24%+
Ratio of net investment income to average net assets........ 0.96% 0.99% 1.24% 1.88% 0.34%+
Portfolio turnover rate..................................... 26% 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>
12
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
EMERGING MARKETS SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93*
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................ $ 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........ (0.90) 0.62 (1.06) (1.89) 2.44
------- ------- ------- ------- -------
Total from investment operations.............................. (0.91) 0.66 (1.02) (1.89) 2.44
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.......................... (0.01) -- -- -- --
Distributions from capital gains.............................. -- -- (0.00)# (0.47) --
------- ------- ------- ------- -------
Total distributions........................................... (0.01) -- (0.00) (0.47) --
------- ------- ------- ------- -------
Net asset value, end of year.................................. $ 8.80 $ 9.72 $ 9.06 $ 10.08 $ 12.44
======= ======= ======= ======= =======
Total return.................................................. (9.37)% 7.28% (10.11)% (15.18)% 24.40%++
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)............................ $ 39,436 $ 51,510 $ 47,974 $ 65,224 $31,181
Ratio of operating expenses to average net assets............. 1.80% 1.55% 1.53% 1.73% 0.38%++
Ratio of net investment income to average net assets.......... (0.09)% 0.38% 0.40% 0.03% 0.00%++
Portfolio turnover rate....................................... 170% 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.
++ 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>
13
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
VALUE EQUITY SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year....................................... $ 13.92 $ 13.18 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................... 0.16 0.22 0.08
Net realized and unrealized gain on investments.......................... 3.63 1.18 3.44
------- ------- -------
Total from investment operations......................................... 3.79 1.40 3.52
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income..................................... (0.18) (0.19) (0.06)
Distributions from capital gains......................................... (1.40) (0.47) (0.28)
------- ------- -------
Total distributions...................................................... (1.58) (0.66) (0.34)
------- ------- -------
Net asset value, end of year............................................. $ 16.13 $ 13.92 $ 13.18
======= ======= =======
Total return............................................................. 27.28% 10.62% 35.21%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)....................................... $80,048 $ 44,620 $28,830
Ratio of operating expenses to average net assets........................ 0.99 1.00% 1.01%
Ratio of net investment income to average net assets..................... 1.31% 1.80% 1.53%
Portfolio turnover rate.................................................. 128% 131% 86%
Average commission rate paid(a).......................................... $0.0589 $ 0.0575 N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Value Equity Series commenced operations on January 3, 1995.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
14
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
STRATEGIC EQUITY SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/97 12/31/96## 12/31/95*
-------- ---------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year....................................... $ 11.68 $ 10.01 $ 10.00
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................... 0.20 0.23 0.06
Net realized and unrealized gain/(loss) on investments................... 2.49 1.71 (0.03)#
------- ------- ------
Total from investment operations......................................... 2.69 1.94 0.03
------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income..................................... (0.19) (0.14) (0.02)
Distributions from capital gains......................................... (0.55) (0.13) --
------- ------- ------
Total distributions...................................................... (0.74) (0.27) (0.02)
------- ------- ------
Net asset value, end of year............................................. $ 13.63 $ 11.68 $ 10.01
======= ======= ======
Total return............................................................. 23.16% 19.39% 0.33%++
======= ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)....................................... $ 51,789 $ 30,423 $ 8,067
Ratio of operating expenses to average net assets........................ 0.99% 1.00% 1.00%+
Ratio of net investment income to average net assets..................... 1.88% 2.05% 4.04%+
Portfolio turnover rate.................................................. 105% 133% 29%
Average commission rate paid(a).......................................... $0.0288 $ 0.0269 N/A
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Strategic Equity Series commenced operations on October 2, 1995.
+ Annualized
++ Non-annualized
# The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities
due to timing of sales and redemptions of Series shares.
## Per share numbers have been calculated using the monthly average share method, which more appropriately
represents the per share data for the period since the use of the undistributed income method did not
accord with the results of operations.
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
15
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
SMALL CAP SERIES
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/97 12/31/96*
-------- ---------
<S> <C> <C>
Net asset value, beginning of year.................................................. $ 12.01 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss................................................................. (0.03) (0.01)
Net realized and unrealized gain on investments..................................... 1.27 2.02
------- -------
Total from investment operations.................................................... 1.24 2.01
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income................................................ -- --
Distributions from capital gains.................................................... -- --
------- -------
Total distributions................................................................. -- --
-------
Net asset value, end of year........................................................ $ 13.25 $ 12.01
======= =======
Total return........................................................................ 10.32% 20.10%++
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).................................................. $66,396 $34,365
Ratio of operating expenses to average net assets................................... 0.99% 0.99%++
Ratio of net investment loss to average net assets.................................. (0.34)% (0.08)%++
Portfolio turnover rate............................................................. 130% 117%
Average commission rate paid(a)..................................................... $0.0706 $0.0621
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Small Cap Series commenced operations on January 3, 1996.
++ Non-annualized
(a) Average commission rate paid per share of portfolio securities purchased and sold by the Series.
</TABLE>
16
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
MANAGED GLOBAL SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 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 year............... $ 11.13 $ 9.96 $ 9.26 $ 10.67 $ 10.01 $ 10.00
-------- ------ ------ ------ ------ -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................ 0.02 0.04 0.05 0.07 0.06 0.02
Net realized and unrealized gain/(loss) on
investments.................................... 1.33 1.18 0.65 (1.48) 0.60 (0.01)
-------- ------ ------ ------ ------ -------
Total from investment operations................. 1.35 1.22 0.70 (1.41) 0.66 0.01
-------- ------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income............. (0.17) -- -- -- -- --
Dividends in excess of net investment income (0.07) -- -- -- -- --
Distributions from capital gains................. (0.78) (0.05) -- -- -- --
-------- ------ ------ ------ ------ -------
Total distributions.............................. (1.02) (0.05) -- -- -- --
-------- ------ ------ ------ ------ -------
Net asset value, end of year..................... $ 11.46 $ 11.13 $ 9.96 $ 9.26 $ 10.67 $ 10.01
======== ====== ====== ====== ====== =======
Total return..................................... 12.17% 12.27% 7.56% (13.21)% 6.59% 0.10%++
======== ====== ====== ====== ====== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)............... $ 105,305 $ 86,376 $72,375 $86,209 $88,477 $ 38,699
Ratio of operating expenses to average net
assets......................................... 1.36% 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......................................... 0.06% 0.39% 0.51% 0.69% 0.56% 0.28%++
Portfolio turnover rate.......................... 199% 141% 44% N/A N/A N/A
Average commission rate paid(a).................. $ 0.0242 $ 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 Series.
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.
++ 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>
17
<PAGE>
- - --------------------------------------------------------------------------
Financial Highlights
THE GCG TRUST
LIQUID ASSET SERIES**
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89*
-------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------ ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.050 0.049 0.054 0.040 0.030 0.030 0.050 0.070 0.080
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............ 0.050 0.049 0.054 0.040 0.030 0.030 0.050 0.070 0.080
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income..... (0.050) (0.049) (0.054) (0.040) (0.030) (0.030) (0.050) (0.070) (0.080)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... (0.050) (0.049) (0.054) (0.040) (0.030) (0.030) (0.050) (0.070) (0.080)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return............ 5.07% 5.01% 5.51% 3.89% 2.64% 3.13% 5.66% 7.75% 7.67%++
======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's)........... $ 59,453 $ 39,096 $ 38,589 $ 46,122 $ 16,808 $ 13,206 $ 9,790 $ 8,709 $ 2,352
Ratio of operating
expenses to average net
assets................ 0.61% 0.61% 0.61% 0.61% 0.61% 0.74% 0.76% 0.66% 0.90%+
Decrease reflected in
above expense ratio due
to expense
limitations........... -- -- -- -- 0.08% 0.50% 1.01% 1.84% 3.26%+
Ratio of net investment
income to average net
assets................ 4.99% 4.89% 5.39% 3.89% 2.60% 3.04% 5.48% 7.56% 8.99%+
</TABLE>
- - ------------------
<TABLE>
<C> <S>
* The Liquid Assets Series commenced operations on January 24, 1989.
** Since January 2, 1998 ING Investment Management, LLC has served as Portfolio Manager for the Liquid Asset
Series. Prior to that date, Equitable Investment Services, Inc. served as Portfolio Manager for the Liquid
Asset Series. Prior to that August 13, 1996, different firms served as Portfolio Manager.
+ Annualized
++ Non-annualized
</TABLE>
18
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Series has a different investment objective or
objectives that are described below. Each Series' portfolio is
managed by its own Portfolio Manager. There can be no assurance
that any 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' invest-
ment objective and policies section, 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. 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.
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, market sectors and
cash and cash equivalents. The Series' investments will be
designed to maximize total return during all economic and
financial environments, consistent with the preservation of
capital. The Portfolio Manager seeks to reduce the risks
associated with investing in debt and equity securities by
using market timing techniques developed by Dr. Martin E.
Zweig, the President of the Portfolio Manager and his staff.
The extent of the Series' investment in debt and equity
securities will be determined primarily on the basis of such
market timing techniques, but such techniques cannot eliminate
the risk of investment in debt and equity securities.
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. The
Portfolio Manager expects that the Series will be fully invested
in debt and equity securities only when the Portfolio Manager
believes that there is very low risk in the respective debt and
stock markets
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 may fluctuate
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 on 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 of future changes in interest rates using the
Portfolio Manager's own internal research and debt market timing
techniques. The primary consideration in choosing among bonds is
managing risk related to changes in interest rate levels. A bond's
duration measures its sensitivity to changes in interest rates
(interest rate risk). The longer the duration, the greater the bond's
price movement will be as interest rates change. The Portfolio Manager
manages the duration of the Series' portfolio, or interest rate risk,
by altering the Series' mix of short-, medium-, and long-term bonds, or
by buying or selling interest rate futures contracts, and also by
actively using money market and cash instruments. Over time, the duration
will vary depending on the Portfolio Manager's interest rate outlook.
However, on average, the duration of the portfolio should be consistent
with an intermediate duration when all bonds and cash held in the portfolio
are looked at in aggregate. 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 buyout; 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 indexes, 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 to
seek 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 ING Investment Management, LLC.
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. This Series is non-diversified. See "Diversification"
for the risks associate with investing in a non-diversified Series.
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 EII 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 REITs which own properties, and listed mortgage REITs 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 equivalent 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. At the time of purchase,
such companies will have market capitalizations in the range
of $400 million to $4 billion. The Portfolio Manager
also will consider the diversity of industries in choosing
investments 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 American Depositary Receipts ("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 indexes. 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 with 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."
Securities will be sold when the Portfolio Manager believes that
anticipated appreciation is no longer probable, when alternative
investments offer superior appreciation prospects, or when 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 Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"). 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 S&P 500 Index earnings projections.
The Value Component. Securities eligible for this component are
those that the Portfolio Manager regards as fundamentally
undervalued, i.e., securities selling at a discount to asset
value and securities with a relatively low price/earnings ratio.
The securities eligible for this component may include real
estate stock such as securities of publicly owned companies that,
in the Portfolio Manager's judgment, offer an optimum combination
of current dividend yield, expected dividend growth, and discount
to current real estate value. Real estate stocks may also include
those issued by companies in industries related to real estate,
including companies that own, develop or provide services to
income-producing real estate, and commercial and community
developers, and may include real estate investment trusts and
"land rich" companies, which are companies that are not in the
real estate industry but that have significant real estate
related assets and whose stock price may be affected by the real
estate assets they hold.
If the Portfolio Manager believes that the expected market return
for equity securities over a twelve-month period is less than a
premium over U.S. Treasury bills that equity securities have
historically provided, the Series may, as a temporary defensive
measure, invest up to 40% of its assets in money market
instruments and short-term investment grade debt securities until
market conditions improve. Investment grade securities are
generally those rated at least Baa by Moody's or BBB by Standard
& Poor's, or unrated securities that the Portfolio Manager
determines are of comparable quality. The Series from time to
time may invest in money market instruments to the extent
appropriate, pending investment in the types of securities in
which the Series normally invests or in anticipation of
redemptions. Money market instruments in which the Series may
invest include U.S. Government securities, certificates of
deposit, bankers' acceptances, time deposits, commercial paper
and other U.S. dollar-denominated obligations of domestic and
foreign corporations, and repurchase agreements.
To maximize potential return, the Portfolio Manager may use the
following investment methods:
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 should have
increased its dividends in seven of the last ten years.
(ii) Substantial dividend increases--The company should have at
least doubled its dividends in the last ten years.
(iii) Reinvested profits--The company should have reinvested at
least 35% of its profits annually.
(iv) Under-leveraged balance sheet--The company should have less
than 35% of its total capitalization in long-term debt.
In selecting equity securities, the Portfolio Manager screens
databases to create a universe of companies that meet the preceding
criteria. The companies that have the required attributes are then
analyzed from a fundamental perspective. This research involves
study of industry competitive conditions, discussions with company
management, spreadsheet analysis, and valuation projections. A
proprietary computer model is employed to regularly compare expected
rates of return for each equity security in the universe. The final
decision to invest in an equity is based on the strengths and relative
attractiveness from an expected return standpoint. 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 into 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, in which it has 50% more of
its assets, 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 (including securities convertible
into 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 objective, 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 index 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 United States domestic markets but
also exchanges and other markets outside the United States. 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 and 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:
(i) He screens the universe of equity securities for five key
variables: low price-to-book, price-to-sales, and price-to-earnings
ratios; and attractive relative dividend yield and relative
price-to-earnings ratios.
(ii) He performs in-depth fundamental research on individual
companies including their industry outlook and trends,
strategy, management strength, and financial stability.
(iii) 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 Manager identifies
stocks trading at a significant discount to their value and which
fall into one of three basic categories:
"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: Stocks 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 defensive 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 ADRs. 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 (i) its price approaches its intrinsic value;
(ii) a temporary, dramatic, short-term price appreciation occurs;
(iii) its fundamentals deteriorate; or (iv) 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 ("SPDRs"), which are publicly traded
interests in a unit investment trust that invests in
substantially all of the common stocks in the S&P 500 Index. SPDRs 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, purchasing protective puts up to 25% of its net assets
and calls and puts other than protective puts 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; entering into
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 (i) stocks that the Portfolio Manager
selects for their "growth" characteristics (which may include
positive earnings momentum and above average earnings growth
rates), and (ii) 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 December 31, 1997, the range of
market capitalization companies in the Russell Index was $20
million to $2.97 billion; the range of the market capitalization
the companies in the S&P 600 Index at that date was $21 million
to $2.93 billion. The combined range as of that date was $20
million to $2.97 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-
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 investment objective of the Managed Global Series is to seek
capital appreciation. Current income is only an incidental
consideration in selecting investments for the Series. This Series
is non-diversified. See "Diversification" for the risks associated
with investing in a non-diversified 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. The Series may not acquire
the securities of any issuer if, as a result of such investment,
more than 10% of the Series' assets would be invested in the
securities of any issuer, except that this restriction does not
apply to U.S. Government securities or foreign government
securities, and the Series may not invest in a security if, as a
result of such investment, it would hold more than 10% of the
outstanding voting securities of any one issuer.
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-
and asset-backed securities.
The Series may invest in the following debt instruments: (i) fixed income
instruments issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities ("U.S. Government securities");
(ii) 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 (iii) 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: (i) short-term U.S. Government securities; (ii)
short-term foreign government securities (iii) 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 (iv) 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."
GROWTH OPPORTUNITIES SERIES
The investment objective of the Growth Opportunities Series is
capital appreciation. The Series invests 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 changes 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
indexes 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 indexes 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. The Series invests 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 such country. Emerging market countries
are those countries having economies and markets generally considered
by the World Bank or the United Nations to be emerging or developing.
The Portfolio Manager for the Series is Montgomery Asset Management, LLC.
The Portfolio Manager currently regards the following to be emerging
market countries: Latin America (Argentina, Brazil, Chile, Columbia,
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 Portfolio 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, purchase U.S. Government
securities, invest up to 10% of its total net assets in investment
companies, leverage transactions, lend portfolio securities up to
30% of Series total net assets, invest in when-issued and forward
commitment securities, purchase and write put and call options on
securities, currencies and stock indexes, and write "covered" call
and put options. The Series will not enter into any options'
transactions on securities, securities indexes 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 not 5% of its total assets, and it will not enter
into options' transactions 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 indexes and currencies) and premiums paid for any such
related options would not 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."
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 or at least 65% of its assets
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 are those 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 December 31,
1997, the S&P MidCap 400 Index included companies with
capitalizations of between $213 million and $13.7 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 Exchanges. 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 Statement of Additional Information.
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
Statement of Additional Information 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, indexes, 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 indexes, 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 Statement of Additional Information.
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 Statement of Additional Information. 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 and 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 Statement of Additional Information.
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
portfolio, 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
depositary 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 Statement of
Additional Information 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 Statement of Additional
Information 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 Statement of Additional Information 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, indexes, 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 indexes, 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 indexes; warrants on foreign
securities indexes; 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 Statement of Additional
Information. 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 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.
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 indexes; warrants foreign securities indexes; 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 at least 65% of its assets 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 Baring International Investment Limited.
Under normal market conditions, the Series will invest primarily
in securities considered to be government 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- 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 Series' 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.
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
ING Investment Management, LLC.
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
of 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 rated 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, 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.
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the
direction of the Board of Trustees. The Trustees are
J. Michael Earley, R. Barbara Gitenstein, Robert A.
Grayson, Elizabeth J. Newell, Stanley B. Seidler and Roger
B. Vincent. The Executive Officers of the Trust are Barnett
Chernow, Myles R. Tashman and Mary Bea Wilkinson. Additional
information about the Trustees and officers of the Trust may be
found in the Statement of Additional Information under the
heading "Management of the Trust."
THE MANAGER
Directed Services, Inc. ("DSI" or the "Manager") serves as the
Manager to the Trust pursuant to a Management Agreement with the
Trust. DSI is a New York corporation and is a wholly
owned subsidiary of 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
others, 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. One of the Portfolio
Managers, ING Investment Management, LLC is an affiliate of DSI
and Golden American. 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 in excess of $3.5 billion.
and Small Cap
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
Growth & Income, 1.10% of first $250 million;
Value + Growth, and 1.05% of next $400 million;
Growth Opportunities 1.00% of next $450 million; and
0.95% of amount in excess of $1.1 billion
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 in excess of $500 million
Global Fixed Income 1.60%
Emerging Markets and 1.75%
Developing World
Managed Global 1.25% on the first $500 million; and
1.05% on the amount in excess of $500 million.
As compensation for its services during the most recent fiscal
year, the Trust, pursuant to the Management Agreement, paid the
Manager fees which 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 -- 1.67%; Liquid Asset Series -- 0.60%; Managed Global --
1.25% and Small Cap Series -- 0.99%. 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 annual
reporting period (ended December 31, 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
services for over 25 years. He is the President and/or Chairman
of investment advisory firms which, as of December 31, 1997,
managed in excess of $7 billion in assets. Dr. Zweig owns
approximately 60% of the outstanding shares of the Portfolio
Manager.
Mr. Lazar is a Vice President of the Portfolio Manager and has
been with the Portfolio Manager since 1986. Mr. Lazar is also
Vice President of The Zweig Fund, Inc. and The Zweig
Total Return Fund, Inc.
Mr. Katzen is a First 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, Zweig Growth and
Income 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 and has been the
Portfolio Manager of Zweig Foreign Equity Fund since its inception.
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, 1997, the
firm and its affiliates managed over $126 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; Charles M. Ober
and Brian C. Rogers. 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.
Putnam has been managing mutual funds since 1937. Putnam is wholly
owned by Putnam Investments, Inc., which is in turn owned by Marsh
& McLennan Companies, Inc., a publicly traded company. As of
December 31, 1997, Putnam and its affiliates managed
approximately $235 billion of assets.
Both the Managed Global Series and the Emerging Markets Series
are managed by teams 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
Asset Management, Inc., formerly 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 twelve 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.
Derek van Eck, Executive Managing Director of van Eck in
conjunction with other members of Van Eck's Hard Assets group,
is primarily responsible for the day-to-day management of the
Hard Assets Series. Mr. 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, 1997 were approximately $1.4
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 Series is Pilgrim Baxter &
Associates, Ltd. ("Pilgrim Baxter"), located at 825 Duportail Road,
Wayne, Pennsylvania 19087. 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, trust and estates, and other investment
companies. As of December 31, 1997, Pilgrim Baxter managed
approximately $14.7 billion of assets, including approximately
$9.7 billion of investment company assets.
As of January 29, 1998, Jeffrey A. Wrona, CFA, assumed the
responsibility for management of the All-Growth Series. Mr. Wrona
has been an investment professional with Pilgrim Baxter since 1997.
Prior to coming to Pilgrim Baxter, Mr. Wrona worked as a Senior
Portfolio Manager at Munder Capital Management for seven years.
Pursuant to the Portfolio Management Agreement, 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 Investment Management,
Inc., formerly 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, 1997 were
entrusted with approximately $82 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.
On January, 30, 1998, AMVESCAP PLC, a global investment management
firm, ("AMVESCAP") entered into an agreement with LGT to acquire
LGT's Asset Management Division, which includes Chancellor LGT. The
transaction is expected to close during the second quarter of 1998.
AMVESCAP is focused solely on institutional and retail investment
management, and has a strong track record of acquiring companies and
allowing their investment capabilities to operate in parallel. This
transaction will likely result in the termination of the Portfolio
Management Agreement among the Trust, DSI and Chancellor LGT. It is
expected that the Trust's Board of Trustees will consider before that
time a new Portfolio Management Agreement with Chancellor LGT. Any
such agreement, which would be substantially identical to the current
agreement, would be subject to approval by shareholders of the Trust.
The individual responsible for the management of the Capital Appreciation
Series is Ted Ujazdowski. Mr. Ujazdowski has served as Managing Director
of Chancellor LGT since 1989. 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 Advisers Act of 1940, as amended. It was
organized on June 29, 1994 as a California limited partnership
and changed its form of organization to a California limited
liability company during 1997.
Kayne Anderson (in its original 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% of Kayne Anderson.
As of December 31, 1997, Kayne Anderson managed portfolios
which, in the aggregate, amounted to approximately $2.9
billion.
Mr. Rudnick is the Senior Portfolio Manager responsible for
the management of the Rising Dividends Series since its inception.
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
had become the Portfolio Manager pursuant to a substitution agreement.
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 $4.5 billion in
client assets under management.
Thee 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
Equity Income Division since January 1996 and was a research analyst for
Eagle since 1994. Prior to joining Eagle in 1993, Mr. Chren served as an
investment analyst since 1986: with Bear, Stearns, with Raymond James &
Associates, Inc. from 1991 to 1992, and with Junction Advisors, Inc. in
1989 and 1990.
Eagle is in the business of managing accounts for institutional and
individual clients 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.
EII REALTY SECURITIES, INC.
The Portfolio Manager to the Real Estate Series is EII 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, 1997, the Portfolio
Manager and/or its affiliates had investment management authority
with respect to approximately $1.8 billion 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, 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 January 31,
1998, had approximately $7.8 billion under management, $4.5
billion in mutual fund accounts and $3.3 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, Seilai Khoo and Ronald Tartaro are primarily
responsible for the day-to-day management of the Series. Mr. Alger
has been employed by the Portfolio Manager since 1971, as Executive
Vice President and Director of Research until 1995 and as President
since 1995. Ms. Khoo has been employed by the Portfolio Manager since
1989 as a senior research analyst and as a Senior Vice President
since 1995. Mr. Tartaro has been employed by the Portfolio Manager
since 1990 senior research analyst and as a senior research analyst
since 1995. Mr. Alger, Ms. Khoo and Mr. Tartaro also serve as portfolio
managers for other mutual funds and investment accounts managed by the
Portfolio Manager.
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.
ING INVESTMENT MANAGEMENT, LLC
The Portfolio Manager to the Limited Maturity Bond Series and the
Liquid Asset Series is ING Investment Management, LLC, ("IIM LLC"),
located at 5780 Powers Ferry Road, N.W. Suite 300, Atlanta, Georgia
30327. The Portfolio Manager is a limited liability corporation
incorporated in Delaware which is engaged in the business of providing
investment advice to affiliated insurance companies possessing portfolios
which, as of December 31, 1997, were valued at $12 billion. The Portfolio
Manager is a wholly owned subsidiary of ING and is affiliated
with DSI. The Portfolio Manager is also a sub-adviser to the Equi-Select
Series Trust, a registered investment company that serves as the investment
vehicle underlying certain variable annuity contracts issued by Equitable
Life Insurance Company of Iowa and Golden American.
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 January 2, 1998.
Prior to that he served as the Series' Portfolio Manager while working
for Equitable Investment Services, Inc. ("EISI"). He joined the EISI
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 IIM LLC 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 IIM LLC 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).
IIM LLC or its affiliate EISI have served as Portfolio Manager to the
Limited Maturity Bond and Liquid Assets Series since August 13, 1996.
IIM LLC assumed portfolio management responsibilities for the Limited
Maturity Bond and Liquid Assets Series on January 2, 1998. EISI
served as Portfolio Manager from August 14, 1996 through January 1, 1998.
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 $70.2 billion on behalf of
approximately 2.7 million investor accounts as of December 31,
1997. As of such date, the MFS organization managed approximately
$45.7 billion of assets in equity securities and $24.5 billion of
assets in fixed income securities. 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 limited partnership, was formed in 1993 and is
registered as an investment adviser with the U.S. Securities and
Exchange Commission. The general partner of RSIM, L.P. is Robertson
Stephens Investment Management Company. RSIM, L.P. is affiliated with
BancAmerica Robertson Stephens a major investment banking firm specializing
in emerging growth companies that has developed substantial investment
research, underwriting, and venture capital expertise. RSIM, L.P. and its
affiliates have in excess of $4.5 billion under management in public and
private investment funds. BankAmerica Corporation may be deemed to be control
persons of RSIM, L.P.
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.
BARING INTERNATIONAL INVESTMENT LIMITED
The Portfolio Manager to the Global Fixed Income Series is Baring International
Investment Limited ("BIIL") located at 155 Bishopsgate, London. BIIL is a
registered under the Investment Advisor's Act of 1940 and provides investment
management services. BIIL is a wholly owned subsidiary of Baring Asset
Management Holdings Limited ("BAMHL"). BAMHL, a company registered is England
and Wales, is the parent of the world-wide group of investment management
companies that operate under the collective name Baring Asset Management
("BAM"). BAMHL is a wholly owned indirect subsidiary of ING a publicly traded
company based in the Netherlands with worldwide insurance and banking
subsidiaries.
BAM provides global investment management services and maintains major
investment offices in Boston, London, Hong Kong and Tokyo, and together with
its predecessor corporation was founded in 1762. BAM provides advisory
services to institutional investors, offshore investment companies, insurance
companies and private clients. As of December 31, 1997, BAM managed
approximately $36.1 billion of assets.
The Global Fixed Income Series will be managed by Paul Thursby.
Mr. Thursby has been an investment professional with BIIL since 1991 and has
18 years of investment. He is a specialist in the Japanese domestic bond
market and lived in Japan for two years while working for Prudential Bache.
He has recently been recognized by Micropal for his outstanding management of
fixed income funds. He is a senior member of the Fixed Income and Currency
Team and sits on the Fixed Income Strategy Group. His specialization is the
construction of diversified portfolios on behalf of U.S., U.K. and Japanese
clients.
Pursuant to the Portfolio Management Agreement, the Manager (not the Trust)
pays to BIIL a monthly fee equal to an annual rate of 1.60% of average
daily net assets of Global Fixed Income Series.
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 94111. 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.
On July 31, 1997, Montgomery Asset Management L.P., formed in 1990,
completed the sale of substantially all of its assets to Montgomery.
Montgomery advises private accounts as well as the other
mutual funds. As of December 31, 1997, Montgomery had
$9.5 billion in assets under management. Commerzbank is one of the
largest commercially held banks in Germany, has total assets of
approximately $173 billion. Commerzbank and its affiliates had more
than $289 billion in assets under management as of December 31, 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, Senior Portfolio Manager and Principal,
joined Montgomery in June 1993. From 1992 through May 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, Portfolio Manager and Principal, joined Montgomery
in 1995. 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. From 1988 to 1990, Ms. Peters worked in the leveraged
buy-out group of Marine Midland Bank.
Andrew Pratt, CFA, Portfolio Manager and Principal, joined Montgomery in
1993, coming 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 1988 to
1993. 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, Senior Portfolio Manager and Principal, joined
Montgomery in the firm in 1991. 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, Senior Portfolio Manager and Principal,
joined Montgomery in 1991. Prior to 1991, he was 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 Portfolio Manager and a 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 Portfolio Manager and a Principal at Montgomery. From 1990
until joining Montgomery in July 1994, Ms. Ee was an Investment Manager
with AIG Investment Corp. in Hong Kong. From 1989 until 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, 1997, total Series
expenses as a percentage of net assets were as follows: Multiple
Allocation Series -- 0.99%; Fully Managed Series -- 0.99%;
Limited Maturity Bond Series -- 0.61%; 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 -- 1.80%; Managed Global -- 1.36%;
Small Cap -- 0.99% and Liquid Asset Series -- 0.61%. The other
Series had not commenced operations as of December 31, 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
Some 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 more highly 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 limitation. Restricted
securities may be sold only in privately negotiated transactions,
in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933, or in a
transaction that is exempt from such registration. Where
registration is required, a Series may be obligated to pay all or
part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the
Series may be permitted to sell a security under an effective
registration statement. If, during such a period adverse market
conditions were to develop, the Series might obtain a less
favorable price than prevailed when it decided to sell.
Restricted securities may be priced at fair value as determined
in good faith by the Series' Portfolio Manager.
SHORT SALES
A short sale is a transaction in which a 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 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" consists of 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 indexes. 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 indexes
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 a Series purchases a
structured note, a type of derivative, it will make a payment of
principal to the counterparty. Some structured notes have a
guaranteed repayment of principal while others place a portion
(or all) of the principal at risk. A Series will purchase
structures notes only from counterparties rated A or better by
Standard & Poor's, 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 for purposes of the
limitation on illiquid securities.
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 a 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.
Those Series that may enter into futures contract and futures options,
will only enter into those 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 indexes
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 indexes, 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 each Series values its assets daily in terms of U.S.
dollars, they do 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 a 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, (c) with respect to the Real Estate Series, securities
of issuers in the real estate and related industries, or with
respect to the Hard Assets Series, securities of issuers in the
group of industries engaged in hard assets activities, provided
that such concentration for the Real Estate and Hard Asset 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. Such transactions may
result in realization of taxable gains. 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.
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 Pennsylvania 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,
1997 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, 1997. Information
in the financial statements for all Series for the years ended
December 31, 1997, 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. 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 December 31, 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.
YEAR 2000
Based on a study of its computer software and hardware, the Manager
in conjunction with an affiliate, Golden American Life Insurance
Company ("Golden American"), have determined their exposure to the
Year 2000 change of the century date issue. Some of these systems
support certain trust operations. The Manager believes its and
Golden American's systems are or will be substantially compliant by
Year 2000 and has engaged external consultants to validate this
assumption. The Manager is in contact with the Trust's Portfolio
Managers and third party vendors to ensure that their systems will
be compliant by Year 2000. To the extent these Portfolio Managers
and third parties would be unable to transact business in the Year
2000 and thereafter, the Trust's operations could be adversely affected.
<PAGE>
PROSPECTUS
MARKET MANAGER SERIES
1001 JEFFERSON STREET, SUITE 400
WILMINGTON, DELAWARE 19801
(800) 366-0066
The Market Manager Series (the "Series") is a non-diversified portfolio of
an open-end management investment company, The GCG Trust (the "Trust"). The
investment objective of the Market Manager Series is to seek favorable equity
market performance and at the same time preserve capital (without taking into
account expenses) for investments in the Series held until the Target Maturity
Date of March 6, 2001. The Series will seek this objective by attempting to
return on the Target Maturity Date (1) the principal amount invested in the
Series (without regard to expenses), plus (2) a percentage of the price
appreciation from the Series' Investment Start Date through the Target Maturity
Date on common stocks that are publicly traded in the United States, as
represented by the Standard & Poor's 500 Composite Stock Price Index ("S&P 500")
and other indexes of publicly traded common stocks of large and mid-cap
companies. There can be no assurance that the Series' investment objective will
be achieved.
The Manager to the Series is Directed Services, Inc. ("DSI"), which is a
wholly owned subsidiary of ING Groep, N.V. ("ING"). DSI and
the Trust have retained ING Investment Management, LLC ("IIM LLC") to provide
investment advisory services to the Series. For more information regarding DSI,
ING and IIM LLC. see "The Management of the Trust."
Information about the investment objectives, investment policies, and
restrictions of the Series, along with a detailed description of the type of
securities and other assets in which the Series may invest, are set forth in
this Prospectus.
Shares of the Series are available only to separate accounts (the "Separate
Accounts") of Golden American Life Insurance Company ("Golden American") to
serve as the investment medium for variable annuity contracts (the "Variable
Contracts") issued by Golden American.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Series. A Statement of Additional
Information dated May 1, 1998 containing additional and more detailed
information about the Series has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference into this Prospectus. The
Statement of Additional Information is available without charge and can be
obtained by writing or calling the Trust at the address and telephone number
printed above.
------------------------
THIS IS A LIMITED OFFERING. THE TRUST WILL ACCEPT INVESTMENTS IN THE SERIES
ONLY UNTIL MARCH 3, 1995.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
SEPARATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
The Series' shares are not insured by the FDIC or any other agency. They are
not deposits or other obligations of any bank and are not bank guaranteed. They
are subject to market fluctuation, reinvestment risk, and possible loss of
principal invested.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL HIGHLIGHTS....................................................................... 1
THE MANAGER AND THE PORTFOLIO MANAGER...................................................... 1
INVESTMENT OBJECTIVE AND POLICIES.......................................................... 1
Risks of the Series...................................................................... 4
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................................ 5
Over-the-Counter Options................................................................. 5
Zero Coupon Securities................................................................... 6
Options on Securities.................................................................... 8
Futures Contracts........................................................................ 9
Other Investment Companies............................................................... 9
MANAGEMENT OF THE TRUST.................................................................... 10
The Manager.............................................................................. 10
The Portfolio Manager.................................................................... 11
Other Expenses........................................................................... 12
Distributor.............................................................................. 12
Custodian................................................................................ 12
PURCHASE OF SHARES......................................................................... 12
NET ASSET VALUE............................................................................ 13
REDEMPTION OF SHARES....................................................................... 13
EXCHANGES.................................................................................. 13
DIVIDENDS AND DISTRIBUTIONS................................................................ 14
FEDERAL INCOME TAX STATUS.................................................................. 14
OTHER INFORMATION.......................................................................... 16
Capitalization........................................................................... 16
Voting Rights............................................................................ 16
LEGAL COUNSEL.............................................................................. 16
INDEPENDENT AUDITORS....................................................................... 16
FINANCIAL STATEMENTS....................................................................... 16
</TABLE>
I
<PAGE>
FINANCIAL HIGHLIGHTS
The following table presents financial information with respect to the
Series. Information in the table is included in the Trust's financial
statements for the Series that have been audited by Ernst & Young LLP. The
condensed financial information below does not include deductions at the
Separate Account level or contract specific deductions that may be incurred
under a Variable Contract for which the Trust serves as an underlying
investment vehicle. These charges would reduce the total return to any owner
of a Variable Contract. The following table should be read in conjunction
with the financial statements, which are incorporated by reference in the
Statement of Additional Information from the Trust's Annual Report dated as
of December 31, 1997. The Trust's Annual Report, which contains further
information about the Series' performance, is available to Shareholders upon
request and without charge.
<TABLE>
<CAPTION>
1997 1996 1995 1994*
------ ------ ------ ------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, beginning of period.............................................. $13.22 $12.03 $10.02 $10.00
------ ------ ------ ------
Net investment income............................................................. 0.36 0.46 0.37 0.02
Net gain (loss) on securities -- realized and unrealized.......................... 4.11 1.89 2.06 0.02
------ ------ ------ ------
Total from investment operations.................................................. 4.47 2.35 2.43 0.04
------ ------ ------ ------
Less distributions:
Dividends from investment income................................................ (0.36) (0.46) (0.37) (0.02)
Distributions from capital gains................................................ (0.86) (0.70) (0.05) 0.00
------ ------ ------ ------
Total Distributions............................................................... (1.22) (1.16) (0.42) (0.02)
------ ------ ------ ------
Net asset value, end of period.................................................... $16.47 $13.22 $12.03 $10.02
====== ====== ====== ======
Total Investment Return............................................................. 33.82% 19.40% 24.33% 0.44%**
RATIOS AND SUPPLEMENTAL DATA ====== ====== ====== ======
Total net assets, end of period (000's omitted)..................................... $6,791 $5,585 $5,952 $2,754
Ratio of expenses to average net assets............................................. 1.01% 1.02% 0.89% --
Decrease reflected in above expense ratio due to expense limitations................ -- -- 0.13% 0.13%**
Ratio of net investment income to average net assets................................ 2.19% 3.06% 3.42% 0.65%**
Portfolio turnover rate............................................................. 0% 0% 5% --
</TABLE>
* Series commenced operations on November 14, 1994
** Non-Annualized
THE MANAGER AND THE PORTFOLIO MANAGER
The Manager of the Series is Directed Services, Inc. (the "Manager"),
which is a subsidiary of ING. The Manager and the Trust have retained an
affiliate, IIM LLC (the "Portfolio Manager") to manage the assets of the
Series. The Trust pays the Manager for its services a quarterly fee at
the annual rate of 1.0% of the value of the average daily net assets of
the Series. The Portfolio Manager makes all determinations with respect to
the investment of the Series' assets consistent with the investment
objectives, policies, and restrictions of the Series. The Portfolio Manager
is compensated by the Manager.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Market Manager Series is to seek
favorable equity market performance and at the same time preserve capital
(without taking into account expenses) for investments in the Series held
until the Target Maturity Date of March 6, 2001. The Series will seek this
objective by attempting to return on the Target Maturity Date (1) the
principal amount invested in the Series (without regard to expenses), plus
(2) a percentage of the price appreciation from the Series' Investment Start
Date through the Target Maturity Date on common stocks that are publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite
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Stock Price Index ("S&P 500") and other indexes of publicly traded common
stocks of large and mid-cap companies. There can be no assurance that the
Series will achieve its investment objective.
There are two components of the Series' investment objective: seeking
favorable equity market performance and seeking preservation of capital. The
Portfolio Manager will allocate the assets of the Series among the
investments described below to attempt to achieve the investment objective of
the Series.
FAVORABLE EQUITY PERFORMANCE. The Series will seek favorable equity
market performance by purchasing over-the-counter call options on the S&P 500
and other indexes of publicly traded common stocks of large and mid-cap
companies. For these purposes, an index of publicly traded common stocks will
be considered an index of large and mid-cap companies if the companies
represented in the index have a median market capitalization of at least $300
million, although some of the companies represented on such an index could
have a market capitalization of less than this amount. The call options into
which the Series will enter will be negotiated on behalf of the Series by the
Portfolio Manager in an attempt to provide the Series with the right to
receive a percentage of the price appreciation on the stocks included in the
indexes for all or a portion of the period from the Investment Start Date
through the Target Maturity Date. The price appreciation on the S&P 500 and
other indexes does not include the value of dividends paid by companies in
the indexes. The Portfolio Manager has advised the Trust that it initially
intends to invest as of the Investment Start Date in call options on the S&P
500 and in call options on up to two other equity indexes, and that these
options would give the Series the right to receive approximately 110%-118% of
the price appreciation of a composite of these indexes from the Investment
Start Date through the Target Maturity Date, based upon the expected
weighting of the Series' relative positions in call options on these indexes.
It is anticipated that the Series will initially invest on or about the
Investment Start Date between 25% and 45% of the Series' assets in call
options on equity indexes. If at the option's maturity or when the Series
seeks to close out the option there is no price appreciation on the S&P 500
or another index with respect to which the Series holds a call option, the
Series will not benefit from the investment and will lose its investment in
the option. The Series will seek to enter into call options that provide an
absolute right for the Series to cause the issuing dealer to repurchase the
call at any time.
PRESERVATION OF CAPITAL. The Series will seek to preserve capital
(without regard to expenses) by investing a portion of its assets in zero
coupon bonds issued by the U.S. Government and its agencies and
instrumentalities and by private issuers which, at the time of investment,
are rated A or better by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"), or, if not rated, are of a comparable
quality as determined by the Portfolio Manager. The Series will usually
invest in zero coupon bonds with a maturity date on or close to the Target
Maturity Date, so the length to maturity of the fixed income securities held
by the Series can be expected to decrease as the Series nears its Target
Maturity Date. The Series may hold any or all of the zero coupon bonds in
which it invests until their maturity date or until or close to the Series'
Target Maturity Date, although, alternatively, the Series may dispose of one
or more of such bonds prior to this time if deemed by the Portfolio Manager
in its sole discretion to be in the Series' best interests or to be necessary
or appropriate under applicable law.
This strategy for pursuit of preservation of capital does not take into
account expenses of the Series so that if the Portfolio Manager is successful
in its strategy, an investor in the Series cannot be assured that the value
of his or her investment as of the Target Maturity Date will equal the value
of the investment as of the Investment Start Date. Similarly, the strategy
for pursuit of preservation of capital does not take into account any
expenses of the Variable Contracts whose proceeds are invested in the Series.
The purchaser of a Variable Contract would pay the expenses
2
<PAGE>
of the Variable Contract, which could further detract from the value of a
Variable Contract Owner's investment as of the Target Maturity Date. For more
information on expenses under the Variable Contract, see the Variable
Contract prospectuses.
OFFERING PERIOD. The Commencement Date is November 14, 1994. The Series
will be offered from the Commencement Date through March 3, 1995. This period
is referred to as the Offering Period. The Investment Start Date is March 6,
1995.
The Series will cease issuing new shares at the end of the Offering
Period (other than shares of the Series issued in connection with
reinvestment of the Series' dividends and distributions). However, it is
anticipated that other series with substantially similar investment
objectives and policies may be offered in the future.
TARGET MATURITY DATE. The Target Maturity Date of the Series is March 6,
2001. On or about this date, the Series will be converted to cash (after
deduction of any unpaid Series expenses). The proceeds will be available for
reinvestment in other investment options available for annuity contracts,
according to the allocation instructions received from Golden American. It is
anticipated that Golden American will ask owners of the annuity contracts
whose proceeds are invested in the Series to choose their desired allocation.
If no instructions are given, liquidation proceeds will be invested
automatically in a series substantially similar to the Series, if any is
being offered at the time, and if not, to the Liquid Asset Series of the
Trust or any successor thereto.
OTHER STRATEGIES. The Series intends to invest in commercial paper and
other money market instruments during the Offering Period until the
Investment Start Date. The Series may purchase only commercial paper and
other money market instruments rated at the time of investment Prime-1 or
Prime-2 by Moody's or A-1 or A-2 by S&P, or, if not rated by Moody's or S&P,
of comparable quality as determined by the Portfolio Manager. The Series also
reserves the right to invest in money market instruments at other times.
It is not initially intended that the Series will invest in
interest-bearing debt securities other than money market instruments as
described above or invest directly in equity securities. However, if at any
time the Portfolio Manager believes that investment in such securities is
appropriate in furtherance of the Series' investment objective or to be
necessary or appropriate under applicable law, the Series may invest in such
securities. The Series also reserves the right to invest in exchange-traded
options and in futures contracts.
The interest-bearing debt securities in which the Series may invest are
those issued by the U.S. Government and its agencies and instrumentalities,
in repurchase agreements on such securities, and in debt instruments of
private issuers rated, at the time of investment, A or better by Moody's or
S&P, if not rated by such rating agencies, of comparable quality as
determined by the Portfolio Manager. The Series may only invest in U.S.
dollar-denominated debt securities of domestic issuers.
The Series may also seek favorable equity market performance by investing
directly or indirectly in equity securities included in the S&P 500 or other
index of large and mid-cap companies that are publicly traded in the United
States. The Series would purchase the common stock of those companies
included in the S&P 500 or another index that the Portfolio Manager believes,
based on statistical data, will represent the industry diversification of the
entire index. The Series may also invest in investment companies or other
vehicles that invest in equity securities that are included in an index.
These may include, but are not limited to, Standard & Poor's Depositary
Receipts, which are publicly traded interests in a unit investment trust that
invests in substantially all of the common stocks in the S&P 500.
The Series may purchase put and call options on securities and on stock
indexes in furtherance of the Series' investment objective. The Series may
also purchase and sell futures contracts and stock index futures contracts,
and purchase options on such contracts.
3
<PAGE>
WHO SHOULD INVEST? The Series will be managed to achieve its investment
objective as of the Target Maturity Date. It is not intended for shareholders
seeking short-term profits. It is intended for investors who desire to
maintain their holding in the Series for the duration of the Series through
the Target Maturity Date. Those withdrawing their interests earlier may be
subject to the risk that the assets in which the Series will invest have not
yet reached their full potential return and the risk of redeeming when such
assets are more volatile than if held longer. Accordingly, redeeming earlier
than the Target Maturity Date may involve greater investment risk than
remaining invested through the Target Maturity Date.
RISKS OF THE SERIES
Investing in the Series involves certain risks. There can be no assurance
that the Series will achieve its investment objective. The Series is subject
to financial, market, and credit risks. As with any security, a risk of loss
is inherent in investment in shares of the Series.
The types of securities and investment techniques used by the Series have
attendant risks of varying degrees. For example, with respect to equity
securities in which the Series may invest directly or indirectly, there can
be no assurance of capital appreciation and there is a substantial risk of
decline.
The Series may acquire zero coupon bonds from governmental and private
issuers. As is the case of all fixed income securities, there exists the risk
that the issuer of a security may not be able to meet its obligations on
interest or principal payments at the time called for by the instrument. In
addition, the value of debt instruments generally rises and falls inversely
with interest rates, and changes in value in response to changing interest
rates may be more pronounced in zero coupon bonds than in interest-bearing
bonds having the same maturity. The Series may acquire debt securities that
are not registered with the Securities and Exchange Commission. Generally,
such securities may only be sold if registered or in transactions that are
exempt from registration. The Series will only acquire unregistered bonds
that have rights under which the Series may require the issuer to repurchase
all or a portion of the bond. Any such repurchase right, as well as payment
of amounts representing principal and interest upon maturity of the bond,
will subject the Series to the risk of the creditworthiness of the issuer of
the bond.
The Series is classified as non-diversified under the Investment Company
Act of 1940, as amended (the "1940 Act"), which means that the Series is not
limited by the 1940 Act in the amount of its assets that it may invest in the
securities of a single issuer. Because the Series may invest in a smaller
number of individual issuers than a diversified investment company, and
investment in the Series may, under certain circumstances, present greater
risk to an investor than an investment in a diversified company. This risk
may include greater exposure to the risk of poor earnings or default of one
issuer than would be the case for a more diversified fund.
Under the terms of the over-the-counter call options that will be
acquired by the Series, the Series must look to the issuing dealer to
repurchase the option and for payment upon exercise. Thus, it is likely that
the Series will be subject to the creditworthiness of the dealers through the
Target Maturity Date. The Series may invest up to 20% of its assets in call
options from one dealer, and nonperformance by any such dealer as a result of
insolvency or otherwise may result in material losses to the Series.
Over-the-counter options are included in the group of instruments that have
been characterized in recent media and other reports as derivatives. For a
discussion of the risks associated with over-the-counter options, see
"Description of Securities and Investment Techniques -- Over-the-Counter
Options."
It is anticipated that in excess of 25% of the Series will be invested in
over-the-counter call options. Thus, the Series might be deemed to have
concentrated its investments in issuers in the securities industry. The
concentration of the Series' assets in firms in the securities industry will
cause the Series to have greater exposure to certain risks associated with
the securities industry. Securities firms are subject to risks associated
with underwriting activities and to fluctuations in the value of their
securities and other investments that may, in turn, affect their financial
strength and their ability to comply with regulations governing capital
requirements. Securities
4
<PAGE>
firms may also be affected by a deterioration in the general conditions of
the securities markets, which may adversely affect assets and revenues.
Securities firms may be subject to risks associated with exposure to
derivatives, currencies, and other financial instruments. In addition, the
securities industry is labor intensive, which may result in high operational
expenses, and is subject to regulation, which can be costly. In addition,
securities firms face competition from different types of financial
institutions.
It is intended that the Series will comply with certain asset
diversification requirements applicable to mutual funds that serve as
investment vehicles for Variable Contracts. These requirements may inhibit
the ability of the Series to acquire securities or other assets. Thus, the
ability of the Series to adjust to the changes in the creditworthiness of
issuers to which it is exposed or to make changes in its portfolio may be
limited. Under other circumstances, compliance with the diversification
requirements may cause the Series to make adjustments in its portfolio that
would not otherwise be made. These circumstances may impede the ability of
the Series to attain its investment objective. The Manager and Portfolio
Manager intend to apply the asset diversification requirements, which are
ambiguous in certain respects, to the Series in a manner consistent with an
Internal Revenue Service ("IRS") ruling that the Series and Golden American
intend to request, or, in the absence of such ruling, in a manner that the
Manager and Portfolio Manager deem appropriate. The Series' satisfaction of
the diversification requirements is an important element underlying the tax
status of the Variable Contracts with premiums allocated to the Series. For
more information, see "Federal Income Tax Status" in this Prospectus.
ABOUT THE S&P 500 INDEX. The S&P 500 is a well-known stock market index
that includes common stocks of companies that represent a significant portion
of the market value of all common stocks publicly traded in the United
States. Stocks in the S&P 500 are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the
stock's current price). The Portfolio Manager believes that the performance
of the S&P 500 is representative of the performance of publicly traded common
stocks in general. The composition of the S&P 500 is determined by Standard &
Poor's Rating Group and is based on such factors as the market capitalization
and trading activity of each stock, and its adequacy as a representation of
stocks in a particular industry group. Standard & Poor's Rating Group may
change the S&P 500 from time to time. "Standard & Poor's-Registered
Trademark-", "S&P-Registered Trademark-", "S&P 500-Registered Trademark-",
"Standard & Poor's 500" and "500" are trademarks of McGraw-Hill, Inc. and
have been licensed for use by Equitable Investment Services, Inc. The Series
is not sponsored, endorsed, sold or promoted by Standard & Poor's Rating
Group and Standard & Poor's Rating Group makes no representation regarding
the advisability of investing in the Series.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes potential risks associated with
different types of securities and investment techniques used by the Series,
as described in "Investment Objective and Policies." For more detailed
information on these investment techniques, as well as information on some
types of securities in which the Series may invest, see the Statement of
Additional Information.
OVER-THE-COUNTER OPTIONS
The Series intends to purchase over-the-counter ("OTC") call options on
the S&P 500 Composite Stock Price Index and other stock indexes representing
large and mid-cap companies. These call options are included in the group of
instruments that can be characterized as derivatives. A call option on a
stock index gives the purchaser of the option, in return for the premium
paid, the right to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than the exercise price of the option. This amount of cash is equal
to the difference between the closing price of the index and the exercise
price of the option.
5
<PAGE>
The terms of any over-the-counter call options that the Series acquires
will be negotiated for the Series. It is intended that the option period will
be through the Target Maturity Date. Engaging in options transactions
involves certain risks. The Series will pay a premium to purchase the option.
If a call option purchased by the Series is not sold or exercised when it has
remaining value, and if the market price of the underlying securities index
remains less than or equal to the exercise price of the call, the Series will
lose its entire investment in the option. Also, the Series will remain
subject to the creditworthiness of the dealer for the option period.
OTC options differ from exchange traded options in several respects. OTC
options are available for a greater variety of securities, and a wider range
of expiration dates and exercise prices, than exchange traded options.
Options with a maturity date of those in which the Series will initially
invest (approximately six years) may be more volatile than shorter-term
exchange-traded options (that generally have a maturity of three, six, or
nine months). OTC options are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as
a result of the insolvency of the dealer or otherwise, in which event the
Series may experience material losses. The Series will engage in OTC stock
index options only with broker-dealers and banks ("Eligible Dealers") that
have been specifically approved by the Manager or the Portfolio Manager
pursuant to procedures adopted by the Board of Trustees of the Trust.
Eligible Dealers must have outstanding securities rated, at the time of
investment, A or better by Moody's or S&P and have shareholders' equity in
excess of $200 million. In addition, the manager or Portfolio Manager must
believe that the firm has capabilities for strong institutional trading depth
in OTC options and that the firm has the financial strength necessary to meet
the obligations under the OTC options. The Portfolio Manager will monitor the
creditworthiness of all Eligible Dealers from whom the Series has purchased
options on an ongoing basis.
Generally, many OTC options are considered illiquid. However, pursuant to
procedures adopted by the Trust's Board of Trustees, the Series will seek to
enter into OTC options that have contractual provisions that are designed to
provide liquidity. Generally, the Series will seek OTC options under the
terms of which the dealer of the option agrees to repurchase at any time the
option from the Series, in whole or in part, at a closing price that is based
upon the market price of the option, or under which the Series could transfer
or assign the OTC option. A closing price based on a market price would be
determined by agreement between the dealer and the Portfolio Manager on
behalf of the Series. In the event that the dealer and the Portfolio Manager
on behalf of the Series are unable to agree on a closing price, the closing
price shall be determined with reference to objective indicia of value, such
as bid quotations received from other Eligible Dealers. The Portfolio Manager
believes that these OTC options will, under their terms and the procedures
adopted by the Board of Trustees, be liquid, subject to the creditworthiness
of the issuing dealer. The Series will not acquire any call option that is
illiquid, if after such acquisition, more than 15% of the Series' assets are
invested in illiquid securities.
For more information on OTC options on stock indexes, see "Options on
Securities and Securities Indexes" in the Statement of Additional
Information.
ZERO COUPON SECURITIES
With respect to its investments in fixed income securities, the Series
may invest in zero coupon securities issued by the United States and its
agencies and instrumentalities. These securities include the following: U.S.
Treasury notes and bonds and securities issued by U.S. Government agencies
and instrumentalities that have no coupons or have been stripped of their
unmatured interest coupons, individual interest coupons from such securities
that trade separately, evidences of such securities, and U.S. Treasury bills.
The Series may also invest in zero coupon securities issued by domestic
corporations which, at the time of investment, are rated A or better by
Moody's or by S&P, or, if not rated, are of a comparable quality as
determined by the Portfolio Manager.
Zero coupon securities pay no cash income but are sold at substantial
discounts from their value at maturity. Because zero coupon securities have
no coupons, the holder is not entitled to
6
<PAGE>
periodic payments of interest. When held to maturity, the entire return from
zero coupon securities, which consists of the accretion of discount, comes
from the difference between their purchase price and their maturity value.
This difference is known at the time of the purchase, so investors holding
zero coupon securities until maturity know the amount of their investment
return at the time of their investment. However, the zero coupon securities
represent only one component of the Series' assets, and the investment return
of the Series is not determinable in advance.
REINVESTMENT RISK. A portion of the total realized return from
conventional interest-paying bonds comes from the reinvestment of periodic
interest payments. Since the rate to be earned on these reinvestments may be
higher or lower than the yield to maturity at the time of purchase, the
investment's total return is uncertain even for investors holding the
security to its maturity. This uncertainty is commonly referred to as
"reinvestment risk" and can have a significant effect on total realized
investment return over a long holding period. One of the attractive features
of zero coupon securities is that, as they provide no interim interest
payments, reinvestment risk is absent. The total value of the security at
maturity is known precisely at the time of purchase. By investing primarily
in zero coupon securities, the Series will be managed to attempt to minimize
reinvestment risk. However, the total value of the Series at the Target
Maturity Date cannot be known in advance.
MARKET RISK. Because interest on zero coupon securities is not
distributed on a current basis but is, in effect, compounded, zero coupon
securities tend to be subject to greater market risk -- i.e., fluctuations in
market value due to changes in interest rates -- than interest-paying
securities of similar maturities. The market value of debt securities
generally rises and falls inversely with fluctuations in interest rates.
Therefore, investors can expect more appreciation from the Series during
periods of declining interest rates than from portfolios consisting of
interest-paying securities of similar maturity; conversely, when interest
rates rise, the Series normally will decline more in price than portfolios
consisting of interest-paying securities of similar maturity. Redemptions
made prior to maturity may result in a different investment return, which may
include a loss, than the return anticipated on the date of the original
investment.
INSURANCE ON PRIVATE ZERO COUPON SECURITIES. Financial guarantee
insurance has not been obtained by the Manager of the Series with respect
to the privately issued zero coupon securities held by the Series. It is
anticipated that the privately issued zero coupon securities will comprise
approximately 10%-15% of the Series' portfolio.
In general, financial guarantee insurance consists of the issuance of a
guarantee of scheduled payments of an issuer's securities, when due, or the
payment of the accreted value of a bond if the issuer of the bond becomes
insolvent, in consideration for the payment of a premium to the insurer. The
insurance does not guarantee the market value of the zero coupon securities
or the value of shares of the Series. In the event of a sale of certain zero
coupon securities, the insurance terminates as to such securities as of the
date of the sale.
Except as indicated below, any insurance obtained by the Manager will
have no effect on the net asset value of the shares of the Series. It is the
present intention of the Trust's Board of Trustees to attribute a value for
any such insurance for the purpose of computing the net asset value of the
Series' shares only if the bonds covered by such insurance are in default or
if the issuer is insolvent. The value of any insurance likely will be the
difference between the market value of a bond that is covered by insurance
upon default or the issuer's insolvency and the accreted value of that bond.
Determinations of the value, if any, attributed to the insurance will be
subject to the oversight of the Trust's Board of Trustees. For information
regarding the tax considerations relating to the financial guarantee
insurance, see "Taxation" in the Statement of Additional Information.
7
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OPTIONS ON SECURITIES
The Series reserves the right to engage in exchange-traded options on
securities and on securities indexes. The Series may purchase put and call
options on securities and on stock indexes in furtherance of the Series'
investment objective. The Series may enter into closing transactions in order
to terminate its position an option prior to the expiration of the option.
For a general description of the purchasing options on securities and
securities indexes, see "Options on Securities and Securities Indexes" in the
Statement of Additional Information.
RISKS OF OPTIONS TRANSACTIONS. Where a put or call option on a
particular security or index of securities is purchased to capture the
appreciation in its underlying security or securities index, the price of the
put or call option may move more or less than the price of the related
security or value of the index.
There can be no assurance that a liquid market will exist when the Series
seeks to close out an option position. Furthermore, if trading restrictions
or suspensions are imposed on the options markets, the Series may be unable
to close out a position. Possible reasons for the absence of a liquid
secondary market on a national securities exchange could include:
insufficient trading interest, restrictions imposed by national securities
exchanges, trading halts or suspensions with respect to call options or their
underlying securities, inadequacy of the facilities of national securities
exchanges or the Options Clearing Corporation due to a high trading volume or
other event, and a decision by one or more national securities exchanges to
discontinue the trading of call options or to impose restrictions on types of
orders.
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Since option premiums paid by the Series, as compared to underlying
investments, are small in relation to the market value of such investments,
buying and selling put and call options offer large amounts of leverage.
Thus, the leverage offered by trading in options could result in the Series'
net asset value being more sensitive to changes in the value of the
underlying securities.
FUTURES CONTRACTS
The Series has reserved the right to engage in futures contracts. The
Series may purchase futures contracts on securities or stock indexes and
purchase options on such contracts. For a general description of these
futures contracts and options thereon, including information on margin
requirements, see the Statement of Additional Information.
The Series may engage in such futures transactions as an adjunct to its
securities activities. The transactions in futures contracts must constitute
bona fide hedging or other strategies under regulations promulgated by the
Commodities Futures Trading Commission (the "CFTC"), under which the Series
engaging in futures transactions would not be a "commodity pool." At the time
the Series purchases a futures contract, an amount of cash, U.S. Government
securities, or high quality debt securities equal to the fair market value
less initial and variation margin of the futures contract will be deposited
in a segregated account with the Trust's custodian to collateralize the
position and thereby ensure that such futures contract is covered.
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several
risks associated with the use of futures and futures options. The value of a
futures contract may decline. There can be no assurance that a liquid market
will exist at a time when the Series seeks to close out a futures contract or
a futures option position. Most futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a
single day; once the daily limit has been reached on a particular contract,
no trades may be made that day at a price beyond that limit. In addition,
certain of these instruments are relatively new and without a significant
trading history. As a result, there is no assurance that an active secondary
market will develop or continue to exist. The daily limit governs only price
movements during a particular trading day and therefore does not limit
potential losses because the limit may work to prevent the liquidation of
unfavorable positions. For example, futures prices have occasionally moved to
the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Lack of a liquid
market for any reason may prevent the Series from liquidating an unfavorable
position and the Series would remain obligated to meet margin requirements
and continue to incur losses until the position is closed.
The Series will only enter into futures contracts or futures options
which are standardized and traded on a U.S. exchange or board of trade, or,
in the case of futures options, for which an established over-the-counter
market exists. The Series will not enter into a futures contact or purchase a
futures option if immediately thereafter the initial margin deposits for
futures contracts held by the Series plus premiums paid by it for open
futures options positions, less the amount by which any such positions are
"in-the-money," would exceed 5% of the Series' total assets.
OTHER INVESTMENT COMPANIES
The Series may invest in shares or other interests issued by other
investment companies. The Series is limited in the degree to which it may
invest in shares of another investment company in that it may not, at the
time of the purchase, (1) acquire more than 3% of the outstanding voting
shares of the investment company, (2) invest more than 5% of the Series'
total assets in the investment company, or (3) invest more than 10% of the
Series' total assets in all investment company holdings. As a shareholder in
any investment company, the Series will bear its ratable share of the
investment company's expenses, including management fees in the case of a
management investment company.
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MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the direction of
the Board of Trustees. The Trustees are J. Michael Earley, R. Barbara
Gitenstein, Robert A. Grayson, Stanley B. Seidler, Roger B. Vincent. The
Executive Officers of the Trust are Barnett Chernow, Mary Bea Wilkinson, and
Myles R. Tashman. Additional information about the Trustees and officers of
the Trust may be found in the Statement of Additional Information under the
heading "Management of the Trust."
THE MANAGER
Directed Services, Inc. ("DSI" or the "Manager") serves as the Manager to
the Trust pursuant to a Management Agreement with the Trust. DSI is a New
York corporation that is a wholly owned subsidiary of Equitable of Iowa
Companies ("Equitable"). DSI is registered with the SEC as an investment
adviser and a broker-dealer. The Trust currently offers shares of its operat-
ing series to, among other offerees, separate accounts of Golden American to
serve as the investment medium for Variable Contracts issued by Golden
American. DSI is the principal underwriter and distributor of the Variable
Contracts issued by Golden American. Golden American is a stock life insur-
ance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden
American is a wholly owned subsidiary of Equitable. With assets of over $12.5
billion as of December 31, 1996, Equitable is the holding company for
Equitable Life Insurance Company of Iowa, USG Annuity & Life Company, Locust
Street Securities, Inc., and Equitable Investment Services, Inc. Prior to
August 13, 1996, DSI was an indirect, wholly owned subsidiary of Bankers
Trust Company.
DSI performs the activities described above in this Prospectus and below
under the caption "Distributor." On September 30, 1992, a wholly owned
subsidiary of Bankers Trust Company acquired all of the issued and
outstanding stock of Golden American and DSI, and related assets, in a
transaction involving settlement of pre-existing claims of Bankers Trust
Company against the former parent of Golden American and DSI.
Under the Management Agreement, DSI has overall responsibility, subject
to the supervision of the Board of Trustees, for engaging the portfolio
manager and for monitoring and evaluating the management of the assets of the
Series by the Portfolio Manager. The Manager is also responsible for
monitoring and evaluating the Portfolio Manager on a periodic basis, and will
consider its performance record with respect to the investment objective and
policies of the
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Series. The Manager may, if appropriate, recommend that the Trustees consider
a change in the Portfolio Manager, although the Manager does not expect to
recommend changes in the Portfolio Manager as a matter of operating procedure
for the Series.
As Manager, DSI is responsible, subject to the supervision of the Board
of Trustees, for providing administrative and other services necessary for
the ordinary operation of the Series in addition to advisory services. The
Manager provides the overall business management and administrative services
necessary for the Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of the Series.
The Manager is responsible for providing or procuring, at the Manager's
expense, the services reasonably necessary for the ordinary operation of the
Series, including custodial, administrative, transfer agency, portfolio
accounting, dividend disbursing, auditing, and ordinary legal services. The
Manager also acts as liaison among the various services providers to the
Series, including the custodian, portfolio accounting agent, Portfolio
Manager, and the insurance company or companies to which the Series offers
its shares. The Manager is also responsible for ensuring that the Series
operates in compliance with applicable legal requirements and for monitoring
the Portfolio Manager for compliance with requirements under applicable law
and with the investment policies and restrictions of the Series. DSI does not
bear the expense of brokerage fees and other transactional expenses for
securities or other assets (which are generally considered part of the cost
for the assets), taxes (if any) paid by the Series, interest on borrowing,
fees and expenses of the independent trustees, and extraordinary expenses,
such as litigation or indemnification expenses.
Pursuant to the Management Agreement, the Manager is authorized to
exercise full investment discretion and make all determinations with respect
to the investment of the Series' assets and the purchase and sale of
portfolio securities for the Series in the event that at any time no
Portfolio Manager is engaged to manage the assets of the Series. The
Management Agreement may be terminated without penalty by the vote of the
Board of Trustees or the Shareholders of the Series, or by the Manager, upon
60 days' written notice by the Board or the Manager, and will terminated
automatically if assigned as that term is described in the 1940 Act.
The Trust pays the Manager for its services under the Management
Agreement a quarterly fee equal to an annual rate of 1.0% of the average
daily net assets of the Series. For more information on the Management
Agreement, see the Statement of Additional Information.
The Trust is distinct in that the expense structure of the Series is
simpler and more predictable than most mutual funds. Many of the ordinary
expenses for the Series, including custodial, administrative, transfer
agency, portfolio accounting, auditing, and ordinary legal expenses are paid
by the Manager; whereas, most mutual funds pay for these expenses directly
from their own assets.
THE PORTFOLIO MANAGER
ING INVESTMENT MANAGEMENT, LLC
The Portfolio Manager to the Market Manager Series is ING Investment
Management, LLC,("IIM LLC"), located at 5780 Powers Ferry Road, N.W.
Suite 300, Atlanta, Georgia 30327. The Portfolio Manager is a limited
liability corporation incorporated in Delaware which is engaged in the
business of providing investment advice to affiliated insurance companies
possessing portfolios which, as of December 31, 1997, were valued at $12
billion. The Portfolio Manager is a wholly owned
subsidiary of ING and is affiliated with DSI. The Portfolio Manager is
also a sub-adviser to the Equi-Select Series Trust, a registered investment
company that serves as the investment vehicle underlying certain variable
annuity contracts issued by Equitable Life Insurance Company of Iowa and
Golden American.
Robert F. Bowman has served as the Senior Portfolio Manager
responsible for the day-to-day management of the Market Manager Series
since March 2, 1997. Mr. Bowman has been employed by
the Portfolio Manager as a Managing Director since January 2, 1998.
Prior to that he served as the Series' Portfolio Manager while working
for Equitable Investment Services, Inc. ("EISI"). He joined the EISI
as Executive Vice President in 1986, and has over 18 years of direct
investment experience.
Under the Agreement, the Portfolio Manager has full investment discretion
and makes all determinations with respect to the investment of the Series'
assets and the purchase and sale of portfolio securities and other
investments. The Portfolio Management Agreement may be terminated without
penalty by the vote of the Board of Trustees or the Shareholders of the
Series, by the Portfolio Manager, or by the Manager, on 60 days' written
notice by any party to the Portfolio Management Agreement, and will
terminated automatically if assigned as that term is described in the 1940
Act.
Under the Portfolio Management Agreement, the Manager (and not the Trust)
pays IIM LLC a fee, payable monthly, based on the average daily net assets of
the Series at the annual rate 0.50%.
IIM LLC or its affiliate EISI have served as Portfolio Manager to the
Market Manager Series since March 2, 1997. IIM LLC assumed portfolio
management responsibilities for the Market Manager Series on January 2, 1998.
EISI served as Portfolio Manager from March 2, 1997 through January 1, 1998.
Bankers Trust Company served as portfolio manager from the Series'
commencement of operations (November 14, 1994) through March 2, 1997.
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OTHER EXPENSES
The expenses of the ordinary operations of the Series are borne by the
Manager pursuant to the Management Agreement. The Trust bears the expense of
taxes (if any) paid by the Series, the fees and expense of its independent
trustees, any extraordinary expenses, such as any litigation or
indemnification expenses, as well as other expenses as described under "The
Manager." Any such Trust expenses directly attributable to the Series are
charged to the Series; other expenses are allocated among all the series of
the Trust. For the fiscal year ended December 31, 1997, total Series expenses
(net of fee waiver) were 0.01% of the Series' net assets.
DISTRIBUTOR
Directed Services, Inc. acts as distributor ("Distributor") of shares of
the Series, in addition to serving as Manager for the Trust. The
Distributor's address is 1001 Jefferson Street, Suite 400, Wilmington,
Delaware 19801. The Distributor is a registered broker-dealer and a member of
the National Association of Securities Dealers and acts as Distributor
without remuneration from the Trust.
CUSTODIAN
The Custodian for the Series is Bankers Trust Company. First Data
Investors Services Group of First Data Corporation, formerly The Shareholder
Services Group, Inc., provides portfolio accounting services for the Series.
PURCHASE OF SHARES
Shares of the Series may be offered for purchase by separate accounts of
Golden American to serve as an investment medium for the Variable Contracts
issued by the insurer. Shares of the
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Series will be sold during the Offering Period at the net asset value
(without a sales charge) next computed after receipt of a purchase order by
Golden American. Shares will not be available after the Offering Period
(other than for reinvestment of any dividends and distributions).
NET ASSET VALUE
The Series' net asset value is determined by dividing the value of the
Series' net assets by the number of its shares outstanding. That
determination is made once each business day, Monday through Friday, at or
about 4:00 p.m., New York City time, on each day that the New York Stock
Exchange is open for trading. The Board of Trustees has established
procedures to value the Series' assets to determine net asset value. In
general, these valuations are based on actual or estimated market value, with
special provisions for assets not having readily available market quotations.
The net asset value per share of the Series will fluctuate in response to
changes in market conditions and other factors.
Portfolio securities for which market quotations are readily available
are stated at market value. Market value for securities other than options is
determined on the basis of last reported sales price, or, if no sales are
reported, the mean between representative bid and asked quotations obtained
from a quotation reporting system or from established market makers. Market
value for OTC options that the Series will purchase is determined on the
basis of representative bid quotations obtained from the dealers that have
issued the options and possibly other dealers, as monitored by the Portfolio
Manager under procedures adopted by the Board of Trustees. In other cases,
securities are valued at their fair value as determined in good faith by the
Board of Trustees, although the actual calculations will be made by persons
acting under the direction of the Board and subject to the Board's review.
Under these procedures, debt securities of corporations for which market
quotations are not readily available and that have provisions under which the
issuer will repurchase all or a portion of the debt security will be valued
with reference to the repurchase price provided in the purchase agreement.
REDEMPTION OF SHARES
Shares of the Series may be redeemed on any business day. Redemptions are
effected at the per share net asset value next determined after receipt of
the redemption request by an insurance company whose separate account invests
in the Series. Redemption proceeds normally will be paid within seven days
following receipt of instructions in proper form. The right of redemption may
be suspended by the Trust or the payment date postponed beyond seven days
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings) or for any period during which trading thereon is
restricted because an emergency exists, as determined by the Securities and
Exchange Commission, making disposal of portfolio securities or valuation of
net assets not reasonably practicable, and whenever the Securities and
Exchange Commission has by order permitted such suspension or postponement
for the protection of shareholders.
EXCHANGES
Shares of the Series may be exchanged for shares of any other series of
the Trust, other than The Fund For Life, at any time. Exchanges of shares of
other series of the Trust into the Series will only be permitted during the
Offering Period. Exchanges are treated as a redemption of shares of one
series and a purchase of shares of one or more of the other series and are
effected at the respective net asset values per share of each series on the
date of the exchange. The Trust reserves the right to modify or discontinue
its exchange privilege at any time without notice.
Variable Contract Owners do not deal directly with the Trust with respect
to the purchase, redemption, or exchange of shares of the Series, and should
refer to the prospectus for the applicable Variable Contract for information
on allocation of premiums and on transfers of account value among division of
the pertinent insurance company separate account that invest in the Series.
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The Series will be managed to achieve its investment objective as of the
Target Maturity Date, and is intended for investors who desire to maintain
their holding in the Series for the duration of the Series through the Target
Maturity Date. Variable Contract Owners who withdraw their interests earlier
may be subject to a greater risk that the Series will not achieve its
investment objective and to the risk that the assets in which the Series
will invest have not yet reached their full potential return.
DIVIDENDS AND DISTRIBUTIONS
Net investment income of the Series will be paid annually. Any net
realized long-term capital gains (the excess of net long-term capital gains
over net short-term capital losses) for the Series will be declared and paid
at least once annually. Net realized short-term capital gains may be declared
and paid more frequently.
Any distributions made by the Series will be automatically reinvested in
additional shares off the Series unless a shareholder elects to receive
distributions in cash. Dividends or distributions by the Series will reduce
the per share net asset value by the per share amount so paid.
FEDERAL INCOME TAX STATUS
The Series intends to qualify each year and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Series generally expects
not be subject to federal income tax if it meets certain source of income,
diversification of assets, income distribution, and other requirements, to
the extent it distributes its investment company taxable income and its net
capital gains. Distributions of investment company taxable income and net
realized capital gains are automatically reinvested in additional shares of
the Series, unless an election is made by a shareholder to receive
distributions in cash. Tax consequences to the Variable Contract Owners are
described in the prospectuses for the pertinent separate accounts.
To comply with regulations under Section 817(h) of the Code, the Series
generally will be required to diversify its investments, so that on the last
day of each quarter of a calendar year, no more than 55% of the value of its
assets is represented by any one investment, no more than 70% is represented
by any two investments, no more than 80% is represented by any three
investments, and no more than 80% is represented by any three investments,
and no more than 90% is represented by any four investments. For this
purpose, securities of a single issuer are treated as one investment and each
U.S. Government agency or instrumentality is treated as a separate issuer.
Any security issued, guaranteed, or insured (to the extent so guaranteed or
insured) by the U.S. or an agency or instrumentality of the U.S. is treated
as a security issued by the U.S. Government or its agency or instrumentality;
whichever is applicable. These regulations generally will limit the ability
of the Series to invest more that 55% of its assets in direct obligations of
the U.S. Treasury or in obligations which are deemed to be issued by a
particular agency or instrumentality of the U.S. Government. If the Series
fails to meet the diversification requirements under Code Section 817(h),
income with respect to Variable Contracts invested in the Series at any time
during the calendar quarter in which the failure occurred could become
currently taxable to the owners of such Variable Contracts, and income for
prior periods with respect to such Contracts also could be taxable, most
likely in the year of the failure to achieve the required diversification.
Other adverse tax consequences also could ensue. If the Series failed to
qualify as a regulated investment company, the results to Variable Contract
Owners would be substantially the same as a failure to meet the
diversification requirements under Code Section 817(h), and the Series'
income would be subject to taxation.
The manner in which the asset diversification requirements under Code
Section 817(h) and Subchapter M of the Code apply to the Series is not
entirely clear. The Series and the insurance company to which the Series
offers its shares intend to request rulings from the IRS to, among
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other things, confirm the intended approach of the Manager and Portfolio
Manager in applying the diversification rules. If such rulings are not
obtained, the Manager and Portfolio Manager intend to apply the asset
diversification rules in a manner in which they believe appropriate, but the
IRS might not necessarily accept such application. If it did not, Variable
Contracts with premiums allocated to the Series might not receive favorable
tax treatment, and the Series might not qualify as a regulated investment
company. Current or future diversification standards prescribed by the IRS
may restrict the Series' acquisitions of certain assets and may require the
Series to sell certain assets when it would not otherwise do so. Thus, the
Series' seeking to comply with the diversification requirements could
interfere with its ability to attain its investment objective.
In certain circumstances, owners of variable annuity contracts may be
considered the owners for tax purposes, of the assets of the separate account
used to support their contracts. In those circumstances, income and gains
from the separate account assets would be includible in the variable contract
owner's taxable income when earned b y the separate account. The IRS has
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department also announced,
in connection with the issuance of regulations under Code Section 817(h)
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of
a segregated asset account may cause the investor (i.e., the policy owner),
rather than the insurance company, to be treated as the owner of the assets
in the account" and that future guidance would be issued. The Treasury staff
has indicated informally that it is concerned that there may be too much
contract owner control where the fund (or series) underlying a separate
account invests solely in securities issued by companies in a specific
industry. Similarly, the ability of a contract owner to select a fund (or
series) representing a specific economic risk may also be proscribed.
To date, the IRS has identified only certain circumstances as involving
prohibited incidents of ownership with respect to assets in a separate
account. The Series is similar to, but is different in certain respects from,
situations described in IRS rulings in which the IRS held that contract
owners did not possess incidents of ownership. These differences could result
in a Variable Contract Owner being treated as the owner of the assets
underlying the variable Contract. In addition, it is not known what standards
will be incorporated in future regulations or other pronouncements, and there
can be no certainty that the future rules, regulations and positions will not
be given retroactive application.
In the event that unfavorable rules, regulations or positions are
adopted, there can be no assurance that the Series will be able to operate as
currently described in the Prospectus, or that the Series will not have to
change its investment objective, investment policies, or investment
restrictions. While the Series' investment objective is fundamental and may
be changed only by a vote of a majority of its outstanding shares, the
Trustees have reserved the right to modify the investment policies of the
Series as necessary to attempt to prevent any such prospective rules,
regulations or positions from causing the Variable Contract Owners to be
considered the owners of the shares of the Series.
Prospective purchasers of shares of the Series should consult a tax
advisor regarding the tax consequences of purchasing shares and Variable
contracts whose proceeds are invested in the Series' shares. See "Taxation"
in the Trust's Statement of Additional Information for more information on
taxes. Reference is made to the prospectus or offering memorandum of the
applicable Separate Account for information regarding the federal income tax
treatment respecting a Variable Contract.
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OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on August 3,
1988, and currently consists of twenty-four series that are operational, one
of which is described in this Prospectus. Other series may be offered by
means of separate prospectuses. The Board of Trustees may establish
additional series in the future. The capitalization of the Trust consists
solely of an unlimited number of shares of beneficial interest with a par
value of $0.001 each. When issued in accordance with the terms of the Trust's
Agreement and Declaration of Trust ("Declaration of Trust"), shares of the
Trust are fully paid, freely transferable, and non-assessable by the Trust.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees, or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed
by the Trust or the Trustees. The Declaration of Trust provides for
indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to meet
its obligations and thus should be considered remote.
VOTING RIGHTS
Shareholders of the Series are given certain voting rights. Each share of
the Series will be given one vote, unless a different allocation of voting
rights is required under applicable law for a mutual fund that is an
investment medium for variable insurance products.
Massachusetts business trust law does not require the Trust to hold
annual shareholder meetings, although special meetings may be called for the
Series, or for the Trust as a whole, for purposes such as electing or
removing Trustees, changing fundamental policies, or approving a contract for
investment advisory services. In the case of Variable Contracts, in
accordance with current laws, it is anticipated that an insurance company
issuing a Variable Contract funded by a Separate Account that invests in the
Series and that is registered with the Securities and Exchange Commission as
a unit investment trust will request voting instructions from Variable
Contract Owners and will vote shares or other voting interests in the
separate account in proportion to the voting instructions received.
LEGAL COUNSEL
Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania 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 for the Trust.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the Series for the fiscal
year ended December 31, 1997, including notes thereto, are incorporated by
reference in the Statement of Additional Information from the Trust's Annual
Report dated as of December 31, 1997. Information in the financial statements
has been audited by Ernst & Young LLP. Commencement of operations was on
November 14, 1994.
YEAR 2000
Based on a study of its computer software and hardware, the Manager in
conjunction with an affiliate, Golden American Life Insurance Company
("Golden American"), have determined their exposure to the Year 2000 change
of the century date issue. Some of these systems support certain trust
operations. The Manager believes its and Golden American's systems are or
will be substantially compliant by Year 2000 and has engaged external
consultants to validate this assumption. The Manager is in contact with the
Trust's Portfolio Managers and third party vendors to ensure that their
systems will be compliant by Year 2000. To the extent these Portfolio
Managers and third parties would be unable to transact business in the Year
2000 and thereafter, the Trust's operations could be adversely affected.
16
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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
May 1, 1998
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 May 1, 1998 (which
pertains to all Series other than the Market Manager Series) and
the Prospectus of the Market Manager Series dated May 1, 1998.
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
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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 Statement of
Additional Information; (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 Statement
of Additional Information 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 sections 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 of 1940 and 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,
23
<PAGE>
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 J. Michael Earley, R.
Barbara Gitenstein, Robert A. Grayson, Elizabeth J. Newell, Stanley
B. Seidler, and Roger B. Vincent. The Executive Officers of the
Trust are 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
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.; Executive Vice
President, First Golden American
Life Insurance Company of New
York; formerly,Senior Vice
President and Chief
Financial Officer, Reliance
Insurance Company, August
1977 to July 1993. Age 48.
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
93103 Business Administration;
former Director, The Golden
Financial Group, Inc.;
former Senior Vice
President, David & Charles
Advertising. Age 70.
Myles R. Tashman Secretary Executive Vice President,
Golden American Life Secretary and General Counsel,
Insurance Co. Golden American Life Insurance
1001 Jefferson Street Company; Director, Executive Vice
Wilmington, DE 19801 President, Secretary and General
Counsel, Directed Services, Inc.;
Director, Executive Vice
President, Secretary and General
Counsel, First Golden American Life
Insurance Company of New York;
formerly, Senior Vice President
and General Counsel, United Pacific
Life Insurance Company (1986-
1993). Age 55.
30
<PAGE>
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.
Mary Bea Wilkinson Treasurer Senior Vice President & Treasurer,
Golden American Life First Golden American Life Insurance
Insurance Co. Company of New York; Senior Vice
1001 Jefferson Street President 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 51
Des Moines, IA 50321
As of December 31, 1997, none of the Trustees directly owns
shares of the Series. In addition, as of December 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.
Each Trustee of the Trust who is not an interested person of the Trust or
Manager or Portfolio Manager receives a fee of $6,000 for each Trustees'
meeting attended and any expenses incurred in attending such meetings or
carrying out their responsibilities as Trustees of the Trust. With respect to
the period ended December 31, 1997, the Trust paid Trustees' Fees aggregating
$105,000. The following table shows 1997 compensation by Trustee.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual From Registrant
Name of Person, From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Trustees
J. Michael Earley, $ 9,000 N/A N/A $ 21,750
Trustee
R. Barbara Gitenstein, $ 9,000 N/A N/A $ 21,000
Trustee
Robert A. Grayson $ 24,000 N/A N/A $ 24,000
Trustee
Stanley B. Seidler, $ 9,000 N/A N/A $ 21,000
Trustee
Elizabeth J. Newell $ 6,000 N/A N/A $ 12,000
Trustee
Roger B. Vincent $ 24,000 N/A N/A $ 24,000
Trustee
M. Norvell Young $ 24,000 N/A N/A $ 24,000
Trustee
</TABLE>
31
The table below lists each Variable Contract Owner who owns
a Variable Contract that entitles the owner to give voting
instructions with respect to 5% or more of the shares of the
Series as of March 31, 1998. 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 13.17%
Charitable Remainder
Trust
Darald Libby Market Manager 8.22%
Charitable Remainder
Unit Trust
George Berman Market Manager 7.32%
Charitable Remainder
Trust
Sanford Lugar Market Manager 5.89%
In addition, as of December 31, 1997 the General Account of
Golden American owned 9.83% of the shares of the Emerging Markets
Series and Security Equity Life owned beneficially 30.83% 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
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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
fiscal year ended December 31, 1997 were as follows: Multiple
Allocation Series -- $2,635,937; Strategic Equity Series --
$349,342; Fully Managed Series -- $1,489,989; Limited Maturity
Bond Series -- $454,759; Hard Assets Series -- $462,391; Real
Estate Series -- $610,484; All-Growth Series -- $730,308; Capital
Appreciation Series -- $1,664,222; Rising Dividends Series --
$1,794,223; Emerging Markets Series -- $845,128; Liquid Asset
Series -- $289,064; Small Cap Series -- $472,567; Value Equity
Series -- $591,757; Managed Global Series -- $1,238,851 and Market
Manager Series -- 63,228. 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.
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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
year ended December 31, 1995, the predecessor of the
Managed Global Series of the Series paid management fees of
$211,615, and $293,930, 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 fiscal year ending December 31, 1997, the Manager (and not the
Trust) paid the Portfolio Managers the following amounts:
Zweig Advisors Inc. -- $1,339,369 for the Multiple Allocation
Series and $200,373 for the Strategic Equity Series; T. Rowe
Price Associates, Inc.-- $757,091 for the Fully Managed Series;
Putnam Investment Management, Inc. -- $462,738 for the Emerging
Markets Series and $664,883 for the Managed Global Series;
Van Eck Associates Corp. -- $234,949 for the Hard Assets
Series; Chancellor LGT Asset Management Inc. -- $845,622
for the Capital Appreciation Series; Kayne Anderson
Investment Management, L.P. -- $911,678 for the Rising Dividends
Series; EII Realty Securities, Inc. -- $310,198 for the Real
Estate Series; Eagle Asset Management, Inc. -- $301,429 for the
Value Equity Series; and Pilgrim Baxter & Associated, Ltd. --
$396,195 for the All-Growth Series; Equitable Investment Services,
Inc. -- $84,766 for Liquid Assets Series, $198,601 for Limited
Maturity Bond Series and $31,614 for Market Manager Series; and
Fred Alger Management, Inc. -- $240,119 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; EII 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. For 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; EII 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.
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For the fiscal year ended December 31, 1995 the
predecessor of the Managed Global Series paid portfolio
management fees of $440,770.
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
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<PAGE>
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 fiscal year ended December 31, 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 $315,130, $82,710, $113,636, $0, $614,405, $0, $0, $249,483,
$112,726, $174,820, $163,515, $219,706, $811,015, $231,719, and
$150,934, respectively. The Multiple Allocation Series and
Strategic Equity Series paid brokerage commissions of $33,263
and $1,788 (10.55% and 2.16% of its total brokerage commissions),
respectively, to Zweig Securities. The Value Equity Series paid
brokerage commissions of $13,239 (6.03% of its total brokerage
commissions) to Raymond James & Associates, Inc. The Hard Assets
Series paid brokerage commissions of $900 (0.36% of its total
brokerage commissions) to Raymond James & Associates, Inc. The
Small Cap Series paid brokerage commissions of $150,041 (99.41% 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.
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 December 31, 1997 and for the five- and one-year periods ended
December 31, 1997 the average annual total return for each Series
was as follows: 9.91%, 10.78%, and 17.44% for the Multiple
Allocation Series; 9.37%, 10.08%, and 15.27% for the Fully Managed
Series; 6.79%, 5.46%, and 6.67% for the Limited Maturity Bond
Series; 5.53%, 4.14%, and 5.87% for the All-Growth Series;
12.59%, 19.29%, and 22.79% for the Real Estate Series; 9.93%,
19.20%, and 6.22% for the Hard Assets Series; and 5.16%, 4.38%,
and 5.07% for the Liquid Asset Series. For the period of May 4,
1992 (inception of the Capital Appreciation Series) to December 31,
1997 and for the five- and one-year period ended December 31,
1997, the average total return for the Capital Appreciation
Series was 16.61%, 16.56%, and 28.95%. For the period of October
1, 1993 (inception of the Rising Dividends and Emerging Markets
Series) to December 31, 1997 and for the one-year period ended
December 31, 1997, the average total return for the Rising Dividends
Series was 19.48% and 29.82% and the average annual total return
for the Emerging Markets Series was -1.89% and -9.37%. For the
period of November 14, 1994 (inception of the Market Manager
Series) to December 31, 1997 and for the one-year period ended
December 31, 1997, the average total return for the Market Manager
Series was 24.62% and 33.82%. For the period of January 1, 1995
(inception of the Value Equity Series) to December 31, 1997 and for
the one-year period ended December 31, 1997, the average total return
for the Value Equity Series was 24.01% and 27.28%. For the period
of October 2, 1995 (inception of the Strategic Equity Series) to
December 31, 1997 and for the one-year period ended December 31, 1997,
the average total return for the Strategic Equity Series was 18.92%
and 23.16%. For the period ended January 3, 1996 (inception for
the Small Cap Series) to December 31, 1997, and for the one-year period
ended December 31, 1997 the total return for the Small Cap Series was
15.17% and 10.32%.
The Managed Global Series is a successor to the Managed
Global Account of Separate Account D of Golden American. As of
September 3, 1996, the investment-related assets of the Managed
Global Account of Separate Account D were transferred to a newly
created division of Separate Account B of Golden American.
Simultaneously, Separate Account B exchanged the investment-
related assets for shares of the Managed Global Series, a newly
created Series of the Trust. The following information regarding
average total return is restated from the Managed Global Account
of Separate Account D. The total return figures reflect the
deduction of certain expenses, including the management fees,
custodian fees, fees of the Board of Governors of Separate
Account D, and other expenses. For the period of October 21,
1992 (commencement of operations) to December 31, 1997 and for
the five- and one-year period ended December 31, 1997, the
average total return for the Managed Global Series was 4.46%,
4.61% and 12.17%, 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 indexes that measure performance of a
pertinent group of securities, (ii) other groups of mutual funds
tracked by Lipper Analytical Services, Inc., a widely used
independent research firm which ranks mutual funds by overall
performance, 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
indexes 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) 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 (iii) 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. Capital gains dividends may be taxed at one
of several different rates. 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-four Series. The twenty-three
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 Pennsylvania Avenue, NW,
Washington, D.C. 20004-2440 serves 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, 1997 for all Series except The Fund For Life 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, 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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THE GCG TRUST
CROSS-REFERENCE SHEET
THE FUND FOR LIFE
PART A -- PROSPECTUS
ITEM HEADING
1. Cover Page Cover Page
2. Synopsis Prospectus Synopsis
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives and
Policies; Risks and Other
Considerations
5. Management of the Fund Management of the Trust
5A. Management's Discussion of See Annual Report to
Fund Performance Contract owners
6. Capital Stock and Other Securities Dividends, Distributions and
Taxes; Portfolio Transactions;
Other Information
7. Purchase of Securities Purchase of Shares;
Being Offered Exchanges
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
PART B -- STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Management of the Trust
13. Investment Objectives and Policies Investment Policies;
Investment Restrictions
14. Management of the Registrant Management of the Trust
15. Control Persons and Principal The Management Agreement
Holders of Securities
16. Investment Advisory and Other Management of the Trust
17. Brokerage Allocation Distribution of Trust Shares
18. Capital Stock and Other Securities Voting Rights
19. Purchase, Redemption and Pricing Purchases and Redemptions
20. Tax Status Taxation
21. Underwriters Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Not Applicable
<PAGE>
THE FUND FOR LIFE
1001 JEFFERSON STREET, SUITE 400
WILMINGTON, DELAWARE 19801
(800) 366-0066
The Fund For Life (the "Fund") is a diversified portfolio
("Series") of an open-end management investment company, The GCG Trust
(the "Trust"). The Fund's investment objective is high total investment
return (capital appreciation and current income) consistent with prudent
investment risk and a balanced investment approach. The Fund seeks to
achieve its objective by investing in shares of other management
investment companies ("mutual funds") using an allocation strategy that
emphasizes mutual funds that invest primarily in domestic equity
securities (approximately 60%), while also allocating a portion of the
Fund's assets to mutual funds that invest in international equity
securities (approximately 10%), and allocating a portion of the Fund's
assets to mutual funds that invest primarily in debt securities
(approximately 30%). There can be no assurance that the Fund's
investment objective will be achieved.
The Trust has retained Directed Services, Inc. ("DSI") to provide
investment advisory and administrative services to the Fund. The Fund's
policy of investing in shares of other investment companies involves
certain expenses not normally attributable to a mutual fund that invests
in other types of securities. See "Risks and Other Considerations."
As of the date of this Prospectus, shares of the Fund are sold only
to separate accounts of insurance companies (the "Separate Accounts") to
serve as the investment medium for variable annuity contracts issued by
the insurance companies.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Fund. A Statement of
Additional Information (the "SAI") dated May 1, 1998, containing
additional and more detailed information about the Fund has been filed
with the Securities and Exchange Commission and is hereby incorporated
by reference into this Prospectus. It is available without charge and
can be obtained by writing or calling the Trust at the address and
telephone number printed above.
___________
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE SEPARATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY
AND RETAINED FOR FUTURE REFERENCE.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Synopsis 1
Financial Highlights 1
Investment Objective and Policies 2
Risks and Other Considerations 7
Management of the Trust 8
Investment in the Trust 10
Dividends, Distributions, and Taxes 12
Other Information 13
Appendix A-1
PROSPECTUS SYNOPSIS
This Prospectus offers shares of The Fund For Life (the "Fund"), a
portfolio ("Series") of The GCG Trust (the "Trust"). The Trust is an
open-end management investment company organized as a Massachusetts
business trust.
The Fund's investment objective is high total investment return
(capital appreciation and current income) consistent with prudent
investment risk and a balanced investment approach.
The Fund seeks to achieve this objective by investing in shares of
other open-end management investment companies ("mutual funds") based
on an investment program that emphasizes mutual funds that invest
primarily in domestic equity securities (approximately 60%), while
also allocating a portion of the Fund's assets to mutual funds that
invest in international equity securities (approximately 10%), and
allocating a portion of the Fund's assets to mutual funds that invest
primarily in debt securities rated at least investment grade
(approximately 30%). Under this asset allocation strategy,
investments are allocated between two asset classes of mutual funds:
generally 70% of the Fund's assets are composed of mutual funds
investing primarily in equity securities (including a portion in
equity securities of foreign issuers), and generally 30% of the
Fund's assets are composed of mutual funds investing primarily in
debt securities rated at least investment grade. This asset
allocation strategy is based upon the Portfolio Manager's belief that
an allocation of 70% of a portfolio's assets to common stocks and 30%
to debt securities provides the majority of investment return that
would otherwise be obtained by investing exclusively in common
stocks, yet with significantly lower volatility. There can be no
assurance that the Fund's investment objective will be attained.
This policy of investing in other investment companies involves
certain expenses not normally attributable to a mutual fund that
invests in other types of securities. See "Management of the Trust -
Expenses."
<PAGE>
Shares of the Fund currently are offered only to separate accounts
of Golden American Life Insurance Company ("Golden American") to
serve as the investment medium for variable annuity contracts issued
by Golden American (the "Variable Contracts"). However, shares of the
Fund may be offered in the future to other separate accounts
established by Golden American or other affiliated or unaffiliated
insurance companies. See "Purchase of Shares." The Trust's shares
will not be offered directly to the public.
FUND MANAGEMENT
The Trust has retained Directed Services, Inc. ("DSI" or the
"Manager") as Manager to manage the assets of the Fund and to act as
Administrator to the Fund. The Trust pays DSI monthly fees for
management and administrative services totalling on an annual basis
0.30% of the value of the average daily net assets of the Fund.
FINANCIAL HIGHLIGHTS
The following table presents selected financial highlights with
respect to the Fund for the years ended December 31, 1997, 1996, 1995
and 1994 and the period March 1, 1993 (commencement of operations) to
December 31, 1993. Information in the table is derived from the
Fund's financial statements that have been audited by Ernst & Young
LLP. The condensed financial information below does not include
deductions at the Separate Account level or contract specific
deductions that may be incurred under a Variable Contract for which
the Fund serves as an underlying investment vehicle. These charges
would reduce the total return to any owner of a Variable Contract.
The table should be read in conjunction with the Fund's financial
statements, which are incorporated by reference in the Fund's
Statement of Additional Information from the Fund's Annual Report
dated December 31, 1997 the Fund's performance, is available to
Shareholders upon request and without charge.
<PAGE>
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD
DECEMBER DECEMBER DECEMBER DECEMBER MARCH 1,
31, 1997 31, 1996 31, 1995 31, 1994 1993* TO
DECEMBER
31, 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.61 $ 10.95 $ 9.23 $ 10.51 $ 10.00
---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME
(LOSS) # 0.03 0.01 (0.24) 0.44 0.33
NET GAIN ON INVESTMENTS
- REALIZED AND UNREALIZED 1.09 0.88 1.98 (0.67) 0.51
---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 1.12 0.89 1.74 (0.23) 0.84
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
DISTRIBUTIONS FROM NET
INVESTMENT INCOME 0.13 0.00 0.02 0.44 0.33
DISTRIBUTIONS FROM NET
REALIZED CAPITAL GAINS 1.35 4.23 0.00 0.61 0.00
---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS 1.48 4.23 0.02 1.05 0.33
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $ 7.25 $ 7.61 $ 10.95 $ 9.23 $ 10.51
========== ========== ========== ========== ==========
TOTAL RETURN 14.58% 10.57% 18.79% (2.15%) 8.42%**
RATIOS AND SUPPLEMENTAL DATA
TOTAL NET ASSETS, END OF
PERIOD (000'S OMITTED $ 202 $ 201 $ 333 $1,346 $4,267
RATIO OF EXPENSES TO AVERAGE
NET ASSETS 2.56% 2.56% 4.25% 1.84% 0.42%**
DECREASE REFLECTED IN ABOVE
EXPENSE RATIO DUE TO
WAIVERS AND/OR REIMBURSEMENTS 12.06% 9.45% 0.68% -- 3.15%**
RATIO OF NET INVESTMENT
INCOME (LOSS) TO AVERAGE
NET ASSETS 0.40% 0.10% (2.32%) 2.23% 4.89%**
PORTFOLIO TURNOVER RATE 8.94% 6.87% 5.68% 13.06% 19.79%
</TABLE>
* Commencement of operations
** Not annualized
# Per share data numbers have been calculated using the average share
method
See notes to financial statements.
10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of The Fund For Life is to realize high
total investment return (capital appreciation and current income)
consistent with prudent investment risk and a balanced investment
approach. The Fund seeks to achieve its objective by investing in
shares of other open-end management investment companies ("mutual
funds").
The Fund's investment program emphasizes investment in mutual
funds that invest primarily in domestic equity securities, while also
allocating a portion of the Fund's assets to mutual funds that invest
in international equity securities and a portion of the Fund's assets
to mutual funds that invest primarily in debt securities rated at
least investment grade. Generally, the Fund strives to maintain 70%
of its assets invested in mutual funds emphasizing equity investments
(including the equity securities of foreign issuers) and 30% of its
assets invested in mutual funds emphasizing debt investments rated at
least investment grade. The Fund will invest only in mutual funds
that are not affiliated with the Fund or its Manager.
Toward this end, the Fund allocates its assets among unaffiliated
mutual funds that generally fall into three general classifications,
as follows:
1. EQUITY FUNDS. Approximately 60% of the Fund's assets will
be invested in mutual funds that seek growth, growth and income,
capital appreciation, or a similar objective or objectives,
primarily through investment in domestic equity securities under
normal circumstances. This may include underlying mutual funds
generally classified as "growth," "growth and income," "equity
income," "capital appreciation," "aggressive growth" and "small
company growth" funds by fund rating services.
2. INTERNATIONAL EQUITY FUNDS. Approximately 10% of the
Fund's assets will be invested in mutual funds that seek growth,
growth and income, capital appreciation, or a similar objective or
objectives, primarily through investment in equity securities that
may be from issuers domiciled or traded in countries outside of
the United States. This may include funds generally classified as
"global," "foreign," or "international" funds by fund rating
services.
3. INCOME FUNDS. Approximately 30% of the Fund's assets will
be invested in mutual funds that seek as their objective income,
growth, or total return primarily through investment in debt
securities that are rated investment grade or better. This may
include funds generally classified as "income," "fixed income,"
and "high-grade corporates" by fund rating services.
The Fund's asset allocation strategy is based upon the Manager's
belief that an allocation of 70% of a portfolio's assets to common
stocks and 30% to debt securities provides the majority of investment
return that would otherwise be obtained by investing exclusively in
common stocks, yet with significantly lower volatility. The asset
allocation strategy has also been designed to reflect the Manager's
belief that with the increasing globalization of securities markets,
investors should have some exposure to foreign stock markets.
<PAGE>
In managing the Fund's portfolio, the Manager will generally
attempt to select mutual funds that have had the best performance
within their classification, as measured over time periods deemed
appropriate by the Manager. In most circumstances, the Manager will
consider time periods equal to or exceeding ten years but in special
situations may consider time periods of less than ten years or may
consider performance over several time periods. The Manager may take
into account any other factors that it deems appropriate including,
among other things, an underlying mutual fund's investment adviser
and the adviser's investment methodology or research capabilities;
the underlying fund's portfolio; any sales load; and the expense
level of an underlying fund. The Fund will not be managed to switch
in and out of underlying mutual funds to attempt to obtain short-term
gains. Once an underlying mutual fund is selected for investment, the
Fund generally will attempt to maintain its investment in the mutual
fund for at least one year from the time of the initial investment.
Generally, the Fund's portfolio will be reconfigured at least once a
year. However, if the Manager believes it appropriate, the Fund may
redeem its investment in any mutual fund in which it invests at any
time, or may maintain its investment in a mutual fund for longer than
one year.
The Fund will normally seek to maintain the allocation of its
assets among the three classifications indicated above at
approximately the percentages indicated above. However, the value of
the shares of the underlying mutual funds may not generally move in
the same direction or to the same extent, and, consequently, the
relative percentages of the Fund's investment in the three
classifications may vary. The Fund is not obligated to redeem shares
of underlying mutual funds in order to reduce such discrepancies.
However, the Fund will seek to reduce such variations by investing
its available cash in mutual funds of the appropriate class, and the
Fund will not invest in the shares of any mutual fund in one of the
three classifications if, at the time of the investment, the
percentage of the Fund's assets invested in such classification
varies from the percentages indicated above by more than 10% of the
Fund's assets.
It is intended that the Fund will normally be invested in not less
than 10 nor more than 15 mutual funds. In addition, the Fund may not
purchase or otherwise acquire the securities of any investment
company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of
another investment company) if, as a result, the Fund and all of its
affiliates, including private discretionary investment advisory
accounts managed by the Manager, if any, would own more than 3% of
the total outstanding stock of that company.
The Fund may invest in underlying mutual funds that are both
diversified and non-diversified. A non-diversified mutual fund may
invest more than 5% and up to 25% of its assets in the securities of
one issuer. The Fund itself is classified as diversified under the
Investment Company Act of 1940 (the "1940 Act").
<PAGE>
DESCRIPTIONS OF MUTUAL FUNDS. The mutual funds in the first two
classifications indicated above, Equity Funds and International
Equity Funds, will generally invest primarily in equity securities.
Generally, such mutual funds may also invest in securities
convertible into or exchangeable for common stock (such as
convertible preferred stock, convertible debentures, or warrants)
which may or may not be considered "equity securities" depending on
the policy of the underlying fund. Many of the mutual funds may also
be permitted to invest a portion of their assets in debt securities,
including securities issued, guaranteed or insured by the U.S.
Government, its agencies or instrumentalities; corporate bonds; and
money market instruments. Typically, mutual funds that invest
primarily in equity securities are permitted to invest in other types
of securities for temporary defensive purposes, which may include
corporate bonds, U.S. Government securities, commercial paper,
certificates of deposit or other money market securities, and
repurchase agreements.
The mutual funds in these two classifications may present certain
risks. Any of these mutual funds may trade their portfolios actively
(which results in higher brokerage commissions) and/or invest in
companies whose securities may be subject to erratic market
movements. These mutual funds also may invest up to 15% of their
assets in restricted or illiquid securities; invest in warrants; lend
their portfolio securities; sell securities short; borrow money for
investment purposes (i.e., leverage their portfolios), but any such
fund that borrows for investment purposes must maintain asset
coverage of at least 300% of the amount borrowed; write (sell) or
purchase call or put options on securities or on stock indexes;
concentrate more than 25% of their assets in one industry; and enter
into futures contracts and options on futures contracts. Some of the
risks associated with these investments are described in the Appendix
to this Prospectus.
The mutual funds in the International Equity Fund classification
described above, which may primarily invest in equity securities of
foreign issuers, may also invest in debt obligations of foreign
governments, corporations, and international or supranational
organizations (and their agencies or instrumentalities). In
anticipation of foreign exchange requirements and to avoid losses due
to adverse movements in foreign currency exchange rates, these funds
also may enter into forward contracts to purchase and sell foreign
currencies.
The investments of these funds in foreign issuers may involve
special risks in addition to those normally associated with
investments in the securities of U.S. issuers. For example, there
may be less publicly available information about foreign issuers than
is available for U.S. issuers, and foreign auditing, accounting, and
financial reporting practices may differ from U.S. practices. Also,
foreign securities markets may be less active than U.S. markets,
trading may be thin and consequently securities prices may be more
volatile. Generally, all foreign investments are subject to risks of
foreign political and economic instability, adverse movements in
foreign exchange rates, the imposition or tightening of exchange
controls or other limitations, the repatriation of foreign capital,
<PAGE>
and changes in foreign governmental attitudes toward private
investment, possibly leading to nationalization, increased taxation,
or confiscation of underlying fund assets. Also, there is the risk
of possible losses through the holding of securities by custodians
and securities depositories in foreign countries.
The mutual funds in the third classification, Income Funds, invest
primarily in investment grade debt securities, which may include
corporate bonds; securities issued, guaranteed, or insured by the
U.S. Government or its agencies or instrumentalities; commercial
paper; preferred stock; convertible preferred stock; or convertible
debentures. These mutual funds also may lend their portfolio
securities, sell securities short, borrow money for investment
purposes (but any fund that borrows money for investment purposes
must maintain asset coverage of at least 300% of the amount
borrowed), write or purchase call or put options on securities or on
stock indexes, and enter into futures contracts and options on
futures contracts.
The Fund will invest only in mutual funds in this classification
that invest primarily in investment grade debt securities.
Investment grade debt securities are considered to be those rated
within one of the four highest quality grades assigned by Standard &
Poor's Rating Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") or which are unrated but are deemed by an underlying
fund's investment adviser to be of comparable quality. These include
bonds rated AAA, AA, A, and BBB by S&P and bonds rated Aaa, Aa, A,
and Baa by Moody's. Bonds rated BBB by S&P or Baa by Moody's
normally indicate a greater degree of investment risk than bonds with
higher ratings. The Fund will not invest in any underlying fund that
invests more than 10% of its assets in debt securities rated lower
than investment grade.
OTHER FUND INVESTMENTS. The Fund intends to maintain its assets
invested in mutual funds in accordance with the investment program
described above. At times, for temporary purposes pending full
investment of its assets or to meet anticipated redemptions, the Fund
may invest in money market mutual funds or invest directly in (or
enter into repurchase agreements with respect to) short-term debt
securities, including U.S. Treasury bills and other short-term U.S.
Government securities, commercial paper, certificates of deposit,
time deposits, and bankers' acceptances. The Fund may not purchase
shares of any investment company that is not registered with the
Securities and Exchange Commission.
The Fund will not employ a defensive strategy in response to
market or financial conditions, but will attempt to remain as fully
invested as practicable in the shares of mutual funds allocated as
described above. However, the mutual funds themselves may adopt
defensive strategies consistent with their own investment policies.
This may result, for example, in the Fund holding underlying funds
that, in turn, have committed significant assets to defensive
investments so they are not primarily invested in equity or
longer-term debt securities in which they would normally be invested.
<PAGE>
The Fund's investments other than mutual funds are more fully
described as follows:
U.S. GOVERNMENT SECURITIES. U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. U.S. Treasury bills, which have a maturity of
up to one year, are direct obligations of the United States and are
the most frequently issued marketable U.S. Government security. The
U.S. Treasury also issues securities with longer maturities in the
form of notes and bonds.
U.S. Government agency and instrumentality obligations are debt
securities issued by U.S. Government-sponsored enterprises and
Federal agencies. Some obligations of agencies are supported by the
full faith and credit of the United States or U.S. Treasury
guarantees; others, by the right of the issuer to borrow from the
U.S. Treasury; others, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or
instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations
not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
BANK OBLIGATIONS. These obligations include negotiable
certificates of deposit, bankers' acceptances, and fixed time
deposits. The Fund limits its investments in United States bank
obligations to obligations of United States banks which have more
than $1 billion in total assets at the time of investment and are
members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the
Federal Deposit Insurance Corporation.
The Fund may not invest in fixed time deposits maturing in more
than seven calendar days that are subject to withdrawal penalties.
Investments in fixed time deposits maturing from two business days
through seven calendar days that are subject to withdrawal penalties
may not, along with other illiquid securities, exceed 15% of the
value of the total assets of the Fund.
COMMERCIAL PAPER. Commercial paper includes short-term unsecured
promissory notes, variable rate demand notes, and variable rate
master demand notes issued by domestic and foreign bank holding
companies, corporations, and financial institutions, as well as
similar taxable instruments issued by government agencies and
instrumentalities. All commercial paper purchased by the Fund must
be, at the time of investment, (i) rated "P-1" by Moody's or "A-1" by
S&P, (ii) issued or guaranteed as to principal and interest by
issuers having an existing debt security rating of "Aa" or better by
Moody's or "AA" or better by S&P or (iii) securities which, if not
rated, are in the opinion of the Manager of an investment quality
comparable to rated commercial paper in which the Fund may invest.
<PAGE>
CORPORATE DEBT SECURITIES. Fund investments in these securities
are limited to non-convertible corporate debt securities (corporate
bonds, debentures, notes and other similar corporate debt
instruments) which have one year or less remaining to maturity and
which are rated "AA" or better by S&P or "Aa" or better by Moody's.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase
agreements. A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon
time and price. These agreements may be considered to be loans by
the purchaser collateralized by the underlying securities. The Fund
may not enter into a repurchase agreement of greater than seven days
maturity if, after such investment, the amount of the Fund's total
assets in such agreements and other illiquid securities is greater
than 15%. In the event of default by the seller under the repurchase
agreement, the Fund may experience problems in exercising its rights
to the underlying securities and may experience time delays and costs
in connection with the disposition of such securities.
BORROWING. The Fund may, for temporary or emergency purposes,
such as to facilitate redemptions, borrow from a bank in an amount
not in excess of 25% of the Fund's total assets, and the Fund may
pledge a portion of its total assets to secure such borrowings.
RISKS AND OTHER CONSIDERATIONS
Because a mutual fund invests in securities, any investment in a
mutual fund involves risk, and, although the Fund invests in a number
of mutual funds, this practice does not eliminate investment risk.
Moreover, investing through the Fund in a portfolio of mutual funds
involves certain additional expenses that would not be present in a
direct investment in the underlying funds. See "Management of the
Trust - Expenses." Further, the Manager has not had previous
experience in investing the assets of an investment company in a
portfolio of mutual funds.
The Fund, together with any "affiliated persons" (as defined in
the 1940 Act), may purchase only up to 3% of the total outstanding
securities of any underlying fund. Accordingly, when "affiliated
persons" of the Fund hold shares of any of the underlying mutual
funds, the Fund's ability to invest fully in shares of those mutual
funds is restricted, and the Manager must then, in some instances,
select alternative investments.
The 1940 Act also provides that an underlying mutual fund whose
shares are purchased by the Fund will be obligated to redeem shares
held by the Fund only in an amount up to 1% of the mutual fund's
outstanding securities during any period of less than 30 days.
Shares held by the Fund in excess of 1% of a mutual fund's
outstanding securities therefore will be considered not readily
marketable, and these securities together with other illiquid
securities may not, at the time of investment in any such security,
exceed 15% of the Fund's assets.
<PAGE>
Investment decisions by the investment advisers of the underlying
mutual funds are made independently of the Fund and the Manager.
Therefore, the investment adviser of one mutual fund may be
purchasing shares of the same issuer whose shares are being sold by
the investment adviser of another such fund. The result of this
would be an indirect expense to the Fund without accomplishing any
investment purpose.
Generally, the Fund will invest in underlying funds that can be
acquired by paying little or no sales load or other transactional
expenses. These include investments in "no-load" mutual funds or so
called "low load" mutual funds, the latter of which generally charge
a sales load no greater than 3% (or 3.09% of the net amount
invested). However, the Fund may also purchase shares of mutual
funds with sales loads higher than 3% when the Manager believes that
the investment merit of such funds is sufficient to purchase the
funds.
Under the 1940 Act a mutual fund must sell, and therefore the Fund
must buy, shares of underlying funds at the price (including sales
load, if any) described in its prospectus, and current rules under
the 1940 Act do not permit negotiation of sales charges. Therefore,
the Fund currently is not able to negotiate the level of the sales
charges at which it will purchase shares of load funds, which may be
as great as 8.5% of the public offering price (or 9.29% of the net
amount invested). Nevertheless, whenever possible, the Fund will
purchase such shares pursuant to (i) letters of intent, permitting it
to obtain reduced sales charges by aggregating its intended purchases
over time (generally thirteen months from the initial purchase under
the letter); (ii) rights of accumulation, permitting it to obtain
reduced sales charges as it purchases additional shares of an
underlying fund; and (iii) the right to obtain reduced sales charges
by aggregating its purchases of several funds within a "family" of
mutual funds.
The Fund may also acquire shares of mutual funds that pay certain
distribution expenses under a plan adopted pursuant to Rule 12b-1
under the 1940 Act (under which the Distributor may receive
distribution payments for its assistance in transaction execution),
and shares of mutual funds that impose a contingent deferred sales
charge. Under certain circumstances, a mutual fund may determine to
make payment of a redemption by the Fund wholly or partly by a
distribution in kind of securities from its portfolio, in lieu of
cash, in conformity with the rules of the Securities and Exchange
Commission. In such cases, the Fund may hold securities distributed
by a mutual fund until the Manager determines that it is appropriate
to dispose of such securities.
The Fund may invest in shares of mutual funds that are both
diversified and non-diversified under the 1940 Act. Non-diversified
funds are permitted to invest a greater proportion of their assets in
the securities of a smaller number of issuers, and may be more
susceptible to any single economic, political or regulatory
occurrence.
<PAGE>
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the
direction of the Board of Trustees. The Trustees are J. Michael
Earley, R. Barbara Gitenstein, Dr. Robert A. Grayson, Stanley B. Seidler,
Roger B. Vincent and Elizabeth J. Newell. The Officers of the Trust are
Barnet Chernow, Myles R. Tashman and Mary Bea Wilkinson. Additional
information about the Trustees and Officers of the Trust may be found in
the Statement of Additional Information under the heading "Management
of the Trust."
MANAGEMENT AND ADMINISTRATION
Directed Services, Inc. ("DSI" or the "Manager") serves as the
Manager and Administrator to the Trust. The Trust pays DSI monthly
fees for management and administrative services totalling on an
annual basis 0.30% of the value of the average daily net assets of
the Fund. DSI's address is 1001 Jefferson Street, Wilmington, DE
19801. DSI is a New York corporation and is a wholly owned subsidiary
of 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 offerees, separate accounts of Golden
American to serve as the investment medium for Variable Contracts
issued by Golden American. DSI is the principal underwriter and
distributor of the Variable Contracts issued by Golden American. Golden
American is a stock life insurance company organized under the laws of
the State of Delaware. Prior to December 30, 1993, Golden American was
a Minnesota corporation. Golden American is a wholly owned
subsidiary of ING. Prior to October 24, 1997 Golden American was an
indirect wholly Equitable of Iowa is the holding company for
Equitable Life Insurance Company of Iowa, USG Annuity & Life Company,
Locust Street Securities, Inc., Equitable Investment Services, Inc.,
DSI and Golden American Life Insurance Company. Prior to August 13, 1996,
DSI was an indirect, wholly owned subsidiary of Bankers Trust Company.
<PAGE>
DSI performs the activities described above in this Prospectus and
below under the caption "Distributor." Pursuant to a Management
Agreement between the Trust and DSI, the Trust pays the Manager for
management services a monthly fee at an annual rate of 0.10% of the
average daily net assets of the Fund. For more information on the
Management Agreement, see the Statement of Additional Information.
Pursuant to the terms of an Administrative Services Agreement
between the Trust and DSI, DSI provides administrative services
necessary for the Trust's operation and furnishes or procures on
behalf of the Trust and the Fund the services and information
necessary to the proper conduct of the Fund's business. The
Administrator also acts as liaison among the various service
providers to the Fund, including the custodian, portfolio accounting
agent, Manager, and the insurance company or companies to which the
Fund's shares are offered. DSI is also responsible for ensuring that
the Fund is operated in compliance with applicable legal
requirements. Under the Administrative Services Agreement, the Trust
pays DSI for administrative services a monthly fee at an annual rate
of 0.20% of the average daily net assets of the Fund. For more
information on the Administrative Services Agreement, see the
Statement of Additional Information. DSI is currently providing
(non-advisory) management and administrative services to the other
operational series of the Trust.
<PAGE>
DISTRIBUTOR
DSI acts as distributor ("Distributor") of shares of the Fund, in
addition to serving as Manager and Administrator to the Fund. The
Distributor is a registered broker-dealer and a member of the
National Association of Securities Dealers, Inc., and acts as
Distributor without remuneration from the Trust.
CUSTODIAN
The Custodian for the Trust is Bankers Trust Company, 280 Park
Avenue, New York, NY 10017. DSI provides portfolio accounting
services for the Trust pursuant to a portfolio accounting agreement.
EXPENSES
Investors in the Fund should recognize that an investment in the
Fund will bear not only a proportionate share of the expenses of the
Fund (including operating costs and management fees) but also
indirectly similar expenses of the underlying mutual funds.
Shareholders also will bear their proportionate share of any sales
charges incurred by the Fund related to the purchase of shares of the
mutual funds. In addition, shareholders of the Fund may indirectly
bear expenses paid by a mutual fund related to the distribution of
its shares. For the fiscal year ended December 31, 1997, total expenses
paid by the Fund were 2.50% of average net assets.
OTHER EXPENSES
The Trust bears all costs of its operations other than expenses
specifically borne by DSI pursuant to the Administrative Services
Agreement or the Management Agreement. See "Management of the Trust"
in the SAI. Trust expenses directly attributable to the Fund are
charged to the Fund; other expenses are allocated among all the
Series. The Trust will reimburse DSI for the Fund's organizational
expenses that DSI advanced. The Fund's organizational expenses are
amortized over a period not exceeding five years from March 1, 1993,
the date of the Fund's commencement of operations.
PORTFOLIO TRANSACTIONS
Pursuant to the Management Agreement, the Manager places orders
for the purchase and sale of no-load mutual funds for the Fund's
account directly with the mutual fund or its agent. Purchase and sale
orders of load mutual funds may be placed with the Distributor,
although other brokers or dealers may be selected at the discretion
of the Manager. With respect to purchases of certain money market
instruments, purchase orders may be placed directly with the issuer
or its agent.
The Distributor may also assist in the execution of Fund portfolio
transactions to purchase underlying fund shares for which it may
receive distribution payments from the mutual funds or their
distributors in accordance with the distribution plans of those
funds. In providing execution assistance, the Distributor receives
orders from the Manager, places them with the mutual fund's
distributor or other person, as appropriate, confirms the trade,
price and number of shares purchased, assures prompt payment by the
Fund and proper completion of the order.
<PAGE>
The Fund has no restrictions upon portfolio turnover, although its
annual turnover rate is not expected to exceed 100%. A 100% annual
portfolio turnover rate would be achieved if each security in the
Fund's portfolio (other than securities with less than one year
remaining to maturity) were replaced once during the year. To the
extent that the Fund purchases shares of load funds, a higher
turnover rate would result in correspondingly higher sales loads paid
by the Fund. There is no limit on the portfolio turnover rates of
the mutual funds in which the Fund may invest.
INVESTMENT IN THE TRUST
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is calculated at or
about 4:00 p.m. (New York City time), Monday through Friday, on each
day that the New York Stock Exchange is open for trading, exclusive
of federal holidays. Net asset value per share is calculated by
dividing the aggregate value of the Fund's assets less all
liabilities by the number of the Fund's outstanding shares.
The assets of the Fund consist primarily of the mutual funds,
which are valued at their respective net asset values under the 1940
Act. Each mutual fund is required to value securities in its
portfolio for which market quotations are readily available at their
current market value (generally the last reported sale price) and all
other securities and assets at fair value pursuant to methods
established in good faith by the board of directors of the underlying
fund. Money market funds with portfolio securities that mature in
one year or less may use the amortized cost or penny-rounding methods
to value their securities. Securities having 60 days or less
remaining to maturity generally are valued at their amortized cost,
which approximates market value.
Other assets of the Fund are valued at their current market value
if market quotations are readily available and, if market quotations
are not available, they are valued at fair value pursuant to methods
established in good faith by the Board of Trustees. Securities
having 60 days or less remaining to maturity are valued at their
amortized cost.
PURCHASE OF SHARES
As of the date of this Prospectus, shares of the Fund may be
offered only for purchase by separate accounts of Golden American to
serve as an investment medium for variable annuity contracts issued
by Golden American. In the future, shares of the Fund may be sold to
insurance company separate accounts funding both variable annuity
contracts and variable life insurance contracts and may be sold to
different insurance companies that are not affiliated. The Trust
currently does not foresee any disadvantages to Variable Contract
owners arising from offering the Trust's shares to separate accounts
of unaffiliated insurers or to separate accounts funding both life
insurance policies and annuity contracts; however, in some
circumstances, it is theoretically possible that the interests of
owners of various contracts participating in the Trust might at some
time be in conflict. If and when applicable, the Board of Trustees
and insurance companies whose separate accounts invest in the Trust
<PAGE>
are required to monitor events in order to identify any material
conflicts between variable annuity contract owners and variable life
policy owners and, if and when applicable, between separate accounts
of unaffiliated insurers. The Board of Trustees will determine what
action, if any, should be taken in event of such a conflict. If such
a conflict were to occur, one or more insurance company separate
accounts might withdraw their investment in the Trust. This might
force the Trust to redeem underlying mutual fund shares when
disadvantageous to do so.
Shares of the Fund are sold at their respective net asset values
(without a sales charge) next computed after receipt of a purchase
order by an insurance company whose separate account invests in the
Trust. The Fund reserves the right to cease offering its shares at
any time.
REDEMPTION OF SHARES
Shares of the Fund may be redeemed on any business day.
Redemptions are effected at the net asset value per share next
determined after receipt of the redemption request by an insurance
company whose separate account invests in the Trust. Redemption
proceeds normally will be paid within seven days following receipt of
instructions in proper form. The right of redemption may be
suspended by the Trust or the payment date postponed beyond seven
days when the New York Stock Exchange is closed (other than customary
weekend and holiday closings) or for any period during which trading
thereon is restricted because an emergency exists, as determined by
the Securities and Exchange Commission, making disposal of portfolio
securities or valuation of net assets not reasonably practicable, and
whenever the Securities and Exchange Commission has by order
permitted such suspension or postponement for the protection of
shareholders.
If the Board of Trustees should determine that it would be
detrimental to the best interests of the remaining shareholders of
the Fund to make payment wholly or partly in cash, the Fund may pay
the redemption price in whole or in part by a distribution in kind of
securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets into
cash.
Because the underlying mutual funds may invest some or all of
their assets in foreign securities primarily listed on foreign stock
exchanges, there may be times when disposal of portfolio securities
by or valuation of net assets of the underlying funds may not be
reasonably practicable. Such a situation may affect the ability of
the Fund to value its net assets and consequently may affect the
ability of shareholders of the Fund to redeem their shares. In such
a case, the Board of Trustees may take such action as it deems
reasonably necessary for the protection of shareholders of the Fund,
including seeking an order of the Securities and Exchange Commission
suspending or postponing the right of shareholders of the Fund to
redeem their shares.
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Trust intends that the Fund continue to qualify and elect to
be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). In any
year in which the Fund qualifies as a regulated investment company
and distributes substantially all of its net investment income (which
includes, among other items, the excess of net short-term capital
gains over net long-term capital losses) and its net capital gains
(the excess of net long-term capital gains over net short-term
capital losses), the Fund generally will not be subject to federal
income tax to the extent it distributes to shareholders such income
and capital gains in the manner required under the Code.
Income received by the Fund from an underlying mutual fund
(including dividends and distributions of net short-term capital
gains), as well as interest received on money market instruments and
net short-term capital gains received by the Fund on the sale of
mutual fund shares, will be distributed by the Fund and are
includable in the gross income of the shareholder (the insurance
company separate account) as ordinary income. The Fund is actively
managed and may realize taxable capital gains by selling or redeeming
shares of an underlying fund with unrealized portfolio appreciation.
As a result, an investment in the Fund rather than a direct
investment in an underlying fund may result in increased taxable
income to the shareholders (the insurance company separate accounts)
since the Fund must distribute gains in accordance with the rules in
the Code. Note that the Fund's ability to dispose of shares of
mutual funds held less than three months may be limited by
requirements relating to the Fund's qualification as a regulated
investment company for federal income tax purposes.
Distributions of net capital gains designated as capital gain
dividends received by the Fund from underlying funds, as well as net
long-term capital gains realized by the Fund from the sale (or
redemption) of mutual fund shares or other securities held by the
Fund for more than one year, will be distributed by the Fund and
(generally) will be includable in the gross income of shareholders
(the insurance company separate accounts) as long-term capital gains
(even if the shareholder had held the shares of the Fund for one year
or less).
For purposes of determining the character of income received by
the Fund when an underlying fund distributes capital gains dividends
to the Fund, the Fund must treat the distribution as a long-term
capital gain, even if it has held shares of the mutual fund for one
year or less. Any loss incurred by the Fund on the sale of that
underlying fund's shares held for six months or less will be treated
as a long-term capital loss to the extent of the capital gains
dividends received with respect to such shares.
Tax consequences to the Variable Contract owners are described in
the prospectus for the pertinent Variable Contract.
<PAGE>
The Fund intends to declare as a dividend and to distribute net
investment income quarterly. The Fund will distribute any net
realized capital gains at least once annually. All distributions
will be reinvested automatically at net asset value in additional
shares of the Fund, unless a shareholder elects to receive
distributions in cash. Dividends declared in October, November, or
December to shareholders of record in such month and paid during the
following January will be treated as having been distributed and
received by shareholders on December 31.
Regulations under Section 817(h) of the Code contain certain
diversification requirements. Generally, under those regulations,
the Fund will be required to diversify its investments so that, on
the last day of each quarter of a calendar year, no more than 55% of
the value of its assets will be represented by any one investment
(such as a mutual fund), no more than 70% will be represented by any
two investments, no more than 80% will be represented by any three
investments, and no more than 90% will be represented by any four
investments. For this purpose, all securities of a given issuer are
treated as a single investment, but each U.S. Government agency and
instrumentality is treated as a separate issuer. In addition, any
security issued, guaranteed, or insured (to the extent so guaranteed
or insured) by the United States or an instrumentality of the U.S.
will be treated as a security issued by the U.S. Government or its
instrumentality, whichever is applicable. If the Fund fails to meet
the diversification requirements under Code Section 817(h), income
with respect to Variable Contracts invested in the Fund at any time
during the calendar quarter in which the failure occurred could
become currently taxable to the owners of such Variable Contracts and
income for prior periods with respect to such contracts also would be
taxable, most likely in the year of the failure to achieve the
required diversification. Other adverse tax consequences also could
ensue. If the Fund failed to qualify as a regulated investment
company, the results would be substantially the same as a failure to
meet the diversification requirements under Code Section 817(h).
In connection with the issuance of the regulations governing
diversification under Code Section 817(h), the Treasury Department
announced that it would issue future regulations or rulings
addressing the circumstances in which a Variable Contract owner's
control of the investments of a separate account may cause the
contract owner, rather than the insurance company, to be treated as
the owner of the assets held by the separate account. If the Variable
Contract owner is considered the owner of the securities underlying
the separate account, income and gains produced by those securities
would be included currently in the Variable Contract owner's gross
income. These future rules and regulations proscribing investment
control may adversely affect the ability of the Fund to operate as
described in this Prospectus. There is, however, no certainty as to
what standards, if any, Treasury will ultimately adopt, and there can
be no certainty that the future rules and regulations will not be
given retroactive application.
<PAGE>
In the event that unfavorable rules or regulations are adopted,
there can be no assurance that the Fund will be able to operate as
currently described in the Prospectus, or that the Fund will not have
to change its investment objectives, investment policies, or
investment restrictions. While the Fund's investment objective is
fundamental and may be changed only by a vote of majority of its
outstanding shares, the Trustees have reserved the right to modify
the investment policies of the Fund as necessary to prevent any such
prospective rules and regulations from causing the Variable Contract
owners to be considered the owners of the Fund.
See the SAI for additional information relating to taxation.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on
August 3, 1988. The Trust currently consists of twenty-four portfolios
that are operational, one of which is described in this prospectus.
Twenty-three other portfolios are offered by means of separate
prospectuses. The Board of Trustees may establish additional portfolios
in the future. The capitalization of the Trust consists solely of an
unlimited number of shares of beneficial interest with a par value of
$0.001 each. When issued in accordance with the Trust's Agreement
and Declaration of Trust, shares of the Fund are fully paid,
redeemable, freely transferable, and non-assessable by the Trust.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Trust. However, the Declaration of Trust disclaims liability of the
shareholders, Trustees or officers of the Trust for acts or
obligations of the Trust, which are binding only on the assets and
property of the Trust, and requires that notice of the disclaimer be
given in each contract or obligation entered into or executed by the
Trust or the Trustees. The Declaration of Trust provides for
indemnification out of Trust property for all losses and expenses of
any shareholder held personally liable for the obligations of the
Trust. The risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations, and should be
considered remote.
VOTING RIGHTS
Shareholders of the Trust are given certain voting rights. Each
share of the Fund will be given one vote, unless a different
allocation of voting rights is required under applicable law for a
mutual fund that is an investment medium for variable insurance
products.
<PAGE>
Massachusetts business trust law does not require the Trust to
hold annual shareholder meetings, although special meetings may be
called for the Fund, or for the Trust as a whole, for purposes such
as electing or removing Trustees, changing fundamental policies, or
approving a contract for investment advisory services. In accordance
with current laws, it is anticipated that an insurance company
issuing a Variable Contract that participates in the Trust will
request voting instructions from Variable Contract owners and will
vote shares or other voting interests in the Separate Account in
proportion to the voting instructions received.
PERFORMANCE INFORMATION
The Trust may, from time to time, include quotations of the Fund's
total return in advertisements or reports to shareholders or
prospective investors. Performance information for the Fund will not
be advertised or included in sales literature unless accompanied by
comparable performance information for a separate account to which
the Fund offers its shares. Quotations of total return will be
expressed in terms of the average annual compounded rate of return of
a hypothetical investment in the Fund over periods of 1, 5 and 10
years (up to the life of the Fund). All total return figures will
reflect the deduction of a proportional share of Fund expenses on an
annual basis, and will assume that all dividends and distributions
are reinvested when paid. Quotations of total return reflect only
the performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based. Total
return for the Fund will vary based on changes in market conditions
and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be
expected in the future.
Quotations of total return for the Fund will not take into account
charges or deductions against any Separate Account to which the Fund
shares are sold or charges and deductions against the pertinent
Variable Contract, although comparable performance information for
the Separate Account will take such charges into account. The Fund's
total return should not be compared with mutual funds that sell their
shares directly to the public since the figures provided do not
reflect charges against the separate accounts or the Variable
Contracts.
Reports and promotional literature may also contain other
information, including the effect of tax deferred compounding on the
Fund's investment returns, or returns in general, which may be
illustrated by graphs, charts, or otherwise, and which may include a
comparison, at various points in time, of the return from an
investment in the Fund (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with the return on a taxable
basis.
For a more detailed description of the methods used to calculate
the Fund's yield and total return, see the SAI.
<PAGE>
LEGAL COUNSEL
Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania 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 audited financial statements for the Fund dated as of
December 31, 1997, including notes thereto, are incorporated by
reference in the Statement of Additional Information from the
Fund's Annual Report dated as of December 31, 1997. Information
in the financial statements has been audited by Ernst & Young LLP.
YEAR 2000
Based on a study of its computer software and hardware, the Manager
in conjunction with an affiliate, Golden American Life Insurance
Company ("Golden American"), have determined their exposure to the
Year 2000 change of the century date issue. Some of these systems
support certain trust operations. The Manager believes its and
Golden American's systems are or will be substantially compliant by
Year 2000 and has engaged external consultants to validate this
assumption. The Manager is in contact with the Trust's Portfolio
Managers and third party vendors to ensure that their systems will
be compliant by Year 2000. To the extent these Portfolio Managers
and third parties would be unable to transact business in the Year
2000 and thereafter, the Trust's operations could be adversely affected.
<PAGE>
APPENDIX
DESCRIPTION OF VARIOUS SECURITIES INVESTED IN, AND INVESTMENT
TECHNIQUES EMPLOYED BY, MUTUAL FUNDS IN WHICH THE FUND FOR LIFE MAY
INVEST.
ILLIQUID AND RESTRICTED SECURITIES. An underlying fund may invest
not more than 15% of its total assets in securities for which there
is no readily available market ("illiquid securities"), which would
include securities that are illiquid because their disposition is
subject to legal restrictions (so-called "restricted securities") and
repurchase agreements having more than seven days to maturity. A
considerable period of time may elapse between an underlying fund's
decision to dispose of such securities and the time when the
underlying fund is able to dispose of them, during which time the
value of the securities (and therefore the value of the underlying
fund's shares held by the Fund) could decline.
FOREIGN SECURITIES. An underlying fund may invest up to 100% of
its assets in securities of foreign issuers. There may be less
publicly available information about these issuers than is available
about companies in the U.S., and foreign auditing, accounting, and
financial reporting requirements may not be comparable to those in
the U.S. In addition, the value of the underlying fund's foreign
securities may be adversely affected by fluctuations in the exchange
rates between foreign currencies and the U.S. dollar, as well as
other political and economic developments, including the possibility
of expropriation, confiscatory or other taxation, exchange controls
or other foreign governmental restrictions. Many foreign securities
markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets. Securities of many
foreign companies are less liquid and their prices more volatile than
securities of comparable U.S. companies. Transactional costs in
non-U.S. securities markets are generally higher than in U.S.
securities markets. There is generally less government supervision
and regulation of exchanges, brokers, and issuers than there is in
the U.S. In addition, transactions in foreign securities may involve
greater time from the trade date until settlement than domestic
securities transactions and involve the risk of possible losses
through the holding of securities by custodians and securities
depositories in foreign countries. In addition, foreign securities
and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those
securities.
<PAGE>
The underlying funds will calculate generally their net asset
values and complete orders to purchase, exchange or redeem shares
only on a Monday-Friday basis (excluding holidays on which the New
York Stock Exchange is closed). Foreign securities in which the
underlying funds may invest may be listed primarily on foreign stock
exchanges which may trade on other days (such as Saturday). As a
result, the net asset value of an underlying fund's portfolio may be
significantly affected by such trading on days when the Manager does
not have access to the underlying funds and shareholders do not have
access to the Fund.
FOREIGN CURRENCY TRANSACTIONS. In connection with its portfolio
transactions in securities traded in a foreign currency, an
underlying fund may enter into forward contracts to purchase or sell
an agreed-upon amount of a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed
upon by the parties at a price set at the time of the contract.
Although such contracts tend to minimize the risk of loss due to a
decline in the value of the subject currency, they tend to limit
commensurately any potential gain which might result should the value
of such currency increase during the contract period.
INDUSTRY CONCENTRATION. An underlying fund may concentrate its
investments within one industry. Because the scope of investment
alternatives within an industry is limited, the value of the shares
of such an underlying fund may be subject to greater market
fluctuation than an investment in a fund which invests in a broader
range of securities.
REPURCHASE AGREEMENTS. Underlying funds, particularly money
market funds, may enter into repurchase agreements with banks and
broker-dealers under which they acquire securities subject to an
agreement with the seller to repurchase the securities at an
agreed-upon time and price. The Fund also may enter into repurchase
agreements. These agreements are considered under the 1940 Act to be
loans by the purchaser, collateralized by the underlying securities.
If the seller should default on its obligation to repurchase the
securities, the underlying fund may experience delays or difficulties
in exercising its right to realize a gain upon the securities held as
collateral and might incur a loss if the value of the securities
should decline. For a more complete discussion of repurchase
agreements, see "Investment Policies" in the SAI.
LOANS OF PORTFOLIO SECURITIES. An underlying fund may lend its
portfolio securities provided: (1) that the loan is secured
continuously by collateral consisting of U.S. Government securities
or cash or cash equivalents maintained on a daily marked-to-market
basis in an amount at least equal to the current market value of the
securities loaned; (2) the fund may at any time call the loan and
obtain the return of the securities loaned; (3) the fund will receive
any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of the securities loaned will not at any time
exceed one-third of the total assets of the fund. Loans of
securities involve a risk that the borrower may fail to return the
securities or may fail to provide additional collateral.
<PAGE>
SHORT SALES. An underlying fund may sell securities short. The
underlying fund will incur a loss as a result of the short sale if
the price of the security increases between the date of the short
sale and the date on which the fund replaces the borrowed security.
The fund will realize a gain if the security declines in price
between those dates. The amount of any gain will be decreased and
the amount of any loss increased by the amount of any premium,
dividends or interest the fund may be required to pay in connection
with a short sale.
OPTIONS. Certain underlying mutual funds may purchase and write
call and put options on securities, securities indexes, and on
foreign currencies. The purchase and writing of options involves
certain risks. During the option period, the covered call writer
has, in return for the premium on the option, given up the
opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price
of the underlying security decline. The writer of an option has no
control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has
received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. If a
put or call option purchased by a mutual fund is not sold when it has
remaining value, and if the market price of the underlying security,
in the case of a put, remains equal to or greater than the exercise
price, or in the case of a call, remains less than or equal to the
exercise price, the fund will lose its entire investment in the
option. Also, where a put or call option on a particular security is
purchased to hedge against price movements in a related security, the
price of the put or call option may move more or less than the price
of the related security. There can be no assurance that a liquid
market will exist when a mutual fund seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are
imposed on the options market a fund may be unable to close out a
position. If a mutual fund cannot effect a closing transaction, it
will not be able to sell the underlying security while the previously
written option remains outstanding, even if it might otherwise be
advantageous to do so.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. An underlying
mutual fund may invest in financial futures contracts such as
interest rate futures contracts, stock index futures contracts, and
others, and may purchase and write options on such futures contracts.
Generally, transactions in futures contracts and options thereon by a
mutual fund must constitute bona fide hedging or other permissible
transactions under regulations promulgated by the Commodities Futures
Trading Commission (the "CFTC"), under which a fund engaging in such
transactions would not be a "commodity pool."
<PAGE>
There are several risks associated with the use of futures
contracts. While a mutual fund's use of futures contracts for
hedging may protect a fund against adverse movements in the general
level of interest rates or securities prices, such transactions could
also preclude the opportunity to benefit from favorable movements in
the level of interest rates or securities prices. There can be no
guarantee that there will be a correlation between price movements in
the hedging vehicle and in the securities being hedged. An incorrect
correlation could result in a loss on both the hedged securities in a
mutual fund and the hedging vehicle so that the fund's return might
have been better had hedging not been attempted.
There can be no assurance that a liquid market will exist at a
time when a mutual fund seeks to close out a futures contract or
futures option position. Most futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond
that limit. In addition, certain of these instruments are relatively
new and without a significant trading history. As a result, there is
no assurance that an active secondary market will develop or continue
to exist. Lack of a liquid market for any reason may prevent the
fund from liquidating an unfavorable position and the fund would
remain obligated to meet margin requirements until the position is
closed.
LEVERAGE THROUGH BORROWING. An underlying fund may borrow a
percentage of the value of its net assets on an unsecured basis from
banks to increase its holdings of portfolio securities. Under the
1940 Act, the fund is required to maintain continuous asset coverage
of 300% with respect to such borrowings and to sell (within three
days) sufficient portfolio holdings to restore such coverage if it
should decline to less than 300% due to market fluctuations or
otherwise, even if disadvantageous from an investment standpoint.
Leveraging will exaggerate the effect of any increase or decrease in
the value of portfolio securities on the fund's net asset value, and
money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average
balances) which may or may not exceed the interest and option
premiums received from the securities purchased with borrowed funds.
WARRANTS. An underlying fund may invest in warrants, which are
options to purchase equity securities at specific prices valid for a
specific period of time. The prices do not necessarily move parallel
to the prices of the underlying securities. Warrants have no voting
rights, receive no dividends and have no rights with respect to the
assets of the issuer. If a warrant is not exercised within the
specified time period, it will become worthless and the fund will
lose the purchase price and the right to purchase the underlying
security.
IN 2999 05/98
<PAGE>
THE FUND FOR LIFE
1001 JEFFERSON STREET, SUITE 400
WILMINGTON, DELAWARE 19801
(800) 366-0066
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information describes The Fund
For Life (the "Fund"), one of the Series of The GCG Trust (the
"Trust"). The Trust is an open-end management investment company
organized as a Massachusetts business trust. The Fund's Manager
is Directed Services, Inc. ("DSI" or the "Manager").
The Fund's investment objective is high total investment
return (capital appreciation and current income) consistent with
prudent investment risk and a balanced investment approach. The
Fund seeks to achieve its investment objective by investing in
shares of other open-end investment companies--commonly called
mutual funds.
As of the date of this Statement of Additional Information,
shares of the Fund are sold only to separate accounts of
insurance companies to serve as the investment medium for
variable annuity contracts issued by the insurance companies.
This Statement of Additional Information is intended to
supplement the information provided to investors in the
Prospectus dated May 1, 1998, of The Fund For Life and has been
filed with the Securities and Exchange Commission as part of the
Trust's Registration Statement. Investors should note, however,
that this Statement of Additional Information is not itself a
prospectus and should be read carefully in conjunction with the
Fund's Prospectus and retained for future reference. The
contents of this Statement of Additional Information are
incorporated by reference in the Prospectus in their entirety. A
copy of the Prospectus may be obtained free of charge from the
Trust at the address and telephone number listed above.
Manager:
Directed Services, Inc.
(800) 447-3644
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 1
INVESTMENT POLICIES 1
U.S. Government Securities 1
Banking Industry Obligations 1
Commercial Paper 2
Corporate Debt Securities 3
Repurchase Agreements 4
INVESTMENT RESTRICTIONS 5
MANAGEMENT OF THE TRUST 7
The Management Agreement 10
The Administrative Services Agreement 11
Distribution of Trust Shares 13
Purchases and Redemptions 13
PORTFOLIO TRANSACTIONS 14
NET ASSET VALUE 15
ADVERTISING 16
TAXATION 17
Distributions 20
Other Taxes 20
OTHER INFORMATION 20
Capitalization 20
Voting Rights 21
Custodian 22
Independent Auditors 22
Counsel 22
Registration Statement 22
FINANCIAL STATEMENTS 22
Appendix A: Description of Bond Ratings A-1
Appendix B: Securities and Investment Techniques
of Underlying Mutual Funds B-1
INTRODUCTION
<PAGE>
This Statement of Additional Information is designed to
elaborate upon the discussion of certain securities and
investment techniques which are described in the Prospectus. The
more detailed information contained herein is intended solely for
investors who have read the Prospectus and are interested in a
more detailed explanation of certain aspects of some of the
Fund's securities and some investment techniques. Some of the
Fund's investment techniques are described only in the Prospectus
and are not repeated herein. Captions and defined terms in this
Statement of Additional Information generally correspond to like
captions and terms in the Prospectus.
INVESTMENT POLICIES
Although the Fund invests primarily in the shares of other
mutual funds, it is also authorized to invest for temporary
purposes or as may be considered necessary to meet anticipated
redemptions in a variety of short-term debt securities, including
U.S. Government securities, commercial paper, certificates of
deposit, bankers' acceptances and repurchase agreements with
respect to such securities. The following information
supplements the discussion of the investment objective and
policies of the Fund found under "Investment Objective and
Policies" in the Prospectus.
U.S. Government Securities
- - --------------------------
The Fund may invest in obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities which
have remaining maturities not exceeding one year. Agencies and
instrumentalities which issue or guarantee debt securities and
which have been established or sponsored by the U.S. Government
include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the
Federal Home Loan Mortgage Corporation, the Federal Intermediate
Credit Banks, the Federal Land Banks, the Federal National
Mortgage Association and the Student Loan Marketing Association.
Banking Industry Obligations
- - ----------------------------
The Fund may invest in certificates of deposit, time
deposits, bankers' acceptances, and other short-term debt
obligations issued by commercial banks.
Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, which are
normally drawn by an importer or exporter to pay for specific
merchandise, and which are "accepted" by a bank, meaning, in
effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed-time deposits are
<PAGE>
bank obligations payable at a stated maturity date and bearing
interest at a fixed rate. Fixed-time deposits may be withdrawn
on demand by the investor, but may be subject to early withdrawal
penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual
restrictions on the right to transfer a beneficial interest in a
fixed-time deposit to a third party, because there is no market
for such deposits. The Fund will not invest in fixed-time
deposits (i) which are not subject to prepayment; (ii) which
mature in more than seven days that are subject to withdrawal
penalties upon prepayment; or (iii) which mature from two
business days through seven calendar days that provide for
withdrawal penalties upon prepayment (other than overnight
deposits), if, in the aggregate, more than 15% of its assets
would be invested in such deposits, in repurchase agreements
maturing in more than seven days, and in other illiquid assets.
Obligations of foreign banks involve somewhat different
investment risks than those affecting obligations of U.S. banks,
which include: (i) the possibility that their liquidity could be
impaired because of future political and economic developments;
(ii) their obligations may be less marketable than comparable
obligations of U.S. banks; (iii) a foreign jurisdiction might
impose withholding taxes on interest income payable on those
obligations; (iv) foreign deposits may be seized or nationalized;
(v) foreign governmental restrictions, such as exchange controls,
may be adopted which might adversely affect the payment of
principal and interest on those obligations; and (vi) the
selection of those obligations may be more difficult because
there may be less publicly available information concerning
foreign banks and/or because the accounting, auditing, and
financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to
U.S. banks. Foreign banks are not generally subject to
examination by any U.S. Government agency or instrumentality.
Commercial Paper
- - ----------------
The Fund may invest in commercial paper (including variable
amount master demand notes), denominated in U.S. dollars, issued
by U.S. corporations or foreign corporations. The Fund may
invest in commercial paper (i) rated, at the date of investment,
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 by
Standard & Poor's Corporation ("S&P"); (ii) if not rated by
either Moody's or S&P, issued by a corporation having an
outstanding debt issue rated Aa or better by Moody's or AA or
better by S&P; or (iii) if not rated, is determined to be of an
investment quality comparable to rated commercial paper in which
the Fund may invest.
<PAGE>
Commercial paper obligations may include variable amount
master demand notes. These notes are obligations that permit the
investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the Fund, as lender, and
the borrower. These notes permit daily changes in the amounts
borrowed. The lender has the right to increase or to decrease
the amount under the note at any time up to the full amount
provided by the note agreement; and the borrower may prepay up to
the full amount of the note without penalty. Because variable
amount master demand notes are direct lending arrangements
between the lender and borrower, and because no secondary market
exists for those notes, such instruments will probably not be
traded. However, the notes are redeemable (and thus immediately
repayable by the borrower) at face value, plus accrued interest,
at any time. In connection with master demand note arrangements,
the Manager will monitor, on an ongoing basis, the earning power,
cash flow, and other liquidity ratios of the borrower and its
ability to pay principal and interest on demand. The Manager
also will consider the extent to which the variable amount master
demand notes are backed by bank letters of credit. These notes
generally are not rated by Moody's or S&P; the Fund may invest in
them only if the Manager believes that at the time of investment
the notes are of comparable quality to the other commercial paper
in which the Fund may invest. Master demand notes are considered
by the Fund to have a maturity of one day, unless the Manager has
reason to believe that the borrower could not make immediate
repayment upon demand. See Appendix A for a description of
Moody's and S&P ratings applicable to commercial paper.
Corporate Debt Securities
- - -------------------------
Fund investments in these securities are limited to
non-convertible corporate debt securities (corporate bonds,
debentures, notes and similar corporate debt instruments) which
have one year or less remaining to maturity and which are rated
"AA" or better by S&P or "Aa" or better by Moody's.
The rating "P-1" is the highest commercial paper rating
assigned by Moody's and the ratings "A-1" and "A-1+" are the
highest commercial paper ratings assigned by S&P. Debt
obligations rated "Aa" or better by Moody's or "AA" or better by
S&P are generally regarded as high-grade obligations and such
ratings indicate that the ability to pay principal and interest
is very strong.
After purchase by the Fund, a security may cease to be rated
or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require a sale of such
security by the Fund. However, the Manager will consider such
event in its determination of whether the Fund should continue to
hold the security. To the extent the ratings given by Moody's or
S&P may change as a result of changes in such organizations or
their rating systems, the Fund will attempt to use comparable
ratings as standards for investments in accordance with the
investment policies contained in the Prospectus and in this
Statement of Additional Information.
<PAGE>
Repurchase Agreements
- - ---------------------
The Fund may invest in repurchase agreements. A repurchase
agreement is a transaction in which the seller of a security
commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed upon time and price.
These agreements may be considered to be loans by the purchaser
collateralized by the underlying securities. The term of such an
agreement is generally quite short, possibly overnight or for a
few days, although it may extend over a number of months (up to
one year) from the date of delivery. The resale price is in
excess of the purchase price by an amount which reflects an
agreed upon market rate of return, effective for the period of
time the Fund is invested in the security. This results in a
fixed rate of return protected from market fluctuations during
the period of the agreement. This rate is not tied to the coupon
rate on the security subject to the repurchase agreement.
The Fund may engage in repurchase transactions in accordance
with guidelines approved by the Board of Trustees of the Trust,
which include monitoring the creditworthiness of the parties with
which the Fund engages in repurchase transactions, obtaining
collateral at least equal in value to the repurchase obligation,
and marking the collateral to market on a daily basis. The Fund
may not enter into a repurchase agreement having more than seven
days remaining to maturity if, as a result, such agreements,
together with any other securities that are not readily
marketable, would exceed 15% of the net assets of the Fund. If
the seller should become bankrupt or default on its obligations
to repurchase the securities, the Fund may experience delays or
difficulties in exercising its rights to the securities held as
collateral and might incur a loss if the value of the securities
should decline. The Fund also might incur disposition costs in
connection with liquidating the securities.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below, together with
the Fund's investment objective and policies, are fundamental
policies of the Fund and may not be changed by the Fund without
the approval of a majority of the outstanding voting shares of
the Fund. Under these restrictions, the Fund may not:
(1) Invest in a security if more than 25% of its total
assets (taken at market value at the time of such
investment) would be invested in the securities of issuers
in any particular industry or the securities of issuers that
are registered investment companies and that themselves
invest more than 25% of their total assets in one industry,
except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (or repurchase agreements with respect
thereto) or securities or obligations issued by U.S. banks;
<PAGE>
(2) Purchase or sell real estate, except that the Fund
may invest in securities secured by real estate or real
estate interests or issued by companies in the real estate
industry or which invest in real estate or real estate
interests;
(3) Purchase securities on margin (except for use of
short-term credit necessary for clearance of purchases and
sales of portfolio securities), except that to the extent
the Fund engages in transactions in options, futures, and
options on futures, the Fund may make margin deposits in
connection with those transactions and except that effecting
short sales will be deemed not to constitute a margin
purchase for purposes of this restriction, and subject to
the restrictions described in the Prospectus and in the
Statement of Additional Information, purchase securities on
margin;
(4) Lend any funds or other assets, except that the
Fund may, consistent with its investment objective and
policies:
(a) invest in debt obligations, even though
the purchase of such obligations may be deemed to be
the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in
accordance with applicable guidelines established by
the Board of Trustees;
(5) Issue senior securities, except insofar as the
Fund may be deemed to have issued a senior security by
reason of borrowing money in accordance with the Fund's
borrowing policies, or in connection with any repurchase
agreement, and except, for purposes of this investment
restriction, collateral or escrow arrangements with respect
to the making of short sales, purchase or sale of futures
contracts or related options, purchase or sale of forward
currency contracts, writing of stock options, and collateral
arrangements with respect to margin or other deposits
respecting futures contracts, related options, and forward
currency contracts are not deemed to be an issuance of a
senior security;
(6) Act as an underwriter of securities of other
issuers, except when in connection with the disposition of
portfolio securities, the Fund may be deemed to be an
underwriter under the federal securities laws; and
(7) Borrow money or pledge, mortgage, or hypothecate
its assets, except that the Fund may borrow from banks but
only if immediately after each borrowing and continuing
thereafter, there is asset coverage of 300%.
<PAGE>
The Fund is also subject to the following restrictions and
policies that are not fundamental and may, therefore, be changed
by the Board of Trustees (without shareholder approval). Unless
otherwise indicated, the Fund may not:
(1) Invest in securities that are illiquid because
they are subject to legal or contractual restrictions on
resale, in repurchase agreements maturing in more than seven
days, or other securities which in the determination of the
Manager are illiquid if, as a result of such investment,
more than 15% of the total assets of the Fund (taken at
market value at the time of such investment) would be
invested in such securities;
(2) Purchase or sell commodities or commodities
contracts; and
(3) Invest in puts, calls, straddles, spreads, or any
combination thereof, provided that this restriction does not
apply to puts that are a feature of variable or floating
rate securities or to puts that are a feature of other
corporate debt securities.
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the direction of
the Board of Trustees according to the applicable laws of the Commonwealth of
Massachusetts and the Trust's Agreement and Declaration of Trust. The Trustees
are J. Michael Earley, R. Barbara Gitenstein, Robert A. Grayson, Stanley B.
Seidler, Elizabeth J. Newell, and Roger B. Vincent. The Executive Officers of
the Trust are Barnett Chernow, Myles R. Tashman, and Mary Bea Wilkinson.
<PAGE>
Trustees and Executive Officers of the Trust, their business addresses,
and principal occupations during the past five years are:
NAME AND ADDRESS POSITION BUSINESS AFFILIATIONS AND
WITH THE PRINCIPAL OCCUPATIONS
TRUST
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.; Executive Vice
President, First Golden American
Life Insurance Company of New
York; formerly,Senior Vice
President and Chief
Financial Officer, Reliance
Insurance Company, August
1977 to July 1993. Age 48.
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,
Golden American Life Secretary and General Counsel,
Insurance Co. Golden American Life Insurance
1001 Jefferson Street Company; Director, Executive Vice
Wilmington, DE 19801 President, Secretary and General
Counsel, Directed Services, Inc.;
Director, Executive Vice
President, Secretary and General
Counsel, First Golden American Life
Insurance Company of New York;
formerly, Senior Vice President
and General Counsel, United Pacific
Life Insurance Company (1986-
1993). Age 55.
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.
Mary Bea Wilkinson Treasurer Senior Vice President & Treasurer,
Golden American Life First Golden American Life Insurance
Insurance Co. Company of New York; Senior Vice
1001 Jefferson Street President 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 51
Des Moines, IA 50321
- - --------------------------
As of December 31, 1997, none of the Trustees directly owns shares of the
Series. In addition, as of December 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.
Each Trustee of the Trust who is not an interested person of the Trust or
Manager or Portfolio Manager receives a fee of $6,000 for each Trustees'
meeting attended and any expenses incurred in attending such meetings or
carrying out their responsibilities as Trustees of the Trust. With respect to
the period ended December 31, 1997, the Trust paid Trustees' Fees aggregating
$105,000. The following table shows 1997 compensation by Trustee.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual From Registrant
Name of Person, From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Trustees
J. Michael Earley, $ 9,000 N/A N/A $ 21,750
Trustee
R. Barbara Gitenstein, $ 9,000 N/A N/A $ 21,000
Trustee
Robert A. Grayson $ 24,000 N/A N/A $ 24,000
Trustee
Stanley B. Seidler, $ 9,000 N/A N/A $ 21,000
Trustee
Elizabeth J. Newell $ 6,000 N/A N/A $ 12,000
Trustee
Roger B. Vincent $ 24,000 N/A N/A $ 24,000
Trustee
M. Norvell Young $ 24,000 N/A N/A $ 24,000
Trustee
</TABLE>
The table below lists each Variable Contract Owner who owns a Variable
Contract that entitles the owner to give voting instructions with respect
to 5% or more of the shares of the Series as of March 31, 1997. The
address for each record owner is c/o Golden American Life Insurance Company,
1001 Jefferson Avenue, Wilmington, DE 19801.
NAME SERIES PERCENTAGE
Helen B. Yungman The Fund For Life 63.45%
Jerome S. Golden The Fund For Life 7.45%
Donald C. Nonell The Fund For Life 11.12%
<PAGE>
The Management Agreement
- - ------------------------
Subject to the supervision of the Trust's Board of Trustees,
the Manager will provide a continuous investment program for the
Fund's portfolio and determine the composition of the assets of
the Fund's portfolio, including determination of the purchase,
retention, or sale of the securities, cash, and other investments
contained in the portfolio. The Manager will provide investment
research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Fund's assets by
determining the securities and other investments that shall be
purchased, entered into, sold, closed, or exchanged for the Fund,
when these transactions should be executed, and what portion of
the assets of the Fund should be held in the various securities
and other investments in which it may invest in accordance with
the Fund's investment objective or objectives, policies, and
restrictions.
Pursuant to the Management Agreement, the Manager is
authorized to exercise full investment discretion and make all
determinations with respect to the investment of the Fund's
assets and the purchase and sale of its portfolio securities.
The Management Agreement will continue in effect until
February 1996, and from year to year thereafter provided such
continuance is approved annually by (i) the holders of a majority
of the outstanding voting securities of the Fund or by the Board
of Trustees, and (ii) a majority of the Trustees who are not
parties to such Management Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Management
Agreement was approved by the Board of Trustees, including a
majority of the Trustees who are not parties to the Management
Agreement, or interested persons of such party, at a meeting held
on September 27, 1994. The Management Agreement may be
terminated without penalty by vote of the Trustees or the
shareholders of the Fund, or by the Manager, on 60 days' written
notice by either party to the Management Agreement and will
terminate automatically if assigned.
The Trust pays the Manager a monthly fee at an annual rate
of 0.10% of the average daily net assets of the Fund. Gross fees
paid to the Manager for the fiscal years ended December 31, 1997, 1996
and 1995 under the Management Agreement were $198, $258, and $830,
respectively. The 1997 fees were waived by the Manager.
<PAGE>
The Administrative Services Agreement
- - -------------------------------------
Directed Services, Inc. ("Administrator") serves as
Administrator to the Fund pursuant to an Administrative Services
Agreement between the Administrator and the Trust. Its address
is 1001 Jefferson Street, Suite 400, Wilmington, DE 19801. DSI
also serves as Manager to the Fund.
Pursuant to the Administrative Services Agreement, the
Administrator, subject to the direction of the Board of Trustees,
is responsible for providing all supervisory and management
services reasonably necessary for the operation of the Trust and
the Fund other than the services performed by the Manager. These
services shall include, but are not limited to, (i) coordinating
all matters relating to the functions of the Fund's Manager,
Custodian, Dividend Disbursing Agent, and Recordkeeping Agent
(including pricing and valuation of the Fund's portfolio),
accountants, attorneys, and other parties performing services or
operational functions for the Trust, (ii) providing the Trust and
the Fund, at the Administrator's expense, with the services of a
sufficient number of persons competent to perform such
administrative and clerical functions as are necessary to ensure
compliance with federal securities laws as well as other
applicable laws and to provide effective supervision and
administration of the Trust; (iii) maintaining or supervising the
maintenance by the Manager or third parties approved by the Trust
of such books and records of the Trust and the Fund as may be
required by applicable federal or state law; (iv) preparing or
supervising the preparation by third parties approved by the
Trust of all federal, state, and local tax returns and reports of
the Trust required by applicable law; (v) preparing and, after
approval by the Trust, filing and arranging for the distribution
of proxy materials and periodic reports to shareholders of the
Trust as required by applicable law; (vi) preparing and, after
approval by the Trust, arranging for the filing of such
registration statements and other documents with the Securities
and Exchange Commission and other federal and state regulatory
authorities as may be required by applicable law; (vii) taking
such other action with respect to the Trust, after approval by
the Trust, as may be required by applicable law, including
without limitation the rules and regulations of the Securities
and Exchange Commission and other regulatory agencies; and (viii)
providing the Trust, at the Administrator's expense, with
adequate personnel, office space, communications facilities, and
other facilities necessary for its operations as contemplated in
the Administrative Services Agreement. Other responsibilities of
the Administrator are described in the Prospectus.
<PAGE>
The Administrator shall make its officers and employees
available to the Board of Trustees and officers of the Trust for
consultation and discussions regarding the supervision and
administration of the Fund. The Trust pays the Administrator a
monthly fee at an annual rate of 0.20% of the Fund's average
daily assets. Gross fees paid the Administrator under the
Administrative Services Agreement for the fiscal years ended
December 31, 1997, 1996 and 1995 were $396, $518, and $1,660,
respectively. The 1997 fees were waived by the Administrator.
The Trust bears all of its costs of operation other than
those specifically borne by the Administrator or the Manager.
The Fund's costs include any direct charges relating to the
purchase and sale of portfolio securities, interest charges, fees
and expenses of the Trust's attorneys and auditors, taxes and
governmental fees, cost of share certificates and other expenses
of issue, sale, repurchase or redemption of shares, expenses of
registering and qualifying shares for sale, expenses of printing
and distributing reports, notices and proxy materials to
shareholders, fees and expenses of data processing, recordkeeping
and financial accounting services rendered to the Trust, expenses
of printing and filing reports and other documents with
governmental agencies, expenses of typesetting, printing and
distributing Prospectuses to the existing shareholders, expenses
of annual and special shareholders' meetings, charges of
custodians, fees and expenses of Trustees of the Trust who are
not officers or employees to the Manager or its affiliates,
membership dues in the Investment Company Institute or other
industry associations, insurance premiums and extraordinary
expenses such as litigation expense and the expense of compliance
with any governmental tax withholding requirements.
Certain of the expenses incurred by the Fund in connection
with its organization, its registration with the Securities and
Exchange Commission and any states where registered, and the
public offering of its shares were advanced on behalf of the
Trust by the Manager. These organizational expenses are deferred
and amortized by the Fund over a period not exceeding 60 months
from the date of the Fund's commencement of operations.
Distribution of Trust Shares
- - ----------------------------
Directed Services, Inc. (the "Distributor") serves as the
Trust's Distributor pursuant to a Distribution Agreement with the
Trust. The Distributor is not obligated to sell a specific
amount of Trust shares. The Distributor bears all expenses of
providing services pursuant to the Distribution Agreement
including the costs of sales presentations, mailings,
advertising, and any other marketing efforts by the Distributor
in connection with the distribution or sale of the shares.
<PAGE>
Purchases and Redemptions
- - -------------------------
For information on purchase and redemption of shares, see
"Purchase of Shares" and "Redemption of Shares" in the Fund's
Prospectus. The Trust may suspend the right of redemption of
shares of the Fund and may postpone payment beyond seven days for
any period: (i) during which the New York Stock Exchange is
closed other than customary weekend and holiday closing or during
which trading on the New York Stock Exchange is restricted; (ii)
when the Securities and Exchange Commission determines that a
state of emergency exists which may make payment or transfer not
reasonably practicable; (iii) as the Securities and Exchange
Commission may by order permit for the protection of the security
holders of the Trust; or (iv) at any other time when the Trust
may, under applicable laws and regulations, suspend payment on
the redemption of its shares. If the Board of Trustees should
determine that it would be detrimental to the best interests of
the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or
in part by a distribution in kind of securities from its
portfolio, in lieu of cash, in conformity with applicable rules
of the Securities and Exchange Commission. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage
costs in converting the assets into cash.
PORTFOLIO TRANSACTIONS
As part of its obligations under the Management Agreement,
the Manager places all orders for the purchase and sale of
portfolio investments for the Fund's account with brokers or
dealers selected by it in its discretion. With respect to orders
for the purchase and sale of no-load mutual funds, the Manager
places orders directly with the mutual fund or its agent. With
respect to purchases of certain money market instruments,
purchase orders are placed directly with the issuer or its agent.
Purchases of load fund shares may be effected by the Manager
itself, which is a registered broker-dealer, although other
brokers or dealers may be selected at the discretion of the
Manager.
When appropriate, the Fund may arrange to be included within
a class of investors entitled to a reduced sales charge on load
fund shares and may purchase load fund shares under letters of
intent, rights of accumulation and cumulative purchase
privileges, which permit it to obtain reduced sales charges for
larger purchases of shares. Therefore, in a majority of cases,
the sales charges paid by the Fund on a load fund purchase do not
exceed 1% of the public offering price.
<PAGE>
Under the 1940 Act, a mutual fund must sell its shares at
the price (including sales load, if any) described in its
prospectus, and current rules under the 1940 Act do not permit
negotiations of sales charges. Therefore, the Fund currently is
not able to negotiate the level of the sales charges at which it
purchases shares of load funds, which may be as great as 8.5% of
the public offering price (or 9.29% of the net amount invested).
Nevertheless, certain factors tend to keep the Fund's portfolio
transaction costs as low as possible, including: (1) the Fund,
to the extent feasible, purchases shares of no-load funds which
can be acquired without incurring a sales charge or utilizing a
broker to effect the transaction; (2) the Fund, to the extent
feasible, takes advantage of exchange or conversion privileges
offered by many "families" of mutual funds; and (3) insofar as
the Fund invests in U.S. Government and other money market
securities, the transaction costs should be minimal.
With respect to all non-mutual fund securities, in executing
transactions, the Manager attempts to obtain the best execution
for the Fund taking into account such factors as price (including
the applicable brokerage commission or dollar spread), size of
order, the nature of the market for the security, the timing of
the transaction, the reputation, experience and financial
stability of the broker-dealer involved, the quality of the
service, the difficulty of execution and operational facilities
of the firms involved, and the firm's risk in positioning a block
of securities. In the case of securities traded on the
over-the-counter markets, there is generally no stated
commission, but the price includes an undisclosed commission or
markup.
The Manager may in the future provide advisory services to
clients other than the Fund. A particular security may be bought
or sold by the Manager for certain clients even though it could
have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the security. In
some instances, one client may sell a particular security to
another client. Two or more clients of the Manager also may
simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as
possible, allocated between such clients in a manner deemed fair
and reasonable by the Manager. Although there is no specified
formula for allocating such transactions, the various allocation
methods used by the Manager, and the results of such allocations,
are subject to periodic review by the Trust's Board of Trustees.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
<PAGE>
NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectus, the
Fund's net asset value per share for the purpose of pricing
purchase and redemption orders is determined at or about 4:00
P.M., New York City time, on each day the New York Stock Exchange
is open for trading, exclusive of federal holidays.
ADVERTISING
The Trust may, from time to time, include the total return
of the Fund in advertisements or sales literature. Performance
information for the Fund will not be advertised or included in
sales literature unless accompanied by comparable performance
information for a separate account to which the Fund offers its
shares.
Quotations of average annual total return for the Fund will
be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over certain
periods that will include periods of one, five, and ten years
(or, if less, up to the life of the Fund), calculated pursuant to
the following formula: P (1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). Quotations of total return may also be
shown for other periods. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual
basis, and assume that all dividends and distributions are
reinvested when paid. For the fiscal year ended December 31,
1997 and the period from the commencement of operations of the
Fund on March 1, 1993 to December 31, 1997, the total return of
the Fund was 14.58% and 10.15%, respectively.
Performance information for the Fund may be compared, in
advertisements, sales literature, and reports to shareholders to:
(i) the Standard & Poor's 500 Stock Index, the Dow Jones
Industrial Average, the Lehman Brothers Government Bond Index,
the Donoghue Money Market Institutional Averages, the Lehman
Brothers Government Corporate Index, the Salomon High Yield
Index, or other indexes that measure performance of a pertinent
group of securities; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent
research firm which ranks mutual funds by overall performance,
<PAGE>
investment objectives, and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of
return from an investment in the Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
Quotations of total return for the Fund will not take into
account charges and deductions against any separate accounts to
which the Fund shares are sold or charges and deductions against
the life insurance policies or annuity contracts issued by Golden
American Life Insurance Company, although comparable performance
information for the separate account will take such charges into
account. Performance information for the Fund reflects only the
performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based.
Performance information should be considered in light of the
Fund's investment objective and investment policies, the
characteristics and quality of the portfolios, and the market
conditions during the given time period, and should not be
considered as a representation of what may be achieved in the
future.
Advertisements may include discussion of the underlying
mutual funds held by the Fund.
TAXATION
The following discussion summarizes certain U.S. federal tax
considerations incident to an investment in the Fund.
The Fund intends to qualify annually and to elect to be
treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
To qualify as a regulated investment company, the Fund
generally must, among other things: (i) derive in each taxable
year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the
sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business
of investing in such stock, securities, or currencies; (ii)diversify
its holdings so that, at the end of
each quarter of the taxable year, (a) at least 50% of the market
value of the Fund's assets is represented by cash, U.S.
<PAGE>
Government securities, the securities of other regulated
investment companies, and other securities, with such other
securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities
of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other
regulated investment companies); and (iii) distribute at least 90%
of its net investment income (which includes, among other items,
dividends, interest, and net short-term capital gains in excess
of any net long-term capital losses) each taxable year.
As a regulated investment company, the Fund generally will
not be subject to U.S. federal income tax on its net investment
income and net capital gains (net long-term capital gains in
excess of the net short-term capital losses) that it distributes
to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its net
investment income and any net capital gains.
In general, amounts not distributed by a regulated
investment company on a timely basis in accordance with a
calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, a regulated
investment company must distribute during each calendar year, (i)
at least 98% of its ordinary income (not taking into account any
capital gains or losses) of the calendar year, (ii) at least 98%
of its capital gains in excess of its capital losses for the
twelve month period ending on October 31 of the calendar year
(adjusted for certain ordinary losses), and (iii) all ordinary
income and capital gains for previous years that were not
distributed during such years. The Fund will not be subject to
the excise tax on undistributed amounts for any calendar year if
at all times during the calendar year the shareholders of the
Fund consist only of segregated asset accounts of life insurance
companies established in connection with variable contracts, as
defined in the Code. (For this purpose, any shares of the Fund
attributable to an investment in the Fund not exceeding $250,000
made in connection with the organization of the Fund shall not be
taken into account.) In the event the Fund fails to meet this
exception, the Fund intends to make its distributions in
accordance with the calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a
calendar year if it is declared by the Fund in October, November,
or December of that year with a record date in such a month and
paid by the Fund during January of the following calendar year.
Such distributions will be taxable to shareholders (the insurance
company separate accounts) for the calendar year in which the
distributions are declared, rather than the calendar year in
which the distributions are received.
<PAGE>
If the Fund invests in shares of an investment company
organized abroad, the Fund may be subject to U.S. federal income
tax on a portion of an "excess distribution" from, or on the gain
from the sale of part or all of the shares in, such company. In
addition, an interest charge may be imposed with respect to
deferred taxes arising from such distributions or gains.
To comply with regulations under Section 817(h) of the Code,
the Fund generally will be required to diversify its investments
following the first anniversary of the beginning of its
operations. Generally, pursuant to Section 817(h), the Fund will
be required to diversify its investments so that on the last day
of each quarter of a calendar year, no more than 55% of the value
of its assets is represented by any one investment, no more than
70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is
represented by any four investments.
In connection with the issuance of the diversification
regulations, the Treasury Department announced that it would
issue future regulations or rulings addressing the circumstances
in which a variable contract owner's control of the investments
of a separate account may cause the contract owner, rather than
the insurance company, to be treated as the owner of the assets
held by the separate account. If the variable contract owner is
considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be
included currently in the contract owner's gross income. The
insurance company to which the Fund offers its shares (the
"Company") has advised the Trust that it believes that, for
federal income tax purposes, the Fund will be the owner of the
shares of the mutual funds and any income therefrom, and the
separate accounts of the Company will be the owners of the Shares
of the Fund and any income therefrom. Although it is not known
what standards will be incorporated in future regulations or
other pronouncements, the Treasury staff has indicated informally
that it is concerned that there may be too much contract owner
control where a mutual fund (or series) underlying a separate
account invests solely in securities issued by companies in a
specific industry. Similarly, the ability of a contract owner to
select a fund representing a specific economic risk or to direct
(without restriction) the issuer of a variable contract at any
time to invest in the Fund or other investments may also be
proscribed. The belief of the Company with respect to the
ownership by the Fund of the mutual fund shares and the income
therefrom, and by the separate accounts of the Shares of the Fund
and the income therefrom, is based upon published Internal
Revenue Service rulings and the Company's understanding of the
current Internal Revenue Service policy.
<PAGE>
In connection with the issuance of the temporary
diversification regulations in 1986, the Treasury announced that
such regulations did not provide guidance concerning the extent
to which owners may direct their investments to particular
divisions of a separate account without being considered the
owners of the assets of the account. It is possible that
regulations or revenue rulings may be issued in this area at some
time in the future. These future rules and regulations
proscribing investment control may adversely affect the ability
of the Fund to operate as described in the Prospectus. There is,
however, no certainty as to what standards, if any, Treasury will
ultimately adopt. In the event that unfavorable rules or
regulations are adopted, there can be no assurance that the Fund
will be able to operate as currently described in the Prospectus,
or that the Fund will not have to change its investment objective
or objectives, investment policies, or investment restrictions.
While the Fund's investment objective is fundamental and may be
changed only by a vote of a majority of its outstanding shares,
the Trustees have the right to modify the investment policies of
the Fund as necessary to prevent any such prospective rules and
regulations from causing the Variable Contract owners to be
considered the owners of the assets underlying the Separate
Accounts.
Distributions
- - -------------
Distributions of net investment income by the Fund are
taxable to shareholders (the insurance company separate accounts)
as ordinary income. Net capital gains will be treated, to the
extent distributed and designated as capital gains dividends, as
long-term capital gains in the hands of the shareholders.
Other Taxes
- - -----------
Distributions may also be subject to additional state, local
and foreign taxes, depending on each shareholder's particular
situation. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them
of an investment in the Fund.
<PAGE>
OTHER INFORMATION
Capitalization
- - --------------
The Trust is a Massachusetts business trust established
under an Agreement and Declaration of Trust dated August 3, 1988.
The capitalization of the Trust consists of an unlimited number
of shares of beneficial interest with a par value of $0.001 each.
The Trust currently consists of fourteen operational Series, one
of which is discussed in this Statement of Additional
Information. The Board of Trustees may establish additional
Series (with different investment objectives and fundamental
policies) at any time in the future. Establishment and offering
of additional Series will not alter the rights of the Trust's
shareholders, the Separate Accounts. When issued in accordance
with the terms of the Agreement and Declaration of Trust, shares
are fully paid, redeemable, freely transferable, and
non-assessable by the Trust. Shares do not have preemptive
rights or subscription rights. In liquidation of a Series of the
Trust, each shareholder is entitled to receive his or her pro
rata share of the net assets of that portfolio.
Expenses incurred by the Fund in connection with its
organization and the public offering of its shares aggregated
approximately $51,850.03. These costs have been deferred and are
being amortized over a period not exceeding five years from the
Fund's commencement of operations.
On January 31, 1992, the name of the Trust was changed to
The GCG Trust. Prior to that change, the name of the Trust was
The Specialty Managers Trust, and prior to July 17, 1989, the
name of the Trust was Western Capital Specialty Managers Trust.
Voting Rights
- - -------------
Shareholders of the Trust are given certain voting rights.
Each share of each Series will be given one vote, unless a
different allocation of voting rights is required under
applicable law for a mutual fund that is an investment medium for
variable insurance products.
<PAGE>
Massachusetts business law does not require the Trust to
hold annual shareholder meetings, although special meetings may
be called for a specific Series, or for the Trust as a whole, for
purposes of electing or removing Trustees, changing fundamental
policies, or approving a contract for investment advisory
services. It is not anticipated that the Trust will hold
meetings of the shareholders of the Fund unless required by law
or the Agreement and Declaration of Trust. In this regard, the
Trust will be required to hold a meeting to elect Trustees to
fill any existing vacancies on the Board if, at any time, fewer
than a majority of the Trustees have been elected by the
shareholders of the Trust. In addition, the Agreement and
Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding shares or other voting interests of
the Trust may remove a person serving as Trustee either by
declaration in writing or at a meeting called for such purpose.
The Trust's shares do not have cumulative voting rights. The
Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee, if
requested in writing to do so by the holders of not less than 10%
of the outstanding shares of the Trust. The Trust is required to
assist in shareholders' communications.
Custodian
- - ---------
The Custodian for the Trust is Bankers Trust Company, 280
Park Avenue, New York, NY 10017. DSI provides portfolio
accounting services for the Trust pursuant to a Portfolio
Accounting Agreement.
Independent Auditors
- - --------------------
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-5072,
serves as independent auditors for the Trust.
Counsel
- - -------
Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania Avenue, NW,
Washington, D.C. 20004-2440 serves as counsel to the Trust.
<PAGE>
Registration Statement
- - ----------------------
This Statement of Additional Information and the Prospectus
do not contain all the information included in the Trust's
Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to the
securities offered by the Prospectus. Certain portions of the
Registration Statement have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. The
Registration Statement, including the exhibits filed therewith,
may be examined at the offices of the Securities and Exchange
Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the
contents of any contract or other documents referred to are not
necessarily complete, and, in each instance, reference is made to
the copy of such contract or other documents filed as an exhibit
to the Registration Statement, each such statement being
qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements for the Fund dated as of
December 31, 1997, including notes thereto, are incorporated by
reference in this Statement of Additional Information from the
Fund's Annual Report dated as of December 31, 1997.
<PAGE>
APPENDIX A: DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc.'s ("Moody's")
description of its bond ratings:
Aaa - judged to be the best quality; they carry the smallest
degree of investment risk. Aa - judged to be of high quality by
all standards; together with the Aaa group, they comprise what
are generally known as high grade bonds. A - possess many
favorable investment attributes and are to be considered as
"upper medium grade obligations." Baa - considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured; interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Ba - judged to have speculative elements; their
future cannot be considered as well assured. B - generally lack
characteristics of the desirable investment. Caa - are of poor
standing; such issues may be in default or there may be present
elements of danger with respect to principal or interest. Ca -
speculative in a high degree; often in default. C - lowest rate
class of bonds; regarded as having extremely poor prospects.
Moody's also applies numerical indicators 1, 2, and 3 to
rating categories. The modifier 1 indicates that the security is
in the higher end of its rating category; 2 indicates a mid-range
ranking; and 3 indicates a ranking toward the lower end of the
category.
Excerpts from the Standard & Poor's Rating Group ("S&P")
description of its bond ratings:
AAA - highest grade obligations; capacity to pay interest
and repay principal is extremely strong. AA - also qualify as
high grade obligations; a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small
degree. A - regarded as upper medium grade; they have a strong
capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated
categories. BBB - regarded as having an adequate capacity to pay
interest and repay principal; whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity than in higher rated categories - this group is the
lowest which qualifies for commercial bank investment. BB, B,
CCC, CC - predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with terms of the
obligation: BB indicates the lowest degree of speculation and C
the highest.
S&P applies indicators "+", no character, and "-" to its rating
categories. The indicators show relative standing within the
major rating categories.
<PAGE>
APPENDIX B: SECURITIES AND INVESTMENT TECHNIQUES
OF UNDERLYING MUTUAL FUNDS
FOREIGN CURRENCY TRANSACTIONS. An underlying fund may enter
into forward contracts in connection with its portfolio
transactions in securities traded in a foreign currency. Under
such an arrangement, concurrently with the entry into a contract
to acquire a foreign security for a specified amount of currency,
the fund would purchase with U.S. dollars the required amount of
foreign currency for delivery at the settlement date of the
purchase; the fund would enter into similar forward currency
transactions in connection with the sale of foreign securities.
The effect of such transactions would be to fix a U.S. dollar
price for the security to protect against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period
between the date the security is purchased or sold and the date
on which payment is made or received, the normal range of which
is three to fourteen days. These contracts are traded in the
interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement and no commissions
are charged at any stage for trades.
Under the Internal Revenue Code (the "Code"), gains or
losses attributable to fluctuations in exchange rates which occur
between the time an underlying fund accrues interest or other
receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time it actually collects such
receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts and
options, gains or losses attributable to fluctuations in the
value of foreign currency between the date of acquisition of the
security or contract and the date of disposition also are treated
as ordinary gain or loss. These gains or losses, referred to
under the Code as "section 988" gains or losses, may increase or
decrease the amount of an underlying fund's investment company
taxable income to be distributed to the Fund as ordinary income.
This, in turn, will affect the amount of investment company
taxable income of the Fund. See "Dividends, Distributions, and
Taxes" in the Fund's Prospectus.
MASTER DEMAND NOTES. Although the Fund itself will not do
so, underlying funds (particularly money market mutual funds) may
invest up to 100% of their assets in master demand notes. Master
demand notes are unsecured obligations of U.S. corporations
redeemable upon notice that permit investment by a fund of
fluctuating amounts at varying rates of interest pursuant to
direct arrangements between the fund and the issuing corporation.
Because they are direct arrangements between the fund and the
issuing corporation, there is no secondary market for the notes.
However, they are redeemable at face value, plus accrued
interest, at any time.
<PAGE>
SHORT SALES. An underlying fund may sell securities short.
In a short sale, the fund sells stock which it does not own,
making delivery with securities "borrowed" from a broker. The
fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement.
This price may or may not be less than the price at which the
security was sold by the fund. Until the security is replaced,
the fund is required to pay to the lender any dividends or
interest which accrue during the period of the loan. In order to
borrow the security, the fund also may have to pay a premium
which would increase the cost of the security sold. The proceeds
of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position
is closed out.
The underlying fund also must deposit in a segregated
account an amount of cash or U.S. Government securities equal to
the difference between (a) the market value of the securities
sold short at the time they were sold short and (b) the value of
the collateral deposited with the broker in connection with the
short sale (not including the proceeds from the short sale).
While the short position is open, the fund must maintain daily
the segregated account at such a level that (1) the amount
deposited in it plus the amount deposited with the broker as
collateral equals the current market value of the securities sold
short and (2) the amount deposited in it plus the amount
deposited with the broker as collateral is not less than the
market value of the securities at the time they were sold short.
Depending upon market conditions, up to 80% of the value of a
fund's net assets may be deposited as collateral for the
obligation to replace securities borrowed to effect short sales
and allocated to a segregated account in connection with short
sales.
A short sale is "against the box" if at all times when the
short position is open the fund owns at least an equal amount of
the securities or securities convertible into, or exchangeable
without further consideration for, securities of the same issue
as the securities sold short. Such a transaction serves to defer
a gain or loss for federal income tax purposes.
OPTIONS ACTIVITIES. An underlying fund may write (i.e.,
sell) listed call options ("calls") if the calls are "covered"
throughout the life of the option. A call is "covered" if the
fund owns the optioned securities. When a fund writes a call, it
receives a premium and gives the purchaser the right to buy the
underlying security at any time during the call period (usually
not more than nine months in the case of common stock) at a fixed
exercise price regardless of market price changes during the call
period. If the call is exercised, the fund will forgo any gain
from an increase in the market price of the underlying security
over the exercise price.
<PAGE>
An underlying fund may purchase a call on securities only to
effect a "closing purchase transaction," which is the purchase of
a call covering the same underlying security and having the same
exercise price and expiration date as a call previously written
by the fund on which it wishes to terminate its obligation. If
the fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call
previously written by the fund expires (or until the call is
exercised and the fund delivers the underlying security).
An underlying fund also may write and purchase put options
("puts"). When a fund writes a put, it receives a premium and
gives the purchaser of the put the right to sell the underlying
security to the fund at the exercise price at any time during the
option period. When an underlying fund writes a put, it must
"cover" the put by either maintaining cash or fixed income
securities with a value equal to the exercise price in a
segregated account with its custodian or by holding a put on the
same security and in the same principal amount as the put written
when the exercise price of the put held is equal to or greater
than the exercise price of the put written. When a fund
purchases a put, it pays a premium in return for the right to
sell the underlying security at the exercise price at any time
during the option period. An underlying fund also may purchase
stock index puts, which differ from puts on individual securities
in that they are settled in cash based on the values of the
securities in the underlying index rather than by delivery of the
underlying securities. Purchase of a stock index put is designed
to protect against a decline in the value of the portfolio
generally rather than an individual security in the portfolio.
If any put is not exercised or sold, it will become worthless on
its expiration date.
An underlying fund's option positions may be closed out only
on an exchange which provides a secondary market for options of
the same series, but there can be no assurance that a liquid
secondary market will exist at a given time for any particular
option. In this regard, trading in options on certain securities
(such as U.S. Government securities) is relatively new so that it
is impossible to predict to what extent liquid markets will
develop or continue.
The underlying fund's custodian, or a securities depository
acting for it, generally acts as escrow agent as to the
securities on which the fund has written puts or calls, or as to
other securities acceptable for such escrow so that no margin
deposit is required of the fund. Until the underlying securities
are released from escrow, they cannot be sold by the fund.
<PAGE>
In the event of a shortage of the underlying securities
deliverable on exercise of an option, the Options Clearing
Corporation has the authority to permit other, generally
comparable securities, to be delivered in fulfillment of option
exercise obligations. If the Options Clearing Corporation
exercises its discretionary authority to allow such other
securities to be delivered, it may also adjust the exercise
prices of the affected options by setting different prices at
which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options
Clearing Corporation may impose special exercise settlement
procedures.
FUTURES CONTRACTS. An underlying fund may enter into
futures contracts for the purchase or sale of debt securities and
stock indexes. A futures contract is an agreement between two
parties to buy and sell a security or an index for a set price on
a future date. Futures contracts are traded on designated
"contract markets" which, through their clearing corporations,
guarantee performance of the contracts.
Generally, if market interest rates increase, the value of
outstanding debt securities declines (and vice versa). Entering
into a futures contract for the sale of securities has an effect
similar to the actual sale of securities, although sale of the
futures contract might be accomplished more easily and quickly.
For example, if an underlying fund holds long-term U.S.
Government securities and it anticipates a rise in long-term
interest rates, it could, in lieu of disposing of its portfolio
securities, enter into futures contracts for the sale of similar
long-term securities. If rates increased and the value of the
fund's portfolio securities declined, the value of the fund's
futures contracts would increase, thereby protecting the fund by
preventing the net asset value from declining as much as it
otherwise would have. Similarly, entering into futures contracts
for the purchase of securities has an effect similar to the
actual purchase of the underlying securities, but permits the
continued holding of securities other than the underlying
securities. For example, if the fund expects long-term interest
rates to decline, it might enter into futures contracts for the
purchase of long-term securities so that it could gain rapid
market exposure that may offset anticipated increases in the cost
of securities it intends to purchase while continuing to hold
higher-yield short-term securities or waiting for the long-term
market to stabilize.
<PAGE>
A stock index futures contract may be used to hedge an
underlying fund's portfolio with regard to market risk as
distinguished from risk relating to a specific security. A stock
index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting
from changes in the market value of the contract to be credited
or debited at the close of each trading day to the respective
accounts of the parties to the contract. On the contract's
expiration date, a final cash settlement occurs. Changes in the
market value of a particular stock index futures contract reflect
changes in the specified index of equity securities on which the
future is based.
There are several risks in connection with the use of
futures contracts. In the event of an imperfect correlation
between the futures contract and the portfolio position which is
intended to be protected, the desired protection may not be
obtained and the fund may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements
may result in a poorer overall performance for the fund than if
it had not entered into futures contracts on debt securities or
stock indexes. Also, the successful use of futures depends upon
the underlying fund investment advisor's ability to predict
correctly movements in the direction of the market.
In addition, the market prices of futures contracts may be
affected by certain factors. First, all participants in the
futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the securities and futures markets. Second,
from the point of view of speculators, the deposit requirements
in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price
distortions, although speculators generally serve an important
function by bringing liquidity to the futures markets. When
purchasing a futures contract, a fund must deposit in a
segregated account cash or high quality debt instruments equal in
value to the current value of the underlying instruments less the
margin deposit.
Finally, positions in futures contracts may be closed out
only on an exchange or board of trade which provides a secondary
market for such futures. There is no assurance that a liquid
secondary market on an exchange or board of trade will exist for
any particular contract or at any particular time.
<PAGE>
OPTIONS ON FUTURES CONTRACTS. An underlying fund also may
purchase and sell listed put and call options on futures
contracts. An option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a position
in a futures contract (a long position if the option is a call
and a short position if the option is a put), at a specified
exercise price at any time during the option period. When an
option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the
difference between the current market price of the futures
contract and the exercise price of the option. The fund may
purchase put options on futures contracts in lieu of, and for the
same purpose as, a sale of a futures contract. It also may
purchase such put options in order to hedge a long position in
the underlying futures contract in the same manner as it
purchases "protective puts" on securities.
<PAGE>
****************
PART C
****************
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
(1) Part A for The GCG Trust (Multiple Allocation Series, Fully
Managed Series, Limited Maturity Bond Series, Hard Assets
Series, Real Estate Series, All-Growth Series, Capital
Appreciation Series, Rising Dividends Series, Emerging Markets
Series, Value Equity Series, Strategic Equity Series, Small
Cap Series, Managed Global Series, and Liquid Asset Series):
Financial Highlights
(Not applicable for the Mid-Cap Growth Series, 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 December 31, 1997)
Part A for Market Manager Series:
Financial Highlights
Part B for The GCG Trust (Multiple Allocation Series, Fully
Managed Series, Limited Maturity Bond Series, Hard
Assets Series, Real Estate Series, All-Growth Series,
Capital Appreciation Series, Rising Dividends Series, Emerging
Markets Series, Value Equity Series, Strategic Equity Series,
Small Cap Series, Managed Global Series, Liquid Asset Series,
and Market Manager Series):
The audited financial statements(for all series except
the Mid-Cap Growth Series, 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, 1997.(2)
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Portfolio of Investments
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
(2) Part A for The Fund For Life Series of The GCG Trust:
Financial Highlights
Part B for The Fund For Life Series of The GCG Trust: The
audited financial statements dated as of December 31, 1997 are
incorporated by reference from The Fund For Life's Annual
Report dated as of December 31, 1997.
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Portfolio of Investments
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
(b) Exhibits (the number of each exhibit relates to the exhibit
designation in Form N-1A):
(1) (a) Amended and Restated Agreement and Declaration of
Trust (1)
(b) Amendment to the Restated Agreement and Declaration of
Trust (adding the Managed Global Series) (3)
(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)(16)
(ii) Form of Management Agreement (for The Fund For Life)(5)
(b) Portfolio Management Agreements
(i) Portfolio Management Agreement with Pilgrim
Baxter & Associates, Ltd. (16)
(ii) Portfolio Management Agreement with Chancellor
LGT Asset Management, Inc. (16)
(iii) Portfolio Management Agreement with Putnam
Investment Management, Inc. (16)
(iv) Portfolio Management Agreement with T. Rowe
Price Associates, Inc. (16)
(v) Portfolio Management Agreement with Van Eck
Associates Corporation (16)
(vi) Portfolio Management Agreement with Equitable
Investment Services, Inc. (16)
(vii) Portfolio Management Agreement with Zweig
Advisors Inc. (16)
(viii) Portfolio Management Agreement with EII
Realty Securities, Inc. (16)
(ix) Portfolio Management Agreement with Kayne
Anderson Investment Management, LLC. (16)
(x) Portfolio Management Agreement with Fred Alger
Management, Inc. (16)
(xi) Portfolio Management Agreement with Eagle
Asset Management, Inc. (16)
(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)
(xiii) Form of Portfolio Management Agreement with
Baring International Investment Limited
- 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 (16)
(b) (i) Form of Organizational Agreement for Golden American Life
Insurance Company (11)
(ii) Assignment Agreement for Organizational Agreement (16)
(iii) Form of Organizational Agreement for The Mutual
Benefit Life Insurance Company (16)
(iv) Assignment Agreement for Organizational Agreement (16)
(v) Form of Addendum to Organizational Agreement (adding
Market Manager Series and Value Equity Series) (16)
(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 (16)
(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 (16)
(e) (i) Form of Expense Reimbursement Agreement (16)
(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.
(16) Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A of The GCG Trust as filed on
November 26, 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. All
directors of DSI are employees of either EIC or one of its affiliates and each
serves as directors of some or all 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 Locust Street, Des Moines, Iowa
50306.
<TABLE>
<S> <C> <C>
Name Position With Adviser Other Affiliations
Beth B. Neppl Director Vice President of Human Resources of
EIC subsidiaries.
Myles R. Tashman Director, Executive Vice Director, Executive Vice President, General
President, Secretary and Counsel, and Secretary of Golden American
General Counsel Life Insurance Company, Inc., and First
Golden American Insurance Company of New
York.
R. Lawrence Roth Director President of VESTAX Capital Corporation
James R. McInnis President Executive Vice President of Golden
American Life Insurance Company and
First Golden American Life Insurance
Company of New York.
Barnett Chernow Executive Vice President Executive Vice President of Golden American
Life Insurance Company and First Golden
American Life Insurance Company of New York;
Vice President of Equitable Life Insurance
Company of Iowa and USG Annuity & Life
Company.
Susan K. Wheat Treasurer Treasurer of Locust Street Securities, Inc.
</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.
EII Realty Securities, Inc.
For information regarding EII Realty Securities, Inc., reference is made to
Form ADV of EII 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.
ING Investment Management, LLC
For information regarding ING Investment Management, LLC, reference is made
to Form ADV of ING Investment Management, LLC, SEC File No.801-15160, which
is incorporated by reference.
Baring International Investment Limited
For information regarding Baring International Investment Limited, reference is
made to Form ADV of Baring International Investment Limited, SEC File No.
801-15160, 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.
801-15160, 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.
(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. 38 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 April 29, 1998.
THE GCG TRUST
(Registrant)
/s/ Myles R. Tashman
--------------------------
Myles R. Tashman
Secretary
*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. 38 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 April 29, 1998.
Signature Title
Trustee
- ----------------------
J. Michael Earley*
Trustee
- ----------------------
R. Barbara Gitenstein*
Trustee
- ----------------------
Robert A. Grayson*
Trustee
- ----------------------
Elizabeth J. Newell
Trustee
- ----------------------
Stanley B. Seidler*
Trustee
- ----------------------
Roger B. Vincent*
Treasurer
- ----------------------
Mary Bea Wilkinson*
*By: /s/ Marilyn Talman
-----------------------
Marilyn Talman
as Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Number Exhibit Name Exhibit
5(b)(xiii) Form of Portfolio Management Agreement with
Baring International Investment Limited EX99.B5BXIII
10 Consent of Sutherland, Asbill & Brennan LLP EX99.B10
11 Consent of Ernst & Young LLP EX99.B11
17 Financial Data Schedules
19 Powers of Attorney EX99.B19
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this ____ day of _________, 1998, among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc. (the
"Manager"), a New York corporation, and Baring International Investment
Limited ("Portfolio Manager"), a limited liability company organized under
the laws of the United Kingdom.
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 Baring
International Investment Limited 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.
<PAGE>
2. Portfolio Management Duties and Duties and Authority. Subject
to the supervision of the Trust's Board of Trustees and the Manager, the
Portfolio Manager will provide a continuous investment program for each
Series' portfolio and determine the composition of the assets of each Series'
portfolio, including determination of the purchase, retention, or sale of the
securities, cash, and other investments contained in the portfolio. The
Portfolio Manager will provide investment research and conduct a continuous
program of evaluation, investment, sales, and reinvestment of each Series'
assets by determining the securities and other investments that shall be
purchased, entered into, sold, closed, or exchanged for the Series, when these
transactions should be executed, and what portion of the assets of each Serie
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. In accordance with the forgoing
duties, the Portfolio Manager is hereby authorized to act as agent for the
portfolio to order deposits and the investment of cash and purchases and sales
of securities for the Series account and risk and on the name of the Trust.
This authorization shall be continuing one and shall remain in full force and
effect until this Agreement is terminated in accordance with the provisions of
Section 15 hereof. 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 and shall have the authority
to act in such capacity as the Portfolio Manager deems necessary or desirable
in order to carry out its duties hereunder for the protection of the Series so
long as not expressly prohibited by the terms of this Agreement, the 1940 Act
or other securities laws or regulations. 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 (the "Registration Statement"), 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.
-2-
<PAGE>
The Manager ill 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 (the "Board") 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, (provided that the Manager on behalf of the
Board has delivered copies of any such supplement or amendments to the
Portfolio Manager).
(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 recordkeeping responsibilities with
respect to the Series. With respect to portfolio securities to be purchased
or sold through the Depository Trust Company, the Portfolio Manager will
arrange for the automatic transmission of the confirmation of such trades
to the Trust's custodian and portfolio accounting agent.
(e) The Portfolio Manager will assist the portfolio accounting
agent for the Trust in determining or confirming, consistent with the
procedures and policies stated in the
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Registration Statement, 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 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:
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(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappro-priation 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.
(i) In using spot and forward foreign exchange contracts for the
Series as an investment the parties represent the following:
(i) That the Manager is properly and lawfully established with full
power and authority to enter into spot and forward foreign exchange
contracts, to perform its obligations under such foreign exchange
contracts and to procure the Portfolio Manager to enter to enter into
such foreign exchange contracts on its behalf.
(ii) That the Manager may not, except for purposes of redemptions,
expenses, and other costs of doing business, encumber funds which the
Portfolio Manager has under Portfolio Manager's management or which
benefit from Portfolio Manager's investment advice. If the Manager
requires funds for any redemptions, expenses, and other costs of doing
business, the Portfolio Manager will make funds available in a timely
manner for Manager to meet its obligations. The Manager reserves the
right to segregate assets upon notice to the Portfolio Manager and
provide different arrangements for investment management with respect
to those assets.
(iii) That the Portfolio Manager has been granted full power and
authority to enter into foreign exchange contracts as agent on the
Manager's behalf and to give instructions for settlement for the same.
(iv) That the Portfolio Manager has full authority to instruct Manager's
custodian in conformity with its mandate.
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(v) That in the event of the termination of this Agreement, the
Portfolio Manager may offer its counterparty the ability to leave open
any existing foreign exchange contracts or to close them out at
prevailing market rates.
3. Broker-Dealer Selection. The Portfolio Manager is hereby
authorized to place orders for the purchase and sale of securities and other
investments for each Series' portfolio, with or through such persons, brokers or
dealers and to negotiate commissions to be paid on such transactions and to
supervise the execution thereof. The Portfolio Manager's primary consideration
in effecting any such transaction will be to obtain the best execution for the
Series, taking into account the factors specified in the Registration Statement,
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 may effect a transaction on behalf
of the Series with a broker-dealer who provides brokerage and research services
to the Portfolio Manager notwithstanding the fact that the commissions payable
with respect to any such transaction may be greater than the amount of any
commission another broker-dealer might have charged for effecting that
transaction, if the Portfolio Manager 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 any of 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.
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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 concerning the Portfolio Manager, to the Portfolio Manager's
knowledge, such Registration Statement contains, as of the date hereof, no
untrue statement of any material fact and does not omit any statement of a
material fact which was required to be stated therein or necessary to make
the statements contained therein not misleading. The Portfolio Manager further
represents and warrants that it is a duly registered investment adviser under
the Advisers Act, or alternatively that it is not required to be a registered
investment adviser under the Advisers Act to perform the duties described in
this Agreement, and that it is a duly registered investment adviser in all
states in which the Portfolio Manager is required to be registered.
5. Expenses. During the term of this Agreement, the Portfolio
Manager will pay all expenses incurred by it and its staff and for their
activities in connection with its portfolio management duties under this
Agreement. The Manager or the Trust shall be responsible for all the expenses
of the Trust's operations including, but not limited to:
(a) Expenses of all audits by the Trust's independent public
accountants;
(b) Expenses of the Series' transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Series' custodial services including
recordkeeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of
each Series' net assets;
(e) Expenses of obtaining Portfolio Activity Reports and Analyses
of International Management Reports (as appropriate) for each Series;
(f) Expenses of maintaining the Trust's tax records;
(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;
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(i) Brokerage fees and commissions transfer fees, registration fees,
taxes and similar liabilities and costs properly payable or incurred 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 13
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 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.
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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 of 1986, as amended (the "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 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 as then in effect, and is required to be stated therein or necessary
to make the statements therein not misleading, or of any statement contained
therein that becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the Portfolio
Manager (1) in the event that the SEC has censured the Manager or the Trust;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Manager's registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the 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 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 such rules.
10. Cooperation. Each party to this Agreement agrees to cooperate
with each other party and with all appropriate governmental authorities having
the requisite jurisdiction
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(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, Baring Asset Management, Inc. or any of its affiliates (other than the
Manager), or that use any derivative of the name Baring Asset Management 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, 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. 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.
13. 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
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of Section 15 of the 1933 Act, controls the Portfolio Manager shall not be
liable for any error of judgment, mistake of law any diminution in value of the
investment portfolio of the Series, 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 by Portfolio
Manager of its duties, or by reason of reckless disregard by Portfolio Manager
of its obligations and duties under this Agreement.
14. Indemnification.
(a) Notwithstanding Section 13 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 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 violations of willful misconduct, malfeasance, bad
faith or gross negligence 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 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 13 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
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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 Code, under any other statute, at common law or otherwise, arising out
of the Portfolio Manager's responsibili-ties as Portfolio Manager of the Series
which (1) may be based upon any violations of willful misconduct, malfeasance,
bad faith or gross negligence by the Manager, any of its employees or
representatives, or any affiliate of or any person acting on behalf of the
Manager, (2) may be based upon a failure to comply with Section 2, Paragraph
(a) of this Agreement, or (3) any breach of any representations or warranties
contained in Section 3; 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 14 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 14. 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
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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 14 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 14. 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 14 to indemnify and
hold harmless the Portfolio Manager and the Portfolio Manager shall not be
liable under this Section 14 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.
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15. Duration and Termination. This Agreement shall become effective
on the date first indicated above. Unless terminated as provided herein, the
Agreement shall remain in full force and effect for two (2) years from such date
and continue on an annual basis thereafter with respect to each Series;
provided that such annual continuance is specifically approved each year by
(a) the vote of a majority of the entire Board of Trustees of the Trust, or by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of each Series, and (b) the vote of a majority of those Trustees who
are not parties to this Agreement or interested persons (as such term is defined
in the 1940 Act) of any such party to this Agreement cast in person at a meeting
called for the purpose of voting on such approval. The Portfolio Manager shall
not provide any services for such Series or receive any fees on account of such
Series with respect to which this Agreement is not approved as described in the
preceding sentence. However, any approval of this Agreement by the holders of
a majority of the outstanding shares (as defined in the 1940 Act) of a Series
shall be effective to continue this Agreement with respect to such Series
notwithstanding (i) that this Agreement has not been approved by the holders of
a majority of the outstanding shares of any other Series or (ii) that this
agreement has not been approved by the vote of a majority of the outstanding
shares of the Trust, unless such approval shall be required by any other
applicable law or otherwise. Notwithstanding the foregoing, this Agreement may
be terminated for each or any Series hereunder: (a) by the Manager at any time
without penalty, upon sixty (60) days' written notice to the Portfolio Manager
and the Trust, (b) at any time without payment of any penalty by the Trust, upon
the vote of a majority of the Trust's Board of Trustees or a majority of the
outstanding voting securities of each Series, upon sixty (60) day's written
notice to the Manager and the Portfolio Manager, or (c) by the Portfolio
Manager at any time without penalty, upon sixty (60) days written notice to the
Manager and the Trust. In addition, this Agreement shall terminate with respect
to a Series in the event that it is not initially 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, 13, 14, and 17 of this Agreement shall remain in effect, as
well as any applicable provision of this Paragraph numbered 15.
16. 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
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of this Agreement shall be effective until approved by an affirmative vote of
(i) 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, and (ii) the
holders of a majority of the outstanding voting securities of the Series, cast
in person at a meeting called for the purpose of voting on such approval, if
such approval is required by applicable law.
17. 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 as soon as is reasonably possible cease to use such name
(or derivative or logo).
(b) It is understood that the name "Baring International Investment
Limited" 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 as soon as is reasonably possible
cease to use such name (or derivative or logo).
18. 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.
19. Investment Management Regulatory Organization.
(a) Under the rules of the Investment Management Regulatory
Organization ("IMRO"), clients must be placed in specific categories which are
dictated by different considerations including the nature and financial
description of the client, the experience of the client in certain investments
and other factors. On the basis of the information given by the
-15-
<PAGE>
Manager, it is
categorized as a [Non-Private Customer] in relation to the services to be
provided in accordance with the Agreement.
(b) The Portfolio Manager has written procedures in operation in
accordance with IMRO rules for the effective consideration and proper handling
of client complaints. Any complaint by the Manager should be sent in writing to
the Compliance Officer of the Portfolio Manager. The Manager and the Trust may
make any complaint about the Portfolio Manager to IMRO.
20. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
Delaware, without giving effect to the provisions, policies or principals
thereof relating to choice or contract 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 15 of this Agreement, this
Agreement may only be assigned by any party with the prior written consent of
the other parties.
(d) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable.
(e) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent of the Manager, or constituting the Manager as an agent of
the Portfolio Manager.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
THE GCG TRUST
Attest By:
-------------------------------
Title: Title:
DIRECTED SERVICES, INC.
Attest By:
-------------------------------
Title: Title:
BARING INTERNATIONAL INVESTMENT
LIMITED
Attest By:
-------------------------------
Title: Title:
-16-
<PAGE>
SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the attached
Portfolio Management Agreement, to which Baring International Investment Limited
shall act as Portfolio Manager are as follows:
Global Fixed Income Series
-17-
<PAGE>
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Baring International Investment Limited
("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, computed daily and 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
Global Fixed Income Series 0.45% of first $200 million,
0.30% of next $500 million,
0.25% of next $1 billion,
0.10% in excess of $2 billion
-18-
<PAGE>
[Sutherland, Asbill & Brennan LLP Letterhead]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading
"Legal Counsel" in the prospectuses and under "Counsel" in the statement
of additional information included in Post-Effective Amendment No. 38
to the Registration Statement on Form N-1A for The GCG Trust (File Nos.
33-23512, 811-5629). In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND, ASBILL & BRENNAN LLP
By:/s/ Stephen E. Roth
Stephen E. Roth
Washington, D.C.
April 29, 1998
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 each Prospectus
and "Independent Auditors" in each Statement of Additional Information included
in Post-Effective Amendment No. 38 to the Registration Statement (Form N-1A,
No. 33-23512) of The GCG Trust.
We also consent to the incorporation by reference of our reports dated
February 20, 1998 for The GCG Trust and for the Fund For Life Series of The
GCG Trust on the financial statements included in the 1997 Annual Report for
The GCG Trust and in the 1997 Annual Financial Statements for the Fund For
Life Series of The GCG Trust, respectively.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 24, 1998
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
--------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the duly
elected Treasurer of The GCG Trust (the "Trust") constitutes and appoints Myles
R. Tashman, and Marilyn Talman, and each of them, her true and lawful attorneys-
in-fact and agents with full power of substitution and resubstitution for her in
her name, place and stead, in any and all capacities, to sign on behalf of the
Trust and the Account registration statements and applications for exemptive
relief, and any and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as she
might or could do in person, hereby ratifying and affirming all that said
attorneys-in-fact and agents, or any of them, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Date: April 29, 1996
/s/ Mary Bea Wilkinson
---------------------------
Mary Bea Wilkinson
Treasurer
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> GCG Trust Multiple Allocation Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 231,729,826
<INVESTMENTS-AT-VALUE> 261,623,021
<RECEIVABLES> 2,864,048
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 111,687
<TOTAL-ASSETS> 264,598,756
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 228,811,281
<SHARES-COMMON-STOCK> 20,218,274
<SHARES-COMMON-PRIOR> 21,984,529
<ACCUMULATED-NII-CURRENT> 2,527,112
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,367,115
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,893,245
<NET-ASSETS> 264,598,753
<DIVIDEND-INCOME> 3,447,192
<INTEREST-INCOME> 9,605,243
<OTHER-INCOME> 0
<EXPENSES-NET> 2,659,152
<NET-INVESTMENT-INCOME> 10,393,283
<REALIZED-GAINS-CURRENT> 17,804,014
<APPREC-INCREASE-CURRENT> 14,967,200
<NET-CHANGE-FROM-OPS> 43,164,497
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,225,709)
<DISTRIBUTIONS-OF-GAINS> (17,190,742)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 332,402
<NUMBER-OF-SHARES-REDEEMED> (4,177,968)
<SHARES-REINVESTED> 2,079,311
<NET-CHANGE-IN-ASSETS> (8,192,462)
<ACCUMULATED-NII-PRIOR> 2,359,598
<ACCUMULATED-GAINS-PRIOR> 2,753,783
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,659,152
<AVERAGE-NET-ASSETS> 267,850,409
<PER-SHARE-NAV-BEGIN> 12.41
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> (0.92)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.09
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> GCG Trust Fully Managed Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 145,440,502
<INVESTMENTS-AT-VALUE> 170,068,366
<RECEIVABLES> 858,292
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,544
<TOTAL-ASSETS> 170,929,202
<PAYABLE-FOR-SECURITIES> 877,952
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,564
<TOTAL-LIABILITIES> 942,516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,331,747
<SHARES-COMMON-STOCK> 10,804,338
<SHARES-COMMON-PRIOR> 9,223,011
<ACCUMULATED-NII-CURRENT> 932,261
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,094,955
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,627,723
<NET-ASSETS> 169,986,686
<DIVIDEND-INCOME> 2,304,597
<INTEREST-INCOME> 3,249,515
<OTHER-INCOME> 0
<EXPENSES-NET> 1,502,448
<NET-INVESTMENT-INCOME> 4,051,724
<REALIZED-GAINS-CURRENT> 10,614,478
<APPREC-INCREASE-CURRENT> 7,067,542
<NET-CHANGE-FROM-OPS> 21,733,744
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,129,884)
<DISTRIBUTIONS-OF-GAINS> (9,274,889)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,541,076
<NUMBER-OF-SHARES-REDEEMED> (809,383)
<SHARES-REINVESTED> 849,634
<NET-CHANGE-IN-ASSETS> 33,327,155
<ACCUMULATED-NII-PRIOR> 1,011,198
<ACCUMULATED-GAINS-PRIOR> 1,754,589
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,502,448
<AVERAGE-NET-ASSETS> 151,519,031
<PER-SHARE-NAV-BEGIN> 14.82
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 1.86
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (0.93)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.73
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> GCG Trust Ltd Maturity Bond Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 52,664,423
<INVESTMENTS-AT-VALUE> 53,221,772
<RECEIVABLES> 616,398
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,074
<TOTAL-ASSETS> 53,839,244
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25
<TOTAL-LIABILITIES> 25
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,685,354
<SHARES-COMMON-STOCK> 5,224,315
<SHARES-COMMON-PRIOR> 7,798,760
<ACCUMULATED-NII-CURRENT> 940,370
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (343,854)
<ACCUM-APPREC-OR-DEPREC> 557,349
<NET-ASSETS> 53,839,219
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,763,806
<OTHER-INCOME> 0
<EXPENSES-NET> 461,569
<NET-INVESTMENT-INCOME> 4,302,237
<REALIZED-GAINS-CURRENT> 101,572
<APPREC-INCREASE-CURRENT> 454,094
<NET-CHANGE-FROM-OPS> 4,857,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,257,186)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,145,356
<NUMBER-OF-SHARES-REDEEMED> (4,129,852)
<SHARES-REINVESTED> 410,051
<NET-CHANGE-IN-ASSETS> (27,477,957)
<ACCUMULATED-NII-PRIOR> 882,464
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (432,571)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 461,569
<AVERAGE-NET-ASSETS> 75,283,168
<PER-SHARE-NAV-BEGIN> 10.43
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> (0.81)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> GCG Trust Hard Assets Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 39,870,643
<INVESTMENTS-AT-VALUE> 42,524,976
<RECEIVABLES> 1,564,774
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,222,601
<TOTAL-ASSETS> 48,312,351
<PAYABLE-FOR-SECURITIES> 2,081,520
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,229
<TOTAL-LIABILITIES> 2,083,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,426,645
<SHARES-COMMON-STOCK> 3,072,210
<SHARES-COMMON-PRIOR> 2,458,892
<ACCUMULATED-NII-CURRENT> 34,617
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 121,031
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,646,309
<NET-ASSETS> 46,228,602
<DIVIDEND-INCOME> 645,068
<INTEREST-INCOME> 178,538
<OTHER-INCOME> 0
<EXPENSES-NET> 466,291
<NET-INVESTMENT-INCOME> 357,315
<REALIZED-GAINS-CURRENT> 8,342,402
<APPREC-INCREASE-CURRENT> (5,781,864)
<NET-CHANGE-FROM-OPS> 2,917,853
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (307,920)
<DISTRIBUTIONS-OF-GAINS> (9,313,654)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 868,667
<NUMBER-OF-SHARES-REDEEMED> (878,297)
<SHARES-REINVESTED> 622,948
<NET-CHANGE-IN-ASSETS> 2,325,202
<ACCUMULATED-NII-PRIOR> 12,713
<ACCUMULATED-GAINS-PRIOR> 1,064,792
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 466,291
<AVERAGE-NET-ASSETS> 46,993,840
<PER-SHARE-NAV-BEGIN> 17.85
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 0.99
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (3.80)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.05
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> GCG Trust Real Estate Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 57,805,023
<INVESTMENTS-AT-VALUE> 74,002,049
<RECEIVABLES> 1,783,319
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 61,413
<TOTAL-ASSETS> 75,846,781
<PAYABLE-FOR-SECURITIES> 316,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21
<TOTAL-LIABILITIES> 316,813
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,346,233
<SHARES-COMMON-STOCK> 4,134,084
<SHARES-COMMON-PRIOR> 3,200,267
<ACCUMULATED-NII-CURRENT> 664,535
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,322,175
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,197,025
<NET-ASSETS> 75,529,968
<DIVIDEND-INCOME> 3,236,744
<INTEREST-INCOME> 167,461
<OTHER-INCOME> 0
<EXPENSES-NET> 615,256
<NET-INVESTMENT-INCOME> 2,788,949
<REALIZED-GAINS-CURRENT> 6,334,789
<APPREC-INCREASE-CURRENT> 4,106,606
<NET-CHANGE-FROM-OPS> 13,230,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,424,102)
<DISTRIBUTIONS-OF-GAINS> (2,696,366)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,496,367
<NUMBER-OF-SHARES-REDEEMED> (843,396)
<SHARES-REINVESTED> 280,846
<NET-CHANGE-IN-ASSETS> 24,395,360
<ACCUMULATED-NII-PRIOR> 461,696
<ACCUMULATED-GAINS-PRIOR> 521,744
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 615,256
<AVERAGE-NET-ASSETS> 62,107,385
<PER-SHARE-NAV-BEGIN> 15.98
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 2.93
<PER-SHARE-DIVIDEND> (0.63)
<PER-SHARE-DISTRIBUTIONS> (0.70)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.27
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> GCG Trust All-Growth Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 65,947,148
<INVESTMENTS-AT-VALUE> 75,860,625
<RECEIVABLES> 165,642
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,026,267
<PAYABLE-FOR-SECURITIES> 2,169,731
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55
<TOTAL-LIABILITIES> 2,169,786
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,485,969
<SHARES-COMMON-STOCK> 5,361,887
<SHARES-COMMON-PRIOR> 5,880,233
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,542,965)
<ACCUM-APPREC-OR-DEPREC> 9,913,477
<NET-ASSETS> 73,856,481
<DIVIDEND-INCOME> 152,507
<INTEREST-INCOME> 232,631
<OTHER-INCOME> 0
<EXPENSES-NET> 736,823
<NET-INVESTMENT-INCOME> (351,685)
<REALIZED-GAINS-CURRENT> 6,011,558
<APPREC-INCREASE-CURRENT> (1,412,789)
<NET-CHANGE-FROM-OPS> 4,247,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (167,479)
<DISTRIBUTIONS-OF-GAINS> (1,930,785)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 480,563
<NUMBER-OF-SHARES-REDEEMED> (1,152,164)
<SHARES-REINVESTED> 153,255
<NET-CHANGE-IN-ASSETS> (4,893,464)
<ACCUMULATED-NII-PRIOR> 167,481
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5,623,738)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 736,823
<AVERAGE-NET-ASSETS> 74,202,606
<PER-SHARE-NAV-BEGIN> 13.39
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.77
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> GCG Trust Liquid Asset Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 57,565,917
<INVESTMENTS-AT-VALUE> 57,565,917
<RECEIVABLES> 1,888,727
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 119
<TOTAL-ASSETS> 59,454,763
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,947
<TOTAL-LIABILITIES> 1,947
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,455,251
<SHARES-COMMON-STOCK> 59,455,281
<SHARES-COMMON-PRIOR> 39,097,362
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,435)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 59,452,816
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,699,023
<OTHER-INCOME> 0
<EXPENSES-NET> 292,108
<NET-INVESTMENT-INCOME> 2,406,915
<REALIZED-GAINS-CURRENT> (816)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,406,099
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,406,915)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105,883,519
<NUMBER-OF-SHARES-REDEEMED> (87,932,514)
<SHARES-REINVESTED> 2,406,914
<NET-CHANGE-IN-ASSETS> 20,357,103
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,619)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 292,108
<AVERAGE-NET-ASSETS> 48,228,189
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> GCG Trust Capital Apprec Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 149,615,210
<INVESTMENTS-AT-VALUE> 194,073,126
<RECEIVABLES> 251,114
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 944
<TOTAL-ASSETS> 194,325,184
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 339,576
<TOTAL-LIABILITIES> 339,576
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 137,305,962
<SHARES-COMMON-STOCK> 10,988,655
<SHARES-COMMON-PRIOR> 9,879,660
<ACCUMULATED-NII-CURRENT> 336,095
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,885,635
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,457,916
<NET-ASSETS> 193,985,608
<DIVIDEND-INCOME> 2,701,921
<INTEREST-INCOME> 578,587
<OTHER-INCOME> 0
<EXPENSES-NET> 1,678,069
<NET-INVESTMENT-INCOME> 1,602,439
<REALIZED-GAINS-CURRENT> 25,886,926
<APPREC-INCREASE-CURRENT> 15,156,059
<NET-CHANGE-FROM-OPS> 42,645,424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,586,754)
<DISTRIBUTIONS-OF-GAINS> (16,079,375)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,584,454
<NUMBER-OF-SHARES-REDEEMED> (1,472,937)
<SHARES-REINVESTED> 997,478
<NET-CHANGE-IN-ASSETS> 45,233,110
<ACCUMULATED-NII-PRIOR> 334,278
<ACCUMULATED-GAINS-PRIOR> 2,064,216
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,678,069
<AVERAGE-NET-ASSETS> 169,249,186
<PER-SHARE-NAV-BEGIN> 15.06
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 4.19
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> (1.60)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.65
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> GCG Trust Fund For Life Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 164,932
<INVESTMENTS-AT-VALUE> 198,414
<RECEIVABLES> 281
<ASSETS-OTHER> 12,187
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 210,882
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,957
<TOTAL-LIABILITIES> 8,957
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,718
<SHARES-COMMON-STOCK> 27,840
<SHARES-COMMON-PRIOR> 23,259
<ACCUMULATED-NII-CURRENT> 2,600
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,125
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,482
<NET-ASSETS> 201,925
<DIVIDEND-INCOME> 5,752
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 4,952
<NET-INVESTMENT-INCOME> 800
<REALIZED-GAINS-CURRENT> 18,925
<APPREC-INCREASE-CURRENT> 6,348
<NET-CHANGE-FROM-OPS> 26,073
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,006
<DISTRIBUTIONS-OF-GAINS> 31,438
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (3,291)
<SHARES-REINVESTED> 4,705
<NET-CHANGE-IN-ASSETS> 794
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 32,844
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 594
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28,837
<AVERAGE-NET-ASSETS> 197,226
<PER-SHARE-NAV-BEGIN> 7.61
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 1.09
<PER-SHARE-DIVIDEND> (1.48)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.25
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> GCG Trust Rising Dividends Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 185,980,800
<INVESTMENTS-AT-VALUE> 251,132,097
<RECEIVABLES> 1,056,894
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,809
<TOTAL-ASSETS> 252,190,800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 178,625,765
<SHARES-COMMON-STOCK> 12,585,942
<SHARES-COMMON-PRIOR> 7,983,033
<ACCUMULATED-NII-CURRENT> 363,705
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,050,027
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 65,151,297
<NET-ASSETS> 252,190,794
<DIVIDEND-INCOME> 2,820,718
<INTEREST-INCOME> 742,701
<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,853
<NET-INVESTMENT-INCOME> 1,755,566
<REALIZED-GAINS-CURRENT> 12,060,684
<APPREC-INCREASE-CURRENT> 32,431,516
<NET-CHANGE-FROM-OPS> 46,247,766
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,618,583)
<DISTRIBUTIONS-OF-GAINS> (4,219,889)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,080,986
<NUMBER-OF-SHARES-REDEEMED> (770,378)
<SHARES-REINVESTED> 292,301
<NET-CHANGE-IN-ASSETS> 125,952,153
<ACCUMULATED-NII-PRIOR> 226,722
<ACCUMULATED-GAINS-PRIOR> 209,232
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,807,853
<AVERAGE-NET-ASSETS> 182,677,614
<PER-SHARE-NAV-BEGIN> 15.81
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 4.57
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.35)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.04
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> GCG Trust Emerging Markets Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 40,424,923
<INVESTMENTS-AT-VALUE> 37,716,002
<RECEIVABLES> 934,255
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,168,980
<TOTAL-ASSETS> 39,819,237
<PAYABLE-FOR-SECURITIES> 383,073
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29
<TOTAL-LIABILITIES> 383,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,984,527
<SHARES-COMMON-STOCK> 4,481,305
<SHARES-COMMON-PRIOR> 5,301,626
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (138,391)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (11,316,748)
<ACCUM-APPREC-OR-DEPREC> (3,093,253)
<NET-ASSETS> 39,436,135
<DIVIDEND-INCOME> 642,390
<INTEREST-INCOME> 226,738
<OTHER-INCOME> 0
<EXPENSES-NET> 912,996
<NET-INVESTMENT-INCOME> (43,868)
<REALIZED-GAINS-CURRENT> 893,630
<APPREC-INCREASE-CURRENT> (3,695,246)
<NET-CHANGE-FROM-OPS> (2,845,484)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (48,446)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,702,996
<NUMBER-OF-SHARES-REDEEMED> (2,527,913)
<SHARES-REINVESTED> 4,596
<NET-CHANGE-IN-ASSETS> (12,074,298)
<ACCUMULATED-NII-PRIOR> 48,445
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (12,475,215)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 912,996
<AVERAGE-NET-ASSETS> 50,862,147
<PER-SHARE-NAV-BEGIN> 9.72
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> (0.90)
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.80
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> GCG Trust Market Manager Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3,887,490
<INVESTMENTS-AT-VALUE> 6,790,123
<RECEIVABLES> 4,629
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 174
<TOTAL-ASSETS> 6,794,926
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,876
<TOTAL-LIABILITIES> 3,876
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,882,794
<SHARES-COMMON-STOCK> 412,444
<SHARES-COMMON-PRIOR> 422,420
<ACCUMULATED-NII-CURRENT> 612
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,011
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,902,633
<NET-ASSETS> 6,791,050
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 201,968
<OTHER-INCOME> 0
<EXPENSES-NET> 63,578
<NET-INVESTMENT-INCOME> 138,390
<REALIZED-GAINS-CURRENT> 334,050
<APPREC-INCREASE-CURRENT> 1,357,875
<NET-CHANGE-FROM-OPS> 1,830,315
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (137,990)
<DISTRIBUTIONS-OF-GAINS> (329,039)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (38,453)
<SHARES-REINVESTED> 28,477
<NET-CHANGE-IN-ASSETS> 1,206,190
<ACCUMULATED-NII-PRIOR> 212
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63,578
<AVERAGE-NET-ASSETS> 6,308,787
<PER-SHARE-NAV-BEGIN> 13.22
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 4.11
<PER-SHARE-DIVIDEND> (0.36)
<PER-SHARE-DISTRIBUTIONS> (0.86)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.47
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> GCG Trust Value Equity Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 70,890,868
<INVESTMENTS-AT-VALUE> 79,436,766
<RECEIVABLES> 2,520,417
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9,175
<TOTAL-ASSETS> 81,966,358
<PAYABLE-FOR-SECURITIES> 1,844,746
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 73,546
<TOTAL-LIABILITIES> 1,918,292
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,272,879
<SHARES-COMMON-STOCK> 4,963,513
<SHARES-COMMON-PRIOR> 3,204,698
<ACCUMULATED-NII-CURRENT> 164,963
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,086,053
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,524,171
<NET-ASSETS> 80,048,066
<DIVIDEND-INCOME> 1,214,815
<INTEREST-INCOME> 171,109
<OTHER-INCOME> 0
<EXPENSES-NET> 596,352
<NET-INVESTMENT-INCOME> 789,572
<REALIZED-GAINS-CURRENT> 7,969,130
<APPREC-INCREASE-CURRENT> 4,536,919
<NET-CHANGE-FROM-OPS> 13,295,621
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (777,919)
<DISTRIBUTIONS-OF-GAINS> (6,283,471)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,668,644
<NUMBER-OF-SHARES-REDEEMED> (347,566)
<SHARES-REINVESTED> 437,737
<NET-CHANGE-IN-ASSETS> 35,427,722
<ACCUMULATED-NII-PRIOR> 153,310
<ACCUMULATED-GAINS-PRIOR> 400,394
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 596,352
<AVERAGE-NET-ASSETS> 60,233,076
<PER-SHARE-NAV-BEGIN> 13.92
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 3.63
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> (1.40)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.13
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> GCG Strategic Equity Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 44,527,743
<INVESTMENTS-AT-VALUE> 51,837,263
<RECEIVABLES> 94,068
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,685
<TOTAL-ASSETS> 51,934,016
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 145,491
<TOTAL-LIABILITIES> 145,491
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,722,903
<SHARES-COMMON-STOCK> 3,799,659
<SHARES-COMMON-PRIOR> 2,604,255
<ACCUMULATED-NII-CURRENT> 161,924
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,576,446
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,327,252
<NET-ASSETS> 51,788,525
<DIVIDEND-INCOME> 660,961
<INTEREST-INCOME> 490,784
<OTHER-INCOME> 0
<EXPENSES-NET> 397,408
<NET-INVESTMENT-INCOME> 754,337
<REALIZED-GAINS-CURRENT> 3,043,656
<APPREC-INCREASE-CURRENT> 5,016,645
<NET-CHANGE-FROM-OPS> 8,814,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (678,032)
<DISTRIBUTIONS-OF-GAINS> (1,942,391)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,415,924
<NUMBER-OF-SHARES-REDEEMED> (414,126)
<SHARES-REINVESTED> 193,606
<NET-CHANGE-IN-ASSETS> 21,365,104
<ACCUMULATED-NII-PRIOR> 85,696
<ACCUMULATED-GAINS-PRIOR> 475,104
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 397,408
<AVERAGE-NET-ASSETS> 40,133,727
<PER-SHARE-NAV-BEGIN> 11.68
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 2.49
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.63
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> GCG Small Cap Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 55,741,861
<INVESTMENTS-AT-VALUE> 66,337,866
<RECEIVABLES> 56,557
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 94,108
<TOTAL-ASSETS> 66,488,531
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 92,980
<TOTAL-LIABILITIES> 92,980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,008,577
<SHARES-COMMON-STOCK> 5,012,692
<SHARES-COMMON-PRIOR> 2,862,021
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,209,031)
<ACCUM-APPREC-OR-DEPREC> 10,596,005
<NET-ASSETS> 66,395,551
<DIVIDEND-INCOME> 139,925
<INTEREST-INCOME> 173,892
<OTHER-INCOME> 0
<EXPENSES-NET> 476,094
<NET-INVESTMENT-INCOME> (162,277)
<REALIZED-GAINS-CURRENT> (2,345,204)
<APPREC-INCREASE-CURRENT> 7,983,775
<NET-CHANGE-FROM-OPS> 5,476,294
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,265,056
<NUMBER-OF-SHARES-REDEEMED> (1,114,385)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 32,030,833
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,863,942)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 476,094
<AVERAGE-NET-ASSETS> 48,112,398
<PER-SHARE-NAV-BEGIN> 12.01
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.25
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> GCG Trust Managed Global Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 97,493,000
<INVESTMENTS-AT-VALUE> 103,590,533
<RECEIVABLES> 3,035,235
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 574,647
<TOTAL-ASSETS> 107,200,415
<PAYABLE-FOR-SECURITIES> 1,876,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,740
<TOTAL-LIABILITIES> 1,897,842
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,834,109
<SHARES-COMMON-STOCK> 9,189,817
<SHARES-COMMON-PRIOR> 7,763,118
<ACCUMULATED-NII-CURRENT> 84,471
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,350,466
<NET-ASSETS> 105,302,573
<DIVIDEND-INCOME> 1,223,111
<INTEREST-INCOME> 182,750
<OTHER-INCOME> 0
<EXPENSES-NET> 1,348,692
<NET-INVESTMENT-INCOME> 57,169
<REALIZED-GAINS-CURRENT> 8,487,853
<APPREC-INCREASE-CURRENT> 2,108,616
<NET-CHANGE-FROM-OPS> 10,653,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,044,956)
<DISTRIBUTIONS-OF-GAINS> (6,691,768)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,473,206
<NUMBER-OF-SHARES-REDEEMED> (1,798,765)
<SHARES-REINVESTED> 752,258
<NET-CHANGE-IN-ASSETS> 18,926,172
<ACCUMULATED-NII-PRIOR> 171,198
<ACCUMULATED-GAINS-PRIOR> 138,502
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,348,692
<AVERAGE-NET-ASSETS> 99,314,937
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 1.33
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> (0.78)
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<PER-SHARE-NAV-END> 11.46
<EXPENSE-RATIO> 1.36
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
